EVERGREEN INVESTMENT TRUST, N-30D, 1996-11-01

EVERGREEN INVESTMENT TRUST
N-30D, 1996-11-01

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<PAGE>

EVERGREEN
TAX-FREE FUNDS

(Photo with building with columns) (Evening sunset photo) (City view at dusk)

(Photo inset of lake with high mountains and skyline)

1996 ANNUAL REPORT

(Evergreen tree logo)

<PAGE>
EVERGREEN TAX-FREE FUNDS
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
(photo with building with columns) A Review of the Past Year and Prospects for the Future.................... 1
HIGH GRADE A Report From Your Portfolio Manager...................................... 3
TAX FREE FUND Results to Date........................................................... 4
Statement of Investments.................................................. 5
Statement of Assets and Liabilities....................................... 10
Statement of Operations................................................... 11
Statement of Changes in Net Assets........................................ 12
Financial Highlights...................................................... 13
</TABLE>

<TABLE>
<S> <C> <C>
(Photo of evening sunset) SHORT-INTERMEDIATE A Report From Your Portfolio Manager...................................... 15
MUNICIPAL FUND Results to Date........................................................... 16
Statement of Investments.................................................. 17
Statement of Assets and Liabilities....................................... 20
Statement of Operations................................................... 21
Statement of Changes in Net Assets........................................ 22
Financial Highlights...................................................... 23
</TABLE>

<TABLE>
<S> <C> <C>
(City view at dusk) SHORT-INTERMEDIATE A Report From Your Portfolio Manager...................................... 25
MUNICIPAL Results to Date........................................................... 26
FUND-CALIFORNIA Statement of Investments.................................................. 27
Statement of Assets and Liabilities....................................... 29
Statement of Operations................................................... 30
Statement of Changes in Net Assets........................................ 31
Financial Highlights...................................................... 32
</TABLE>

<TABLE>
<S> <C> <C>
Combined Notes to Financial Statements.................................... 33
Independent Auditors' Report -- KPMG Peat Marwick LLP..................... 39
Report of Independent Accountants -- Price Waterhouse LLP................. 40
</TABLE>

<TABLE>
<S> <C> <C>
Trustees and Officers...................................... Inside Back Cover
</TABLE>
EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp.
Copyright 1995, Evergreen Asset Management Corp.

<PAGE>
EVERGREEN TAX-FREE FUNDS
A REVIEW OF THE PAST YEAR
AND PROSPECTS FOR THE FUTURE
BY STEPHEN A. LIEBER
The continued expansion of the United States (Photo of Stephen A. Lieber)
economy and the persistence of inflation at 3% or
less, has evidently sent mixed signals to the
investment markets. The
equity market this year has gone from new high to new high. The willingness of
American savers to put money into the hands of equity mutual funds to buy stocks
in the United States and abroad is unprecedented. Even foreign investors, who
have long been skeptical of the rising prices of U.S. equities and the recent
relatively higher valuations than in many other industrial countries, have begun
to move heavily into U.S. equities. Only the bond market has suffered negative
trends this year. But, it showed no further losses when measured from the end of
the second calendar quarter to the end of the third.
In contrast, it yielded modest gains early in the third quarter. Evidence of
slowed final demand in many sectors of the economy has begun to reduce the fears
of many investors over inflationary pressures. While confidence increases that
both producer and consumer price indexes will remain in a narrow range, around
3%, apprehensions of possibly renewed inflation are now focused on the trend of
hourly wages. Hourly wages have moved up slightly in the last two months.
The apparent consensus among business economists currently is to expect a 2%
growth rate for the U.S. economy in the second half of 1996, with a similar
level to continue into 1997. These views are, in part, based on historical
trends, in which the late cycle characteristics of the U.S. economy typically
show economic deceleration. Such a deceleration is not widely feared, in view of
the fact that real income growth is likely to be sustained by a 2% to 2 1/2%
employment growth, plus a 3% to 3 1/2% earnings growth, before a 3% inflation.
The appearance of such decelerating trends and their continuation would likely
bring bond yields down, as the inflation premium would be removed from bond
market expectations. Many who dissent from the consensus view that the economy
will slow, argue that the European economies and Japan's economy are likely to
revive in 1997, which will create more export demand for U.S. products and,
therefore, increase our growth rate. More pessimistic observers of the American
economy believe that the American consumer has overspent, as evidenced by the
rising rate of credit card delinquencies, and by the "wealth effect" of a stock
market achieving record highs.
For the bond market, we expect that fairly stable, rather than rising,
inflation, and a somewhat declining overall business rate of growth, together
with a narrow range currency market, should enable a gradual decline in interest
rates.
Tax-exempt fixed income investment in 1996 has had comparatively better
returns than taxable bond investment. Much of this difference is due to the fact
that the flat tax, or sharply
1

<PAGE>
EVERGREEN TAX-FREE FUNDS
A REVIEW OF THE PAST YEAR AND
PROSPECTS FOR THE FUTURE -- (CONTINUED)
reduced income tax, advocacies of presidential candidates earlier in the year,
were eliminated as concerns for tax-exempt investors. Therefore, tax-exempt
bonds have risen to a normal level of relationship to taxable bonds. Further
improving valuations has been the lack of major concerns over credit quality
issues. Orange County California's default has fallen into memory and its credit
is in the process of restoration. Other credit problems regarding certain public
power facilities and the rental of municipal buildings have also been overcome.
Correspondingly, the supply of new tax-exempt issues declined, especially as
interest rate increases cut down the number of new issues replacing refunded
bonds. The credit quality overall has been enhanced by further record gains for
the use of bond insurance, while the insurers themselves have had their credit
quality improved by record accumulations of earnings. In summary, the tax-exempt
securities market toward the end of 1996 appears to be in a healthy condition.
2

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
(Photo of building with columns)
A REPORT FROM YOUR
PORTFOLIO MANAGER
JAMES T. COLBY, III
In our semiannual report in February, we pointed out the
possibility of a sea change for certain indicators signaling
stronger economic growth. Since that time, the market has indeed
been shaped by several strong reports pointing to a very healthy
economic landscape in which expectations are improving for
housing, retail sales and employment. Unemployment, in fact,
reached a seven-year low at 5.1% and the reports of wage gains
portend, at least, healthier consumer demand if not a higher
inflation rate. (Photo of James T. Colby, III)
The market reaction to these developments took a predictable
course, as long-term government bond yields rose from 6.36% in
March to 7.15% in August, bringing a drop in price of ten
points. This move was reflective of both the confusion and the
concern among traders and investors over the reemergence of inflation. They
feared that the Federal Reserve might raise short-term rates. Reduced employment
growth and steady Consumer Price Index reports released in early fall evidently
allowed the Fed to stay the course. But, a cautious policy prevails in the
investment markets. Short-term rate increases are still expected by many Wall
Street participants, although fewer than during the summer.
As we predicted in February, the municipal marketplace, due to its excellent
technical position, outperformed treasuries by a fair margin, not suffering as
severe upturns or downturns which characterized the treasury market during this
period. Still, yields for long-term municipals rose from 5.50% to 5.90%, a price
drop of about six points.
Our decision to remain in a neutral position relative to our maturities and
duration of six months ago, reflected our concern for the dichotomy of opinions
which existed concerning the growth of wages and employment. As is evident from
the market's reaction, there was nothing to gain from assuming additional market
risk. Until a clearer pattern emerges relative to future economic gains, we
shall continue to maintain this neutral stance versus our benchmarks.
Going forward, and from the perspective of how we felt about the market one
year ago, the municipal marketplace should remain in a good technical position
for the balance of this calendar year. Whereas last year, when we felt that
municipals were significantly undervalued and we increased our durations,
tax-exempt bonds currently are fully valued relative to Treasury Bonds and may
cheapen if insurance and casualty companies who represent the demand side of the
market commit less cash in coming months. We will continue our effort to base
this Fund's portfolio on high quality investments with excellent after-tax
returns.
At fiscal year-end on August 31, 1996, 91% of the Fund's net assets were
invested in bonds rated triple A by either Moody's or S&P. The Fund's weighted
average maturity was 14.3 years and its duration 8.6 years. The table below
illustrates the Fund's yields as of August 31. (For additional performance
information, please see page 4.)

<TABLE>
<CAPTION>
CLASS Y SHARES CLASS A SHARES CLASS B SHARES
<S> <C> <C> <C>
30-Day SEC Yield 5.11% 4.62% 4.09%
Tax-Equivalent Yield 7.98% 7.22% 6.39%
</TABLE>

We look forward to reporting to you the key issues impacting the economy and
the tax exempt market when we reach our semiannual reporting period next
February.
Thank you for choosing Evergreen High Grade Tax-Free Fund as your investment
vehicle of choice.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS
*BONDS ARE INSURED AS TO PAYMENT OF PRINCIPAL AND INTEREST. THE FUND ITSELF IS
NOT INSURED, NOR IS THE VALUE OF ITS SHARES GUARANTEED.
**TAX-EQUIVALENT YIELD ASSUMES A 36% FEDERAL TAX BRACKET. TAX-EQUIVALENT YIELD
WOULD BE LOWER FOR INVESTORS IN LOWER TAX BRACKETS AND HIGHER FOR INVESTORS IN
HIGHER TAX BRACKETS. YIELDS FLUCTUATE.
DURING THE PERIOD UNDER REVIEW, THE ADVISER CONTINUED TO VOLUNTARILY WAIVE A
PORTION OF ITS ADVISORY FEE. HAD FEE NOT BEEN WAIVED, YIELDS WOULD HAVE BEEN
LOWER. FEE WAIVER MAY BE REVISED AT ANY TIME.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
THE FUND'S INCOME MAY BE SUBJECT TO STATE AND LOCAL TAXES AND THE FEDERAL
ALTERNATIVE MINIMUM TAX FOR CERTAIN INVESTORS.
CLASS A SHARES ARE SUBJECT TO A MAXIMUM 4.75% FRONT-END SALES CHARGE AND CLASS B
SHARES ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE.
3

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
(Photo of building with columns)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN HIGH GRADE TAX FREE FUND
The graphs below compare a $10,000 investment in the Evergreen High Grade Tax
Free Fund (Class A, Class B and Class Y Shares) with a similar investment in the
Lehman Brothers Insured Bond Index ("Index").

GRAPH OF CLASS A
ONE YEAR TOTAL RETURN = 0.2%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 5.9%

(Class A Chart appears here. Plot points are below.)

2/21/92* 8/31/92 8/31/93 8/31/94 8/31/95 8/31/96

(Customer to fill in plot point.)

GRAPH OF CLASS B
ONE YEAR TOTAL RETURN = 0.6%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 4.7%

(Class B Chart appears here. Plot points are below.)

1/11/93* 8/31/93 8/31/94 8/31/95 8/31/96

(Customer to fill in plot point.)

GRAPH OF CLASS Y
ONE YEAR TOTAL RETURN = 5.5%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 4.5%

(Class Y Chart appears here. Plot points are below.)

2/28/94 8/31/94 2/28/95 8/31/95 2/29/96 8/31/96

(Customer to fill in plot point.)

- -- EVERGREEN HIGH GRADE TAX FREE FUND _____ LEHMAN BROTHERS INSURED BOND INDEX

*Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE
NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
Shares, assuming full redemption on August 31, 1996; (c) all recurring fees
(including investment advisory fees) were deducted; and (d) all dividends and
distributions were reinvested.
The investment adviser is currently waiving a portion of the Fund's
expenses. Had expenses not been waived, returns would have been lower.
The Index is an unmanaged index and includes the reinvestment of income,
but does not reflect the payment of transaction costs and advisory fees
associated with an investment in the Fund.
4

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF INVESTMENTS
(Photo of building with columns) AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- 96.7%
ALASKA -- 1.0%
$ 500 Municipality of Anchorage
1995 GO Sch. & GO Refunding
Sch. Bonds,
6.00%, 10/1/14, (FGIC)............... $ 515,050
500 Municipality of Anchorage Sr.
Lien Elec. RRB, (Ser. 1993),
6.20%, 12/1/13, (MBIA)............... 519,080
1,034,130
ARIZONA -- 3.5%
2,500 City of Phoenix GO Refunding Bonds,
(Ser. 1995A),
6.25%, 7/1/17........................ 2,682,100
1,000 Creighton Elem. Sch. Dist. No. 14
of Maricopa Cnty. Sch. Imp. Bonds
(Proj. of 1990), (Ser. C 1991),
6.50%, 7/1/07, (FGIC)................ 1,110,960
3,793,060
CALIFORNIA -- 2.9%
500 City of Big Bear Lake
Dept. of Wtr. & Pwr. Wtr. RRB,
6.00%, 4/1/15, (MBIA)................ 514,130
2,000 Redevelopment Agcy. of the
City of San Jose Merged Area
Redev. Proj. Tax Allocation
Bonds, (Ser. 1993),
6.00%, 8/1/15, (MBIA)................ 2,073,520
500 San Mateo Cnty. Joint Pwrs.
Financing Auth. Lease RB
(Capital Projs. Prog.),
(1993 Refunding Ser. A),
6.50%, 7/1/16, (MBIA)................ 545,230
3,132,880
COLORADO -- 1.5%
1,000 Arapahoe Cnty. E-470 Pub.
Auth. Capital Imp. Trust Fund
Hwy. RB (E-470 Proj.) Sr.
Current Interest Bonds,
7.00%, 8/31/26....................... 1,049,730
500 School Dist. No. 1 in the City &
Cnty. of Denver GO Refunding Bonds
(Ser. 1994A),
6.50%, 6/1/10, (MBIA)................ 552,340
1,602,070
PRINCIPAL
AMOUNT
(000) VALUE
CONNECTICUT -- 2.7%
$ 1,500 State of Connecticut Hlth. & Edl.
Facs. Auth. RB, Yale-New Haven
Hosp. Issue, (Ser. H),
5.70%, 7/1/25, (MBIA)................ $ 1,442,475
1,400 State of Connecticut Spec. Tax Oblig.
RB (Trans. Infrastructure),
(Ser. 1992B),
6.125%, 9/1/12, (MBIA)............... 1,480,066
2,922,541
FLORIDA -- 1.0%
1,000 Hillsborough Cnty. Indl. Dev.
Auth. Ind. Dev. RB (Univ.
Cmnty. Hosp.), (Ser. 1994),
6.50%, 8/15/19, (MBIA)............... 1,086,840
GEORGIA -- 6.7%
2,500 City of Atlanta Arpt. Facs.
RB, (Ser. 1994B),
6.00%, 1/1/21, (AMBAC) (a)........... 2,465,150
500 City of Atlanta Arpt. Facs.
RRB, (Ser. 1994A),
6.50%, 1/1/10, (AMBAC)............... 551,260
1,500 City of Brunswick Wtr. & Swr.
Rev. Refunding & Imp. Bonds,
(Ser. 1992),
6.10%, 10/1/19, (MBIA)............... 1,566,540
2,400 Municipal Elec. Auth. of
Georgia Proj. One Spec.
Oblig. Bonds, (Fifth
Crossover Ser.),
6.50%, 1/1/17, (MBIA)................ 2,610,936
7,193,886
HAWAII -- 1.0%
1,000 State of Hawaii Arpt. Sys. RB,
(Second Ser. 1990),
7.50%, 7/1/20, (FGIC)................ 1,093,190
IDAHO -- .8%
895 Idaho Hsg. Agcy. Single
Family Mtge. Bonds,
(1994 Ser. C-1 Sr. Bonds &
Mezzanine Bonds),
6.30%, 7/1/11........................ 907,342
</TABLE>
5

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of building with columns) AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
<C> <S> <C>
ILLINOIS -- 10.6%
$ 2,150 City of Chicago GO Current
Interest Bonds, (Proj. Ser. 1995),
6.125%, 1/1/16, (AMBAC).............. $ 2,176,101
1,250 City of Chicago Wtr. RRB,
(Ser. 1993),
6.50%, 11/1/15, (FGIC)............... 1,350,312
2,000 Illinois Dev. Fin. Auth.
Poll. Ctrl. RRB (Commonwealth
Edison Co. Proj.), (Ser. 1991),
7.25%, 6/1/11, (MBIA)................ 2,220,600
3,000 Illinois Dev. Fin. Auth.
Poll. Ctrl. RRB (Commonwealth
Edison Co. Proj.), (Ser. 1994D),
6.75%, 3/1/15, (AMBAC)............... 3,287,640
1,750 Illinois Hlth. Facs. Auth.
Hlth. Facs. RRB (SSM Hlth.
Care), (Ser. 1992AA),
6.50%, 6/1/12, (MBIA)................ 1,907,465
500 Regional Trans. Auth. GO,
(Ser. 1991A),
6.70%, 11/1/21, (FGIC)............... 554,165
11,496,283
INDIANA -- 6.8%
2,300 Indiana Muni. Pwr. Agcy. Pwr.
Supply Sys. RB, (1993 Ser. A),
6.125%, 1/1/19, (MBIA)............... 2,316,905
Indiana Muni. Pwr. Agcy. Pwr.
Supply Sys. RRB, (1993 Ser. B),
1,390 6.00%, 1/1/12, (MBIA)................ 1,449,506
1,000 6.00%, 1/1/13, (MBIA)................ 1,039,100
700 Indiana Trans. Fin. Auth.
Hwy. RB, (Ser. 1992A),
6.80%, 12/1/16, (MBIA)............... 781,795
1,500 Middle Sch. Bldg. Corp. of
Lawrence Township of Marion
Cnty. First Mtge. Bonds,
6.875%, 7/5/11, (MBIA)............... 1,702,365
7,289,671
MAINE -- 1.1%
1,000 Maine Turnpike Auth.
Turnpike RB, (Ser. 1994),
7.125%, 7/1/08, (MBIA)............... 1,157,500
MASSACHUSETTS -- 5.7%
500 Massachusetts Hsg. Fin.
Agcy. Hsg. Proj. RB, (1993 Ser. A),
6.15%, 10/1/15, (AMBAC).............. 504,945
PRINCIPAL
AMOUNT
(000) VALUE
MASSACHUSETTS -- CONTINUED
$ 5,100 Massachusetts Wtr. Res.
Auth. General RB, Prerefunded
@ 102, (1992 Ser. A),
6.75%, 7/15/02....................... $ 5,700,219
6,205,164
MINNESOTA -- .5%
495 Minnesota Hsg. Fin. Agcy.
Single Family Mtge. Bonds,
(1994 Ser. H),
6.70%, 1/1/18........................ 515,493
NEVADA -- 2.0%
500 Airport Auth. of Washoe Cnty.
Arpt. Rev. (Tax-Exempt)
Bonds, (Ser. 1996A),
5.70%, 7/1/26, (MBIA)................ 484,630
1,575 Clark Cnty. GO (Ltd. Tax)
Trans. Imp. Bonds, (Ser. 1992A),
6.50%, 6/1/17, (AMBAC)............... 1,720,939
2,205,569
NEW JERSEY -- 1.1%
1,000 Atlantic Cnty. Imp. Auth.
Convention Center Bonds,
(Ser. 1985),
7.40%, 7/1/16, (MBIA)................ 1,188,720
NEW MEXICO -- 1.0%
City of Albuquerque Arpt. RB,
(Ser. 1995 A),
500 6.35%, 7/1/07, (AMBAC)............... 534,435
500 7.00%, 7/1/16, (AMBAC)............... 503,815
1,038,250
NEW YORK -- 1.4%
1,000 Dormitory Auth. of the St. of New
York City Univ. Sys. Consolidated
Third General Resolution RB,
(1996 Ser. 1),
5.50%, 7/1/24, (MBIA) -- WI.......... 953,750
500 The Port Auth. of New York &
New Jersey Consolidated Bonds
Fifth Installment,
(Ninety-Seventh Ser.),
6.50%, 7/15/19, (FGIC)............... 523,305
1,477,055
</TABLE>
6

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of building with columns) AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
<C> <S> <C>
NORTH DAKOTA -- 2.8%
$ 3,000 Mercer Cnty. Poll. Ctrl. RRB
(Basin Elec. Pwr.
Cooperative-Antelope Valley
Unit 1 & Common Facs.),
(Second 1995 Ser.),
6.05%, 1/1/19, (AMBAC)............... $ 3,004,260
OHIO -- 4.8%
1,000 Board of Ed. Beavercreek Local Sch.
Dist. (Cnty. of Greene) Sch. Imp.
Bonds (Unltd. Tax GO), (Ser. 1996),
6.60%, 12/1/15, (FGIC)............... 1,106,760
1,000 Board of Ed. Kings Local Sch.
Dist. (City of Warren) Sch. Imp.
Bonds (Unltd. Tax GO), (Ser. 1995),
7.50%, 12/1/16, (FGIC)............... 1,215,860
1,500 City of Toledo GO (Ltd. Tax)
Hsg. Imp. Bonds (Macy's
Proj.), (Ser. 1995A),
6.35%, 12/1/25, (MBIA)............... 1,576,815
500 Ohio Hsg. Fin. Agcy.
Residential Mtge. RB (GNMA
Mortgage-Backed Securities Prog.)
(1995 Ser. A-2),
6.625%, 3/1/26....................... 509,270
750 State of Ohio Wtr. Dev. Auth.
Wtr. Dev. RRB, (1992 Clean
Wtr. Ser.),
6.00%, 12/1/16, (MBIA)............... 757,200
5,165,905
OKLAHOMA -- 1.4%
1,500 McGee Creek Auth. Wtr. RB,
(Ser. 1992),
6.00%, 1/1/23, (MBIA)................ 1,554,570
PENNSYLVANIA -- 2.1%
1,000 Pennsylvania Convention
Center Auth. RB, (1989 Ser. A),
6.70%, 9/1/16, (FGIC)................ 1,102,450
1,000 Philadelphia Pennsylvania Gas
Wks. RRB, Prerefunded @ 102,
(Thirteenth Ser.),
7.70%, 6/15/01....................... 1,145,140
2,247,590
SOUTH CAROLINA -- 4.6%
3,500 South Carolina St. Ports
Auth. RB, (Ser. 1991),
6.625%, 7/1/11, (AMBAC).............. 3,690,960
PRINCIPAL
AMOUNT
(000) VALUE
$ 1,500 South Carolina St. Pub. Svc.
Auth. RRB, (1993 Ser. C),
5.00%, 1/1/18, (FGIC)................ $ 1,327,275
5,018,235
SOUTH DAKOTA -- 3.5%
3,500 South Dakota Hlth. & Edl.
Facs. Auth. RRB (St. Luke's
Midland Regional Med. Center
Issue), (Ser. 1991),
6.625%, 7/1/11, (MBIA)............... 3,744,930
TENNESSEE -- 4.4%
500 Metropolitan Govt. of
Nashville & Davidson Cnty.
Wtr. & Swr. RRB, (Ser. 1993),
6.50%, 1/1/10, (FGIC)................ 550,255
1,200 The Hlth. & Edl. Facs. Board
of the City of Bristol Hosp.
RRB (Bristol Mem. Hosp.),
(Ser. 1993),
6.75%, 9/1/07, (FGIC)................ 1,353,288
1,000 The Hlth. & Edl. Facs. Board
of the Metropolitan Govt. of
Nashville & Davidson Cnty. Revenue
Refunding & Imp. Bonds
(Meharry Med. College Proj.),
6.00%, 12/1/19, (AMBAC).............. 1,003,640
1,700 The Hlth., Edl. & Hsg. Facs.
Board of the Cnty. of Knox
Hosp. RRB (Fort Sanders
Alliance Obligated Group),
(Ser. 1993),
6.25%, 1/1/13, (MBIA)................ 1,811,469
4,718,652
TEXAS -- 3.9%
3,000 City of Austin Arpt. Sys.
Prior Lien RB, (Ser. 1995A),
6.125%, 11/15/25, (MBIA)............. 2,981,490
1,000 City of Houston Wtr.
Conveyance Sys. Contract COP,
(Ser. 1993H),
7.50%, 12/15/14, (AMBAC)............. 1,213,670
4,195,160
UTAH -- 3.4%
2,500 Board of Ed. of Iron Cnty.
Sch. Dist. GO Sch. Bldg.
Bonds, (Ser. 1994),
6.40%, 1/15/12, (MBIA)............... 2,635,475
</TABLE>
7

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of building with columns) AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
UTAH -- CONTINUED
$ 1,000 Salt Lake City, Salt Lake
Cnty. Arpt. RB,
(Ser. 1993A),
6.00%, 12/1/12, (FGIC)............... $ 1,009,780
3,645,255
VIRGINIA -- 1.5%
1,500 Industrial Dev. Auth. of the
Cnty. of Hanover Hosp. RB
(Mem. Regional Med. Center Proj.
at Hanover Med. Park), (Ser. 1995),
6.375%, 8/15/18, (MBIA).............. 1,602,405
WASHINGTON -- 4.2%
2,500 City of Tacoma Elec. Sys.
RRB, (Ser. 1994),
6.25%, 1/1/15, (FGIC)................ 2,572,725
500 City of Tacoma Elec. Sys.
RRB, (Ser. 1992),
6.25%, 1/1/11, (AMBAC)............... 519,285
1,500 The City of Seattle Muni.
Light & Pwr. RB, (1995 Ser. A),
5.70%, 9/1/19, (MBIA)................ 1,459,560
4,551,570
WISCONSIN -- 6.7%
4,500 City of Superior Ltd. Oblig.
RRB (Midwest Energy Res. Co.
Proj.), (Ser. E-1991),
6.90%, 8/1/21, (FGIC)................ 5,128,335
2,000 Wisconsin Hlth. & Edl. Facs.
Auth. RB (Wausau Hosps., Inc.
Proj.), (Ser. 1991B),
6.625%, 8/15/11, (AMBAC)............. 2,133,160
7,261,495
WYOMING -- .9%
1,000 Sweetwater Cnty. Poll. Ctrl.
RRB (Idaho Pwr. Co. Proj.),
(Ser. 1996A),
6.05%, 7/15/26, (AMBAC).............. 986,320
PUERTO RICO -- 1.2%
250 Commonwealth of Puerto Rico GO
Pub. Imp. Refunding Bonds,
(Ser. 1995),
5.65%, 7/1/15, (MBIA)................ 249,118
500 Puerto Rico Elec. Pwr. Auth.
Pwr. RRB, (Ser. Y),
6.50%, 7/1/06, (MBIA)................ 554,800
PRINCIPAL
AMOUNT
(000) VALUE
PUERTO RICO -- CONTINUED
$ 500 Puerto Rico Hsg. Bank & Fin.
Agcy. Affordable Hsg. Mtge.
Subsidy Prog. Single Family
Mtge. RB, Ptf. I,
6.10%, 10/1/15, (Collaterialized by
GNMA, FNMA & FHLMC Certificates)..... $ 499,965
1,303,883
TOTAL LONG-TERM MUNICIPAL SECURITIES
(COST $101,119,851).................. 104,339,874
SHORT-TERM INVESTMENTS -- 3.2%
FLORIDA -- .2%
200 Dade Cnty. Hlth. Facs. Auth.
Hosp. RB (Maimi Children's
Hosp. Proj.), (Ser. 1990),
3.90% -- VRDN (LOC: Barnett Bank of
South Florida, N.A.)................. 200,000
MINNESOTA -- .6%
700 Beltrami Cnty. Envtl. Ctrl. RRB
(Northwood Panelboard Co.
Proj.), (Ser. 1991),
3.80% -- VRDN (LOC: Union Bank of
Switzerland)......................... 700,000
NEW YORK -- .3%
300 The City of New York GO,
(Fiscal 1995 Ser. B Sub-Ser. B-7),
3.80% -- VRDN (AMBAC)................ 300,000
NORTH CAROLINA -- 1.2%
400 Raleigh Durham Arpt. Auth.
RRB (American Airlines
Proj.), (Ser. 95A),
3.55% -- VRDN (LOC: Royal Bank of
Canada).............................. 400,000
900 Raleigh Durham Arpt. Auth.
RRB (American Airlines
Proj.), (Ser. 95B1),
3.55% -- VRDN (LOC: Royal Bank of
Canada).............................. 900,000
1,300,000
TEXAS -- .5%
600 Lone Star Arpt. Imp. Auth.,
Inc. Multiple Mode Demand RB
(American Airlines, Inc. Proj.),
(Issue A of 1984 Ser. A-2),
3.70% -- VRDN (LOC: Royal Bank of
Canada).............................. 600,000
</TABLE>
8

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of building with columns) AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
SHORT-TERM INVESTMENTS -- CONTINUED
<C> <S> <C>
WYOMING -- .4%
$ 400 Lincoln Cnty. Poll. Ctrl. RB
(Exxon Corp.), (Ser. 1984B),
3.80% -- VRDN........................ $ 400,000
TOTAL SHORT-TERM INVESTMENTS
(COST $3,500,000).................... 3,500,000
MUTUAL FUNDS -- 1.0%
SHARES
1,057,000 Lehman Tax Free Money
Market Fund (at net asset value)
(COST $1,057,000)................... 1,057,000
TOTAL INVESTMENTS --
(COST $105,676,851).......... 100.9% 108,896,874
OTHER ASSETS AND
LIABILITIES -- NET........... (.9) (995,007)
NET ASSETS................... 100.0% $107,901,867
</TABLE>

Summary of Abbreviations:
COP -- Certificates of Participation
FHLMC -- Federal Home Loan Mortgage Corp.
FNMA -- Federal National Mortgage Association
GNMA -- Government National Mortgage Association
GO -- General Obligation Bonds
RB -- Revenue Bonds
RRB -- Revenue Refunding Bonds
VRDN -- Variable Rate Demand Notes are payable on demand at par on no more than
seven calendar days notice given by the Fund to the issuer or other parties not
affiliated with the issuer. Interest rates are determined and reset by the
issuer daily or weekly depending on the terms of the security. The interest
rates presented for these securities are those in effect at August 31, 1996.
WI -- When Issued
At August 31, 1996, the percentage breakdown of total investments which are
insured by municipal bond insurance companies are as follows:
AMBAC -- Insured by American Municipal Bond Assurance
Corp................................................. 23%
FGIC -- Insured by Financial Guaranty Insurance
Corp................................................. 19%
MBIA -- Insured by Municipal Bond Investors Assurance
Corp................................................. 43%
% of Total Investments Insured....................... 85%

(a) -- Security of which $1,000,000 was segregated as collateral for the when
issued security.
See accompanying notes to financial statements.
9

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
(Photo of building with columns) AUGUST 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $105,676,851)........................................................... $108,896,874
Interest receivable........................................................................................... 1,342,552
Receivable for Fund shares sold............................................................................... 100,254
Prepaid expenses.............................................................................................. 36,049
Total assets............................................................................................ 110,375,729
LIABILITIES:
Payable for investments purchased............................................................................. 2,022,708
Payable for Fund shares repurchased........................................................................... 170,795
Dividends payable............................................................................................. 152,153
Accrued expenses.............................................................................................. 72,193
Accrued advisory fee.......................................................................................... 28,076
Distribution fee payable...................................................................................... 25,665
Due to custodian bank......................................................................................... 2,272
Total liabilities....................................................................................... 2,473,862
NET ASSETS....................................................................................................... $107,901,867
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $106,446,200
Undistributed net investment income........................................................................... 115,656
Accumulated net realized loss on investment transactions...................................................... (1,880,012)
Net unrealized appreciation of investments.................................................................... 3,220,023
Net assets.............................................................................................. $107,901,867
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($50,569,134 4,715,330 shares of beneficial interest outstanding).............................. $ 10.72
Sales charge -- 4.75% of offering price....................................................................... .53
Maximum offering price..................................................................................... $ 11.25
Class B Shares ($32,220,447 3,004,556 shares of beneficial interest outstanding).............................. $ 10.72
Class Y Shares ($25,112,286 2,341,584 shares of beneficial interest outstanding).............................. $ 10.72
</TABLE>

See accompanying notes to financial statements.
10

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF OPERATIONS
(Photo of building with columns) YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest........................................................................................ $ 6,526,273
EXPENSES:
Advisory fee.................................................................................... $ 575,456
Administrative personnel and services fees...................................................... 59,073
Distribution fee -- Class A Shares.............................................................. 138,927
Distribution fee -- Class B Shares.............................................................. 258,074
Shareholder services fees -- Class B Shares..................................................... 86,025
Custodian fee................................................................................... 100,816
Transfer agent fee.............................................................................. 76,905
Reports and notices to shareholders............................................................. 51,214
Registration and filing fees.................................................................... 49,627
Professional fees............................................................................... 25,849
Insurance....................................................................................... 6,034
Trustees' fees and expenses..................................................................... 3,640
Miscellaneous................................................................................... 18,763
1,450,403
Less: Advisory fee waiver....................................................................... (228,548)
Net expenses.............................................................................. 1,221,855
Net investment income.............................................................................. 5,304,418
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions.................................................... 1,622,360
Net decrease in unrealized appreciation on investments.......................................... (1,135,792)
Net gain on investments............................................................................ 486,568
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................... $ 5,790,986
</TABLE>

See accompanying notes to financial statements.
11

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
(Photo of building with columns) STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED ENDED
AUGUST 31, 1996 AUGUST 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................................... $ 5,304,418 $ 3,187,579
Net realized gain on investment transactions............................................ 1,622,360 437,882
Net change in unrealized appreciation (depreciation) of investments..................... (1,135,792) 7,804,353
Net increase resulting from operations............................................... 5,790,986 11,429,814
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares.......................................................................... (2,655,984) (1,935,789)
Class B Shares.......................................................................... (1,385,989) (936,437)
Class Y Shares.......................................................................... (1,262,445) (315,353)
Total distributions to shareholders.................................................. (5,304,418) (3,187,579)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold............................................................... 16,695,647 3,098,389
Proceeds from shares issued in acquisition of Evergreen National Tax Free Fund.......... -- 28,779,194
Proceeds from reinvestment of distributions............................................. 3,093,850 1,826,205
Payment for shares redeemed............................................................. (30,410,409) (18,339,492)
Net increase (decrease) resulting from Fund share transactions....................... (10,620,912) 15,364,296
Net increase (decrease) in net assets................................................ (10,134,344) 23,606,531
NET ASSETS:
Beginning of period..................................................................... 118,036,211 94,429,680
End of period (includes undistributed net investment income of $115,656 and $22,568,
respectively)......................................................................... $ 107,901,867 $ 118,036,211
</TABLE>

See accompanying notes to financial statements.
12

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
FINANCIAL HIGHLIGHTS
(Photo of building with columns) CLASS A SHARES
<TABLE>
<CAPTION>
EIGHT MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER 31,
AUGUST 31, 1996 AUGUST 31, 1995# 1994 1993
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.................... $10.69 $9.79 $11.16 $10.42
Income (loss) from investment operations:
Net investment income................................. .52 .34 .52 .54
Net realized and unrealized gain (loss) on
investments......................................... .03 .90 (1.37) .81
Total from investment operations.................... .55 1.24 (.85) 1.35
Less distributions to shareholders from:
Net investment income................................. (.52) (.34) (.52) (.54)
Net realized gain on investments...................... -- -- -- (.07)
Total distributions................................. (.52) (.34) (.52) (.61)
Net asset value, end of period.......................... $10.72 $10.69 $9.79 $11.16
TOTAL RETURN+........................................... 5.2% 12.8% (7.7%) 13.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............... $50,569 $58,751 $57,676 $101,352
Ratios to average net assets:
Expenses **........................................... .89% 1.06%++ 1.01% .85%
Net investment income **.............................. 4.78% 4.93%++ 5.04% 4.99%
Portfolio turnover rate................................. 65% 27% 53% 14%
FEBRUARY 21,
1992* THROUGH
DECEMBER 31, 1992
PER SHARE DATA:
Net asset value, beginning of period.................... $10.00
Income (loss) from investment operations:
Net investment income................................. .51
Net realized and unrealized gain (loss) on
investments......................................... .42
Total from investment operations.................... .93
Less distributions to shareholders from:
Net investment income................................. (.51)
Net realized gain on investments...................... --
Total distributions................................. (.51)
Net asset value, end of period.......................... $10.42
TOTAL RETURN+........................................... 9.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)............... $90,738
Ratios to average net assets:
Expenses **........................................... .49%++
Net investment income **.............................. 5.79%++
Portfolio turnover rate................................. 7%
</TABLE>

# The Fund changed its fiscal year end from December 31 to August 31.
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge is not reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the investment adviser, the annualized
ratios of expenses and net investment income to average net assets would have
been the following:
<TABLE>
<CAPTION>
EIGHT MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER 31,
AUGUST 31, 1996 AUGUST 31, 1995# 1994 1993
<S> <C> <C> <C> <C>
Expenses.......................................... 1.09% 1.09% 1.02% 1.07%
Net investment income............................. 4.58% 4.90% 5.03% 4.77%
FEBRUARY 21,
1992* THROUGH
DECEMBER 31, 1992
Expenses.......................................... 1.11%
Net investment income............................. 5.17%
</TABLE>

See accompanying notes to financial statements.
13

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
FINANCIAL HIGHLIGHTS
(Photo of building with columns) CLASS B AND Y SHARES
<TABLE>
<CAPTION>
CLASS B SHARES CLASS Y SHARES
EIGHT JANUARY 11, EIGHT
YEAR MONTHS YEAR 1993* YEAR MONTHS
ENDED ENDED ENDED THROUGH ENDED ENDED
AUGUST 31, AUGUST 31, DECEMBER 31, DECEMBER 31, AUGUST 31, AUGUST 31,
1996 1995# 1994 1993 1996 1995#
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period............. $10.69 $9.79 $11.16 $10.42 $10.69 $9.79
Income (loss) from investment operations:
Net investment income.......................... .44 .29 .46 .47 .55 .36
Net realized and unrealized gain (loss) on
investments.................................. .03 .90 (1.37) .81 .03 .90
Total from investment operations............. .47 1.19 (.91) 1.28 .58 1.26
Less distributions to shareholders from:
Net investment income.......................... (.44) (.29) (.46) (.47) (.55) (.36)
Net realized gain on investments............... -- -- -- (.07) -- --
Total distributions.......................... (.44) (.29) (.46) (.54) (.55) (.36)
Net asset value, end of period................... $10.72 $10.69 $9.79 $11.16 $10.72 $10.69
TOTAL RETURN+.................................... 4.4% 12.3% (8.2%) 12.4% 5.4% 13.0%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)........ $32,221 $34,206 $32,435 $41,030 $25,112 $25,079
Ratios to average net assets:
Expenses **.................................... 1.64% 1.81%++ 1.58% 1.35%++ .64% .81%++
Net investment income **....................... 4.03% 4.18%++ 4.47% 4.44%++ 5.03% 5.18%++
Portfolio turnover rate.......................... 65% 27% 53% 14% 65% 27%

FEBRUARY 28,
1994*
THROUGH
DECEMBER 31,
1994
PER SHARE DATA:
Net asset value, beginning of period............. $10.93
Income (loss) from investment operations:
Net investment income.......................... .46
Net realized and unrealized gain (loss) on
investments.................................. (1.14)
Total from investment operations............. (.68)
Less distributions to shareholders from:
Net investment income.......................... (.46)
Net realized gain on investments............... --
Total distributions.......................... (.46)
Net asset value, end of period................... $9.79
TOTAL RETURN+.................................... (6.3%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)........ $4,318
Ratios to average net assets:
Expenses **.................................... .76%++
Net investment income **....................... 5.46%++
Portfolio turnover rate.......................... 53%
</TABLE>

# The Fund changed its fiscal year end from December 31 to August 31.
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Contingent deferred sales charge is not
reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the investment adviser, the annualized
ratios of expenses and net investment income to average net assets would have
been the following:
<TABLE>
<CAPTION>
CLASS B SHARES CLASS Y SHARES
EIGHT JANUARY 11, EIGHT
YEAR MONTHS YEAR 1993* YEAR MONTHS
ENDED ENDED ENDED THROUGH ENDED ENDED
AUGUST 31, AUGUST 31, DECEMBER 31, DECEMBER 31, AUGUST 31, AUGUST 31,
1996 1995# 1994 1993 1996 1995#
<S> <C> <C> <C> <C> <C> <C>
Expenses................................... 1.84% 1.84% 1.59% 1.57% .84% .84%
Net investment income...................... 3.83% 4.15% 4.46% 4.22% 4.83% 5.15%

FEBRUARY 28,
1994*
THROUGH
DECEMBER 31,
1994
Expenses................................... .77%
Net investment income...................... 5.45%
</TABLE>

See accompanying notes to financial statements.
14

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
(Evening sunset photo)
A REPORT FROM YOUR
PORTFOLIO MANAGER
STEVEN C. SHACHAT
The markets both elated and frustrated investors during the
last six months of the Fund's fiscal year. At the start of 1996, (Photo of
bond prices drifted lower in reaction to mixed economic signals, Steven C.
despite the fact that the U.S. economy seemed to be following a Shachat)
slow growth pattern; one generally beneficial for bonds.
Beginning in March, statistics indicating strong job growth and
consumers' continued willingness to spend to their debt limits
and beyond, propelled the bond market to a state of heightened
alert for a resurgence of inflation and a new round of interest
rate increases by the Federal Reserve. Throughout the last half
of the Fund's fiscal year, however, inflation remained
restrained and the Fed chose not to raise or lower interest
rates.

As a consequence of this uncertainty over the economy's
direction, yields for both municipal and treasury bonds rose, and prices
declined. Long-term government bond yields have gyrated wildly in response to
the shifting tone of incoming statistics but, in the end, they've remained in a
fairly narrow 6 3/4% to 7 1/4% range. Municipals, aided by a declining supply of
tax-free bonds and steady demand from retail buyers, outperformed treasuries.
During the first half of our fiscal year, we had emphasized both ends of the
Fund's limited maturity range. The shortest maturities were emphasized for lower
share price volatility and longer maturities for higher yields and capital
appreciation potential. We pursued this strategy because we believed that
tax-free bonds with maturities in the five- to ten-year range offered the most
attractive after-tax yields and total return potential of any bonds in which the
Fund is permitted to invest. As market perceptions turned more tentative,
emphasis was shifted to those issues bearing lesser qualities of principal
volatility. At times, higher levels of cash reserves were established in order
to further buffer the portfolio from the consequences of a rising interest rate
environment. Throughout the second half of the Fund's fiscal year, investment
decisions tended to focus on those issues bearing higher degrees of
creditworthiness and strong characteristics of protection from redemption prior
to maturity. These more defensive measures caused the Fund's total return to lag
over this period.
Overall, we continue to purchase premium bonds as they can offer us better
liquidity, more upside potential, and less volatility than similar securities,
such as discount bonds. In addition, diversification remains an important
strategy for the Fund, allowing us to spread risk over a number of sectors and
geographic areas. Lastly, the Fund's overall credit quality remains high, with
over 75% of the bonds in its portfolio rated AAA and AA at fiscal year-end.
The economy is at a crossroads where growth is concerned. Going forward, we
anticipate continued market volatility until the future of economic growth is
made more clear. We shall continue to search for attractive value by weighing
the maturity characteristics, credit quality, and income potential of each bond
we consider for purchase.
At its fiscal year-end on August 31, 1996, Evergreen Short-Intermediate
Municipal Fund's total net assets were $70 million. The table below illustrates
the Fund's yields as of August 31. (For additional performance information,
please see page 16.)
<TABLE>
<CAPTION>
CLASS Y SHARES CLASS A SHARES CLASS B SHARES
<S> <C> <C> <C>
30-Day SEC Yield 3.81% 3.58% 2.80%
Tax-Equivalent Yield* 5.95% 5.59% 4.38%
</TABLE>

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*TAX-EQUIVALENT YIELD ASSUMES A 36% FEDERAL TAX BRACKET. TAX-EQUIVALENT YIELD
WOULD BE LOWER FOR INVESTORS IN LOWER TAX BRACKETS AND HIGHER FOR INVESTORS IN
HIGHER TAX BRACKETS. YIELDS FLUCTUATE.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
DURING THE PERIOD UNDER REVIEW, THE ADVISER CONTINUED TO VOLUNTARILY WAIVE A
PORTION OF ITS ADVISORY FEE. HAD FEE NOT BEEN WAIVED, YIELDS WOULD HAVE BEEN
LOWER. FEE WAIVER MAY BE REVISED AT ANY TIME.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
THE FUND'S INCOME MAY BE SUBJECT TO STATE AND LOCAL TAXES AND THE FEDERAL
ALTERNATIVE MINIMUM TAX FOR CERTAIN INVESTORS.
CLASS A SHARES ARE SUBJECT TO A MAXIMUM 3.25% FRONT-END SALES CHARGE AND CLASS B
SHARES ARE SUBJECT TO A MAXIMUM 5% CONTINGENT DEFERRED SALES CHARGE.
15

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
(Evening sunset photo)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND

The graphs below compare a $10,000 investment in the Evergreen
Short-Intermediate Municipal Fund (Class A, Class B and Class Y Shares) with a
similar investment in the Lehman Brothers 3 Year Municipal Bond Index ("Index").

CLASS A
ONE YEAR TOTAL RETURN = 0.01%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 2.9%

(Class A chart appears here. Plot points are below.)

1/3/95* 2/28/95 8/31/95 2/29/96 8/31/96

(Customer to fill in plot points)

CLASS B
ONE YEAR TOTAL RETURN = 2.5%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 1.7%

(Class B chart appears here. Plot points are below.)

1/3/95* 2/28/95 8/31/95 2/29/96 8/31/96

(Customer to fill in plot points)

CLASS Y
ONE YEAR TOTAL RETURN = 3.3%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 4.9%

(Class Y chart appears here. Plot points are below.)

11/18/91* 8/31/92 8/31/93 8/31/94 8/31/95 8/31/96

(Customer to fill in plot points)

- - - Evergreen Short-Intermediate Municipal Fund
- - Lehman Brothers 3 Year Municipal Bond Index

*Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY
INSURED.

For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 3.25% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
Shares, assuming full redemption on August 31, 1996; (c) all recurring fees
(including investment advisory fees) were deducted; and (d) all dividends and
distributions were reinvested.
The Index is an unmanaged index and includes the reinvestment of income,
but does not reflect the payment of transaction costs and advisory fees
associated with an investment in the Fund.
16

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
STATEMENT OF INVESTMENTS
(Evening sunset photo) AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS -- 98.2%
ALABAMA -- 1.8%
$ 1,235 City of Mobile GO RFB,
(Ser. 1996),
5.50%, 2/15/00........................ $ 1,271,334
ALASKA -- 4.4%
1,045 Municipality of Anchorage GO
Sch. RFB, (Ser. 1993A),
5.00%, 2/1/98 (MBIA).................. 1,055,649
1,950 North Slope Borough GO RFB,
(Ser. 1988G),
7.50%, 6/30/97........................ 2,005,711
3,061,360
ARIZONA -- 1.7%
1,100 Pima Cnty. GO RFB,
(Ser. 1992),
6.55%, 7/1/01......................... 1,188,418
CALIFORNIA -- 7.2%
5,000 Los Angeles Unified Sch.
Dist. Tax GO RB, (Ser. B),
4.50%, 9/30/97........................ 5,025,050
COLORADO -- 2.7%
1,000 Arapahoe Cnty. GO RB, Cherry
Creek Sch. Dist. No.5,
(Ser. 1995A),
5.25%, 12/15/02....................... 1,027,390
865 Colorado Stud. Oblig. Board
Auth. Stud. Loan RB, (Ser. 1985B),
6.125%, 12/1/98....................... 882,637
1,910,027
CONNECTICUT -- 3.0%
2,000 Conn St. Spec. Assessment
Unemployment RFB, (Ser. A),
5.50%, 11/15/00....................... 2,069,560
DISTRICT OF COLUMBIA -- 2.2%
1,500 Dist. of Columbia GO RFB,
(Ser. 1989B),
6.625%, 6/1/98........................ 1,552,755
GEORGIA -- 1.5%
1,000 Muni. Elec. Auth. of Georgia
Pwr. RB, (Ser. 1986L),
7.50%, 1/1/98......................... 1,030,140
PRINCIPAL
AMOUNT
(000) VALUE
HAWAII -- 3.7%
$ 2,500 St. of Hawaii GO,
(Ser. 1995CJ),
5.70%, 1/1/03......................... $ 2,613,150
ILLINOIS -- 2.7%
1,000 Central Lake Cnty. Joint
Action Wtr. Agcy. RB,
Prerefunded @ 102, (Ser. 1990A),
7.00%, 5/1/00 (AMBAC)................. 1,094,890
300 Illinois Hlth. Facs. Auth.
RB, Edward Hosp.
Assoc. Proj., (Ser. 1992),
6.00%, 2/15/97........................ 302,064
500 Illinois Stud. Assist.
Commission Stud. Loan RB,
(Ser. 1992M),
5.45%, 3/1/97......................... 503,685
1,900,639
MAINE -- 1.3%
915 Maine Edl. Loan Marketing
Corp. Stud. Loan RB, (Ser. 1988A),
5.20%, 5/1/97......................... 922,476
MARYLAND -- 2.6%
635 Maryland Energy Financing
Administration Solid Waste
Disp. RB, Wheelabrator Wtr.
Technologies Baltimore L.L.C.
Projs., (Ser. 1996),
4.80%, 12/1/98........................ 636,295
1,140 Montgomery Cnty. GO Bonds
Consolidated Pub. Imp. RB,
(Ser. 1992A),
5.30%, 7/1/01......................... 1,177,164
1,813,459
MASSACHUSETTS -- 6.6%
1,500 City of Boston GO,
(Ser. 1995A),
5.25%, 10/1/02........................ 1,538,370
1,000 Massachusetts Wtr. Poll.
Abatement Trust RB, MWRA Loan
Prog., (Ser. 1995A),
6.00%, 8/1/02......................... 1,059,040
New England Ed. Loan
Marketing Corp. Stud. Loan RB,
(Ser. 1993B),
1,000 4.75%, 7/1/98......................... 1,003,430
1,000 5.40%, 6/1/00......................... 1,014,820
4,615,660
</TABLE>
17

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Evening sunset photo) AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
LONG-TERM INVESTMENTS -- CONTINUED
<C> <S> <C>
MICHIGAN -- 2.2%
$1,500 Detroit Sewage Disp. Sys. RB,
(Ser. 1993A),
4.85%, 7/1/01......................... $ 1,509,540
MINNESOTA -- 2.9%
2,030 City of Minneapolis & Hsg. &
Redev. Auth. of the City of
St. Paul, Single Family Mtge. RRB,
(Ser. 1996A),
5.125%, 6/1/99........................ 2,023,687
MISSOURI -- 2.1%
North Kansas City Sch. Dist.
GO, Direct Deposit Prog.,
(Ser. 1996),
710 6.70%, 3/1/00......................... 757,542
665 7.00%, 3/1/99......................... 704,421
1,461,963
NEVADA -- 1.5%
1,000 Las Vegas Valley Wtr. Dist.
GO (Limited Tax) Wtr. RRB,
Prerefunded @102, (Ser. 1987),
7.25%, 11/1/97........................ 1,053,360
NEW JERSEY -- 4.6%
2,000 New Jersey St. GO,
(Ser. 1991),
5.90%, 8/1/02......................... 2,124,160
1,040 New Jersey St. Trans. Trust
Fund Auth. Trans. Sys. Bonds,
(Series 1995B),
6.00%, 6/15/01 (MBIA)................. 1,100,518
3,224,678
NEW YORK -- 1.4%
1,000 New York St. Dorm. Auth.,
Vasser College RB,
(Ser. 1995),
4.375%, 7/1/02........................ 987,030
OHIO -- 1.4%
1,000 The Stud. Loan Funding Corp.
(Cincinnati) Stud. Loan RB,
(Ser. 1993A),
5.50%, 12/1/01........................ 1,016,300
OKLAHOMA -- 1.1%
750 Oklahoma Stud. Loan Auth. RRB,
(Ser. 1992A),
5.35%, 9/1/96......................... 750,030
PRINCIPAL
AMOUNT
(000) VALUE
OREGON -- 3.1%
$1,125 Josephine Cnty., Sch. Dist.
#007 GO,
5.00%, 6/1/99 (FGIC).................. $ 1,140,784
1,050 Multnomah Cnty., Sch. Dist.
#1J GO, (Ser. 1995),
4.50%, 6/1/01......................... 1,045,936
2,186,720
PENNSYLVANIA -- 3.6%
1,950 Sayre Hlth. Care Facs. Auth.
RB, Guthrie Healthcare Sys.,
(Ser. 1991A),
6.40%, 3/1/99 (AMBAC)................. 2,037,243
500 St. of Pennsylvania GO,
(Ser. 1971),
6.00%, 12/15/98....................... 504,635
2,541,878
TEXAS -- 7.9%
1,000 Brazos Higher Ed. Auth.,
Inc., Stud. Loan RRB,
(Ser. 1992A),
5.30%, 12/1/97........................ 1,013,220
500 City of Dallas GO,
5.90%, 2/15/01........................ 524,975
1,000 City of Houston Pub. Imp. RFB,
(Ser. 1992C),
5.70%, 3/1/01......................... 1,041,390
1,300 Dallas Cnty. Imp. (Ltd. Tax)
RB, (Ser. 1992A),
6.00%, 8/15/01........................ 1,379,846
1,000 Northside Independent Sch.
Dist. (Unlimited Tax) GO,
(Ser. 1986),
7.00%, 2/1/98......................... 1,037,360
505 San Antonio Independent Sch.
Dist. Pub. Facs. Corp. RB,
(Ser. 1996),
5.00%, 10/15/00 (AMBAC)............... 512,105
5,508,896
UTAH -- 4.3%
2,500 Intermountain Pwr. Agcy.,
Pwr. Supply RFB, (Ser. C),
6.00%, 7/1/00 (MBIA).................. 2,621,625
355 Utah Hsg. Fin. Agcy. Single
Family Mtge. RRB,
(Ser. 1993A),
5.20%, 1/1/01......................... 357,439
2,979,064
</TABLE>
18

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Evening sunset photo) AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
LONG-TERM INVESTMENTS -- CONTINUED
<C> <S> <C>
VIRGINIA -- 8.8%
$ 1,205 Chesapeake Pub. Sch. Auth.
Spec. Oblig. Sch. Financing
Bonds , (Ser. 1995),
5.40%, 6/1/05......................... $ 1,232,727
1,200 Chesapeake Wtr. & Swr.,
(Ser. 1995A),
7.00%, 12/1/01........................ 1,328,796
1,000 Virginia Beach GO Pub. Imp. &
RFB, (Ser. 1994),
5.70%, 11/1/07........................ 1,031,850
1,000 Virginia Beach GO RFB,
(Ser. 1992),
5.90%, 2/1/04......................... 1,057,330
1,500 Virginia Hsg. Dev. Auth.
Commonwealth Mtge. Bonds,
(Ser. 1992B, Subseries B-1),
6.00%, 1/1/98......................... 1,520,190
6,170,893
WASHINGTON -- 7.3%
2,000 St. of Washington GO,
(Ser. 93A),
5.50%, 10/1/03........................ 2,072,240
2,950 St. of Washington GO RB,
Motor Vehicle Fuel Tax,
(Ser. R-92D),
5.60%, 9/1/01......................... 3,068,472
5,140,712
WISCONSIN -- 4.6%
1,000 Milwaukee GO Corporate
Purpose Bonds, Pub. Imps.,
(Ser. BZ),
6.30%, 6/15/01........................ 1,067,850
PRINCIPAL
AMOUNT
(000) VALUE
WISCONSIN -- CONTINUED
$ 1,000 Milwaukee Metropolitan Sewage
Dist. GO, (Ser. 1989A),
7.00%, 9/1/01......................... $ 1,099,150
1,000 Wisconsin St. GO RFB,
(Ser. 1992),
6.00%, 5/1/02......................... 1,061,410
3,228,410
TOTAL LONG-TERM INVESTMENTS
(COST $68,458,535).................... 68,757,189
SHORT-TERM INVESTMENTS -- .7%
WASHINGTON -- .7%
500 Pierce Cnty. Econ. Dev. Corp.
Indl. Pooled Bond Prog.,
(Ser. 1990),
3.80%, 9/4/96
(COST $500,000)....................... 500,000
TOTAL INVESTMENTS --
(COST $68,958,535)........ 98.9% 69,257,189
OTHER ASSETS AND
LIABILITIES -- NET........ 1.1% 770,289
NET ASSETS................... 100.0% $70,027,478
</TABLE>

Summary of Abbreviations:
AMBAC -- Insured by American Municipal Bond Assurance Corp.
FGIC -- Financial Guaranty Insurance Corp.
GO -- General Obligations
MBIA -- Municipal Bond Investors Assurance Corp.
MWRA -- Municipal Water Revenue Authority
RB -- Revenue Bonds
RFB -- Refunding Bonds
RRB -- Refunding Revenue Bonds
See accompanying notes to financial statements.
19

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
STATEMENT OF ASSETS AND LIABILITIES
(Evening sunset photo) AUGUST 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $68,958,535)............................................................. $69,257,189
Interest receivable............................................................................................ 953,675
Receivable for Fund shares sold................................................................................ 32,673
Prepaid expenses............................................................................................... 26,429
Total assets............................................................................................. 70,269,966
LIABILITIES:
Dividend payable............................................................................................... 100,512
Accrued expenses............................................................................................... 45,561
Payable for Fund shares repurchased............................................................................ 32,513
Due to custodian bank.......................................................................................... 28,255
Accrued advisory fee........................................................................................... 23,126
Distribution fee payable....................................................................................... 12,521
Total liabilities........................................................................................ 242,488
NET ASSETS........................................................................................................ $70,027,478
NET ASSETS CONSISTS OF:
Paid-in capital................................................................................................ $70,429,530
Accumulated net realized loss on investment transactions....................................................... (700,706)
Net unrealized appreciation of investments..................................................................... 298,654
Net assets............................................................................................... $70,027,478
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($27,721,798 2,750,830 shares of beneficial interest outstanding)............................... $10.08
Sales charge -- 3.25% of offering price........................................................................ .34
Maximum offering price................................................................................... $ 10.42
Class B Shares ($7,413,156 735,765 shares of beneficial interest outstanding).................................. $ 10.08
Class Y Shares ($34,892,524 3,464,011 shares of beneficial interest outstanding)............................... $ 10.07
</TABLE>

See accompanying notes to financial statements.
20

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
STATEMENT OF OPERATIONS
(Evening sunset photo) YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest.......................................................................................... $2,837,285
EXPENSES:
Advisory fee...................................................................................... $ 287,149
Distribution fee -- Class A Shares................................................................ 13,347
Distribution fee -- Class B Shares................................................................ 52,375
Shareholder services fees -- Class B Shares....................................................... 17,458
Registration and filing fees...................................................................... 67,347
Custodian fee..................................................................................... 55,841
Transfer agent fee................................................................................ 55,501
Professional fees................................................................................. 27,986
Reports and notices to shareholders............................................................... 15,262
Insurance......................................................................................... 12,480
Amortization of organization expenses............................................................. 8,846
Trustees' fees and expenses....................................................................... 8,457
Miscellaneous..................................................................................... 2,788
624,837
Less: Fee waivers and expense reimbursements...................................................... (140,581)
Net expenses............................................................................. 484,256
Net investment income................................................................................ 2,353,029
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments.................................................................. 161,202
Net change in unrealized appreciation of investment transactions.................................. (564,810)
Net loss on investments.............................................................................. (403,608)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. $1,949,421
</TABLE>

See accompanying notes to financial statements.
21

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
STATEMENT OF CHANGES IN NET ASSETS
(Evening sunset photo)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................................. $ 2,353,029 $ 2,318,884
Net realized gain (loss) on investment transactions.................................... 161,202 (713,222)
Net change in unrealized appreciation of investments................................... (564,810) 529,821
Net increase resulting from operations.............................................. 1,949,421 2,135,483
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares......................................................................... (541,615) (178,721)
Class B Shares......................................................................... (229,080) (96,022)
Class Y Shares......................................................................... (1,582,334) (2,044,141)
Total distributions to shareholders................................................. (2,353,029) (2,318,884)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.............................................................. 37,737,994 25,128,726
Proceeds from reinvestment of distributions............................................ 1,651,747 1,923,116
Payment for shares redeemed............................................................ (22,410,625) (26,833,640)
Net increase resulting from Fund share transactions................................. 16,979,116 218,202
Net increase in net assets.......................................................... 16,575,508 34,801
NET ASSETS:
Beginning of year...................................................................... 53,451,970 53,417,169
End of year............................................................................ $ 70,027,478 $ 53,451,970
</TABLE>

See accompanying notes to financial statements.
22

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
FINANCIAL HIGHLIGHTS
(Evening sunset photo) CLASS A AND B SHARES

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B
JANUARY 5, SHARES
YEAR 1995* YEAR
ENDED THROUGH ENDED
AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1996
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period............................................... $10.17 $9.97 $10.17
Income from investment operations:
Net investment income............................................................ .43 .30 .34
Net realized and unrealized gain (loss) on investments........................... (.09) .20 (.09)
Total from investment operations............................................... .34 .50 .25
Less distributions to shareholders from net investment income...................... (.43) (.30) (.34)
Net asset value, end of period................................................... $10.08 $10.17 $10.08
TOTAL RETURN+...................................................................... 3.4% 5.1% 2.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted).......................................... $27,722 $6,820 $7,413
Ratios to average net assets:
Expenses**....................................................................... .80% .70%++ 1.67%
Net investment income**.......................................................... 4.05% 4.32%++ 3.28%
Portfolio turnover rate............................................................ 29% 80% 29%

JANUARY 5,
1995*
THROUGH
AUGUST 31,
1995
PER SHARE DATA:
Net asset value, beginning of period............................................... $9.97
Income from investment operations:
Net investment income............................................................ .24
Net realized and unrealized gain (loss) on investments........................... .20
Total from investment operations............................................... .44
Less distributions to shareholders from net investment income...................... (.24)
Net asset value, end of period................................................... $10.17
TOTAL RETURN+...................................................................... 4.5%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted).......................................... $6,050
Ratios to average net assets:
Expenses**....................................................................... 1.58%++
Net investment income**.......................................................... 3.50%++
Portfolio turnover rate............................................................ 80%
</TABLE>

* Commencement of class operations.
+ Total return is calculated for the periods indicated and is not annualized.
Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the investment adviser, the annualized
ratios of expenses and net investment income to average net assets would have
been the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B
JANUARY 5, SHARES
YEAR 1995* YEAR
ENDED THROUGH ENDED
AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1996
<S> <C> <C> <C>
Expenses........................................................................... 1.11% 1.14% 2.07%
Net investment income.............................................................. 3.74% 3.88% 2.88%

JANUARY 5,
1995*
THROUGH
AUGUST 31,
1995
Expenses........................................................................... 2.26%
Net investment income.............................................................. 2.82%
</TABLE>

See accompanying notes to financial statements.
23

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
FINANCIAL HIGHLIGHTS -- (CONTINUED)
(Evening sunset photo) CLASS Y SHARES
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period............................................. $10.17 $10.21 $10.58 $10.33
Income from investment operations:
Net investment income.......................................................... .43 .46 .47 .49
Net realized and unrealized gain (loss) on investments......................... (.10) (.04) (.32) .25
Total from investment operations............................................. .33 .42 .15 .74
Less distributions to shareholders:
From net investment income..................................................... (.43) (.46) (.47) (.49)
From net realized gains on investments......................................... -- -- (.03) --
In excess of net realized gain on investment................................... -- -- (.02) --
Total distributions.......................................................... (.43) (.46) (.52) (.49)
Net asset value, end of period................................................. $10.07 $10.17 $10.21 $10.58
TOTAL RETURN+.................................................................... 3.3% 4.2% 1.4% 7.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)........................................ $34,893 $40,581 $53,417 $66,607
Ratios to average net assets:
Expenses**..................................................................... .70% .74% .58% .40%
Net investment income**........................................................ 4.27% 4.52% 4.54% 4.73%
Portfolio turnover rate.......................................................... 29% 80% 32% 37%

1992||
PER SHARE DATA:
Net asset value, beginning of period............................................. $10.00
Income from investment operations:
Net investment income.......................................................... .51
Net realized and unrealized gain (loss) on investments......................... .33
Total from investment operations............................................. .84
Less distributions to shareholders:
From net investment income..................................................... (.51)
From net realized gains on investments......................................... --
In excess of net realized gain on investment................................... --
Total distributions.......................................................... (.51)
Net asset value, end of period................................................. $10.33
TOTAL RETURN+.................................................................... 8.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)........................................ $54,470
Ratios to average net assets:
Expenses**..................................................................... .17%
Net investment income**........................................................ 4.85%
Portfolio turnover rate.......................................................... 57%
</TABLE>

|| On November 18, 1991, the Fund was changed to a diversified municipal bond
fund with a fluctuating net asset value per share from a non-diversified
money market fund with a stable net asset value per share. The shares
outstanding at August 31, 1991 and the related per share data are restated
to reflect both for a 1 for 2 reverse share split on October 30, 1991 and a
1 for 5 reverse share split on August 19, 1992. Total return calculated
after November 18, 1991 reflects the fluctuation in net asset value per
share.
+ Total return is calculated for the periods indicated and is not annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the investment adviser, the annualized
ratios of expenses and net investment income to average net assets would have
been the following:
<TABLE>
<CAPTION>
CLASS Y SHARES
YEAR ENDED AUGUST 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Expenses......................................................................... .90% .86% .83% .81%
Net investment income............................................................ 4.07% 4.40% 4.29% 4.32%
<CAPTION>

1992
Expenses......................................................................... .86%
Net investment income............................................................ 4.16%
</TABLE>

See accompanying notes to financial statements.
24

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
(City view at dusk) CALIFORNIA
A REPORT FROM YOUR
PORTFOLIO MANAGER
STEVEN C. SHACHAT
The markets both elated and frustrated investors during the
last six months of the Fund's fiscal year. At the start of 1996, (Photo of
bond prices drifted lower in reaction to mixed economic signals Steven C.
despite the fact that the U.S. economy seemed to be following a Shachat
slow growth pattern; one generally beneficial for bonds. appears here)
Beginning in March, statistics indicating strong job growth and
consumers' continued willingness to spend to their debt limits
and beyond propelled the bond market to a state of heightened
alert for a resurgence of inflation and a new round of interest
rate increases by the Federal Reserve. Throughout the second
half of the Fund's year, however, inflation remained restrained
and the Fed chose not to raise or lower interest rates.
As a consequence of this uncertainty over the economy's
direction, yields of both municipal
and treasury bonds rose during this period, and prices declined. Long-term
government bond yields have gyrated wildly in response to the shifting tone of
incoming statistics but, in the end, they've remained in a fairly narrow 6 3/4%
to 7 1/4% range. Municipals, aided by a declining supply of tax-free bonds and
steady demand from retail buyers, outperformed treasuries.
While California's municipal bonds were unable to avoid this rapid adjustment,
they were supported by the formidable technical dynamics they have enjoyed for
much of the past year. In addition, as the state's economy emerged from its
protracted period of retrenchment, market participants sensed a much more
positive fundamental backdrop for California municipal bonds. As such, the rise
in yields of California tax exempt securities was much more muted than that of
their taxable counterparts.
During the first half of the Fund's fiscal year, we had emphasized both ends
of the Fund's limited maturity range. The shortest maturities were emphasized
for lower share price volatility and longer maturities for higher yields and
capital appreciation potential. We pursued this strategy because we believed
that tax-free bonds with maturities in the five- to ten-year range offered the
most attractive after-tax yields and total return potential of any bonds in
which the Fund is permitted to invest. As market perceptions turned more
tentative, emphasis was shifted to those issues bearing lesser qualities of
principal volatility. At times, higher levels of cash reserves were established
in order to further buffer the portfolio from the consequences of a rising
interest rate environment. Throughout the period, investment decisions tended to
focus on those issues bearing higher degrees of creditworthiness and strong
characteristics of protection from redemption prior to maturity. These more
defensive measures caused the Fund's total return to lag over the fiscal period.
Overall, we continue to purchase premium bonds as they can offer us better
liquidity, more upside potential and less volatility than similar securities,
such as discount bonds. In addition, diversification remains an important
strategy for the Fund, allowing us to spread risk over a number of sectors and
geographic areas. Lastly, the Fund's overall credit quality remains high, with
over 80% of the bonds in its portfolio rated AAA and AA at fiscal year-end.
The economy is at a crossroads where growth is concerned. Going forward, we
anticipate continued market volatility until the future of economic growth is
made more clear. We shall continue to search for attractive value by weighing
the maturity characteristics, credit quality, and income potential of each bond
we consider for purchase.
At its fiscal year-end on August 31, 1996, Evergreen Short-Intermediate
Municipal Fund -- California's total net assets were $18.9 million. The Fund's
30-day SEC and tax-equivalent yields (Class Y, no-load shares) on August 31,
were 3.71% and 6.51%, respectively*. (For additional performance information,
please see page 26.)
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
*TAX-EQUIVALENT YIELD ASSUMES A 36% FEDERAL TAX BRACKET AND 11% CALIFORNIA STATE
TAX BRACKET. TAX-EQUIVALENT YIELD WOULD BE LOWER FOR INVESTORS IN LOWER TAX
BRACKETS AND HIGHER FOR INVESTORS IN HIGHER TAX BRACKETS. YIELDS FLUCTUATE.
SOME OF THE FUND'S INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX
FOR CERTAIN INVESTORS.
DURING THE PERIOD UNDER REVIEW, THE ADVISER CONTINUED TO VOLUNTARILY WAIVE A
PORTION OF ITS ADVISORY FEE. HAD FEE NOT BEEN WAIVED, YIELDS WOULD HAVE BEEN
LOWER. FEE WAIVER MAY BE REVISED AT ANY TIME.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AS OF AUGUST 31, 1996, THE FUND'S CLASS A SHARES AND CLASS B SHARES HAD NOT YET
COMMENCED OPERATIONS.
25

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
CALIFORNIA
(City view at dusk)
RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
The graph below compares a $10,000 investment in the Evergreen
Short-Intermediate Municipal Fund -- California (Class Y Shares) with a similar
investment in the Lehman Brothers 3 Year Municipal Bond Index and the Lehman
Brothers 5 Year Municipal Bond Index ("Indexes").

CLASS Y
ONE YEAR TOTAL RETURN = 3.2%
AVERAGE ANNUAL COMPOUND
RETURN SINCE INCEPTION = 4.2%

(Class Y chart appears here. Plot points are below.)

10/16/92* 8/31/93 8/31/94 8/31/95 8/31/96

(Customer to fill in plot points.)

- -----(black solid rule) LEHMAN BROTHERS 3 YEARS CALIFORNIA MUNICIPAL BOND INDEX
- - LEHMAN BROTHERS 5 YEARS CALIFORNIA MUNICIPAL BOND INDEX
- -----(green solid rule) EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA

*Commencement of operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY
INSURED.
For the purposes of the graph and the accompanying table, it has been
assumed that (a) all recurring fees (including investment advisory fees) were
deducted; and (b) all dividends and distributions were reinvested.
The Indices are unmanaged indices and include the reinvestment of income,
but do not reflect the payment of transaction costs and advisory fees associated
with an investment in the Fund.
26

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
STATEMENT OF INVESTMENTS
(City view at dusk) AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS -- 93.1%
$ 1,000 Burbank-Glendale-Pasadena
Arpt. Auth. Arpt. RRB,
(Ser. 1992),
5.00%, 6/1/98 (AMBAC)................. $ 1,014,150
500 California Statewide Cmntys.
Dev. Auth. COP (Sutter
Obligated Group),
5.00%, 8/15/98 (AMBAC)................ 507,340
California Hsg. Fin. Agcy.
Multi-Unit Rental Hsg. RB,
(1992 Ser. A),
325 5.00%, 2/1/97......................... 325,995
320 5.25%, 2/1/98......................... 322,310
320 Chino Unified Sch. Dist. GO,
(Election 1975 Ser. 3),
5.25%, 2/1/97......................... 321,933
785 City & Cnty. of San Francisco
General Purpose Swr. RB,
Prerefunded @ 101.50,
(Ser. 1988B),
7.60%, 10/1/97 (AMBAC)................ 827,272
1,090 City of Los Angeles Judgement
Oblig. Bonds, (Ser. 1992-A),
5.00%, 8/1/00......................... 1,107,385
775 City of Santa Ana; California
Env. Fin. Corp. COP (Santa
Ana Recycling Proj.),
(1996 Ser. A),
5.25%, 5/1/00 (AMBAC)................. 790,469
650 City of Santa Rosa Wastewater
RRB, (1992 Ser. B),
5.10%, 9/1/98 (FGIC).................. 661,622
565 City of Santa Rosa Wastewater
Svc. Facs. Dist. 1992
Refunding Imp. Bonds,
5.10%, 7/2/98 (AMBAC)................. 574,277
1,000 City of Torrance 1995
Refunding COP,
5.00%, 4/1/05 (AMBAC)................. 991,700
1,100 City of Vallejo RB (Wtr. Imp.
Proj.), (1992 Ser. B),
6.00%, 11/1/98 (FGIC)................. 1,141,734
685 County of San Bernardino COP
(West Valley Detention Center
Proj.), Prerefunded @ 102,
7.70%, 11/1/98........................ 747,431
PRINCIPAL
AMOUNT
(000) VALUE
$ 1,000 County of Stanislaus
Refunding COP (Capital Imp.
Prog.), (Ser. A of 1996),
4.50%, 5/1/02 (MBIA).................. $ 990,580
900 East Bay Muni. Util. Dist.
Wtr. Sys. Subordinated RRB,
(Ser. 1996),
6.00%, 6/1/01 (FGIC).................. 953,559
1,000 Los Angeles Cnty.
Metropolitan Trans. Auth.
Proposition C Sales Tax RB
Second Sr. Bonds,
(Ser. 1995-A),
5.90%, 7/1/05 (AMBAC)................. 1,068,290
450 Pico Rivera Pub. Financing
Auth. 1992 RRB (Wtr.
Enterprise Proj.), (Ser. A),
5.70%, 12/1/98 (FGIC)................. 464,432
Rim of the World Unified Sch.
Dist. 1992 COP (Measure V
Capital Projs.),
500 5.10%, 9/1/97 (AMBAC)................. 505,615
500 5.25%, 9/1/98 (AMBAC)................. 510,370
1,000 Sacramento Muni. Util. Dist.
Elec. RRB, (1993 Ser. D),
5.25%, 11/15/04 (MBIA)................ 1,024,020
575 San Diego Unified Sch. Dist.
Pub. Sch. Bldg. Corp. COP
(1989-1991 Capital Projs.),
(Ser. 1991 B),
5.90%, 7/1/97......................... 584,062
880 San Diego Cnty. Regional
Trans. Commission Second Sr.
Sales Tax RB (Ltd. Tax
Bonds), (1992 Ser. A),
4.40%, 4/1/01 (FGIC).................. 872,265
900 State of California Various
Purpose GO,
7.00%, 8/1/02 (FGIC).................. 1,004,364
300 Sunnyvale Financing Auth.
Utils. RB (Solid Waste
Materials Recovery & Transfer
Station), (1992 Ser. B),
5.10%, 10/1/98 (MBIA)................. 305,388
TOTAL LONG-TERM INVESTMENTS
(COST $17,515,707)............. 17,616,563
</TABLE>
27

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
STATEMENT OF INVESTMENTS -- (CONTINUED)
(City view at dusk) AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 5.8%
$ 900 County of Orange Irvine Coast
Assessment Dist. No. 88-1
Ltd. Oblig. Imp. Bonds,
3.65% -- VRDN (LOC: Indl. Bank
of Japan, Ltd., Fuji Bank, Ltd.,
and Mitsubishi Bank, Ltd., 1/3
each)................................. $ 900,000
200 Irvine Ranch Wtr. Dist.
Constituting the Consolidated
Several GO of Imp. Dist. No.
103, 105, 109, 121, 140, 161,
3(203), 221, 250, 261 & 290,
(Ser. 1993A),
3.70% -- VRDN (LOC: Bank of
America).............................. 200,000
TOTAL SHORT-TERM INVESTMENTS
(COST $1,100,000)........ 1,100,000
TOTAL INVESTMENTS --
(COST $18,615,707)....... 98.9% 18,716,563
OTHER ASSETS AND
LIABILITIES -- NET....... 1.1 198,676
NET ASSETS --............... 100.0% $18,915,239
</TABLE>

Summary of Abbreviations:
AMBAC -- Insured by American Municipal Bond Assurance Corp.
COP -- Certificates of Participation
FGIC -- Insured by Financial Guaranty Insurance Co.
GO -- General Obligations
LOC -- Letter of Credit
MBIA -- Insured by Municipal Bond Investors Assurance
RB -- Revenue Bonds
RRB -- Refunding Revenue Bonds
VRDN -- Variable Rate Demand Notes are payable on demand at par on no more than
seven calendar days' notice given by the Fund to the issuer or other parties not
affiliated with the issuer. Interest rates are determined and reset by the
issuer daily or weekly depending upon the terms of the security. The interest
rates presented for these securities are those in effect at August 31, 1996.
See accompanying notes to financial statements.
28

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
CALIFORNIA
STATEMENT OF ASSETS AND LIABILITIES
(City view at dusk) AUGUST 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $18,615,707)............................................................. $18,716,563
Interest receivable............................................................................................ 261,778
Receivable for Fund shares sold................................................................................ 10,191
Prepaid expenses............................................................................................... 868
Total assets............................................................................................. 18,989,400
LIABILITIES:
Payable for Fund shares repurchased............................................................................ 39,543
Accrued expenses............................................................................................... 22,370
Dividend payable............................................................................................... 5,748
Accrued advisory fee........................................................................................... 4,838
Due to custodian bank.......................................................................................... 1,662
Total liabilities........................................................................................ 74,161
NET ASSETS........................................................................................................ $18,915,239
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $19,156,341
Accumulated net realized loss on investment transactions....................................................... (341,958)
Net unrealized appreciation of investments..................................................................... 100,856
Net assets............................................................................................... $18,915,239
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($9.98 1 share of beneficial interest issued and outstanding)................................... $ 9.98
Sales charge -- 3.25% of public offering price................................................................. .34
Maximum offering price................................................................................... $ 10.32
Class B Shares ($9.98 1 share of beneficial interest issued and outstanding)................................... $ 9.98
Class Y Shares ($18,915,219 1,895,650 shares of beneficial interest issued and
outstanding)................................................................................................ $ 9.98
</TABLE>

See accompanying notes to financial statements.
29

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
CALIFORNIA
STATEMENT OF OPERATIONS
(City view at dusk) YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................................................................ $ 959,613
EXPENSES:
Advisory fee........................................................................................ $109,714
Custodian fee....................................................................................... 41,391
Transfer agent fee.................................................................................. 23,949
Professional fees................................................................................... 21,140
Reports and notices to shareholders................................................................. 8,578
Insurance........................................................................................... 6,084
Trustees' fees and expenses......................................................................... 3,787
Registration and filing fees........................................................................ 897
Miscellaneous....................................................................................... 1,897
217,437
Less: Advisory fee waiver........................................................................... (49,870)
Net expenses.................................................................................. 167,567
Net investment income.................................................................................. 792,046
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions........................................................ 90,220
Net decrease in unrealized appreciation of investments.............................................. (259,661)
Net loss on investments................................................................................ (169,441)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................... $ 622,605
</TABLE>

See accompanying notes to financial statements.
30

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
CALIFORNIA
(City view at dusk) STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUGUST 31, AUGUST 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................................ $ 792,046 $ 1,004,141
Net realized gain (loss) on investments...................................................... 90,220 (432,178)
Net change in unrealized appreciation of investments......................................... (259,661) 279,942
Net increase resulting from operations................................................. 622,605 851,905
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- Class Y Shares...................................................... (792,046) (1,004,141)
Net realized gains on investments -- Class Y Shares.......................................... -- (77,128)
Total distributions to shareholders.................................................... (792,046) (1,081,269)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.................................................................... 5,889,030 8,632,605
Proceeds from reinvestment of distributions.................................................. 694,476 954,278
Payments for shares redeemed................................................................. (8,860,850) (16,428,530)
Net decrease resulting from Fund share transactions.................................... (2,277,344) (6,841,647)
Net decrease in net assets............................................................. (2,446,785) (7,071,011)
NET ASSETS:
Beginning of year............................................................................ 21,362,024 28,433,035
End of year.................................................................................. $18,915,239 $ 21,362,024
</TABLE>

See accompanying notes to financial statements.
31

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
CALIFORNIA
FINANCIAL HIGHLIGHTS
(City view at dusk) CLASS Y SHARES
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996 1995 1994 1993||
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period............................................. $10.06 $10.09 $10.34 $10.00
Income from investment operations:
Net investment income.......................................................... .40 .41 .43 .41
Net realized and unrealized gain (loss) on investments......................... (.08) -- (.24) .34
Total income from investment operations...................................... .32 .41 .19 .75
Less distributions to shareholders from:
Net investment income.......................................................... (.40) (.41) (.43) (.41)
Net realized gain on investments............................................... -- (.03) (.01) --
Total distributions.......................................................... (.40) (.44) (.44) (.41)
Net asset value, end of period................................................... $9.98 $10.06 $10.09 $10.34
TOTAL RETURN+.................................................................... 3.2% 4.2% 1.8% 7.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)........................................ $18,915 $21,362 $28,433 $30,136
Ratios to average net assets:
Expenses*...................................................................... .84% .79% .52% .30%
Net investment income*......................................................... 3.97% 4.10% 4.20% 3.96%
Portfolio turnover rate.......................................................... 44% 29% 12% 37%

1992||
PER SHARE DATA:
Net asset value, beginning of period............................................. $10.00
Income from investment operations:
Net investment income.......................................................... .33
Net realized and unrealized gain (loss) on investments......................... --
Total income from investment operations...................................... .33
Less distributions to shareholders from:
Net investment income.......................................................... (.33)
Net realized gain on investments............................................... --
Total distributions.......................................................... (.33)
Net asset value, end of period................................................... $10.00
TOTAL RETURN+.................................................................... 3.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)........................................ $34,452
Ratios to average net assets:
Expenses*...................................................................... .40%
Net investment income*......................................................... 3.36%
Portfolio turnover rate.......................................................... --
</TABLE>

|| On October 16, 1992, the Fund was converted to a short-intermediate
municipal fund with a fluctuating net asset value per share from a money
market fund with a stable net asset value per share. The shares outstanding
and the related per share data for the fiscal year ended August 31, 1992 are
restated to reflect the 1 for 10 reverse share split on October 21, 1992.
Total return calculated after October 16, 1992 reflects the fluctuation in
net asset value per share.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized.
* Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment income to average net assets would have been
the following:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Expenses................................................................... 1.09% .99% .95% .98%
Net investment income...................................................... 3.72% 3.90% 3.77% 3.28%

1992
Expenses................................................................... .84%
Net investment income...................................................... 2.92%
</TABLE>

See accompanying notes to financial statements.
32

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
The Evergreen Tax-Free Funds (the "Funds") are separate series of open-end
management companies registered under the Investment Company Act of 1940, as
amended (the "Act"). The Evergreen Tax-Free Funds consist of Evergreen High
Grade Tax Free Fund ("High Grade"), Evergreen Short-Intermediate Municipal Fund
("Short-Intermediate") and Evergreen Short-Intermediate Municipal
Fund -- California ("California"), known collectively as the Funds. High Grade
is a series of the Evergreen Investment Trust. Short-Intermediate and California
are each series of the Evergreen Municipal Trust.
High Grade's objective is to seek a high level of Federally tax free income
that is consistent with preservation of capital. Short-Intermediate's investment
objective is to achieve as high a level of current income, exempt from Federal
income tax other than the Federal alternative minimum tax as is consistent with
preserving capital and providing liquidity. California's investment objective is
to achieve as high a level of current income exempt from Federal and California
income taxes as is consistent with preserving capital and providing liquidity.
Effective July 7, 1995, High Grade acquired substantially all of Evergreen
National Tax-Free Fund's net assets, valued at $28,779,194 through a non-taxable
exchange for 2,679,627 shares of High Grade. The net assets of Evergreen
National Tax-Free Fund acquired included unrealized appreciation of $528,003.
The aggregate net assets of High Grade immediately after the acquisition were
$128,792,690.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. These policies are
in conformity with generally accepted accounting principles.
SECURITY VALUATIONS -- Municipal bonds are valued by an independent pricing
service taking into consideration yield, liquidity, interest rate risk, credit
quality, coupon, maturity, type of issue and any other factors or market data it
deems relevant in determining valuations for normal institutional size trading
units of debt securities which it believes to reflect the fair value of
securities. The independent pricing service does not rely exclusively on quoted
prices. Short term securities purchased with remaining maturities of sixty days
or less are stated at amortized cost which approximates market value.
SECURITY TRANSACTIONS -- Security transactions are accounted for on the
date purchased or sold. Net realized gains or losses are determined on the
identified cost basis.
INVESTMENT INCOME AND EXPENSES -- Interest income and expenses are accrued
daily. Premiums and discounts paid on securities are amortized or accreted into
interest income.
WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Funds record
when-issued or delayed delivery transactions on the trade date and maintain
security positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning interest on
the settlement date.
DIVIDENDS TO SHAREHOLDERS -- Dividends from net investment income are
declared daily and paid monthly. Dividends from net realized capital gains on
investments, if any, will be distributed at least annually. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from the amounts available for distribution under
generally accepted accounting principles. To the extent these differences are
permanent in nature, such amounts are reclassified within the components of net
assets. As of August 31, 1996, a reclassification has been made for High Grade
to increase undistributed net investment income and accumulated net realized
loss on investment transactions by $93,088.
INCOME TAXES -- It is each Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable and other net income to its
shareholders. Accordingly,
33

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
no provisions for Federal income or excise taxes are necessary. To the extent
that realized capital gains can be offset by capital loss carryforwards, it is
each Fund's policy not to distribute such gains.
At August 31, 1996, the Funds had capital loss carryforwards as follows:
<TABLE>
<CAPTION>
EXPIRATION
2002 2003 2004
<S> <C> <C> <C>
High Grade $1,880,012 -- --
Short-Intermediate -- $267,515 $433,191
California -- -- 341,958
</TABLE>

ALLOCATION OF EXPENSES -- Expenses specifically identifiable to a class of
shares or to a specific fund in a trust are charged to that class or fund.
Expenses common to a trust as a whole are allocated to the funds in that trust.
Investment income, net of expenses (other than class specific expenses) and
realized and unrealized gains and losses are allocated daily to each class of
shares based upon the relative proportion of net assets of each class.
USE OF ESTIMATES -- The preparation of financial statements is in
accordance with generally accepted accounting principles which requires
management to make estimates and assumptions that affect the reported amounts
and disclosures. Actual results could differ from those estimates.
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENTS -- First Union National Bank of North
Carolina ("First Union") is entitled to an annual fee of .50 of 1% of High
Grade's average daily net assets pursuant to an investment advisory agreement.
For the year ended August 31, 1996, First Union voluntarily waived $228,548 of
its advisory fee. First Union can modify or terminate this voluntary waiver at
any time.
Pursuant to an agreement with Short-Intermediate's and California's
investment adviser, Evergreen Asset Management Corp. ("Evergreen Asset"), a
wholly owned subsidiary of First Union, is entitled to an annual fee based on
Short-Intermediate's and California's average daily net assets, respectively, in
accordance with the following schedule:
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE CALIFORNIA
<S> <C> <C>
First $1 billion 0.50% 0.55 %
Over $1 billion 0.45% 0.50 %
</TABLE>

Evergreen Asset has agreed to reimburse Short-Intermediate and California
to the extent that the Funds' operating expenses (including the investment
advisory fee and amortization of organizational expenses but excluding interest,
taxes, brokerage commissions, 12b-1 distribution and shareholder services fees
and extraordinary expenses) exceed 1.00% of its average daily net assets for any
fiscal year. Evergreen Asset waived $17,957 for California under this
limitation. In addition, for the year ended August 31, 1996, Evergreen Asset
voluntarily waived $109,619 and $31,913 of its advisory fee for Short-
Intermediate and California, respectively, and voluntarily reimbursed expenses
amounting to $30,962 for Short-Intermediate. Evergreen Asset can modify or
terminate these voluntary waivers and reimbursements at any time.
Lieber & Company, an affiliate of First Union, is the investment
sub-adviser to Short-Intermediate and California. Lieber & Company is reimbursed
by Evergreen Asset at no additional expense to the Funds.
Evergreen Asset furnishes Short-Intermediate and California with
administrative services as part of their advisory agreements and accordingly,
these Funds do not pay a separate administration fee. Furman Selz LLC ("Furman
Selz") is each Fund's sub-administrator. As sub-administrator, Furman Selz
provides the officers of the Funds. For Short-Intermediate and California,
Furman Selz' fee is paid by Evergreen Asset and is not a Fund expense.
34

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
Evergreen Asset is also High Grade's administrator and Furman Selz is the
sub-administrator. Evergreen Asset's and Furman Selz' fees for High Grade are
based on the average daily net assets of all of the Funds administered by
Evergreen Asset for which First Union or Evergreen Asset is also the investment
adviser. These fees are calculated at the following annual rates:
<TABLE>
<CAPTION>
ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
<C> <S>
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% in excess of $30 billion
SUB-ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
0.0040% in excess of $25 billion
</TABLE>

At August 31, 1996, assets for which Evergreen Asset was the administrator
for which either Evergreen Asset or First Union was investment adviser totaled
approximately $15.7 billion.
PLANS OF DISTRIBUTION -- The Funds have adopted for their Class A and Class
B Shares, Distribution Plans (the "Plans") pursuant to Rule 12b-1 under the Act
(see Note 4). Under the terms of the Plans, the Funds may incur
distribution-related and shareholder servicing expenses which may not exceed an
annual fee of .75 of 1% for Class A Shares and 1% for Class B Shares. The
payments for High Grade and Short-Intermediate for Class A Shares were
voluntarily limited to .25 of 1% and .10 of 1% of average daily net assets,
respectively, for the year ended August 31, 1996. No fee was charged to
California's Class A and Class B Shares.
In connection with their Plans, Short-Intermediate and California have
entered into distribution agreements with Evergreen Funds Distributor, Inc.
("EFD"), a subsidiary of Furman Selz whereby Short-Intermediate and California
will compensate EFD for its services at a rate which may not exceed an annual
fee of .10 of 1% of Class A Share's average daily net assets and an annual fee
of 1% of Class B Share's average daily net assets. A portion of the payments
under Short-Intermediate's and California's Class B Plans, up to .25 of 1% of
average daily net assets may constitute a shareholder service fee. EFD has
entered into a Shareholder Services Agreement with First Union Brokerage
Services ("FUBS"), an affiliate of First Union, whereby they will compensate
FUBS for certain services provided to shareholders and/or maintenance of
shareholder accounts relating to each of the Funds' Class B Shares.
In connection with its Plan, High Grade entered into a distribution
agreement with EFD whereby High Grade will compensate EFD for its services at a
rate which may not exceed an annual fee of .25 of 1% of Class A average daily
net assets and an annual fee of .75 of 1% of Class B average daily net assets.
Pursuant to a Shareholder Services Agreement, High Grade compensated FUBS an
annual fee of .25 of 1% of Class B average daily net assets for certain services
provided to Class B shareholders.
SALES CHARGES -- EFD has advised the Funds that it has retained $9,050 and
$8,464 from front-end sales charges resulting from sales of Class A shares of
High Grade and Short-Intermediate, respectively, during the year ended August
31, 1996.
35

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
ORGANIZATIONAL EXPENSES -- Organizational expenses of High Grade were
initially borne by the Fund's former administrator. High Grade had agreed to
reimburse such expenses during the five-year period following February 21, 1992,
the date High Grade commenced operations. As a result of a change in the
administration agreement, First Union purchased the remaining unreimbursed
organizational expenses from the former administrator. As of, and for the year
ended August 31, 1996, $12,752 was reimbursed and $4,554 remains to be
reimbursed to First Union.
NOTE 4 -- SHARES OF BENEFICIAL INTEREST
The Funds have an unlimited number of $0.0001 par value shares of
beneficial interest authorized, which are divided into classes designated Class
A, Class B and Class Y Shares. High Grade's Class A Shares are offered with a
front-end sales charge of 4.75%. Short-Intermediate's and California's Class A
Shares are offered with a front-end sales charge of 3.25%. The Funds' Class B
Shares are offered with a contingent deferred sales charge payable when shares
are redeemed which would decline from 5% to zero depending on the period of time
the shares are held. Class B Shares will automatically convert to Class A Shares
seven years after the date of purchase. Each Fund's Class Y shares are sold
without a sales charge and are available only to investment advisory clients of
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. All classes have identical voting, dividend,
liquidation and other rights, except that Class A and Class B Shares bear
distribution expenses (see Note 3) and have exclusive voting rights with respect
to their distribution plans.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS ENDED
AUGUST 31, 1996 AUGUST 31, 1995
HIGH GRADE SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold.......................................................... 728,801 $ 7,875,800 95,059 $ 1,003,763
Shares issued in acquisition of Evergreen National Tax-Free Fund..... -- -- 369,661 3,970,157
Shares issued on reinvestment of distributions....................... 144,023 1,571,241 109,500 1,150,986
Shares redeemed...................................................... (1,652,697) (17,891,048) (967,409) (10,152,313)
Net decrease......................................................... (779,873) (8,444,007) (393,189) (4,027,407)
CLASS B
Shares sold.......................................................... 420,508 4,595,803 112,511 1,186,133
Shares issued in acquisition of Evergreen National Tax-Free Fund..... -- -- 243,174 2,611,688
Shares issued on reinvestment of distributions....................... 75,686 825,507 52,945 556,311
Shares redeemed...................................................... (691,236) (7,495,373) (520,448) (5,459,057)
Net decrease......................................................... (195,042) (2,074,063) (111,818) (1,104,925)
CLASS Y
Shares sold.......................................................... 387,417 4,224,043 85,773 908,492
Shares issued in acquisition of Evergreen National Tax-Free Fund..... -- -- 2,066,792 22,197,350
Shares issued on reinvestment of distributions....................... 63,909 697,102 11,174 118,908
Shares redeemed...................................................... (455,583) (5,023,987) (258,812) (2,728,122)
Net increase (decrease).............................................. (4,257) (102,842) 1,904,927 20,496,628
Total net increase (decrease) resulting from Fund share
transactions....................................................... (979,172) ($10,620,912) 1,399,920 $15,364,296
</TABLE>
36

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995*
SHORT-INTERMEDIATE SHARES AMOUNT SHARES AMOUNT
CLASS A
<S> <C> <C> <C> <C>
Shares sold.......................................................... 2,806,176 $ 28,333,550 1,438,502 $14,469,110
Shares issued on reinvestment of distributions....................... 24,978 253,579 16,308 164,891
Shares redeemed...................................................... (750,660) (7,689,314) (784,474) (7,943,982)
Net decrease....................................................... 2,080,494 20,897,815 670,336 6,690,019
CLASS B
Shares sold.......................................................... 291,382 2,967,713 673,520 6,777,013
Shares issued on reinvestment of distributions....................... 16,079 163,265 7,150 72,369
Shares redeemed...................................................... (166,441) (1,686,967) (85,925) (870,798)
Net increase....................................................... 141,020 1,444,011 594,745 5,978,584
CLASS Y
Shares sold.......................................................... 635,204 6,436,731 385,625 3,882,603
Shares issued on reinvestment of distributions....................... 121,645 1,234,903 167,271 1,685,856
Shares redeemed...................................................... (1,283,965) (13,034,344) (1,791,852) (18,018,860)
Net decrease....................................................... (527,116) (5,362,710) (1,238,956) (12,450,401)
Total net increase (decrease) resulting from Fund share
transactions....................................................... 1,694,398 $ 16,979,116 26,125 $ 218,202
</TABLE>

* For Class A and Class B Shares, the Fund share transaction activity reflects
the period January 5, 1995 (commencement of class operations) to August 31,
1995.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995*
CALIFORNIA SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold............................................................ -- $ -- 1 $ 10
CLASS B
Shares sold............................................................ -- -- 1 10
CLASS Y
Shares sold............................................................ 585,998 5,889,030 866,764 8,632,585
Shares issued on reinvestment of distributions......................... 69,176 694,476 96,132 954,278
Shares redeemed........................................................ (882,764) (8,860,850) (1,656,210) (16,428,530)
Net decrease......................................................... (227,590) (2,277,344) (693,314) (6,841,667)
Total net decrease resulting from Fund share transactions.............. (227,590) ($2,277,344) (693,312) ($6,841,647)
</TABLE>

* For Class A and Class B Shares, the Fund share transaction activity reflects
the initial purchase of one share in each class on December 30, 1994. Through
August 31, 1996 there were no further transactions.
37

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments, excluding
short-term securities for the year ended August 31, 1996 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
High Grade............ $71,766,540 $81,946,077
Short-Intermediate.... 39,120,383 14,969,043
California............ 8,180,213 9,899,142
</TABLE>

On August 31, 1996, the aggregate cost of investments for federal tax
purposes was the same as it was for financial reporting purposes. The
composition of unrealized appreciation and depreciation of investment securities
was as follows:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION NET
<S> <C> <C> <C>
High Grade............ $3,785,801 $565,778 $3,220,023
Short-Intermediate.... 443,159 144,505 298,654
California............ 154,356 53,500 100,856
</TABLE>

NOTE 6 -- CONCENTRATION OF CREDIT RISK
High Grade and Short-Intermediate invest in obligations issued by states,
territories and possessions of the United States and by the District of
Columbia, and by their political subdivisions and duly constituted authorities.
The issuers' abilities to meet their obligations may be affected by economic and
political developments in a specific state or region. California invests in
obligations issued by the State of California and by its political subdivisions
and duly constituted authorities. The issuers' abilities to meet their
obligations may be affected by economic and political developments in the State
of California. Certain debt obligations held by each of the Funds are entitled
to the benefit of insurance, standby letters of credit or other guarantees of
banks or other financial institutions.
NOTE 7 -- FINANCING AGREEMENT
Effective July 3, 1996, a financing agreement was put in place with all of
the Evergreen Funds and their custodian, State Street Bank and Trust Company
(the "Bank"). Under the agreement, the Bank is providing an unsecured line of
credit facility, in the aggregate amount of $100 million ($50 million committed
and $50 million uncommitted), to be accessed by the Funds for temporary or
emergency purposes only and is subject to each participating Fund's borrowing
restrictions. Borrowings under this facility bear interest at .75% per annum
above the Bank's cost of funds as set periodically by the Bank. A commitment fee
of .10% per annum will be incurred on the unused portion of the committed
facility which will be allocated to all participating funds. The Funds had no
outstanding borrowings during the year ended August 31, 1996.
38

<PAGE>
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND SHAREHOLDERS OF
EVERGREEN HIGH GRADE TAX FREE FUND
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, for Evergreen High Grade Tax Free Fund
as of August 31, 1996, and the related statement of operations for the year
ended August 31, 1996, the statements of changes in net assets for the year
ended August 31, 1996 and the eight-month period ended August 31, 1995, and the
financial highlights for each of the years or periods from February 21, 1992
(commencement of operations) through August 31, 1996. 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. Our procedures included confirmation of securities owned as of
August 31, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the overall 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 High Grade Tax Free Fund as of August 31, 1996, and the results of its
operations, changes in its net assets and the financial highlights for each of
the periods listed above, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
October 16, 1996
39

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES AND SHAREHOLDERS OF
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND AND
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
In our opinion, the accompanying Statements of Assets and Liabilities,
including the Statements of Investments, and the related Statements of
Operations and of Changes in Net Assets and the Financial Highlights present
fairly, in all material respects, the financial position of Evergreen
Short-Intermediate Municipal Fund and Evergreen Short-Intermediate
Fund -- California (the "Funds"), two of the Evergreen Municipal Trust
Portfolios, at August 31, 1996, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at August 31, 1996 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
October 18, 1996
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
100% of the dividends distributed by High Grade, Short-Intermediate and
California for the year ended August 31, 1996 are exempt from federal income tax
other than alternative minimum tax.
40

<PAGE>
TRUSTEES AND OFFICERS
TRUSTEES:
Laurence B. Ashkin*
Foster Bam*
James S. Howell, Chairman
Robert J. Jeffries*+
Gerald M. McDonnell
Thomas L. McVerry
William W. Pettit
Russell A. Salton, III M.D.
Michael S. Scofield
OFFICERS:
John J. Pileggi
President and Treasurer
Joan V. Fiore
Secretary
Sheryl Hirschfeld
Assistant Secretary
Donald E. Brostrom
Assistant Treasurer
Stephen W. St. Clair
Assistant Treasurer
* Trustees for Evergreen Short-Intermediate
Municipal Fund
and Evergreen Short-Intermediate Municipal
Fund -- California only.
+ Trustee Emeritus

<PAGE>
This brochure must be preceeded 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.

NOT May lose value
FDIC No bank guarantee
INSURED
Evergreen Funds Distributor, Inc.

Evergreen(sm) is a Service Mark of Evergreen Asset Management Corp. Copyright
1996, Evergreen Asset Management Corp.

45244 539584
10/96