EVERGREEN MUNICIPAL TRUST, N-30D, 1995-11-06

EVERGREEN MUNICIPAL TRUST
N-30D, 1995-11-06

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<PAGE>

EVERGREEN
TAX-FREE FUNDS

(Photos of country side, the side of a building, money and power
lines appear on this page)

1995 ANNUAL REPORT
A SHARES B SHARES Y SHARES

(EVERGREEN TREE LOGO)
EVERGREEN
FUNDS

<PAGE>
EVERGREEN TAX-FREE FUNDS
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
A Review of the Past Year
and Prospects for the Future.............................................. 1
(Photo of building HIGH GRADE A Report From Your Portfolio Manager...................................... 3
appears here) TAX FREE FUND Results to Date........................................................... 4
Statement of Investments.................................................. 5
Statement of Assets and Liabilities....................................... 9
Statement of Operations................................................... 10
Statement of Changes in Net Assets........................................ 11
Financial Highlights...................................................... 12

(Photo of money SHORT-INTERMEDIATE A Report From Your Portfolio Manager...................................... 13
appears here) MUNICIPAL FUND Results to Date........................................................... 14
Statement of Investments.................................................. 15
Statement of Assets and Liabilities....................................... 18
Statement of Operations................................................... 19
Statement of Changes in Net Assets........................................ 20
Financial Highlights...................................................... 21

(Photo of power lines SHORT-INTERMEDIATE A Report From Your Portfolio Manager...................................... 22
lines appear here) MUNICIPAL Results to Date........................................................... 24
FUND-CALIFORNIA Statement of Investments.................................................. 25
Statement of Assets and Liabilities....................................... 27
Statement of Operations................................................... 28
Statement of Changes in Net Assets........................................ 29
Financial Highlights...................................................... 30

Combined Notes to Financial Statements.................................... 31
Independent Auditors' Report -- KPMG Pear Marwick LLP..................... 38
Report of Independent Accountants -- Price Waterhouse LLP................. 39
Trustees and Officers..................................................... IBC
</TABLE>

<PAGE>
EVERGREEN TAX-FREE FUNDS
A REVIEW OF THE PAST YEAR
AND PROSPECTS FOR THE FUTURE
BY STEPHEN A. LIEBER, CHAIRMAN
EVERGREEN ASSET MANAGEMENT CORP.
In projecting the outlook for the United States (Photo of Stephen A.
economy in the final months of 1995, one central fact Lieber appears here)
dominates the discussion; inflation is being held to
the very low single digits. For a nation which has,
for over twenty-five years, been preoccupied in all
economic forecasting with apprehension over the outlook for inflation, this is a
period of remarkable calm. Instead of concerns over inflation, the dominant
anxiety with which investors look to the future, is now that of the price level
of securities; stocks and bonds. That price level, however, is a reflection of
changing perceptions of the inflation risk. Comparison of inflation rates,
interest rates, and equity valuation, at the beginning of the long-bull market
which began in the summer of 1982, clarifies these points. The inflation rate
fell from 7.2% in the second quarter of 1982, to 2.5% in the third quarter of
1995. Thirty-year U.S. Treasury Bond yields fell from 12.97% to 6.52%, and
90-day U.S. Treasury Bill rates from 11.91% to 5.31%, while price/earnings
ratios have risen (on the S&P 500 Stock Index) from 7.8 times to 16.6 times.
Clearly, both bonds and stocks are worth more in this environment of lowered
inflation and reduced inflationary expectations.

Thus far, in 1995, the hoped for "soft landing" of the economy into a slower,
non-inflationary expansion has been achieved. The issue of its future course is,
however, open to analysis and debate. There can be little debate over today's
cautious policies. There is a broad acceptance of the need to sustain low
leverage financial policies; minimizing the build-up of debt by both government
and industry, accelerating productivity gains, and economizing resources. This
is not only an anti-inflationary mentality, but it is also a conservative,
counter-expansionary economic growth policy. Politicians are prouder of
cut-backs than of expansion in public services. Businessmen boast of "re-
engineering" which results in lay-offs, rather than of hiring. When new
facilities are built, they are described as enhancers of productivity, not just
as producers of products or services. Business and labor alike think of their
pricing as competing in the world market. Industry wants to sell in the world
markets, and labor does not want to be outpriced by alternative manufacturing
sources in low labor cost countries. These policies push productivity,
price-restraint, and wage-restraint.
Policies of restraint, evident in so many sectors of the economy, lead some
observers to apprehensions that they will be over-done. If consumer demand slows
and business inventories build, it is argued, then a cycle of manufacturing
cutbacks will lead to accelerating lay-offs and another recessionary period. The
counter-argument holds that there are enough dynamic growth potentials on the
horizon for consumer products and services, and for increasing exports, so that
this negative prediction will not be realized. This positive point of view looks
to the increasing demand for American products, particularly technologically
sophisticated consumer and capital goods products, and the output of our
multi-national corporations which sell products in developing countries to
accelerate demand for our exports. It holds that the rapid technological change,
notably in electronics and communications, is bringing enough new demand from
both the industrial and the consumer sectors to act as the catalyst for
overall consumer and industrial goods demand growth.

Whether the "soft landing" scenario continues in the next few months, and the
economy shows modest expansion, or a slowdown begins to emerge, the likelihood
is that inflation will remain under control. This provides for a continuing
pattern of the recently lowered interest rate levels. Whether long-term and
short-term interest rates move significantly lower than today's 6.3%, 30-year
U.S. Treasury Bonds, and 5.5%, 1-year U. S. Treasury Bills, depends not only on
the strengthening or weakening of the domestic economy, but also on the
comparative interest rates being paid by other major industrial nations, and the
stability of the dollar. Our interest rates must be in equilibrium

<PAGE>

EVERGREEN TAX-FREE FUNDS
A REVIEW OF THE PAST YEAR AND
PROSPECTS FOR THE FUTURE -- (CONTINUED)
with others, when adjusted for their inflation rates and the values of our
currency. Presently, the trends in the major industrial countries, Germany and
Japan, suggest continued slower growth than that recently experienced by the
American economy, with prospective declining inflationary trends. This should
enable the United States Federal Reserve to retain sufficient flexibility, so
that rates can be brought down if the economy slows too rapidly and, thus, to
sustain our economic strength without being pressured toward unreasonably high
interest rates.
We believe that the general level of valuation of both stocks and bonds is
likely to be sustained. Individual equity issues will, of course, reflect
prevailing business conditions. Emphasis in owning equities, we believe, should
be on powerful business franchises, companies with both leadership and dynamic
growth characteristics, providing vital services or products. On average, the
level of equities valuation is in line with current interest rate trends, but,
it is apparent that large sectors of the market are priced on highly optimistic
growth expectations. These sectors and issues are subject to quick and major
downward revaluation to the extent that their businesses fail to show strong
evidence of continued high growth rates. As the economy remains slower than over
the past two years, it will evidently be more difficult to show extraordinary
growth rates. Therefore, we anticipate a renewed interest in those businesses
which are undervalued in terms of their growth potential, especially those
beginning, or, in process of, programs for profit margin improvement and profits
growth.
We continue to believe that the merger and acquisition trend will continue,
as larger companies seek to capitalize on opportunities for economies of scale
and synergies through mergers and acquisitions. This movement, already strong,
is expected to broaden as a deregulatory atmosphere continues to develop through
new legislative initiatives.
In summary, we anticipate an environment where careful selection of equities
and careful analysis of current economic trends in fixed income investing will
combine to sustain rewarding long-term investment programs.
October 20, 1995

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

A REPORT FROM YOUR
PORTFOLIO MANAGER
BY JAMES T. COLBY, III
To say that the last 12 months have been one of the most (Photo of James
challenging periods ever for the municipal marketplace in its T. Colby, III
history is almost an understatement. You already know that appears here)
1994 was perhaps the most difficult year in the fixed income
market in 50 years. And similarly, the municipal market had to
overcome both market and political impediments to try to turn
last year's losses into this year's gains. Through the first
six months of 1995, the Federal Reserve, fearing a stronger
economy, continued to pursue its policy of tightening credit,
leaving investors puzzled as to why leading indicators were
suggesting otherwise. True, as the markets rallied, investors
flocked to equities. And the pre-election trial balloon called
"flat tax" was the primary culprit for the underperformance of the municipal
market. This issue, combined with the extreme volatility of the treasury market,
made for a demanding period for fund managers. Now, with the July "easing" of
credit by the Fed and their apparent satisfaction with current economic pace,
the strategy to hold onto gains made through the first eight months of 1995
seems a wise one. The level of retail sales and employment will, most likely,
determine the near-term direction of the fixed-income markets.
As has been the case for the past two years, whenever fund managers have had
to raise cash, their bond of choice for sale has been the insured bond. Its very
quality helps ensure liquidity. To help protect the Fund against undue
volatility, we continue to maintain a high percentage of non-callable issues in
the portfolio which, over the past 12 months, has been the best performing bond
type and, thus, has helped our overall performance. We will continue to pursue
this strategy in our attempt to offset day-to-day market gyrations. As of the
end of the fiscal year, the Fund maintained better than 90% of its holdings in
insured bonds. The Fund's weighted average portfolio maturity was 15.7 years and
its duration was 9.3 years.
We are most appreciative of your interest in Evergreen High Grade Tax Free
Fund. We look forward to continuing to serve your investment needs.

Effective July 7, 1995, all of the assets of Evergreen National Tax Free Fund
were combined into Evergreen High Grade Tax Free Fund. The Fund's income may be
subject to state and local taxes and the Federal alternative minimum tax for
certain investors.
10/95
3

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

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

(Three graphs appear here with the following plot points.)

CLASS A AVERAGE ANNUAL TOTAL RETURN

1 YEAR=3.3%
SINCE INCEPTION=6.0%

2/25/92* 8/31/92 8/31/93 8/31/94 8/31/95
(CUSTOMER PLEASE FILL IN)
LEHMAN INSURED BOND INDEX
HIGH GRADE TAX FREE FUND

CLASS B AVERAGE ANNUAL TOTAL RETURN

1 YEAR=2.6%
SINCE INCEPTION=4.6%

1/12/93* 8/31/93 8/31/94 8/31/95

(CUSTOMER PLEASE FILL IN)
LEHMAN INSURED BOND INDEX
HIGH GRADE TAX FREE FUND

CLASS Y AVERAGE ANNUAL TOTAL RETURN

1 YEAR=8.7%
SINCE INCEPTION=3.9%

2/28/94* 8/31/94 2/28/95 8/31/95
(CUSTOMER PLEASE FILL IN)
LEHMAN INSURED BOND INDEX
HIGH GRADE TAX FREE FUND

*Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY
INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment in Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
Shares, assuming full redemption on August 31, 1995; (c) all recurring fees
(including investment advisory fees) were deducted; and (d) all dividends and
distributions were reinvested.
The Index is an unmanaged index and includes the reinvestment of income,
but does not reflect the payment of transaction costs and advisory fees
associated with an investment in the Fund.
4

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND

(Photo of building appears here)

<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS
AUGUST 31, 1995
<C> <S> <C>

PRINCIPAL
AMOUNT
(000) VALUE
</TABLE>

<TABLE>
<C> <S> <C>
LONG-TERM INVESTMENTS -- 96.7%
ALASKA -- .4%
$ 500 Municipality of Anchorage Senior Lien
Electric Series 1993 RRB, 6.20%,
12/1/13 (MBIA)....................... $ 509,085
ARIZONA -- 1.4%
540 City of Phoenix General
Obligation Series 1995A RB,
6.25%, 7/1/17........................ 571,201
1,000 Creighton Elementary School District
No. 14 of Maricopa County,
School Improvement Bonds,
Project of 1990 (Series C 1991),
6.50%, 7/1/07 (FGIC)................. 1,128,850
1,700,051
CALIFORNIA -- 6.5%
1,700 California State Various Purpose
GO Series 1994,
6.80%, 11/1/09 (FGIC)................ 1,885,759
1,000 City of Fresno Sewer System
Series 1993A RB,
6.25%, 9/1/14 (AMBAC)................ 1,058,520
Redevelopment Agency of the City of
San Jose Merged Area Redevelopment
Project Tax Allocation Bonds Series
1993,
1,000 6.00%, 8/1/08 (MBIA)............... 1,066,750
3,000 6.00%, 8/1/15 (MBIA)............... 3,091,650
500 San Mateo County Joint Powers
Financing Authority Lease (Capital
Projects Program) Series 1993A RRB,
6.50%, 7/1/16 (MBIA)................. 543,225
7,645,904
COLORADO -- 1.3%
1,000 Arapahoe County Capital Improvement
Trust Fund Highway RB (E-470 Project)
Senior Current Interest Bonds,
7.00%, 8/31/26....................... 1,022,500
500 School District No. 1 in the City and
County of Denver GO Refunding Bonds
Series 1994A,
6.50%, 6/1/10 (MBIA)................. 549,975
1,572,475
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
FLORIDA -- .9%
$ 1,000 Hillsborough County Industrial
Development Authority (University
Community Hospital Project)
Industrial Development Series 1994
RB, 6.50%, 8/15/19 (MBIA)............ $ 1,092,700
GEORGIA -- 9.8%
500 City of Atlanta Airport Facilities
Series 1994A RRB,
6.50%, 1/1/10 (AMBAC)................ 545,445
7,000 City of Atlanta Airport Facilities
Series 1994B RB,
6.00%, 1/1/21 (AMBAC)................ 6,882,960
1,500 City of Brunswick Water and Sewage
RRB and Improvement Bonds Series
1992,
6.10%, 10/1/19 (MBIA)................ 1,557,900
2,400 Municipal Electric Authority of
Georgia Project One Special
Obligation Bonds, Fifth Crossover
Series, 6.50%, 1/1/17 (MBIA)......... 2,610,024
11,596,329
HAWAII -- 1.7%
1,000 Department of Budget and Finance of
the State of Hawaii (Hawaiian
Electric Company, Inc. and Subsidiary
Projects) Special Purpose Series 1993
RB,
5.45%, 11/1/23 (MSA)................. 901,820
1,000 Hawaii State Airport Systems
Second Series 1990 RB,
7.50%, 7/1/20 (FGIC)................. 1,102,740
2,004,560
IDAHO -- .9%
1,000 Idaho Housing Agency Single
Family Mortgage Bonds Series
1994 C-1 Term Mezzanine Bonds,
6.30%, 7/1/11........................ 1,033,600
ILLINOIS -- 11.7%
2,150 City of Chicago Series 1995 GO,
6.125%, 1/1/16 (AMBAC)............... 2,174,101
1,500 City of Chicago (Emergency Telephone
System) Series 1993 GO, 5.60%, 1/1/10
(FGIC)............................... 1,495,470
1,250 City of Chicago Water
Series 1993 RRB,
6.50%, 11/1/15 (FGIC)................ 1,345,325
</TABLE>
5

<PAGE>

EVERGREEN HIGH GRADE TAX FREE FUND

(Photo of building appears here)

<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1995
<C> <S> <C>

PRINCIPAL
AMOUNT
(000) VALUE
</TABLE>
<TABLE>
<C> <S> <C>
LONG-TERM INVESTMENTS -- CONTINUED
ILLINOIS -- (CONTINUED)
$ 2,000 Illinois Development Finance
Authority Pollution Control
(Commonwealth Edison Company Project)
Series 1991 RRB,
7.25%, 6/1/11 (MBIA)................. $ 2,232,120
3,000 Illinois Development Finance
Authority Pollution Control
(Commonwealth Edison Company Project)
Series 1994D RRB,
6.75%, 3/1/15 (AMBAC)................ 3,202,980
1,400 Illinois Health Facilities Authority
(The Children's Memorial
Hospital) Series 1993 RB,
6.25%, 8/15/13 (MBIA)................ 1,445,892
1,750 Illinois Health Facilities Authority
(SSM Health Care) Health
Facilities Series 1992AA RRB,
6.50%, 6/1/12 (MBIA)................. 1,874,092
13,769,980
INDIANA -- 5.5%
Indiana Municipal Power Agency Power
Supply System,
Series 1992A RRB,
2,300 6.125%, 1/1/19 (MBIA).............. 2,310,281
Series 1993B RRB,
1,390 6.00%, 1/1/12 (MBIA)............... 1,444,335
1,000 6.00%, 1/1/13 (MBIA)............... 1,033,780
1,500 Middle School Building Corporation of
Lawrence Township of Marion County
First Mortgage Bonds, 6.875%, 7/5/11
(MBIA)............................... 1,687,170
6,475,566
IOWA -- .4%
500 City of Iowa City, Johnson
County Sewer Series 1993 RB,
6.00%, 7/1/12 (AMBAC)................ 506,090
KENTUCKY -- .7%
The Turnpike Authority of Kentucky
Economic Development Road Revenue
Bonds (Revitalization Projects)
Series 1995:
500 6.50%, 7/1/07 (AMBAC).............. 559,680
250 6.50%, 7/1/08 (AMBAC).............. 278,643
838,323
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
MAINE -- 1.0%
$ 1,000 Maine Turnpike Authority
Turnpike RB Series 1994,
7.125%, 7/1/08 (MBIA)................ $ 1,169,280
MASSACHUSETTS -- .4%
500 Massachusetts Housing Finance
Agency Housing Project Series 1993
RB, 6.15%, 10/1/15 (AMBAC)........... 500,855
MICHIGAN -- .9%
1,000 City of Detroit Water Supply System
Series 1993 RRB,
6.50%, 7/1/15 (FGIC)................. 1,075,590
MINNESOTA -- .4%
500 Minnesota Housing Finance Agency
Single Family Mortgage Bonds Series
1994H,
6.70%, 1/1/18........................ 522,300
NEVADA -- 4.9%
2,275 Clark County School District (Limited
Tax) School Improvement Bonds Series
1995A GO,
5.50%, 6/15/16 (MBIA)................ 2,138,090
1,575 Clark County Transportation
Improvement Bonds (Limited Tax)
Series 1992A GO,
6.50%, 6/1/17 (AMBAC)................ 1,699,882
2,000 Washoe County (Reno-Sparks
Convention & Visitors Authority)
Multi-Purpose Bowling Facility
Bonds Series 1993A GO (Limited
Tax), 5.70%, 7/1/17 (FGIC)........... 1,927,300
5,765,272
NEW YORK -- 2.6%
680 City of Niagara Falls (Niagara
County) Public Improvement (Serial)
Bonds Series 1994,
7.50%, 3/1/15 (MBIA)................. 813,946
1,000 New York City Municipal Water Finance
Authority Fixed Rate Fiscal Series
1994B RB,
5.375%, 6/15/19 (AMBAC).............. 926,020
250 New York State Medical Care
Facilities Finance Agency (FHA-
Insured Mortgage Project) Series
1995F RB,
6.375%, 8/15/34...................... 252,383
</TABLE>
6

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1995
(Photo of building appears here)

PRINCIPAL
AMOUNT
(000) VALUE
</TABLE>
<TABLE>
<C> <S> <C>
LONG-TERM INVESTMENTS -- CONTINUED
NEW YORK -- (CONTINUED)
$ 500 New York State Medical Care
Facilities Finance Agency (Montefiore
Medical Center FHA-Insured Mortgage)
Series 1995A RB, 5.75%, 2/15/25
(AMBAC).............................. $ 483,470
500 The Port Authority of New York and
New Jersey Consolidated Bonds, Ninety
Seventh Series Second
Installment-Term Bonds,
6.50%, 7/15/19....................... 528,280
3,004,099
NEW MEXICO -- .9%
City of Albuquerque, New
Mexico Airport RB:
500 Series 1995 A,
6.35%, 7/1/07 (AMBAC).............. 537,405
Series 1995 B,
500 7.00%, 7/1/16 (AMBAC).............. 515,230
1,052,635
OHIO -- 4.4%
1,000 Board of Education Kings Local School
District (County of Warren) School
Improvement Bonds (Unlimited Tax)
Series 1995 GO, 7.50%, 12/1/16
(FGIC)............................... 1,230,650
1,500 City of Toledo (Limited Tax) Housing
Improvement Bonds (Macy's Project)
Series 1995 A GO,
6.35%, 12/1/25 (MBIA)................ 1,530,855
1,100 Ohio Air Quality Development
Authority (JMG Funding, Limited
Partnership Project) Series 1994
RRB, 6.375%, 4/1/29 (AMBAC).......... 1,134,760
500 Ohio Housing Finance Agency
Residential Mortgage Revenue Bonds
(GNMA Mortgage-Backed Securities
Program), 1995
Series A-2, 6.625%, 3/1/26........... 510,690
750 Ohio Water Development Authority
Water Development RRB 1992 Clean
Water Refunding Bonds, 6.00%, 12/1/16
(MBIA)............................... 757,860
5,164,815
OKLAHOMA -- 1.3%
1,500 McGee Creek Authority Series 1992
Water RB,
6.00%, 1/1/23 (MBIA)................. 1,566,060
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
PUERTO RICO -- 1.1%
$ 250 Commonwealth of Puerto Rico Public
Improvement Bonds Series 1995 GO,
5.65%, 7/1/15 (MBIA)................. $ 248,503
500 Puerto Rico Electric Power Authority
Series 1995Y RRB, 6.50%, 7/1/06
(MBIA)............................... 560,770
500 Puerto Rico Housing Bank and Finance
Agency Affordable Housing Mortgage
Subsidy Program Single Family
Mortgage RB, Portfolio I,
6.10%, 10/1/15....................... 501,610
1,310,883
RHODE ISLAND -- .9%
1,000 Rhode Island Depositors Economic
Protection Corporation Special
Obligation Series 1992B RB,
5.80%, 8/1/12 (MBIA)................. 998,870
SOUTH CAROLINA -- 4.2%
3,500 South Carolina State Port Authority
Series 1991 RB,
6.625%, 7/1/11 (AMBAC)............... 3,661,385
1,500 South Carolina Public Service
Authority Revenue Bonds, 1993
Refunding Series C RRB,
5.00%, 1/1/18 (FGIC)................. 1,328,415
4,989,800
SOUTH DAKOTA -- 6.2%
3,500 Heartland Consumers Power District
Electric System Series 1992 RB,
6.00%, 1/1/17 (FSA).................. 3,567,445
3,500 South Dakota Health and Educational
Facilities Authority (St. Luke's
Midland Regional Medical Center
Issue) Series 1991 RRB, 6.625%,
7/1/11 (MBIA)........................ 3,686,095
7,253,540
TENNESSEE -- 6.1%
1,200 The Health and Educational Facilities
Board of the City of Bristol Hospital
(Bristol Memorial Hospital) Series
1993 RRB,
6.75%, 9/1/07 (FGIC)................. 1,371,432
The Health, Educational and Housing
Facilities Board of the County of
Knox (Fort Sanders Alliance Obligated
Group) Hospital Series 1993 RB:
1,700 6.25%, 1/1/13 (MBIA)............... 1,803,870
4,000 5.75%, 1/1/14 (MBIA)............... 3,990,640
7,165,942
</TABLE>
7

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1995
(Photo of building appears here)
<TABLE>
<CAPTION>
<C> <S> <C>

PRINCIPAL
AMOUNT
(000) VALUE
</TABLE>
<TABLE>
<C> <S> <C>
LONG-TERM INVESTMENTS -- CONTINUED
TEXAS -- 2.6%
$ 1,000 City of Houston Water Conveyance
Systems Contract Series 1993H COP,
7.50%, 12/15/14 (AMBAC).............. $ 1,189,170
2,000 Harris County Toll Road Senior Lien
Series 1994 RRB,
5.30%, 8/15/13 (AMBAC)............... 1,874,440
3,063,610
UTAH -- 5.5%
2,500 Board of Education of Iron County
School District School Building Bonds
Series 1994 GO,
6.40%, 1/15/12 (MBIA)................ 2,603,350
Salt Lake City, Salt Lake County
Airport Series 1993A RB,
1,000 6.00%, 12/1/12 (FGIC)................ 1,009,400
Airport Series 1993B RRB,
3,000 5.875%, 12/1/18 (FGIC)............... 2,887,560
6,500,310
VIRGINIA -- 1.7%
520 County of Roanoke Water System Series
1993 RRB,
5.00%, 7/1/21 (FGIC)................. 455,182
1,500 Industrial Development Authority of
the County of Hanover (Memorial
Regional Medical Center Project at
Hanover Medical Park) Series 1995,
6.375%, 8/15/18 (MBIA)............... 1,600,680
2,055,862
WASHINGTON -- 3.5%
City of Tacoma Electric System Series
1992A RRB,
300 6.25%, 1/1/11 (AMBAC)................ 519,000
Series 1994 RRB,
3,500 6.25%, 1/1/15 (FGIC)................. 3,579,765
4,098,765
WISCONSIN -- 6.9%
4,500 City of Superior (Midwest Energy
Resources Company Project) Limited
Obligation Series 1991E RRB, 6.90%,
8/1/21 (FGIC)........................ 5,086,845
1,000 Wisconsin Health and Educational
Facilities Authority (Bellin Memorial
Hospital, Inc. Obligated Group)
Series 1993 RB,
5.50%, 2/15/19 (AMBAC)............... 929,140
2,000 Wisconsin Health and Educational
Facilities Authority
(Wausau Hospitals, Inc. Project)
Series 1991B RB,
6.625%, 8/15/11 (AMBAC).............. 2,101,100
8,117,085
TOTAL LONG-TERM INVESTMENTS
(COST $109,764,421).................. 114,120,236
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
MUTUAL FUND SHARES -- 4.9%
$ 5,750 Lehman Tax-Free Money Market Fund (at
net asset value) (cost $5,749,882)... $ 5,749,882
SHORT-TERM INVESTMENTS -- .5%
NEW YORK -- .4%
500 The City of New York Fiscal 1995
Series B Subseries B-4 GO -- VRDN,
3.75%, 8/15/23 (MBIA)................ 500,000
WYOMING -- .1%
100 Lincoln County Pollution Control
(Exxon Project) Series 1984D RB --
VRDN, 3.75%, 11/1/14................. 100,000
TOTAL SHORT-TERM INVESTMENTS
(COST $600,000)...................... 600,000
</TABLE>

<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS
(COST $116,114,303)...... 102.1% 120,470,118
OTHER ASSETS AND
LIABILITIES -- NET....... (2.1) (2,433,907)
NET ASSETS.................. 100.0% $118,036,211
</TABLE>

Summary of Abbreviations
COP -- Certificates of Participation
GO -- General Obligation Bonds
RB -- Revenue Bonds
RRB -- Revenue Refunding Bonds
VRDN -- Variable Rate Demand Notes are payable on demand at par on no more than
seven calender days notice given by the Fund to the issuer or other parties not
affiliated with the issuer. Interest rates are determined and reset by the
issuer daily or weekly depending on the terms of the security. The interest
rates presented for these securities are those in effect at August 31, 1995.
At August 31, 1995, the percentage breakdown of total investments which are
insured by municipal bond insurance companies are as follows:
<TABLE>
<S> <C> <C>
AMBAC -- Insured by American Municipal Bond
Assurance Corp...................................... 26%
FGIC -- Insured by Financial Guaranty Insurance
Corp................................................ 22%
FSA -- Insured by Financial Security Assurance
Inc................................................. 3%
MBIA -- Insured By Municipal Bond Investors
Assurance Corp...................................... 39%
% of Total Investments Insured...................... 90%
</TABLE>

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1995
(Photo of building appears here)

<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $116,114,303)........................................................... $120,470,118
Interest receivable........................................................................................... 1,409,074
Receivable for investments sold............................................................................... 500,885
Receivable for Fund shares sold............................................................................... 85,736
Prepaid expenses.............................................................................................. 1,533
Total assets............................................................................................ 122,467,346
LIABILITIES:
Payable for investments purchased............................................................................. 3,525,059
Payable for Fund shares repurchased........................................................................... 644,372
Dividends payable............................................................................................. 181,493
Accrued expenses.............................................................................................. 57,886
Accrued advisory fee.......................................................................................... 22,325
Total liabilities....................................................................................... 4,431,135
NET ASSETS....................................................................................................... $118,036,211
NET ASSETS CONSIST OF:
Paid-in capital............................................................................................... $117,067,112
Undistributed net investment income........................................................................... 22,568
Accumulated net realized loss on investment transactions...................................................... (3,409,284)
Net unrealized appreciation of investments.................................................................... 4,355,815
Net assets.............................................................................................. $118,036,211
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($58,751,583 (divide sign) 5,495,203 shares of beneficial interest outstanding)................ $10.69
Sales charge -- 4.75% of offering price....................................................................... .53
Maximum offering price..................................................................................... $11.22
Class B Shares ($34,205,860 (divide sign) 3,199,598 shares of beneficial interest outstanding)................ $10.69
Class Y Shares ($25,078,768 (divide sign) 2,345,841 shares of beneficial interest outstanding)................ $10.69
</TABLE>

See accompanying notes to financial statements.
9

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF OPERATIONS
EIGHT MONTHS ENDED AUGUST 31, 1995
(Photo of building appears here)

<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest......................................................................................... $ 4,058,274
EXPENSES:
Advisory fee..................................................................................... $338,767
Administrative personnel and services fees....................................................... 50,406
Distribution fee -- Class A Shares............................................................... 97,996
Distribution fee -- Class B Shares............................................................... 167,706
Shareholder services fees -- Class B Shares...................................................... 55,902
Transfer agent fee............................................................................... 51,060
Custodian fee.................................................................................... 39,066
Reports and notices to shareholders.............................................................. 34,711
Registration and filing fees..................................................................... 26,103
Professional fees................................................................................ 17,884
Trustees' fees and expenses...................................................................... 2,143
Insurance........................................................................................ 1,676
Miscellaneous.................................................................................... 7,731
891,151
Less: Advisory fee waiver........................................................................ (20,456)
Net expenses............................................................................... 870,695
Net investment income............................................................................... 3,187,579
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments................................................................. 437,882
Net change in unrealized appreciation (depreciation) on investments.............................. 7,804,353
Net gain on investments............................................................................. 8,242,235
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................ $11,429,814
</TABLE>

See accompanying notes to financial statements.
10

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
STATEMENT OF CHANGES IN NET ASSETS
(Photo of building appears here)

<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: AUGUST 31, 1995 DECEMBER 31, 1994
<S> <C> <C>
OPERATIONS:
Net investment income................................................................ $ 3,187,579 $ 5,839,738
Net realized gain (loss) on investments.............................................. 437,882 (912,236)
Net change in unrealized appreciation (depreciation) of investments.................. 7,804,353 (15,618,845)
Net increase (decrease) resulting from operations................................. 11,429,814 (10,691,343)
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A Shares....................................................................... (1,935,789) (3,977,507)
Class B Shares....................................................................... (936,437) (1,722,197)
Class Y Shares....................................................................... (315,353) (140,034)
Total distributions to shareholders............................................... (3,187,579) (5,839,738)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold............................................................ 3,098,389 18,114,792
Proceeds from shares issued from acquisition of Evergreen National Tax Free Fund..... 28,779,194 --
Proceeds from reinvestment of distributions.......................................... 1,826,205 3,537,923
Payment for shares redeemed.......................................................... (18,339,492) (53,074,378)
Net increase (decrease) resulting from Fund share transactions................. 15,364,296 (31,421,663)
Net increase (decrease) in net assets.......................................... 23,606,531 (47,952,744)
NET ASSETS:
Beginning of period.................................................................. 94,429,680 142,382,424
End of period (includes undistributed net investment income of $22,568 at August 31,
1995).............................................................................. $ 118,036,211 $ 94,429,680
</TABLE>

See accompanying notes to financial statements.
11

<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
FINANCIAL HIGHLIGHTS
(Photo of buiilding appears here)

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS Y
CLASS A SHARES CLASS B SHARES SHARES
EIGHT FEBRUARY 21, EIGHT JANUARY 11, EIGHT
MONTHS 1992* MONTHS 1993* MONTHS
ENDED YEAR ENDED THROUGH ENDED YEAR ENDED THROUGH ENDED
PER SHARE DATA: AUGUST 31, DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, DECEMBER 31, AUGUST 31,
Net asset value, beginning 1995# 1994 1993 1992 1995# 1994 1993 1995#
of period................. $9.79 $11.16 $10.42 $10.00 $9.79 $11.16 $10.42 $9.79
Income (loss) from
investment operations:
Net investment income....... .34 .52 .54 .51 .29 .46 .47 .36
Net realized and unrealized
gain (loss) on
investments............... .90 (1.37) .81 .42 .90 (1.37) .81 .90
Total from investment
operations.............. 1.24 (.85) 1.35 .93 1.19 (.91) 1.28 1.26
Less distributions to
shareholders from:
Net investment income....... (.34) (.52) (.54) (.51) (.29) (.46) (.47) (.36)
Net realized gains.......... -- -- (.07) -- -- -- (.07) --
Total distributions....... (.34) (.52) (.61) (.51) (.29) (.46) (.54) (.36)
Net asset value, end of
period.................... $10.69 $9.79 $11.16 $10.42 $10.69 $9.79 $11.16 $10.69
TOTAL RETURN+............... 12.8% (7.7%) 13.3% 9.4% 12.3% (8.2%) 12.4% 13.0%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)........... $58,751 $57,676 $101,352 $90,738 $34,206 $32,435 $41,030 $25,079
Ratios to average net
assets:
Expenses **............... 1.06%++ 1.01% .85% .49%++ 1.81%++ 1.58% 1.35%++ .81%++
Net investment
income **............... 4.93%++ 5.04% 4.99% 5.79%++ 4.18%++ 4.47% 4.44%++ 5.18%++
Portfolio turnover rate..... 27% 53% 14% 7% 27% 53% 14% 27%

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

# The Fund has changed its fiscal year end from December 31 to August 31.
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were reimbursed or waived by the investment adviser, the annualized
ratios of expenses and net investment income to average net assets would have
been the following:
<TABLE>
<CAPTION>
CLASS Y
CLASS A SHARES CLASS B SHARES SHARES
EIGHT FEBRUARY 21, EIGHTS JANUARY 11, EIGHT
MONTHS 1992* MONTHS 1993* MONTHS
ENDED YEAR ENDED THROUGH ENDED YEAR ENDED THROUGH ENDED
AUGUST 31, DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, DECEMBER 31, AUGUST 31,
1995# 1994 1993 1992 1995# 1994 1993 1995#
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses......... 1.09% 1.02% 1.07% 1.11% 1.84% 1.59% 1.57% .84%
Net investment
income......... 4.90% 5.03% 4.77% 5.17% 4.15% 4.46% 4.22% 5.15%
<CAPTION>

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

See accompanying notes to financial statements.
12

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
(Photo of money appears here)

A REPORT FROM YOUR
PORTFOLIO MANAGER
BY STEVEN C. SHACHAT
Evergreen Short-Intermediate Municipal Fund ended its (Photo of Steven C.
annual reporting period on August 31, 1995, with a total Shachat appears
return (Class Y, no-load shares) for the fiscal year of here)
+4.21%*. The Fund's average annual compound rate of return
from inception on November 18, 1991, through August 31, 1995,
was +5.37%. The Fund's 30-day annualized yield as of August
31, was 4.06% which is equivalent to a taxable yield of 6.34%
for investors in the 36% marginal Federal tax bracket. (For
additional performance information, please see following
page.)
The slowing economy, firming dollar and expectations that
the Federal Reserve would move to cut interest rates pushed
bond yields lower and prices higher across all maturity ranges. The stock market
rallied in anticipation of lower interest rates and reports of continued strong
earnings growth. The Federal Reserve Board did in fact relax its monetary policy
on July 6, when it lowered the Fed Funds rate 25 basis points (.25%).
Bond fund investors who held their course after 1994's dismal bond market
showing were amply rewarded in the first six months of 1995. Prices of bonds of
all maturities soared as yields retraced much of their 1994 advance. The
turnaround was fueled by a shortage of securities in both the bond and stock
markets. The technical phenomenon is pronounced in the tax-exempt market where
new issuance is dramatically off from a year ago, and spreads on existing
municipals became historically rich relative to Treasuries. Municipals led
taxable bonds in the first quarter but fell behind in the second quarter as talk
of tax reform rattled the market.
During the second half of the fiscal year, the Fund's investment strategy
focused on maintaining a defensive posture, as reflected by a shortened
duration, an increased usage of premium coupon bonds, increased cash reserves
and a shortened portfolio maturity structure to help minimize price volatility.
We also focused on maintaining and improving the Fund's current dividend yields.
While our caution limited the Fund's participation in some of this year's upside
market moves, we continue to see additional risk factors that may affect the
municipal bond market. The technical supply condition, temporary or not, creates
upward pressure on tax-exempt securities and has generated unusually high-priced
municipal securities in the maturity range of the Fund.
We believe that, going forward, the municipal market will continue to
fluctuate due to, among other things, the uncertainties of tax reform
legislation. We will continue to monitor the economic environment and make any
needed adjustments in our strategies.
FIGURES REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS.
* PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL GAIN
DISTRIBUTIONS, IF ANY. THE FUND'S RETURN, NET ASSET VALUE AND YIELD WILL
FLUCTUATE AND THERE CAN BE NO GUARANTEE THAT THE FUND WILL ACHIEVE ITS OBJECTIVE
OR ANY PARTICULAR TAX EXEMPT YIELD. INVESTORS' SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. INCOME MAY BE SUBJECT TO SOME STATE
AND LOCAL TAXES AND THE FEDERAL ALTERNATIVE MINIMUM TAX FOR CERTAIN INVESTORS.
CURRENTLY, THE ADVISER IS VOLUNTARILY WAIVING A PORTION OF ITS ADVISORY FEE. HAD
THESE FEES NOT BEEN WAIVED, THE FUND'S 30-DAY ANNUALIZED AND TAX-EQUIVALENT
YIELDS AS OF AUGUST 31, 1995, WOULD HAVE BEEN 3.94% AND 6.16% FOR CLASS Y
SHARES, RESPECTIVELY, AND RETURNS WOULD HAVE BEEN LOWER. VOLUNTARY FEE WAIVERS
MAY BE REVISED AT ANY TIME. TAX-EQUIVALENT YIELDS WOULD BE LOWER FOR INVESTORS
IN LOWER TAX BRACKET.

<PAGE>

EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
(Photo of money appears here)

RESULTS TO DATE
PERFORMANCE OF $10,000 INVESTED IN THE
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
The graphs below compare a $10,000 investment in the Evergreen
Short-Intermediate Municipal Fund (Class A, Class B and Class Y Shares) with a
similar investment in the Lehman Brothers 3 Year Municipal Bond Index ("Index").

(Three graphs appear here with the following plot points.)

CLASS A AVERAGE ANNUAL TOTAL RETURN

SINCE INCEPTION=.01%

1/3/95* 2/28/95 8/31/95
(CUSTOMER PLEASE FILL IN)
LEHMAN 3 YEAR MUNICIPAL BOND INDEX
SHORT-INTERMEDIATE MUNICIPAL FUND

CLASS B AVERAGE ANNUAL TOTAL RETURN

SINCE INCEPTION=0.5%

1/3/95* 2/28/95 8/31/95
(CUSTOMER PLEASE FILL IN)
LEHMAN 3 YEAR MUNICIPAL BOND INDEX
SHORT-INTERMEDIATE MUNICIPAL FUND

CLASS Y AVERAGE ANNUAL TOTAL RETURN

1 YEAR=4.2%
SINCE INCEPTION=5.4%

1/18/91* 8/31/92 8/31/93 8/31/94 8/31/95
(CUSTOMER PLEASE FILL IN)
LEHMAN 3 YEAR MUNICIPAL BOND INDEX
SHORT-INTERMEDIATE MUNICIPAL FUND

*Commencement of class operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY
INSURED.
For the purposes of the graphs and the accompanying tables, it has been
assumed that (a) the maximum sales charge of 4.75% was deducted from the initial
$10,000 investment Class A Shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
Shares, assuming full redemption on August 31, 1995; (c) all recurring fees
(including investment advisory fees) were deducted; and (d) all dividends and
distributions were reinvested.
The Index is an unmanaged index and includes the reinvestment of income,
but does not reflect the payment of transaction costs and advisory fees
associated with an investment in the Fund.
14

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
STATEMENT OF INVESTMENTS
AUGUST 31, 1995
(Photo of money appears here)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE

<C> <S> <C>
LONG-TERM INVESTMENTS -- 84.8%*
ALASKA -- 6.6%
$ 400 Alaska Student Loan Corp. State
Assisted Student Loan RB Series 1991A,
6.20%, 7/1/96......................... $ 405,864
1,045 Municipality of Anchorage, Alaska 1993
GO School RFB Series 1993A, 5.00%,
2/1/98 (MBIA)......................... 1,064,698
1,950 North Slope Borough, GO RFB Series
1988G, 7.50%, 6/30/97................. 2,067,195
3,537,757
COLORADO -- 2.1%
1,075 Colorado Student Obligation Board
Authority Student Loan RB Series
1985B, 6.125%, 12/1/98................ 1,107,508
DELAWARE -- .4%
200 City of Wilmington, GO Series 1986,
6.80%, 3/1/96......................... 203,040
DISTRICT OF COLUMBIA -- 3.0%
1,500 District of Columbia GO RFB Series
1989 B, 6.625%, 6/1/98 (MBIA)......... 1,577,085
FLORIDA -- 4.5%
375 City of Sunrise Special Tax District
No. 1 Ad Valorem Tax RFB Series 1991,
5.10%, 11/1/96 (LOC: Hypo Bank)....... 379,545
2,000 Florida Housing Finance Agency
Multifamily Housing RB 1985 Series QQ
(Lantana-Oxford) Prerefunded @ 100,
5.50%, 11/1/96
(FSA surety bonds).................... 2,040,140
2,419,685
GEORGIA -- 2.0%
1,000 Municipal Electric Authority of
Georgia Power RB Series 1986L, 7.50%,
1/1/98................................ 1,058,100
HAWAII -- 5.0%
2,500 State of Hawaii GO 1995 Series CJ,
5.70%, 1/1/03......................... 2,647,025
ILLINOIS -- 4.0%
1,000 Central Lake County Joint Action Water
Agency Water RB Series 1990A,
Prerefunded @ 102,
7.00%, 5/1/00 (AMBAC)................. 1,121,690
180 City of Joliet, Will County Waterworks
& Sewage RB Series 1989, 9.75%, 1/1/96
(FGIC)................................ 183,519
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
ILLINOIS -- CONTINUED
$ 300 Illinois Health Facilities Authority
RB (Edward Hospital Association
Project) Series 1992,
6.00%, 2/15/97........................ $ 305,667
500 Illinois Student Assistance Commission
Student Loan RB Series 1992M, 5.45%,
3/1/97................................ 506,305
2,117,181
KENTUCKY -- .3%
155 Kentucky State University Consolidated
Educational Buildings RB Series 1991G,
6.25%, 5/1/96 (MBIA).................. 157,454
MAINE -- 2.0%
1,000 Maine Educational Loan Marketing Corp.
Student Loan RB Series 1988A, 5.20%,
5/1/97................................ 1,012,330
55 Maine Housing Authority RB Mortgage
Purchase Series 1988D-4, 6.30%,
11/15/95.............................. 55,413
1,067,743
MARYLAND -- 2.8%
325 Board of Education of Baltimore County
(Seven Oaks Elementary School
Facility) COP Series 1990A, 5.75%,
12/1/96............................... 331,445
1,140 Montgomery County GO Bonds
Consolidated Public Improvement RB of
1992 Series A, 5.30%, 7/1/01.......... 1,191,608
1,523,053
MASSACHUSETTS -- 6.1%
2,160 Massachusetts Bay Transportation
Authority General Transportation
System Bond Series 1990A, 7.00%,
3/1/97 (MBIA)......................... 2,251,498
1,000 New England Educational Loan Marketing
Corp. Student Loan RB Series 1993B,
5.40%, 6/1/00......................... 1,013,690
3,265,188
MICHIGAN -- 1.2%
630 Michigan State Building Authority
Building RB Unit Refunding Series III,
5.00%, 10/1/95 (MBIA)................. 631,222
</TABLE>
15

<PAGE>

EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1995
(Photo of money appears here)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS -- CONTINUED
NEVADA -- 2.0%
$ 1,000 Las Vegas Valley Water District GO
(Limited Tax) Water RRB Series 1987,
Prerefunded @ $102, 7.25%, 11/1/97
(AMBAC)............................... $ 1,086,600
NEW JERSEY -- 4.8%
200 City of Passaic GO Fiscal Year
Adjustment Bonds Series 1991, 6.40%,
11/15/96.............................. 205,746
200 New Jersey Health Care Facilities
Financing Authority RB (Pascack Valley
Hospital Association Issue) Series
1991, 6.00%, 7/1/96................... 202,970
2,000 New Jersey State GO Series 1991,
5.90%, 8/1/02......................... 2,156,120
2,564,836
NEW YORK -- 1.3%
New York Local Government Assistance
(A Public Benefit Corporation of the
State of New York):
500 Series 1991B, 6.25%, 4/1/96........... 506,760
200 Series 1991D, 5.70%, 4/1/96........... 202,074
708,834
OHIO -- 1.9%
1,000 The Student Loan Funding Corporation
(Cincinnati) Student Loan RB Series
1993A,
5.50%, 12/1/01........................ 1,012,550
OKLAHOMA -- 1.4%
750 Oklahoma Student Loan Authority RRB
Series 1992A, 5.35%, 9/1/96........... 758,573
PENNSYLVANIA -- 1.0%
500 State of Pennsylvania GO
Series 1971, 6.00%, 12/15/98.......... 505,000
RHODE ISLAND -- 1.9%
1,000 Rhode Island GO Construction Capital
Development Loan
Series 1991B, 6.00%, 5/15/96.......... 1,014,880
SOUTH CAROLINA -- 3.9%
1,000 Rock Hill School District No. 3 of
York County RFB Series 1992B, 7.75%,
2/1/97 (FGIC)......................... 1,050,250
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
SOUTH CAROLINA -- CONTINUED
$ 1,000 School District of Chester County GO
School Building Bonds
Series 1992, 7.70%, 2/1/97............ $ 1,050,260
2,100,510
TEXAS -- 8.4%
Brazos Higher Education Authority,
Inc. Student Loan RRB:
720 Series 1992-A, 6.00%, 3/1/96........ 725,702
1,000 Series 1993A-1, 5.30%, 12/1/97...... 1,018,360
250 City of Austin (Travis & Williamson
Counties) Improvement Bonds Series
1991-A, 8.875%, 9/1/98................ 282,548
1,300 Dallas County Improvement and
Refunding Bonds (Limited Tax)
Series 1992-A, 6.00%, 8/15/01......... 1,400,841
1,000 Northside, Texas Independent School GO
(District Unlimited Tax)
Series 1986, 7.00%, 2/1/98............ 1,063,180
4,490,631
UTAH -- .9%
450 Utah Housing Finance Agency Single
Family Mortgage RRB Senior Bonds
Series 1993A, 5.20%, 1/1/01........... 454,973
VIRGINIA -- 7.6%
1,000 City of Virginia Beach GO Public
Improvement & RFB Series 1994, 5.70%,
11/1/07............................... 1,047,050
410 Medical College of Hampton Roads RRB
Series 1991A, 5.60%,
11/15/96.............................. 416,359
1,000 Virginia Beach GO RFB Series 1992,
5.90%, 2/1/04......................... 1,073,110
1,500 Virginia Housing Development Authority
Commonwealth Mortgage Bonds Series
1992B Subseries B-1, 6.00%, 1/1/98.... 1,536,495
4,073,014
WASHINGTON -- 5.8%
2,950 State of Washington GO RB (Motor
Vehicle Fuel Tax) Series R-92D, 5.60%,
9/1/01................................ 3,107,883
WISCONSIN -- 3.9%
1,000 City of Milwaukee GO Corporate Purpose
Bonds, Public Improvements, Series BZ,
6.30%, 6/15/01........................ 1,088,630
</TABLE>
16

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1995
(Photo of money appears here)

<TABLE>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
LONG-TERM INVESTMENTS -- CONTINUED
WISCONSIN -- CONTINUED
$ 1,000 State of Wisconsin GO Series 1992A
5.75%, 5/1/97......................... $ 1,027,880
2,116,510
TOTAL LONG-TERM INVESTMENTS
(COST $44,443,371)............... 45,306,835
SHORT-TERM INVESTMENTS -- 13.8%
CALIFORNIA -- 1.5%
500 Irvine Ranch Water District
Constituting the Consolidated Several
GO of Improvement District Nos. 186,
188, 140, and 240 Series 1989,
3.60%-VRDN (LOC: Industrial Bank of
Japan, Ltd.).......................... 500,000
300 County of Orange Irvine Coast
Assessment District No. 88-1 Limited
Obligation Improvement Bonds,
3.90%-VRDN (LOC: Industrial Bank of
Japan, Ltd., Fuji Bank, Ltd., &
Mitsubishi Bank, Ltd.)................ 300,000
800,000
DISTRICT OF COLUMBIA -- .4%
200 District of Columbia GO Variable RFB
Series 1992 A-4, 3.70%-VRDN (LOC:
National Westminster Bank)............ 200,000
ILLINOIS -- 1.8%
1,000 City of Chicago O'Hare International
Airport Special Facility RB (American
Airlines, Inc.) Series 1984D,
3.90%-VRDN (LOC: Long-Term Credit Bank
of Japan, Ltd.)....................... 1,000,000
INDIANA -- 4.5%
2,400 City of Madison Economic Development
RB (Arvin Sango, Inc.) Series 1987,
6.50%-VRDN
(LOC: Tokai Bank, Ltd.)............... 2,400,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C>
SHORT-TERM INVESTMENTS -- CONTINUED
MISSISSIPPI -- 5.6%
$ 3,000 Lee County Industrial Development RB
(Hunter Douglas, Inc.) Series 1985,
5.90%-VRDN
(LOC: Credit Lyonnais)................ $ 3,000,000
TOTAL SHORT-TERM INVESTMENTS
(COST $7,400,000)................ 7,400,000
</TABLE>

<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS
(COST $51,843,371)...... 98.6% 52,706,835
OTHER ASSETS AND
LIABILITIES -- NET...... 1.4 745,135
NET ASSETS................. 100.0% $ 53,451,970
</TABLE>

Summary of abbreviations:
AMBAC -- Insured by American Municipal Bond Assurance
Corp.
COP -- Certificates of Participation
FGIC -- Insured by Financial Guaranty Insurance Co.
FSA -- Insured by Financial Security Assurance Inc.
GO -- General Obligations
LOC -- Letter of Credit
MBIA -- Insured by Municipal Bond Investors Assurance
RB -- Revenue Bonds
RFB -- Refunding 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. The interest rates are determined and reset by the
issuer daily or weekly. The interest rates presented for these securities are
those in effect as of August 31, 1995.
* Included in long-term investments are certain securities that had an original
maturity greater than one year that at August 31, 1995, have less than one
year remaining to maturity. Such investments comprise 8.0% of net assets.
See accompanying notes to financial statements.
17

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1995
(Photo of money appears here)
<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $51,843,371)............................................................. $52,706,835
Cash........................................................................................................... 30,096
Interest receivable............................................................................................ 737,899
Receivable for Fund shares sold................................................................................ 49,660
Prepaid expenses............................................................................................... 47,127
Unamortized organization expenses.............................................................................. 7,687
Total assets............................................................................................. 53,579,304
LIABILITIES:
Accrued expenses............................................................................................... 50,988
Payable for Fund shares repurchased............................................................................ 41,430
Dividend payable............................................................................................... 34,135
Accrued net advisory fees...................................................................................... 781
Total liabilities........................................................................................ 127,334
NET ASSETS........................................................................................................ $53,451,970
NET ASSETS CONSISTS OF:
Paid-in capital................................................................................................ $53,450,414
Accumulated net realized loss on investment transactions....................................................... (861,908)
Net unrealized appreciation of investments..................................................................... 863,464
Net assets............................................................................................... $53,451,970
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
CLASS A SHARES
Net asset value per share ($6,820,304 (divide sign) 670,336 shares of beneficial interest outstanding)......... $10.17
Sales charge -- 4.75% of offering price........................................................................ .51
Maximum offering price......................................................................................... $ 10.68
CLASS B SHARES
Net asset value and offering price per share ($6,050,332 (divide sign) 594,745 shares of beneficial interest
outstanding)................................................................................................. $ 10.17
CLASS Y SHARES
Net asset value and offering price per share ($40,581,334 (divide sign) 3,991,127 shares of beneficial interest
outstanding)................................................................................................. $ 10.17
</TABLE>

See accompanying notes to financial statements.
18

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1995
(Photo of money appears here)
<TABLE>
<S> <C> <C>

INVESTMENT INCOME:
Interest........................................................................................... $2,724,859
EXPENSES:
Advisory fee....................................................................................... $263,947
Distribution fee -- Class A Shares................................................................. 4,106
Distribution fee -- Class B Shares................................................................. 20,584
Shareholder services fees -- Class B Shares........................................................ 6,861
Custodian fee...................................................................................... 52,525
Registration and filing fees....................................................................... 42,842
Transfer agent fee................................................................................. 36,314
Professional fees.................................................................................. 28,382
Insurance.......................................................................................... 12,550
Reports and notices to shareholders................................................................ 10,034
Amortization of organization expenses.............................................................. 8,822
Trustees' fees and expenses........................................................................ 8,640
Miscellaneous...................................................................................... 2,501
498,108
Less: Fee waivers and expense reimbursements....................................................... (92,133)
Net expenses.............................................................................. 405,975
Net investment income................................................................................. 2,318,884
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments................................................................... (713,222)
Net change in unrealized appreciation of investments............................................... 529,821
Net loss on investments............................................................................... (183,401)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $2,135,483
</TABLE>

See accompanying notes to financial statements.
19

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
STATEMENT OF CHANGES IN NET ASSETS
(Photo of money appears here)

YEAR ENDED
AUGUST 31, 1995 AUGUST 31, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................................... $ 2,318,884 $ 2,734,785
Net realized loss on investments........................................................ (713,222) (53,108)
Net change in unrealized appreciation (depreciation) of investments..................... 529,821 (1,837,704)
Net increase resulting from operations............................................ 2,135,483 843,973
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- Class A Shares............................................ (178,721) --
From net investment income -- Class B Shares............................................ (96,022) --
From net investment income -- Class Y Shares............................................ (2,044,141) (2,734,785)
Total distributions from net investment income.......................................... (2,318,884) (2,734,785)
From net realized gains on investment transactions -- Class Y Shares.................... -- (180,991)
In excess of net realized gains on investment transactions
-- Class Y Shares................................................................... -- (96,012)
Total distributions to shareholders............................................... (2,318,884) (3,011,788)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold............................................................... 25,128,726 12,683,649
Proceeds from reinvestment of distributions............................................. 1,923,116 2,590,791
Payment for shares redeemed............................................................. (26,833,640) (26,296,640)
Net increase (decrease) resulting from Fund share transactions....................... 218,202 (11,022,200)
Net increase (decrease) in net assets............................................. 34,801 (13,190,015)
NET ASSETS:
Beginning of year....................................................................... 53,417,169 66,607,184
End of year............................................................................. $ 53,451,970 $ 53,417,169
</TABLE>

See accompanying notes to financial statements.
20

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
FINANCIAL HIGHLIGHTS
(Photo of money appears here)

CLASS A SHARES CLASS B SHARES CLASS Y SHARES
JANUARY 5, JANUARY 5,
1995* 1995*
THROUGH THROUGH
AUGUST 31, AUGUST 31, YEAR ENDED AUGUST 31,
1995 1995 1995 1994 1993 1992
(2 crosses)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.......................... $ 9.97 $ 9.97 $10.21 $10.58 $10.33 $10.00
Income (loss) from investment operations:
Net investment income....................................... .30 .24 .46 .47 .49 .51
Net realized and unrealized gain (loss) on investments...... .20 .20 (.04) (.32) .25 .33
Total income from investment operations................... .50 .44 .42 .15 .74 .84
Less distributions to shareholders:
From net investment income.................................. (.30) (.24) (.46) (.47) (.49) (.51)
From net realized gains on investments...................... -- -- -- (.03) -- --
In excess of net realized gains on investments.............. -- -- -- (.02) -- --
Total distributions....................................... (.30) (.24) (.46) (.52) (.49) (.51)
Net asset value, end of period.............................. $10.17 $10.17 $10.17 $10.21 $10.58 $10.33
TOTAL RETURN+................................................. 5.1% 4.5% 4.2% 1.4% 7.4% 8.6%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)..................... $6,820 $6,050 $40,581 $53,417 $66,607 $54,470
Ratios to average net assets:
Expenses**.................................................. .70%++ 1.58%++ .74% .58% .40% .17%
Net investment income**..................................... 4.32%++ 3.50%++ 4.52% 4.54% 4.73% 4.85%
Portfolio turnover rate....................................... 80% 80% 80% 32% 37% 57%

CLASS Y SHARES
JULY 17,
1991*
THROUGH
AUGUST 31,
1991(Stacked crosses)

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

* Commencement of class operations.
(Stacked On November 18, 1991, the Fund was changed to a diversified municipal
Crosses) bond fund with a fluctuating net asset value per share from a
non-diversified money market fund with a stable net asset value per
share. The shares outstanding at August 31, 1991 and the related
per share data are restated to reflect both for a 1 for 2 reverse
share split on October 30, 1991 and a 1 for 5 reverse share split
on August 19, 1992. Total return calculated after November 18, 1991
reflects the fluctuation in net asset value per share.
+ Total return is calculated for the periods indicated and is not
annualized. Initial sales charge or contingent deferred sales charges
are not reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne
all expenses that were reimbursed or waived by the investment
adviser, the annualizes ratios of expenses and net investment
income to average net assets would have been the following:
<TABLE>
<CAPTION>

CLASS A SHARES CLASS B SHARES CLASS Y SHARES
JANUARY 5, JANUARY 5, JULY 17,
1995* 1995* 1991*
THROUGH THROUGH THROUGH
AUGUST 31, AUGUST 31, YEAR ENDED AUGUST 31, AUGUST 31,
1995 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Expenses.................................. 1.14% 2.26% .86% .83% .81% .86% 1.40%
Net investment income..................... 3.88% 2.82% 4.40% 4.29% 4.32% 4.16% 3.53%
</TABLE>

See accompanying notes to financial statements.
21

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
CALIFORNIA
(Photo of power lines)

A REPORT FROM YOUR
PORTFOLIO MANAGER
BY STEVEN C. SHACHAT
Evergreen Short-Intermediate Municipal Fund-California (photo of
ended its annual reporting period on August 31, 1995, with a Steven C.
total return for the fiscal year of 4.18%* (Class Y, no-load Shachat appears
shares). The Fund's average annual compounded rate of return here)
from October 16, 1992, the date of conversion from a
California Tax-Exempt Money Market Fund to a California
Short-Intermediate Municipal Bond Fund, through August 31,
1995, was 4.59%. The Fund's 30-day annualized yield as of
August 31, was 3.97%, which is equivalent to a taxable
equivalent yield of 6.97% for investors in the 47% combined
California State and marginal Federal tax bracket. We are
happy to report that all of the Fund's income was 100% free of
California State and Federal income taxes.**
The slowing economy, firming dollar and expectations that the Federal Reserve
would move to cut interest rates pushed bond yields lower and prices higher
across all maturity ranges. The stock market rallied in anticipation of lower
interest rates and reports of continued strong earnings growth. The Federal
Reserve Board did in fact relax its monetary policy on July 6, 1995 when it
lowered the Fed Funds rate 25 basis points (.25%).
Bond fund investors who held their course after 1994's dismal bond market
showing were amply rewarded in the first six months of 1995. Prices of bonds of
all maturities soared as yields retraced much of their 1994 advance. The
turnaround was fueled by a shortage of securities in both the bond and stock
markets. The technical phenomenon is pronounced in the tax-exempt market where
new issuance is dramatically off from a year ago, and spreads on existing
municipals became historically rich relative to Treasuries. Municipals led
taxable bonds in the first quarter but fell behind in the second quarter as talk
of tax reform rattled the market.

During the second half of the fiscal year, the Fund's investment strategy
focused on maintaining a defensive posture, as reflected by a shortened
duration, an increased usage of premium coupon bonds, increased cash reserves
and a shortened portfolio maturity structure to minimize price volatility. We
also focused on maintaining and improving the Fund's current dividend yields.
New money entering the Fund declined somewhat from the advances of earlier years
and contributed to a more subdued level of activity. The Fund's volatility
levels declined as a result of the emphasis on higher coupons and the normal
aging of a stable portfolio. The Fund's credit quality profile continued high
with a strong emphasis on triple-A rated securities. While our caution limited
the Fund's participation on some of this year's upside market moves, we
continue to see additional risk factors that may affect the municipal bond
market. The technical supply condition, temporary or not, creates upward
pressure on tax-exempt securities and has generated unusually high-priced
municipal securities in the maturity range of your Fund.

FIGURES REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS.
* PERFORMANCE FIGURES INCLUDE REINVESTMENT OF INCOME DIVIDEND AND CAPITAL
GAIN DISTRIBUTIONS, IF ANY. THE FUND'S RETURN, NET ASSET VALUE AND YIELD
WILL VARY AND THERE CAN BE NO GUARANTEE THAT THE FUND WILL ACHIEVE ITS
OBJECTIVE OR ANY PARTICULAR TAX EXEMPT YIELD. INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENTLY, THE
ADVISER IS VOLUNTARILY WAIVING A PORTION OF ITS ADVISORY FEE. HAD THIS FEE
NOT BEEN WAIVED, THE FUND'S 30-DAY ANNUALIZED AND TAX-EQUIVALENT YIELDS AS
OF AUGUST 31, 1995, WOULD HAVE BEEN 3.77% AND 6.62% FOR CLASS Y SHARES AND
RETURNS WOULD HAVE BEEN LOWER. VOLUNTARY FEE WAIVERS MAY BE REVISED AT ANY
TIME. TAX-EQUIVALENT YIELD WOULD BE LOWER FOR INVESTORS IN LOWER MARGINAL
INCOME TAX BRACKETS. **OTHER THAN THE FEDERAL ALTERNATIVE MINIMUM TAX.

<PAGE>

EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
CALIFORNIA
(Photo of power lines appears here)

The economic recovery of the last two years is expected to slow down in the
near future, as California responds to the general softening of the nation's
economy. Although California has regained over half the total number of jobs it
lost during the last recession, the unemployment rate continues to exceed the
national average. Further, if the real estate market does not experience some
recovery in the next year, there may be significant negative implications for
the state's economy and budget. Over the remainder of 1995 and into 1996,
California will continue to work toward reducing its accumulated budget deficit
of $2 billion. The Governor's budget proposal includes assumptions regarding
Federal Assistance and State economic growth that may not be realized.
Therefore, the state's financial position may not improve significantly over the
next twelve months.
Since we last reported to you in the February 28, 1995 Semi-Annual report, a
settlement was approved by the Federal Bankruptcy Court for Orange County which
allowed for the distribution of most of the county's investment pool to its
participants. On June 27, 1995, the voters of Orange County rejected County
Measure R which would have provided additional sales tax revenue to assist the
County in meeting its obligations. On July 7, 1995, the owners of the Orange
County direct securities, which remained outstanding, agreed to extend the
maturity of their outstanding notes to June 30, 1996, in order to provide more
time for the County to develop a financial recovery plan. In late September, the
California Legislature approved a series of measures designed to benefit Orange
County that will result in a plan used to pay note holders.
We believe that, going forward, the municipal market will continue to
fluctuate due to, among other things, the uncertainties of tax reform
legislation. We will continue to monitor the economic environment and make any
needed adjustments in our strategies.
23

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
(Photo of power lines appears here)

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

(Chart appears here with the following plot points:)

CLASS Y AVERAGE ANNUAL TOTAL RETURN

1 YEAR=4.0%
SINCE INCEPTION=4.6%

<TABLE>
<CAPTION>
10/16/92* 8/31/93 8/31/94 8/31/95
<S> <C> <C> <C> <C>
(CUSTOMER PLEASE FILL IN)
LEHMAN 3 YEAR CALIFORNIA MUNICIPAL BOND INDEX
LEHMAN 5 YEAR CALIFORNIA MUNICIPAL BOND INDEX
SHORT-INTERMEDIATE CALIFORNIA MUNICIPAL FUND
</TABLE>

* Commencement of operations.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE RESULTS. MUTUAL FUNDS
ARE NOT OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK AND ARE NOT FEDERALLY
INSURED.
For the purposes of the graph and the accompanying table, it has been
assumed that (a) all recurring fees (including investment advisory fees) were
deducted; and (b) all dividends and distributions were reinvested.
The Indices are unmanaged indices and include the reinvestment of income,
but do not reflect the payment of transaction costs and advisory fees associated
with an investment in the Fund.
24

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
STATEMENT OF INVESTMENTS
AUGUST 31, 1995
(Photo of power lines appears here)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C> <C>
LONG-TERM INVESTMENTS -- 91.7%
$1,200 Alameda County Transportation
Authority Sales Tax (Limited
Tax) Series 1992-RB,
5.00%, 5/1/98 (FGIC)........... $ 1,227,864
1,000 Burbank-Glendale-Pasadena
Airport Authority Airport
Series 1992-RRB,
5.00%, 6/1/98, (AMBAC)......... 1,023,600
California Housing Finance
Agency Multi-Unit Rental
Housing 1992 Series A-RB:
310 4.70%, 2/1/96.................. 310,880
325 5.00%, 2/1/97.................. 327,724
320 5.25%, 2/1/98.................. 324,253
500 California Statewide
Communities Development
Authority (Sutter Obligated
Group)-COP,
5.00%, 8/15/98 (AMBAC)......... 511,415
490 California Various Purpose
Bonds-GO, 5.00%, 9/1/97........ 498,663
320 Chino Unified School District
San Bernardino County 1975
Series3-GO, 5.25%, 2/1/97...... 322,022
City of Beverly Hills (1992
Refunding Project)-COP:
250 4.70%, 6/1/97.................. 252,280
300 4.90%, 6/1/98.................. 304,443
980 City of Burbank Public Service
Department of Electric and
Water 1992 Series A-RB,
6.10%, 6/1/97 (AMBAC).......... 1,015,211
200 City of Los Angeles Department
of Water and Power Electric
Plant, Issue of 1977-RRB,
5.10%, 12/15/95................ 200,870
1,090 City of Los Angeles Judgment
Obligation Bonds Series 1992-A,
5.00%, 8/1/00.................. 1,111,331
565 City of Santa Rosa (Sonoma
County) Wastewater Service
Facilities District 1992
Refunding Improvement Bonds,
5.10%, 7/2/98 (AMBAC).......... 580,408
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C> <C>
$ 650 City of Santa Rosa (Sonoma
County) Wastewater 1992 Series
B-RRB,
5.10%, 9/1/98 (FGIC)........... $ 668,720
1,100 City of Vallejo (Water
Improvement Project) 1992
Series B-RB, 6.00%, 11/1/98
(FGIC)......................... 1,161,402
475 County of Los Angeles (1993
Disney Parking Project)-COP,
5.25%, 3/1/98.................. 481,199
685 County of San Bernardino (West
Valley Detention Center
Project)-COP, Prerefunded @
$102,
7.70%, 11/1/98................. 771,262
1,000 Los Angeles Building Authority
Lease (State of California
Department of General Services
Lease) 1988 Series A-RB, 6.25%,
3/1/96......................... 1,011,020
1,000 Los Angeles County Metropolitan
Transportation Authority
Proposition C Sales Tax Second
Senior Series 1995 A-RB, 5.90%,
7/1/05 (AMBAC)................. 1,061,970
585 Northern California Power
Agency Geothermal Project
Number 3 1987 Series
A-RRB, 6.20%, 7/1/96........... 595,735
1,200 Pasadena Community Development
Commission Multifamily Housing
(Civic Center West Project)
Series
B-RB, 5.00%, 12/1/96 (FSA)..... 1,215,408
450 Pico Rivera Public Financing
Authority 1992 (Water
Enterprise Project) Series
A-RRB, 5.70%, 12/1/98 (MBIA)... 471,803
Rim of the World Unified School
District 1992 (Measure V
Capital Project)-COP:
500 5.10%, 9/1/97 (AMBAC).......... 511,050
500 5.25%, 9/1/98 (AMBAC).......... 516,500
</TABLE>
25

<PAGE>

EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
STATEMENT OF INVESTMENTS -- (CONTINUED)
AUGUST 31, 1995
(Photo of power lines appear here)

<TABLE>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C> <C>
LONG-TERM INVESTMENTS -- CONTINUED
$1,000 Sacramento Municipal Utility
District Electric Series V-RB,
Prerefunded @ $100,
7.50%, 8/15/98................. $ 1,096,040
575 San Diego Unified School
District Series B-COP,
5.90%, 7/1/97.................. 592,957
250 San Francisco Bay Area Rapid
Transit District Sales Tax
Revenue Notes Series 1993,
6.50%, 7/1/98.................. 265,395
785 San Francisco City & County
Sewer Series B-RB, Prerefunded
@ $101.50, 7.60%, 10/1/97
(AMBAC)........................ 854,229
300 Sunnyvale Financing Authority
Utility Revenue (Solid Waste
Materials Recovery and Transfer
Station) 1992 Series B-RB,
5.10%, 10/1/98 (MBIA).......... 308,853
TOTAL LONG-TERM INVESTMENTS
(COST $19,233,990)........ 19,594,507
SHORT-TERM INVESTMENTS -- 7.0%
500 County of Orange (Irvine Coast
Assessment District No. 88-1)
Limited Obligation Improvement
Bonds, (LOC: The Industrial
Bank of Japan, Ltd., The Fuji
Bank, Ltd., The Mitsubishi
Bank, Ltd.), 3.90% -- VRDN..... 500,000
<CAPTION>
PRINCIPAL
AMOUNT
(000) VALUE
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS -- CONTINUED
$1,000 Industrial Development
Authority of the County of Los
Angeles (Fruitland Associates
Project) Composite Issue II
Series 1989-A Industrial
Development RB, (LOC: The Tokai
Bank, Ltd.),
6.40% -- VRDN.................. $ 1,000,000
TOTAL SHORT-TERM INVESTMENTS
(COST $1,500,000)......... 1,500,000
TOTAL INVESTMENTS
(COST $20,733,990)........ 98.7% 21,094,507
OTHER ASSETS AND
LIABILITIES -- NET........ 1.3 267,517
NET ASSETS................... 100.0% $21,362,024
</TABLE>

Summary of Abbreviations
AMBAC -- Insured by American Municipal Bond Assurance Corp.
COP -- Certificates of Participation
FGIC -- Insured by Financial Guaranty Insurance Co.
FSA -- Insured by Financial Security Assurance Inc.
GO -- General Obligation Bonds
LOC -- Letter of Credit
MBIA -- Insured by Municipal Bond Investors Assurance
RB -- Revenue Bonds
RRB -- Refunding Revenue Bonds
VRDN -- Variable Rate Demand Notes are payable on demand at par on no more than
seven calendar days' notice given by the Fund to the issuer or other parties not
affiliated with the issuer. Interest rates are determined and reset by the
issuer daily or weekly depending upon the terms of the security. The interest
rates presented for these securities are those in effect at August 31, 1995.
See accompanying notes to financial statements.
26

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
CALIFORNIA
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1995
(Photo of power lines appear here)

<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (identified cost $20,733,990)............................................................. $21,094,507
Cash........................................................................................................... 16,635
Interest receivable............................................................................................ 296,847
Receivable for Fund shares sold................................................................................ 11,535
Prepaid expenses............................................................................................... 4,472
Total assets............................................................................................. 21,423,996
LIABILITIES:
Accrued expenses............................................................................................... 26,093
Payable for Fund shares repurchased............................................................................ 21,938
Dividend payable............................................................................................... 7,551
Accrued advisory fee........................................................................................... 6,390
Total liabilities........................................................................................ 61,972
NET ASSETS........................................................................................................ $21,362,024
NET ASSETS CONSIST OF:
Paid-in capital................................................................................................ $21,433,685
Accumulated net realized loss on investment transactions....................................................... (432,178)
Net unrealized appreciation of investments..................................................................... 360,517
Net assets............................................................................................... $21,362,024
CALCULATION OF NET ASSET VALUE AND MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares ($10.06 (divide sign) 1 share of beneficial interest issued and outstanding).................... $10.06
Sales charge -- 4.75% of public offering price................................................................. .50
Maximum offering price................................................................................... $10.56
Class B Shares ($10.06 (divide sign) 1 share of beneficial interest issued and outstanding).................... $10.06
Class Y Shares ($21,362,004 (divide sign) 2,123,240 shares of beneficial interest issued and
outstanding)................................................................................................ $10.06
</TABLE>

See accompanying notes to financial statements.
27

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
CALIFORNIA
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1995
(Photo of power lines appear here)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest........................................................................................... $1,197,511
EXPENSES:
Advisory fee....................................................................................... $134,625
Custodian fee...................................................................................... 41,205
Professional fees.................................................................................. 21,996
Transfer agent fee................................................................................. 18,590
Reports and notices to shareholders................................................................ 8,294
Trustees' fees and expenses........................................................................ 8,130
Insurance.......................................................................................... 6,864
Registration and filing fees....................................................................... 582
Miscellaneous...................................................................................... 2,039
242,325
Less: Advisory fee waiver.......................................................................... (48,955)
Net expenses................................................................................. 193,370
Net investment income................................................................................. 1,004,141
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments................................................................... (432,178)
Net change in unrealized appreciation of investments............................................... 279,942
Net loss on investments............................................................................... (152,236)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $ 851,905
</TABLE>

See accompanying notes to financial statements.
28

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
CALIFORNIA
STATEMENT OF CHANGES IN NET ASSETS

(Photo of power lines appear here)

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
INCREASE (DECREASE) IN NET ASSETS: 1995 1994
OPERATIONS:
<S> <C> <C>
Net investment income....................................................................... $ 1,004,141 $ 1,256,000
Net realized gain (loss) on investments..................................................... (432,178) 97,167
Net change in unrealized appreciation (depreciation) of investments......................... 279,942 (823,736)
Net increase resulting from operations................................................ 851,905 529,431
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- Class Y Shares..................................................... (1,004,141) (1,256,000)
Net realized gains on investments -- Class Y Shares......................................... (77,128) (22,749)
Total distributions to shareholders................................................... (1,081,269) (1,278,749)
FUND SHARE TRANSACTIONS:
Proceeds from shares sold................................................................... 8,632,605 14,927,525
Proceeds from reinvestment of distributions................................................. 954,278 1,169,051
Payments for shares redeemed................................................................ (16,428,530) (17,049,726)
Net decrease resulting from Fund share transactions................................... (6,841,647) (953,150)
Net decrease in net assets............................................................ (7,071,011) (1,702,468)
NET ASSETS:
Beginning of year........................................................................... 28,433,035 30,135,503
End of year................................................................................. $ 21,362,024 $ 28,433,035
</TABLE>

See accompanying notes to financial statements.
29

<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND --
CALIFORNIA
FINANCIAL HIGHLIGHTS
CLASS Y SHARES
(Photo of power lines appear here)

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1995 1994 1993 1992
(2 crosses) (2 crosses)
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of year............................................... $ 10.09 $ 10.34 $ 10.00 $ 10.00
Income from investment operations:
Net investment income.......................................................... .41 .43 .41 .33
Net realized and unrealized gain (loss) on investments......................... -- (.24) .34 --
Total income from investment operations.................................... .41 .19 .75 .33
Less distributions to shareholders from:
Net investment income.......................................................... (.41) (.43) (.41) (.33)
Net realized gains............................................................. (.03) (.01) -- --
Total distributions........................................................ (.44) (.44) (.41) (.33)
Net asset value, end of year..................................................... $ 10.06 $ 10.09 $ 10.34 $ 10.00
TOTAL RETURN+.................................................................... 4.2% 1.8% 7.6% 3.4%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted).......................................... $21,362 $28,433 $30,136 $34,452
Ratios to average net assets:
Expenses*...................................................................... .79% .52% .30% .40%
Net investment income*......................................................... 4.10% 4.20% 3.96% 3.36%
Portfolio turnover rate.......................................................... 29% 12% 37% --

<CAPTION>
1991(2 crosses)
<S> <C>
PER SHARE DATA:
Net asset value, beginning of year............................................... $ 10.00
Income from investment operations:
Net investment income.......................................................... .47
Net realized and unrealized gain (loss) on investments......................... --
Total income from investment operations.................................... .47
Less distributions to shareholders from:
Net investment income.......................................................... (.47)
Net realized gains............................................................. --
Total distributions........................................................ (.47)
Net asset value, end of year..................................................... $ 10.00
TOTAL RETURN+.................................................................... 4.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted).......................................... $42,022
Ratios to average net assets:
Expenses*...................................................................... .37%
Net investment income*......................................................... 4.66%
Portfolio turnover rate.......................................................... --
</TABLE>

(stacked On October 16, 1992, the Fund was converted to a short-intermediate
crosses) municipal fund with a fluctuating net asset value per share from a
money market fund with a stable net asset value per share. The shares
outstanding and the related per share data for the fiscal years ended
August 31, 1991 and August 31, 1992 are restated to reflect the 1 for
10 reverse share split on October 21, 1992. Total return calculated
after October 16, 1992 reflects the
fluctuation in net asset value per share.
+ Total return is calculated on net asset value per share for the
periods indicated and is not annualized.
* Net of expense waivers and reimbursements. If the Fund had borne
all expenses that were assumed or waived by the investment adviser,
the annualized ratios of expenses and net investment income to
average net asset would have been the following:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Expenses......................................................................... .99% .95% .98% .84% .85%
Net investment income............................................................ 3.90% 3.77% 3.28% 2.92% 4.18%
</TABLE>

See accompanying notes to financial statements.
30

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION AND NAME CHANGES
The Evergreen Tax-Free Funds (the "Funds") are separate series of open-end
management companies registered under the Investment Company Act of 1940, as
amended (the "Act"). The Evergreen Tax-Free Funds consist of Evergreen High
Grade Tax Free Fund ("High Grade"), Evergreen Short-Intermediate Municipal Fund
("Short-Intermediate") and Evergreen Short-Intermediate Municipal
Fund -- California ("California"), known collectively as the Funds. High Grade
is a series of Evergreen Investment Trust. Short Intermediate and California are
series of Evergreen Municipal Trust.
Effective July 7, 1995, Evergreen High Grade Tax Free Fund changed its name
from First Union High Grade Tax Free Portfolio.
NOTE 2 -- CHANGE IN FISCAL YEAR
On March 15, 1995, High Grade's Trustees approved a change in its fiscal
year end from December 31 to August 31. These financial statements are as of and
for the eight months ended August 31, 1995.
NOTE 3 -- ACQUISITION INFORMATION
Effective July 7, 1995, High Grade acquired substantially all of Evergreen
National Tax-Free Fund's net assets, valued at $28,779,194 through a non-taxable
exchange for 2,679,627 shares of High Grade. The net assets of Evergreen
National Tax-Free Fund acquired included unrealized appreciation of $528,003.
The aggregate net assets of High Grade immediately after the acquisition were
$128,792,690.
NOTE 4 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. These policies are
in conformity with generally accepted accounting principles.
SECURITY VALUATIONS -- Municipal bonds are valued by an independent pricing
service taking into consideration yield, liquidity, risk, credit quality,
coupon, maturity, type of issue and any other factors or market data it deems
relevant in determining valuations for normal institutional size trading units
of debt securities which it believes to reflect the fair value of securities.
The independent pricing service does not rely exclusively on quoted prices.
Short term securities purchased with remaining maturities of sixty days or less
are stated at amortized cost which approximates market value.
SECURITY TRANSACTIONS -- Security transactions are accounted for on the
date purchased or sold. Net realized gains or losses are determined on the
identified cost basis.
INVESTMENT INCOME AND EXPENSES -- Interest income and expenses are accrued
daily. Premiums and discounts paid on securities are amortized or accreted into
interest income.
WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Funds record
when-issued or delayed delivery transactions on the trade date and maintain
security positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning interest on
the settlement date.
DIVIDENDS TO SHAREHOLDERS -- Dividends from net investment income are
declared daily and paid monthly. Dividends from net realized capital gains on
investments, if any, will be distributed at least annually. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from the amounts available for distribution under
generally accepted accounting principles. To the extent these differences are
permanent in nature, such amounts are reclassified within the components of net
assets. As of August 31, 1995, a reclassification has been made for
31

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SIGNIFICANT ACCOUNTING POLICIES -- continued
High Grade to increase undistributed net investment income and to increase
accumulated net realized loss on investment transactions by $22,568.
INCOME TAXES -- It is each Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable and other net income to its
shareholders. Accordingly, no provisions for Federal income or excise taxes are
necessary. To the extent that realized capital gains can be offset by capital
loss carryforwards, it is each Fund's policy not to distribute such gains.
At August 31, 1995, High Grade and Short-Intermediate had capital loss
carryforwards of $3,409,284 and $267,515, respectively. Pursuant to the Code,
such capital loss carryforwards will expire in the year 2002 and 2003,
respectively.
Capital losses incurred after October 31, within the fund's fiscal year are
deemed to arise on the first business day of the following fiscal year for tax
purposes. Short-Intermediate and California have incurred and will elect to
defer $594,394 and $432,178, respectively, of capital losses.
DEFERRED EXPENSES -- The costs incurred by High Grade with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being amortized
using the straight-line method not to exceed a period of five years from the
Fund's commencement.
ALLOCATION OF EXPENSES -- Expenses specifically identifiable to a class of
shares are charged to that class. Expenses common to a Trust as a whole are
allocated to the funds in that Trust. Investment income, net of expenses (other
than class specific expenses) and realized and unrealized gains and losses are
allocated daily to each class of shares based upon the relative proportion of
net assets of each class.
UNAMORTIZED ORGANIZATION EXPENSES -- The expenses of Short-Intermediate
incurred in connection with its organization are being deferred and amortized
over a period of benefit not to exceed 60 months from the date the Fund
commenced operations.
NOTE 5 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENTS -- First Union National Bank of North
Carolina ("First Union") is entitled to an annual fee of .50 of 1% of High
Grade's average daily net assets pursuant to an investment advisory agreement.
For the eight-month period ended August 31, 1995, First Union voluntarily waived
$20,456 of its advisory fee. First Union can modify or terminate this voluntary
waiver at any time.
Pursuant to an agreement with Short-Intermediate's and California's
investment adviser, Evergreen Asset Management Corp. ("Evergreen Asset"), a
wholly owned subsidiary of First Union, Evergreen Asset is entitled to an annual
fee based on Short-Intermediate's and California's average daily net assets,
respectively in accordance with the following schedule:
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE CALIFORNIA
<S> <C> <C>
First $1 billion 0.50% 0.55 %
Over $1 billion 0.45% 0.50 %
</TABLE>

Pursuant to this agreement, Evergreen Asset also furnishes
Short-Intermediate and California with administrative services. Evergreen Asset
has agreed to reimburse Short-Intermediate and California to the extent that the
Funds' operating expenses (including the investment advisory fee and
amortization of organizational expenses but excluding interest, taxes, brokerage
commissions, 12b-1 distribution and shareholder services fees and extraordinary
expenses) exceed 1.00% of its average daily net assets for any fiscal year. The
expenses of Short-Intermediate and California did not exceed this limit.
However, for the year ended August 31, 1995, Evergreen Asset voluntarily waived
$63,612 and $48,955 of its advisory fee
32

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
for Short-Intermediate and California, respectively, and reimbursed class
specific expenses amounting to $28,521 for Short-Intermediate. Evergreen Asset
can modify or terminate these voluntary waivers at any time.
Lieber & Company, an affiliate of First Union, is the investment
sub-adviser to Short-Intermediate and California. Lieber & Company is reimbursed
by the Adviser at no additional expense to the Funds.
ADMINISTRATION AGREEMENT -- Through July 7, 1995, Federated Investor
Services ("FAS") provided High Grade with certain administrative personnel and
services including certain clerical and recordkeeping services. In addition,
certain of High Grade's officers and Trustees were officers or directors of FAS.
FAS' fee was based on the level of average net assets of High Grade's Trust for
the period, subject to a minimum fee. Effective July 7, 1995, Evergreen Asset
became the Administrator and Furman Selz, Incorporated ("Furman Selz") became
the sub-administrator. Officers of Furman Selz' became the officers of all of
the Funds. Evergreen Asset's fee and Furman Selz' fee is based on the average
daily net assets of all the funds administered by Evergreen Asset for which
First Union or Evergreen Asset is also investment adviser. This fee is
calculated at the following annual rates:
<TABLE>
<CAPTION>
ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
<C> <S>
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% in excess of $30 billion
<CAPTION>
SUB-ADMINISTRATION FEE AVERAGE DAILY NET ASSETS
<C> <S>
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
0.0040% in excess of $25 billion
</TABLE>

At August 31, 1995, assets for which Evergreen Asset was the administrator
for which either Evergreen Asset or First Union was investment adviser totaled
approximately $9.8 billion.
PLANS OF DISTRIBUTION -- The Funds have adopted for their Class A shares
and Class B shares, Distribution Plans (the "Plans") pursuant to Rule 12b-1
under the Act (see Note 6). Under the terms of the Plans, Short-Intermediate and
California may incur distribution-related and shareholder servicing expenses
which may not exceed an annual fee of .75 of 1% for Class A shares and 1% for
Class B shares. The payments for Short-Intermediate for Class A Shares were
voluntarily limited to .10 of 1% of average daily net assets for the period
ended August 31, 1995. Such fees are accrued daily and paid monthly. No fee was
charged to California's Class A and Class B shares.
In connection with their Plans, Short-Intermediate and California have
entered into distribution agreements with Evergreen Funds Distributor, Inc.
("EFD"), a subsidiary of Furman Selz whereby Short-Intermediate and California
will compensate EFD for its services at a rate which may not exceed an annual
fee of .10 of 1% of Class A Share's average daily net assets and an annual fee
of 1% of Class B Share's average daily net assets. A portion of the payments
under Short-Intermediate's and California's Class B Plans, up to .25 of 1% of
average daily net assets may constitute a shareholder service's fee. EFD has
entered into a Shareholder Services Agreement with First Union Brokerage
Services ("FUBS"), an affiliate of First Union, whereby they will compensate
FUBS for certain services provided to shareholders and/or maintenance of
shareholder accounts relating to each of the Funds' Class B shares. At August
31, 1995, $663 remains payable to EFD pursuant to Short-Intermediate's
shareholder services plan.
33

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES -- continued
In connection with its Plan, through July 7, 1995, High Grade had entered
into a distribution agreement with Federated Securities Corp. ("FSC") whereby
High Grade compensated FSC for its services at a rate which did not exceed an
annual fee of .25 of 1% of Class A average daily net assets and an annual fee of
.75 of 1% of Class B average daily net assets. Effective July 7, 1995, High
Grade entered into a distribution agreement with EFD whereby High Grade will
compensate EFD for its services at a rate which may not exceed an annual fee of
.25 of 1% of Class A average daily net assets and an annual fee of .75 of 1% of
Class B average daily net assets. Pursuant to a Shareholder Services Agreement,
High Grade compensated FUBS an annual fee of .25 of 1% of Class B average daily
net assets for certain services provided to Class B shareholders. At August 31,
$3,694 remains payable relating to High Grade's shareholder services plan.
ORGANIZATIONAL EXPENSES -- Organizational expenses of High Grade were
initially borne by FAS. High Grade had agreed to reimburse such expenses during
the five-year period following February 21, 1992, the date High Grade commenced
operations. As a result of the change in the administration agreement, First
Union purchased the remaining unreimbursed organizational expenses from FAS. At
August 31, 1995, $17,306 remains to be reimbursed to First Union.
NOTE 6 -- SHARES OF BENEFICIAL INTEREST
Short-Intermediate and California have an unlimited number of $0.0001 par
value shares of beneficial interest authorized. High Grade has an unlimited
number of no par value shares of beneficial interest authorized. The shares are
divided into classes which are designated Class Y, Class A and Class B shares.
Through August 31, 1995, there were no transactions in California's Class A and
Class B shares other than the purchase of one share in each class at a purchase
price of $9.78 on December 30, 1994 by Stephen A. Lieber, the Chairman of
Evergreen Asset.
Class Y shares are available only to investment advisory clients of First
Union and its affiliates, certain institutional investors or Class Y
shareholders of record of certain other funds managed by First Union and its
affiliates as of December 30, 1994. The classes have identical voting, dividend,
liquidation and other rights, except that Class A and Class B shares bear
distribution expenses (see Note 5) and have exclusive voting rights with respect
to their distribution plans.
34

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 6 -- SHARES OF BENEFICIAL INTEREST -- continued
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED YEAR ENDED
AUGUST 31, 1995 DECEMBER 31, 1994
HIGH GRADE SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A
Shares sold......................................................... 95,059 $ 1,003,763 555,825 $ 6,063,674
Shares issued from acquisition of Evergreen National Tax-Free
Fund.............................................................. 369,661 3,970,157 -- --
Shares issued on reinvestment of distributions...................... 109,500 1,150,986 238,904 2,470,837
Shares redeemed..................................................... (967,409) (10,152,313) (3,992,062) (41,107,207)
Net decrease........................................................ (393,189) (4,027,407) (3,197,333) (32,572,696)
CLASS B
Shares sold......................................................... 112,511 1,186,133 619,543 6,598,572
Shares issued from acquisition of Evergreen National Tax-Free
Fund.............................................................. 243,174 2,611,688 -- --
Shares issued on reinvestment of distributions...................... 52,945 556,311 102,516 1,054,230
Shares redeemed..................................................... (520,448) (5,459,057) (1,088,820) (11,052,338)
Net decrease........................................................ (111,818) (1,104,925) (366,761) (3,399,536)
CLASS Y
Shares sold......................................................... 85,773 908,492 532,658 5,452,546
Shares issued from acquisition of Evergreen National Tax-Free
Fund.............................................................. 2,066,792 22,197,350 -- --
Shares issued on reinvestment of distributions...................... 11,174 118,908 1,287 12,856
Shares redeemed..................................................... (258,812) (2,728,122) (93,031) (914,833)
Net increase........................................................ 1,904,927 20,496,628 440,914 4,550,569
Total net increase (decrease) resulting from Fund share
transactions...................................................... 1,399,920 $ 15,364,296 (3,123,180) ($31,421,663)
</TABLE>
35

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 6 -- SHARES OF BENEFICIAL INTEREST -- continued
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1995* AUGUST 31, 1994
SHARES AMOUNT SHARES AMOUNT
SHORT-INTERMEDIATE
<S> <C> <C> <C> <C>
CLASS A
Shares sold......................................................... 1,438,502 $ 14,469,110 -- --
Shares issued on reinvestment of distributions...................... 16,308 164,891 -- --
Shares redeemed..................................................... (784,474) (7,943,982) -- --
Net decrease...................................................... 670,336 6,690,019 -- --
CLASS B
Shares sold......................................................... 673,520 6,777,013 -- --
Shares issued on reinvestment of distributions...................... 7,150 72,369 -- --
Shares redeemed..................................................... (85,925) (870,798) -- --
Net increase...................................................... 594,745 5,978,584 -- --
CLASS Y
Shares sold......................................................... 385,625 3,882,603 1,211,704 $ 12,683,649
Shares issued on reinvestment of distributions...................... 167,271 1,685,856 248,705 2,590,791
Shares redeemed..................................................... (1,791,852) (18,018,860) (2,526,223) (26,296,640)
Net decrease...................................................... (1,238,956) (12,450,401) (1,065,814) (11,022,200)
Total net increase (decrease) resulting from Fund share
transactions...................................................... 26,125 $ 218,202 (1,065,814) ($11,022,200)
</TABLE>

* For Class A and Class B shares, the Fund share transaction activity reflects
the period January 5, 1995 (commencement of class operations) to August 31,
1995.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1995* AUGUST 31, 1994
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CALIFORNIA
CLASS A
Shares sold......................................................... 1 $ 10 -- --
CLASS B
Shares sold......................................................... 1 10 -- --
CLASS Y
Shares sold......................................................... 866,764 8,632,585 1,453,754 $ 14,927,525
Shares issued on reinvestment of distributions...................... 96,132 954,278 114,214 1,169,051
Shares redeemed..................................................... (1,656,210) (16,428,530) (1,666,477) (17,049,726)
Net decrease...................................................... (693,314) (6,841,667) (98,509) (953,150)
Total net decrease resulting from Fund share transactions........... (693,312) ($ 6,841,647) (98,509) ($ 953,150)
</TABLE>

* For Class A and Class B shares, the Fund share transaction activity reflects
the initial purchase of one share in each class on December 30, 1994. Through
August 31, 1995 there were no further transactions.
36

<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
NOTE 7 -- INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of investments, excluding
short-term securities for the period ended August 31, 1995 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
High Grade............ $25,700,008 $40,161,630
Short-Intermediate.... 35,717,479 41,650,822
California............ 6,384,350 12,750,646
</TABLE>

On August 31, 1995, the aggregate cost of investments for federal tax
purposes is the same as for financial reporting purposes. The composition of
unrealized appreciation and depreciation of investment securities was as
follows:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION NET
<S> <C> <C> <C>
High Grade............ $ 4,908,793 $552,978 $4,355,815
Short-Intermediate.... 863,464 -- 863,464
California............ 376,082 15,565 360,517
</TABLE>

NOTE 8 -- CONCENTRATION OF CREDIT RISK
High Grade and Short-Intermediate invest in obligations issued by states,
territories and possessions of the United States and by the District of
Columbia, and by their political subdivisions and duly constituted authorities.
The issuers' abilities to meet their obligations may be affected by economic and
political developments in a specific state or region. California invests in
obligations issued by the State of California and by its political subdivisions
and duly constituted authorities. The issuers' abilities to meet their
obligations may be affected by economic and political developments in the State
of California. Certain debt obligations held by each of the Funds are entitled
to the benefit of insurance, standby letters of credit or other guarantees of
banks or other financial institutions.
37

<PAGE>
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND SHAREHOLDERS OF
EVERGREEN HIGH GRADE TAX FREE FUND:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, for Evergreen High Grade Tax Free Fund
(formerly First Union High Grade Tax Free Portfolio) as of August 31, 1995, and
the related statement of operations for the eight-month period ended August 31,
1995, the changes in net assets for the eight-month period ended August 31, 1995
and the year ended December 31, 1994, and the financial highlights for each of
the years or periods from February 21, 1992 (commencement of operations) through
August 31, 1995. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the overall accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Evergreen High Grade Tax Free Fund as of August 31, 1995, and the results of its
operations, changes in its net assets and the financial highlights for each of
the periods listed above, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
October 16, 1995
38

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES AND SHAREHOLDERS OF
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND AND
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
In our opinion, the accompanying Statements of Assets and Liabilities,
including the Statements of Investments, and the related Statements of
Operations and of Changes in Net Assets and the Financial Highlights present
fairly, in all material respects, the financial position of Evergreen
Short-Intermediate Municipal Fund and Evergreen Short-Intermediate
Fund -- California (the "Funds"), two of the Evergreen Municipal Trust
Portfolios, at August 31, 1995, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended, and the financial highlights for 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 Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at August
31, 1995 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
October 24, 1995
FEDERAL INCOME TAX STATUS OF DIVIDENDS (UNAUDITED)
100% of the dividends distributed by High Grade and Short-Intermediate for
the year ended August 31, 1995 are exempt from federal income tax other than
alternative minimum tax. During the year ended August 31, 1995 California
distributed $0.41 per share from net investment income. 100% of these
distributions are exempt from federal income taxes other than alternative
minimum tax. On December 31, 1994, California distributed short-term capital
gains of $0.001 per share which is considered as ordinary income for federal
income tax purposes, and $0.0281 per share as long-term capital gains.
39

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TRUSTEES AND OFFICERS
TRUSTEES:
Mr. Laurence B. Ashkin*
Mr. Foster Bam*
Mr. James S. Howell, Chairman
Mr. Robert J. Jeffries*
Mr. Gerald M. McDonnell
Mr. Thomas L. McVerry
Mr. William W. Pettit
Mr. Russell A. Salton, III M.D.
Mr. Michael S. Scofield
OFFICERS:
John J. Pileggi
President and Treasurer

Joan V. Fiore
Secretary

Sheryl Hirschfeld
Assistant Secretary

Donald E. Brostrom
Assistant Treasurer

Stephen W. St. Clair
Assistant Treasurer
* These individuals are not Trustees for
Evergreen High Grade Tax Free Fund.

<PAGE>

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

536899
11/95