A creature with improved evasion still takes no damage on a successful Reflex saving throw against attacks, but henceforth they take only half damage on a failed save. They do not gain the benefit of improved evasion if they can’t benefit from evasion.
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System Reference Document v3.5 © 2000–2003, Wizards of the Coast, Inc.; Authors Jonathan Tweet, Monte Cook, Skip Williams, Rich Baker, Andy Collins, David Noonan, Rich Redman, Bruce R. Cordell, John D. Rateliff, Thomas Reid, James Wyatt, based on original material by E. Gary Gygax and Dave Arneson.