EVERGREEN INVESTMENT TRUST, N-30D, 1996-05-08

EVERGREEN INVESTMENT TRUST
N-30D, 1996-05-08

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<PAGE>

EVERGREEN(SM)
TAX-FREE FUNDS

(Photos of a building, money and power lines)

SEMI-ANNUAL
REPORT

FEBRUARY 29, 1996

(Evergreen Tree Logo)
Evergreen
Funds

<PAGE>
EVERGREEN TAX-FREE FUNDS
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
(Photo of building) Economic Overview......................................................... 1
HIGH GRADE A Report From Your Portfolio Manager...................................... 3
TAX FREE FUND Statement of Investments.................................................. 4
Statement of Assets and Liabilities....................................... 8
Statement of Operations................................................... 9
Statement of Changes in Net Assets........................................ 10
Financial Highlights...................................................... 11

(Photo of money) SHORT-INTERMEDIATE A Report From Your Portfolio Manager...................................... 13
MUNICIPAL FUND Statement of Investments.................................................. 14
Statement of Assets and Liabilities....................................... 16
Statement of Operations................................................... 17
Statement of Changes in Net Assets........................................ 18
Financial Highlights...................................................... 19

(Photo of power lines) SHORT-INTERMEDIATE A Report From Your Portfolio Manager...................................... 21
MUNICIPAL Statement of Investments.................................................. 22
FUND-CALIFORNIA Statement of Assets and Liabilities....................................... 24
Statement of Operations................................................... 25
Statement of Changes in Net Assets........................................ 26
Financial Highlights...................................................... 27

Combined Notes to Financial Statements.................................... 28
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
ECONOMIC OVERVIEW
BY EVERGREEN ASSET MANAGEMENT CHAIRMAN
STEPHEN A. LIEBER
The volatility of investment markets during the (Photo of Stephen A.
first quarter of 1996 reflected a virtually constant Lieber)
reappraisal of economic prospects. The prospects of
sporadic commodity inflation, evidence of resurgent
employment trends, failure of
political negotiations to achieve a balanced budget agreement, declining demand
in personal computer-based technological products, sizable consumer credit
growth and greater credit card losses, the increase in imports without
concomitant increases in exports, and the rise of the dollar, all drove the
markets to mirror the fast changing trends of new statistics. The question of
whether inflation might be reappearing was central to the investor reaction to
these concerns. Fears of inflation increased through the first quarter, as
evidenced by the sizable rise in bond market yields. By early April, long-term
U.S. Treasury bond yields reached 7%, a level last seen in August 1995, and up
more than one full percentage point from the beginning of the year. Clearly,
investors were demanding more of an inflation premium in interest rates.
The background with which this year has begun is inconclusive in its trends.
We have previously held to the view that a wage-driven inflation is unlikely in
the present economic environment due to the easy substitution of imported goods
for many domestic goods, while competitive pressures for U.S. and world markets
mount from the broadening dispersion of technology, capital, and capital goods.
The strength of American industry, it is generally held, must come from its
product innovation, its quality, and the rising productivity of its work force.
These internal and external pressures have had a major impact in restraining
wage-driven inflation. Monetary inflation has shown improving trends as the
budget deficit, as a percentage of gross domestic product, continues to decline.
Attention, however, must still be given to the longer term issues of potentially
destabilized Federal budgeting due to entitlements. While no solution to this
issue of government deficit control emerged from this year's political
negotiations, it is at least better established on the political agenda than
ever before.
Investment markets demand a risk premium when faced with elements of
uncertainty. The risk premium lately built into the fixed income markets not
only reflects the arguable issue of whether there is a risk of wage inflation in
the United States, but also the sharp recent increases in some key commodity
prices. The combination of a dearth of rainfall and reduced acreage in key
agricultural states has spiked up major food commodity prices. Similarly, the
draining of oil inventories because of the heat requirements of the abnormally
long and cold winter in northern states, together with the cautious inventory
policies of the oil industry faced with the possibility that Iraqi supplies
might return to the market, has caused prices of oil and refined products to
rise. Many watchers for inflationary trends have jumped on these commodity
rises, which have lead them to conclude that the inflation rate will rise and,
therefore, that bond yields have to go up. The dissent is widespread, arguing
that these are temporary interruptions, which will in the long run serve more to
shrink profit margins than to raise prices and arguing that these are only
interruptions to a fundamentally steady low inflation trend. They point to the
2.8% increase in the Consumer Price Index for the twelve months ended March 31.
More important in the analysis of the potentials for bond yields, many
economists argue, is the current trend toward the reduction of interest rates in
Europe, led by the recent half percent discount rate cut by the German
Bundesbank. The revival of economic growth in Europe, it is felt, requires lower
interest rates which in turn will facilitate a decline in rates in the United
States, merely from reduced competitive investment pressures. We conclude that
negative trends which have dominated the bond market in the first months of the
year, as marked by the sharp rise in yields, may well reflect shorter-term
factors rather than long-term trends. Federal Reserve Bank Governors in numerous
recent speeches and interviews have made the point that they are confident about
the underlying trend of well-controlled inflation, suggesting that they are not
aiming to increase the discount rates or to put any
1

<PAGE>
EVERGREEN TAX-FREE FUNDS
ECONOMIC OVERVIEW -- (CONTINUED)
pressures to slow the economy. We conclude that the Federal Reserve is not
aiming to stimulate the economy at this time, but will act to sustain a
reasonable growth in the better than 2% range if there is any further evidence
of broadly slowing economic activity. International competitive interest rate
pressures are diminishing, the trade balance is improving and the economy has
remained resilient in the recent period of inventory correction. These are all
factors suggesting a period of comparative stability for the months ahead.
The tax-exempt securities markets in late 1994 and 1995, and again in early
1996, were negatively affected by the flat tax proposals. The differential
between the yields of taxable fixed income debt and tax-exempt debt shrank to
record lows for recent years. For those who were convinced that a flat tax, or a
substantially reduced income tax level, was not to be expected in the near-term,
the tax-exempt fixed income market presented an outstanding comparative
investment opportunity. The loss in the Presidential primaries of the one
candidacy which featured a flat tax has already restored considerable confidence
in the continuation of the present tax structure, and increased the spread
between taxable and tax-exempt bonds. As the fall election campaign nears, the
comparative strength of the tax-exempt market will reflect the positions of the
candidates. Unless there is a major surprise in the conventions, tax-exempt
obligations seem favorably situated.
Credit issues in the tax-exempt market have not been paramount since the rare
case of the Orange County, California default. The ripple effect of that default
was shorter lived than many expected, and the resolution of Orange County's
fiscal difficulties is well underway. Its positive impact was to develop
pressure for many municipalities and agencies to tighten their controls on cash
management policies and shift to a more prudent, credit worthy structure than
had often been used.
With our overall expectation of a gradual reduction in interest rates as the
inflation premium recently built into the market is reduced, we anticipate an
attractive total return for high-quality fixed income investments, and further
relative gains for the tax-exempt securities market.
2

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
(Photo of building)

A REPORT FROM YOUR
PORTFOLIO MANAGER
JAMES T. COLBY, III
With the onset of winter's deep freeze, a similar chill (Photo of James
settled into the fixed income markets during the first two T. Colby, III)
months of calendar year 1996. Briefly recapping the activities
of the past six months; in response to signals of a weakening
economy, the Federal Reserve eased credit by lowering the Fed
funds rate by 25-basis-points twice. These two rate cuts,
which lowered the Fed funds rate from 5.75% to 5.25%, provided
significant stimulus to the bond markets. The long treasury
bond rallied from a 6.69% to 5.96%, while municipal bonds
improved from 6.10% to 5.35%. There was also outstanding
equity market performance which served to validate the dual
expectations of continued Fed easing and a
bipartisan compromise on a 7-year balanced budget program. But a
December government shutdown served to mask some sound fundamental economic
growth, and in February when Fed Chairman Alan Greenspan began to hedge his bets
during Capital Hill testimony (precipitating treasury bond selling by hedge
funds) the markets began to retreat from the January highs. And, of course, the
enormous February growth in non-farm payrolls of 705,000 forced everyone to
restate their near-term interest rate forecast.
As we move into the second quarter of 1996, the future trend of the bond
market seems less clear. We can now envision a scenario where there is no
further easing by the Federal Reserve during 1996 as interest rates work their
way back toward 7.00%. The municipal market, of course, will follow, although in
a less precise path since individual and institutional demand continues to
outpace the declining supply of new bonds. Therefore, technically, municipals
should perform well, if not outperform, versus all other fixed income securities
during the balance of the year. We remain optimistic as to the resilience of the
market and that our positioning for performance in specific market sectors will
help provide us with another fine year of returns. As stated in our 1995 Annual
Report, our core holdings in noncallable bonds has enabled the Fund to perform
well in all markets, as well as avoid any trend toward excessive turnover for
repositioning purposes. As of February 29, 95% of the Fund's holdings were
invested in insured bonds rated Aaa*. The Fund's average maturity was 14.4 years
and its duration was 9.14 years.
For the six months ended February 29, 1996, the total returns for the Fund's
Class A shares at NAV, Class B shares at NAV, and Class Y shares (no-load), were
6.43%, 6.04%, and 6.56%, respectively**. The 12-month total returns ended
February 29, for those classes of shares, were 11.4%, 10.6%, and 11.7%,
respectively, which ranked them #5, #12, and #4, respectively, among the 46
Insured Municipal Debt Funds tracked by Lipper Analytical Services*** during
that time. The 12-month total returns through December 31, 1995 for each of
these classes of shares ranked within the top 5% of the 1,595 Insured Municipal
Debt Funds tracked by Lipper during that time. (The Fund's Class A shares are
subject to a maximum front end sales charge of 4.75% and Class B shares are
subject to a maximum contingent deferred sales charge of 5%.)
I look forward to communicating with you again at our fiscal year-end and we
at Evergreen Asset Management are appreciative of your support and recognition
that the High Grade Tax Free Fund is your investment vehicle of choice.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
* INSURED AS TO TIMELY PAYMENT OF PRINCIPAL AND INTEREST. THE FUND ITSELF IS
NOT INURED, NOR IS THE VALUE OF ITS SHARES GUARANTEED.
** PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE.
INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
*** LIPPER ANALYTICAL SERVICES, INC., IS AN INDEPENDENT MUTUAL FUNDS PERFORMANCE
MONITOR. PERFORMANCE FIGURES AND LIPPER RANKINGS QUOTED DO NOT INCLUDE SALES
CHARGES. IF INCLUDED, PERFORMANCE WOULD BE LOWER AND RANKINGS MAY BE
DIFFERENT.
3

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF INVESTMENTS
(Photo of building)
FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS -- 96.9%
ALASKA -- .9%
$ 500 Municipality of Anchorage GO School
and GO Refunding School Bonds Series
1995,
6.00%, 10/1/14 (FGIC)................ $ 535,320
500 Municipality of Anchorage Senior Lien
Electric RRB Series 1993, 6.20%,
12/1/13 (MBIA)....................... 528,415
1,063,735
ARIZONA -- 3.7%
1,940 City of Phoenix GO Refunding Bonds,
Series 1995A,
6.25%, 7/1/17........................ 2,168,357
1,000 Creighton Elementary School District
No. 14 of Maricopa County School
Improvement Bonds (Project of 1990)
Series C 1991,
6.50%, 7/1/07 (FGIC)................. 1,152,930
1,000 Navajo County Pollution Control Corp.
RRB Series 1993A,
5.875%, 8/15/28 (MBIA)............... 1,022,170
4,343,457
CALIFORNIA -- 4.1%
Redevelopment Agency of the City of
San Jose Merged Area Redevelopment
Project Tax Allocation Bonds Series
1993,
1,000 6.00%, 8/1/08 (MBIA)................. 1,106,320
3,000 6.00%, 8/1/15 (MBIA)................. 3,203,520
500 San Mateo County Joint Powers
Financing Authority Lease RRB
(Capital Projects Program)
Series 1993A,
6.50%, 7/1/16 (MBIA)................. 568,015
4,877,855
COLORADO -- 1.4%
1,000 Arapahoe County Capital Improvement
Trust Fund Highway RB (E-470 Project)
Senior Current Interest Bonds,
7.00%, 8/31/26....................... 1,099,500
500 School District No. 1 in the City and
County of Denver GO Refunding Bonds
Series 1994A, 6.50%, 6/1/10 (MBIA)... 573,550
1,673,050
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
CONNECTICUT -- 1.3%
$ 1,400 Connecticut State Special Tax
Obligation RB (Transportation
Infrastructure) Series 1992B, 6.125%,
9/1/12 (MBIA)........................ $ 1,529,248
FLORIDA -- 1.0%
1,000 Hillsborough County Industrial
Development Authority (University
Community Hospital Project)
Industrial Development RB
Series 1994,
6.50%, 8/15/19 (MBIA)................ 1,145,320
GEORGIA -- 6.4%
City of Atlanta Airport Facilities
500 RRB Series 1994A,
6.50%, 1/1/10 (AMBAC)................ 569,915
2,500 RB Series 1994B,
6.00%, 1/1/21 (AMBAC)................ 2,567,025
1,500 City of Brunswick Water and Sewage
RRB and Improvement Bonds Series
1992,
6.10%, 10/1/19 (MBIA)................ 1,626,390
2,400 Municipal Electric Authority of
Georgia Project One Special
Obligation Bonds, Fifth
Crossover Series,
6.50%, 1/1/17 (MBIA)................. 2,708,136
7,471,466
HAWAII -- 1.0%
1,000 Hawaii State Airport Systems RB
Second Series 1990,
7.50%, 7/1/20 (FGIC)................. 1,114,560
IDAHO -- .9%
1,000 Idaho Housing Agency Single Family
Mortgage Bonds Series 1994 C-1 Term
Mezzanine,
6.30%, 7/1/11........................ 1,037,590
ILLINOIS -- 12.7%
2,150 City of Chicago GO Series 1995,
6.125%, 1/1/16 (AMBAC)............... 2,265,777
1,500 City of Chicago GO (Emergency
Telephone System) Series 1993, 5.60%,
1/1/10 (FGIC)........................ 1,573,695
1,250 City of Chicago Water RRB
Series 1993,
6.50%, 11/1/15 (FGIC)................ 1,411,975
</TABLE>
4

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of building)
FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS -- CONTINUED
ILLINOIS -- (CONTINUED)
Illinois Development Finance
Authority Pollution Control RRB
(Commonwealth Edison Company Project)
$ 2,000 Series 1991,
7.25%, 6/1/11 (MBIA)................. $ 2,271,220
3,000 Series 1994D,
6.75%, 3/1/15 (AMBAC)................ 3,406,020
1,400 Illinois Health Facilities Authority
RB (The Children's Memorial Hospital)
Series 1993,
6.25%, 8/15/13 (MBIA)................ 1,513,554
1,750 Illinois Health Facilities Authority
Health Facilities RRB (SSM Health
Care) Series 1992AA,
6.50%, 6/1/12 (MBIA)................. 1,970,605
500 Regional Transportation Authority RB
Series 1991A,
6.70%, 11/1/21 (FGIC)................ 580,420
14,993,266
INDIANA -- 6.4%
Indiana Municipal Power Agency Power
Supply System RRB
2,300 Series 1992A,
6.125%, 1/1/19 (MBIA)................ 2,376,590
Series 1993B,
1,390 6.00%, 1/1/12 (MBIA)................. 1,496,405
1,000 6.00%, 1/1/13 (MBIA)................. 1,073,780
1,500 Middle School Building Corporation of
Lawrence Township of Marion County
First Mortgage Bonds, 6.875%, 7/5/11
(MBIA)............................... 1,756,320
700 Indiana Transportation Finance
Authority Highway RB
Series 1992A,
6.80%, 12/1/16 (MBIA)................ 813,631
7,516,726
MAINE -- 1.0%
1,000 Maine Turnpike Authority Turnpike RB
Series 1994,
7.125%, 7/1/08 (MBIA)................ 1,199,990
MASSACHUSETTS -- .4%
500 Massachusetts Housing Finance Agency
RB (Housing Project)
Series 1993,
6.15%, 10/1/15 (AMBAC)............... 511,485
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
MICHIGAN -- .8%
$ 1,000 City of Detroit Sewage Disposal
System RB Series 1995A,
5.00%, 7/1/25 (MBIA)................. $ 920,710
MINNESOTA -- .5%
500 Minnesota Housing Finance Agency
Single Family Mortgage Bonds Series
1994H,
6.70%, 1/1/18........................ 526,050
NEVADA -- 3.2%
1,575 Clark County Transportation GO
Improvement Bonds (Limited Tax)
Series 1992A,
6.50%, 6/1/17 (AMBAC)................ 1,783,656
2,000 Washoe County Multi-Purpose Bowling
GO Facility Bonds (Reno-Sparks
Convention & Visitors Authority)
Series 1993A
(Limited Tax),
5.70%, 7/1/17 (FGIC)................. 1,994,940
3,778,596
NEW MEXICO -- .9%
City of Albuquerque, New Mexico
Airport RB
500 Series 1995 A,
6.35%, 7/1/07 (AMBAC)................ 545,965
500 Series 1995 B,
7.00%, 7/1/16 (AMBAC)................ 510,595
1,056,560
NEW YORK -- .5%
500 The Port Authority of New York and
New Jersey Consolidated Bonds,
Ninety-Seventh Series Second
Installment-Term Bonds,
6.50%, 7/15/19....................... 544,415
NORTH DAKOTA -- 1.3%
1,500 Mercer County Pollution Control RRB
(Basin Electric Power
Cooperative-Antelope Valley Unit 1
and Common Facilities) Second 1995
Series,
6.05%, 1/1/19 (AMBAC)................ 1,569,060
OHIO -- 5.0%
1,000 Board of Education Kings Local School
District GO School Improvement Bonds
(County of Warren) Series 1995
(Unlimited Tax),
7.50%, 12/1/16 (FGIC)................ 1,265,940
</TABLE>
5

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of building)
FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS -- CONTINUED
OHIO -- (CONTINUED)
$ 500 City of Cleveland Waterworks
Improvement First Mortgage RRB Series
1993G,
5.50%, 1/1/13 (MBIA)................. $ 511,010
1,500 City of Toledo Housing GO Improvement
Bonds (Macy's Project) Series 1995A
(Limited Tax),
6.35%, 12/1/25 (MBIA)................ 1,615,725
1,100 Ohio Air Quality Development
Authority RRB (JMG Funding, Limited
Partnership Project)
Series 1994,
6.375%, 4/1/29 (AMBAC)............... 1,168,244
500 Ohio Housing Finance Agency
Residential Mortgage RB (GNMA
Mortgage-Backed Securities Program)
1995 Series A-2,
6.625%, 3/1/26....................... 515,160
750 Ohio Water Development Authority
Water Development 1992 Clean Water
RRB,
6.00%, 12/1/16 (MBIA)................ 780,465
5,856,544
OKLAHOMA -- 1.4%
1,500 McGee Creek Authority RB Water Series
1992,
6.00%, 1/1/23 (MBIA)................. 1,622,175
PUERTO RICO -- 1.1%
250 Commonwealth of Puerto Rico GO Public
Improvement Bonds
Series 1995,
5.65%, 7/1/15 (MBIA)................. 260,178
500 Puerto Rico Electric Power Authority
RRB Series 1995Y, 6.50%, 7/1/06
(MBIA)............................... 573,880
500 Puerto Rico Housing Bank and Finance
Agency Affordable Housing Mortgage
Subsidy Program Single Family
Mortgage RB, Portfolio I, 6.10%,
10/1/15.............................. 510,470
1,344,528
SOUTH CAROLINA -- 4.4%
1,500 South Carolina Public Service
Authority RRB 1993 Series C, 5.00%,
1/1/18 (FGIC)........................ 1,383,735
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
SOUTH CAROLINA -- CONTINUED
$ 3,500 South Carolina State Port Authority
RB Series 1991,
6.625%, 7/1/11 (AMBAC)............... $ 3,808,490
5,192,225
SOUTH DAKOTA -- 6.4%
3,500 Heartland Consumers Power District
Electric System RB Series 1992,
6.00%, 1/1/17 (FSA).................. 3,733,205
3,500 South Dakota Health and Educational
Facilities Authority RRB (St. Luke's
Midland Regional Medical Center
Issue) Series 1991, 6.625%, 7/1/11
(MBIA)............................... 3,843,035
7,576,240
TENNESSEE -- 5.0%
500 Metropolitan Government Water & Sewer
RRB (Counties of Nashville &
Davidson) Series 1993,
6.50%, 1/1/10 (FGIC)................. 570,450
1,200 The Health and Educational Facilities
Board of the City of Bristol Hospital
RRB (Bristol Memorial Hospital)
Series 1993, 6.75%, 9/1/07 (FGIC).... 1,401,552
The Health, Educational and Housing
Facilities Board of the County of
Knox Hospital RB (Fort Sanders
Alliance Obligated Group) Series
1993,
1,700 6.25%, 1/1/13 (MBIA)................. 1,872,261
2,000 5.75%, 1/1/14 (MBIA)................. 2,084,020
5,928,283
TEXAS -- 6.9%
3,000 City of Austin Airport System Prior
Lien RB Series 1995A,
6.125%, 11/15/25 (MBIA).............. 3,133,650
1,000 City of Houston Water Conveyance
Systems Contract COP
Series 1993H,
7.50%, 12/15/14 (AMBAC).............. 1,258,290
2,000 Harris County Toll Road Senior Lien
RRB Series 1994,
5.30%, 8/15/13 (AMBAC)............... 1,971,300
4,000 Round Rock Independent School
District Series 1991 Refunding GO,
Zero Coupon, 8/15/10 (MBIA).......... 1,812,360
8,175,600
</TABLE>
6

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of building)
FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS -- CONTINUED
UTAH -- 5.7%
$ 2,500 Board of Education of Iron County GO
School District School Building Bonds
Series 1994,
6.40%, 1/15/12 (MBIA)................ $ 2,690,725
1,000 Salt Lake City, Salt Lake County
Airport RB Series 1993A,
6.00%, 12/1/12 (FGIC)................ 1,030,410
3,000 Airport RRB Series 1993B, 5.875%,
12/1/18 (FGIC)....................... 3,021,810
6,742,945
VIRGINIA -- 2.2%
1,000 Chesapeake Bay Bridge & Tunnel
Authority RRB (Highway Revenue Tolls)
Series 1996,
5.25%, 7/1/19 (MBIA)................. 957,150
1,500 Industrial Development Authority of
the County of Hanover RB (Memorial
Regional Medical Center Project at
Hanover Medical Park) Series 1995,
6.375%, 8/15/18 (MBIA)............... 1,670,115
2,627,265
WASHINGTON -- 4.0%
1,500 Seattle Municipal Light & Power
Authority RB Series 1995A,
5.70%, 9/1/19 (MBIA)................. 1,514,370
City of Tacoma Electric System RRB
Series 1992A,
500 6.25%, 1/1/11 (AMBAC)................ 528,790
Series 1994,
2,500 6.25%, 1/1/15 (FGIC)................. 2,648,575
4,691,735
WISCONSIN -- 6.4%
4,500 City of Superior Limited Obligation
RRB (Midwest Energy Resources Company
Project) Series 1991E, 6.90%, 8/1/21
(FGIC)............................... 5,384,790
2,000 Wisconsin Health and Educational
Facilities Authority RB (Wausau
Hospitals, Inc. Project)
Series 1991B,
6.625%, 8/15/11 (AMBAC).............. 2,186,360
7,571,150
TOTAL LONG-TERM INVESTMENTS
(COST $106,340,047).................. $114,201,829
<CAPTION>
SHARES VALUE
<C> <S> <C>
MUTUAL FUND SHARES -- 1.0%
1,130,756 Lehman Tax-Free Money Market Fund
(at net asset value)
(cost $1,130,756)................... $ 1,130,756
TOTAL INVESTMENTS
(COST $107,470,803)...... 97.9% 115,332,585
OTHER ASSETS AND
LIABILITIES -- NET....... 2.1 2,416,862
TOTAL NET ASSETS............ 100.0% $117,749,447
</TABLE>

Summary of Abbreviations:
COP -- Certificates of Participation
GO -- General Obligations
RB -- Revenue Bonds
RRB -- Revenue Refunding Bonds
At February 29, 1996, the percentage breakdown of total investments which are
insured by municipal bond insurance companies are as follows:
<TABLE>
<S> <C> <C>
AMBAC -- American Municipal Bond Assurance Corp..... 21%
FGIC -- Financial Guaranty Insurance Corp........... 22%
FSA -- Financial Security Assurance Inc............. 3%
MBIA -- Municipal Bond Investors Assurance Corp..... 47%
% of Total Investments Insured................. 93%
</TABLE>
7

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
(Photo of building)
FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $107,470,803)........................................................... $115,332,585
Cash.......................................................................................................... 1,372
Receivable for investments sold............................................................................... 1,304,222
Interest receivable........................................................................................... 1,299,412
Receivable for Fund shares sold............................................................................... 88,694
Prepaid expenses.............................................................................................. 5,022
Total assets............................................................................................ 118,031,307
LIABILITIES:
Dividends payable............................................................................................. 171,981
Payable for Fund shares repurchased........................................................................... 58,631
Distribution fee payable...................................................................................... 22,683
Accrued advisory fee.......................................................................................... 16,791
Accrued expenses.............................................................................................. 11,774
Total liabilities....................................................................................... 281,860
NET ASSETS....................................................................................................... $117,749,447
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $112,120,665
Undistributed net investment income........................................................................... 47,344
Accumulated net realized loss on investment transactions...................................................... (2,280,344)
Net unrealized appreciation of investments.................................................................... 7,861,782
Net assets.............................................................................................. $117,749,447
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($56,772,378 5,108,167 shares of beneficial interest outstanding).............................. $ 11.11
Sales charge -- 4.75% of offering price....................................................................... .55
Maximum offering price..................................................................................... $ 11.66
Class B Shares ($36,052,138 3,243,560 shares of beneficial interest outstanding).............................. $ 11.11
Class Y Shares ($24,924,931 2,242,720 shares of beneficial interest outstanding).............................. $ 11.11
</TABLE>

See accompanying notes to financial statements.
8

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF OPERATIONS
(Photo of building)
SIX MONTHS ENDED FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest........................................................................................... $3,384,935
EXPENSES:
Advisory fee....................................................................................... $297,287
Administrative personnel and services fees......................................................... 31,893
Distribution fee -- Class A Shares................................................................. 72,859
Distribution fee -- Class B Shares................................................................. 132,272
Shareholder services fees -- Class B Shares........................................................ 44,090
Transfer agent fee................................................................................. 47,419
Custodian fee...................................................................................... 33,967
Reports and notices to shareholders................................................................ 24,042
Registration and filing fees....................................................................... 21,810
Professional fees.................................................................................. 14,722
Trustees' fees and expenses........................................................................ 2,527
Insurance.......................................................................................... 1,583
Miscellaneous...................................................................................... 11,337
735,808
Less: Advisory fee waiver.......................................................................... (118,917)
Net expenses................................................................................. 616,891
Net investment income................................................................................. 2,768,044
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions....................................................... 1,128,940
Net change in unrealized appreciation on investments............................................... 3,505,967
Net gain on investments............................................................................... 4,634,907
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $7,402,951
</TABLE>

See accompanying notes to financial statements.
9

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
(Photo of building)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED EIGHT MONTHS
FEBRUARY 29, 1996 ENDED
(UNAUDITED) AUGUST 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................................. $ 2,768,044 $ 3,187,579
Net realized gain on investment transactions........................................... 1,128,940 437,882
Net change in unrealized appreciation of investments................................... 3,505,967 7,804,353
Net increase resulting from operations.............................................. 7,402,951 11,429,814
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares......................................................................... (1,394,285) (1,935,789)
Class B Shares......................................................................... (711,036) (936,437)
Class Y Shares......................................................................... (637,947) (315,353)
Total distributions to shareholders................................................. (2,743,268) (3,187,579)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.............................................................. 5,544,454 3,098,389
Proceeds from shares issued in acquisition of Evergreen National Tax Free Fund......... -- 28,779,194
Proceeds from reinvestment of distributions............................................ 1,602,889 1,826,205
Payment for shares redeemed............................................................ (12,093,790) (18,339,492)
Net increase (decrease) resulting from Fund share transactions...................... (4,946,447) 15,364,296
Net increase (decrease) in net assets............................................... (286,764) 23,606,531
NET ASSETS:
Beginning of period.................................................................... 118,036,211 94,429,680
End of period (includes undistributed net investment income of $47,344 and 22,568,
respectively)........................................................................ $ 117,749,447 $ 118,036,211
</TABLE>

See accompanying notes to financial statements.
10

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
(Photo of building)
FINANCIAL HIGHLIGHTS
CLASS A SHARES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED EIGHT MONTHS YEAR ENDED
FEBRUARY 29, 1996 ENDED DECEMBER 31,
(UNAUDITED) 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................................ .26 .34 .52 .54
Net realized and unrealized gain (loss) on
investments........................................ .42 .90 (1.37) .81
Total from investment operations..................... .68 1.24 (.85) 1.35
Less distributions to shareholders from:
Net investment income................................ (.26) (.34) (.52) (.54)
Net realized gains................................... -- -- -- (.07)
Total distributions.................................. (.26) (.34) (.52) (.61)
Net asset value, end of period......................... $11.11 $10.69 $9.79 $11.16
TOTAL RETURN+.......................................... 6.4% 12.8% (7.7%) 13.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted).............. $56,772 $58,751 $57,676 $101,352
Ratios to average net assets:
Expenses **.......................................... .87%++ 1.06%++ 1.01% .85%
Net investment income **............................. 4.78%++ 4.93%++ 5.04% 4.99%
Portfolio turnover rate................................ 26% 27% 53% 14%
<CAPTION>

FEBRUARY 21,
1992* THROUGH
DECEMBER 31, 1992
<S> <C>
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 gains................................... --
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>
SIX MONTHS EIGHT FEBRUARY 21,
ENDED MONTHS 1992*
FEBRUARY 29, ENDED YEAR ENDED THROUGH
1996 AUGUST 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1995# 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Expenses................................................. 1.07% 1.09% 1.02% 1.07% 1.11%
Net investment income.................................... 4.58% 4.90% 5.03% 4.77% 5.17%
</TABLE>

See accompanying notes to financial statements.
11

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
(Photo of building)
FINANCIAL HIGHLIGHTS
CLASS B AND Y SHARES
<TABLE>
<CAPTION>
CLASS B SHARES CLASS Y SHARES
SIX MONTHS EIGHT JANUARY 11, SIX MONTHS EIGHT
ENDED MONTHS 1993* ENDED MONTHS
FEBRUARY 29, ENDED YEAR ENDED THROUGH FEBRUARY 29, ENDED
1996 AUGUST 31, DECEMBER 31, DECEMBER 31, 1996 AUGUST 31,
(UNAUDITED) 1995# 1994 1993 (UNAUDITED) 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....................... .22 .29 .46 .47 .28 .36
Net realized and unrealized gain (loss) on
investments............................... .42 .90 (1.37) .81 .42 .90
Total from investment operations............ .64 1.19 (.91) 1.28 .70 1.26
Less distributions to shareholders from:
Net investment income....................... (.22) (.29) (.46) (.47) (.28) (.36)
Net realized gains.......................... -- -- -- (.07) -- --
Total distributions......................... (.22) (.29) (.46) (.54) (.28) (.36)
Net asset value, end of period................ $11.11 $10.69 $9.79 $11.16 $11.11 $10.69
TOTAL RETURN+................................. 6.0% 12.3% (8.2%) 12.4% 6.6% 13.0%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)..... $36,052 $34,206 $32,435 $41,030 $24,925 $25,079
Ratios to average net assets:
Expenses **................................. 1.62%++ 1.81%++ 1.58% 1.35%++ .62%++ .81%++
Net investment income **.................... 4.03%++ 4.18%++ 4.47% 4.44%++ 5.03%++ 5.18%++
Portfolio turnover rate....................... 26% 27% 53% 14% 26% 27%
<CAPTION>

FEBRUARY 28,
1994*
THROUGH
DECEMBER 31,
1994
<S> <C>
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 gains.......................... --
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 charges are 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
SIX MONTHS EIGHT JANUARY 11, SIX MONTHS EIGHT
ENDED MONTHS 1993* ENDED MONTHS
FEBRUARY 29, ENDED YEAR ENDED THROUGH FEBRUARY 29, ENDED
1996 AUGUST 31, DECEMBER 31, DECEMBER 31, 1996 AUGUST 31,
(UNAUDITED) 1995# 1994 1993 (UNAUDITED) 1995#
<S> <C> <C> <C> <C> <C> <C>
Expenses.......................... 1.82% 1.84% 1.59% 1.57% .82% .84%
Net investment income............. 3.83% 4.15% 4.46% 4.22% 4.83% 5.15%
<CAPTION>

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

See accompanying notes to financial statements.
12

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
(Photo of money)
A REPORT FROM YOUR
PORTFOLIO MANAGER
STEVEN C. SHACHAT
We are pleased to present the Semi-Annual Report for (Photo of Steven
Evergreen Short-Intermediate Municipal Fund. The past six C. Shachat)
months have proven to be an exhilarating but challenging ride
for market participants. Evidence that economic activity
remained sluggish and that inflation continued to be under
control moved the Federal Reserve Board to further ease the
Federal Funds rate (the rate at which the nation's banks
borrow money from each other and on which all other short-term
rates are based) in January. This was the third reduction for
this important short-term rate in the past eight months, the
first occurring in July. The latest 25-basis-point reduction
in January put the rate at 5 1/4%. In addition, at its January
meeting, the Fed also lowered its discount rate, the rate at
which the Federal Reserve lends to member banks, to 5 1/4%, and, subsequently,
commercial banks dropped the prime lending rate to 8 1/4%.
More recently, however, economic strength has been reflected in some of the
indicators released. In his semi-annual Humphrey-Hawkins testimony before
Congress in February, Federal Reserve Board Chairman Alan Greenspan shocked the
markets by making comments that indicated the Fed is probably not going to
aggressively ease interest rates any time soon, barring more evidence that the
economy is faltering badly. In addition, an unusual combination of circumstances
had kept the true tempo of activity somewhat opaque as important economic
statistics were first delayed by the government shutdown, and then skewed as a
giant blizzard smothered the East Coast. Exceptionally weak data for January
kept alive notions that the economy might be downsizing, but the unknown impact
of the blizzard left a lot of doubt. Although everyone expected some rebound
when the weather cleared, the avalanche of new jobs that appeared in February
took the market by surprise.
Since the February employment data, financial markets have adjusted to the
possibility of quickened economic growth and the absence of an accommodative
Fed. We do not expect any further pronounced trend movement in interest rates
until more solid statistics and distortion-free data become available. For now,
it looks as if the Fed is on hold until it can evaluate the true, underlying
tempo of economic activity.
Our long-term investment strategy remains the same as in the past. In
conjunction with our primary goals of seeking to both maximize the Fund's yield
and maintain as much price stability as possible, we continue to purchase high
grade, noncallable, essential purchase and general obligation municipal bonds.
Our philosophy amid the current uncertainty of the U.S. economy is to buy
municipal bonds based on careful credit analysis and our estimation of a bond's
relative value, rather than on the basis of interest rate forecasts. As such, we
intend to maintain a neutral maturity stance in the 4 to 5-year range and hope
to add value through a careful structuring of the portfolio, seeking individual
bonds which we believe to be undervalued. Lastly, our portfolio quality remains
high. At February 29, over 80% of the Fund's net assets were invested in
securities rated Aaa, AA, or the equivalent by Moody's Investor Service and/or
Standard & Poor's.
As always, we remain dedicated to achieving superior investment results, and
look forward to maintaining the Fund's commitment to solid performance and
quality service.
13

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
STATEMENT OF INVESTMENTS
(Photo of money)
FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- 101.7%
ALABAMA -- 2.7%
$ 1,235 City of Mobile, GO Refunding Warrants
Series 1996,
5.50%, 2/15/00........................ $ 1,293,008
ALASKA -- 6.5%
1,045 Municipality of Anchorage, Alaska 1993
GO School RFB Series 1993A,
5.00%, 2/1/98 (MBIA).................. 1,068,199
1,950 North Slope Borough, GO RFB Series
1988G,
7.50%, 6/30/97........................ 2,048,456
3,116,655
COLORADO -- 4.1%
1,000 Cherry Creek School District No. 5,
Arapahoe County GO RB
Series 1995A,
5.25%, 12/15/02....................... 1,053,590
865 Colorado Student Obligation Board
Authority Student Loan RB
Series 1985B,
6.125%, 12/1/98....................... 888,113
1,941,703
DISTRICT OF COLUMBIA -- 3.3%
1,500 District of Columbia GO RFB
Series 1989 B,
6.625%, 6/1/98 (MBIA)................. 1,583,670
GEORGIA -- 2.2%
1,000 Municipal Electric Authority of
Georgia Power RB
Series 1986L,
7.50%, 1/1/98......................... 1,049,310
HAWAII -- 5.6%
2,500 State of Hawaii GO Series 1995 CJ,
5.70%, 1/1/03......................... 2,685,400
ILLINOIS -- 4.1%
1,000 Central Lake County Joint Action Water
Agency Water RB
Series 1990A, Prerefunded @102,
7.00%, 5/1/00 (AMBAC)................. 1,124,110
300 Illinois Health Facilities Authority
RB (Edward Hospital Association
Project) Series 1992,
6.00%, 2/15/97........................ 304,872
500 Illinois Student Assistance Commission
Student Loan RB
Series 1992M,
5.45%, 3/1/97......................... 509,100
1,938,082
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
MAINE -- 2.1%
$ 1,000 Maine Educational Loan Marketing Corp.
Student Loan RB
Series 1988A,
5.20%, 5/1/97......................... $ 1,017,690
MARYLAND -- 2.5%
1,140 Montgomery County GO Bonds
Consolidated Public Improvement RB of
1992 Series A,
5.30%, 7/1/01......................... 1,203,259
MASSACHUSETTS -- 7.7%
1,500 City of Boston, GO Bonds
Series 1995A,
5.25%, 10/1/02........................ 1,572,180
1,000 Mass. Water Pollution Abatement Trust
RB (MWRA Loan Program) Series 1995A,
6.00%, 8/1/02......................... 1,086,880
1,000 New England Educational Loan Marketing
Corp. Student Loan RB
Series 1993B,
5.40%, 6/1/00......................... 1,028,970
3,688,030
MICHIGAN -- 3.2%
1,500 Detroit Sewage Disposal System RB
Series 1993A,
4.85%, 7/1/01......................... 1,538,895
NEVADA -- 2.2%
1,000 Las Vegas Valley Water District GO
(Limited Tax) Water RRB
Series 1987, Prerefunded @102,
7.25%, 11/1/97 (AMBAC)................ 1,077,150
NEW JERSEY -- 6.8%
2,000 New Jersey State GO Series 1991,
5.90%, 8/1/02......................... 2,181,360
1,050 New Jersey State Waste Water Treatment
Trust
Series 1995A,
4.60%, 9/1/01......................... 1,074,076
3,255,436
NEW YORK -- 2.1%
1,000 New York State Dormitory Authority,
Vassar College RB
Series 1995,
4.375%, 7/1/02........................ 1,002,420
OHIO -- 2.1%
1,000 The Student Loan Funding Corporation
(Cincinnati) Student Loan RB Series
1993A,
5.50%, 12/1/01........................ 1,020,650
</TABLE>
14

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of money)
FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
OKLAHOMA -- 1.6%
$ 750 Oklahoma Student Loan Authority RRB
Series 1992A,
5.35%, 9/1/96......................... $ 756,878
OREGON -- 2.2%
1,050 Multnomah County, School District #1J
GO Series 1995,
4.50%, 6/1/01......................... 1,065,645
PENNSYLVANIA -- 1.1%
500 State of Pennsylvania GO
Series 1971,
6.00%, 12/15/98....................... 504,785
TEXAS -- 9.9%
695 Brazos Higher Education Authority,
Inc. Student Loan RRB
Series 1992-A,
6.00%, 3/1/96......................... 695,090
1,000 Series 1993A-1,
5.30%, 12/1/97........................ 1,023,130
500 City of Dallas, GO Bonds,
5.90%, 2/15/01........................ 537,235
1,300 Dallas County Improvement and
Refunding Bonds (Limited Tax)
Series 1992-A,
6.00%, 8/15/01........................ 1,414,439
1,000 Northside, Texas Independent School GO
(District Unlimited Tax)
Series 1986,
7.00%, 2/1/98......................... 1,059,690
4,729,584
UTAH -- .9%
405 Utah Housing Finance Agency Single
Family Mortgage RRB Senior Bonds
Series 1993A,
5.20%, 1/1/01......................... 411,334
VIRGINIA -- 13.2%
1,200 Chesapeake, Water & Sewer
Series 1995A,
7.00%, 12/1/01........................ 1,369,440
1,205 City of Chesapeake Public School
Authority Special Obligation School
Financing Bonds Series 1995,
5.40%, 6/1/05......................... 1,275,974
1,000 City of Virginia Beach GO Public
Improvement & RFB Series 1994,
5.70%, 11/1/07........................ 1,070,430
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
VIRGINIA -- CONTINUED
$ 1,000 Virginia Beach GO RFB Series 1992,
5.90%, 2/1/04......................... $ 1,085,770
1,500 Virginia Housing Development Authority
Commonwealth Mortgage Bonds Series
1992B Subseries B-1,
6.00%, 1/1/98......................... 1,526,715
6,328,329
WASHINGTON -- 11.0%
2,950 State of Washington GO RB (Motor
Vehicle Fuel Tax) Series R-92D,
5.60%, 9/1/01......................... 3,139,213
2,000 State of Washington, GO Series 93A,
5.50%, 10/1/03........................ 2,129,940
5,269,153
WISCONSIN -- 4.6%
1,000 City of Milwaukee GO Corporate Purpose
Bonds, Public Improvements, Series BZ,
6.30%, 6/15/01........................ 1,094,710
1,000 Wisconsin State, GO RFB
Series 1992,
6.00%, 5/1/02......................... 1,089,540
2,184,250
</TABLE>

<TABLE>
<C> <S> <C> <C>
TOTAL LONG-TERM INVESTMENTS
(COST $47,592,304)....... 101.7% 48,661,316
OTHER ASSETS AND
LIABILITIES -- NET....... (1.7) (835,421)
NET ASSETS.................. 100.0% $ 47,825,895
</TABLE>

Summary of Abbreviations:
AMBAC -- Insured by American Municipal Bond Assurance Corp.
GO -- General Obligations
MBIA -- Insured by Municipal Bond Investors Assurance
MWRA -- Massachusetts Water Resources Authority
RB -- Revenue Bonds
RFB -- Refunding Bonds
RRB -- Revenue Refunding Bonds
See accompanying notes to financial statements.
15

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
STATEMENT OF ASSETS AND LIABILITIES
(Photo of money)
FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $47,592,304)............................................................. $48,661,316
Interest receivable............................................................................................ 657,948
Prepaid expenses............................................................................................... 33,446
Receivable for Fund shares sold................................................................................ 28,916
Unamortized organization expenses.............................................................................. 3,288
Total assets............................................................................................. 49,384,914
LIABILITIES:
Due to custodian bank.......................................................................................... 178,821
Payable for investment securities purchased.................................................................... 1,284,740
Accrued expenses............................................................................................... 16,509
Distribution fee payable....................................................................................... 7,154
Payable for Fund shares repurchased............................................................................ 33,874
Dividend payable............................................................................................... 33,119
Accrued advisory fee........................................................................................... 4,802
Total liabilities........................................................................................ 1,559,019
NET ASSETS........................................................................................................ $47,825,895
NET ASSETS CONSISTS OF:
Paid-in capital................................................................................................ $47,429,520
Accumulated net realized loss on investment transactions....................................................... (672,637)
Net unrealized appreciation of investments..................................................................... 1,069,012
Net assets............................................................................................... $47,825,895
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($3,623,678 353,608 shares of beneficial interest outstanding).................................. $10.25
Sales charge -- 3.25% of offering price........................................................................ .34
Maximum offering price......................................................................................... $ 10.59
Class B Shares ($7,551,856 737,024 shares of beneficial interest outstanding).................................. $ 10.25
Class Y Shares ($36,650,361 3,578,681 shares of beneficial interest outstanding)............................... $ 10.24
</TABLE>

See accompanying notes to financial statements.
16

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
STATEMENT OF OPERATIONS
(Photo of money)
SIX MONTHS ENDED FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest........................................................................................... $1,336,670
EXPENSES:
Advisory fee....................................................................................... $130,676
Distribution fee -- Class A Shares................................................................. 3,462
Distribution fee -- Class B Shares................................................................. 24,951
Shareholder services fees -- Class B Shares........................................................ 8,317
Registration and filing fees....................................................................... 37,907
Transfer agent fee................................................................................. 31,949
Custodian fee...................................................................................... 27,505
Professional fees.................................................................................. 13,882
Reports and notices to shareholders................................................................ 7,589
Insurance.......................................................................................... 6,245
Amortization of organization expenses.............................................................. 4,399
Trustees' fees and expenses........................................................................ 4,041
Miscellaneous...................................................................................... 1,547
302,470
Less: Fee waivers and expense reimbursements....................................................... (90,129)
Net expenses.............................................................................. 212,341
Net investment income................................................................................. 1,124,329
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments................................................................... 189,271
Net change in unrealized appreciation of investment transactions................................... 205,548
Net gain on investments............................................................................... 394,819
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $1,519,148
</TABLE>

See accompanying notes to financial statements.
17

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
(Photo of money)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 29, 1996 YEAR ENDED
(UNAUDITED) AUGUST 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................................. $ 1,124,329 $ 2,318,884
Net realized gain (loss) on investment transactions.................................... 189,271 (713,222)
Net change in unrealized appreciation of investments................................... 205,548 529,821
Net increase resulting from operations.............................................. 1,519,148 2,135,483
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares......................................................................... (151,860) (178,721)
Class B Shares......................................................................... (116,074) (96,022)
Class Y Shares......................................................................... (856,395) (2,044,141)
Total distributions to shareholders................................................. (1,124,329) (2,318,884)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.............................................................. 8,360,353 25,128,726
Proceeds from reinvestment of distributions............................................ 899,967 1,923,116
Payment for shares redeemed............................................................ (15,281,214) (26,833,640)
Net increase (decrease) resulting from Fund share transactions...................... (6,020,894) 218,202
Net increase (decrease) in net assets............................................... (5,626,075) 34,801
NET ASSETS:
Beginning of period.................................................................... 53,451,970 53,417,169
End of period.......................................................................... $ 47,825,895 $ 53,451,970
</TABLE>

See accompanying notes to financial statements.
18

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
(Photo of money)
FINANCIAL HIGHLIGHTS
CLASS A AND B SHARES
<TABLE>
<CAPTION>
CLASS B
CLASS A SHARES SHARES
SIX MONTHS JANUARY 5, SIX MONTHS
ENDED 1995* ENDED
FEBRUARY 29, THROUGH FEBRUARY 29,
1996 AUGUST 31, 1996
(UNAUDITED) 1995 (UNAUDITED)
<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......................................................... .22 .30 .18
Net realized and unrealized gain on investments............................... .08 .20 .08
Total from investment operations............................................ .30 .50 .26
Less distributions to shareholders from net investment income................... (.22) (.30) (.18)
Net asset value, end of period................................................ $10.25 $10.17 $10.25
TOTAL RETURN+................................................................... 3.0% 5.1% 2.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)............................................................... $3,624 $6,820 $7,552
Ratios to average net assets:
Expenses**.................................................................... .72%++ .70%++ 1.62++
Net investment income**....................................................... 4.39%++ 4.32%++ 3.48++
Portfolio turnover rate......................................................... 27% 80% 27%
<CAPTION>

JANUARY 5,
1995*
THROUGH
AUGUST 31,
1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period............................................ $9.97
Income from investment operations:
Net investment income......................................................... .24
Net realized and unrealized gain 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 charges are 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
CLASS A SHARES SHARES
SIX MONTHS JANUARY 5, SIX MONTHS
ENDED 1995* ENDED
FEBRUARY 29, THROUGH FEBRUARY 29,
1996 AUGUST 31, 1996
(UNAUDITED) 1995 (UNAUDITED)
<S> <C> <C> <C>
Expenses........................................................................ 1.43% 1.14% 2.28%
Net investment income........................................................... 3.68% 3.88% 2.82%
<CAPTION>

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

See accompanying notes to financial statements.
19

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
(Photo of money)
FINANCIAL HIGHLIGHTS -- (CONTINUED)
CLASS Y SHARES
<TABLE>
<CAPTION>
CLASS Y SHARES
SIX MONTHS
ENDED
FEBRUARY 29,
1996 YEAR ENDED AUGUST 31,
(UNAUDITED) 1995 1994 1993 1992++
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period............................. $10.17 $10.21 $10.58 $10.33 $10.00
Income from investment operations:
Net investment income.......................................... .22 .46 .47 .49 .51
Net realized and unrealized gain (loss) on investments......... .08 (.04) (.32) .25 .33
Total from investment operations............................. .30 .42 .15 .74 .84
Less distributions to shareholders:
From net investment income..................................... (.23) (.46) (.47) (.49) (.51)
From net realized gains on investments......................... -- -- (.03) -- --
In excess of net realized gains on investments................. -- -- (.02) -- --
Total distributions.......................................... (.23) (.46) (.52) (.49) (.51)
Net asset value, end of period................................. $10.24 $10.17 $10.21 $10.58 $10.33
TOTAL RETURN+.................................................... 2.9% 4.2% 1.4% 7.4% 8.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)........................ $36,650 $40,581 $53,417 $66,607 $54,470
Ratios to average net assets:
Expenses**..................................................... .69%++ .74% .58% .40% .17%
Net investment income**........................................ 4.43%++ 4.52% 4.54% 4.73% 4.85%
Portfolio turnover rate.......................................... 27% 80% 32% 37% 57%
<CAPTION>

JULY 17,
1991*
THROUGH
AUGUST 31,
1991++
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period............................. $10.00
Income from investment operations:
Net investment income.......................................... .06
Net realized and unrealized gain (loss) on investments......... --
Total from investment operations............................. .06
Less distributions to shareholders:
From net investment income..................................... (.06)
From net realized gains on investments......................... --
In excess of net realized gains on investments................. --
Total distributions.......................................... (.06)
Net asset value, end of period................................. $10.00
TOTAL RETURN+.................................................... .6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)........................ $4,025
Ratios to average net assets:
Expenses**..................................................... 0%++
Net investment income**........................................ 4.93%++
Portfolio turnover rate.......................................... 0%
</TABLE>

* Commencement of class operations.
++ 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.
++ 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
SIX MONTHS
ENDED
FEBRUARY 29,
1996 YEAR ENDED AUGUST 31,
(UNAUDITED) 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Expenses............................................................... .92% .86% .83% .81% .86%
Net investment income.................................................. 4.20% 4.40% 4.29% 4.32% 4.16%
<CAPTION>

JULY 17,
1991*
THROUGH
AUGUST 31,
1991
<S> <C>
Expenses............................................................... 1.40%
Net investment income.................................................. 3.53%
</TABLE>

See accompanying notes to financial statements.
20

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
CALIFORNIA
(Photo of power lines)
A REPORT FROM YOUR
PORTFOLIO MANAGER
STEVEN C. SHACHAT
We are pleased to present the Semi-Annual Report for (Photo of Steven
Evergreen Short-Intermediate Municipal Fund-California. The C. Shachat)
past six months have proven to be an exhilarating but
challenging ride for market participants. Evidence that
economic activity remained sluggish and that inflation
continued to be under control moved the Federal Reserve Board
to further ease the Federal Funds rate (the rate at which the
nation's banks borrow money from each other and on which all
other short-term rates are based) in January. This was the
third reduction for this important short-term rate in the past
eight months, the first occurring in July. The latest
25-basis-point reduction in January
put the rate at 5 1/4%. In addition, at its January meeting,
the Fed also lowered its discount rate, the rate at which the Federal Reserve
lends to member banks, to 5 1/4%, and, subsequently, commercial banks dropped
the prime lending rate to 8 1/4%.
More recently, however, economic strength has been reflected in some of the
indicators released. In his semi-annual Humphrey-Hawkins testimony before
Congress in February, Federal Reserve Board Chairman Alan Greenspan shocked the
markets by making comments that indicated the Fed is probably not going to
aggressively ease interest rates any time soon, barring more evidence that the
economy is faltering badly. In addition, an unusual combination of circumstances
had kept the true tempo of activity somewhat opaque as important economic
statistics were first delayed by the government shutdown, and then skewed as a
giant blizzard smothered the East Coast. Exceptionally weak data for January
kept alive notions that the economy might be downsizing, but the unknown impact
of the blizzard left a lot of doubt. Although everyone expected some rebound
when the weather cleared, the avalanche of new jobs that appeared in February
took the market by surprise.
Since the February employment data, the financial markets have adjusted to
the possibility of quickened economic growth and the absence of an accommodative
Fed. We do not expect any further pronounced trend movement in interest rates
until more solid statistics and distortion-free data become available. For now,
it looks as if the Fed is on hold until it can evaluate the true, underlying
tempo of economic activity.
Our long-term investment strategy remains the same as in the past. In
conjunction with our primary goals of seeking to both maximize the Fund's yield
and maintain as much price stability as possible, we continue to purchase high
grade, noncallable, essential purchase and general obligation municipal bonds.
Our philosophy amid the current uncertainty of the U.S. economy is to buy
municipal bonds based on careful credit analysis and our estimation of a bond's
relative value, rather than on the basis of interest rate forecasts. As such, we
intend to maintain a neutral maturity stance in the 4 to 5-year range and hope
to add value through a careful structuring of the portfolio, seeking individual
bonds which we believe to be undervalued. Lastly, our portfolio quality remains
high. At February 29, over 80% of th Fund's net assets were invested in
securities rated Aaa, AA, or the equivalent by Moody's Investor Service and/or
Standard & Poor's.
The California economy continues to grow and the unemployment rate declined
to 7.7% by year-end 1995, as compared with the unemployment rate average of 8.6%
throughout 1994. The improving economy bolstered state cash balances beyond
required liquidity levels and thus avoided any mandated cuts in state spending.
Short-term borrowing is anticipated after the outstanding Revenue Anticipation
Warrants are paid in April, but the borrowing would be only for $2 billion and
will not extend over year-end.
As always, we remain dedicated to achieving superior investment results, and
look forward to continuing to serve your investment needs.
21

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
STATEMENT OF INVESTMENTS
(Photo of power lines)
FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C> <C>
LONG-TERM INVESTMENTS -- 94.7%
$1,000 Burbank-Glendale-Pasadena
Airport Authority Airport RRB
Series 1992,
5.00%, 6/1/98 (AMBAC).......... $ 1,025,390
California Housing Finance
Agency Multi-Unit Rental
Housing RB 1992 Series A,
325 5.00%, 2/1/97.................. 327,347
320 5.25%, 2/1/98.................. 324,006
900 California State GO,
7.00%, 8/1/02 (FGIC)........... 1,030,725
500 California Statewide
Communities Development
Authority COP (Sutter Obligated
Group),
5.00%, 8/15/98 (AMBAC)......... 513,135
320 Chino Unified School District
San Bernardino County GO 1975
Series 3,
5.25%, 2/1/97.................. 323,779
1,090 City of Los Angeles Judgement
Obligation Bonds Series 1992-A,
5.00%, 8/1/00.................. 1,121,719
565 City of Santa Rosa (Sonoma
County) Wastewater Service
Facilities District 1992
Refunding Improvement Bonds,
5.10%, 7/2/98 (AMBAC).......... 581,024
650 City of Santa Rosa (Sonoma
County) Wastewater RRB 1992
Series B,
5.10%, 9/1/98 (FGIC)........... 669,702
1,000 City of Torrance Refunding COP
Series 1995,
5.00%, 4/1/05 (AMBAC).......... 1,014,550
1,100 City of Vallejo (Water
Improvement Project) RB 1992
Series B,
6.00%, 11/1/98 (FGIC).......... 1,160,302
685 County of San Bernardino (West
Valley Detention Center
Project) COP, Prerefunded @102,
7.70%, 11/1/98................. 765,919
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C> <C>
$1,000 County of Stanislaus (Capital
Improvement Program) Series A
of 1996 Refunding COP, 4.50%,
5/1/02 (MBIA).................. $ 1,003,150
900 East Bay Municipal Utility
District Water System RRB
Series 1996,
6.00%, 6/1/01 (FGIC)........... 972,099
1,000 Los Angeles County Metropolitan
Transportation Authority
Proposition C Sales Tax Second
Senior RB Series 1995 A,
5.90%, 7/1/05 (AMBAC).......... 1,100,910
585 Northern California Power
Agency Geothermal Project No. 3
RRB 1987 Series A, 6.20%,
7/1/96......................... 590,382
450 Pico Rivera Public Financing
Authority 1992 (Water
Enterprise Project) RRB Series
A,
5.70%, 12/1/98 (MBIA).......... 471,897
1,000 Public Facilities Financing
Authority of the City of San
Diego Sewer RB Series 1995,
4.30%, 5/15/02 (FGIC).......... 994,340
Rim of the World Unified School
District 1992 (Measure V
Capital Project) COP,
500 5.10%, 9/1/97 (AMBAC).......... 511,115
500 5.25%, 9/1/98 (AMBAC).......... 516,930
1,000 Sacramento Municipal Utility
District Electric RRB 1993
Series D,
5.25%, 11/15/04 (MBIA)......... 1,047,610
880 San Diego County Regional
Transportation Commission
Second Senior Sales Tax RB
(Limited Tax Bonds) 1992 Series
A,
4.40%, 4/1/01 (FGIC)........... 884,752
575 San Diego Unified School
District COP Series B, 5.90%,
7/1/97......................... 590,887
785 San Francisco City & County
Sewer RB Series B, Prerefunded
@101.50,
7.60%, 10/1/97 (AMBAC)......... 844,542
</TABLE>
22

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
STATEMENT OF INVESTMENTS -- (CONTINUED)
(Photo of power lines)
FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C> <C>
LONG-TERM INVESTMENTS -- CONTINUED
$500 San Jose-Santa Clara Clean
Water Financing Authority Sewer
RRB Series 1995C, 4.50%,
11/15/02 (FGIC)................ $ 503,425
300 Sunnyvale Financing Authority
Utility Revenue RB (Solid Waste
Materials Recovery and Transfer
Station) 1992 Series B,
5.10%, 10/1/98 (MBIA).......... 309,369
TOTAL LONG-TERM INVESTMENTS
(COST $18,850,356)........ 19,199,006
SHORT-TERM INVESTMENTS -- 4.0%
300 Irvine Ranch Water District
(Orange County) Series 1985B
Consolidated Refunding Bonds,
(LOC: The Sumitomo Bank, Ltd.),
3.75% -- VRDN.................. 300,000
400 County of Orange Irvine Coast
Assessment District, No. 88-1
Limited Obligation Improvement
Bonds, (LOC: The Industrial
Bank of Japan, Ltd., The Fuji
Bank Ltd. & The Mitsubishi
Bank, Ltd. 1/3 each),
3.75% -- VRDN.................. 400,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS -- CONTINUED
$100 County Sanitation Districts
Nos. 1,2,3,5,6,7,11,13 & 14 of
Orange County (Capital
Improvement Program) Series
1990-92A COP, (LOC: National
Westminster Bank PLC),
3.20% -- VRDN.................. $ 100,000
TOTAL SHORT-TERM INVESTMENTS
(COST $800,000)........... 800,000
TOTAL INVESTMENTS
(COST $19,650,356)........ 98.7% 19,999,006
OTHER ASSETS AND
LIABILITIES -- NET........ 1.3 267,485
NET ASSETS................... 100.0% $20,266,491
</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 February 29, 1996.
See accompanying notes to financial statements.
23

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
CALIFORNIA
STATEMENT OF ASSETS AND LIABILITIES
(Photo of power lines)
FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $19,650,356)............................................................. $19,999,006
Cash........................................................................................................... 53,805
Interest receivable............................................................................................ 250,501
Receivable for Fund shares sold................................................................................ 6,739
Prepaid expenses............................................................................................... 1,485
Total assets............................................................................................. 20,311,536
LIABILITIES:
Payable for Fund shares repurchased............................................................................ 22,701
Accrued expenses............................................................................................... 11,553
Dividend payable............................................................................................... 5,978
Accrued advisory fee........................................................................................... 4,813
Total liabilities........................................................................................ 45,045
NET ASSETS........................................................................................................ $20,266,491
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $20,236,757
Accumulated net realized loss on investment transactions....................................................... (318,916)
Net unrealized appreciation of investments..................................................................... 348,650
Net assets............................................................................................... $20,266,491
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($10.11 1 share of beneficial interest issued and outstanding).................................. $10.11
Sales charge -- 3.25% of public offering price................................................................. .34
Maximum offering price................................................................................... $ 10.45
Class B Shares ($10.11 1 share of beneficial interest issued and outstanding).................................. $ 10.11
Class Y Shares ($20,266,471 2,003,940 shares of beneficial interest issued and
outstanding)................................................................................................ $ 10.11
</TABLE>

See accompanying notes to financial statements.
24

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
CALIFORNIA
STATEMENT OF OPERATIONS
(Photo of power lines)
SIX MONTHS ENDED FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................................................................. $497,173
EXPENSES:
Advisory fee......................................................................................... $ 55,822
Custodian fee........................................................................................ 17,672
Transfer agent fee................................................................................... 12,011
Professional fees.................................................................................... 11,936
Insurance............................................................................................ 5,068
Reports and notices to shareholders.................................................................. 4,116
Trustees' fees and expenses.......................................................................... 1,991
Registration and filing fees......................................................................... 615
Miscellaneous........................................................................................ 1,402
110,633
Less: Advisory fee waiver............................................................................ (25,373)
Net expenses................................................................................... 85,260
Net investment income................................................................................... 411,913
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions......................................................... 113,262
Net decrease in unrealized appreciation of investments............................................... (11,867)
Net gain on investments................................................................................. 101,395
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................... $513,308
</TABLE>

See accompanying notes to financial statements.
25

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
CALIFORNIA
(Photo of power lines)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY YEAR
29, ENDED
1996 AUGUST 31,
(UNAUDITED) 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................................ $ 411,913 $ 1,004,141
Net realized gain (loss) on investments...................................................... 113,262 (432,178)
Net change in unrealized appreciation of investments......................................... (11,867) 279,942
Net increase resulting from operations................................................. 513,308 851,905
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- Class Y Shares...................................................... (411,913) (1,004,141)
Net realized gains on investments -- Class Y Shares.......................................... -- (77,128)
Total distributions to shareholders.................................................... (411,913) (1,081,269)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold.................................................................... 3,257,543 8,632,605
Proceeds from reinvestment of distributions.................................................. 360,518 954,278
Payments for shares redeemed................................................................. (4,814,989) (16,428,530)
Net decrease resulting from Fund share transactions.................................... (1,196,928) (6,841,647)
Net decrease in net assets............................................................. (1,095,533) (7,071,011)
NET ASSETS:
Beginning of period.......................................................................... 21,362,024 28,433,035
End of period................................................................................ $20,266,491 $ 21,362,024
</TABLE>

See accompanying notes to financial statements.
26

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
CALIFORNIA
(Photo of power lines)
FINANCIAL HIGHLIGHTS
CLASS Y SHARES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 29,
1996 YEAR ENDED AUGUST 31,
(UNAUDITED) 1995 1994 1993++ 1992++
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period............................... $ 10.06 $ 10.09 $ 10.34 $ 10.00 $ 10.00
Income from investment operations:
Net investment income............................................ .20 .41 .43 .41 .33
Net realized and unrealized gain (loss) on investments........... .05 -- (.24) .34 --
Total income from investment operations.......................... .25 .41 .19 .75 .33
Less distributions to shareholders from:
Net investment income............................................ (.20) (.41) (.43) (.41) (.33)
Net realized gains............................................... -- (.03) (.01) -- --
Total distributions.............................................. (.20) (.44) (.44) (.41) (.33)
Net asset value, end of period..................................... $ 10.11 $ 10.06 $ 10.09 $ 10.34 $ 10.00
TOTAL RETURN+...................................................... 2.5% 4.2% 1.8% 7.6% 3.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted).......................... $ 20,266 $21,362 $28,433 $30,136 $34,452
Ratios to average net assets:
Expenses*........................................................ .84%++ .79% .52% .30% .40%
Net investment income*........................................... 4.06%++ 4.10% 4.20% 3.96% 3.36%
Portfolio turnover rate............................................ 38% 29% 12% 37% --
<CAPTION>

1991++
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period............................... $ 10.00
Income from investment operations:
Net investment income............................................ .47
Net realized and unrealized gain (loss) on investments........... --
Total income from investment operations.......................... .47
Less distributions to shareholders from:
Net investment income............................................ (.47)
Net realized gains............................................... --
Total distributions.............................................. (.47)
Net asset value, end of period..................................... $ 10.00
TOTAL RETURN+...................................................... 4.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted).......................... $42,022
Ratios to average net assets:
Expenses*........................................................ .37%
Net investment income*........................................... 4.66%
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 years ended August 31, 1991
and 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.
++ 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 asset would have been
the following:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 29,
1996 YEAR ENDED AUGUST 31,
(UNAUDITED) 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Expenses........................................................... 1.09% .99% .95% .98% .84%
Net investment income.............................................. 3.81% 3.90% 3.77% 3.28% 2.92%
<CAPTION>

1991
<S> <C>
Expenses........................................................... .85%
Net investment income.............................................. 4.18%
</TABLE>

See accompanying notes to financial statements.
27

<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, 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.
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, 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.
28

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
At August 31, 1995, each Fund's most recent fiscal year-end, High Grade and
Short-Intermediate had capital loss carryforwards of $3,409,284 and $267,515,
respectively. Pursuant to the Code, such capital loss carryforwards will expire
in the year 2002 and 2003, respectively.
Capital losses incurred after October 31, within a Fund's fiscal year are
deemed to arise on the first business day of the following fiscal year for tax
purposes. Short-Intermediate and California have incurred and have elected to
defer $594,394 and $432,178, respectively, of capital losses to the fiscal year
ended August 31, 1996.
DEFERRED EXPENSES -- The costs incurred by High Grade with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being amortized
using the straight-line method not to exceed a period of five years from the
Fund's commencement.
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.
UNAMORTIZED ORGANIZATION EXPENSES -- The expenses of Short-Intermediate
incurred in connection with its organization are being deferred and amortized
over a period of benefit not to exceed 60 months from the date the Fund
commenced operations.
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 six-month period ended February 29, 1996, First Union voluntarily waived
$118,912 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, Evergreen Asset 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. The expenses of Short-Intermediate and California did not exceed
this limit. However, for the six-month period ended February 29, 1996, Evergreen
Asset voluntarily waived $59,167 and $25,373 of its advisory fee for
Short-Intermediate and California, respectively, and reimbursed expenses
amounting to $30,962 for Short-Intermediate. Evergreen Asset can modify or
terminate these voluntary waivers 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 the Adviser at no additional expense to the Funds.
29

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
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.
Evergreen Asset is 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
<CAPTION>
SUB-ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
<C> <S>
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 February 29, 1996, assets for which Evergreen Asset was the
administrator for which either Evergreen Asset or First Union was investment
adviser totaled approximately $14.4 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, Short-Intermediate and California
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 Short-Intermediate for Class A Shares were voluntarily limited
to .10 of 1% of average daily net assets for the six-month period ended February
29, 1996. Such fees are accrued daily and paid monthly. 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.
30

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
EFD has advised the Funds that it has retained $4,112 and 4,029 from front-end
sales charges resulting from sales of Class A shares of High Grade and
Short-Intermediate, respectively, during the six months ended February 29, 1996.
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. At February 29, 1996,
$10,019 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 over a seven-year period (after
which they will convert to Class A shares). The 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>
SIX MONTHS ENDED
FEBRUARY 29, 1996 EIGHT MONTHS ENDED
(UNAUDITED) AUGUST 31, 1995
HIGH GRADE SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold............................................................. 90,521 $ 1,006,582 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.......................... 74,649 826,700 109,500 1,150,986
Shares redeemed......................................................... (552,206) (6,114,381) (967,409) (10,152,313)
Net decrease............................................................ (387,036) (4,281,099) (393,189) (4,027,407)
CLASS B
Shares sold............................................................. 215,836 2,392,720 112,511 1,186,133
Shares issued in acquisition of Evergreen National Tax-Free Fund........ -- -- 243,174 2,611,688
Shares issued on reinvestment of distributions.......................... 37,804 418,958 52,945 556,311
Shares redeemed......................................................... (209,678) (2,315,849) (520,448) (5,459,057)
Net increase (decrease)................................................. 43,962 495,829 (111,818) (1,104,925)
CLASS Y
Shares sold............................................................. 193,410 2,145,152 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.......................... 32,238 357,231 11,174 118,908
Shares redeemed......................................................... (328,769) (3,663,560) (258,812) (2,728,122)
Net increase (decrease)................................................. (103,121) (1,161,177) 1,904,927 20,496,628
Total net increase (decrease) resulting from Fund share transactions.... (446,195) $(4,946,447) 1,399,920 $15,364,296
</TABLE>
31

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 29, 1996 YEAR ENDED
(UNAUDITED) AUGUST 31, 1995*
SHARES AMOUNT SHARES AMOUNT
SHORT-INTERMEDIATE
<S> <C> <C> <C> <C>
CLASS A
Shares sold............................................................. 331,089 $ 3,384,420 1,438,502 $14,469,110
Shares issued on reinvestment of distributions.......................... 12,962 132,435 16,308 164,891
Shares redeemed......................................................... (660,779) (6,782,717) (784,474) (7,943,982)
Net decrease.......................................................... (316,728) (3,265,862) 670,336 6,690,019
CLASS B
Shares sold............................................................. 199,391 2,041,611 673,520 6,777,013
Shares issued on reinvestment of distributions.......................... 8,296 84,799 7,150 72,369
Shares redeemed......................................................... (65,408) (668,584) (85,925) (870,798)
Net increase.......................................................... 142,279 1,457,826 594,745 5,978,584
CLASS Y
Shares sold............................................................. 287,767 2,934,322 385,625 3,882,603
Shares issued on reinvestment of distributions.......................... 66,851 682,733 167,271 1,685,856
Shares redeemed......................................................... (767,064) (7,829,913) (1,791,852) (18,018,860)
Net decrease.......................................................... (412,446) (4,212,858) (1,238,956) (12,450,401)
Total net increase (decrease) resulting from Fund share transactions.... (586,895) $(6,020,894) 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>
SIX MONTHS ENDED
FEBRUARY 29, 1996 YEAR ENDED
(UNAUDITED) AUGUST 31, 1995*
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CALIFORNIA
CLASS A
Shares sold............................................................ -- $ -- 1 $ 10
CLASS B
Shares sold............................................................ -- -- 1 10
CLASS Y
Shares sold............................................................ 322,516 3,257,543 866,764 8,632,585
Shares issued on reinvestment of distributions......................... 35,724 360,518 96,132 954,278
Shares redeemed........................................................ (477,540) (4,814,989) (1,656,210) (16,428,530)
Net decrease......................................................... (119,300) (1,196,928) (693,314) (6,841,667)
Total net decrease resulting from Fund share transactions.............. (119,300) $(1,196,928) (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
February 29, 1996 there were no further transactions.
32

<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 six-month period ended February 29, 1996 were as
follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
High Grade............ $30,484,259 $34,291,888
Short-Intermediate.... 16,184,584 13,086,575
California............ 7,393,023 7,845,282
</TABLE>

On February 29, 1996, the aggregate cost of investments for federal tax
purposes is the same as 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............ $ 7,950,042 $ 88,260 $7,861,782
Short-Intermediate.... 1,075,761 6,749 1,069,012
California............ 354,592 5,942 348,650
</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.
33

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34

<PAGE>
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35

<PAGE>
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36

<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
* These individuals are not Trustees for
Evergreen High Grade Tax Free Fund.

<PAGE>

NOT May lose value
FDIC No bank guarantee
INSURED

Evergreen Funds Distributor, Inc.

538358
42607 4/96