<PAGE>
KEYSTONE
AMERICA
(Photo of sunflower with house in background)
HARTWELL
EMERGING GROWTH
FUND, INC.
Evergreen Keystone
(logo) FUNDS (logo)
SEMI-ANNUAL REPORT
MARCH 31, 1997
<PAGE>
PAGE 1
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC.
SEEKS CAPITAL APPRECIATION BY INVESTING IN EMERGING GROWTH COMPANIES.
Dear Shareholder:
We would like to take this opportunity to report on your Fund's performance for
the six-month period which ended March 31, l997. Following our letter to you, we
have included a discussion by Adrian Dawes, portfolio manager of your Fund,
about his recent strategy.
PERFORMANCE
Your Fund provided the following total returns for the periods, which ended
March 31, l997:
Class A shares returned -11.07% for the six-month and -0.46% for the
twelve-month periods.
Class B shares returned -11.45% for the six-month and -1.26% for the
twelve-month periods.
Class C shares returned -11.45% for the six-month and -1.22% for the
twelve-month periods.
The Russell 2000 Index, a broad-based index of small-company stocks, returned
- -0.23% and 5.12%, respectively for the same six- and twelve-month periods.
Your Fund's results lagged overall market indices, but were consistent with
the decline in smaller stocks in the market, especially technology. These are
the types of stocks the Fund tends to emphasize. While we were disappointed with
the performance of small-capitalization companies, we believe that management's
strategy of broadening its sector diversification and increasing the number of
stocks in the portfolio have helped improve the Fund's risk and return profile.
This was especially apparent during the first three months of l997, when
small-capitalization company stock prices declined significantly. While your
Fund generally performed in line with small-company stocks, its share price
declined less than most of its mutual fund competitors, which in some cases,
were down more than 25%.
The decline of small-company stocks during the first three months of l997
shows their inherent short-term volatility. While small-company stocks can
sometimes move up and down rapidly in the short-term, it is important to view
their performance in the long-term over a market cycle. Over time, small-cap
stocks have generated very attractive returns for investors.
We continue to see substantial investment opportunities in small-company
stocks. Because of the recent market correction, small-company stocks are very
attractively priced. Relative to large-company stock prices and when compared to
their potential for earnings growth, the small-company stocks that J.M.
Hartwell, LP, monitors are trading at six to seven year price lows. We believe
this undervaluation has the potential to stimulate more interest in small
companies and that it represents opportunity for better Fund returns.
-- CONTINUED--
<PAGE>
PAGE 2
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC.
Your Fund's manager, J.M. Hartwell, LP, has developed a time-tested approach
to investing in small, rapidly growing companies. This strategy includes a
stock-by-stock analysis of company finances, products, management and markets.
It seeks companies with potential earnings growth rates of 30% or more, industry
leadership, and unique or proprietary technology or services. This approach has
weathered a variety of business cycles and market conditions and has delivered
attractive performance for more than twenty-eight years.
We appreciate your continued support of Keystone America Hartwell Emerging
Growth Fund, Inc. If you have any questions or comments about your Fund, we
encourage you to write to us.
Sincerely,
<TABLE>
<S> <C>
/s/ Albert H. Elfner, III /s/ George S. Bissell
Albert H. Elfner, III George S. Bissell
CHAIRMAN CHAIRMAN OF THE BOARD
KEYSTONE INVESTMENT MANAGEMENT COMPANY KEYSTONE FUNDS
</TABLE>
April 1997
<PAGE>
PAGE 3
A Report From
Your Fund Manager
(Photo of Adrian S. Dawes)
ADRIAN S. DAWES, A PRINCIPAL AT J. M. HARTWELL, LP, IS PORTFOLIO MANAGER OF YOUR
FUND. MR. DAWES HAS 11 YEARS OF EXPERIENCE IN NORTH AMERICAN GROWTH STOCK
INVESTING. HE JOINED THE HARTWELL ORGANIZATION IN SEPTEMBER L994 FOLLOWING NINE
YEARS OF SERVICE WITH IVORY & SIME PLC AS HEAD OF U.S. EQUITY RESEARCH. IVORY &
SIME IS A SCOTTISH-BASED GLOBAL INVESTMENT MANAGEMENT FIRM SPECIALIZING IN
GROWTH INVESTING.
TO THE FUND'S SHAREHOLDERS:
During the six month period that ended March 31, l997, small-company stock price
performance did not meet our expectations. While economic fundamentals--
relatively low inflation, moderate interest rates, and solid earnings
growth-- were favorable, investors preferred the stocks of large companies,
leaving small-company stocks on the sidelines. Prices for small-company stocks
peaked in May l996 and have declined since then. While there were a few
short-term rallies, small-company stocks did not rebound to their May highs.
The steepest declines in small-company stocks came in the first three months
of l997, when investors became concerned about the possibility of higher
interest rates. Their concerns were not unfounded. On March 25, l997, the
Federal Reserve Board raised short-term interest rates 0.25%, and this action
triggered a broad sell-off in bonds and stocks.
Despite the challenging environment for small company stocks, we maintained
our focus, as we have since l968, on companies with market capitalizations of
$500 million or less and with potential earnings growth rates of 30% or more. As
always, we evaluated companies on a case-by-case basis before adding them to the
portfolio, and we continued to diversify the portfolio's investments across a
variety of economic sectors. At the end of the six-month period, the portfolio
was composed of 36 companies.
TAKING PROFITS IN LONG-TERM TECHNOLOGY HOLDINGS
The broad area of technology, which we define as software, communications
equipment/service and technology-service/consulting companies-- accounted for
27.9% of net assets on March 31, l997. While the technology portion of the
portfolio was down from its 46.9% level on September 30, l996, it remained the
Fund's largest sector weighting.
During the six months, we took profits in some of the Fund's long-term
technology holdings. In some cases, we believed the stocks had become overpriced
and were falling, discounting the growth prospects of the company. In other
instances, some of the companies' fundamentals had changed, and the reasons we
purchased the stocks altered. You may recognize some of the names that we
eliminated from the portfolio as having been profiled in your shareholder
reports over the past couple of years. These include PICTURETEL, a video
conferencing
FUND PROFILE
OBJECTIVE: Seeks capital appreciation from growth stocks of small companies
with above-average appreciation potential.
COMMENCEMENT OF INVESTMENT OPERATIONS: September 1968
NUMBER OF STOCKS: 36
NET ASSETS: $75.8 million
NEWSPAPER LISTING: "HrtEmGr"
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PAGE 4
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC.
<TABLE>
<CAPTION>
TOP 5 INDUSTRIES
AS OF MARCH 31, 1997
<S> <C>
PERCENTAGE OF
INDUSTRY NET ASSETS
Distribution/Supply 14.3%
Oil/Oil Services 12.2%
Health care services 11.8%
Software/Business 11.3%
Specialty Retailing 9.7%
Technology-Service/Consulting 9.6%
</TABLE>
company, VIASOFT, a software firm, and CISCO SYSTEMS, a large networking
company. We also sold PRECISION RESPONSE, a telecommunications outsourcing and
consulting business.
Additions to the technology area included businesses in the area of electronic
data interchange or electronic commerce. One such company is HARBINGER, a firm
that helps corporations electronically manage their inventories and purchase
orders. Through a specialist computer network, Harbinger facilitates order
handling, billing, and inventory management for its client corporations.
Harbinger is expanding into new markets. It recently acquired Supply Tech, a
private competitor with strong ties in the automotive industry.
SEEKING GROWTH IN A VARIETY OF INDUSTRIES
As we sought to diversify the portfolio's holdings, we uncovered new
opportunities in the health care, retail, and energy sectors.
In the health care area, we added to the number of pharmaceutical companies in
the portfolio. We particularly favored "emerging pharmaceutical companies,"
firms that buy "orphaned" drugs from large drug companies. Typically, the large,
multinational pharmaceutical companies promote only those drugs that have the
potential to exceed $50 million in annual sales. Drugs that fail to reach this
sales level are said to be "orphaned." These "orphaned" drugs are often acquired
by smaller pharmaceutical firms that market them aggressively. Two companies we
favored in this area are JONES MEDICAL and MEDICIS PHARMACEUTICAL. These two
firms have been very successful in adding drugs to their product lines and in
selling them. Outside the pharmaceutical segment, we purchased shares of HENRY
SCHEIN, INC., a dental and medical distribution company. Henry Schein is among
your Fund's top ten holdings.
We also added retail businesses to the portfolio. On March 31, l997, retail
stocks accounted for nearly 10% of net assets, up from 3% on September 30, l996.
We purchased shares of CENTRAL GARDEN AND PET, a distributor of garden and pet
supplies, and LINENS AND THINGS, a home furnishings business that became public
at a very attractive price. In the catalogue services area, we added ABACUS
DIRECT, a direct marketing data base management company. Abacus Direct helps
marketers manage their data base mailing lists to eliminate duplicate names and
addresses and to improve the response from mail solicitations. A typical
response to a mail solicitation is about 1%. Abacus tries to increase that
response rate to 4% to 5%. One of the disappointments in the retail area was the
ALRENCO, a furniture rental company. After expanding its business through
acquisitions, Alrenco failed to meet its earnings estimates. Because Alrenco's
fundamentals deteriorated, we eliminated the stock from the portfolio.
Energy service companies, such as PETROLEUM GEO SERVICES, your Fund's largest
holding, continued to benefit from increased exploration and drilling activities
due to the rising demand for oil and gas around the world. Because there are an
increasing number of trucks on the road, the demand for petroleum in the U.S. is
rising at a 2% to 3% annual rate. Outside the U.S., the need for energy is also
rising as economies in developed and emerging countries continue to expand.
Strong demand has boosted the need for more oil and gas exploration, and the
companies that supply the rigs, boats, crews, and other components of a drilling
operation have seen a surge in the need for their services. During the six-month
period, we added PATTERSON ENERGY and SEACOR HOLDINGS to the portfolio.
<PAGE>
PAGE 5
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
AS OF MARCH 31, 1997
<S> <C> <C>
PERCENTAGE OF
STOCK INDUSTRY NET ASSETS
Petroleum Geo Services Oil/Oil Services 5.68%
McAfee Associates, Inc. Software/Business 5.05%
Computer Horizons Corp. Technology: Service/ 4.92%
Consulting
Henry Schein, Inc. Health care Services 4.60%
Dura Pharmaceuticals, Inc. Pharmaceuticals 4.25%
PhyCor, Inc. Health care Services 4.14%
Linens and Things Specialty retailing 3.71%
Harbinger Corp. Technology: Service/ 3.64%
Consulting
Medicis Pharmaceutical Pharmaceuticals 3.54%
Renal Care Group, Inc. Health care Services 3.15%
</TABLE>
Patterson is a U.S.-based land-drilling company that supplies rigs to companies
that drill for oil and gas. Seacor supplies boats, crews, and equipment to oil
drilling operators. Seacor is benefitting from the recent consolidation of one
of its European competitors, and this should result in rising prices for
Seacor's businesses in Europe, the Far East and Africa.
MANAGING IN A RISING INTEREST RATE ENVIRONMENT
In the financial area, we sold most of the Fund's position in E-TRADE, a stock
we purchased at the beginning of the six-month period. E-trade provides on-line
brokerage trading services to investors. The stock had performed well. However,
we were concerned that its performance could deteriorate in a rising interest
rate environment and a more volatile stock market. Typically, rising interest
rates have a negative effect on brokerage businesses.
ANALYSIS AND OUTLOOK
Small-company stocks went through a difficult period, and while there still may
be more downward momentum, we are optimistic about their long-term prospects.
Historically, small companies have been the engine of wealth creation in the
U.S. economy, and we believe they will continue to be the catalyst that has
helped drive economic growth. As we analyze various companies, we believe there
are several groups of stocks that have been oversold. We think small-company
stocks are very attractively priced and that eventually their relative value
will be noticed by many investors who have ignored small-company stocks over the
past several months.
Going forward, we will continue our strategy of diversifying investments among
a broad range of industry sectors. We will also maintain our approach of
evaluating stocks on their individual merits and of investing in companies with
the potential for rapid earnings growth and that are leaders in their market
niches. Investing in small-company stocks can mean quick changes in stock prices
over the short term. However, in the long-term, investors who have had the
patience to ride out the market's fluctuations have usually been rewarded.
Sincerely,
Adrian Dawes
PORTFOLIO MANAGER
J.M. HARTWELL, LP
<PAGE>
PAGE 6
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC.
THE J.M. HARTWELL, LP
INVESTMENT DISCIPLINE
PURCHASE STRATEGY-- criteria used to evaluate the purchase of a stock for your
Fund:
(Bullet) Bottom-up approach, individual company analysis
(Bullet) Fast growing, emerging companies; minimum 30% earnings growth rate
(Bullet) Durable and consistent earnings growth
(Bullet) Long-term approach to investing; not influenced by short-term price
swings
(Bullet) Under $500 million market capitalization at time of purchase, companies
with an established and reliable earnings record
(Bullet) Strong #1 or close #2 market position within industry
(Bullet) Avoid cyclical businesses or heavily regulated industries
SELL STRATEGY-- criteria used to evaluate when to eliminate a stock owned by the
Fund:
(Bullet) Deteriorating financial situation
(Bullet) Original purchase determinants no longer valid
(Bullet) Price-to-earnings per share ratio exceeds growth rate by 50%
(Bullet) Price decline of greater than 15% with a rise in trading volume without
new information
OVERALL MANAGEMENT STRATEGY
(Bullet) Hands-on approach, meet/in contact with company management regularly
(Bullet) Focus on the limited number of companies that are leaders in their
field
(Bullet) Ignore short-term market fluctuations
(Bullet) Concentrate on companies that will provide above-average capital
appreciation over the long-term
<PAGE>
PAGE 7
(Chart appears below)
Growth of an investment in
Keystone America Hartwell Emerging Growth Fund, Inc.
Class A
<TABLE>
<CAPTION>
In Thousands
3/87 3/89 3/91 3/93 3/95 3/97
<S> <C> <C> <C> <C> <C> <C>
Reinvested Distributions $9,525 $4,930 $ 8,248 $ 9,984 $ 9,340 $ 9,295
Initial Investment 9,525 8,688 14,746 19,450 20,050 24,695
Total Value: $24,695
</TABLE>
A $10,000 investment in Keystone America Hartwell Emerging Growth Fund, Inc.
Class A made on March 31, 1987 with all distributions reinvested was worth
$24,695 on March 31, 1997. Past performance is no guarantee of future results.
[CAPTION]
<TABLE>
<CAPTION>
SIX-MONTH PERFORMANCE AS OF MARCH 31, 1997
<S> <C> <C> <C>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Total returns* -11.07 % -11.45 % -11.45 %
Net asset value 9/30/96 $28.62 $27.73 $27.89
3/31/97 $23.07 $22.19 $22.33
Dividends None None None
Capital gains $ 2.64 $ 2.64 $ 2.64
</TABLE>
* BEFORE DEDUCTING CONTINGENT DEFERRED SALES CHARGE (CDSC).
[CAPTION]
<TABLE>
<CAPTION>
HISTORICAL RECORD AS OF MARCH 31, 1997
<S> <C> <C> <C>
CUMULATIVE TOTAL RETURNS CLASS A CLASS B CLASS C
<S> <C> <C> <C>
1-year w/o sales charge -0.46 % -1.26% -1.22%
1-year -5.19 % -5.72% -2.11%
5-year 27.09 % -- --
10-year 146.85 % --
Life of Class -- 11.57% 14.67%
AVERAGE ANNUAL TOTAL RETURNS
1-year w/o sales charge -0.46 % -1.26% -1.22%
1-year -5.19 % -5.72% -2.11%
5-year 4.91 % -- --
10-year 9.46 % --
Life of Class -- 3.03% 3.80%
</TABLE>
Class A shares were introduced on September 10, 1968. Performance is reported at
the current maximum front-end sales charge of 4.75%.
Class B shares were introduced on August 2, 1993. Shares purchased after
January 1, 1997 are subject to a contingent deferred sales charge (CDSC) that
declines from 5% to 1% over six years after the month purchased. Performance
assumes that shares were redeemed after the end of a one-year holding period and
reflects the deduction of a 5% CDSC.
Class C shares were introduced on August 2, 1993. Performance reflects the
return you would have received on shares held for at least one year and
redeeming after the end of the period and reflects the deduction of a 1% CDSC.
The investment return and principal value will fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost. Performance for
each class will differ.
You may exchange your shares by phone or in writing. You may also exchange
funds using Keystone's Automated Response Line (KARL). The Fund reserves the
right to change or terminate the exchange offer.
<PAGE>
PAGE 8
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC.
PORTFOLIO OF INVESTMENTS-- MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS (91.8%)
BIOTECHNOLOGY (1.0%)
Arqule, Inc. 50,000 $ 775,000
CATALOG SERVICES (1.0%)
Abacus Direct Corp. 35,000 743,750
COMMUNICATIONS EQUIPMENT/SERVICE (7.0%)
Xcellenet, Inc. 106,000 1,749,000
National Techteam, Inc. 120,000 1,860,000
PMT Services, Inc 123,750 1,361,250
Zoran Corp. 20,000 322,500
5,292,750
DISTRIBUTION/SUPPLY (14.3%)
American Medserve Corp. 110,000 1,292,500
Capstone Pharmacy Services, Inc. 150,000 1,650,000
Gulf South Medical Supply, Inc. 110,000 2,131,250
Jones Medical Industries, Inc (a) 94,500 2,268,000
Henry Schein, Inc. 120,000 3,480,000
10,821,750
FINANCIAL (3.3%)
Amresco, Inc. 120,000 2,010,000
E-Trade Group, Inc. 25,000 450,000
2,460,000
HEALTHCARE INFORMATION SERVICES (0.6%)
Medirisk, Inc 60,000 465,000
HEALTHCARE SERVICES (11.8%)
Cytyc, Corp. 100,000 1,875,000
MedQuist, Inc. 70,000 1,540,000
PhyCor, Inc. 115,000 3,133,750
Renal Care Group, Inc. 75,000 2,381,250
8,930,000
LASER/ELECTRO-OPTIC SYSTEMS (2.2%)
Uniphase Corp. 45,000 1,665,000
PHARMACEUTICALS (7.8%)
Dura Pharmaceuticals, Inc. 90,000 3,217,500
Medicis Pharmaceutical Corp.
Class A 90,000 2,677,500
5,895,000
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL/OIL SERVICES (12.2%)
Patterson Energy, Inc. 55,000 $ 1,519,375
Petroleum Geo Services-- ADR 100,000 4,300,000
Seacor Holding, Inc. 28,700 1,539,037
Trico Marine Services, Inc. 40,000 1,900,000
9,258,412
SOFTWARE/BUSINESS (11.3%)
Harbinger Corp. 125,000 2,750,000
Legato Systems, Inc. 120,000 2,010,000
McAfee Assoc, Inc 86,250 3,816,563
8,576,563
SPECIALTY RETAILING (9.7%)
Central Garden & Pet Co. 120,000 2,175,000
Linens 'N Things, Inc. 120,000 2,805,000
Petco Animal Supplies, Inc. 100,000 2,350,000
7,330,000
TECHNOLOGY: SERVICES/CONSULTING (9.6%)
BTG, Inc. 50,000 875,000
Claremont Technology Corp. 50,000 1,206,250
Computer Horizons Corp. 120,000 3,720,000
IntelliQuest Information Group,
Inc 40,000 560,000
Vanstar Corp. 110,000 907,500
7,268,750
TOTAL COMMON STOCKS
(COST-- $65,869,821) 69,481,975
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENTS (10.7%)
State Street Bank & Trust Co.,
5.00%, purchased 3/31/97,
maturing 4/1/97
(Collateralized by $8,244,301
U.S. Treasury Bond, 9.125%
due 5/15/18),(Cost $8,079,000) 8,079,000 8,079,000
TOTAL REPURCHASE AGREEMENTS
(COST-- $8,079,000) 8,079,000
</TABLE>
<PAGE>
PAGE 9
PORTFOLIO OF INVESTMENTS-- MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET
VALUE
<S> <C>
TOTAL INVESTMENTS
(COST-- $73,948,821) (102.5%) (B) $77,560,975
OTHER ASSETS AND LIABILITIES (-2.5%) (1,921,084)
NET ASSETS (100%) $75,639,891
</TABLE>
(a) All common stocks are non-income producing except as noted.
(b) The cost of investments for federal income tax purposes amounted to
$73,948,821. Gross unrealized appreciation and depreciation on investments,
based on identified tax cost, at March 31, 1997, are as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $11,756,628
Gross unrealized depreciation 8,144,474
Net unrealized appreciation $ 3,612,154
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 10
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS-- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, 1997 YEAR ENDED SEPTEMBER 30,
(UNAUDITED) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $28.62 $26.28 $21.41 $28.56 $20.80 $22.91
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment loss (0.12) (0.30) (0.38) (0.37) (0.34) (0.26)
Net gain (loss) on investments (2.79) 2.89 8.14 (4.43) 8.10 0.05
Total from investment operations (2.91) 2.59 7.76 (4.80) 7.76 (0.21)
LESS DISTRIBUTIONS FROM
Net realized gain on investments (2.64) (0.25) (2.89) (2.35) 0 (1.90)
Total distributions (2.64) (0.25) (2.89) (2.35) 0 (1.90)
NET ASSET VALUE END OF PERIOD $23.07 $28.62 $26.28 $21.41 $28.56 $20.80
Total return (a) (11.07%) 9.96% 37.20% (17.86%) 37.31% (1.12%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses (c) 1.31%(b) 1.66% 1.81% 1.80% 1.60% 1.63%
Total expenses, excluding indirect expenses 1.30%(b) 1.64% 1.78% N/A N/A N/A
Net investment loss (0.88%)(b) (1.10%) (1.58%) (1.62%) (1.34%) (1.18%)
Portfolio turnover rate 66% 134% 164% 156% 155% 152%
AVERAGE COMMISSION RATE PAID $0.0600 $0.0453 N/A N/A N/A N/A
NET ASSETS END OF PERIOD (THOUSANDS) $ 68,068 $89,726 $111,791 $120,689 $195,708 $152,714
</TABLE>
Per share calculations based on weighted average shares outstanding.
(a) Excluding applicable sales charges.
(b) Annualized.
(c) The ratio of total expenses to average net assets includes indirectly paid
expenses for the six months ended March 31, 1997 and for the years ended
September 30, 1996 and 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 11
FINANCIAL HIGHLIGHTS-- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
AUGUST 2, 1993
SIX MONTHS (DATE OF INITIAL
ENDED PUBLIC OFFERING)
MARCH 31, 1997 YEAR ENDED SEPTEMBER 30, TO
(UNAUDITED) 1996 1995 1994 SEPTEMBER 30, 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $27.73 $25.69 $21.22 $28.56 $26.69
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment loss (0.22) (0.49) (0.56) (0.49) (0.05)
Net gain (loss) on investments (2.68) 2.78 7.92 (4.50) 1.92
Total from investment operations (2.90) 2.29 7.36 (4.99) 1.87
LESS DISTRIBUTIONS FROM
Net realized gain on investments (2.64) (0.25) (2.89) (2.35) 0
Total distributions (2.64) (0.25) (2.89) (2.35) 0
NET ASSET VALUE END OF PERIOD $22.19 $27.73 $25.69 $21.22 $28.56
Total return (a) (11.45%) 9.01% 35.61% (18.58%) 7.01%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses (c) 2.13%(b) 2.46% 2.58% 2.49% 3.70%(b)
Total expenses, excluding indirect expenses 2.12%(b) 2.43% 2.55% N/A N/A
Net investment loss (1.70%)(b) (1.89%) (2.34%) (2.27%) (3.42%)(b)
Portfolio turnover rate 66% 134% 164% 156% 155%
AVERAGE COMMISSION RATE PAID $0.0600 $0.0453 N/A N/A N/A
NET ASSETS END OF PERIOD (THOUSANDS) $ 5,727 $ 6,953 $6,970 $3,801 $ 823
</TABLE>
Per share calculations based on weighted average shares outstanding.
(a) Excluding applicable sales charges.
(b) Annualized.
(c) The ratio of total expenses to average net assets includes indirectly paid
expenses for the six months ended March 31, 1997 and for the years ended
September 30, 1996 and 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 12
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS-- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
AUGUST 2, 1993
SIX MONTHS (DATE OF INITIAL
ENDED PUBLIC OFFERING)
MARCH 31, 1997 YEAR ENDED SEPTEMBER 30, TO
(UNAUDITED) 1996 1995 1994 SEPTEMBER 30, 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $27.89 $25.80 $21.26 $28.56 $26.69
Income (loss) from investment operations
Net investment loss (0.22) (0.50) (0.56) (0.47) (0.08)
Net gain (loss) on investments (2.70) 2.84 7.99 (4.48) 1.95
Total from investment operations (2.92) 2.34 7.43 (4.95) 1.87
LESS DISTRIBUTIONS FROM
Net realized gain on investments (2.64) (0.25) (2.89) (2.35) 0
Total distributions (2.64) (0.25) (2.89) (2.35) 0
NET ASSET VALUE END OF PERIOD $22.33 $27.89 $25.80 $21.26 $28.56
Total return (a) (11.45%) 9.17% 35.89% (18.42%) 7.01%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses (c) 2.12%(b) 2.46% 2.58% 2.47% 3.09%(b)
Total expenses, excluding indirect expenses 2.11%(b) 2.43% 2.55% N/A N/A
Net investment loss (1.70%)(b) (1.90%) (2.37%) (2.25%) (2.80%)(b)
Portfolio turnover rate 66% 134% 164% 156% 155%
AVERAGE COMMISSION RATE PAID $0.0600 $0.0453 N/A N/A N/A
NET ASSETS END OF PERIOD (THOUSANDS) $ 1,845 $ 2,368 $2,400 $1,679 $ 297
</TABLE>
Per share calculations based on weighted average shares outstanding.
(a) Excluding applicable sales charges.
(b) Annualized.
(c) The ratio of total expenses to average net assets includes indirectly paid
expenses for the six months ended March 31, 1997 and for the years ended
September 30, 1996 and 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 13
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
ASSETS
Investments at market value
(identified cost-- $65,869,821) $69,481,975
Repurchase Agreements at market value
(identified cost-- 8,079,000) 8,079,000
Total investments at market value
(identified cost-- 73,948,821) 77,560,975
Cash 239
Receivable for:
Fund shares sold 51,623
Dividends and interest 3,013
Other assets 54,499
Total assets 77,670,349
LIABILITIES
Payable for:
Investments purchased 1,644,540
Fund shares redeemed 375,692
Accrued reimbursable accounting expenses 6,900
Other accrued expenses 3,326
Total liabilities 2,030,458
NET ASSETS $75,639,891
NET ASSETS REPRESENTED BY
Paid-in capital $51,249,419
Accumulated net realized gains on investments 21,220,834
Accumulated net investment loss (442,516)
Net unrealized appreciation on investments 3,612,154
Total net assets $75,639,891
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
CLASS A SHARES
Net assets of $68,067,6132,950,053 shares
outstanding $23.07
Offering price per share ($23.070.9525)
(based on a sales charge of 4.75% of the
offering price at March 31, 1997) $24.22
CLASS B SHARES
Net assets of $5,727,178258,119 shares
outstanding $22.19
CLASS C SHARES
Net assets of $1,845,10082,632 shares
outstanding $22.33
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C> <C>
INVESTMENT INCOME
Dividend $ 1,890
Interest 189,574
Total income 191,464
EXPENSES
Management fee $314,895
Distribution Plan expenses 121,619
Shareholder services 111,400
Reimbursable accounting expenses 14,272
Custodian fee expense 30,398
Auditing and legal 16,291
Printing 15,908
Registration fees 10,348
Miscellaneous expenses 3,930
Total expenses 639,061
Less: Expenses paid indirectly (5,081)
Net expenses 633,980
Net investment loss (442,516)
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain on investments 23,418,747
Net change in unrealized
appreciation on investments (32,388,886)
Net realized and unrealized loss on
investments (8,970,139)
Net decrease in net assets
resulting from operations ($9,412,655)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 14
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, 1997 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1996
<S> <C> <C>
OPERATIONS
Net investment loss ($442,516) ($1,261,505)
Net realized gain on investments 23,418,747 8,826,136
Net change in unrealized appreciation or depreciation on investments (32,388,886) 1,006,642
Net increase (decrease) in net assets resulting from operations (9,412,655) 8,571,273
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAINS ON INVESTMENTS
Class A Shares (7,928,786) (1,044,733)
Class B Shares (638,014) (72,730)
Class C Shares (216,862) (23,366)
Total distributions to shareholders (8,783,662) (1,140,829)
CAPITAL SHARE TRANSACTIONS (NOTE 2)
Proceeds from shares sold:
Class A Shares 10,080,064 19,954,246
Class B Shares 904,487 2,626,903
Class C Shares 224,032 839,389
Payments for shares redeemed:
Class A Shares (22,435,485) (49,684,836)
Class B Shares (1,313,523) (3,254,694)
Class C Shares (487,145) (1,039,505)
Net asset value of shares issued in reinvestment of distributions:
Class A Shares 7,042,618 927,048
Class B Shares 576,750 66,202
Class C Shares 196,530 21,496
Net decrease in net assets resulting from capital share transactions (5,211,672) (29,543,751)
Total decrease in net assets (23,407,989) (22,113,307)
NET ASSETS:
Beginning of period 99,047,880 121,161,187
End of period (including accumulated net investment loss of $442,516 and
$0, respectively) $ 75,639,891 $ 99,047,880
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 15
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1.) SIGNIFCANT ACCOUNTING POLICIES
Keystone America Hartwell Emerging Growth Fund, Inc. (the "Fund") is a New York
Corporation for which Keystone Investment Management Company ("Keystone") is the
Investment Adviser and Manager. Keystone was formerly a wholly-owned subsidiary
of Keystone Investments, Inc. ("KII") and is currently a subsidiary of First
Union Corporation ("First Union").
The Fund is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as a non-diversified, open-end investment company. The Fund
offers several classes of shares. The Fund's investment objective is capital
appreciation. The Fund pursues this objective by investing primarily in small
and medium-sized companies in a relatively early stage of development that are
principally traded in the over-the-counter market.
J.M. Hartwell Limited Partnership ("Hartwell") has acted as subadviser to the
Fund pursuant to a Sub Advisory Agreement with Keystone. Subject to the
supervision of the Fund's Board of Directors and Keystone, Hartwell provides the
Fund and Keystone with investment research, advice, information, and securities
recommendations.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the Fund.
A. VALUATION OF SECURITIES
Investments are usually valued at the closing sales price, or in the absence of
sales and for over-the-counter securities, the mean of the bid and asked prices.
Securities for which valuations are not available from an independent pricing
service (including restricted securities) are valued at fair value as determined
in good faith according to procedures established by the Board of Directors.
Short-term investments with remaining maturities of 60 days or less are valued
at amortized cost, which approximates market value. Short-term securities with
greater than 60 days to maturity are valued at market value.
B. REPURCHASE AGREEMENTS
Securities pledged as collateral for repurchase agreements are held by the
custodian on the Fund's behalf. The Fund monitors the adequacy of the collateral
daily and will require the seller to provide additional collateral in the event
the market value of the securities pledged falls below the carrying value of the
repurchase agreement.
C. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes
amortization of discounts and premiums. Dividend income is recorded on the
ex-dividend date.
D. FEDERAL INCOME TAXES
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Fund is relieved of any federal income tax liability by
distributing all of its net taxable investment income and net taxable capital
gains, if any, to its shareholders. The Fund also intends to avoid excise tax
liability by making the required distributions under the Code. Accordingly, no
provision for federal income or excise taxes is required.
E. DISTRIBUTIONS
The Fund distributes net investment income and net capital gains, if any, at
least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
<PAGE>
PAGE 16
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC.
Income and capital gains distributions to shareholders are determined in
accordance with Federal income tax regulations, which may differ from generally
accepted accounting principles. The tax treatment of such distributions for the
calendar year will be reported to shareholders prior to February 1, 1998.
F. CLASS ALLOCATIONS
Class A shares are offered at a public offering price which includes a maximum
sales charge of 4.75% payable at the time of purchase. Prior to January 1, 1997,
Class A shares were offered at a public offering price which included a maximum
sales charge of 5.75%. Class B shares are sold subject to a contingent deferred
sales charge that is payable upon redemption and decreases depending on how long
the shares have been held. Class B shares purchased on or after January 1, 1997
will convert to Class A shares after seven years. Class B shares purchased
between June 1, 1995 and January 1, 1997 that have been outstanding for eight
years will automatically convert to Class A shares. Class B shares purchased
prior to June 1, 1995 that have been outstanding for seven years will
automatically convert to Class A shares. Class C shares are sold subject to a
contingent deferred sales charge payable on shares redeemed within one year of
purchase.
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the relative
net assets of each class. Currently, class specific expenses are limited to
expenses incurred under the Distribution Plans for each class.
(2.) CAPITAL SHARE TRANSACTIONS
Thirty million shares each of Class A, B, C, E, and F and one-hundred million
shares of Class D of the Fund, each with a par value of $1.00, are authorized
for issuance. Currently, only Class A, B, and C shares are outstanding. The
classes have identical voting, dividend, liquidation and other rights, except
that Class A, B and C shares bear distribution expenses (see Note 4) and have
exclusive voting rights with respect to their distribution plans. Transactions
in shares of the Fund were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, 1997 YEAR ENDED
CLASS A (UNAUDITED) SEPTEMBER 30, 1996
<S> <C> <C>
Shares sold 377,732 691,682
Shares redeemed (837,394) (1,845,621)
Shares issued in
reinvestment of
distributions 274,245 35,904
Net decrease (185,417) (1,118,035)
CLASS B
Shares sold 34,698 105,037
Shares redeemed (50,658) (128,181)
Shares issued in
reinvestment of
distributions 23,293 2,628
Net increase
(decrease) 7,333 (20,516)
CLASS C
Shares sold 8,748 32,909
Shares redeemed (18,923) (41,894)
Shares issued in
reinvestment of
distributions 7,886 848
Net decrease (2,289) (8,137)
</TABLE>
(3.) SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) for the six months ended March 31, 1997, were $54,885,629
and $61,659,562, respectively.
(4.) DISTRIBUTION PLANS
The Fund bears some of the costs of selling its shares under a Distribution Plan
(the "Plan") adopted pursuant to Rule 12b-1 under the 1940 Act. Under the Plan,
the Fund pays its principal underwriter amounts which are calculated and paid
daily.
On December 11, 1996, the Fund entered into a principal underwriting agreement
with Evergreen
<PAGE>
PAGE 17
Keystone Distributors, Inc. (Formerly, Evergreen Fund Distributor, Inc.)
("EKD"), a wholly owned subsidiary of BISYS Group, Inc. Prior to December 11,
1996, Evergreen Keystone Investment Services, Inc. (Formerly Keystone Investment
Distributors Company) ("EKIS"), a wholly owned subsidiary of Keystone, served as
the Fund's principal underwriter.
The Class A Distribution Plan provides for expenditures, which are currently
limited to 0.25% annually of the average daily net assets of the Class A shares,
to pay expenses related to the distribution of Class A shares. During the six
months ended March 31, 1997 the Fund paid $77,224 to EKIS and/or EKD under the
Class A Distribution Plan.
Pursuant to the Fund's Class B and Class C Distribution Plans, the Fund pays a
distribution fee, which may not exceed 1.00% annually of the average daily net
assets of Class B and Class C shares, respectively. Of that amount, 0.75% is
used to pay distribution expenses and 0.25% is used to pay service fees. During
the six months ended March 31, 1997, the Fund paid or accrued $33,268 and
$11,127 under the Class B and Class C Distribution Plans, respectively.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Directors or by vote of a majority of the outstanding voting shares
of the respective class. However, after the termination of any Distribution
Plan, and subject to the discretion of the Independent Directors, payments to
EKIS and/or EKD may continue as compensation for services that had been earned
while the Distribution Plan was in effect.
EKD intends, but is not obligated, to continue to pay distribution costs that
exceed the current annual payments from the Fund. EKD intends to seek full
payment of such distribution costs from the Fund at such time in the future as,
and to the extent that, payment thereof by the Fund would be within permitted
limits.
At March 31, 1997, total unpaid distribution costs were $446,040 and $206,456
for Class B and Class C Shares respectively. Contingent deferred sales charges
paid by redeeming shareholders are paid to EKD and/or EKIS.
(5.) INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
The Fund pays Keystone a basic monthly advisory fee calculated by applying
percentage rates, starting at 1.00% and declining as net assets increase, to
0.65% to the Fund's average daily net asset value during the latest 12 months (a
moving average method). The basic advisory fee of the Fund is subject to an
incentive adjustment, by which the basic fee may be increased or decreased by up
to 1/2 of 1.00% of the average daily net asset value of the Fund during the
latest 12 months (a moving average method), depending upon the performance of
the Fund relative to the Standard and Poor's Index of 500 Stocks ("S&P 500").
During the six months ended March 31, 1997, the Fund paid or accrued $314,895 in
management fees representing 0.68% (annualized) of average daily net assets. Of
that amount $107,862 was paid or accrued to Hartwell.
During the six months ended March 31, 1997, the Fund paid or accrued $14,272
to Keystone for certain accounting services. The Fund paid or accrued $111,400
to Evergreen Keystone Service Company (formerly Keystone Investor Resource
Center, Inc.), a wholly-owned subsidiary of Keystone, for services rendered as
the Fund's transfer and dividend disbursing agent.
Officers of the Fund and affiliated Directors receive no compensation directly
from the Fund.
<PAGE>
PAGE 18
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC.
(6.) EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an expense offset arrangement with its custodian. For
the six months ended March 31, 1997, the Fund incurred total custody fees of
$30,398 and received a credit of $5,081 pursuant to this expense offset
arrangement, resulting in a net custody expense of $25,317. The assets deposited
with the custodian under this expense offset arrangement could have been
invested in income-producing assets.
<PAGE>
PAGE 19
OTHER INFORMATION
The Fund held a special meeting of shareholders on Monday, December 9, 1996. On
October 18, 1996, the record date for the meeting, the Fund had 3,407,882 shares
outstanding, of which 2,526,854 shares were represented at the meeting. The
votes at the meeting were as follows:
1. TO ELECT THE FOLLOWING TRUSTEES:
<TABLE>
<CAPTION>
AFFIRMATIVE WITHHOLD
<S> <C> <C>
Frederick Amling 2,436,507 90,347
Laurence B. Ashkin 2,434,665 92,189
Charles A. Austin III 2,436,507 90,347
Foster Bam 2,436,145 90,709
George S. Bissell 2,432,860 93,994
Edwin D. Campbell 2,436,507 90,347
Charles F. Chapin 2,436,353 90,501
K. Dun Gifford 2,436,507 90,347
James S. Howell 2,434,554 92,299
Leroy Keith, Jr. 2,436,507 90,347
F. Ray Keyser, Jr. 2,435,121 91,733
Gerald M. McDonell 2,435,859 90,995
Thomas L. McVerry 2,434,616 92,238
William Walt Pettit 2,433,603 93,251
David M. Richardson 2,436,507 90,347
Russell A. Salton, III MD 2,434,694 92,159
Michael S. Scofield 2,434,412 92,442
Richard J. Shima 2,436,353 90,501
Andrew J. Simons 2,432,409 94,445
</TABLE>
2. TO APPROVE AN INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT BETWEEN THE FUND
AND KEYSTONE INVESTMENT MANAGEMENT COMPANY.
<TABLE>
<S> <C>
Affirmative 2,355,916
Against 62,908
Abstain 108,030
</TABLE>
3. TO APPROVE A SUB-ADVISORY AGREEMENT BETWEEN KEYSTONE INVESTMENT MANAGEMENT
COMPANY AND J.M. HARTWELL LIMITED PARTNERSHIP:
<TABLE>
<S> <C>
Affirmative 2,344,831
Against 68,855
Abstain 113,168
</TABLE>
4. TO RATIFY THE SELECTION OF KPMG PEAT MARWICK LLP AS THE INDEPENDENT PUBLIC
ACCOUNTANTS OF THE FUND FOR THE CURRENT FISCAL YEAR:
<TABLE>
<S> <C>
Affirmative 2,387,316
Against 43,634
Abstain 95,904
</TABLE>
<PAGE>
KEYSTONE AMERICA
FAMILY OF FUNDS
(diamond)
Balanced Fund II
California Insured Tax Free Fund
Capital Preservation and Income Fund
Florida Tax Free Fund
Fund for Total Return
Fund of the Americas
Global Opportunities Fund
Global Resources and Development Fund
Government Securities Fund
Hartwell Emerging Growth Fund, Inc.
Intermediate Term Bond Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Omega Fund
Pennsylvania Tax Free Fund
Small Company Growth Fund II
Strategic Income Fund
Tax Free Income Fund
World Bond Fund
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied by
the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you invest
or send money. For a free prospectus on other Evergreen Keystone funds, contact
your financial adviser or call Evergreen Keystone.
Evergreen Keystone
(logo) FUNDS (logo)
P.O. Box 2121
Boston, Massachusetts 02106-2121
HEGF-REV01 5/97 (Recycle logo)
8.8M
