EVERGREEN INVESTMENT TRUST, N-30D, 1997-08-06

EVERGREEN INVESTMENT TRUST
N-30D, 1997-08-06

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<PAGE>

Evergreen Keystone

National Tax Free
Funds

(Photo of mountain and stream surrounded by trees)

1997 Annual Report

Evergreen Keystone
(logo) FUNDS (logo)

<PAGE>

(logo) EVERGREEN KEYSTONE

TABLE OF CONTENTS

<TABLE>
<S> <C>
Letter to Shareholders............................... 1
Evergreen High Grade Tax Free Fund
Fund at a Glance................................... 2
Management Report.................................. 3

Evergreen Short-Intermediate Municipal Fund
Fund at a Glance................................... 4
Management Report.................................. 5
Keystone Tax Free Income Fund
Fund at a Glance................................... 6
Management Report.................................. 7
Growth of Investments................................ 8
Financial Highlights
Evergreen High Grade Tax Free Fund................. 9
Evergreen Short-Intermediate Municipal Fund........ 11
Keystone Tax Free Income Fund...................... 13
Schedule of Investments
Evergreen High Grade Tax Free Fund................. 16
Evergreen Short-Intermediate Municipal Fund........ 20
Keystone Tax Free Income Fund...................... 22
Statements of Assets and Liabilities................. 27
Statements of Operations............................. 28
Statements of Changes in Net Assets.................. 30
Combined Notes to Financial Statements............... 33
Report of Independent Accountants-- Price Waterhouse
LLP................................................ 39
Independent Auditors' Report-- KPMG Peat Marwick
LLP................................................ 41
</TABLE>

ABOUT EVERGREEN KEYSTONE

Since 1971, the Evergreen Funds have been providing investors with a proven,
value-driven approach to equity investment management. For over 60 years of
changing economic conditions, Keystone has taken pride in helping investors meet
their financial goals through a broad range of financial products and services.
Combined, Evergreen Keystone offers over 70 funds designed to meet a broad range
of objectives, including fixed-income, balanced, growth and income, and
aggressive growth. Assets under management total more than $30 billion.

<PAGE>
EVERGREEN KEYSTONE
(logo)
LETTER TO SHAREHOLDERS
July 1997

(Photo of William M. Ennis)

WILLIAM M. ENNIS

Dear Shareholders:

They don't have the glamour or the impressive recent returns of stock funds, but
municipal bond funds quietly have been doing their job for the past three years.
In fact, the average annual return of the Lehman Brothers Municipal Bond Index
for the three years that ended on May 31, 1997 was 7.32%. Considering the tax
advantages and relatively low volatility of municipal bonds and the modest
inflation we have been enjoying, that is nothing to ignore. In fact, on May 31,
the average AAA-rated 30-year municipal bond was yielding 5.50%. For investors
in the 31% federal income tax bracket, that's equivalent to a
before-federal-taxes yield of 7.97% on a taxable bond at a time when the 30-year
Treasury bond was yielding less than 7%.

The outlook for municipal bonds is no less encouraging. Thanks to factors that
include the careful monetary policy of the Federal Reserve Board and the
increasing productivity of American industry, we continue to expect a sustained
economic environment of moderate growth, contained inflation, low unemployment,
and stable interest rates. That is an ideal climate for bond investing in
general, and municipal bond investing in particular, especially considering the
rather limited supply of new municipal bonds available in the market. During
1996, new municipal bond issuance totaled $185 billion, compared to the $292
billion peak in 1993. In the face of this limited supply, an increase in demand
for municipal bonds could have a favorable impact on performance.

It is easy to believe we could see an increase in demand. As stock market prices
reach record highs in late spring and early summer, it makes more and more sense
for investors to allocate at least a portion of their portfolios into bond
funds. That makes sense for both diversification purposes and for risk reduction
reasons. For investors in higher income tax brackets, municipal bond funds make
even more sense. At Evergreen Keystone, we also believe it is important for
investors to remain in close touch with their professional advisers for guidance
on changing markets and strategies.

I am delighted to inform you that Evergreen Keystone successfully integrated all
service functions of the Evergreen and Keystone Funds in early May. This means
that you now have full exchange privileges among all Evergreen and Keystone
America Funds. In addition, you will be receiving the top-flight shareholder
service that earned Evergreen Keystone the 1996 Dalbar Quality Tested Service
Seal, the highest award for mutual fund service presented by Dalbar, an
independent mutual fund survey and rating firm.

In the following pages, Evergreen Keystone investment professionals will give
you more detailed information about the investment environment and the
strategies employed in managing your funds. You will notice that this annual
report is a departure from past reports in format. It represents the effort of
Evergreen Keystone Funds to provide honest, thoughtful reports and to present
them in a format that is attractive and makes information easily accessible. We
are very interested in hearing your thoughts on this new format, and we welcome
any suggestions you may have.

Sincerely,

/s/ William M. Ennis
WILLIAM M. ENNIS
MANAGING DIRECTOR

<PAGE>

(logo) EVERGREEN
HIGH GRADE TAX FREE FUND

FUND-AT-A-GLANCE
As of May 31, 1997
<TABLE>
<CAPTION>
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS Y
<S> <C> <C> <C>
One year with sales charge 1.90% 1.19% 7.25%
One year w/o sales charge 6.99% 6.19% 7.25%
One year dividends per share 50.2(cents) 42.1(cents) 52.0(cents)
30-day SEC Yield
(as of 5/31/97) 4.19% 3.63% 4.66%

AVERAGE
ANNUAL RETURNS** CLASS A CLASS B CLASS Y
<S> <C> <C> <C>
Three years 5.11% 5.16% 7.10%
Five years 5.75% N/A N/A
Since Inception* 6.00% 5.13% 5.11%
<CAPTION>

CUMULATIVE RETURNS** CLASS A CLASS B CLASS Y
<S> <C> <C> <C>
Nine months w/o sales charge 5.13% 4.55% 5.32%
Three years 16.13% 16.30% 22.83%
Five years 32.24% N/A N/A
Since Inception* 36.01% 24.55% 17.64%
</TABLE>

* CLASS A BEGAN 2/21/92; CLASS B BEGAN 1/11/93;
CLASS Y BEGAN 2/28/94

** ALL RETURNS INCLUDE THE MAXIMUM SALES CHARGE, IF APPLICABLE.

<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS MAY 31, 1997
<S> <C> <C> <C>
Total Net Assets (all classes) $102.1 million
Average Credit Quality AAA
Average Maturity 12.3 years
Average Duration 8.2 years
</TABLE>

PORTFOLIO COMPOSITION MAY 31, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)

(Pie chart appears here with the following plot points.)

Hospital 14.8%
Ports 9.4%
Industrial Development
(pollution control) 8.5%
Electric 8.0%
General Obligation
(schools) 8.8%
Water/Sewer 6.5%
Airport 6.2%
Industrial Development 5.3%
Housing 4.9%
Pre-refunded 4.6%
General Obligation
(municipalities) 3.8%
General Obligation 3.8%
Toll Roads 3.3%
Other 12.1%

PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.

OBJECTIVE
Evergreen High Grade Tax Free Fund seeks income exempt from federal income taxes
while conserving capital. Income may be subject to local taxes and the Federal
Alternative Minimum Tax for certain investors.

STRATEGY
The Fund seeks its objective by investing in insured municipal securities and
municipal securities rated high grade by independent bond rating services. The
portfolio management team will, in seeking the Fund's objectives, buy and sell
securities to effect changes in portfolio maturities and to change allocations
among different sectors. Insured bonds are bonds insured as to timely payment of
principal and interest. The Fund itself is not insured, nor is the value of its
shares guaranteed. Insured bonds must be insured by a municipal bond insurance
company which is rated AAA by Standard & Poors Ratings Group (S&P) and/or Aaa by
Moody's Investors Service, Inc., (Moody's). Bonds that are considered high grade
are rated A or better by S&P or Moody's or, if unrated, are considered of
comparable quality as determined by the Fund's investment advisor.

PORTFOLIO MANAGEMENT TEAM

(Photo of James T. Colby, III, the Senior Portfolio Manager, is a Vice
James T. Colby, President and Senior Portfolio Manager of Evergreen Asset
III) Management. He also is Senior Portfolio Manager for Evergreen
U.S. Government Securities Fund and is co-manager of the
Evergreen Tax Strategic Foundation Fund. Prior to joining
Evergreen in 1992, Mr. Colby was Vice President and Senior
Portfolio Manager for $5 billion in tax-exempt holdings at
American Express. Mr. Colby also has served in portfolio
management capacities at Marinvest, a subsidiary of Marine
Midland Bank. He is a graduate of Brown University, and holds
an MBA from Hofstra University. In 1996, Mr. Colby was
Chairman of the Municipal Bond Buyers Conference.

<PAGE>
EVERGREEN
HIGH GRADE TAX FREE FUND
(logo)
MANAGEMENT REPORT

July 1997

Dear Fellow Shareholders:

We are pleased to report on Evergreen High Grade Tax Free Fund for the fiscal
period that ended on May 31, 1997. You may recall that you recently received a
semiannual report for the six-month period that ended on February 28, 1997. We
have changed your Fund's fiscal year so it now will end each May 31. This is
part of an effort by Evergreen Keystone Funds to streamline, and increase the
efficiency of, fund administration. Funds with similar investment objectives, in
this case national tax free funds, are placed on the same fiscal year cycle.
Information about these funds will be presented in common annual and semi-annual
reports. The next report you will receive will be a semiannual report for the
period ending November 30, 1997. You should expect to receive it in January
1998.

PERFORMANCE

We believe your Fund performed well as a high quality municipal bond fund during
a period marked by short-term interest rate volatility. The charts and tables on
page 2 provide a comprehensive view of the performance for the fiscal period, as
well as since each class of shares began.

STRATEGY

Evergreen High Grade Tax Free Fund is managed with a long-term view, with the
goal of providing federally tax-free income from insured and high quality
municipal bonds while protecting principal. We do not structure the portfolio in
anticipation of short-term movements in interest rates, but try to employ
strategies that build value over time based on longer-term trends in the
municipal bond market. The nine-month period that ended on May 31 was a
generally favorable period for municipal bond investing. During this period, we
kept the maturities of bonds in the portfolio relatively consistent, with
average maturities remaining in the 12-to-16 year range, and average duration in
the 7-to-9-year range. This policy proved successful during a time when
long-term interest rates, despite some short-term volatility, remained in a
consistent trading range of 6 1/2% to 7%.

Your Fund is required to invest at least 65% of net assets in high grade
municipal bonds. In fact, the Fund held 87% of net assets in insured municipal
bonds, with 95% of net assets AAA-rated at the end of the period. The bonds are
insured for the timely payment of principal and interest. The value of insured
bonds can fluctuate. The Fund itself is not insured. The Fund does not search
for opportunities among bonds that are below investment grade.

Evergreen High Grade Tax Free Fund invests in different sectors of the market
based upon evolving trends. For example, two sectors-- the hospital/health care
and the electric utility sectors-- have experienced changes which affected
portfolio strategy recently. In the hospital sector, the process of
consolidation has left behind the weaker institutions which we have pointedly
avoided. We hold only the dominant regional facilities or those aligned with
strong national systems, which we believe have the strongest potential to
survive the new era of competition. Accordingly, we have increased the Fund's
allocation to 14.8% of the net assets. Conversely, the impact of deregulation
and competition upon municipal utilities is less clear and we have decreased the
Fund's allocation to this sector to 7.9%, though we will closely monitor
important legislation pending in states on the east and west coasts which may
soon set new strategic parameters for this sector. For comparison, three years
ago this Fund's relative weightings of these two sectors would have been
reversed.

OUTLOOK

Looking ahead, we continue to see a favorable investment environment for
municipal bonds. We anticipate long-term interest rates, as represented by the
benchmark 30-year U.S. Treasury Bond, to trade in the 6-to-7% range, with
relatively firm economic growth and stable inflation.

Within this environment, we will continue our strategy of seeking to provide as
reasonable a yield as is possible, without assuming significant market risks by
extending maturities. At the same time, we will continue to monitor changes in
the municipal bond industry and put in place further strategies that have the
potential to benefit from evolving trends.

Thank you for your support of the Evergreen High Grade Tax Free Fund.

Sincerely,

/s/ James T. Colby, III
JAMES T. COLBY, III
VICE PRESIDENT
SENIOR PORTFOLIO MANAGER
Evergreen Asset Management Corp.

<PAGE>
EVERGREEN
(logo) SHORT-INTERMEDIATE MUNICIPAL FUND

FUND-AT-A-GLANCE
As of May 31, 1997
<TABLE>
<CAPTION>
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS Y
<S> <C> <C> <C>
One year with sales charge 0.92% 1.51% 4.62%
One year w/o sales charge 4.31% 3.49% 4.62%
One year dividends per share 39.7(cents) 30.7(cents) 40.7 (cents)
30-day SEC Yield
(as of 5/31/97) 3.74% 2.94% 3.93%

AVERAGE
ANNUAL RETURNS** CLASS A CLASS B CLASS Y
<S> <C> <C> <C>
Three years N/A N/A 3.95%
Five years N/A N/A 4.44%
Since Inception* 3.40% 2.76% 4.88%
<CAPTION>

CUMULATIVE RETURNS** CLASS A CLASS B CLASS Y
<S> <C> <C> <C>
Nine months w/o sales charge 3.08% 2.49% 3.36%
Three years N/A N/A 12.33%
Five years N/A N/A 24.26%
Since Inception* 8.38% 6.76% 30.24%
</TABLE>

* CLASSES A AND B BEGAN 1/5/95; CLASS Y BEGAN 7/17/91. SINCE
INCEPTION RETURN FOR CLASS Y SHARES REFLECTS TOTAL RETURN FROM
11/18/91 WHEN THE FUND CHANGED TO A FLUCTUATING NET ASSET VALUE FUND.

** ALL RETURNS INCLUDE THE MAXIMUM SALES CHARGE, IF APPLICABLE.

<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS MAY 31, 1997
<S> <C> <C> <C>
Total Net Assets (all classes) $45.1 million
Average Credit Quality AA
Average Maturity 2.7 years
Average Duration 2.4 years
</TABLE>

PORTFOLIO QUALITY MAY 31, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)

(Pie chart appears here with the following plot points.)

NR 2.25%
AAA 45.52%
AA 37.37%
A 12.63%
BBB 2.23%

PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.

OBJECTIVE
Evergreen Short-Intermediate Municipal Fund seeks income that is exempt from
federal income taxes, while preserving capital. Income may be subject to local
taxes and the Federal Alternative Minimum Tax for certain investors.

STRATEGY
The Fund invests in high-quality and upper medium-quality municipal bonds. The
average maturity of bonds in the portfolio is expected to be between two and
five years.

PORTFOLIO MANAGEMENT TEAM

(Photo of Steven Steven C. Shachat, Portfolio Manager of Evergreen
C. Shachat) Short-Intermediate Municipal Fund, has been a member of the
investment team of Evergreen Asset Management team since 1988,
concentrating on short-term tax exempt investments. He also is
manager of the Evergreen Tax-Exempt Money Market Fund and the
Evergreen Short-Intermediate Municipal Fund-California. Prior
to joining Evergreen, Mr. Shachat served at Mitchell Hutchins
Asset Management, Inc., a subsidiary of Paine Webber, Inc., as
a Portfolio Manager in the tax-exempt area. Earlier, he served
at Donald Sheldon & Co., a firm specializing in tax-exempt
securities. Mr. Shachat is a graduate of Boston University.

<PAGE>
EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND
(logo)
MANAGEMENT REPORT

July 1997

Dear Fellow Shareholders:

We are pleased to report on Evergreen Short-Intermediate Municipal Fund for the
fiscal period that ended on May 31, 1997. You may recall that you recently
received a semiannual report for the six-month period that ended on February 28,
1997. We have changed your Fund's fiscal year so that it now will end each May
31. This is part of an effort by Evergreen Keystone Funds to streamline, and
increase the efficiency of, fund administration. Funds with similar investment
objectives, in this case national tax free funds, are placed on the same fiscal
year cycle. Information about these funds will be presented in common annual and
semiannual reports. The next report you will receive will be a semiannual report
for the period ending November 30, 1997. You should expect to receive it in
January 1998.

PERFORMANCE

We believe the Fund performed satisfactorily, consistent with its objective,
which is to seek to provide as high a level of income, exempt from federal
income taxes other than the alternative minimum tax, as is consistent with
preserving capital and providing liquidity. The tables on page 4 provide a
comprehensive view of the performance for the fiscal period, as well as since
each class of shares began.

STRATEGY

Evergreen Short-Intermediate Municipal Fund, in the face of a significant amount
of near-term interest rate volatility, maintained a laddered structure of its
portfolio securities. This strategy, which seeks to maintain as stable a price
as possible, is one in which the maturities of the portfolio are spread
throughout the range in which the Fund invests. There is not an over-emphasis on
securities that are on either the long end or the short end of the range. The
allocation of the maturity dates of the Fund's portfolio securities is
illustrated in the pie chart on this page. As interest rates changed during the
period, your Fund was able to use the proceeds from the minority of securities
which had matured to re-invest at current market rates.

An additional factor which contributed to your Fund's dividend income was the
employment of a strategy to seek opportunities in sectors that we believed may
have been undervalued. One example is the healthcare sector, where a series of
consolidations and mergers among hospitals and other health care delivery
institutions have

PORTFOLIO MATURITIES MAY 31, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)

(Pie chart appears here with the following plot points.)

0-1 years 17 %
1-2 years 19.8%
2-3 years 11.8%
3-4 years 21.4%
4-5 years 24.4%
5-7 years 5.6%

PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.

helped some previously weaker institutions become stronger. This made bonds
issued by these institutions more attractive, given the institutions' new
strength. Another area in which we increased the Fund's emphasis was in general
obligation bonds, backed by the full taxing ability of municipalities and other
public agencies.

The Fund continues to maintain an emphasis on quality, with an average credit
rating of AA at the end of the period.

OUTLOOK

We anticipate the demand for municipal bonds in the short-to-intermediate
maturity range to continue to be strong. At a time of some uncertainty over the
direction of interest rates, at least for the near term, investors appear to
want to take a conservative approach and maintain short-to-intermediate term
securities in their portfolios. We believe the potential implications are that
these securities should continue to exhibit relatively stable prices because of
the strong demand, but that yields available may not rise significantly.

Thank you for your support of Evergreen Short-Intermediate Municipal Fund.

Sincerely,
/s/ Steven C. Shachat
STEVEN C. SHACHAT
PORTFOLIO MANAGER
Evergreen Asset Management Corp.

<PAGE>
KEYSTONE
(logo) TAX FREE INCOME FUND

FUND-AT-A-GLANCE
As of May 31, 1997
<TABLE>
<CAPTION>
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS C
<S> <C> <C> <C>
One year with sales charge 1.80% 1.03% 5.03%
One year w/o sales charge 6.88% 6.03% 6.03%
One year dividends per share 50.7(cents) 43.5(cents) 43.5 (cents)
30-day SEC Yield
(as of 5/31/97) 4.58% 4.05% 4.05%

AVERAGE
ANNUAL RETURNS** CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Three years 4.39% 4.39% 5.26%
Five years 4.64% N/A N/A
Ten years 6.23% N/A N/A
Since Inception* N/A 3.84% 4.22%
<CAPTION>

CUMULATIVE RETURNS** CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Six months w/o sales charge 1.34% 0.97% 0.97%
Three years 13.75% 13.76% 16.63%
Five years 25.44% N/A N/A
Ten years 83.03% N/A N/A
Since Inception* N/A 17.73% 19.61%
</TABLE>

* CLASS A BEGAN 2/13/87. CLASS B AND CLASS C BEGAN 2/1/93.

** ALL RETURNS INCLUDE THE MAXIMUM SALES CHARGE, IF APPLICABLE. FOR CLASSES WITH
MORE THAN 10-YEAR HISTORY, THE 10-YEAR HISTORY IS PRESENTED.

<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS MAY 31, 1997
<S> <C>
Total Net Assets (all classes) $113.3 million
Average Credit Quality AA+
Average Maturity 17 years
Average Duration 8 years
</TABLE>

PORTFOLIO QUALITY MAY 31, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)

(Pie chart appears here with the following plot points.)

AAA 62.8%
NR 5.0%
A 9.5%
AA 10.5%
BBB 12.2%

PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.

OBJECTIVE
Keystone Tax Free Income Fund seeks the highest possible current income exempt
from federal taxes, while preserving capital. Income may be subject to local
taxes and the Federal Alternative Minimum Tax for certain investors.

STRATEGY
The Fund invests in high quality municipal bonds from different regions of the
country. In pursuing the Fund's objective, the portfolio management team may
make adjustments in the portfolio's maturity, asset allocation among sectors, or
credit quality. When targeting investments, the portfolio management team seeks
out bonds that meet high standards for safety and creditworthiness. These bonds
are principally rated within the four highest grades by established rating
agencies. Keystone's fixed income analysts also conduct extensive in-house
research and regularly monitor bonds in the portfolio.

PORTFOLIO MANAGEMENT
(Photo of Betsy Betsy A. Hutchings, a Senior Vice President and Group Leader
A. Hutchings) of the Municipal Bond Team of Keystone Investment Management
Company, is Portfolio Manager of the Fund. A professional with
more than 15 years' experience in investment management, Ms.
Hutchings also is Portfolio Manager of Keystone Tax Free Fund.
Prior to joining Keystone in 1988, Ms. Hutchings served in
portfolio management and research positions at Scudder Stevens
& Clark, New York, and John Nuveen & Co., Chicago. Ms.
Hutchings is active in the Boston Municipal Analysts Forum and
the Municipal Bond Buyers Conference. She is a graduate of
Wheaton College.

<PAGE>
KEYSTONE
TAX FREE INCOME FUND
(logo)
MANAGEMENT REPORT

July 1997

Dear Shareholders:
We are pleased to report on Keystone Tax Free Income Fund for the fiscal period
that ended on May 31, 1997. You may recall that you recently received an annual
report for the fiscal period that ended November 30, 1996. We have changed your
Fund's fiscal year so that it will now end each May 31. This is part of an
effort by Evergreen Keystone Funds to streamline, and increase the efficiency
of, fund administration. Funds with similar investment objectives, in this case
national tax free funds, are being placed on the same fiscal year cycle, and
information about these funds will be presented in common annual and semi-annual
reports. The next report you will receive will be a semi-annual report for the
period ending November 30, 1997. You should expect to receive it in January
1998.
PERFORMANCE
We believe your Fund performed satisfactorily in a challenging interest rate
environment over the past six months. During this period, rates moved down and
then up before ending at approximately the same point as they began. The bond
market in general was vigilant about a possible pickup of inflation and the
potential of higher interest rates. In fact, after interest rates fell during
late 1996 and very early 1997, they started to rise again in February and March,
hurting the prices of bonds in general, including municipal bonds.
STRATEGY
In this changing environment, we managed your Fund conservatively, as we both
shortened the overall maturity of portfolio holdings and upgraded the average
quality of the bonds. At the same time as we were reducing the interest rate
risk by selling longer maturity bonds into the market as rates were falling, we
were also reducing credit risk by improving overall quality. This quality
upgrade was achieved by paring back BBB-rated and nonrated bonds and using the
proceeds to buy higher quality holdings, principally AAA-rated bonds. During the
past 12 months, the percentage of AAA-rated holdings in the portfolio went from
40% to 54%.
Through the full 12-month period, the average maturity of bond holdings was
reduced from 18.5 years to 17 years, while the average credit quality was
increased from AA- to AA+.
We pursued these tactics with two objectives:
(Bullet) To lock-in gains through the sale of bonds that had performed well.
(Bullet) To position the Fund more defensively by lowering both interest rate
risk and credit risk.
OUTLOOK
Looking forward, we are positive about the investment environment for municipal
bonds. On a technical basis, the demand for bonds is strong, with a relatively
limited

PORTFOLIO COMPOSITION MAY 31, 1997
(AS A PERCENTAGE OF NET ASSETS)

(Pie chart appears with the following plot points)

General Obligations 16.6%
Hospital 14.0%
Water & Sewer 12.9%
Electric 8.5%
Transportation 8.0%
Industrial Development
(pollution control) 7.1%
Pre-Refunded 6.9%
Housing 6.5%
Education 6.4%
Airports 4.8%
Solid Waste 1.3%
Other 7.0%

supply of available bonds as public agencies in general have been restrained in
borrowing. On an after-tax, after-inflation basis, municipal bonds continue to
appear to be an attractive value. At the close of the period, for example, an
AA-rated 30-year municipal bond was yielding 85% of the yield of a 30-year
Treasury bond.
On a fundamental economic basis, the overall economy is growing at a moderate
basis, with inflation well under control. Shorter-term, fixed income investors
can be expected to continue to watch nervously for signs of inflation, and there
may be some month-to-month interest rate volatility. Longer term, we see more
reason for stability in interest rates, as it appears that the policies of the
Federal Reserve Board have been successful in keeping inflation well under
control.
With this outlook, we continue to emphasize the income from higher quality bonds
in the 15-to-20-year maturity range and to be guardedly optimistic.
Thank you for your support of Keystone Tax Free Income Fund.

Sincerely,

/s/ Albert H. Elfner, III
ALBERT H. ELFNER, III
CHAIRMAN
Keystone Investment Management Company

/s/ Betsy A. Hutchings
BETSY A. HUTCHINGS
SENIOR VICE PRESIDENT
HEAD, MUNICIPAL BOND GROUP
Keystone Investment Management Company

<PAGE>
EVERGREEN KEYSTONE
(logo)
GROWTH OF INVESTMENTS

EVERGREEN HIGH GRADE TAX FREE FUND

Comparisons of a $10,000 investment in Evergreen High Grade Tax Free Fund,
Class A shares, versus a similar investment in the Lehman Brothers Insured
Bond Index (LBIBI) and the Consumer Price Index (CPI).

In Thousands

Average Annual Total Returns
1 Year 5 Year Life of Class
Class A 1.90% 5.75% 6.00%
Class B 1.19% -- 5.13%
Class Y 7.25% -- 5.11%

(Line graph appears here with the following plot points.)

2/92 5/92 5/93 5/94 5/95 5/96 5/97
Class A Shares (PLEASE FILL IN) $13,601
CPI (PLEASE FILL IN) $11,591
LBIBI (PLEASE FILL IN) $14,607

Past performance is no guarantee of future results. The performance of each
class may vary baed on differences in loads and fees paid by the shareholder
investing in the different classes. The Lehman Brothers Insured Bond Index
is an unmanaged, market index. The index does not include transaction costs
associated with buying and selling securities, nor any management fees. The
Consumer Price Index, a measure of inflation, is through May 31, 1997.

EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND

Comparisons of a $10,000 investment in Evergreen Short-Intermediate
Municipal Fund, Class A shares, versus a similar investment in the Lehman
Brothers 3 Year Municipal Bond Index (LB3YMBI) and the Consumer Price
Index (CPI).

In Thousands

Average Annual Total Returns
1 Year 5 Year Life of Class
Class A 0.92% -- 3.40%
Class B 1.51% -- 2.76%
Class Y 4.62% 4.44% 4.88%

(Line graph appears here with the following plot points.)

1/95 5/95 11/95 5/96 11/96 5/97
Class A Shares (PLEASE FILL IN) $10,695
CPI (PLEASE FILL IN) $10,838
LB3YMBI (PLEASE FILL IN) $11,560

Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholder
investing in the different classes. The Lehman Brothers 3 Year Municipal Bond
Index is an unmanaged, market index. The index does not include transaction
costs associated with buying and selling securities, nor any management fees.
The Consumer Price Index, a measure of inflation, is through May 31, 1997.

KEYSTONE TAX FREE INCOME FUND

Comparisons of a $10,000 investment in Keystone Tax Free Income Fund,
Class A shares, versus a similar investment in the Lehman Brothers Municipal
Bond Index (LMBI) and the Consumer Price Index (CPI).

In Thousands

Average Annual Total Returns
1 Year 5 Year 10 Year Life of Class
Class A 1.80% 4.64% 6.23% --
Class B 1.03% -- -- 3.84%
Class Y 5.03% -- -- 4.22%

(Line graph appears here with the following plot points.)

<TABLE>
<CAPTION>
5/97 5/88 5/89 5/90 5/91 5/92 5/93 5/94 5/95 5/96 5/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares (PLEASE FILL IN) $18,303
CPI (PLEASE FILL IN) $14,158
LMBI (PLEASE FILI IN) $22,346
</TABLE>

Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholder
investing in the different classes. The Lehman Brothers Municipal Bond
Index is an unmanaged, market index. The index does not include transaction
costs associated with buying and selling securities, nor any management fees.
The Consumer Price Index, a measure of inflation, is through May 31, 1997.

<PAGE>
EVERGREEN
HIGH GRADE TAX FREE FUND
(logo)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
EIGHT
MONTHS
NINE MONTHS YEAR ENDED ENDED YEAR ENDED
ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
MAY 31, 1997 (a) 1996 1995 (d) 1994 1993
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD... $ 10.72 $ 10.69 $ 9.79 $ 11.16 $ 10.42
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.37 0.52 0.34 0.52 0.54
Net realized and unrealized gain
(loss) on investments............... 0.17 0.03 0.90 (1.37) 0.81
Total from investment operations...... 0.54 0.55 1.24 (0.85) 1.35
LESS DISTRIBUTIONS FROM:
Net investment income................. (0.37) (0.52) (0.34) (0.52) (0.54)
Net realized gains on investments..... 0 0 0 0 (0.07)
Total distributions................... (0.37) (0.52) (0.34) (0.52) (0.61)
NET ASSET VALUE END OF PERIOD......... $ 10.89 $ 10.72 $ 10.69 $ 9.79 $ 11.16
Total return (c)...................... 5.13% 5.21% 12.83% (7.71%) 13.25%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses...................... 1.03%(b) 0.89% 1.06%(b) 1.01% 0.85%
Total expenses excluding indirectly
paid expenses..................... 1.03%(b) -- -- -- --
Total expenses excluding waivers and
reimbursements.................... 1.11%(b) 1.09% 1.09%(b) 1.02% 1.07%
Net investment income............... 4.60%(b) 4.78% 4.93%(b) 5.04% 4.99%
Portfolio turnover rate............... 114% 65% 27% 53% 14%
NET ASSETS END OF PERIOD
(THOUSANDS)......................... $ 45,814 $ 50,569 $ 58,751 $57,676 $101,352

<CAPTION>
FEBRUARY 21, 1992
(COMMENCEMENT
OF CLASS OPERATIONS)
THROUGH
DECEMBER 31, 1992
<S> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD... $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.51
Net realized and unrealized gain
(loss) on investments............... 0.42
Total from investment operations...... 0.93
LESS DISTRIBUTIONS FROM:
Net investment income................. (0.51)
Net realized gains on investments..... 0
Total distributions................... (0.51)
NET ASSET VALUE END OF PERIOD......... $ 10.42
Total return (c)...................... 9.48%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses...................... 0.49%(b)
Total expenses excluding indirectly
paid expenses..................... --
Total expenses excluding waivers and
reimbursements.................... 1.11%(b)
Net investment income............... 5.79%(b)
Portfolio turnover rate............... 7%
NET ASSETS END OF PERIOD
(THOUSANDS)......................... $ 90,738
</TABLE>

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN
HIGH GRADE TAX FREE FUND
(logo)
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
EIGHT MONTHS
NINE MONTHS ENDED YEAR ENDED
ENDED YEAR ENDED AUGUST 31, DECEMBER 31,
MAY 31, 1997 (a) AUGUST 31, 1996 1995 (d) 1994
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD.... $ 10.72 $ 10.69 $ 9.79 $ 11.16
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.31 0.44 0.29 0.46
Net realized and unrealized gain (loss)
on investments....................... 0.17 0.03 0.90 (1.37)
Total from investment operations....... 0.48 0.47 1.19 (0.91)
LESS DISTRIBUTIONS FROM
Net investment income.................. (0.31) (0.44) (0.29) (0.46)
Net realized gain on investments....... 0 0 0 0
Total Distributions.................... (0.31) (0.44) (0.29) (0.46)
NET ASSET VALUE END OF PERIOD.......... $ 10.89 $ 10.72 $ 10.69 $ 9.79
Total return (c)....................... 4.55% 4.42% 12.27% (8.24%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses....................... 1.78%(b) 1.64% 1.81%(b) 1.58%
Total expenses excluding indirectly
paid expenses...................... 1.78%(b) -- -- --
Total expenses excluding waivers and
reimbursements..................... 1.86%(b) 1.84% 1.84%(b) 1.59%
Net investment income................ 3.85%(b) 4.03% 4.18%(b) 4.47%
Portfolio turnover rate................ 114% 65% 27% 53%
NET ASSETS END OF PERIOD
(THOUSANDS).......................... $ 31,874 $32,221 $34,206 $ 32,435

<CAPTION>
JANUARY 11, 1993
(COMMENCEMENT
OF CLASS OPERATIONS)
THROUGH
DECEMBER 31, 1993
<S> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD.... $ 10.42
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.47
Net realized and unrealized gain (loss)
on investments....................... 0.81
Total from investment operations....... 1.28
LESS DISTRIBUTIONS FROM
Net investment income.................. (0.47)
Net realized gain on investments....... (0.07)
Total Distributions.................... (0.54)
NET ASSET VALUE END OF PERIOD.......... $ 11.16
Total return (c)....................... 12.52%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses....................... 1.35%(b)
Total expenses excluding indirectly
paid expenses...................... --
Total expenses excluding waivers and
reimbursements..................... 1.57%(b)
Net investment income................ 4.44%(b)
Portfolio turnover rate................ 14%
NET ASSETS END OF PERIOD
(THOUSANDS).......................... $ 41,030
</TABLE>

(a) The Fund changed its fiscal year end from August 31 to May 31 during the
current period.
(b) Annualized.
(c) Excluding applicable sales charges.
(d) The Fund changed its fiscal year end from December 31 to August 31.
<TABLE>
<CAPTION>
NINE MONTHS YEAR EIGHT MONTHS
ENDED ENDED ENDED
MAY 31, AUGUST 31, AUGUST 31,
1997 (a) 1996 1995 (c)
<S> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD......................... $ 10.72 $ 10.69 $ 9.79
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.39 0.55 0.36
Net realized and unrealized gain (loss) on investments...... 0.17 0.03 0.90
Total from investment operations............................ 0.56 0.58 1.26
LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME............... (0.39) (0.55) (0.36)
NET ASSET VALUE END OF PERIOD............................... $ 10.89 $ 10.72 $ 10.69
Total return................................................ 5.32% 5.47% 13.02%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................................ 0.78%(b) 0.64% 0.81%(b)
Total expenses excluding indirectly paid expenses......... 0.78%(b) -- --
Total expenses excluding waivers and reimbursements....... 0.86%(b) 0.84% 0.84%(b)
Net investment income..................................... 4.85%(b) 5.03% 5.18%(b)
Portfolio turnover rate..................................... 114% 65% 27%
NET ASSETS END OF PERIOD (THOUSANDS)........................ $ 24,441 $ 25,112 $ 25,079

<CAPTION>
FEBRUARY 28, 1994
(COMMENCEMENT
OF CLASS OPERATIONS)
THROUGH
DECEMBER 31, 1994
<S> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD......................... $10.93
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.46
Net realized and unrealized gain (loss) on investments...... (1.14)
Total from investment operations............................ (0.68)
LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME............... (0.46)
NET ASSET VALUE END OF PERIOD............................... $ 9.79
Total return................................................ (6.29%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................................ 0.76%(b)
Total expenses excluding indirectly paid expenses......... --
Total expenses excluding waivers and reimbursements....... 0.77%(b)
Net investment income..................................... 5.46%(b)
Portfolio turnover rate..................................... 53%
NET ASSETS END OF PERIOD (THOUSANDS)........................ $4,318
</TABLE>

(a) The Fund changed its fiscal year end from August 31 to May 31 during the
current period.
(b) Annualized.
(c) The Fund changed its fiscal year end from December 31 to August 31.

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND
(logo)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
JANUARY 5, 1995
(COMMENCEMENT
NINE MONTHS OF CLASS OPERATIONS)
ENDED YEAR ENDED THROUGH
MAY 31, 1997 (a) AUGUST 31, 1996 AUGUST 31, 1995
<S> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD................................... $10.08 $ 10.17 $ 9.97
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................................. 0.30 0.43 0.30
Net realized and unrealized gain (loss) on investments................ 0.01 (0.09) 0.20
Total from investment operations...................................... 0.31 0.34 0.50
LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME......................... (0.30) (0.43) (0.30)
NET ASSET VALUE END OF PERIOD......................................... $10.09 $ 10.08 $10.17
Total return (c)...................................................... 3.08% 3.37% 5.09%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses...................................................... 0.84%(b) 0.80% 0.70%(b)
Total expenses excluding indirectly paid expenses................... 0.83%(b) -- --
Total expenses excluding waivers and reimbursements................. 0.96%(b) 1.11% 1.14%(b)
Net investment income............................................... 3.94%(b) 4.05% 4.32%(b)
Portfolio turnover rate............................................... 34% 29% 80%
NET ASSETS END OF PERIOD (THOUSANDS).................................. $6,072 $27,722 $6,820
</TABLE>

(a) The Fund changed its fiscal year end from August 31 to May 31 during the
current period.
(b) Annualized.
(c) Excluding applicable sales charges.

<TABLE>
<CAPTION>
JANUARY 5, 1995
(COMMENCEMENT
NINE MONTHS OF CLASS OPERATIONS)
ENDED YEAR ENDED THROUGH
MAY 31, 1997 (a) AUGUST 31, 1996 AUGUST 31, 1995
<S> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD................................... $10.08 $ 10.17 $ 9.97
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................................. 0.23 0.34 0.24
Net realized and unrealized gain (loss) on investments................ 0.02 (0.09) 0.20
Total from investment operations...................................... 0.25 0.25 0.44
LESS DISTRIBUTIONS FROM NET INVESTMENT INCOME......................... (0.23) (0.34) (0.24)
NET ASSET VALUE END OF PERIOD......................................... $10.10 $ 10.08 $10.17
Total return (c)...................................................... 2.49% 2.44% 4.50%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses...................................................... 1.73%(b) 1.67% 1.58%(b)
Total expenses excluding indirectly paid expenses................... 1.73%(b) -- --
Total expenses excluding waivers and reimbursements................. 1.86%(b) 2.07% 2.26%(b)
Net investment income............................................... 3.04%(b) 3.28% 3.50%(b)
Portfolio turnover rate............................................... 34% 29% 80%
NET ASSETS END OF PERIOD (THOUSANDS).................................. $6,742 $ 7,413 $6,050
</TABLE>

(a) The Fund changed its fiscal year end from August 31 to May 31 during the
current period.
(b) Annualized.
(c) Excluding applicable sales charges.

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND
(logo)
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED AUGUST 31,
MAY 31, 1997 (a) 1996 1995 1994 1993 1992 (c)
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD... $ 10.07 $ 10.17 $ 10.21 $ 10.58 $ 10.33 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.30 0.43 0.46 0.47 0.49 0.51
Net realized and unrealized gain
(loss) on investments............... 0.03 (0.10) (0.04) (0.32) 0.25 0.33
Total from investment operations...... 0.33 0.33 0.42 0.15 0.74 0.84
LESS DISTRIBUTIONS FROM:
Net investment income................. (0.30) (0.43) (0.46) (0.47) (0.49) (0.51)
In excess of net investment income.... 0 0 0 (0.03) 0 0
Net realized gain on investments...... 0 0 0 (0.02) 0 0
Total distributions................... (0.30) (0.43) (0.46) (0.52) (0.49) (0.51)
NET ASSET VALUE END OF PERIOD......... $ 10.10 $ 10.07 $ 10.17 $ 10.21 $ 10.58 $ 10.33
Total return.......................... 3.36% 3.30% 4.20% 1.40% 7.40% 8.56%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses...................... 0.74%(b) 0.70% 0.74% 0.58% 0.40% 0.17%
Total expenses excluding indirectly
paid expenses..................... 0.73%(b) -- -- -- -- --
Total expenses excluding waivers and
reimbursements.................... 0.86%(b) 0.90% 0.86% 0.83% 0.81% 0.86%
Net investment income............... 4.04%(b) 4.27% 4.52% 4.54% 4.73% 4.85%
Portfolio turnover rate............... 34% 29% 80% 32% 37% 57%
NET ASSETS END OF PERIOD
(THOUSANDS)......................... $ 32,293 $34,893 $40,581 $53,417 $66,607 $ 54,470

<CAPTION>
JULY 17, 1991
(COMMENCEMENT
OF CLASS OPERATIONS)
THROUGH
AUGUST 31, 1991 (c)
<S> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD... $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.06
Net realized and unrealized gain
(loss) on investments............... 0
Total from investment operations...... 0.06
LESS DISTRIBUTIONS FROM:
Net investment income................. (0.06)
In excess of net investment income.... 0
Net realized gain on investments...... 0
Total distributions................... (0.06)
NET ASSET VALUE END OF PERIOD......... $10.00
Total return.......................... 0.62%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses...................... 0.00%(b)
Total expenses excluding indirectly
paid expenses..................... --
Total expenses excluding waivers and
reimbursements.................... 1.40%(b)
Net investment income............... 4.93%(b)
Portfolio turnover rate............... --
NET ASSETS END OF PERIOD
(THOUSANDS)......................... $4,025
</TABLE>

(a) The Fund changed its fiscal year end from August 31 to May 31 during the
current period.
(b) Annualized
(c) 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 and the related per share data as of August 31, 1991 are
restated to reflect both 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.

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
KEYSTONE
TAX FREE INCOME FUND
(logo)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 1997 (a) 1996 (f) 1995 (f) 1994
<S> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD................................. $ 9.90 $ 10.05 $ 8.93 $ 10.25
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................... 0.24 0.51 0.51 0.51
Net realized and unrealized gain (loss) on investments and
futures contracts................................................. (0.11) (0.14) 1.13 (1.28)
Total from investment operations.................................... 0.13 0.37 1.64 (0.77)
LESS DISTRIBUTIONS FROM:
Net investment income............................................... (0.24) (0.52) (0.51) (0.52)
In excess of net investment income.................................. (0.01) 0(e) (0.01) 0
Net realized gain on investments.................................... 0 0 0 0
Tax basis return of capital......................................... 0 0 0 (0.03)
Total distributions................................................. (0.25) (0.52) (0.52) (0.55)
NET ASSET VALUE END OF PERIOD....................................... $ 9.78 $ 9.90 $ 10.05 $ 8.93
Total return (c).................................................... 1.34% 3.83% 18.71% (7.81%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.................................................... 1.19%(b) 1.13% 1.19% 1.13%
Total expenses excluding indirectly paid expenses................. 1.18%(b) 1.12% 1.18% --
Net investment income............................................. 4.85%(b) 5.21% 5.35% 5.27%
Portfolio turnover rate............................................. 54% 128% 30% 98%
NET ASSETS END OF PERIOD (THOUSANDS)................................ $ 72,629 $ 82,425 $ 94,183 $95,691

<CAPTION>
YEAR ENDED
NOVEMBER 30,
1993
<S> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD................................. $ 10.17
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................... 0.57
Net realized and unrealized gain (loss) on investments and
futures contracts................................................. 0.36
Total from investment operations.................................... 0.93
LESS DISTRIBUTIONS FROM:
Net investment income............................................... (0.57)
In excess of net investment income.................................. (0.04)
Net realized gain on investments.................................... (0.24)
Tax basis return of capital......................................... 0
Total distributions................................................. (0.85)
NET ASSET VALUE END OF PERIOD....................................... $ 10.25
Total return (c).................................................... 9.37%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.................................................... 1.21%
Total expenses excluding indirectly paid expenses................. --
Net investment income............................................. 5.40%
Portfolio turnover rate............................................. 47%
NET ASSETS END OF PERIOD (THOUSANDS)................................ $124,102
</TABLE>

<TABLE>
<CAPTION>
FEBRUARY 13, 1987
(COMMENCEMENT
YEAR ENDED NOVEMBER 30, OF OPERATIONS) TO
1992 1991 1990 1989 1988 NOVEMBER 30, 1987
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES (CONTINUED)
NET ASSET VALUE BEGINNING OF PERIOD................. $ 10.13 $ 9.94 $ 10.24 $ 9.96 $ 9.64 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... 0.63 0.61 0.59 0.62 0.63 0.33
Net realized and unrealized gain (loss) on
investments and futures contracts................. 0.30 0.31 (0.06) 0.34 0.37 (0.32)
Total from investment operations.................... 0.93 0.92 0.53 0.96 1.00 0.01
LESS DISTRIBUTIONS FROM:
Net investment income............................... (0.62) (0.61) (0.60) (0.63) (0.68) (0.37)
In excess of net investment income.................. 0 0 (0.03) 0 0 0
Net realized gain on investments.................... (0.27) (0.12) (0.20) (0.05) 0 0
Tax basis return of capital......................... 0 0 0 0 0 0
Total distributions................................. (0.89) (0.73) (0.83) (0.68) (0.68) (0.37)
NET ASSET VALUE END OF PERIOD....................... $ 10.17 $ 10.13 $ 9.94 $ 10.24 $ 9.96 $ 9.64
Total return (c).................................... 9.35% 9.59% 5.55% 9.97% 10.60% 0.17%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.................................... 1.25% 1.58% 1.66% 1.62% 1.57% 1.00%(d)
Total expenses excluding indirectly paid
expenses........................................ -- -- -- -- -- --
Net investment income............................. 6.02% 5.95% 6.03% 6.15% 6.13% 6.85%(d)
Portfolio turnover rate............................. 32% 37% 42% 49% 109% 67%
NET ASSETS END OF PERIOD (THOUSANDS)................ $120,660 $133,524 $146,335 $162,013 $179,191 $16,090
</TABLE>

(a) The Fund changed its fiscal year end from November 30 to May 31 during the
current period.
(b) Annualized.
(c) Excluding applicable sales charges.
(d) Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to November 30, 1987.
(e) Reflects distributions in excess of net investment income which were under
$0.01 per share.
(f) Calculation based on average shares outstanding.

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
KEYSTONE
TAX FREE INCOME FUND
(logo)
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 1997 (a) 1996 (e) 1995 (e) 1994
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD......................... $ 9.81 $ 9.97 $ 8.88 $ 10.25
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.19 0.44 0.44 0.45
Net realized and unrealized gain (loss) on investments and
futures contracts......................................... (0.10) (0.16) 1.11 (1.29)
Total from investment operations............................ 0.09 0.28 1.55 (0.84)
LESS DISTRIBUTIONS FROM:
Net investment income....................................... (0.20) (0.44) (0.45) (0.50)
In excess of net investment income.......................... (0.01) 0(d) (0.01) 0
Net realized gain on investments............................ 0 0 0 0
Tax basis return of capital................................. 0 0 0 (0.03)
Total distributions......................................... (0.21) (0.44) (0.46) (0.53)
NET ASSET VALUE END OF PERIOD............................... $ 9.69 $ 9.81 $ 9.97 $ 8.88
Total return (c)............................................ 0.97% 2.99% 17.84% (8.43%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................................ 1.95%(b) 1.90% 1.96% 1.88%
Total expenses excluding indirectly paid expenses......... 1.94%(b) 1.89% 1.94% --
Net investment income..................................... 4.09%(b) 4.44% 4.59% 4.60%
Portfolio turnover rate..................................... 54% 128% 30% 98%
NET ASSETS END OF PERIOD (THOUSANDS)........................ $ 28,822 $ 33,063 $ 33,449 $28,860

<CAPTION>
FEBRUARY 1, 1993
(DATE OF INITIAL
PUBLIC OFFERING)
TO NOVEMBER 30,
1993
<S> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD......................... $ 10.27
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.37
Net realized and unrealized gain (loss) on investments and
futures contracts......................................... 0.30
Total from investment operations............................ 0.67
LESS DISTRIBUTIONS FROM:
Net investment income....................................... (0.37)
In excess of net investment income.......................... (0.08)
Net realized gain on investments............................ (0.24)
Tax basis return of capital................................. 0
Total distributions......................................... (0.69)
NET ASSET VALUE END OF PERIOD............................... $ 10.25
Total return (c)............................................ 6.59%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................................ 1.96%(b)
Total expenses excluding indirectly paid expenses......... --
Net investment income..................................... 4.42%(b)
Portfolio turnover rate..................................... 47%
NET ASSETS END OF PERIOD (THOUSANDS)........................ $ 14,091
</TABLE>

(a) The Fund changed its fiscal year end from November 30 to May 31 during the
current period.
(b) Annualized.
(c) Excluding applicable sales charges.
(d) Reflects distributions in excess of net investment income which were under
$0.01 per share.
(e) Calculation based on average shares outstanding.

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
KEYSTONE
TAX FREE INCOME FUND
(logo)
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 1997 (a) 1996 (e) 1995 (e) 1994
<S> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD......................... $ 9.81 $ 9.97 $ 8.88 $ 10.26
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.18 0.41 0.44 0.43
Net realized and unrealized gain (loss) on investments and
futures contracts......................................... (0.09) (0.13) 1.11 (1.27)
Total from investment operations............................ 0.09 0.28 1.55 (0.84)
LESS DISTRIBUTIONS FROM:
Net investment income....................................... (0.20) (0.44) (0.45) (0.51)
In excess of net investment income.......................... (0.01) 0(d) (0.01) 0
Net realized gain on investments............................ 0 0 0 0
Tax basis return of capital................................. 0 0 0 (0.03)
Total distributions......................................... (0.21) (0.44) (0.46) (0.54)
NET ASSET VALUE END OF PERIOD............................... $ 9.69 $ 9.81 $ 9.97 $ 8.88
Total return (c)............................................ 0.97% 2.99% 17.84% (8.52%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................................ 1.95%(b) 1.90% 1.96% 1.89%
Total expenses excluding indirectly paid expenses......... 1.94%(b) 1.89% 1.94% --
Net investment income..................................... 4.09%(b) 4.44% 4.59% 4.52%
Portfolio turnover rate..................................... 54% 128% 30% 98%
NET ASSETS END OF PERIOD (THOUSANDS)........................ $ 11,879 $ 13,769 $ 20,386 $23,230

<CAPTION>
FEBRUARY 1, 1993
(DATE OF INITIAL
PUBLIC OFFERING)
TO NOVEMBER 30,
1993
<S> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD......................... $ 10.27
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.37
Net realized and unrealized gain (loss) on investments and
futures contracts......................................... 0.31
Total from investment operations............................ 0.68
LESS DISTRIBUTIONS FROM:
Net investment income....................................... (0.37)
In excess of net investment income.......................... (0.08)
Net realized gain on investments............................ (0.24)
Tax basis return of capital................................. 0
Total distributions......................................... (0.69)
NET ASSET VALUE END OF PERIOD............................... $ 10.26
Total return (c)............................................ 6.70%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................................ 1.94%(b)
Total expenses excluding indirectly paid expenses......... --
Net investment income..................................... 4.41%(b)
Portfolio turnover rate..................................... 47%
NET ASSETS END OF PERIOD (THOUSANDS)........................ $ 27,261
</TABLE>

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN
HIGH GRADE TAX FREE FUND
(logo)
SCHEDULE OF INVESTMENTS
May 31, 1997

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS-- 97.4%
ARIZONA-- 1.1%
$1,000,000 Creighton Elem. Sch. Dist.
No. 14 of Maricopa Cnty.,
Sch. Imp. Bonds (Proj. of
1990), (Series C 1991),
6.50%, 7/1/07, (FGIC)............. $ 1,125,240
CALIFORNIA-- 2.6%
2,000,000 Redevelopment Agcy. of the
City of San Jose Merged Area
Redev. Proj., Tax Allocation
Bonds, (Series 1993),
6.00%, 8/1/15, (MBIA)............. 2,144,880
500,000 San Mateo Cnty. Joint Pwrs.
Financing Auth. Lease RB
(Capital Projs. Prog.), (1993
Refunding Series A),
6.50%, 7/1/16, (MBIA)............. 560,505
2,705,385
COLORADO-- 3.7%
Arapahoe Cnty. Pub. Hwy.
Auth. Capital Imp. Trust Fund
Hwy. RB (E-470 Proj.):
1,000,000 6.15%, 8/31/26, (MBIA).............. 1,053,890
Sr. Current Interest Bonds,
2,000,000 7.00%, 8/31/26...................... 2,144,720
500,000 School Dist. No. 1,
City & Cnty. of Denver, GO
Refunding Bonds, (Series
1994A),
6.50%, 6/1/10, (MBIA)............. 560,370
3,758,980
FLORIDA-- 1.1%
1,000,000 Orange Cnty. Forida Hlth.
Facs. Auth. Hosp. RB (Orlando
Regional Healthcare Sys.),
(Series 1996C),
6.25%, 10/1/16, (MBIA)............ 1,089,760
GEORGIA-- 5.2%
500,000 City of Atlanta Arpt. Facs.
RRB, (Series 1994A),
6.50%, 1/1/10, (AMBAC)............ 557,990
1,000,000 Metropolitan Atlanta Rapid
Transit Auth. Georgia
Refunding Second Indenture,
(Series A),
5.50%, 7/1/17, (MBIA)............. 998,740

<CAPTION>
PRINCIPAL
AMOUNT VALUE

LONG-TERM INVESTMENTS-- CONTINUED
<C> <S> <C>
GEORGIA-- CONTINUED
Municipal Elec. Auth. Georgia
Spec. Oblig. Fifth Crossover
Series Proj. One:
$1,000,000 6.40%, 1/1/13, (AMBAC).............. $ 1,102,190
2,400,000 6.50%, 1/1/17, (MBIA)............... 2,694,720
5,353,640
HAWAII-- 3.7%
2,500,000 Hawaii St., GO, (Series. CM),
6.00%, 12/1/10, (FGIC)............ 2,679,750
1,000,000 State of Hawaii Arpt. Sys.
RB, (Second Series of 1990),
7.50%, 7/1/20, (FGIC)............. 1,088,990
3,768,740
IDAHO-- 0.9%
845,000 Idaho Hsg. Agcy. Single
Family Mtge. Bonds, (1994
Series C-1 Sr. Bonds &
Mezzanine Bonds),
6.30%, 7/1/11..................... 869,657
ILLINOIS-- 16.9%
4,725,000 City of Chicago Wtr. RRB,
(Series 1993),
6.50%, 11/1/15, (FGIC)............ 5,308,727
2,150,000 City of Chicago GO Current
Interest Bonds, (Proj. Series
1995),
6.13%, 1/1/16, (AMBAC)............ 2,229,249
Illinois Dev. Fin. Auth.
Poll. Ctrl. RRB (Commonwealth
Edison Co. Proj.):
(Series 1991),
2,000,000 7.25%, 6/1/11, (MBIA)............... 2,182,060
(Series 1994D),
3,000,000 6.75%, 3/1/15, (AMBAC).............. 3,293,160
1,750,000 Illinois Hlth. Facs. Auth.
Hlth. Facs. RRB (SSM Hlth.
Care), (Series 1992AA),
6.50%, 6/1/12, (MBIA)............. 1,953,875
5,625,000 Metropolitan Pier &
Exposition Authority Illinois
Refunding McCormick Place
Expn, Project B, (Eff. Yield
5.80%)(a),
0.00%, 6/15/13, (MBIA)............ 2,258,550
17,225,621
</TABLE>

(CONTINUED)

<PAGE>
EVERGREEN
HIGH GRADE TAX FREE FUND
(logo)
SCHEDULE OF INVESTMENTS (CONTINUED)
May 31, 1997

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>

LONG-TERM INVESTMENTS-- CONTINUED
INDIANA-- 3.5%
$ 1,000,000 Indiana Muni. Pwr. Agcy.,
Pwr. Supply Sys. RRB, (1993
Series B),
6.00%, 1/1/13, (MBIA)............... $ 1,063,720
700,000 Indiana Trans. Fin. Auth.
Hwy. RB, (Series 1992A),
6.80%, 12/1/16, (MBIA).............. 808,024

1,500,000 Middle Sch. Bldg. Corp. of
Lawrence Township of Marion
Cnty., First Mtge. Bonds,
6.88%, 7/5/11, (MBIA)............... 1,729,185
3,600,929

1,000,000 LOUISIANA-- 1.3%
Orleans Parish Louisiana,
School Board RB
9.05%, 2/1/10, (MBIA)............. 1,339,390
1,000,000 MAINE-- 1.1%
Maine Turnpike Auth.,
Turnpike RB, (Series 1994),
7.13%, 7/1/08, (MBIA)............. 1,171,010
2,500,000 MARYLAND-- 2.4%
Maryland St. GO, St. & Local
Facilities, (First Series),
5.00%, 3/1/10..................... 2,455,900

MASSACHUSETTS-- 1.6%
500,000 Massachusetts Hsg. Fin.
Agcy., Hsg. Proj. RB, (1993
Series A),
6.15%, 10/1/15, (AMBAC)........... 508,015
1,000,000 Massachusetts St., Refunding,
(Series A),
6.50%, 11/1/14, (AMBAC)........... 1,119,500
1,627,515

MINNESOTA-- 0.5%
490,000 Minnesota Hsg. Fin. Agcy.
Single Family Mtge. Bonds,
(1994 Series H),
6.70%, 1/1/18..................... 514,397

<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C>
LONG-TERM INVESTMENTS-- CONTINUED

NEW MEXICO-- 1.0%

City of Albuquerque, Arpt. RB:
(Series 1995 A),
$ 500,000 6.35%, 7/1/07, (AMBAC).............. $ 540,220
$ 500,000 (Series 1995 B),
7.00%, 7/1/16, (AMBAC).............. 501,170
1,041,390

NEW YORK-- 11.2%
1,000,000 Albany Cnty., Arpt. Auth.
Arpt. Rev.,
5.25%, 12/15/10, (FSA)............ 980,990
1,500,000 New York St. Housing Finance
Agency Revenue, (Series 1994 B),
6.35%, 8/15/23, (AMBAC)........... 1,538,700
2,590,000 New York St. Local Government
Assistance Corporation RB,
(Prerefunded @ $102), (Series B),
7.38%, 4/1/01..................... 2,895,076
5,000,000 Port Auth. New York & New
Jersey Special Obligation
(for JFK Intl. Arrivals
Terminal),
6.25%, 12/1/10, (MBIA)............ 5,453,950
500,000 The Port Auth. of New York &
New Jersey Consolidated Bonds
Fifth Installment,
(Ninety-Seventh Series),
6.50%, 7/15/19, (FGIC)............ 529,900
11,398,616

NORTH DAKOTA-- 3.0%
3,000,000 Mercer Cnty. Poll. Ctrl. RRB
(Basin Elec. Pwr.
Cooperative-Antelope Valley
Unit 1 & Common Facs.),
(Second 1995 Series),
6.05%, 1/1/19, (AMBAC)............ 3,107,910

OHIO-- 3.3%
1,000,000 Board of Ed., Kings Local
Sch. Dist. (City of Warren)
Sch. Imp. Bonds (Unltd. Tax
GO), (Series 1995),
7.50%, 12/1/16, (FGIC)............ 1,254,130
1,500,000 City of Toledo, GO (Ltd. Tax)
Hsg. Imp. Bonds (Macy's
Proj.), (Series 1995A),
6.35%, 12/1/25, (MBIA)............ 1,580,835
</TABLE>

(CONTINUED)

<PAGE>

EVERGREEN
HIGH GRADE TAX FREE FUND
(logo)
SCHEDULE OF INVESTMENTS (CONTINUED)
May 31, 1997

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>

LONG-TERM INVESTMENTS-- CONTINUED
OHIO-- CONTINUED
$ 475,000 Ohio Hsg. Fin. Agcy.
Residential Mtge. RB (GNMA
Mortgage-Backed Securities
Prog.), (1995 Series A-2),
6.63%, 3/1/26..................... $ 490,252
3,325,217

SOUTH CAROLINA-- 3.4%
3,250,000 South Carolina St., Port
Auth. RB, (Series 1991),
6.63%, 7/1/11, (AMBAC)............ 3,468,563
SOUTH DAKOTA-- 4.2%
4,000,000 South Dakota Hlth. & Edl.
Facs. Auth. RRB (St. Luke's
Midland Regional Med. Center
Issue), (Series 1991),
6.63%, 7/1/11, (MBIA)............. 4,304,240
TENNESSEE-- 3.1%
1,200,000 The Hlth. & Edl. Facs. Board
of the City of Bristol Hosp.
RRB (Bristol Mem. Hosp.),
(Series 1993),
6.75%, 9/1/07, (FGIC)............. 1,366,740
1,700,000 The Hlth., Edl. & Hsg. Facs.
Board of the Cnty. of Knox
Hosp. RRB (Fort Sanders
Alliance Obligated Group),
(Series 1993),
6.25%, 1/1/13, (MBIA)............. 1,843,378
3,210,118

TEXAS-- 4.4%
1,500,000 City of Austin Arpt. Sys.
Prior Lien RB, (Series 1995A),
6.13%, 11/15/25, (MBIA)........... 1,533,060
1,000,000 City of Houston Wtr.
Conveyance Sys. Contract COP,
(Series 1993H),
7.50%, 12/15/14, (AMBAC).......... 1,221,290
6,000,000 Harris County Texas, RB Toll
Road, (Prerefunded @
$53.836), (Eff. Yield 5.39%)(a),
0.00%, 8/15/09, (AMBAC)........... 1,699,500
4,453,850

<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS-- CONTINUED
UTAH-- 3.6%
$2,500,000 Board of Ed. of Iron Cnty.
Sch. Dist. GO Sch. Bldg.
Bonds, (Series 1994),
6.40%, 1/15/12, (MBIA)............ $2,675,325
1,000,000 Salt Lake City, Salt Lake
Cnty. Arpt. RB, (Series 1993A),
6.00%, 12/1/12, (FGIC)............ 1,030,860
3,706,185

VIRGINIA-- 2.1%
2,000,000 Industrial Dev. Auth. of
Hanover Hosp. RB (Mem.
Regional Med. Center Proj. at
Hanover Med. Park), (Series 1995),
6.38%, 8/15/18, (MBIA)............ 2,196,040

WASHINGTON-- 2.6%
2,500,000 City of Tacoma Elec. Sys.
RRB, (Series 1994),
6.25%, 1/1/15, (FGIC)............. 2,619,825

WEST VIRGINIA-- 0.5%
500,000 West Virginia St. Hsg. Dev.
Fund Hsg. Fin. (Series. A),
6.05%, 5/1/27..................... 501,605

WISCONSIN-- 7.3%
4,500,000 City of Superior Ltd. Oblig.
RRB (Midwest Energy Res. Co.
Proj.), (Series E-1991),
6.90%, 8/1/21, (FGIC)............. 5,275,890
2,000,000 Wisconsin Hlth. & Edl. Facs.
Auth. RB (Wausau Hosps., Inc.
Proj.), (Series 1991B),
6.63%, 8/15/11, (AMBAC)........... 2,142,580
7,418,470

PUERTO RICO-- 2.1%
500,000 Commonwealth of Puerto Rico,
Elec. Pwr. Auth. RRB,
(Series Y),
6.50%, 7/1/06, (MBIA)............. 558,460
500,000 Commonwealth of Puerto Rico,
Hsg. Bank & Fin. Agcy.
Affordable Hsg. Mtge. Subsidy
Prog. Single Family Mtge. RB,
Portfolio I,
6.10%, 10/1/15,
(Collateralized by GNMA, FNMA
& FHLMC Certificates)............. 506,220

(CONTINUED)

<PAGE>

EVERGREEN
HIGH GRADE TAX FREE FUND
(logo)
SCHEDULE OF INVESTMENTS (CONTINUED)
May 31, 1997

</TABLE>
<TABLE>
LONG-TERM INVESTMENTS-- CONTINUED
PUERTO RICO-- CONTINUED
$1,000,000 Commonwealth of Puerto Rico,
Elec. Pwr. Auth.,
RB, (Series BB),
6.25%, 7/1/10, (MBIA)............. $ 1,100,720
2,165,400
TOTAL LONG-TERM INVESTMENTS
(COST $95,320,879)................ 99,523,593

SHORT-TERM INVESTMENTS-- 0.9%
ALABAMA-- 0.1%
100,000 Phenix Cnty. Alabama RB
Refunding Mead Coated Board
Project B, VRDN
4.15%, 10/1/25.................... 100,000
KANSAS-- 0.8%
800,000 Kansas City Kansas Industrial
Revenue PQ Corporation
Project, VRDN
4.10%, 8/15/01.................... 800,000
TOTAL SHORT-TERM INVESTMENTS
(COST $900,000)................... 900,000

<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MUTUAL FUND SHARES-- 0.2%
167,000 Federated Tax Free Fund
(cost $167,000)................... $ 167,000
TOTAL INVESTMENTS--
(COST $96,387,879)....... 98.5% 100,590,593
OTHER ASSETS AND
LIABILITIES-- NET........ 1.5 1,538,629
NET ASSETS--............... 100.0% $102,129,222
</TABLE>

(a) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accrues until its maturity date.

SUMMARY OF ABBREVIATIONS
AMBAC-- American Municipal Bond Assurance Corp.
COP-- Certificate of Participation
FGIC-- Financial Guaranty Insurance Corp.
FHLMC-- Federal Home Loan Mortgage Corporation
FNMA-- Federal National Mortgage Association
FSA-- Financial Security Assurance Corp.
GNMA-- Government National Mortgage Association
GO-- General Obligation Bonds
MBIA-- Municipal Bond Investors Assurance Corp.
RB-- Revenue Bonds
RRB-- Revenue Refunding Bonds
VRDN-- Variable Rate Demand Notes are payable on demand at par on no more than
seven calendar days' notice given by the Fund to the issuer or other parties not
affiliated with the issuer. Interest rates are determined and reset by the
issuer daily or weekly depending upon the terms of the security. The interest
rates presented for these securities are those in effect at May 31, 1997.

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN
SHORT - INTERMEDIATE MUNICIPAL FUND
(logo)
SCHEDULE OF INVESTMENTS
May 31, 1997

<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS-- 97.0%
ARIZONA-- 3.8%
$1,600,000 Pima Cnty. GO RFB, (Series 1992),
6.55%, 7/1/01..................... $ 1,718,384
COLORADO-- 1.2%
520,000 Colorado Stud. Oblig. Board
Auth., Stud. Loan RB,
(Series 1985B),
6.13%, 12/1/98.................... 530,104
DISTRICT OF COLUMBIA-- 3.4%
1,500,000 Dist. of Columbia GO RFB,
(Series 1989B),
6.63%, 6/1/98, (MBIA)............. 1,539,375
ILLINOIS-- 2.4%
1,000,000 Central Lake Cnty. Joint
Action Wtr. Agcy. RB,
(Prerefunded @ $102),
(Series 1990A),
7.00%, 5/1/00, (AMBAC)............ 1,086,340
MARYLAND-- 4.0%
635,000 Maryland Energy Financing
Administration Solid Waste
Disp. RB, (Wheelabrator Wtr.
Technologies Baltimore L.L.C.
Projs.), (Series 1996),
4.80%, 12/1/98.................... 638,156
1,140,000 Montgomery Cnty. GO Bonds
Consolidated Pub. Imp. RB,
(Series 1992A),
5.30%, 7/1/01..................... 1,174,075
1,812,231
MASSACHUSETTS-- 12.1%
Massachusetts Ind. Fin. Agcy. IDR:
460,000 (Series 1986G),
5.30%, 12/1/06.................... 467,149
565,000 (Series 1986I),
5.30%, 12/1/06.................... 573,780
1,185,000 (Series 1996A),
5.35%, 11/1/07.................... 1,208,368
1,160,000 (Series 1996B),
5.35%, 11/1/07.................... 1,182,875
New England Ed. Loan
Marketing Corp. Stud. Loan RB:
1,000,000 (Series 1993B),
5.40%, 6/1/00..................... 1,016,840
1,000,000 (Series 1993C),
4.75%, 7/1/98..................... 1,007,330
5,456,342

<CAPTION>
PRINCIPAL
AMOUNT VALUE
LONG-TERM INVESTMENTS-- CONTINUED
<C> <S> <C>
MINNESOTA-- 2.3%
$1,015,000 City of Minneapolis & Hsg.
& Redev. Auth. of the City of
St. Paul, Single Family Mtge.
RRB, (Series 1996A),
5.13%, 6/1/32..................... $ 1,015,974
MISSOURI-- 3.2%
North Kansas City Sch. Dist.
GO, Direct Deposit Prog.,
(Series 1996),
710,000 6.70%, 3/1/00....................... 750,179
665,000 7.00%, 3/1/99....................... 695,204
1,445,383
NEW JERSEY-- 4.7%
2,000,000 New Jersey St. GO, (Series 1991),
5.90%, 8/1/02..................... 2,116,380
NEW YORK-- 4.5%
1,000,000 New York, New York, (Series 1997L),
5.25%, 8/1/00..................... 1,009,710
1,000,000 Pwr. Auth. of the St. of New
York, General Purpose Bonds,
(Series Z),
5.85%, 1/1/00..................... 1,033,310
2,043,020
OHIO-- 2.3%
1,000,000 The Stud. Loan Funding Corp.
(Cincinnati) Stud. Loan RB,
(Series 1993A),
5.50%, 12/1/01.................... 1,019,940
OREGON-- 2.5%
1,125,000 Josephine Cnty., Sch. Dist.
#007 GO,
5.00%, 6/1/99, (FGIC)............. 1,140,818
PENNSYLVANIA-- 7.9%
1,000,000 Lancaster Cnty. Hosp. Auth.
Hosp. RB (The Lancaster
General Hosp. Proj.), (Series
1992),
5.60%, 7/1/00, (AMBAC)............ 1,031,900
1,950,000 Sayre Hlth. Care Facs. Auth.
RB, Guthrie Healthcare Sys.,
(Series 1991A),
6.40%, 3/1/99, (AMBAC)............ 2,017,489
500,000 St. of Pennsylvania GO,
(Series 1971),
6.00%, 12/15/98................... 503,270
3,552,659
</TABLE>

(CONTINUED)

<PAGE>
EVERGREEN
SHORT - INTERMEDIATE MUNICIPAL FUND
(logo)
SCHEDULE OF INVESTMENTS (CONTINUED)
May 31, 1997

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS-- CONTINUED
SOUTH CAROLINA-- 1.2%
$ 500,000 Charleston Cnty. Arpt.
Dist. Arpt. System RRB,
(Series 1993),
8.25%, 7/1/00, (MBIA)............. $ 552,420
TEXAS-- 15.0%
1,000,000 Brazos Higher Ed. Auth.,
Inc., Stud. Loan RRB,
(Series 1992A),
5.30%, 12/1/97.................... 1,006,210
500,000 City of Dallas GO,
5.90%, 2/15/01.................... 523,625
1,000,000 City of Houston Pub. Imp.
RFB, (Series 1992C),
5.70%, 3/1/01..................... 1,038,490
1,300,000 Dallas Cnty. Imp. (Ltd. Tax)
RB, (Series 1992A),
6.00%, 8/15/01.................... 1,373,905
505,000 San Antonio Independent Sch.
Dist. Pub. Facs. Corp. RB,
(Series 1996),
5.00%, 10/15/00, (AMBAC).......... 510,969
Texas Dept. Hsg. & Cmnty.
Affairs Single Family Mtge.
RB, (Series 1996E):
1,260,000 4.45%, 3/1/99, (MBIA)............... 1,261,562
1,045,000 4.65%, 3/1/00, (MBIA)............... 1,049,034
6,763,795
UTAH-- 6.4%
2,500,000 Intermountain Pwr. Agcy.,
Pwr. Supply RFB, (Series C),
6.00%, 7/1/00, (MBIA)............. 2,603,150
290,000 Utah Hsg. Fin. Agcy. Single
Family Mtge. RRB, (Series 1993A),
5.20%, 1/1/01..................... 293,996
2,897,146
VIRGINIA-- 3.4%
1,500,000 Virginia Hsg. Dev. Auth.
Commonwealth Mtge. Bonds,
(Series 1992B, Subseries B-1),
6.00%, 1/1/98..................... 1,513,845
WASHINGTON-- 11.9%
2,950,000 St. of Washington GO RB,
Motor Vehicle Fuel Tax,
(Series R-92D),
5.60%, 9/1/01..................... 3,064,844

<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS-- CONTINUED
WASHINGTON-- CONTINUED
$ 550,000 Washington Pub. Pwr. Supply
Sys. RRB (Nuclear Proj. #1),
(Series 1992A),
5.00%, 7/1/98..................... $ 556,122
Washington Pub. Pwr. Supply
Sys. RRB (Nuclear Proj. #2),
(Series 1992A):
1,070,000 5.00%, 7/1/98....................... 1,081,909
675,000 5.00%, 7/1/99....................... 681,088
5,383,963
WISCONSIN-- 4.8%
1,000,000 Milwaukee GO,
Pub. Imps., (Series BZ),
6.30%, 6/15/01.................... 1,064,300
1,000,000 Milwaukee Metropolitan Sewage
Dist. GO, (Series 1989A),
7.00%, 9/1/01..................... 1,092,060
2,156,360
TOTAL LONG-TERM INVESTMENTS
(COST $43,306,201)................ 43,744,479

SHORT-TERM INVESTMENTS-- 3.3%
COLORADO-- 3.3%
1,500,000 Arapahoe Cnty. MHRB Ref.
Stratford Sta., (Series 1994),
VRDN, (LOC: Heller Finl., Inc.)
4.45%, 11/1/17 (cost $1,500,000).. 1,500,000

TOTAL INVESTMENTS--
(COST $44,806,201)....... 100.3% 45,244,479
OTHER ASSETS AND
LIABILITIES-- NET........ (0.3) (137,878)
NET ASSETS--............... 100.0% $ 45,106,601
</TABLE>

SUMMARY OF ABBREVIATIONS:
AMBAC-- American Municipal Bond Assurance Corp.
FGIC-- Financial Guaranty Insurance Corp.
GO-- General Obligation Bonds
IDR-- Industrial Development Revenue Bonds
LOC-- Letter of Credit
MBIA-- Municipal Bond Investors Assurance Corp.
MHRB-- Municipal Housing Revenue Bonds
RB-- Revenue Bonds
RFB-- Refunding 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 May 31, 1997.

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
KEYSTONE
TAX FREE INCOME FUND
(logo)
SCHEDULE OF INVESTMENTS
May 31, 1997

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS-- 98.2%
ALABAMA-- 0.2%
$ 265,000 Alabama Housing Finance Agency,
Single Family Mortgage,
10.75%, 6/1/13.................... $ 281,125
ALASKA-- 0.4%
470,000 Alaska Housing Finance Corp.,
Collateralized Home Mortgage,
8.75%, 12/1/16.................... 483,898
ARIZONA-- 1.6%
1,875,000 Page, Arizona, Municipal Property
Corp., Excise Tax Revenue,
5.00%, 7/1/11, (MBIA)............. 1,806,450
CALIFORNIA-- 7.0%
500,000 Anaheim, California, Public
Financing Authority, Series C,
6.00%, 9/1/16..................... 529,385
1,400,000 California Health Facilities,
Children's Hospital,
5.38%, 7/1/20..................... 1,341,914
2,115,000 Central Coast, California, Water
Authority Revenue,
State Water Project, Regional
Facilities, Series A,
5.00%, 10/1/16, (AMBAC)........... 1,977,737
1,785,000 East Bay, California, Municipal
Utility District, Water System
Revenue,
5.00%, 6/1/16, (FGIC)............. 1,678,382
San Francisco, California, State
Building Authority, Lease Revenue,
San Francisco Civic Center
Complex-- A:
1,000,000 5.25%, 12/1/16...................... 964,440
500,000 5.25%, 12/1/21...................... 476,840
2,450,000 Victor Valley, California, Joint
Union High School District,
Capital Appreciation, (effective
yield
5.69%) (b),
0.00%, 9/1/13, (MBIA)............. 991,172
7,959,870

<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS-- CONTINUED
COLORADO-- 5.5%
City and County of Denver, Colorado,
Airport System:
Series A:
$1,250,000 7.00%, 11/15/99..................... $ 1,314,500
720,000 7.25%, 11/15/25..................... 821,102
1,000,000 8.00%, 11/15/25..................... 1,105,710
750,000 8.75%, 11/15/23..................... 876,570
Series B,
750,000 7.25%, 11/15/12..................... 814,590
Series D,
1,100,000 7.75%, 11/15/13..................... 1,339,877
6,272,349
FLORIDA-- 8.6%
750,000 Gainesville, Florida, Utilities
System Revenue, Series A,
5.20%, 10/1/22.................... 710,595
1,500,000 Martin County, Florida, Industrial
Development Authority, Industrial
Development Revenue, Indiantown
Cogeneration Project, Series A,
7.88%, 12/15/25................... 1,682,865
2,000,000 Orange County, Florida, Health
Facilities Authority, Orlando
Hospital Regional Healthcare,
Series A,
6.25%, 10/1/18.................... 2,186,940
1,000,000 Sarasota County, Florida, Utility
Systems Revenue,
6.50%, 10/1/22, (FGIC)............ 1,122,620
2,640,000 Tallahassee, Florida, Health
Facilities, Tallahassee Memorial
Regional Medical Project,
6.63%, 12/1/13, (MBIA)............ 2,927,971
1,015,000 Tampa, Florida, Subordinated
Guaranteed Entitlement Revenue,
Series 1988B,
8.40%, 10/1/08.................... 1,070,226
9,701,217
</TABLE>

(CONTINUED)

<PAGE>
KEYSTONE
TAX FREE INCOME FUND
(logo)
SCHEDULE OF INVESTMENTS (CONTINUED)
May 31, 1997

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS-- CONTINUED
ILLINOIS-- 1.9%
$910,000 Chicago, Illinois, Gas Supply
Revenue (People's Gas, Light and
Coke Co.), Series A,
8.10%, 5/1/20..................... $ 998,316
1,000,000 Illinois Health Facilities
Authority, United Medical Center,
8.38%, 7/1/12..................... 1,187,550
2,185,866

INDIANA-- 2.8%
1,300,000 Indiana Municipal Power Supply,
Systems Revenue,
5.50%, 1/1/16..................... 1,289,340
1,640,000 St. Joseph County, Indiana,
Educational Facilities Revenue,
University of Notre Dame,
6.50%, 3/1/26..................... 1,835,226
3,124,566

LOUISIANA-- 1.3%
1,415,000 Louisiana Public Facilities
Authority, Health and Education,
Pre-refunded,
7.90%, 12/1/15.................... 1,505,461

MASSACHUSETTS-- 8.2%
Massachusetts Bay Transportation
Authority, Series A:
1,875,000 6.25%, 3/1/12....................... 2,050,763
1,000,000 7.00%, 3/1/11....................... 1,167,180
1,950,000 7.00%, 3/1/21....................... 2,315,450
400,000 Massachusetts, General Obligation,
(effective yield 7.00%) (b),
0.00%, 6/1/07, (FGIC)............. 241,104
1,490,000 Massachusetts State Housing Finance
Agency, Residential Housing,
Series A,
8.40%, 8/1/21..................... 1,552,967
500,000 Massachusetts State Industrial
Finance Agency, Senior Lien,
Massachusetts Recycling
Association,
9.00%, 8/1/16 (a)................. 200,000
Massachusetts Water Resources
Authority, General Revenue Bonds:
1,000,000 Series A,
6.00%, 8/1/20..................... 1,012,170
1,000,000 1995, Series B,
4.00%, 12/1/18.................... 774,880
9,314,514

<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS-- CONTINUED
MICHIGAN-- 0.5%

$ 500,000 Monroe County, Michigan, Economic
Development Corp.,
Detroit Edison Co.,
6.95%, 9/1/22, (FGIC)............. $ 594,535

MINNESOTA-- 0.5%
595,000 Minnesota Housing Finance Agency,
Single Family Mortgage, Series A,
8.20%, 8/1/19..................... 611,785

MISSOURI-- 0.5%
500,000 Sikeston, Missouri, Electric
Revenue,
6.00%, 6/1/14, (MBIA)............. 530,165

NEW JERSEY-- 5.0%
1,000,000 New Jersey Economic Development
Authority, Water Facilities
Revenue, NJ American Water Co.,
Inc. Project,
6.50%, 4/1/22, (FGIC)............. 1,055,410
4,325,000 Salem County, New Jersey, Pollution
Control Financing Authority,
Waste Disposal Revenue,
6.50%, 11/15/21................... 4,560,496
5,615,906

NEW MEXICO-- 3.8%
500,000 Albuquerque, New Mexico, Airport
Revenue, Series B,
8.75%, 7/1/19..................... 506,720
1,950,000 Albuquerque, New Mexico, Joint Water
and Sewer System Revenue,
Capital Appreciation, Series A,
(effective yield 5.42%) (b),
0.00%, 7/1/08, (FGIC)............. 1,083,030
1,590,000 New Mexico Mortgage Finance
Authority, Single Family Mortgage,
8.63%, 7/1/17, (FGIC)............. 1,637,970
1,000,000 University of New Mexico, University
Revenue, Series A,
6.00%, 6/1/21..................... 1,045,860
4,273,580

(CONTINUED)

<PAGE>

KEYSTONE
TAX FREE INCOME FUND
(logo)
SCHEDULE OF INVESTMENTS (CONTINUED)
May 31, 1997

</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS-- CONTINUED

NEW YORK-- 14.4%
New York City, New York, GO:
$1,410,000 Fiscal 1992, Pre-refunded, Series A,
7.75%, 8/15/15 (d)................ $ 1,602,056
2,500,000 Series G,
6.75%, 2/1/09..................... 2,733,600
500,000 New York and New Jersey, Port
Authority, Special Obligation
Revenue, JFK International Airport
Terminal-- 6 Project,
5.75%, 12/1/25, (MBIA)............ 498,675
2,000,000 New York State Dormitory Authority,
State University Dormitory
Facilities, Series A,
6.00%, 7/1/09..................... 2,142,620
New York State Dormitory Authority,
State University Educational
Facilities Revenue:
800,000 Series A,
5.25%, 5/15/15, (AMBAC)........... 778,120
1,300,000 Series C,
7.38%, 5/15/10.................... 1,515,046
1,600,000 New York State Local Government
Assistance Corp., Series A
5.50%, 4/1/17..................... 1,573,072
2,510,000 New York State Tollway Authority,
Highway and Bridge
Trust Fund, Series A,
5.25%, 4/1/16, (AMBAC)............ 2,422,225
New York State Urban Development
Corp.:
Correctional Facilities, Series A:
1,000,000 6.50%, 1/1/10....................... 1,084,510
1,000,000 7.50%, 4/1/11....................... 1,121,870
805,000 Higher Education Technology Grants,
6.00%, 4/1/10, (MBIA)............... 847,528
16,319,322

1,000,000 NORTH CAROLINA-- 0.8%
North Carolina Medical Care, Duke
University Hospital, Series C,
5.25%, 6/1/21..................... 941,530

<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS-- CONTINUED
OHIO-- 1.8%
$1,000,000 Montgomery County, Ohio, Hospital
Revenue, Kettering Medical
Center, 6.25%, 4/1/20............. $1,087,260
1,000,000 North Olmsted, Ohio, GO,
5.00%, 12/1/16, (AMBAC)........... 935,880
2,023,140

PENNSYLVANIA-- 8.2%
1,500,000 Pennsylvania Convention Center
Authority, Series A,
(effective yield 7.00%) (b),
0.00%, 9/1/08, (FGIC)............. 840,405
2,450,000 Pennsylvania Economic Development
Financing Authority, Resources
Recovery, Northampton Project,
6.50%, 1/1/13 (c)................. 2,420,085
1,000,000 Philadelphia, Pennsylvania, Hospital
and Higher Education Facilities,
Community College, Series B,
6.50%, 5/1/07, (MBIA)............. 1,104,070
4,000,000 Pittsburgh, Pennsylvania, School
District, Capital Appreciation,
Series B, (effective yield 5.42%)
(b),
0.00%, 8/1/09, (AMBAC)............ 2,135,320
2,200,000 Scranton-Lackawanna, Pennsylvania,
Health and Welfare
Authority Revenue, Walters
Institute Project,
8.13%, 7/15/28.................... 2,307,184
500,000 Southeastern Pennsylvania
Transportation Authority,
Special Revenue,
5.38%, 3/1/22, (FGIC)............. 481,765
9,288,829

PUERTO RICO-- 3.5%
2,000,000 Commonwealth of Puerto Rico, GO,
7.00%, 7/1/10, (MBIA)............. 2,336,700
1,365,000 Puerto Rico Electric Power
Authority, Series S,
7.00%, 7/1/07..................... 1,584,287
3,920,987

(CONTINUED)

<PAGE>

KEYSTONE
TAX FREE INCOME FUND
(logo)
SCHEDULE OF INVESTMENTS (CONTINUED)
May 31, 1997

</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
LONG-TERM INVESTMENTS-- CONTINUED
TENNESSEE-- 4.9%
$2,000,000 Bristol, Tennessee, Health and
Education Authority,
Bristol Memorial Hospital,
6.75%, 9/1/10, (FGIC)............. $ 2,303,820
Knox County, Tennessee, Health and
Educational Facilities,
Fort Sanders Hospital Alliance:
1,000,000 Series B,
7.25%, 1/1/10, (MBIA)............. 1,171,990
1,000,000 Series C,
5.25%, 1/1/15, (MBIA)............. 969,670
1,000,000 Metropolitan Government of Nashville
and Davidson County,
Tennessee Water and Sewer,
step bond, (effective yield 5.20%)
(b),
0.00%, 1/1/12, (FGIC)............. 1,100,570
5,546,050
TEXAS-- 10.7%
3,000,000 Brazos River Authority, Texas,
Revenue Refunding,
Houston Light and Power Project,
8.10%, 5/1/19, (MBIA)............. 3,154,980
1,000,000 Harris County, Texas, Toll Road,
Senior Lien, Series A,
7.00%, 8/15/10.................... 1,166,690
3,000,000 Houston, Texas, Water and Sewer
System Revenue,
Jr. Lien, Series C,
(effective yield 6.05%) (b),
0.00%, 12/1/11, (AMBAC)........... 1,349,400
1,500,000 Northwest, Texas, Independent School
District, Capital Appreciation,
(effective yield 5.50%) (b),
0.00%, 8/15/08, (PSFG)............ 832,260
1,000,000 Nueces River Authority, Texas Water
Supply, Facilities Corpus Christie
Lake,
5.25%, 7/15/16.................... 960,200
2,125,000 Tarrant County, Texas, Health
Facilities Development, Harris
Methodist Health Systems, Series
A,
5.13%, 9/1/12, (AMBAC)............ 2,036,388
2,125,000 Texas Municipal Power Agency,
(effective yield 7.09%) (b),
0.00%, 9/1/08, (AMBAC)............ 1,176,294
1,500,000 United Independent School District,
Texas, GO,
5.25%, 8/15/15, (PSFG)............ 1,438,335
12,114,547

<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS-- CONTINUED
UTAH-- 0.4%
$ 750,000 Intermountain Power Agency, Utah,
Power Supply Refunding, Series A,
(effective yield 6.95%) (b),
0.00%, 7/1/07..................... $ 445,320
WASHINGTON-- 4.7%
3,000,000 Chelan County, Washington, Public
Utilities District, Series A,
(effective yield 5.53%) (b),
0.00%, 6/1/09..................... 1,563,210
1,500,000 Tacoma, Washington, Solid Waste
Utility Revenue, Series B,
5.50%, 12/1/17, (AMBAC)........... 1,453,305
1,000,000 Washington Public Power Supply
System, Nuclear Project #2,
Series C,
7.63%, 7/1/10..................... 1,118,080
1,000,000 Washington State GO, Series A,
6.75%, 2/1/15..................... 1,146,110
5,280,705
WYOMING-- 1.0%
1,140,000 Wyoming Community Development
Authority, Single Family Mortgage,
Series A,
7.88%, 6/1/18..................... 1,180,196
TOTAL LONG-TERM INVESTMENTS
(COST-- $107,046,798)............. 111,321,913

SHORT-TERM INVESTMENTS-- 0.5%
FLORIDA-- 0.5%
565,000 Dade County, Florida, Water and
Sewer Systems Revenue, VRDN,
3.85%, 10/5/22.................... 565,000
WASHINGTON-- 0.0%
5,000 Washington State Health Care
Facilities, VRDN,
4.00%, 10/1/05.................... 5,000

TOTAL SHORT-TERM
INVESTMENTS (COST-- $570,000)... 570,000
TOTAL INVESTMENTS
(COST-- $107,616,798)...... 98.7% 111,891,913
OTHER ASSETS AND
LIABILITIES-- NET.......... 1.3% 1,437,886
NET ASSETS................... 100.0% $113,329,799
</TABLE>

(CONTINUED)

<PAGE>
KEYSTONE
TAX FREE INCOME FUND
(logo)
SCHEDULE OF INVESTMENTS (CONTINUED)
May 31, 1997

(a) Securities which have defaulted on payment of interest and/or principal.
The Fund has stopped accruing income on those so identified.
(b) Effective yield (calculated at date of purchase) is the yield at which the
bond accretes on an annual basis until maturity date.
(c) Securities that may be resold to "qualified instituional buyers" under Rule
144A or securities offered pursuant to Section 4(2) of the Securities Act
of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Trustees.
(d) At May 31, 1997, $300,000 principal amount of New York City, New York, GO,
Fiscal 1992, Pre-refunded, Series A, 7.75%, 8/15/15 was pledged to cover
margin requirements for open futures contracts.

LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC-- American Municipal Bond Assurance Corporation
FGIC-- Financial Guaranty Insurance Company
GO-- General Obligation Bonds
MBIA-- Municipal Bond Investors Assurance Corp.
PSFG-- Permanent School Fund Guaranteed
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 May 31, 1997.

FUTURES CONTRACTS-- SHORT POSITIONS

<TABLE>
<CAPTION>
NUMBER INITIAL CONTRACT UNREALIZED
EXPIRATION OF CONTRACTS AMOUNT DEPRECIATION
<S> <C> <C> <C> <C>
JUNE 97 17 U.S. TREASURY BOND INDEX $1,833,031 $(37,500)
</TABLE>

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF ASSETS AND LIABILITIES
May 31, 1997

<TABLE>
<CAPTION>
(logo) (logo) (logo)
HIGH GRADE SHORT-INTERMEDIATE TAX FREE
FUND FUND INCOME FUND
<S> <C> <C> <C>
ASSETS
Investments at market value (identified cost-- $96,387,879, $44,806,201
and $107,616,798, respectively)....................................... $100,590,593 $ 45,244,479 $111,891,913
Cash.................................................................... 0 66,326 4,334
Receivable for investments sold......................................... 0 0 2,466,140
Interest receivable..................................................... 1,897,863 843,625 1,892,703
Receivable for Fund shares sold......................................... 107,105 35,048 22,000
Prepaid expenses and other assets....................................... 26,968 30,724 58,554
Total assets........................................................ 102,622,529 46,220,202 116,335,644
LIABILITIES
Payable for investments purchased....................................... 0 1,008,560 2,341,411
Payable for Fund shares redeemed........................................ 228,082 17,401 290,463
Dividends payable....................................................... 140,678 44,499 244,167
Distribution fee payable................................................ 52,967 10,616 63,516
Due to related parties.................................................. 19,104 4,250 13,902
Due to custodian bank................................................... 18,471 0 0
Payable for daily variation margin on open futures contracts............ 0 0 12,219
Accrued expenses and other liabilities.................................. 34,005 28,275 40,167
Total liabilities................................................... 493,307 1,113,601 3,005,845
NET ASSETS................................................................ $102,129,222 $ 45,106,601 $113,329,799
NET ASSETS REPRESENTED BY
Paid-in capital......................................................... $ 99,066,689 $ 45,350,089 $112,869,280
Undistributed net investment income (accumulated distributions in excess
of net investment income)............................................. 124,532 0 (244,167 )
Accumulated net realized loss on investments and futures contracts...... (1,264,713) (681,766) (3,532,929 )
Net unrealized appreciation on investments and futures contracts........ 4,202,714 438,278 4,237,615
Total net assets.................................................... $102,129,222 $ 45,106,601 $113,329,799
NET ASSETS CONSIST OF
Class A................................................................. $ 45,814,519 $ 6,072,249 $72,629,064
Class B................................................................. 31,874,058 6,741,653 28,821,838
Class C................................................................. -- -- 11,878,897
Class Y................................................................. 24,440,645 32,292,699 --
$102,129,222 $ 45,106,601 $113,329,799
SHARES OUTSTANDING
Class A................................................................. 4,207,467 601,763 7,424,946
Class B................................................................. 2,927,195 667,292 2,974,366
Class C................................................................. -- -- 1,225,559
Class Y................................................................. 2,244,589 3,197,322 --
NET ASSET VALUE PER SHARE
Class A................................................................. $ 10.89 $ 10.09 $ 9.78
Class A-- Offering price (based on sales charge of 4.75%, 3.25% and
4.75%, respectively).................................................. $ 11.43 $ 10.43 $ 10.27
Class B................................................................. $ 10.89 $ 10.10 $ 9.69
Class C................................................................. -- -- $ 9.69
Class Y................................................................. $ 10.89 $ 10.10 --
</TABLE>

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF OPERATIONS
Period Ended May 31, 1997

<TABLE>
<CAPTION>
(logo) (logo) (logo)
HIGH GRADE SHORT-INTERMEDIATE TAX FREE
FUND* FUND* INCOME FUND**
<S> <C> <C> <C>
INVESTMENT INCOME
Interest....................................................... $ 4,496,797 $2,373,153 $ 3,631,204
EXPENSES
Management fee................................................. 399,929 248,564 367,154
Distribution Plan expenses..................................... 333,154 71,757 307,124
Transfer agent fees............................................ 65,152 45,027 99,665
Registration and filing fees................................... 52,562 30,280 6,147
Custodian fees................................................. 49,228 48,597 41,888
Administrative services fees................................... 33,901 0 17,396
Professional fees.............................................. 22,955 22,587 25,138
Trustees' fees and expenses.................................... 4,431 7,083 6,480
Other.......................................................... 57,713 23,623 12,229
Fee waivers by investment manager.............................. (64,199) (60,003) 0
Total expenses............................................... 954,826 437,515 883,221
Less: Indirectly paid expenses................................. (197) (639) (7,261)
Net expenses................................................. 954,629 436,876 875,960
NET INVESTMENT INCOME.......................................... 3,542,168 1,936,277 2,755,244
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS
Net realized gain on:
Investments.................................................. 640,025 18,940 1,212,437
Futures contracts............................................ 0 0 50,174
Net realized gain on investments and futures contracts......... 640,025 18,940 1,262,611
Net change in unrealized appreciation (depreciation) on:
Investments.................................................. 982,691 139,624 (2,667,451)
Futures contracts............................................ 0 0 (37,500)
Net change in unrealized appreciation (depreciation) on
investments and futures contracts............................ 982,691 139,624 (2,704,951)
Net realized and unrealized gain (loss) on investments and
futures contracts............................................ 1,622,716 158,564 (1,442,340)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $ 5,164,884 $2,094,841 $ 1,312,904
</TABLE>

* Nine months ended May 31, 1997. During the period, the Fund changed its
fiscal year end from August 31 to May 31.
** Six months ended May 31, 1997. During the period, the Fund changed its fiscal
year end from November 30 to May 31.

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF OPERATIONS
Fiscal Year Ended 1996

<TABLE>
<CAPTION>
(logo) (logo) (logo)
HIGH GRADE SHORT-INTERMEDIATE TAX FREE
FUND FUND INCOME FUND
YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1996 NOVEMBER 30, 1996
<S> <C> <C> <C>
INVESTMENT INCOME
Interest....................................................... $ 6,526,273 $2,837,285 $ 8,727,446
EXPENSES
Management fee................................................. 575,456 287,149 844,486
Distribution plan expenses..................................... 483,026 83,180 709,281
Custodian fees................................................. 100,816 55,841 94,590
Transfer agent fees............................................ 76,905 55,501 186,105
Administrative services fees................................... 59,073 0 21,926
Registration and filing fees................................... 49,627 67,347 36,773
Professional fees.............................................. 25,849 27,986 26,696
Trustees' fees and expenses.................................... 3,640 8,457 6,780
Amortization of organization expenses.......................... 0 8,846 0
Other.......................................................... 76,011 30,530 18,810
Fee waivers and/or expense reimbursement by investment
manager...................................................... (228,548) (140,581) 0
Total expenses............................................... 1,221,855 484,256 1,945,447
Less: Expenses paid indirectly................................. 0 0 (12,939)
Net expenses................................................. 1,221,855 484,256 1,932,508
NET INVESTMENT INCOME.......................................... 5,304,418 2,353,029 6,794,938
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS
Realized gain (loss) on:
Investments.................................................. 1,622,360 161,202 2,300,652
Futures contracts............................................ 0 0 (301,239)
Net realized gain on investments and futures contracts......... 1,622,360 161,202 1,999,413
Net change in unrealized appreciation (depreciation) on
investments.................................................. (1,135,792) (564,810) (4,259,520)
Net realized and unrealized gain (loss) on investments and
futures contracts............................................ 486,568 (403,608) (2,260,107)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $ 5,790,986 $1,949,421 $ 4,534,831
</TABLE>

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF CHANGES IN NET ASSETS
Period Ended May 31, 1997

<TABLE>
<CAPTION>
(logo) (logo) (logo)
HIGH GRADE SHORT-INTERMEDIATE TAX FREE
FUND* FUND* INCOME FUND**
<S> <C> <C> <C>
OPERATIONS
Net investment income................................................ $ 3,542,168 $ 1,936,277 $ 2,755,244
Net realized gain on investments and futures contracts............... 640,025 18,940 1,262,611
Net change in unrealized appreciation (depreciation) on investments
and futures contracts.............................................. 982,691 139,624 (2,704,951)
Net increase in net assets resulting from operations............... 5,164,884 2,094,841 1,312,904
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A............................................................ (1,696,428) (755,942) (1,868,216)
Class B............................................................ (934,247) (159,979) (649,369)
Class C............................................................ 0 0 (262,024)
Class Y............................................................ (929,415) (1,020,356) 0
In excess of net investment income:
Class A............................................................ 0 0 (73,369)
Class B............................................................ 0 0 (25,502)
Class C............................................................ 0 0 (10,290)
Total distributions to shareholders................................ (3,560,090) (1,936,277) (2,888,770)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................................ 9,286,983 9,393,392 1,652,335
Proceeds from reinvestment of distributions.......................... 2,003,093 973,716 1,527,184
Payment for shares redeemed.......................................... (18,667,515) (35,446,549) (17,530,768)
Net decrease in net assets resulting from capital share
transactions..................................................... (7,377,439) (25,079,441) (14,351,249)
Total decrease in net assets..................................... (5,772,645) (24,920,877) (15,927,115)
NET ASSETS
Beginning of period.................................................. 107,901,867 70,027,478 129,256,914
END OF PERIOD........................................................ $102,129,222 $ 45,106,601 $113,329,799
Undistributed net investment income (accumulated distributions in
excess of net investment income)..................................... $ 124,532 $ 0 $ (244,167)
</TABLE>

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF CHANGES IN NET ASSETS
Fiscal Year Ended 1996

<TABLE>
<CAPTION>
(logo) (logo) (logo)
HIGH GRADE SHORT-INTERMEDIATE TAX FREE
FUND FUND INCOME FUND
YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1996 NOVEMBER 30, 1996
<S> <C> <C> <C>
OPERATIONS
Net investment income............................................. $ 5,304,418 $ 2,353,029 $ 6,794,938
Net realized gain on investments and futures contracts............ 1,622,360 161,202 1,999,413
Net change in unrealized depreciation on investments.............. (1,135,792) (564,810) (4,259,520)
Net increase in net assets resulting from operations............ 5,790,986 1,949,421 4,534,831
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A......................................................... (2,655,984) (541,615) (4,538,414)
Class B......................................................... (1,385,989) (229,080) (1,498,516)
Class C......................................................... 0 0 (758,007)
Class Y......................................................... (1,262,445) (1,582,334) 0
In excess of net investment income:
Class A......................................................... 0 0 (31,491)
Class B......................................................... 0 0 (10,398)
Class C......................................................... 0 0 (5,260)
Total distributions to shareholders............................. (5,304,418) (2,353,029) (6,842,086)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold......................................... 16,695,647 37,737,994 6,339,187
Proceeds from shares issued in acquisition of Keystone Texas Tax
Free Fund....................................................... 0 0 5,119,680
Proceeds from reinvestment of distributions....................... 3,093,850 1,651,747 3,629,202
Payment for shares redeemed....................................... (30,410,409) (22,410,625) (31,540,948)
Net increase (decrease) in net assets resulting from capital
share transactions............................................ (10,620,912) 16,979,116 (16,452,879)
Total increase (decrease) in net assets....................... (10,134,344) 16,575,508 (18,760,134)
NET ASSETS
Beginning of year................................................. 118,036,211 53,451,970 148,017,048
END OF YEAR....................................................... $ 107,901,867 $ 70,027,478 $ 129,256,914
Undistributed net investment income (accumulated distributions in
excess of net investment income).................................. $ 115,656 $ 0 $ (245,552)
</TABLE>

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF CHANGES IN NET ASSETS
Fiscal Year Ended 1995

<TABLE>
<CAPTION>
(logo) (logo) (logo)
HIGH GRADE SHORT-INTERMEDIATE TAX FREE
FUND FUND INCOME FUND
YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1995 AUGUST 31, 1995 NOVEMBER 30, 1995
<S> <C> <C> <C>
OPERATIONS
Net investment income........................................ $ 3,187,579 $ 2,318,884 $ 7,600,756
Net realized gain (loss) on investments and futures
contracts.................................................. 437,882 (713,222) (760,743)
Net change in unrealized appreciation on investments......... 7,804,353 529,821 18,451,939
Net increase in net assets resulting from operations....... 11,429,814 2,135,483 25,291,952
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A.................................................... (1,935,789) (178,721) (5,042,433)
Class B.................................................... (936,437) (96,022) (1,531,824)
Class C.................................................... 0 0 (1,026,499)
Class Y.................................................... (315,353) (2,044,141) 0
In excess of net investment income:
Class A.................................................... 0 0 (70,626)
Class B.................................................... 0 0 (21,455)
Class C.................................................... 0 0 (14,377)
Total distributions to shareholders........................ (3,187,579) (2,318,884) (7,707,214)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold.................................... 3,098,389 25,128,726 11,472,775
Proceeds from shares issued in acquisition of Evergreen
National
Tax-Free Fund.............................................. 28,779,194 0 0
Proceeds from reinvestment of distributions.................. 1,826,205 1,923,116 4,018,869
Payment for shares redeemed.................................. (18,339,492) (26,833,640) (32,840,818)
Net increase (decrease) in net assets resulting from
capital share transactions............................... 15,364,296 218,202 (17,349,174)
Total increase in net assets............................. 23,606,531 34,801 235,564
NET ASSETS
Beginning of year............................................ 94,429,680 53,417,169 147,781,484
END OF YEAR.................................................. $ 118,036,211 $ 53,451,970 $ 148,017,048
Undistributed net investment income (accumulated distributions
in excess of net investment income).......................... $ 22,568 $ 0 $ (288,160)
</TABLE>

SEE COMBINED NOTES TO FINANCIAL STATEMENTS.

<PAGE>

EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

The Evergreen Keystone National Tax Free Funds consist of Evergreen High Grade
Tax Free Fund ("High Grade Fund"), Evergreen Short-Intermediate Municipal Fund
("Short-Intermediate Fund") and Keystone Tax Free Income Fund ("Tax Free Income
Fund") (collectively, the "Funds"), all of which are registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as diversified,
open-end management investment companies. High Grade Fund is a series of
Evergreen Investment Trust and Short-Intermediate Fund is a series of Evergreen
Municipal Trust.

The Funds offer Class A, Class B, Class C and/or Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 4.75% for both the High Grade
and Tax Free Income Funds and a maximum front-end sales charge of 3.25% for the
Short-Intermediate Fund. Class B and Class C shares are sold without a front-end
sales charge, but pay a higher ongoing distribution fee than Class A. Class B
shares are sold subject to a contingent deferred sales charge that is payable
upon redemption and decreases depending on how long the shares have been held.
Class C shares are sold subject to a contingent deferred sales charge payable on
shares redeemed within one year after the month of purchase. Class B shares
purchased after January 1, 1997 will automatically convert to Class A shares
after seven years. Class B shares purchased prior to January 1, 1997 retain
their existing conversion rights. Class Y shares are sold at net asset value and
are not subject to contingent deferred sales charges or distribution fees. Class
Y shares are sold only to investment advisory clients of First Union 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.

The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein. Actual results could differ from these estimates.

A. VALUATION OF SECURITIES
An independent pricing service values each Fund's municipal bonds at fair value
using a variety of factors which may include yield, liquidity, interest rate
risk, credit quality, coupon, maturity and type of issue. Securities for which
valuations are not available from an independent pricing service, including
restricted securities, are valued at fair value as determined in good faith
according to procedures established by the Board of Trustees.

Short-term investments with remaining maturities of sixty days or less are
carried at amortized cost, which approximates market value.

B. FUTURES CONTRACTS
In order to gain exposure to or protect against changes in security values, Tax
Free Income Fund may buy and sell futures contracts.

The initial margin deposited with a broker when entering into a futures
transaction is subsequently adjusted by daily payments or receipts as the value
of the contract changes. Such changes are recorded as unrealized gains or
losses. Realized gains or losses are recognized on closing the contract.

Risks of entering into futures contracts include (i) the possibility of an
illiquid market for the contract, (ii) the possibility that a change in the
value of the contract may not correlate with changes in the value of the
underlying instrument or index, and (iii) the credit risk that the other party
will not fulfill their obligations under the contract. Futures contracts also
involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.

C. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums.

D. FEDERAL INCOME TAXES
The Funds have qualified and intend to continue to qualify as regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal income tax liability since
they are expected to distribute all of their net investment company taxable
income and net capital gains, if any, to their shareholders. The Funds also
intend to avoid any excise tax liability by making the required distributions
under the Code. Accordingly, no provision for federal income taxes is required.
To the extent that realized capital gains can be offset by capital loss
carryforwards, it is each Fund's policy not to distribute such gains.

E. DISTRIBUTIONS
Distributions from net investment income for the Funds are declared daily and
paid monthly. Distributions from net realized capital gains, if any, are paid at
least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.

Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. The significant differences between financial statement
amounts available for distributions and distributions made in accordance with
income tax regulations are primarily due to differing treatment for market
discount on securities.

F. CLASS ALLOCATIONS
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the relative
net assets of each class. Currently, class specific expenses are limited to
expenses incurred under the Distribution Plans for each class.

<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)

G. ORGANIZATION EXPENSES
Organizational expenses of High Grade Fund were initially borne by a prior
administrator. As a result of a change in the administration agreement, First
Union purchased the remaining unreimbursed organizational expenses from the
prior administrator. The High Grade Fund had agreed to reimburse such expenses
during the five year period following its commencement of operations. Pursuant
to these arrangements, as of May 31, 1997, the High Grade Fund has fully
reimbursed First Union for such expenses.

2. CAPITAL SHARE TRANSACTIONS

The High Grade and Short-Intermediate Funds have an unlimited number of shares
of beneficial interest with a par value of $0.0001 authorized. The Tax Free
Income Fund has an unlimited number of shares of beneficial interest with no par
value authorized. Shares of beneficial interest of the Funds are currently
divided into Class A, Class B, Class C or Class Y. Transactions in shares of the
Funds were as follows:

HIGH GRADE FUND

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED
MAY 31, 1997 AUGUST 31, 1996 AUGUST 31, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS A
Shares sold..................................... 138,267 $ 1,503,579 728,801 $ 7,875,800 95,059 $ 1,003,763
Shares issued in acquisition of Evergreen
National Tax Free Fund........................ 0 0 0 0 369,661 3,970,157
Shares issued in reinvestment of
distributions................................. 91,672 998,917 144,023 1,571,241 109,500 1,150,986
Shares redeemed................................. (737,802) (8,010,676) (1,652,697) (17,891,048) (967,409) (10,152,313)
Net decrease.................................... (507,863) $ (5,508,180) (779,873) $ (8,444,007) (393,189) $ (4,027,407)
CLASS B
Shares sold..................................... 418,834 $ 4,553,869 420,508 $ 4,595,803 112,511 $ 1,186,133
Shares issued in acquisition of Evergreen
National Tax Free Fund........................ 0 0 0 0 243,174 2,611,688
Shares issued in reinvestment of
distributions................................. 50,410 549,306 75,686 825,507 52,945 556,311
Shares redeemed................................. (546,605) (5,937,166) (691,236) (7,495,373) (520,448) (5,459,057)
Net decrease.................................... (77,361) $ (833,991) (195,042) $ (2,074,063) (111,818) $ (1,104,925)
CLASS Y
Shares sold..................................... 296,083 $ 3,229,535 387,417 $ 4,224,044 85,773 $ 908,493
Shares issued in acquisition of Evergreen
National Tax Free Fund........................ 0 0 0 0 2,066,792 22,197,349
Shares issued in reinvestment of
distributions................................. 41,755 454,870 63,909 697,102 11,174 118,908
Shares redeemed................................. (434,833) (4,719,673) (455,583) (5,023,988) (258,812) (2,728,122)
Net increase (decrease)......................... (96,995) $ (1,035,268) (4,257) $ (102,842) 1,904,927 $ 20,496,628
</TABLE>

<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
SHORT-INTERMEDIATE FUND
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED
MAY 31, 1997 AUGUST 31, 1996 AUGUST 31, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS A
Shares sold..................................... 182,673 $ 1,860,992 2,806,176 $ 28,333,550 1,438,502 $ 14,469,110
Shares issued in reinvestment of
distributions................................. 17,182 174,056 24,978 253,579 16,308 164,891
Shares redeemed................................. (2,348,922) (23,711,903) (750,660) (7,689,314) (784,474) (7,943,982)
Net increase (decrease)......................... (2,149,067) $(21,676,855) 2,080,494 $ 20,897,815 670,336 $ 6,690,019
CLASS B
Shares sold..................................... 144,261 $ 1,461,443 291,382 $ 2,967,713 673,520 $ 6,777,013
Shares issued in reinvestment of
distributions................................. 11,819 119,733 16,079 163,265 7,150 72,369
Shares redeemed................................. (224,553) (2,272,638) (166,441) (1,686,967) (85,925) (870,798)
Net increase (decrease)......................... (68,473) $ (691,462) 141,020 $ 1,444,011 594,745 $ 5,978,584
CLASS Y
Shares sold..................................... 600,756 $ 6,070,957 635,204 $ 6,436,731 385,625 $ 3,882,603
Shares issued in reinvestment of
distributions................................. 67,156 679,927 121,645 1,234,903 167,271 1,685,856
Shares redeemed................................. (934,601) (9,462,008) (1,283,965) (13,034,344) (1,791,852) (18,018,860)
Net decrease.................................... (266,689) $ (2,711,124) (527,116) $ (5,362,710) (1,238,956) $(12,450,401)
</TABLE>

TAX FREE INCOME FUND

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED YEAR ENDED
MAY 31, 1997 NOVEMBER 30, 1996 NOVEMBER 30, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS A
Shares sold..................................... 32,393 $ 317,311 181,417 $ 1,689,450 224,063 $ 2,127,732
Share issued in acquisition of Keystone Texas
Tax Free Fund................................. 0 0 131,228 1,269,729 0 0
Shares issued in reinvestment of
distributions................................. 105,269 1,024,777 243,221 2,380,811 270,624 2,608,685
Shares redeemed................................. (1,038,464) (10,140,338) (1,600,793) (15,690,464) (1,843,241) (17,659,525)
Net decrease.................................... (900,802) $ (8,798,250) (1,044,927) $(10,350,474) (1,348,554) $(12,923,108)
CLASS B
Shares sold..................................... 136,707 $ 1,324,403 332,958 $ 3,194,770 647,077 $ 6,139,897
Share issued in acquisition of Keystone Texas
Tax Free Fund................................. 0 0 374,545 3,592,334 0 0
Shares issued in reinvestment of
distributions................................. 35,437 341,830 80,112 776,860 82,512 790,394
Shares redeemed................................. (568,355) (5,489,766) (773,268) (7,498,073) (625,195) (5,968,412)
Net increase (decrease)......................... (396,211) $ (3,823,533) 14,347 $ 65,891 104,394 $ 961,879
CLASS C
Shares sold..................................... 1,101 $ 10,621 140,724 $ 1,454,967 338,010 $ 3,205,146
Share issued in acquisition of Keystone Texas
Tax Free Fund................................. 0 0 26,855 257,617 0 0
Shares issued in reinvestment of
distributions................................. 16,648 160,577 48,553 471,531 64,840 619,790
Shares redeemed................................. (195,509) (1,900,664) (857,965) (8,352,411) (974,642) (9,212,881)
Net decrease.................................... (177,760) $ (1,729,466) (641,833) $ (6,168,296) (571,792) $ (5,387,945)
</TABLE>

<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. SECURITIES TRANSACTIONS

Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the periods ended May 31, 1997:

<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
<S> <C> <C>
High Grade Fund*........................................................ $116,031,811 $122,344,118
Short-Intermediate Fund*................................................ 21,730,862 46,574,525
Tax Free Income Fund**.................................................. 64,224,477 78,272,042
</TABLE>

* For the nine months ended May 31, 1997
** For the six months ended May 31, 1997

On May 31, 1997, the composition of unrealized appreciation and depreciation of
investment securities based on the aggregate cost of investments for federal tax
purposes was as follows:

<TABLE>
<CAPTION>
GROSS GROSS NET
TAX UNREALIZED UNREALIZED UNREALIZED
COST APPRECIATION DEPRECIATION APPRECIATION
<S> <C> <C> <C> <C>
High Grade Fund.................................................. $ 96,387,879 $4,291,252 $ (88,538) $4,202,714
Short-Intermediate Fund.......................................... 44,806,201 438,278 0 438,278
Tax Free Income Fund............................................. 107,616,798 4,709,914 (434,799) 4,275,115
</TABLE>

As of May 31, 1997, the Funds had capital loss carryovers for federal income tax
purposes as follows:

<TABLE>
<CAPTION>
EXPIRATION
2002 2003 2004
<S> <C> <C> <C>
High Grade Fund............................ $1,265,000 -- --
Short-Intermediate Fund.................... -- $249,000 $433,000
Tax Free Income Fund....................... 2,704,000 867,00 --
</TABLE>

4. DISTRIBUTION PLANS

Since December 11, 1996, Evergreen Keystone Distributor, Inc. (formerly,
Evergreen Funds Distributor, Inc.) ("EKD"), a wholly-owned subsidiary of The
BISYS Group Inc. ("BISYS") has served as principal underwriter for the Tax Free
Income Fund. Prior to December 11, 1996, Evergreen Keystone Investment Services,
Inc. (formerly, Keystone Investment Distributors Company) ("EKIS"), a
wholly-owned subsidiary of Keystone, served as the principal underwriter for the
Tax Free Income Fund. EKD also serves as the principal underwriter for the High
Grade and Short-Intermediate Funds.

Each Fund has adopted Distribution Plans for each class of shares as allowed by
Rule 12b-1 of the 1940 Act. Distribution plans permit the fund to reimburse its
principal underwriter for costs related to selling shares of the fund and for
various other services. These costs, which consist primarily of commissions and
services fees to broker-dealers who sell shares of the fund, are paid by
shareholders through expenses called "Distribution Plan expenses." Each class,
except Class Y, currently pays a service fee equal to 0.25% of the average daily
net asset of the class. The expenses are currently limited to 0.25% annually of
the average daily net assets of the Class A shares of the High Grade and Tax
Free Income Funds and limited to 0.10% annually of the average daily net assets
of the Class A shares of the Short-Intermediate Fund. Class B and Class C also
presently pay distribution fees equal to 0.75% of the average daily net assets
of the Class. Distribution Plan expenses are calculated daily and paid monthly.

With respect to Class B and Class C shares of the Tax Free Income Fund, the
principal underwriter may pay 12b-1 fees greater than the allowable annual
amounts the Fund is permitted to pay. The Fund may reimburse the principal
underwriter for such excess amounts in later years with annual interest at the
prime rate plus 1.00%.

During the period ended May 31, 1997, amounts paid to EKD and/or EKIS pursuant
to each Fund's Class A, Class B and Class C Distribution Plans were as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
High Grade Fund............................... $92,644 $240,510 N/A
Short-Intermediate Fund....................... 19,181 52,576 N/A
Tax Free Income Fund.......................... 90,496 154,261 $62,367
</TABLE>

Each of the Distribution Plans for the Tax Free Income Fund may be terminated at
any time by a vote of the Independent Trustees or by a vote of a majority of the
outstanding voting shares of the respective class. However, after the
termination of any Distribution Plan, and subject to the discretion of the
Independent Trustees, payments to EKIS and/or EKD may continue as compensation
for services which had been earned while the Distribution Plan was in effect.

<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)

EKD intends, but is not obligated, to continue to pay distribution costs that
exceed the current annual payments from the Fund. EKD intends to seek full
payment of such distribution costs from the Fund at such time in the future as,
and to the extent that, payment thereof by the Class B or Class C shares would
be within permitted limits.

EKD and/or its predecessor has advised the Funds that it has retained front-end
sales charges resulting from the sales of Class A shares for the High Grade,
Short-Intermediate and Tax Free Income Funds during the period ended May 31,
1997 of $6,389, $3,820 and $9,477, respectively.

Contingent deferred sales charges paid by redeeming shareholders are paid to EKD
or its predecessor.

5. INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS

First Union National Bank of North Carolina ("FUNB"), a wholly-owned subsidiary
of First Union Corporation ("First Union"), serves as the investment adviser to
the High Grade Fund and is paid a fee computed daily and paid monthly at an
annual rate of 0.50% of the Fund's average daily net assets. EKIS, a subsidiary
of First Union, is the administrator. Prior to March 11, 1997, Evergreen Asset
Management Corp. ("Evergreen Asset"), a wholly owned subsidiary of First Union,
was the administrator. Furman Selz LLC ("Furman Selz") was the sub-administrator
through December 31, 1996. Effective January 1, 1997, BISYS acquired Furman
Selz' mutual fund unit and accordingly BISYS became sub-administrator. The
administrator and sub-administrator for the Fund are entitled to an annual fee
based on the average daily net assets of all funds administered by EKIS for
which First Union or its investment advisory subsidiaries is also the investment
adviser. The administration fee is calculated by applying percentage rates,
which start at 0.05% and decline to 0.01% per annum as net assets increase, to
the average daily net asset value of the funds. The sub-administration fee is
calculated by applying percentage rates, which start at 0.01% and decline to
.004% as net assets increase, to the average daily net asset value of the funds.

Evergreen Asset is the investment adviser for the Short-Intermediate Fund and is
paid a management fee that is computed daily and paid monthly at an annual rate
of 0.50% on the average daily net assets. Out of its fee, Evergreen Asset in
turn pays EKIS for its services as administrator, BISYS for its services as
sub-administrator and Lieber & Company, an affiliate of First Union, for its
services as sub-adviser.

Keystone Investment Management Company ("Keystone"), a subsidiary of First
Union, is the investment adviser for the Tax Free Income Fund. In return for
providing investment management and administrative services to the Tax Free
Income Fund, the Fund pays Keystone a management fee that is calculated daily
and paid monthly. The management fee is computed at an annual rate of 2.00% of
Tax Free Income Fund's gross investment income plus an amount determined by
applying percentage rates starting at 0.50% and declining to 0.25% per annum as
net assets increase, to the average daily net asset value of the Fund.
Effective, January 1, 1997, BISYS became the sub-administrator to the Fund and
is paid by Keystone.

During the period ended May 31, 1997, the investment adviser for the High Grade
and Short-Intermediate Funds waived its management fees in the amounts of
$64,199 and $60,003, respectively.

During the period ended May 31, 1997, High Grade Fund and Tax Free Income Fund
paid or accrued $27,577 and $17,396 to EKIS, respectively, for certain
accounting services.

Evergreen Keystone Service Company ("EKSC") (formerly, Keystone Investor
Resource Center, Inc.), a wholly-owned subsidiary of Keystone, serves as the
transfer and dividend disbursing agent for the Funds. Prior to May 5, 1997,
State Street Bank and Trust Company ("State Street") served as the transfer and
dividend disbursing agent for the High Grade and Short-Intermediate Funds. For
certain accounts for the High Grade and Short-Intermediate Funds, First Union
had been sub-contracted by State Street to maintain shareholder sub-account
records, take fund purchase and redemption orders and answer inquiries. For each
account, First Union is entitled a fee which in aggregate totaled $866 and $288
for the High Grade and Short-Intermediate Funds for the period ended May 31,
1997.

Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds. As sub-administrator, BISYS compensates the officers of the
Funds.

At May 31, 1997, FUNB owned, directly or beneficially, 22.0% of the outstanding
shares of Short-Intermediate Fund.

<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.

7. ACQUISITIONS

On July 7, 1995 the High Grade Fund acquired the net assets of Evergreen
National Tax Free Fund ("National Fund") and on April 30, 1996 the Tax Free
Income Fund acquired the net assets of Keystone Texas Tax Free Fund ("Texas
Fund") in exchange for Class A, B and C or Y shares. Both acquisitions were
accomplished by a tax-free exchange of the respective shares of each respective
Fund. The value of assets acquired, number of shares issued, unrealized
appreciation acquired and aggregate net assets of each Fund immediately after
the acquisition are as follows:

<TABLE>
<CAPTION>
ACQUIRING ACQUIRED VALUE OF NET NUMBER OF UNREALIZED NET ASSETS
FUND FUND ASSETS ACQUIRED SHARES ISSUED APPRECIATION AFTER ACQUISITION
<S> <C> <C> <C> <C> <C>
High Grade Fund National Fund $28,779,195 2,679,627 $528,003 $ 128,792,690
Tax Free Income Fund Texas Fund 5,119,680 532,628 81,550 140,303,798
</TABLE>

8. DEFERRED TRUSTEES' FEES

Each Independent Trustee of the High Grade and Short-Intermediate Funds may
defer any or all compensation related to their performance of duties as a
Trustee. Each Trustee's deferred balances are allocated to deferral accounts
which are included in the accrued expenses for the Fund. The investment
performance of the deferral accounts are based on the investment performance of
certain Evergreen Keystone Funds. Any gains earned or losses incurred in the
deferral accounts are reported in each Fund's Trustees' fees and expenses.
Trustees will be paid either in one lump sum or in quarterly installments for up
to ten years at their election, not earlier than either the year in which the
Trustee ceases to be a member of the Board of Trustees or January 1, 2000. As of
May 31, 1997, the value of the Trustees deferral account was $3,717 for the High
Grade Fund and $4,985 for the Short-Intermediate Fund.

9. FINANCING AGREEMENT

On October 31, 1996, a financing agreement between all of the Evergreen Funds
and State Street, Societe Generale and ABN Amro Bank N.V. (collectively, the
"Banks") became effective. Under this agreement, the Banks provide an unsecured
credit facility in the aggregate amount of $225 million ($112.5 million
committed and $112.5 million uncommitted) allocated evenly between the Banks.
Borrowings under this facility bear interest at 0.75% per annum above the
Federal Funds rate. A commitment fee of 0.10% per annum will be incurred on the
unused portion of the committed facility which will be allocated to all
participating funds. State Street acts as agent for the Banks, and as agent is
entitled to a fee of $15,000 which is allocated to all of the Evergreen Funds.
During the period ended May 31, 1997, the High Grade and Short-Intermediate
Funds had no borrowings under this agreement.

<PAGE>
EVERGREEN KEYSTONE
(logo)
REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of
Evergreen High Grade Tax Free Fund

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Evergreen High Grade Tax Free Fund
(the "Fund"), one of the Evergreen Investment Trust Portfolios, at May 31, 1997,
and the results of its operations, the changes in its net assets and the
financial highlights for the period September 1, 1996 through May 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at May 31, 1997 by
correspondence with the custodian and the application of alternative auditing
procedures, provides a reasonable basis for the opinion expressed above. The
financial statements of the Fund for the year ended, and indicated periods prior
to, August 31, 1996 were audited by other independent accountants whose report
dated October 16, 1996 expressed an unqualified opinion.

Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
July 8, 1997

<PAGE>
EVERGREEN KEYSTONE
(logo)
REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of
Evergreen Short-Intermediate Municipal Fund

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Evergreen Short-Intermediate Fund
(the "Fund"), one of the Evergreen Municipal Trust Portfolios, at May 31, 1997,
and the results of its operations, the changes in its net assets and the
financial highlights for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at May 31, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.

Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
July 8, 1997

<PAGE>
EVERGREEN KEYSTONE
(logo)
INDEPENDENT AUDITORS' REPORT

The Trustees and Shareholders
Keystone Tax Free Income Fund

We have audited the accompanying statement of assets and liabilities of Keystone
Tax Free Income Fund, including the schedule of investments, as of May 31, 1997,
and the related statements of operations for the six months ended May 31, 1997
and the year ended November 30, 1996, the statements of changes in net assets
for the six months ended May 31, 1997 and for each of the years in the two-year
period ended November 30, 1996, and the financial highlights for the six months
ended May 31, 1997, each of the years in the nine-year period ended November 30,
1996 and the period from February 13, 1987 (Commencement of Operations) to
November 30, 1987 for Class A Shares and for the six months ended May 31, 1997,
each of the years in the three-year period ended November 30, 1996 and the
period from February 1, 1993 (Date of Initial Public Offering) to November 30,
1993, for Class B and Class C Shares. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone Tax Free Income Fund as of May 31, 1997, the results of its operations
for the six months ended May 31, 1997 and the year ended November 30, 1996, the
changes in its net assets and the financial highlights for each of the years or
periods specified in the first paragraph above in conformity with generally
accepted accounting principles.

Boston, Massachusetts KPMG Peat Marwick LLP
June 27, 1997

<PAGE>
EVERGREEN KEYSTONE
(logo)
ADDITIONAL INFORMATION (Unaudited)

Shareholders of the Keystone Tax Free Income Fund considered and acted upon the
proposals listed below at a special meeting of shareholders held Monday,
December 9, 1996. In addition, below each proposal are the results of that vote.

1. To elect the following Trustees:

<TABLE>
<S> <C> <C>
AFFIRMATIVE WITHHELD
Frederick Amling........................... 9,815,069 199,547
Laurence B. Ashkin......................... 9,812,403 202,213
Charles A. Austin III...................... 9,813,238 207,378
Foster Bam................................. 9,812,719 201,897
George S. Bissell.......................... 9,815,312 199,304
Edwin D. Campbell.......................... 9,812,195 202,421
Charles F. Chapin.......................... 9,814,500 200,116
K. Dun Gifford............................. 9,813,609 201,007
James S. Howell............................ 9,811,512 203,104
Leroy Keith, Jr............................ 9,813,609 201,007
F. Ray Keyser.............................. 9,810,159 204,457
Gerald M. McDonnell........................ 9,811,512 203,104
Thomas L. McVerry.......................... 9,811,512 203,104
William Walt Pettit........................ 9,810,932 203,684
David M. Richardson........................ 9,813,609 201,007
Russell A. Salton, III M.D................. 9,811,487 203,129
Michael S. Scofield........................ 9,813,283 201,333
Richard J. Shima........................... 9,808,652 205,964
Andrew J. Simons........................... 9,813,040 201,576
</TABLE>

2. To approve an Investment Advisory and Management Agreement between Keystone
Tax Free Income Fund and Keystone Investment Management Company:

<TABLE>
<S> <C>
Affirmative............................. 9,365,556
Against................................. 146,890
Abstain................................. 502,170
</TABLE>

FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
Of the dividends distributed by High Grade, Short-Intermediate and Tax Free
Income Funds for the period ended May 31, 1997, 99.01%, 99.98% and 99.29%,
respectively, is exempt from federal income tax other than alternative
minimum tax.

<PAGE>

This brochure must be preceded or accompanied by a prospectus of an Evergreen
fund contained herein. The prospectus contains more complete information,
including fees and expenses, and should be read carefully before investing
or sending money.

NOT May lose value
FDIC No bank guarantee
INSURED

Evergreen Keystone Distributor, Inc.

Form #541257
NTF-R
60064 7/97