PAGE 1
KEYSTONE INTERNATIONAL FUND INC.
SEEKS LONG-TERM GROWTH FROM FOREIGN SECURITIES
Dear Shareholder:
We are pleased to update you on the activities of Keystone International Fund
Inc. for the six-month period ended April 30, 1997. Following this letter, we
have included an interview with Keystone's International Team leader and
portfolio manager of your fund, Gilman C. Gunn, discussing portfolio strategy.
PERFORMANCE OF YOUR FUND
Keystone International Fund Inc. returned 11.96% for the six-month period and
11.53% for the twelve-month period ended April 30, 1997.
We believe your Fund delivered a strong performance as it significantly
outperformed its benchmark, the Morgan Stanley Capital International EAFE Index,
during the six-month and twelve-month periods. EAFE, which measures stock
performance in Europe, Australia and the Far East, returned 1.57% for six months
and (.88%) for the 12 months. The Fund's performance, we believe, was due
primarily to our management of currency exposure at a time when the U.S. dollar
soared against foreign currencies, our emphasis on Europe and limited
investments in Japan.
Keystone International Fund performed in the top quartile of Lipper Analytical
Services' international equity fund category for the six- and twelve-month
periods ended April 30, 1997.1 In addition, the Fund's long-term record has
earned it a four-star rating from Morningstar through April 30, 1997.2
INTERNATIONAL MARKETS RECAP
Attractive gains were recorded for the six-month period by the major equity
markets around the world, with the exception of Japan. The emerging markets of
Latin America also performed well. With a worldwide economic recovery underway,
tame inflation, low interest rates and stronger corporate profits, the overall
investment environment was positive.
EUROPEAN MARKETS STRENGTHEN
Europe continued its comeback during the past six months. After being written
off for years by many financial experts because of high interest rates, slow
growth and government policies that hindered investment performance, Europe has
mounted an economic revival. Interest rates are at their lowest levels in
decades, inflation is minimal, companies are in the midst of restructuring to
become more efficient and governments are dealing with fiscal laxity.
Equity markets in the region have responded, as evidenced by many markets
reaching record highs during the past six months. In fact, Germany, France and
Britain have all seen their stock exchanges climb to the double-digit mark thus
far in 1997. Your Fund's heavy weighting in this region significantly boosted
its overall performance.
JAPAN CONTINUED TO LAG
The world's second largest stock market remained volatile as it battled a weak
yen and economy and worries about its financial system. The Nikkei 225-stock
index returned (0.2%) for the six months. There was one bright spot in Japan,
(1) SOURCE: LIPPER ANALYTICAL SERVICES, INC., AN INDEPENDENT MUTUAL FUND RATING
SERVICE. KEYSTONE INTERNATIONAL FUND'S PERFORMANCE RANKED 36 OUT OF 397
INTERNATIONAL EQUITY FUNDS FOR THE 6 MONTHS ENDED 4/30/97, 72 OUT OF 358 FUNDS
FOR ONE YEAR, 35 OUT OF 84 FUNDS FOR FIVE YEARS AND 28 OUT OF 29 FUNDS FOR 10
YEARS. PERFORMANCE IS BASED ON TOTAL RETURN WHICH INCLUDES REINVESTMENT OF
DIVIDENDS, AND DOES NOT INCLUDE THE EFFECTS OF SALES CHARGES. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS.
(2) SOURCE: MORNINGSTAR. MORNINGSTAR PROPRIETARY RATING REFLECTS HISTORICAL
RISK-ADJUSTED PERFORMANCE AS OF 4/30/97. THESE RATINGS ARE SUBJECT TO CHANGE
MONTHLY. THEY ARE CALCULATED FROM THE FUND'S THREE-YEAR AVERAGE ANNUAL RETURNS
WITH APPROPRIATE FEE ADJUSTMENTS, AND A RISK FACTOR THAT REFLECTS FUND
PERFORMANCE BELOW 90-DAY T-BILL RETURNS. 10 PERCENT OF THE FUNDS IN AN
INVESTMENT CATEGORY RECEIVE FIVE STARS, 22.5 PERCENT RECEIVE FOUR STARS.
MORNINGSTAR RATINGS WERE BASED ON 492 INTERNATIONAL EQUITY FUNDS.
-- CONTINUED--
<PAGE>
PAGE 2
KEYSTONE INTERNATIONAL FUND INC.
however. Japan's large exporting companies. These firms were among the biggest
benefactors of the U.S. dollar's 21% rise against the yen in the 12 months ended
April 30, 1997. A robust dollar boosted the earnings growth of many
multinational companies that receive substantial earnings from exports. A strong
dollar makes their products more competitive in the global marketplace. Your
Fund benefitted from this market event as three of its major equity holdings as
of April 30, 1997 were Sony, Fuji Film and Toyota -- all Japanese exporters.
OUR OUTLOOK
Controlled inflation, stronger economic growth and moderate interest rates
around the world are creating positive investment environments for numerous
international markets. We expect this environment to spur attractive growth
opportunities for the Fund throughout the remainder of 1997.
In Europe, prospects for a strengthening economic recovery seem to be
increasing. Corporate restructuring, consolidations and cost cutting are
underway. Governments, too, are taking strides to become more fiscally
responsible, as they plan for a single currency and a common central bank in
1999. Countries are trying to meet the tough economic criteria for the European
Monetary Union (EMU) in 1999, which calls for them to keep their budget deficits
below 3% of gross domestic product. However, double-digit unemployment rates
suffered in France, Germany and Italy could linger for some time. We believe
your Fund is properly positioned to take advantage of this continent's steady
recovery.
Looking to the Far East, Japan's economy finally appears to be on the mend.
Corporate restructuring and government deregulation should also positively
effect the world's second largest stock market. Also, the yen is showing signs
of strengthening against the dollar. As a result, we are currently reevaluating
our weighting in Japan.
Short-term fluctuations in any one market are inevitable, but we believe that
Keystone International Fund's diversified portfolio is well positioned to
capitalize on the opportunities available around the world, while continuing to
seek low volatility. We believe an international component can play an import
role in helping investors reach their long-term financial goals.
EVERGREEN KEYSTONE INTEGRATE ALL SERVICE FUNCTIONS
We are also delighted to inform you that Evergreen Keystone successfully
integrated all service functions of Evergreen and Keystone Funds in early May.
This means you now have full exchange privileges among all Evergreen and
Keystone America funds. In addition, you will be receiving the top-flight
shareholder service that earned Evergreen Keystone the 1996 DALBAR Quality
Tested Service Seal, the highest award for mutual fund service presented by
DALBAR, an independent mutual fund survey and rating firm.
Sincerely,
/s/ ALBERT H. ELFNER, III
Albert H. Elfner, III (PHOTO OF (PHOTO OF
CHAIRMAN ALBERT H. ELFNER, III GEORGE S. BISSELL
KEYSTONE INVESTMENT MANAGEMENT COMPANY GOES HERE) GOES HERE)
/s/ GEORGE S. BISSELL
George S. Bissell
CHAIRMAN OF THE BOARD
<PAGE>
PAGE 3
A Discussion With
Your Fund Manager
(PHOTO OF GILMAN C. GUNN
GOES HERE)
GILMAN C. GUNN IS PORTFOLIO MANAGER OF YOUR FUND AND HEAD OF KEYSTONE'S
INTERNATIONAL TEAM. AN INVESTMENT PROFESSIONAL WITH 23 YEARS OF
EXPERIENCE, MR. GUNN HAS SPENT MORE THAN TEN YEARS IN INVESTMENT
MANAGEMENT POSITIONS IN LONDON, KUWAIT AND THAILAND.
KEYSTONE'S INTERNATIONAL TEAM IS COMPRISED OF SEVERAL INVESTMENT
PROFESSIONALS WHO HAVE EXPERTISE IN THE ECONOMIC, POLITICAL AND BUSINESS
ENVIRONMENTS IN SPECIFIC AREAS. THE TEAM INCLUDES JOHN MADDEN (NATURAL
RESOURCES AND INFRASTRUCTURE), ELEANOR MARSH (FAR EAST) AND FRANCIS X.
CLARO AND ANTONIO DOCAL (LATIN AMERICA).
(Q) GILMAN, WHAT WOULD YOU SAY TO PEOPLE WHO ARE SKEPTICAL ABOUT THE BENEFITS OF
INTERNATIONAL INVESTING AFTER WITNESSING THE U.S. STOCK MARKET'S STRONG
PERFORMANCE DURING THE PAST SEVERAL YEARS?
(A) Certainly the U.S. market has been a great place to be invested in during
this six-year bull run. But because of this market run up, the stock prices are
higher in the U.S. compared to most of the world. Therefore, we believe there is
greater value outside the U.S.
Secondly, many of the world's largest and most successful companies are
situated outside the United States. Thirdly, there are numerous growth
opportunities that don't exist in the U.S. For example, the privatization of
telephone, oil, railroad and electricity companies that were once owned and
operated by governments is underway in the developing markets of Latin America
and Europe.
Additionally, a well-diversified portfolio with both international and
domestic components just makes good investing sense. We don't believe
international investors can fully escape the pains of a U.S. market downturn.
But a well-diversified international fund can help offset downturns in one
market with good performance in another market. Also, the economic cycles in
countries tend to be different. Keystone International Fund offers a
well-diversified portfolio of growth and value stocks.
(Q) WHAT FACTORS CONTRIBUTED TO THE FUND'S STRONG PERFORMANCE?
(A) The Fund's fairly limited holdings in Japan were one of the main factors for
its strong six-month performance. And, the Fund's Japanese equities tended to be
of large exporters, such as Sony, Fuji Photo Film and Toyota. These stocks all
benefitted from the strong U.S. dollar versus the Japanese yen.
The strong dollar hurt many U.S. investors in international markets. But our
hedging strategy turned out to be very beneficial over the past six months.
Also, our overweighting in Europe and our positions in the emerging markets of
Latin America enhanced the Fund's overall performance.
(Q) HOW HAS THE STRENGTH OF THE U.S. DOLLAR AFFECTED THE FUND?
(A) A strong dollar can negatively impact investors in foreign securities
because they, through investing in an international fund, must sell their U.S.
dollars to buy foreign currencies, which are then used to purchase securities
denominated in those currencies. If, subsequently, the dollar rises then these
securities denominated in foreign currencies have unrealized currency loss when
converted back to dollars for reporting purposes. Our hedging strategy has been
to reduce this currency risk by effectively converting some the foreign
currencies into U.S. dollars using hedge contracts. Thus we have "hedged" some
of our underlying portfolio position of foreign currencies by converting them
into U.S. dollars for a future period. It is this process that helped your fund
over the last six months, which was a period of dollar strength.
<PAGE>
PAGE 4
KEYSTONE INTERNATIONAL FUND INC.
We hedge to limit the effects of currency fluctuations. We can vary the
hedging between zero and 75% of the Fund's holdings. We have taken a middle
course, not making big bets either way on which way the currencies will move.
During the past six months, about 53% of our currency exposure was in U.S.
dollars. We used foreign exchange contracts to hedge our currency risk. We also
kept dollar-denominated cash and invested in some countries whose currencies are
linked to the dollar.
(Q) YOU REMAIN FOCUSED ON EUROPEAN EQUITIES. WHAT TYPES OF COMPANIES IN THIS
REGION ARE YOU FAVORING?
(A) The European region accounted for 55% of the Fund's assets as of April 30,
1997. Among the industries we find the most attractive are pharmaceuticals,
energy and banking.
There are a few pharmaceutical companies we like for their relative value and
product lines. Their stock prices are less expensive than the stock of U.S.
pharmaceutical firms. The Swiss company, Novartis (Ciba Geigy has become part of
this company) is among the Fund's top ten holdings.
Energy companies are attractive to us, as well. Our long-term outlook for
energy, primarily oil companies, is positive. We believe that third-world
countries, as they develop further, will utilize much greater energy amounts.
For example, the influx of automobiles in these areas of the world will cause a
greater consumption of fuel. For those reasons, we currently have Royal Dutch
Petroleum, British Petroleum and France's Societe Nationale Elf Aquitaine among
the Fund's top ten holdings.
Several bank stocks are also attractively valued and offer growth potential.
(Q) TURNING TO THE FAR EAST, WHAT'S YOUR CURRENT ASSESSMENT OF THE JAPANESE
MARKET?
(A) At this time, the dynamics are changing. The Japanese economy is showing
signs of improving, valuations of Japanese equities are relatively low and the
decline of the yen may have run its course. So, we are now in the process of
reassessing our Japanese position in the portfolio. During the past year, we
reduced the Fund's exposure to Japan from 28.3% of net assets on April 30, 1996
to 17.5% on October 31, 1996 to 14.7% as of April 30, 1997.
We have, however, reduced our Toyota position (Toyota accounted for 2.62% of
the fund's total net assets as of 4/30/97), after it increased 68% since the
time we purchased the stock. At this point, we believe there is better value
elsewhere in the automotive industry. But overall Japan is looking relatively
attractive to us right now.
(Q) WHAT CHANGES HAVE YOU MADE TO THE FUND'S INVESTMENTS DURING THE SIX-MONTH
STRETCH?
(A) Although the Fund's portfolio is predominately made up of large company
names, we have added several smaller European companies during the past few
months. One example is France's Zodiac, a highly diversified business with three
core activities: commercial airline seats, emergency exit systems and portable
swimming pools. The upturn in the airline manufacturing industry makes this
company's prospects attractive to us.
We also took the significant gains we earned from a few companies of
developing markets in Central Europe and sold the shares to free up money for
more opportunities in Europe.
(Q) WHAT'S YOUR OUTLOOK ?
(A) Our outlook for the international markets looking out at the remainder of
1997 is favorable.
Europe and Japan are recovering from their economic doldrums and companies
around the world continue their cost cutting measures which should lead to
stronger corporate earnings. Macroeconomic policies appear to be positive for
businesses. Latin America is posting good growth numbers, inflation is low and
its political climates are increasingly pro-business and pro-democracy.
On the risk side, a string of interest rate hikes in the U.S. to keep
inflationary pressures down or a dramatic market correction in the U.S. would
most likely trigger a negative reaction by international markets.
<PAGE>
PAGE 5
TOP 10 HOLDINGS
AS OF APRIL 30, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF
COMPANY INDUSTRY NET ASSETS
<S> <C> <C>
Sony (Japan) Appliances & 3.0%
Household Durables
Novartis (Switzerland) Pharmaceuticals 2.9%
Fuji Photo Film (Japan) Leisure & Tourism 2.7%
Toyota Motor (Japan) Automobiles 2.6%
Telecom Italia (Italy) Telecommunications 2.4%
Nestle (Switzerland) Food/Household 2.3%
Products
Philips Electronics Appliances & 2.3%
(Netherlands) Household Durables
Royal Dutch Petroleum Energy Sources 2.0%
(Netherlands)
Elf Aquitaine (France) Energy Sources 1.8%
British Petroleum Energy Sources 1.7%
(United Kingdom)
</TABLE>
(bullet)
IF YOU HAVE A QUESTION ABOUT YOUR FUND, PLEASE WRITE TO:
EVERGREEN KEYSTONE INVESTMENT SERVICES, INC.
ATTN: SHAREHOLDER COMMUNICATIONS
201 SOUTH COLLEGE STREET, SUITE 400
CHARLOTTE, NC 28288-1173
<PAGE>
PAGE 6
KEYSTONE INTERNATIONAL FUND INC.
Your Fund's Performance
(Growth of an investment in
Keystone International Fund, Inc.
Chart Goes Here)
<TABLE>
<CAPTION>
SIX-MONTH PERFORMANCE AS OF APRIL 30, 1997
<S> <C> <C>
Total return* 11.96%
Net asset value 10/31/96 $ 7.69
4/30/97 $ 8.61
Distribution None
Capital gains None
</TABLE>
* BEFORE DEDUCTION OF CONTINGENT DEFERRED SALES CHARGE (CDSC).
[CAPTION]
<TABLE>
<CAPTION>
HISTORICAL RECORD AS OF APRIL 30, 1997
<S> <C> <C>
IF YOU IF YOU DID
CUMULATIVE TOTAL RETURN REDEEMED NOT REDEEM
<S> <C> <C>
1-year 8.53 % 11.53%
5-year 70.24 % 70.24%
10-year 53.51 % 53.51%
AVERAGE ANNUAL TOTAL RETURN
1-year 8.53 % 11.53%
5-year 11.23 % 11.23%
10-year 4.38 % 4.38%
</TABLE>
The "if you redeemed" returns reflect the reduction of the 3% contingent
deferred sales charge for those investors who sold Fund shares after one
calendar year. Investors who retained their fund investment earned the returns
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.
<PAGE>
PAGE 7
SCHEDULE OF INVESTMENTS-- APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
<CAPTION>
COMMON STOCKS (86.9%)
<C> <S> <C>
AUSTRALIA (4.0%)
BANKING (1.0%)
116,000 National Australia Bank $ 1,587,616
BEVERAGES & TOBACCO (0.2%)
162,000 Foster's Brewing Group Ltd. 333,526
ENERGY SOURCES (1.5%)
167,507 Broken Hill Proprietary Co. Ltd. 2,361,793
HEALTH CARE (0.6%)
773,100 Sonic Health Care Ltd. 964,642
MACHINERY & ENGINEERING (0.2%)
125,000 Evans Deakin Industries 316,814
METALS & MINING (0.5%)
140,000 WMC Ltd. 829,759
TOTAL AUSTRALIA 6,394,150
BRAZIL (1.1%)
UTILITIES (1.1%)
3,780,000 Centrais Electricas Brasileiras 1,709,619
CANADA (4.8%)
BANKING (0.6%)
81,900 National Bank CDA Montreal
Quebec 955,598
ADVERTISING & PUBLISHING (1.6%)
147,905 Quebecor, Inc. 2,535,666
DIVERSIFIED HOLDINGS (0.7%)
50,000 Power Corp. of Canada 1,020,043
FERTILIZER (1.6%)
32,380 Potash Corp. of Saskatchewan,
Inc. 2,499,773
FINANCIAL SERVICES (0.3%)
5,200 E-L Financial Corp., Ltd. 532,283
INVESTMENT COMPANIES (0.0%)
2,000 BRL Enterprises Inc. 6,442
TOTAL CANADA 7,549,805
COLOMBIA (0.1%)
PAPER & PACKAGING (0.1%)
39,700 Papeles Nacionales (GDR) 188,575
FINLAND (0.9%)
DIVERSIFIED HOLDINGS (0.9%)
31,700 Huhtamaki Group 1,374,577
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
FRANCE (8.2%)
BANKING (1.0%)
33,853 Credit Commerce de France $ 1,502,258
BUILDING MATERIALS (1.3%)
30,467 Lafarge 1,998,247
ENERGY SOURCES (1.8%)
29,455 Societe Nationale Elf Aquitaine 2,856,426
AUTOMOTIVE SUPPLIES & COMPONENTS (0.9%)
25,401 Michelin 1,419,218
INSURANCE (1.6%)
40,500 AXA 2,491,827
CHEMICALS (1.6%)
76,459 Rhone Poulenc S.A. 2,571,559
236,135 TOTAL FRANCE 12,839,535
GERMANY (4.1%)
AUTOMOTIVE (1.3%)
28,500 Daimler-Benz AG 2,116,353
BUILDING MATERIALS & COMPONENTS (0.6%)
3,000 Grohe (Friedrich) AG 898,198
CONTAINERS AND PACKAGING (0.5%)
3,700 Schmalbach Lubeca AG 811,872
HEALTH CARE (0.4%)
17,700 Hoechst AG 694,999
MISCELLANEOUS MATERIALS & COMMODITIES (0.3%)
3,100 SGL Carbon 432,296
RETAIL (1.0%)
5,200 Karstadt AG 1,558,379
TOTAL GERMANY 6,512,097
HONG KONG (3.2%)
HOTELS (1.2%)
6,437,000 Regal Hotels 1,911,199
BANKING (2.0%)
65,477 HSBC Holdings 1,656,683
374,400 Wing Hang Bank Ltd. 1,367,782
3,024,465
TOTAL HONG KONG 4,935,664
</TABLE>
<PAGE>
PAGE 8
KEYSTONE INTERNATIONAL FUND INC.
SCHEDULE OF INVESTMENTS-- APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
INDIA (1.1%)
HEALTH CARE (0.0%)
59,600 Core Health Care (GDR) $ 59,600
TEXTILES & APPAREL (1.1%)
55,000 Reliance Industries (GDS) 1,079,100
33,000 Reliance Industries (GDR) (a) 647,460
1,726,560
TOTAL INDIA 1,786,160
INDONESIA (0.0%)
TEXTILES & APPAREL (0.0%)
16 Indorama Synthetic 12
ITALY (3.0%)
FOOD & HOUSEHOLD PRODUCTS (0.6%)
40,500 Industrie Natuzzi (ADR) 901,125
TELECOMMUNICATIONS (2.4%)
315,000 Telecom Italia MOB 990,714
1,047,000 Telecom Italia 2,754,821
3,745,535
TOTAL ITALY 4,646,660
JAPAN (14.7%)
APPLIANCES & HOUSEHOLD DURABLES (3.0%)
65,200 Sony Corp. 4,746,107
PHARMACEUTICALS (2.5%)
58,000 Daiichi Pharmaceutical Company 932,131
73,000 Taisho Pharmaceutical Company 1,805,806
74,000 Terumo Corp. 1,125,143
3,863,080
ELECTRONIC COMPONENTS (0.9%)
37,400 Tokyo Electronics 1,443,731
FINANCIAL SERVICES (0.8%)
16,000 Nichiei Co. 1,285,697
AUTOMOBILES (2.6%)
142,000 Toyota Motor Corp. 4,116,753
LEISURE & TOURISM (2.7%)
112,000 Fuji Photo Film Co. 4,279,356
OFFICE & BUSINESS EQUIPMENT (2.2%)
77,000 Canon, Inc. 1,825,895
152,000 Fujitsu 1,580,652
3,406,547
TOTAL JAPAN 23,141,271
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
MALAYSIA (0.8%)
LEISURE & TOURISM (0.3%)
98,500 Genting Berhad $ 530,777
FOODS & HOUSEHOLD PRODUCTS (0.5%)
90,000 Nestle Malay Berhad 702,565
TOTAL MALAYSIA 1,233,342
MEXICO (0.6%)
FOOD, BEVERAGES, AND TOBACCO (0.3%)
101,000 Fomento Economico Mexicano S.A.
de C.V. 476,625
METALS & MINING (0.3%)
96,500 Industrias Penoles S.A. de C.V. 451,746
TOTAL MEXICO 928,371
NETHERLANDS (8.8%)
ADVERTISING & PUBLISHING (0.5%)
40,000 Telegraaf N.V. 821,229
APPLIANCES & HOUSEHOLD DURABLES (2.3%)
68,150 Philips Electronics N.V. 3,557,386
ENERGY SOURCES (2.0%)
17,740 Royal Dutch Petroleum Co. 3,170,491
HEALTH & PERSONAL PRODUCTS (1.0%)
8,315 Unilever N.V. 1,617,078
INSURANCE (1.2%)
26,920 AEGON N.V. 1,906,770
MERCHANDISING (1.1%)
24,870 Ahold (Kon) N.V. 1,697,742
TRANSPORTATION (0.7%)
27,100 Van Ommeren (Kon) 1,055,736
TOTAL NETHERLANDS 13,826,432
NEW ZEALAND (0.5%)
ENERGY SOURCES (0.5%)
269,900 Fletcher Challenge Energy Ltd. 783,973
TOTAL NEW ZEALAND 783,973
SINGAPORE (0.5%)
BEVERAGES & TOBACCO (0.5%)
104,000 Fraser & Neave 754,404
</TABLE>
<PAGE>
PAGE 9
SCHEDULE OF INVESTMENTS-- APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
SPAIN (1.9%)
ENERGY SOURCES (1.0%)
37,300 Repsol S.A. $ 1,563,893
BANKING (0.9%)
19,600 BCO Santander S.A. 1,474,642
TOTAL SPAIN 3,038,535
SWEDEN (7.3%)
APPLIANCES & HOUSEHOLD DURABLES (1.2%)
33,500 Electrolux AB 1,921,680
AUTOMOTIVE (1.2%)
73,000 Volvo AB 1,837,865
BUSINESS & PUBLIC SERVICES (1.1%)
74,700 Esselte AB 1,704,501
ELECTRICAL & ELECTRONICS (0.7%)
92,000 ABB AB 1,114,128
HEALTH & PERSONAL PRODUCTS (1.8%)
47,492 Astra AB 1,943,342
33,700 Pharmacia & Upjohn 970,872
2,914,214
BUILDING MATERIALS & COMPONENTS (1.3%)
164,700 Swedish Match (b) 537,474
78,000 Assa Abloy 1,526,253
2,063,727
TOTAL SWEDEN 11,556,115
SWITZERLAND (8.9%)
BANKING (1.0%)
14,400 Credit Suisse Group 1,621,600
BUILDING PRODUCTS (1.4%)
2,745 Holderbank Financiere Glarus AG 2,135,890
BUSINESS & PUBLIC SERVICES (1.3%)
1,005 SGS Holding 2,079,404
PHARMACEUTICALS (2.9%)
825 Novartis AG Registered Shares 1,086,867
2,597 Novartis AG Bearer Shares 3,421,324
4,508,191
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
FOOD/HOUSEHOLD PRODUCTS (2.3%)
2,931 Nestle S.A. $ 3,559,114
TOTAL SWITZERLAND 13,904,199
TAIWAN (0.7%)
FINANCE (0.7%)
1,653,374 Chronicle 2001 Mutual Fund (b) 1,062,798
TOTAL TAIWAN 1,062,798
THAILAND (0.1%)
BUILDING MATERIALS (0.1%)
7,700 The Siam Cement Public Co., Ltd. 206,336
TOTAL THAILAND 206,336
UNITED KINGDOM (11.6%)
AIRLINES (1.1%)
151,900 British Airways 1,735,648
ADVERTISING & PUBLISHING (1.0%)
132,000 Pearson 1,523,241
AMUSEMENTS (0.6%)
153,300 London Clubs International 954,088
COSMETICS & TOILETRIES (0.2%)
90,000 Body Shop International 272,042
DIVERSIFIED HOLDINGS (0.8%)
178,000 Morgan Crucible Co. PLC 1,252,058
FOOD, BEVERAGES, AND TOBACCO (1.3%)
118,686 B.A.T. Industries 998,347
122,891 Guinness 1,015,793
2,014,140
HEALTH & PERSONAL CARE (0.8%)
420,200 London International Group 1,236,083
LEISURE & TOURISM (1.3%)
189,188 Compass Group 2,072,789
CONGLOMERATES (0.5%)
316,184 Lonrho PLC 707,186
MERCHANDISING (0.4%)
199,292 Tie Rack 623,393
PHARMACEUTICALS (0.8%)
63,500 Glaxo Wellcome PLC 1,248,387
</TABLE>
<PAGE>
PAGE 10
KEYSTONE INTERNATIONAL FUND INC.
SCHEDULE OF INVESTMENTS-- APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
ENERGY SOURCES (1.7%)
236,082 British Petroleum Co. PLC $ 2,709,012
TELECOMMUNICATIONS (1.1%)
130,800 British Telecommunications 958,211
188,717 Vodafone Group 844,180
1,802,391
TOTAL UNITED KINGDOM 18,150,458
TOTAL COMMON STOCKS
(COST-- $106,289,123) 136,523,088
<CAPTION>
PREFERRED STOCKS (3.6%)
<C> <S> <C>
BRAZIL (3.6%)
CONGLOMERATE (0.9%)
56,500 Vale Do Rio Doce Navegacao S.A. 1,439,727
56,500 Vale Do Rio Doce Navegacao S.A.,
B Shares 0
1,439,727
DIVERSIFIED HOLDINGS (1.3%)
2,335,000 Itausa Investimentos Itau SA 1,976,023
INDUSTRIAL COMPONENTS (0.2%)
29,200 Cofap Cia Fab Peca (b) 302,022
RETAIL (0.2%)
20,200,000 Lojas Americanas SA 286,808
UTILITIES (1.0%)
1,160,000 Cia Riograndense de Telecom 1,516,126
TOTAL PREFERRED STOCKS
(COST-- $5,601,942) 5,520,706
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
<C> <S> <C>
<CAPTION>
RIGHTS (0.0%)
<C> <S> <C>
GERMAN (0.0%)
AUTOMOTIVE (0.0%)
28,500 Daimler-Benz AG exp. 5/13/97 (b) $ 2,469
TOTAL RIGHTS (COST-- $0.00) 2,469
<CAPTION>
MATURITY
VALUE
<C> <S> <C>
<CAPTION>
SHORT-TERM INVESTMENT (7.9%)
REPURCHASE AGREEMENT (7.9%)
<C> <S> <C>
$12,335,886 Investment in repurchase
agreement, in a joint trading
account, purchased 4/30/97,
5.504%, maturing 5/1/97
maturity value $12,335,886 (c) 12,334,000
TOTAL SHORT-TERM INVESTMENTS
(COST-- $12,334,000) 12,334,000
TOTAL INVESTMENTS
(COST-- $124,225,065) (98.4%) 154,380,263
<CAPTION>
FOREIGN CURRENCY HOLDINGS (0.6%)
<S> <C>
Brazilian Real 847,358
French Franc 4,455
New Taiwan Dollar (d) 59,016
TOTAL FOREIGN CURRENCY HOLDINGS
(COST-- $922,382) 910,829
OTHER ASSETS AND LIABILITIES--
NET (1.0%) 1,554,473
NET ASSETS (100%) $156,845,565
</TABLE>
(a) Securities that may be resold to "qualified institutional buyers" under
Rule 144A of the Federal Securities Act of 1933. These securities have been
determined to be liquid under guidelines established by the Board of
Directors.
(b) Non-income-producing security.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at April 30, 1997.
(d) Investments denominated in the local currency and/or foreign currency
holdings of certain countries are considered illiquid due to foreign
exchange restrictions of these markets.
LEGEND OF PORTFOLIO ABBREVIATIONS:
ADR-- American Depository Receipt
GDR-- Global Depository Receipt
GDS-- Global Depository Share
<PAGE>
PAGE 11
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
EXCHANGE IN EXCHANGE U.S. $ VALUE AT APPRECIATION/
DATE FOR U.S. $ APRIL 30, 1997 (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
<CAPTION>
Forward Foreign Currency Exchange Contracts to Sell:
Contracts to Deliver
<S> <C> <C> <C> <C> <C>
07/09/97 3,870,368 Australian Dollar $3,000,000 $ 3,016,853 $ (16,853)
05/20/97 5,340,763 British Pound 8,530,000 8,653,143 (123,143)
05/20/97 2,576,854 Finnish Markka 515,000 496,234 18,766
05/20/97 2,437,025 Finnish Markka 476,000 469,307 6,693
05/06/97 57,653,598 French Franc 10,429,000 9,881,906 547,094
05/06/97 7,173,228 French Franc 1,241,000 1,229,501 11,499
05/20/97 8,440,623 German Mark 5,029,000 4,880,595 148,405
05/20/97 5,022,272 German Mark 2,941,000 2,904,013 36,987
07/28/97 2,452,108,250 Japanese Yen 19,700,000 19,575,267 124,733
05/20/97 18,328,100 Netherlands Guilder 9,727,000 9,420,083 306,917
05/20/97 8,779,520 Netherlands Guilder 4,573,000 4,512,405 60,595
05/20/97 1,176,416 Netherlands Guilder 610,000 604,642 5,358
06/13/97 96,914 New Zealand Dollar 68,000 67,098 902
05/20/97 12,691,532 Swiss Franc 8,697,000 8,628,606 68,394
05/20/97 6,724,547 Swiss Franc 4,555,000 4,571,825 (16,825)
05/20/97 2,119,464 Swiss Franc 1,443,000 1,440,962 2,038
1,181,560
<CAPTION>
Forward Foreign Currency Exchange Contracts to Buy:
Contracts to Receive
<S> <C> <C> <C> <C> <C>
05/20/97 2,642,470 British Pound 4,310,000 4,281,348 (28,652)
05/20/97 5,586,196 German Mark 3,356,000 3,230,089 (125,911)
05/20/97 12,014,575 Netherlands Guilder 6,428,000 6,175,124 (252,876)
05/20/97 9,394,985 Swiss Franc 6,501,000 6,387,379 (113,621)
(521,060)
Net Unrealized Appreciation on Forward Foreign Currency Exchange Contracts $ 660,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 12
KEYSTONE INTERNATIONAL FUND INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
APRIL 30, 1997 YEAR ENDED OCTOBER 31,
(UNAUDITED) 1996
<S> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $7.69 $7.11
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.04) (0.02)
Net realized and unrealized gain (loss) on investments and foreign
currency related transactions 0.96 0.75
Total from investment operations 0.92 0.73
LESS DISTRIBUTIONS FROM:
Net investment income 0 (0.09)
In excess of net investment income 0 (0.01)
Net realized gains on investments and foreign currency related
transactions 0 (0.05)
Total distributions 0 (0.15)
NET ASSET VALUE END OF PERIOD $8.61 $7.69
TOTAL RETURN (A) 11.96% 10.47%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.42%(b) 2.43%
Total expenses excluding indirectly paid expenses 2.41%(b) 2.42%
Net investment income (loss) (0.84%)(b) (0.21%)
Portfolio turnover rate 43% 52%
Average commission rate paid $0.0008 $0.0011
NET ASSETS END OF PERIOD (THOUSANDS) $156,846 $147,911
<CAPTION>
ONE MONTH
ENDED
OCTOBER 31,
1995 1994(C)
<S> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $7.77 $7.67
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.07 0
Net realized and unrealized gain (loss) on investments and foreign
currency related transactions 0.05 0.10
Total from investment operations 0.12 0.10
LESS DISTRIBUTIONS FROM:
Net investment income (0.04) 0
In excess of net investment income 0 0
Net realized gains on investments and foreign currency related
transactions (0.74) 0
Total distributions (0.78) 0
NET ASSET VALUE END OF PERIOD $7.11 $7.77
TOTAL RETURN (A) 2.19% 1.30%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.57% 2.52%(b)
Total expenses excluding indirectly paid expenses 2.56% N/A
Net investment income (loss) 0.88% (0.20%)(b)
Portfolio turnover rate 76% 2%
Average commission rate paid N/A N/A
NET ASSETS END OF PERIOD (THOUSANDS) $128,674 $157,929
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) Calculation based on average shares outstanding.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 13
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1994(C) 1993(C) 1992(C) 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $7.08 $6.01 $5.91 $5.35 $7.51 $6.66 $9.53
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0 (0.03) (0.01) (0.01) (0.07) (0.14) 0.03
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions 0.62 1.14 0.34 0.83 (1.74) 1.06 (1.60)
Total from investment operations 0.62 1.11 0.33 0.82 (1.81) 0.92 (1.57)
LESS DISTRIBUTIONS FROM:
Net investment income (0.02) 0 0 0 0 (0.07) (0.08)
In excess of net investment income (0.01) (0.04) (0.23) (0.03) 0 0 0
Net realized gains on investments and foreign
currency related transactions 0 0 0 (0.23) (0.35) 0 (1.22)
Total distributions (0.03) (0.04) (0.23) (0.26) (0.35) (0.07) (1.30)
NET ASSET VALUE END OF PERIOD $7.67 $7.08 $6.01 $5.91 $5.35 $7.51 $6.66
TOTAL RETURN (A) 8.75% 18.59% 5.78% 15.59% (25.12%) 13.55% (15.55%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.54% 2.94% 3.41% 3.14% 2.92% 2.65% 2.04%
Total expenses excluding indirectly paid
expenses N/A N/A N/A N/A N/A N/A N/A
Net investment income (loss) 0.01% (0.46%) (0.09%) (0.07%) (0.51%) (0.79%) 0.33%
Portfolio turnover rate 121% 68% 74% 85% 42% 42% 60%
Average commission rate paid N/A N/A N/A N/A N/A N/A N/A
NET ASSETS END OF PERIOD (THOUSANDS) $154,529 $111,752 $ 64,135 $ 72,923 $ 73,768 $121,047 $115,712
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) Calculation based on average shares outstanding.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 14
KEYSTONE INTERNATIONAL FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at market value
(identified cost-- $124,225,065) $154,380,263
Foreign currency holdings (identified
cost-- $922,382) 910,829
Total investments and foreign currency
holdings (identified cost-- $125,147,447) 155,291,092
Cash 828
Unrealized appreciation on open forward
foreign currency exchange contracts 1,338,381
Receivable for Fund shares sold 715,294
Interest and dividends receivable 638,687
Receivable for refundable foreign tax
withheld 129,115
Receivable for investments sold 338
Prepaid expenses 45,605
Total assets 158,159,340
LIABILITIES:
Unrealized depreciation on open forward
foreign currency exchange contracts 677,881
Payable for Fund shares redeemed 291,620
Payable for foreign taxes withheld 78,471
Payable for investments purchased 74,744
Other accrued expenses 191,059
Total liabilities 1,313,775
NET ASSETS $156,845,565
NET ASSETS REPRESENTED BY
Paid-in capital $109,594,266
Accumulated net investment loss (767,305)
Accumulated net realized gains on investments
and foreign currency related transactions 17,235,368
Net unrealized appreciation (depreciation) on
investments and foreign currency related
transactions 30,783,236
Total net assets $156,845,565
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
Net assets of $156,845,565 18,220,590 shares
outstanding $8.61
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign
withholding taxes of $136,535) $ 1,019,781
Interest 175,506
Total income 1,195,287
EXPENSES
Distribution Plan expenses $ 763,148
Management fee 569,123
Transfer agent fees 298,852
Custodian fees 134,422
Professional fees 17,572
Administrative service fee 8,441
Directors fees 6,387
Miscellaneous expenses 45,598
Total expenses 1,843,543
Less: Expenses paid indirectly (10,613)
Net expenses 1,832,930
Net investment loss (637,643)
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY RELATED TRANSACTIONS:
Realized gain on:
Investments 12,485,031
Foreign currency related
transactions 2,156,946
Net realized gain on investments
and foreign currency related
transactions 14,641,977
Net change in unrealized
appreciation (depreciation) on:
Investments 4,403,502
Foreign currency related
transactions (573,829)
Net change in unrealized
appreciation (depreciation) on
investments and foreign currency
related transactions 3,829,673
Net realized and unrealized gain
on investments and foreign
currency related transactions 18,471,650
Net increase in net assets
resulting from operations $17,834,007
</TABLE>
<PAGE>
PAGE 15
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1997 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1996
<S> <C> <C>
OPERATIONS
Net investment loss $ (637,643) $ (304,691)
Net realized gain on investments and foreign currency related transactions 14,641,977 4,704,866
Net change in unrealized appreciation (depreciation)
on investments and foreign currency related transactions 3,829,673 9,450,694
Net increase in net assets resulting from operations 17,834,007 13,850,869
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income 0 (1,681,273)
In excess of net investment income 0 (117,517)
Net realized gains on investments and foreign currency related transactions 0 (894,973)
Total distributions to shareholders 0 (2,693,763)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 111,947,418 216,278,164
Payments for shares redeemed (120,846,414) (210,495,769)
Net asset value of shares issued in reinvestment of distributions 0 2,297,398
Net increase (decrease) in net assets resulting from capital share transactions (8,898,996) 8,079,793
Total increase in net assets 8,935,011 19,236,899
NET ASSETS:
Beginning of period 147,910,554 128,673,655
End of period [including accumulated net investment loss at April 30, 1997 of
($767,305) and at October 31, 1996 of ($129,662)] $156,845,565 $147,910,554
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 16
KEYSTONE INTERNATIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Keystone International Fund Inc. (the "Fund") is a Massachusetts business 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") and is currently a subsidiary of First Union Keystone,
Inc. First Union Keystone, Inc. is a wholly-owned subsidiary of First Union
National Bank of North Carolina which in turn is a wholly-owned 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 diversified,
open-end investment company. The Fund's primary investment objective is long
term growth of capital. As a secondary objective, the Fund seeks modest income
from its investments.
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
requires 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 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
carried at amortized cost, which approximates market value. Short-term
investments 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 United States 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 related 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 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 related transactions.
<PAGE>
PAGE 17
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 marked-to-market daily.
Realized gains and losses arising from such transactions are included in net
realized gain (loss) on investments and 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
("Internal Revenue Code"). Thus, the Fund will be 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 taxes is required.
G. 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.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatment of foreign currency gains and losses.
2. CAPITAL SHARE TRANSACTIONS
One hundred million shares of the Fund with a par value of $1.00 are authorized
for issuance. Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
4/30/97 10/31/95
<S> <C> <C>
Shares sold 13,777,400 28,960,907
Shares redeemed (14,803,422) (28,130,870)
Shares issued in
reinvestment of
distributions 0 327,732
Net increase (decrease) (1,026,022) 1,157,769
</TABLE>
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities and foreign cash) for the six months ended April 30, 1997
were $55,057,180 and $64,564,811, respectively.
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
Distribution Plan, the Fund pays its principal underwriter amounts which are
calculated daily and paid monthly.
The Fund entered into a principal underwriting agreement with Evergreen
Keystone Distributor, Inc. (formerly, Evergreen Funds Distributor, Inc.)
("EKD"), a wholly-owned subsidiary of The BISYS Group, Inc. Evergreen Keystone
Investment Services, Inc. (formerly Keystone Investment Distributors Company),
("EKIS"), a wholly-owned subsidiary of Keystone, previously served as the Fund's
principal underwriter.
Under the Plan, the Fund pays a distribution fee which may not exceed 1.00% of
the Fund's average daily net assets. Of that amount, 0.75% is used to pay
<PAGE>
PAGE 18
KEYSTONE INTERNATIONAL FUND, INC.
distribution expenses and 0.25% may be used to pay shareholder service fees.
The Plan 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 Fund. However,
after the termination of the Plan, at the discretion of the Board of Directors,
payments to EKIS and/or EKD may continue as compensation for its services which
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, payments thereof by the Fund would be within permitted
limits.
Total unpaid distribution costs at April 30, 1997, amounted to $1,831,536.
5. INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Under the terms of the investment advisory and management agreement dated
December 11, 1996, Keystone serves as Investment Advisor and Manager to the
Fund. In return, Keystone is paid a management fee computed daily and payable
monthly. The management fee is calculated by applying percentage rates, which
start at 0.75% and decline, as net assets increase, to 0.45% per annum, to the
net asset value of the shares 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 an investment advisory
agreement between KMI and Keystone, Keystone served as the Investment Advisor
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.
During the six months ended April 30, 1997, the Fund paid or accrued $8,441 to
Keystone for certain accounting services. Evergreen Keystone Service Company
(formerly Keystone Investor Resource Center, Inc.), a wholly owned subsidiary of
Keystone, serves as the Fund's transfer and dividend disbursing agent.
Officers of the Fund and affiliated Directors 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 April 30, 1997 the Fund paid or incurred custody fees in
the amount of $134,422 and received credit of $10,613 pursuant to the expense
offset arrangement, resulting in a net custody expense of $123,809. The assets
deposited with the custodian under the expense offset arrangement could have
been invested in income-producing assets.
<PAGE>
PAGE 19
ADDITIONAL INFORMATION (UNAUDITED)
Shareholders of the Fund considered and acted upon the proposals listed below at
a special meeting of shareholders held Monday, December 9, 1996. In addition,
below each proposal are the results of that vote.
1. TO ELECT THE FOLLOWING TRUSTEES:
<TABLE>
<CAPTION>
AFFIRMATIVE WITHHELD
<S> <C> <C>
Frederick Amling 11,831,967 304,170
Laurence B. Ashkin 11,832,096 304,040
Charles A. Austin III 11,832,378 303,758
Foster Bam 11,831,884 304,252
George S. Bissell 11,827,159 308,978
Edwin D. Campbell 11,831,522 304,614
Charles F. Chapin 11,832,378 303,758
K. Dun Gifford 11,831,420 304,717
James S. Howell 11,831,967 304,170
Leroy Keith, Jr. 11,832,378 303,758
F. Ray Keyser 11,831,294 304,843
Gerald M. McDonnell 11,832,056 304,081
Thomas L. McVerry 11,832,056 304,081
William Walt Pettit 11,830,886 305,251
David M. Richardson 11,831,611 304,525
Russell A. Salton, III M.D. 11,831,859 304,277
Michael S. Scofield 11,830,886 305,251
Richard J. Shima 11,831,549 304,588
Andrew J. Simons 11,830,295 305,841
</TABLE>
2. TO APPROVE AN INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT BETWEEN THE FUND
AND KEYSTONE INVESTMENT MANAGEMENT COMPANY.
<TABLE>
<S> <C>
Affirmative 11,491,782
Against 219,613
Abstain 424,742
</TABLE>
<PAGE>
<PAGE>
KEYSTONE
FAMILY OF FUNDS
(bullet)
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 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
FUNDS LOGO HERE)
P.O. Box 2121
Boston, Massachusetts 02106-2121
KEYSTONE
(PHOTO OF GLOBE HERE)
INTERNATIONAL
FUND INC.
(Evergreen Keystone
FUNDS Logo Here)
SEMI-ANNUAL REPORT
APRIL 30, 1997
<PAGE>
EVERGREEN KEYSTONE FUNDS
EVERGREEN KEYSTONE INVESTMENT SERVICES, INC.
200 Berkeley Street
Boston, MA 02116-5034
