KEYSTONE
FAMILY OF FUNDS
[diamond]
Balanced Fund (K-1)
Diversified Bond Fund (B-2)
Growth and Income Fund (S-1)
High Income Bond Fund (B-4)
International Fund Inc.
Liquid Trust
Mid-Cap Growth Fund (S-3)
Precious Metals Holdings, Inc.
Quality Bond Fund (B-1)
Small Company Growth Fund (S-4)
Strategic Growth Fund (K-2)
Tax Free 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 prospec-
tus. 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.
{GRAPHIC} Evergreen Keystone Funds
P.O. Box 2121
Boston Massachusetts 02106-2121
KEYSTONE
{GRAPHIC} LEAVES
GROWTH AND
INCOME FUND (S-1)
{GRAPHIC} Evergreen Keystone Funds
SEMIANNUAL REPORT
FEBRUARY 28, 1997
S1-R-4/97
20.1M {RECYCLED LOGO}
<PAGE>
PAGE 1
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Keystone Growth and Income Fund (S-1)
Seeks growth of capital and long-term growth of income.
Dear Shareholder:
We are pleased to report to you on the activities of Keystone Growth and
Income Fund (S-1) for the six-month period which ended February 28, 1997.
Following our letter to you, we have included a discussion with your Fund's
manager and complete financial information.
Performance
Your Fund produced a total return of 18.22% for the six months and 21.56% for
the twelve months which ended February 28, 1997. The benchmark Standard &
Poor's 500 Stock Index (S&P 500) returned 22.53% and 26.15% for the same six-
and 12-month periods.
We believe your Fund successfully met its objective of growth of capital as
it delivered strong double-digit returns. Although the S&P 500 Stock Index
delivered higher total returns for the corresponding periods, those results
were attributed to a handful of large companies, and not a cross-section of
the large-capitalization stocks in which your Fund invests.
A hard-to-predict market
The Fund experienced a combination of conflicting market influences during
the six-month period. On the positive side, it owned some of the market's
best performing stocks. General Electric, Coca-Cola and Intel were among the
Fund's top ten holdings at the end of February 1997. These companies, and a
few other large-capitalization brand-name stocks, led the market during the
six months.
Despite owning these successful investments, your Fund did not escape market
turbulence, especially in late January and February 1997, at which time the
Fund's gains were set back by a series of unexpected downturns.
The events of these first two months of 1997 provided a good illustration of
how unpredictable market events were during the six-month period. The
calendar year started with powerful stock-market momentum, bolstered by
substantial inflows of money into stock mutual funds. Investors were
overwhelmingly choosing large-cap mutual funds, pushing the S&P 500 up more
than 9% by the third week of January. Not surprisingly, stock investors were
unable to digest an ascent that steep and began taking profits. The market
correction continued through February, spilling into telecommunications,
electronics, semiconductors and energy services, and affecting some of the
dominant, brand-name companies, like Cisco Systems or U.S. Robotics, which
had been the market favorites up to that point.
Although your Fund anticipated a correction in stock prices and took profits
in many of its telecommunications and oil stocks in the fall of 1997, the
modest weightings that remained felt the impact of the downturn. The February
correction held back your Fund's performance for the six-month period which
ended on February 28, 1997.
(continued)
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PAGE 2
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Keystone Growth and Income Fund (S-1)
Investment strategy
During the six-month period, the Fund maintained its strategy of emphasizing
stocks of leading growth companies. About two-thirds of the portfolio was
invested in highly visible, core-growth stocks, such as General Electric and
the other names which we mentioned above. Throughout the six-month period,
the portfolio was overweighted relative to the S&P 500 in interest-sensitive
stocks, including finance, insurance, and real estate investment trust
(REITs). We felt that the acquisitions in banks, combined with aggressive
restructuring, cost-cutting, and stock buy-backs, would result in higher
profit margins and steady earnings growth. Drugs and health care were also
among the Fund's top ten industries.
Outlook
Looking ahead, we are cautiously optimistic about investing in stocks,
especially for the long term. On March 25, shortly after the end of the
fiscal period, the Federal Reserve Board raised short-term interest rates by
one-quarter of one percent. At this writing, the possibility exists for
further increases in interest rates. In the short term, it is possible that
the stock market may continue to react dramatically to interest rate
increases and experience further consolidation. As we have said in past
reports, such corrections are normal and can be healthy. We believe that the
Federal Reserve is attempting to anticipate and control a re-emergence of
inflation. Up until now, the stock market's strong performance has been
fueled by moderate, balanced economic growth, relatively low inflation, and
rising corporate profits. This is a very friendly environment for the stock
market. If the Federal Reserve is successful, it can prolong both these
favorable conditions and the upward movement of the stock market.
Sincerely,
Albert H. Elfner, III
Chairman
Keystone Investment
Management Company
George S. Bissell
Chairman of the Board
Keystone Funds
{GRAPHIC] Elfner {GRAPHIC} Bissell
Albert H. Elfner, III George S. Bissell
<PAGE>
PAGE 3
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A Discussion With
Your Fund Manager
Judith A. Warners is Portfolio Manager of Keystone Growth and Income Fund
(S-1). A member of the Security Analyst Society, Ms. Warners has more than 17
years of investment management experience. She holds a BA from Curry College
and an MBA from Babson College. She is a member of the Keystone core equity
team.
Q What was the environment like for growth stocks during the six-month
period which ended February 28, 1997?
A The economic conditions were generally very favorable. The economy was
growing at a moderate rate, and both inflation and interest rates were
stable. Investors felt relatively confident that the Federal Reserve would
not raise interest rates before the presidential elections in November. It
seemed that the summer correction in technology stocks created a need among
investors to set a steadier course. Consequently, the "blue-chip" style came
back into vogue. The S&P 500 Stock Index continued to advance through the
months of September, October, and November, led by such corporate stalwarts
as Intel and General Electric. The rally was interrupted in December by the
mounting fears of rising interest rates, but it resumed in January 1997, when
it became apparent the rates would not rise in the immediate future. However,
at the end of January and through February, the market faltered again.
Q What was the reason for the apparent volatility of stocks during the
six-month period?
A The uncommon strength of the stock rally was one reason. People could not
digest the S&P 500 advancing several percentage points in one month. The
correction in December followed a 7.59% advance of the S&P 500 in November.
Similarly, the February downturn began in late January, after the S&P 500
advanced more than 9%.
Another reason for investors' uncertainty was the lack of uniformity in the
market. Some sectors, particularly small- and mid-cap technology stocks,
never fully recovered from the July correction. Investors turned to the
highly liquid, large-capitalization companies, and those stocks had a
considerable performance advantage over small-company stocks during the
six-month period.
Q How did you manage the Fund in this environment?
A We maintained our strategy of investing in stocks of established,
high-quality companies. About two-thirds of the portfolio was invested in
highly visible core growth names, such as General Electric, Coca-Cola, Intel
and Merck&Co. For the remaining portion, we explored sectors we found
promising, like oil services and real estate investment trusts (REITs). These
were good investments for the Fund.
Q In addition to the core growth companies, did you pursue any other
themes?
A We looked for turnaround situations, where we believed earnings could
accelerate because of some visible catalysts for change, like selling off
businesses,
<PAGE>
PAGE 4
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Keystone Growth and Income Fund (S-1)
Your Fund Invests In
(bullet) Established companies with attractive earnings growth.
(bullet) Companies with experienced management, a dominant market position
and solid balance sheets.
(bullet) Turnaround situations and undervalued stocks.
(bullet) Primarily large and mid-sized companies, such as those contained in
the S&P 500 and the S&P 400 Mid-Cap indexes.
(bullet) U.S. stocks and stocks of established foreign companies.
setting new performance goals, or cutting costs. We bought Manpower, the
largest non-governmental employment services company in the world. It became
attractive to us after a sell-off following a severe downturn in the French
employment environment. Another example was Federal Mogul, an auto-parts
company that reorganized after a period of major underperformance. It brought
in new management, shed unprofitable businesses and created ambitious
performance standards and return goals.
Another area we explored were companies that were takeover candidates. MFS
Communications was a success story. We held the name not only because the
company was in a rapidly growing market and using the right strategies, but
also in anticipation that they could attract a buyer, and that's precisely
what occurred. They were taken over by Worldcom.
Finally, to help enhance the Fund's yield, we bought some convertible bonds,
and those securities did well.
Q Did you make any major changes to the portfolio?
A We've had no major shifts. We felt the bull market has run up high
returns, but these have been concentrated among few large performers.
However, in the fall we increased our natural gas holdings somewhat. We felt
there were opportunities in natural gas and in oil services. Conversely, we
reduced our holdings in technology in favor of energy stocks. Drugs and
health care remained among our larger holdings. Our top industry sectors were
interest-sensitive stocks, including finance, insurance and REITS, comprising
about 21% of the portfolio. We were overweighted in finance relative to the
S&P 500 during the six-month period. Within the finance sector, we no longer
concentrated on large banks, some of which we felt had become overvalued, but
instead diversified across financial services, brokerage insurance, and
regional banks.
Q Are you concerned about the potential volatility of interest-sensitive
holdings if interest rates were to go up in 1997?
A The direction of interest rates is a factor in the performance of these
stocks, but that had little impact on our decision to buy them. We liked
their mix of businesses, profitability, earnings outlooks, managements,
market shares and new sensitivity to shareholder values. We felt these were
healthy, well-run companies, not an interest-rate play. These stocks have
continued to surprise us with their strong earnings and positive performance,
despite market volatility. If interest rates were to rise significantly, we
would need to reassess each company on its own merit, as we do with every
other stock we own.
Q Can you provide examples of success stories?
A There were quite a few, led by Intel. Intel's total return for the 12
months which ended on February 28, 1997 was an astounding 167.09%. And that
was after the February correction, when the stock lost about 20 points. The
chart on the following page shows the Fund's top 10 holdings at the end of
February. All 10 were successful investments, as they met or exceeded our
expectations.
Top 5 Industries
as of February 28, 1997
Percentage of
Industry net assets
- ----------------------------
Finance 17.1%
- ----------------------------
Drugs 8.4%
- ----------------------------
Oil 7.3%
- ----------------------------
Foods 6.7%
- ----------------------------
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PAGE 5
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Q How about examples of disappointments?
A The disappointments had more to do with the timing of our sell decisions
than with any substantial loss in any one stock. For example, we wished we
had sold oil service stocks a little earlier. We did take some profits, but
not enough, and the February correction hurt that sector. Likewise, the few
mid-cap names we held were disappointing as large-cap companies dominated the
market.
Q What's your sell strategy?
A We have a target price at which we sell, but we have modified it in this
bull market. We sell a stock when we believe its position in the market has
declined, or the company's internal structure has deteriorated, or earnings
visibility has clouded. If a company announces it will not meet its earnings
projections in the next quarter, we take a careful look to determine the
likelihood that the shortfall might continue over a longer period of time. We
may decide to trim the stock or sell.
Q What types of defensive strategies do you apply?
A We believe the best defense for Keystone Growth and Income Fund is
extensive bottom-up research. We try to be vigilant about valuations on a
stock-by-stock basis and we don't try to time the market. We tend to be
almost fully invested. Our cash positions are generally no more than 6% of
the Fund and no less than 2%. We occasionally buy defensive stocks like
utilities. Our REITs and convertibles do provide additional levels of yield,
with the S&P's yield being so low.
Q What is your outlook?
A We have a cautiously positive outlook. We think the economy will continue
to grow at a moderate rate and inflationary pressures will remain low. On
March 25, 1997, the Federal Reserve Board raised short-term interest rates by
a quarter of a percent. There is a possibility that future increases will
follow, causing short-term volatility. We feel that the Fed's move was more
designed to prevent an acceleration in the economic growth, than based on any
tangible signs of inflation. We think the Fund is well positioned to
participate in the stock market events in 1997. We own many excellent
companies that have been around through many economic cycles and have
generated growth of capital over the long term.
Top 10 Holdings
as of February 28, 1997
Percentage of
Stock Industry net assets
- -----------------------------------------------------------------------
General Electric Capital goods 2.6
- -----------------------------------------------------------------------
Coca-Cola Foods 2.5
- -----------------------------------------------------------------------
Royal Dutch Oil 1.8
- -----------------------------------------------------------------------
Johnson & Johnson Drugs 1.7
- -----------------------------------------------------------------------
Exxon Oil 1.6
- -----------------------------------------------------------------------
Beacon Properties, REIT Finance 1.5
- -----------------------------------------------------------------------
Intel Electronics Products 1.5
- -----------------------------------------------------------------------
Rhone-Poulenc Rorer Drugs 1.5
- -----------------------------------------------------------------------
Phillip Morris Foods 1.5
- -----------------------------------------------------------------------
Bank of Boston Finance 1.5
- -----------------------------------------------------------------------
[diamond]
This column is intended to answer questions
about your Fund. If you have a question
you would like answered, please write to:
Evergreen Keystone Investment Services, Inc.,
Attn: Shareholder Communications,
22nd Floor 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
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PAGE 6
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Keystone Growth and Income Fund (S-1)
Your Fund's Performance
{GRAPHIC} MOUNTAIN CHART
Growth of an investment in
Keystone Growth and Income Fund (S-1)
MOUNTAIN CHART PLOT POINTS
Initial Reinvested
Investment Distributions
2/87 10000 10000
8636 9350
2/89 8990 10029
10257 11816
2/91 10126 13324
10603 15236
2/93 10415 15596
10305 16773
2/95 9375 16381
10690 21581
2/97 11464 26234
A $10,000 investment in Keystone Growth and Income Fund (S-1)
made on February 28, 1987 with all distributions reinvested was worth
$26,235 on February 28, 1997. Past performance is no guarantee of
future results.
Six-Month Performance as of February 28, 1997
- --------------------------------------------------
Total return* 18.22%
Net asset value 8/31/96 $25.05
2/28/97 $26.23
Dividends $ 0.10
Capital gains $ 3.18
*Before deduction of contingent deferred sales charge (CDSC).
Historical Record as of February 28, 1997
- --------------------------------------------------
If you If you did
Cumulative total return redeemed not redeem
1-year 18.56% 21.56%
5-year 72.19% 72.19%
10-year 162.35% 162.35%
Average annual total return
1-year 18.56% 21.56%
5-year 11.48% 11.48%
10-year 10.13% 10.13%
The one-year return reflects the deduction of the 3% contingent deferred
sales charge for those investors who sold Fund shares after one calendar
year. Investors who retained their fund investment received the one-year
return reported in the second column of the table.
The investment return and principal value will fluctuate so that your
shares, when redeemed, may be worth more or less than the original cost.
You may exchange your shares for another Keystone fund 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.
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PAGE 7
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Glossary of
Mutual Fund Terms
MUTUAL FUND--A company which combines the investment money of many people
whose financial goals are similar, and invests that money in a variety of
securities. A mutual fund allows the smaller investor the benefits of
diversification, professional management and constant supervision usually
available only to large investors.
PORTFOLIO MANAGER--An investment professional who is responsible for
managing a portfolio's assets prudently and making appropriate investment
decisions, such as which securities to buy, hold and sell, based on the
investment objectives of the portfolio.
STOCK--Equity or ownership interest in a corporation, which represents a
claim on the corporation's assets and earnings.
BOND--Security issued by a government or corporation to those from whom it
has borrowed money. A bond usually promises to pay interest income to the
bondholder at regular intervals and to repay the entire amount borrowed at
maturity date.
CONVERTIBLE SECURITY--A corporate security (usually preferred stock or
bonds) that is exchangeable for a set number of another security type
(usually common stocks) at a pre-stated price.
MONEY MARKET FUND--A mutual fund whose assets are invested in a diversified
portfolio of short-term securities, including commercial paper, bankers'
acceptances, certificates of deposit and other short-term instruments. The
fund pays income which can fluctuate daily. Liquidity and safety of principal
are primary objectives.
NET ASSET VALUE (NAV) PER SHARE--The value of one share of a mutual fund.
The NAV pershare is determined by subtracting a fund's total liabilities from
its total assets, and dividing that amount by the number of fund shares
outstanding.
DIVIDEND--A per share distribution of the income earned from the fund's
portfolio holdings. When a dividend distribution is made, the fund's net
asset value drops by the amount of the distribution because the distribution
is no longer considered part of the fund's assets.
CAPITAL GAIN--The profit from the sale of securities, less any losses.
Capital gains are paid to fund shareholders on a per share basis. When a
capital gain distribution is made, the fund's net asset value drops by the
amount of the distribution because the distribution is no longer considered
part of the fund's assets.
YIELD--The annualized rate of income as measured against the current net
asset value of fund shares.
TOTAL RETURN--The change in value of a fund investment over a specified
period of time, taking into account the change in a fund's market price and
the reinvestment of all fund distributions.
SHORT-TERM--An investment with a maturity of one year or less.
LONG-TERM--An investment with a maturity of greater than one year.
AVERAGE MATURITY--The average number of days until the notes, drafts,
acceptances, bonds or other debt instruments in a portfolio become due and
payable.
OFFERING PRICE--The offering price of a share of a mutual fund is the price
at which the share is sold to the public.
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PAGE 8
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Keystone Growth and Income Fund (S-1)
SCHEDULE OF INVESTMENTS--February 28, 1997 (Unaudited)
Market
Shares Value
-------------------------------------- --------- --------------
COMMON STOCKS (95.5%)
ADVERTISING & PUBLISHING (0.3%)
Tribune Co. 20,000 $ 785,000
-------------------------------------- --------- --------------
AEROSPACE (1.1%)
Boeing Co. (The) 14,000 1,424,500
United Technologies Corp. 10,300 1,550,150
-------------------------------------- --------- --------------
2,974,650
-------------------------------------- --------- --------------
AIR TRANSPORTATION (0.7%)
Delta Airlines, Inc. 15,000 1,207,500
Southwest Airlines, Co. 35,000 822,500
-------------------------------------- --------- --------------
2,030,000
-------------------------------------- --------- --------------
AMUSEMENTS (1.5%)
Disney Walt, Co. 40,000 2,970,000
HFS, Inc. 19,000 1,301,500
-------------------------------------- --------- --------------
4,271,500
-------------------------------------- --------- --------------
AUTOMOTIVE (4.2%)
Chrysler Corp. 50,000 1,693,750
Danaher Corp. 55,000 2,378,750
Federal Mogul, Corp. 60,000 1,477,500
Ford Motor Co. Del 40,000 1,315,000
Goodyear Tire and Rubber 40,000 2,110,000
Toyota Motor Corp. 100,000 2,566,765
-------------------------------------- --------- --------------
11,541,765
-------------------------------------- --------- --------------
BUSINESS SERVICES (2.1%)
Ikon Office Solutions, Inc. 52,500 2,165,625
USA Waste Services, Inc. (b) 100,000 3,600,000
-------------------------------------- --------- --------------
5,765,625
-------------------------------------- --------- --------------
CAPITAL GOODS (4.9%)
Deere & Co. 65,000 2,770,625
Emerson Electric Co. 36,300 3,593,700
General Electric Co. 70,000 7,201,250
-------------------------------------- --------- --------------
13,565,575
-------------------------------------- --------- --------------
CHEMICALS (1.9%)
Du Pont De Nemours & Co. 35,000 3,753,750
Union Carbide Corp. 30,000 1,417,500
-------------------------------------- --------- --------------
5,171,250
-------------------------------------- --------- --------------
CONSUMER GOODS (3.7%)
CUC International, Inc. (b) 125,000 2,984,375
Gillette Co. 27,000 2,136,375
Manpower, Inc. 54,000 2,038,500
CONSUMER GOODS (CONTINUED)
Procter & Gamble, Inc. 25,000 $ 3,003,125
-------------------------------------- --------- --------------
10,162,375
-------------------------------------- --------- --------------
DIVERSIFIED COMPANIES (1.0%)
AlliedSignal, Inc. 40,000 2,890,000
-------------------------------------- --------- --------------
DRUGS (8.4%)
American Home Products Corp. 55,000 3,520,000
Johnson & Johnson 83,500 4,811,688
Lilly (Eli) & Co. 40,000 3,495,000
Merck & Co., Inc. 45,000 4,140,000
Rhone-Poulenc Rhorer, Inc. 59,700 4,238,700
SmithKline Beecham PLC, ADR 43,000 3,192,750
-------------------------------------- --------- --------------
23,398,138
-------------------------------------- --------- --------------
ELECTRONICS PRODUCTS (4.3%)
Analog Devices, Inc. 110,000 2,557,500
Intel Corp. 30,000 4,258,125
Micron Technology, Inc. 55,000 2,062,500
Texas Instruments, Inc. 40,000 3,085,000
-------------------------------------- --------- --------------
11,963,125
-------------------------------------- --------- --------------
FINANCE (17.1%)
American General Hospital Corp. REIT 90,000 2,463,750
Arden Realty, Inc. REIT 70,000 1,933,750
Associates First Capital Corp., Class
A 60,800 2,933,600
Bank of Boston Corp. 55,000 4,145,625
BankAmerica Corp. 18,000 2,047,500
Beacon Properties, REIT 120,000 4,275,000
Camden Property Trust, REIT 45,000 1,231,875
Chase Manhattan Corp. 25,700 2,573,213
Federal National Mortgage Association 70,000 2,800,000
First International Realty Trust, Inc.
REIT 80,000 2,390,000
Keycorp 40,000 2,140,000
Merrill Lynch & Co., Inc. 12,000 1,152,000
Nationsbank Corp. 30,000 1,796,250
Norwest Corp. 75,000 3,731,250
Patriot American Hospitality, Inc.,
REIT 80,000 3,620,000
Student Loan Marketing Association 25,000 2,646,875
TCF Financial Corp. 70,000 3,176,250
Trinet Corp. Realty Trust, Inc., REIT 70,000 2,388,750
-------------------------------------- --------- --------------
47,445,688
-------------------------------------- --------- --------------
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PAGE 9
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Market
Shares Value
-------------------------------------- --------- --------------
FOODS (6.7%)
Anheuser Busch Cos., Inc. 58,000 $ 2,581,000
Coca-Cola Co. 115,000 7,015,000
Heinz H.J. Co. 60,000 2,497,500
Philip Morris Cos., Inc. 31,000 4,188,875
Richfoods Holdings, Inc. 62,500 1,320,313
Sara Lee Corp. 24,000 930,000
-------------------------------------- --------- --------------
18,532,688
-------------------------------------- --------- --------------
HEALTHCARE SERVICES (2.1%)
Boston Scientific Corp. 43,000 2,848,750
Healthsouth, Corp. 60,000 2,415,000
Medtronic, Inc. 8,000 518,000
-------------------------------------- --------- --------------
5,781,750
-------------------------------------- --------- --------------
INSURANCE (3.9%)
Allstate Corp. 15,000 950,625
American International Group, Inc. 30,000 3,630,000
GCR Hldgs., Ltd. 150,000 3,590,625
Travelers Aetna Property & Casualty
Corp. 75,000 2,765,625
-------------------------------------- --------- --------------
10,936,875
-------------------------------------- --------- --------------
METALS & MINING (1.2%)
Aluminum Company of America 22,000 1,567,500
Phelps Dodge Corp. 25,000 1,787,500
-------------------------------------- --------- --------------
3,355,000
-------------------------------------- --------- --------------
NATURAL GAS (1.8%)
Burlington Resources, Inc. 32,000 1,404,000
K N Energy, Inc. 30,000 1,185,000
Sonat, Inc 50,000 2,300,000
-------------------------------------- --------- --------------
4,889,000
-------------------------------------- --------- --------------
OFFICE & BUSINESS EQUIPMENT (1.5%)
Compaq Computer Corp. 35,000 2,773,750
Synopsys, Inc. 40,000 1,427,500
-------------------------------------- --------- --------------
4,201,250
-------------------------------------- --------- --------------
OIL (7.3%)
Amoco Corp. 27,120 2,291,640
Exxon Corp. 43,000 4,294,625
Mobil Corp. 20,100 2,467,275
Occidental Pete Corp. 41,200 1,050,600
Pennzoil Co. 55,000 3,155,625
Royal Dutch Petroleum Co. 29,000 5,017,000
Unocal Corp. 50,000 1,931,250
-------------------------------------- --------- --------------
20,208,015
-------------------------------------- --------- --------------
OIL SERVICES (2.2%)
Diamond Offshore Drilling, Inc. 32,600 $ 1,923,400
Halliburton Co. 30,000 1,938,750
Tidewater, Inc. 50,000 2,150,000
-------------------------------------- --------- --------------
6,012,150
-------------------------------------- --------- --------------
PAPER & PACKAGING (1.5%)
Georgia Pacific Corp. 37,500 2,925,000
International Paper Co. 30,000 1,252,500
-------------------------------------- --------- --------------
4,177,500
-------------------------------------- --------- --------------
RETAIL (1.9%)
Sears, Roebuck and Co. 60,000 3,255,000
Tyco International, Ltd. 32,400 1,911,600
-------------------------------------- --------- --------------
5,166,600
-------------------------------------- --------- --------------
SOFTWARE SERVICES (2.7%)
BMC Software, Inc. (b) 58,000 2,483,125
Microsoft Corp. (b) 30,000 2,923,125
Peoplesoft, Inc. 50,000 1,990,625
-------------------------------------- --------- --------------
7,396,875
-------------------------------------- --------- --------------
TELECOMMUNICATIONS (7.4%)
AT&T Corp. 35,000 1,395,625
Ameritech Corp. 39,000 2,486,250
Bell South Corp. 13,000 609,375
Cisco Systems, Inc. (b) 20,000 1,108,750
GTE Corp. 30,000 1,402,500
Lucent Technologies, Inc. 12,701 684,263
Motorola, Inc. 40,000 2,235,000
Sprint Corp. 50,000 2,275,000
Telecommunicacoes Brasileiras ADR 29,000 2,813,000
Teleport Communications Group, Inc.
(b) 90,000 2,688,750
Worldcom, Inc. 105,000 2,802,188
-------------------------------------- --------- --------------
20,500,701
-------------------------------------- --------- --------------
TRANSPORTATION (1.8%)
Burlington Northern Santa Fe 17,234 1,434,731
Canadian National Railway Co. 100,000 3,637,500
-------------------------------------- --------- --------------
5,072,231
-------------------------------------- --------- --------------
UTILITIES (2.3%)
Allegheny Power Systems, Inc. 57,000 1,745,628
Carolina Power & Light Co. 30,000 1,113,750
Florida Progress Corp. 35,000 1,102,500
Pinnacle West Cap. Corp. 40,000 1,250,000
Scana Corp. 40,000 1,045,000
-------------------------------------- --------- --------------
6,256,878
-------------------------------------- --------- --------------
TOTAL COMMON STOCKS
(COST--$214,199,361) 264,452,204
-------------------------------------- --------- --------------
(continued on next page)
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PAGE 10
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Keystone Growth and Income Fund (S-1)
Market
Shares Value
-------------------------------------- --------- --------------
PREFERRED STOCKS (1.8%)
INSURANCE (0.9%)
Sunamerica, Inc. 60,000 $2,527,500
-------------------------------------- --------- --------------
TELECOMMUNICATIONS (0.9%)
Lural Space & Communications 50,000 2,575,000
-------------------------------------- --------- --------------
TOTAL PREFERRED STOCKS
(COST--$4,775,425) 5,102,500
-------------------------------------- --------- --------------
Par Market
Value Value
-------------------------------- ---------- -----------
FIXED INCOME (0.2%)
CONVERTIBLE BONDS & NOTES (0.2%)
INSURANCE (0.2%)
Berkshire Hathaway, Inc., 2001 $330,000 $353,100
Swift Energy Co., 6.250%, 2006 175,000 165,375
-------------------------------- ---------- -----------
TOTAL FIXED INCOME
(COST--$474,567) 518,475
-------------------------------- ---------- -----------
Maturity Market
Value Value
- ------------------------------------ ------------ --------------
SHORT-TERM INVESTMENTS (3.5%)
REPURCHASE AGREEMENTS (3.5%)
Investments in repurchase
agreements, in a joint trading
account purchased 2/28/97, 5.413%,
maturing 3/3/97. $9,749,044 $ 9,749,000
- ------------------------------------ ------------ --------------
TOTAL SHORT-TERM INVESTMENTS
(COST--$9,749,000) (A) 9,749,000
- ------------------------------------ ------------ --------------
TOTAL INVESTMENTS
(COST--$229,198,353) 279,822,179
- ------------------------------------ ------------ --------------
OTHER ASSETS AND LIABILITIES--NET
(-1.0%) (2,877,137)
- ------------------------------------ ------------ --------------
NET ASSETS (100%) $276,945,042
- ------------------------------------ ------------ --------------
(a) The cost of investments and foreign currency holdings for federal income
tax purposes amounted to $229,198,353. Gross unrealized appreciation and
depreciation on investments, based on identified tax cost, at February
28, 1997 are as follows:
Gross unrealized appreciation $52,699,801
Gross unrealized depreciation (2,075,975)
--------------
Net unrealized appreciation $50,623,826
==============
(b) Non-income-producing security.
(c) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at February 28, 1997.
Legend of Portfolio Abbreviations:
ADR--American Depository Receipts
REIT--Real Estate Investment Trust
<PAGE>
PAGE 11
- -------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Six Months
Ended
February 28, 1997 Year Ended August 31,
---------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
=============================== ================= ========== ========== ========== ========== =========
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of
year $ 25.05 $ 22.98 $ 23.21 $ 25.42 $ 23.17 $ 25.12
------------------------------- ----------------- ---------- ---------- ---------- ---------- ---------
Income from investment
operations
Net investment income 0.07(c) 0.12 0.25 0.16 0.11 0.15
Net realized and unrealized
gain (loss) on investments and
foreign currency related
transactions 4.39 3.69 2.66 (0.35) 3.11 (0.11)
------------------------------- ----------------- ---------- ---------- ---------- ---------- ---------
Total from investment
operations 4.46 3.81 2.91 (0.19) 3.22 0.04
------------------------------- ----------------- ---------- ---------- ---------- ---------- ---------
Less distributions from
Net investment income (0.10) (0.54) (0.25) (0.23) (0.11) (0.15)
In excess of net investment
income -- (0.22) (0.11) (0.05) (0.17) (0.17)
Net realized gain on
investments (3.18) (0.98) (2.78) (1.74) (0.69) (1.67)
------------------------------- ----------------- ---------- ---------- ---------- ---------- ---------
Total distributions (3.28) (1.74) (3.14) (2.02) (0.97) (1.99)
------------------------------- ----------------- ---------- ---------- ---------- ---------- ---------
Net asset value end of year $ 26.23 $ 25.05 $ 22.98 $ 23.21 $ 25.42 $ 23.17
------------------------------- ----------------- ---------- ---------- ---------- ---------- ---------
Total return (a) 18.22% 17.31% 13.87% (0.72%) 14.31% 0.38%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (d) 1.58%(b) 1.85% 1.75% 2.07% 2.28% 2.08%
Total expenses, excluding
indirect expenses 1.57%(b) 1.84% N/A N/A N/A N/A
Net investment income (loss) 0.52%(b) 0.52% 1.09% 0.67% 0.47% 0.61%
Portfolio turnover rate 50% 139% 115% 73% 96% 95%
Average commissions rate paid $ 0.0639 $ 0.0635 N/A N/A N/A N/A
------------------------------- ----------------- ---------- ---------- ---------- ---------- ---------
Net assets end of year
(thousands) $276,945 $224,819 $199,456 $208,532 $234,688 $204,004
=============================== ================= ========== ========== ========== ========== =========
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized
(c) Computed using average shares outstanding throughout the period.
(d) For the six months ended February 28, 1997 and the year ended August 31,
1996, the expense ratios include indirectly paid expenses.
(See note 6)
<PAGE>
PAGE 12
- -------------------------------------
Keystone Growth and Income Fund (S-1)
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1997 (Unaudited)
Assets
Investments at market value
(identified cost--$229,198,353) $279,822,179
Cash 98,706
Receivable for:
Investments sold 3,391,176
Fund shares sold 815,701
Dividends and interest 450,547
Prepaid expenses and other assets 23,863
----------------------------------------------- ------------
Total assets 284,602,172
----------------------------------------------- ------------
Liabilities
Payable for:
Investments purchased 5,242,570
Fund shares redeemed 2,191,079
Other accrued expenses 223,481
----------------------------------------------- ------------
Total liabilities 7,657,130
----------------------------------------------- ------------
Net assets $276,945,042
----------------------------------------------- ------------
Net assets represented by (Note 3)
Paid-in-capital $214,594,740
Net undistributed investment income 5,313,922
Accumulated net realized gain on investment
transactions 6,412,554
Net unrealized appreciation on investments 50,623,826
----------------------------------------------- ------------
Total net assets $276,945,042
----------------------------------------------- ------------
Net asset value
Net assets of $276,945,042 / 10,558,777 shares
outstanding $26.23
----------------------------------------------- ------------
STATEMENT OF OPERATIONS
Six Months Ended February 28, 1997 (Unaudited)
Investment income
Dividends (net of foreign withholding tax
of $20,226) $ 2,511,932
Interest 171,687
- ------------------------------------------- ------------ -------------
Total income 2,683,619
- ------------------------------------------- ------------ -------------
Expenses (Notes 4, 5 and 6)
Management fee $ 844,586
Distribution Plan expenses 774,461
Transfer agent fees 285,456
Custodian fees 62,839
Registration fees 18,302
Printing 17,817
Accounting 9,946
Auditing and legal 7,641
Trustees' fees and expenses 1,814
Miscellaneous expenses 6,145
- ------------------------------------------- ------------ -------------
Total expenses 2,029,007
Less: Expenses paid indirectly
(Note 6) (10,770)
- ------------------------------------------- ------------ -------------
Net expenses 2,018,237
- ------------------------------------------- ------------ -------------
Net investment income 665,382
- ------------------------------------------- ------------ -------------
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions (Note 3)
Net realized gain on investments 16,117,430
Net realized loss on foreign currency
related transactions (109,823)
----------------------------------------- --------- ----------
Net realized gain on investments and
foreign currency related transactions 16,007,607
----------------------------------------- ----------
Net change in unrealized appreciation on
investments and foreign currency related
transactions 25,038,613
----------------------------------------- ----------
Net realized and unrealized gain on
investments and foreign currency related
transactions 41,046,220
----------------------------------------- ----------
Net increase in net assets resulting from
operations $41,711,602
----------------------------------------- ----------
See Notes to Financial Statements.
<PAGE>
PAGE 13
- -------------------------------------
Keystone Growth and Income Fund (S-1)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
February 28,
1997 Year Ended
(Unaudited) August 31, 1996
============================================================================ ================ ================
<S> <C> <C>
Operations
Net investment income $ 665,382 $ 1,158,899
Net realized gain on investments and foreign currency related transactions 16,007,607 35,400,173
Net change in unrealized appreciation on investments and foreign currency
related transactions 25,038,613 (2,334,533)
---------------------------------------------------------------------------- ---------------- ----------------
Net increase in net assets resulting from operations 41,711,602 34,224,539
---------------------------------------------------------------------------- ---------------- ----------------
Distributions to shareholders from (Note 5)
Net investment income (975,792) (4,796,628)
In excess of net investment income -- (1,898,638)
Net realized gain on investment transactions (30,034,147) (8,574,523)
---------------------------------------------------------------------------- ---------------- ----------------
Total distributions to shareholders (31,009,939) (15,269,789)
---------------------------------------------------------------------------- ---------------- ----------------
Capital share transactions (Note 2)
Proceeds from shares sold 56,803,949 54,640,514
Payments for shares redeemed (42,126,549) (61,283,587)
Net asset value of shares issued in reinvestment of distributions 26,746,715 13,051,460
---------------------------------------------------------------------------- ---------------- ----------------
Net increase in net assets resulting from capital share transactions 41,424,115 6,408,387
---------------------------------------------------------------------------- ---------------- ----------------
Total increase in net assets 52,125,778 25,363,137
---------------------------------------------------------------------------- ---------------- ----------------
Net assets:
Beginning of year 224,819,264 199,456,127
---------------------------------------------------------------------------- ---------------- ----------------
End of year [including undistributed net investment income as follows:
1997--$5,313,922 and 1996--$5,624,332] $276,945,042 $224,819,264
============================================================================ ================ ================
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 14
- -------------------------------------
Keystone Growth and Income Fund (S-1)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Significant Accounting Policies
Keystone Growth and Income Fund (S-1), (the "Fund") is a Pennsylvania trust
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"). On December 11, 1996, KII,
and indirectly each of its subsidiaries, were acquired by First Union
National Bank of North Carolina.
The Fund is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as a diversified, open-end investment company. The Fund's
investment objective is growth of capital and long-term growth of income.
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
Trustees.
Short-term investments with remaining maturities of 60 days or less are
carried 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
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other Keystone funds, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are fully collateralized
by U.S. Treasury and/or Federal Agency obligations.
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. Foreign Currency
The books and records of the Fund are maintained in United States ("U.S.")
dollars. Foreign currency amounts are translated into U.S. dollars as
follows: market value of investments, assets and liabilities at the daily
rate of exchange; purchases and sales of investments, income and expenses at
the rate of exchange prevailing on the respective dates of such transactions.
Net unrealized foreign exchange gain (loss) resulting from changes in foreign
currency exchange rates is a component of net unrealized appreciation
(depreciation) on investments and foreign currency transactions. Net realized
foreign currency gains and losses resulting from changes in exchange rates
include foreign currency gains and losses between trade date and settlement
date on investment securities transactions, foreign currency transactions and
the difference between the amounts of interest and dividends recorded on the
books of the Fund and the amount
<PAGE>
PAGE 15
- -------------------------------------
Keystone Growth and Income Fund (S-1)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
actually received. The portion of foreign currency gains and losses related
to fluctuations in exchange rates between the initial purchase trade date and
subsequent sale trade date is included in realized gain (loss) on foreign
currency transactions
D. Forward Foreign Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to settle portfolio purchases and sales of securities denominated
in a foreign currency and to hedge certain foreign currency assets or
liabilities. Forward contracts are recorded at the forward rate and are
marked-to-market daily. Realized gains and losses arising from such
transactions are included in net realized gain (loss) on foreign currency
related transactions. The Fund bears the risk of an unfavorable change in the
foreign currency exchange rate underlying the forward contract and is subject
to the credit risk that the other party will not fulfill their obligations
under the contract. Forward contracts involve elements of market risk in
excess of the amount reflected in the statement of assets and liabilities.
E. 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.
F. 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 intends to avoid any excise tax
liability by making the required distributions under the Code. Accordingly,
no provision for federal income or excise tax is required.
G. Distributions
The Fund distributes net investment income quarterly and net capital gains,
if any, at least annually. Distributions to shareholders are recorded at the
close of business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. The tax treatment of such distributions for
the calendar year will be reported to shareholders prior to February 1, 1998.
2. Capital Share Transactions
The Fund's Declaration of Trust authorizes the issuance of an unlimited
number of shares of beneficial interest with a par value of $1.00.
Transactions in shares of the Fund were as follows:
Six Months Ended
February 28,
1997 Year Ended
(Unaudited) August 31, 1996
----------------- ---------------- ---------------
Shares sold 2,135,660 2,238,539
Shares redeemed (1,599,874) (2,509,938)
Shares issued in
reinvestment of
distributions 1,048,467 568,144
----------------- ---------------- ---------------
Net increase 1,584,253 296,745
----------------- ---------------- ---------------
3. Securities Transactions
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) for the six months ended February 28, 1997 were
$138,966,745 and $123,277,161, respectively.
<PAGE>
PAGE 16
- -------------------------------------
Keystone Growth and Income Fund (S-1)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
4. Distribution Plan
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.
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. On
December 11, 1996, the Fund entered into a principal underwriting agreement
with Evergreen Keystone Distributors, Inc. (Formerly, Evergreen Fund
Distributor, Inc.) ("EKD"), a wholly owned subsidiary of BISYS Group, Inc. At
that time, EKD replaced EKIS as the Fund's principal underwriter.
Under the Plan, the Fund pays a distribution fee amount which may not exceed
1.00% of the Fund's average daily net assets. Of that amount, 0.75% is used
to pay distribution expenses and 0.25% may be used to pay service fees. For
the six months ended February 28, 1997, distribution fees amounted to 0.60%
(annualized) of the Fund's average daily net assets, of which the service fee
portion of the fee amounted to 0.22% (annualized) of the Fund's average daily
net assets.
Contingent deferred sales charges paid by redeeming shareholders may be paid
to EKD. During the six months ended February 28, 1997, the Fund received
$36,425 in contingent deferred sales charges. Contingent deferred sales
charges received by the Fund are used to reduce the Fund's distribution plan
expenses.
The Plan may be terminated at any time by vote of the Independent Trustees
or by vote of a majority of the outstanding voting shares of the Fund.
However, after the termination of the Plan, and subject to the discretion of
the Independent Trustees, payments to EKIS and/or EKD may continue as
compensation for services which had been earned while the 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.
5. Investment Advisory Agreement and Other Affiliated Transactions
Under the terms of the investment advisory agreement dated December 11, 1996,
Keystone serves as the investment adviser and manager to the Fund. Keystone
provides the Fund with investment advisory and management services to the Fund.
In return, Keystone is paid a management fee, computed and paid daily, which is
determined by applying percentage rates starting at 0.70% and declining as net
assets increase to 0.35% per annum, to the average daily net asset value of the
Fund.
Prior to December 11, 1996, Keystone Management, Inc. ("KMI"), a wholly
owned subsidiary of Keystone, served as investment manager to the Fund and
provided investment management and administrative services. Under the
investment advisory agreement between KMI and Keystone, Keystone served as
investment adviser and provided investment advisory and management services
to the Fund. In return for its services, Keystone received an annual fee
equal to 85% of the management fee received by KMI. For the six months ended
February 28, 1997, the aggregate management fee paid by the Fund under both
agreements amounted to 0.66% (annualized) of the Fund's average daily net
assets.
During the six months ended February 28, 1997, the Fund paid or accrued
$9,946 to Keystone for
<PAGE>
PAGE 17
- -------------------------------------
certain accounting services. Additionally, during the six months ended
February 28, 1997, the Fund paid or accrued $285,456 to Evergreen Keystone
Services 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.
Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the Fund. Officers of Keystone and affiliated Trustees receive no
compensation directly from the Fund.
6. Expense Offset Arrangement
The Fund has entered into an expense offset arrangement with its custodian.
For the six months ended February 28, 1997, the Fund incurred total custody
fees of $62,839 and received a credit of $10,770 pursuant to this expense
offset arrangement, resulting in a net custody expense of $52,069. The assets
deposited with the custodian under this expense offset arrangement could have
been invested in income-producing assets.
<PAGE>
PAGE 18
- -------------------------------------
Keystone Growth and Income Fund (S-1)
Additional 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
9,003,767.797 shares outstanding, of which 5,482,603.173 shares were
represented at the meeting. The votes at the meeting were as follows:
Proposal 1: To elect the following persons as Trustee of the Fund:
Number of Shares
-------------------------------
Nominees for Trustee Affirmative Withhold
- ----------------------------- --------------- --------------
Lawrence B. Ashkin 5,324,589.221 158,013.952
Frederick Amling 5,326,020.612 156,582.561
Charles A. Austin, III 5,326,978.333 155,624.840
Foster Bam 5,326,125.612 156,477.561
George S. Bissell 5,325,106.615 157,496.558
Edwin D. Campbell 5,326,585.612 156,017.561
Charles F. Chapin 5,326,978.333 155,624.840
K. Dun Gifford 5,326,873.333 155,729.840
James S. Howell 5,326,585.612 156,017.561
Leroy Keith, Jr. 5,325,591.333 157,011.840
F. Ray Keyser 5,324,739.949 157,863.224
Gerald M. McDonnell 5,325,073.217 157,529.956
Thomas L. McVerry 5,326,978.333 155,624.840
William Walt Pettit 5,325,087.717 157,515.456
David M. Richardson 5,326,978.333 155,624.840
Russell A. Salton, III M.D. 5,326,771.914 155,831.259
Michael S. Scofield 5,326,320.911 156,282.262
Richard J. Shima 5,325,431.575 157,171.598
Andrew J. Simons 5,326,978.333 155,624.840
Proposal 2: To approve an investment advisory and management agreement
between Keystone Investment Management Company and the Fund:
Affirmative Against Abstain
--------------- ------------ -------------
5,174,838.258 90,998.715 216,766.200
<PAGE>
PAGE 19
- -------------------------------------
Keystone's Services
for Shareholders
KEYSTONE AUTOMATED RESPONSE LINE (KARL)--Receive up-to-date account
information on your balance, last transaction and recent Fund distribution.
You may also process transactions such as investments, redemptions and
exchanges using a touch-tone telephone as well as receive quotes on price,
yield, and total return of your Keystone Fund. Call toll-free,
1-800-346-3858.
EASY ACCESS TO INFORMATION ON YOUR ACCOUNT--Information about Keystone
accounts is available 24 hours a day through KARL. To speak with a
Shareholder Services representative about your account, call toll-free
1-800-343-2898 between 8:00 A.M. and 6:00 P.M. Eastern time. Retirement Plan
investors should call 1-800-247-4075.
ADDITIONS TO YOUR ACCOUNT--You can buy additional shares for your account at
any time, with no minimum additional investment.
REINVESTMENT OF DISTRIBUTIONS--You can compound the return on your
investment by automatically reinvesting your Fund's distributions at net
asset value with no sales charge.
EXCHANGE PRIVILEGE--You may move your money among funds in the same Keystone
family quickly and easily for a nominal service fee. KARL gives you the added
ability to move your money any time of day, any day of the week. Keystone
offers a variety of funds with different investment objectives for your
changing investment needs.
ELECTRONIC FUNDS TRANSFER (EFT)-- Referred to as the "paper-less
transaction," EFT allows you to take advantage of a variety of preauthorized
account transactions, including automatic monthly investments and systematic
monthly or quarterly withdrawals. EFT is a quick, safe and accurate way to
move money between your bank account and your Keystone account.
CHECK WRITING--Shareholders of Keystone Liquid Trust may exercise the check
writing privilege to draw from their accounts.
EASY REDEMPTION--KARL makes redemption services available to you 24 hours a
day, every day of the year. The amount you receive may be more or less than
your original account value depending on the value of fund shares at time of
redemption.
RETIREMENT PLANS--Keystone offers a full range of retirement plans,
including IRA, SEP-IRA, profit sharing, money purchase, and defined
contribution plans. For more information, please call Retirement Plan
Services, toll-free at 1-800-247-4075.
Keystone is committed to providing you with quality, responsive account
service. We will do our best to assist you and your financial adviser in
carrying out your investment plans.
