PAGE 1
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
SEEKS LONG-TERM CAPITAL APPRECIATION AND PROTECTION OF PURCHASING POWER BY
INVESTING IN COMMON STOCKS
OF GOLD-ORIENTED OR OTHER PRECIOUS METAL AND MINERALS COMPANIES.
Dear Shareholder:
We are writing to report to you on the performance of Keystone Precious Metals
Holdings, Inc. for the six months which ended August 31, 1997.
PERFORMANCE
Your Fund produced a total return of -23.2% for the six-month period which ended
August 31, 1997. The Financial Times Gold Mines Index, an index of gold stocks,
returned -26.0% for the six-month period, and the Lipper Gold Fund Index,
comprised of ten mutual funds, returned -26.9%. Your Fund outperformed relevant
indices during a period in which gold stocks experienced sharp price declines.
MARKET OVERVIEW
Despite strong physical demand for gold, the price of the metal declined
steadily over the six-month period. International monetary developments, central
bank sales and the absence of investor interest controlled the course of bullion
prices. Continued strong performance in the broader equity markets gave
investors little incentive to look elsewhere for higher returns.
The price of gold was $363 an ounce at the start of your Fund's fiscal year on
March 1, 1997. It bottomed out at $318 in July, reaching an 11-year low in
response to the Australian central bank's announcement that it had sold two-
thirds of its gold holdings. Prices rebounded somewhat in the following weeks,
and remained in the $320 to $330 range through August 31, 1997.
Gold stock prices dropped more sharply than the price of the metal, but
declines varied by geographic region. North American gold stocks outperformed
other regions, losing an average of 20.7%, while South African stocks were hit
hardest, with the average issue down 38.1%.
MAINTAINING A CONSERVATIVE STRATEGY
The conservative management style of Keystone Precious Metals Holdings, Inc.,
its broad geographic diversification and several non-gold holdings helped it
outperform the average gold stock fund during this difficult period. We continue
to maintain our strategy of focusing on well established mining companies with
good track records and strong exploration programs to ensure future growth.
These companies also tend to be more resilient in down markets. However, the
recent value of gold as an asset has been hampered by an absence of inflation
and the strength of the U.S. economy, the dollar and the stock market.
OUR OUTLOOK
Gold has traditionally served as a hedge against adverse market conditions. Due
to the cyclical nature of investment markets, the factors currently leading to
low gold prices should not last indefinitely. Any number of changes could occur
that would alter investors' perception of gold, including an equity market
correction, inflation, an economic slowdown or a currency crisis. Such changes
would reaffirm the value of gold in a diversified portfolio.
-- CONTINUED--
<PAGE>
PAGE 2
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
CHANGE IN FUND'S FISCAL YEAR
Keystone Precious Metals Holdings, Inc. will change its fiscal year for
reporting purposes. The new fiscal year will run from November to October,
beginning November 1, 1997. While this won't have any effect on the performance
of your Fund, you can expect to receive an additional shareholder report
summarizing the eight-month period ending October 31, 1997.
We appreciate your continued support of Keystone Precious Metals Holdings,
Inc., and encourage you to write to us with any questions or comments about your
Keystone investment.
Sincerely,
/s/ Albert H. Elfner, III
Albert H. Elfner, III
CHAIRMAN AND PRESIDENT
KEYSTONE INVESTMENT MANAGEMENT CO.
/s/ George S. Bissell
George S. Bissell
CHAIRMAN OF THE BOARD
KEYSTONE FUNDS
<TABLE>
<S> <C>
[Photo of [Photo of
Albert H. Elfner, III George S. Bissell
Goes Here] Goes Here]
ALBERT H. ELFNER, III GEORGE S. BISSELL
</TABLE>
October 1997
<PAGE>
PAGE 3
A Discussion With
Your Fund Manager
[Photo of
John C. Madden, Jr.
Goes Here]
JOHN C. MADDEN, JR. IS A VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER OF
KEYSTONE PRECIOUS METALS HOLDINGS, INC. AND KEYSTONE GLOBAL RESOURCES AND
DEVELOPMENT FUND. A CHARTERED FINANCIAL ANALYST, MR. MADDEN HAS MORE THAN
30 YEARS OF EXPERIENCE IN INVESTMENT RESEARCH AND MANAGEMENT, SPECIALIZING
IN PRECIOUS METALS, NATURAL RESOURCES AND ENERGY. HE HOLDS A BA FROM YALE
UNIVERSITY.
(Q) GIVEN THE RECENT WEAKNESS IN THE GOLD MARKET, WHAT ARE THE REASONS TO OWN A
FUND THAT INVESTS PRIMARILY IN GOLD-RELATED SECURITIES?
(A) Despite recent negative returns, we believe a long-term investment in
gold-related securities adds valuable diversification to any portfolio. Holding
gold-related stocks can help offset market fluctuations, because their
performance generally differs from that of broader stock and bond market
indexes. We've seen ample evidence of this contrarian performance during the
current strong economic cycle. Gold mining stocks can also provide a hedge
against inflation and currency uncertainties. We continue to believe that the
best way to take advantage of the unpredictable nature of these markets is to
maintain exposure to high quality gold stocks.
(Q) WHAT FACTORS CONTRIBUTED TO THE LOW PRICE OF GOLD DURING THE PERIOD?
(A) Real and rumored central bank sales have had a negative effect on bullion
prices since early 1996, related largely to moves by European countries toward
monetary union. But the specific catalyst for the July downturn-- the
announcement by the Australian central bank that they had sold 160 tonnes of
gold, accounting for two-thirds of their holdings-- had an inordinate impact
because it was so unexpected. Australia is not directly associated with the EMU,
and it is also a large gold producer. Bearish gold speculators responded
accordingly. It's also important to remember that market conditions for most
other investments have remained unusually strong this year, diminishing gold's
attraction as a valuable investment.
[Performance Graph Goes Here]
<PAGE>
PAGE 4
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
<TABLE>
<CAPTION>
ASSET ALLOCATION
(AS A PERCENTAGE OF
PORTFOLIO ASSETS)
<S> <C> <C>
AUGUST 31, 1997 FEBRUARY 28, 1997
North America 65% 59%
South Africa 23% 27%
Australia 12% 14%
</TABLE>
(Q) DID GEOGRAPHIC DIVERSIFICATION HELP THE FUND'S PERFORMANCE?
(A) Yes, the Fund's overweighting in North American gold stocks helped
performance. All gold-related stocks fared considerably worse than the metal,
but performance varied widely by region. As you can see from the chart, South
African gold stocks declined almost twice as much as stocks of North American
companies, which in turn declined more than the price of gold. North American
companies accounted for 65% of the Fund's holdings as of August 31, 1997.
(Q) WHAT CHANGES DID YOU MAKE IN THE FUND'S PORTFOLIO?
(A) We increased the percentage of North American stocks and pared back holdings
in Australia and South Africa. Some of the shift is due to the differential
performance of these regions, but we did actively increase our exposure to the
stronger North American market during the period. We also expanded the non-gold
holdings of the Fund, specifically in platinum and diamond producers.
(Q) PLEASE DESCRIBE ONE OF THE NON-GOLD HOLDINGS.
(A) Stillwater Mining is a North American miner of palladium and platinum,
metals used in jewelry, electronics and automobile catalytic converters. With
substantial reserves, Stillwater is the largest primary source of platinum and
palladium outside of South Africa. Production is from the Stillwater Complex, a
unique deposit in southern Montana. The stock has underperformed recently, due
to management changes and operating difficulties, but a recently completed
expansion will double ore throughput to 2,000 tons per day next year and reduce
costs, which we believe should help stock performance. A second mine on the same
ore body is also under development, which has the potential of doubling output
again by early in the next decade.
(Q) WHAT ABOUT GOLD STOCKS?
(A) In the gold area, we have added to our holdings of a relatively small U.S.
producer, Canyon Resources. This past spring, Canyon successfully brought on
stream the Briggs mine in southern California, with planned production of 75,000
ounces per year at a cash cost of $240 per ounce. While other prospects for
development exist in the vicinity of Briggs, our main interest in Canyon
involves its joint venture with Phelps Dodge: the MacDonald project in Montana.
The location of this project, along the scenic Blackfoot River, has made the
permitting process quite arduous. However, if the mine goes forward, Canyon will
be a 28% owner of a 300,000 ounce operation to which the stock market is
currently assigning little value.
(Q) WHAT IS YOUR STRATEGY FOR MANAGING THE FUND?
(A) The Fund's objective is to seek long-term capital appreciation and
protection of purchasing power by investing in common stocks of gold-oriented or
other precious metal and minerals companies. As a sector fund, it is likely to
experience greater price fluctuation than more diversified investments, but we
rely on a conservative strategy to reduce the level of volatility. We focus on
companies with growing reserves and expanding production that may have a greater
ability to maintain their value during periods of lower gold prices. We believe
this approach offers Fund investors the advantages of ongoing exposure to the
potential of gold stocks, but with reduced downside risk.
<PAGE>
PAGE 5
TOP 10 HOLDINGS
AS OF AUGUST 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF
STOCK (COUNTRY) NET ASSETS
<S> <C>
Newmont Mining Corp. (United States) 11.3
Euro Nevada Mining (Canada) 8.8
Franco Nevada Mining (Canada) 8.5
Pioneer Group (United States) 5.5
Homestake Mining (United States) 4.8
Getchell Gold (Canada) 4.7
Newmont Gold (United States) 4.5
Stillwater Mining (United States) 3.6
Prime Resources Group (Canada) 3.2
Normandy Mining (Australia) 3.1
</TABLE>
Growth of an Investment
[Performance Growth Graph Goes Here]
(Q) WHAT IS YOUR OUTLOOK FOR THE GOLD MARKET?
(A) Over the past few years, gold investments have had a difficult time
competing against a strong U.S. economy, a long bull market for stocks, a strong
dollar and minimal inflation. Under these circumstances, investors haven't
needed what gold has to offer, and without investment appeal, the price has
languished. While demand, particularly in emerging countries, is still positive,
gold as an investment will only move up substantially when its perceived value
relative to other financial assets improves. Looking ahead, we do not expect the
lows we saw this past summer to continue, and believe the price will recover
modestly by the end of the year. Longer term, any number of economic or
investment scenarios could improve the environment for gold. In particular,
forthcoming decisions regarding the European Monetary Union will be critical.
We believe the companies in your Fund's portfolio are in a good position to
benefit from even modest increases in the price of the metal.
*
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
201 SOUTH COLLEGE STREET, SUITE 400
CHARLOTTE, N.C. 28288-1195
<PAGE>
PAGE 6
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
SCHEDULE OF INVESTMENTS-- AUGUST 31, 1997 (UNAUDITED)
[CAPTION]
<TABLE>
<CAPTION>
SHARES VALUE
<C> <C> <S> <C>
COMMON STOCKS-- 99.0%
<C> <C> <S> <C>
AUSTRALIA-- 12.3%
2,899,200 * Acacia Resources Ltd............ $ 3,190,932
800,000 Delta Gold NL................... 986,160
3,381,582 Normandy Mining Ltd............. 4,094,039
3,500,000 * Perilya Mines NL................ 1,515,194
1,052,000 Plutonic Resources NL........... 2,994,992
1,376,304 Ross Mining NL.................. 787,693
799,600 Sons of Gwalia Ltd.............. 2,522,838
16,091,848
CANADA-- 33.7%
100,100 * Aber Resources Ltd.............. 1,312,314
26,000 Agnico Eagle Mines Ltd.......... 227,553
104,700 Barrick Gold Corp............... 2,368,147
400,000 * Bema Gold Corp.................. 2,103,368
750,000 Euro Nevada Mining Ltd.......... 11,480,281
470,000 Franco Nevada Mining Ltd........ 11,155,411
179,700 * Getchell Gold Corp.............. 6,109,800
50,000 * International Precious Metals
Corp.......................... 353,125
150,000 * Kinross Gold Corp............... 646,875
337,100 * Orvana Minerals Corp............ 1,214,118
524,800 * Prime Resources Group Inc....... 4,233,935
300,000 * Repadre Capital Corp............ 1,620,745
185,300 * TVX Gold Inc.................... 961,244
429,000 * Vengold Inc..................... 154,511
43,941,427
SOUTH AFRICA-- 22.6%
289,520 * Ashanti Goldfields Ltd. GDR**... 3,003,770
2,932,916 * Avgold Ltd. ADR................. 2,675,665
150,000 Avmin Ltd. ADR.................. 1,837,500
110,000 De Beers Centenary.............. 3,505,275
45,200 De Beers Consolidated Mines Ltd.
ADR........................... 1,446,400
300,000 Elandsrand Gold Mining Ltd.
ADR........................... 1,023,120
<CAPTION>
SHARES VALUE
<C> <C> <S> <C>
<CAPTION>
COMMON STOCKS-- CONTINUED
<C> <C> <S> <C>
SOUTH AFRICA-- CONTINUED
283,000 Free St Consolidated Gold Mines
Ltd. ADR...................... $ 1,432,687
75,000 Free State Consolidated Gold
Mines Ltd..................... 379,676
267,000 * Harmony Gold Mining Ltd ADR..... 1,294,710
150,000 * Harmony Gold Mining Ltd......... 727,379
300,000 * Randgold & Exploration Co.
Ltd........................... 1,055,100
70,000 Randgold Resources Inc.**....... 962,500
72,800 Rustenberg Platinum Holdings.... 1,237,515
18,500 Vaal Reefs Exploration & Mining
Ltd........................... 922,733
638,000 Vaal Reefs Exploration & Mining
Ltd. ADR...................... 3,209,937
288,585 * Western Areas Gold Mining Ltd.
ADR........................... 2,414,331
20,900 Western Deep Levels Ltd......... 501,172
75,000 Western Deep Levels Ltd. ADR.... 1,809,375
29,438,845
UNITED STATES-- 30.4%
499,000 * Canyon Resource Corp............ 1,122,750
448,000 Homestake Mining Co............. 6,272,000
135,000 Newmont Gold Co................. 5,838,750
347,650 Newmont Mining Corp............. 14,709,941
220,000 Pioneer Group Inc............... 7,136,250
220,900 * Stillwater Mining Company....... 4,638,900
39,718,591
TOTAL COMMON STOCKS
(COST $136,134,202)............. 129,190,711
TOTAL LONG-TERM INVESTMENTS
(COST $136,134,202)............................ 129,190,711
</TABLE>
<PAGE>
PAGE 7
SCHEDULE OF INVESTMENTS-- AUGUST 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
REPURCHASE AGREEMENT-- 0.2%
<C> <C> <S> <C>
$ 327,000 Keystone Joint Repurchase
Agreement, Investments in
repurchase agreements, in a
joint trading account
purchased 8/29/97 5.585%,
maturing 9/2/97, maturing
value $327,203 (a) (cost,
$327,000),.................... $ 327,000
</TABLE>
<TABLE>
<C> <C> <S> <C> <C>
TOTAL INVESTMENTS--
(COST $136,461,202) 99.2% 129,517,711
<CAPTION>
INVESTMENTS IN WHOLLY-OWNED UNCONSOLIDATED
FOREIGN SUBSIDIARY-- 0.6%
<C> <C> <S> <C> <C>
PRECIOUS METALS (BERMUDA) LTD. 823,158
OTHER ASSETS AND
LIABILITIES-- NET 0.2% 200,307
NET ASSETS-- 100.0% $130,541,176
</TABLE>
* Non-income producing securities
** Securities that may be resold to "qualified institutional buyers" under Rule
144A of the Securities Act of 1933. These securities have been determined to
be liquid under guidelines established by the Board of Directors.
(a) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at August 29, 1997.
LEGEND OF PORTFOLIO ABBREVIATIONS:
ADR-- American Depository Receipt
GDR-- Global Depository Receipt
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
<S> <C>
Gold Mining...................................................................... 66.2%
Metals and Mining................................................................ 32.8
Total Long-Term Investments.................................................... 99.0
Repurchase Agreements............................................................ 0.2
Investment in Wholly-Owned Unconsolidated Foreign Subsidiary..................... 0.6
Other Assets and Liabilities-- net............................................... 0.2
Net Assets..................................................................... 100.0%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 8
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
AUG. 31, 1997 FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28,
(UNAUDITED) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $23.94 $26.35 $19.30 $25.09 $14.38 $15.37
INCOME FROM INVESTMENT OPERATIONS (B):
Net investment income (loss) (0.08) (0.26) (0.25) (0.13) (0.17) (0.12)
Net gains (losses) on securities (5.47) (1.16) 7.30 (5.54) 10.88 (0.76)
Total from investment operations (5.55) (1.42) 7.05 (5.67) 10.71 (0.88)
LESS DISTRIBUTIONS:
Dividends from net investment income 0 0 0 (0.12) 0 0
Distributions in excess of net investment
income 0 0 0 0 0 (0.11)
Distributions from realized capital gains 0 (0.99) 0 0 0 0
Total distributions 0 (0.99) 0.00 (0.12) 0.00 (0.11)
NET ASSET VALUE END OF PERIOD $18.39 $23.94 $26.35 $19.30 $25.09 $14.38
TOTAL RETURN (A) (23.18%) (5.16%) 36.53% (22.70%) 74.48% (5.74%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.46% 2.33% 2.28% 2.33% 2.34% 2.83%
Total expenses excluding indirectly paid
expenses 2.45% 2.31% 2.26% n/a n/a n/a
Net investment income (loss) (0.85%) (1.08%) (1.08%) (0.54%) (0.75%) (0.86%)
PORTFOLIO TURNOVER RATE 9% 41% 39% 75% 73% 58%
AVERAGE COMMISSION RATE PAID $0.01653 $0.01636 n/a n/a n/a n/a
NET ASSETS, END OF PERIOD (THOUSANDS) $130,541 $190,108 $217,270 $171,193 $200,489 $114,364
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29,
1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $14.22 $19.15 $16.82 $15.50 $17.31
INCOME FROM INVESTMENT OPERATIONS (B):
Net investment income (loss) (0.02) 0 0.06 0.05 (0.01)
Net gains (losses) on securities 1.30 (4.61) 2.27 1.59 (0.17)
Total from investment operations 1.28 (4.61) 2.33 1.64 (0.18)
LESS DISTRIBUTIONS:
Dividends from net investment income 0 (0.06) 0 (0.12) (0.41)
Distributions in excess of net investment income (0.13) (0.26) 0 0 0
Distributions from realized capital gains 0 0 0 (0.20) (1.22)
Total distributions (0.13) (0.32) 0.00 (0.32) (1.63)
NET ASSET VALUE END OF PERIOD $15.37 $14.22 $19.15 $16.82 $15.50
TOTAL RETURN (A) 9.07% (24.37%) 13.85% 10.64% (2.86%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.70% 2.76% 2.20% 1.68% 1.84%
Total expenses excluding indirectly paid expenses n/a n/a n/a n/a n/a
Net investment income (loss) (0.14%) (0.02%) 0.32% 0.28% (0.05%)
PORTFOLIO TURNOVER RATE 53% 68% 95% 82% 62%
AVERAGE COMMISSION RATE PAID n/a n/a n/a n/a n/a
NET ASSETS, END OF PERIOD (THOUSANDS) $131,356 $150,200 $195,837 $222,079 $222,646
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 9
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at market value
(identified cost-- $136,461,202) $129,517,711
Investment in wholly-owned unconsolidated
foreign subsidiary, at fair value 823,158
Total investments $130,340,869
Cash 290
Receivable for Fund shares sold 235,726
Receivable for interest and dividends 457,721
Prepaid expenses 36,760
Other assets 1,984
Total assets 131,073,350
LIABILITIES:
Payable for Fund shares redeemed 253,070
Due to affiliates 2,500
Distribution plan expense payable 130,220
Other accrued expenses 146,384
Total liabilities 532,174
NET ASSETS $130,541,176
NET ASSETS REPRESENTED BY:
Paid-in capital $127,786,120
Accumulated undistributed net investment
income 4,103,833
Accumulated net realized gain on investments
and foreign currency related transactions 5,596,428
Net unrealized depreciation on investments
and foreign currency related transactions (6,945,205)
Total net assets applicable to outstanding
shares of beneficial interest ($18.39 a
share on 7,098,111 shares outstanding) $130,541,176
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding
taxes of $76,350) $ 1,109,536
Interest 85,200
Total investment income 1,194,736
EXPENSES:
Management fee $ 522,150
Distribution Plan expenses 733,649
Transfer agent fees 320,757
Registration fees 88,217
Custodian fees 62,847
Printing 32,674
State tax expense 25,377
Professional fees 16,230
Directors' fees and expenses 12,564
Reimbursable accounting 11,833
Miscellaneous expenses 7,244
Total expenses 1,833,542
Less: Indirectly paid expenses (4,725)
Net expenses 1,828,817
Net investment loss (634,081)
EQUITY IN EARNINGS OF WHOLLY-OWNED
UNCONSOLIDATED FOREIGN SUBSIDIARY 15,866
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY RELATED
TRANSACTIONS:
Net realized gain on investments 1,383,032
Net realized gain on foreign
currency related transactions 784
Net realized gain on investments
and foreign currency related
transactions 1,383,816
Net change in unrealized
appreciation (depreciation) on
investments: (42,621,788)
Net loss on investments and
foreign currency related
transactions (41,237,972)
Net decrease in net assets
resulting from operations $(41,856,187)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 10
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, 1997 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1997
<S> <C> <C>
OPERATIONS
Net investment loss $ (634,081) $ (2,063,632)
Equity in earnings of wholly-owned unconsolidated foreign subsidiary 15,866 69,764
Net realized gain on investments and foreign currency related transactions 1,383,816 14,024,717
Net change in unrealized appreciation (depreciation) on investments and foreign
currency holdings (42,621,788) (17,875,249)
Net decrease in net assets resulting from operations (41,856,187) (5,844,400)
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net realized gains on investments and foreign currency related transactions 0 (7,301,560)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 62,352,993 618,026,217
Payments for shares redeemed (80,063,241) (638,015,009)
Reinvestment of dividends and distributions 0 5,971,990
Net decrease in net assets resulting from capital share transactions (17,710,248) (14,016,802)
Total decrease in net assets (59,566,435) (27,162,762)
NET ASSETS
Beginning of period 190,107,611 217,270,373
End of period (including accumulated undistributed net investment income of
$4,103,833 and $4,722,048, respectively.) $130,541,176 $ 190,107,611
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 11
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Keystone Precious Metals Holdings, Inc. (the "Fund") is a Delaware corporation
for which Keystone Investment Management Company ("Keystone") is the investment
advisor and manager. Keystone was formerly a wholly-owned subsidiary of Keystone
Investments, Inc. ("KII") and is currently a subsidiary of First Union
Corporation ("First Union").
The Fund is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as a diversified, open-end investment company. The Fund's
investment objective is to seek long-term capital appreciation while protecting
the purchasing power of shareholders' capital. Obtaining current income is a
secondary objective.
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, including American Depository Receipts ("ADR's"), are usually
valued at the closing sales price, or, in the absence of sales and for
over-the-counter securities, the mean of the bid and asked prices.
Securities for which valuations are not available from an independent pricing
service (including restricted securities) are valued at fair value as determined
in good faith according to procedures established by the Board of Directors.
Short-term investments with remaining maturities of 60 days or less are
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 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 12
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
D. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are accounted for no later than one business day after
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. Dividend income is recorded on the ex-dividend date.
E. FEDERAL INCOME TAXES
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Fund is relieved of any federal income tax liability by
distributing all of its net taxable investment income and net taxable capital
gains, if any, to its shareholders. The Fund also intends to avoid excise tax
liability by making the required distributions under the Code. Accordingly, no
provision for federal income taxes is required.
F. DISTRIBUTIONS
The Fund distributes net investment income on or about the 15th day of April and
October each year and from its 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 the expiration of
capital loss carryovers.
G. FUTURES CONTRACTS
In order to gain exposure to or protect against changes in security values, the
Fund may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures
transaction is subsequently adjusted by daily payments or receipts as the value
of the contract changes. Such changes are recorded as unrealized gains or
losses. Realized gains or losses are recognized upon closing the contract.
Risks of entering into futures contracts include (i) the possibility of an
illiquid market for the contract, (ii) the possibility that a change in value of
the contract may not correlate with changes in the value of the underlying
instrument or index, and (iii) the credit risk that the other party will not
fulfill their obligations under the contract. Futures contracts also involve
elements of market risk in excess of the amount reflected in the statement of
assets and liabilities.
H. 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.
2. INVESTMENT IN FOREIGN SUBSIDIARY
Precious Metals ( Bermuda) Ltd., the Fund's wholly-owned foreign subsidiary, was
acquired in May 1975 and has as its primary objective the acquisition of
precious metals. The Fund accounts for its investments in the subsidiary under
the equity method of accounting. At August 31, 1997, the fair value of the
Fund's investment in the foreign subsidiary was determined as follows:
<TABLE>
<S> <C>
Cash and cash equivalents $ 838,800
Accrued expenses (15,642)
$ 823,158
</TABLE>
<PAGE>
PAGE 13
During the six months ended August 31, 1997, the foreign subsidiary had no
purchases or sales of precious metals. Investment activities of the foreign
subsidiary resulted in gross investment income, general and administrative
expenses, and net investment income of $19,650, $3,784 and $15,866,
respectively. Management fees paid or accrued by the foreign subsidiary to
Keystone totaled $2,804 for the six months ended August 31, 1997.
3. CAPITAL SHARE TRANSACTIONS
The Fund's Certificate of Incorporation 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:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, FEBRUARY 28,
1997 1997
<S> <C> <C>
Shares sold 3,181,418 25,602,726
Shares redeemed (4,024,521) (26,171,322)
Shares issued in reinvestment
of dividends and
distributions -0- 264,364
Net decrease (843,103) (304,232)
</TABLE>
4. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities and U.S. government securities) for the period ended
August 31, 1997 were $12,849,473 and $34,731,461, respectively.
5. DISTRIBUTION PLAN
The Fund bears some of the costs of selling its shares under a Distribution 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.
Since December 1996, Evergreen Keystone Distributor, Inc. ("EKD"), a
wholly-owned subsidiary of The BISYS Group Inc., has served as principal
underwriter to the Fund. Prior to December 11, 1996, Evergreen Keystone
Investment Services, Inc. ("EKIS"), a wholly-owned subsidiary of Keystone,
served as the Fund's principal underwriter.
Under the Distribution 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 distribution expenses and 0.25% may be used to pay shareholder
service fees.
The Distribution Plan may be terminated at any time by vote of the Independent
Directors or by vote of a majority of the outstanding voting shares. However,
after the termination of the Distribution Plan, and subject to the discretion of
the Independent Directors, payments to EKIS and/or EKD may continue as
compensation for services that had been earned while the Distribution Plan was
in effect.
EKD intends, but is not obligated, to continue to pay distribution costs that
exceed the current annual payments from the Fund. EKD intends to seek full
payment of such distribution costs from the Fund at such time in the future as,
and to the extent that, payment thereof by the Fund would be within permitted
limits.
6. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
Under an Investment Advisory and Management 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. In return,
Keystone is paid a management fee. The management fee paid by the Fund to
Keystone is determined by applying percentage rates, which start at 0.75%, and
decline, as net assets increase, to 0.50% per annum, to the average daily net
assets of the Fund. Such fee is reduced by the amount of any investment advisory
fee paid to Keystone by the Fund's subsidiary. Since August 1, 1995, Harbor
Capital has served as a consultant to Keystone with respect to the Fund. For its
services as consultant, Harbor Capital receives from Keystone a fee at the
annual rate of 0.10% of the Fund's average daily net assets.
<PAGE>
PAGE 14
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
During the six months ended August 31, 1997, the Fund paid or accrued $320,757
to Evergreen Keystone Service Company, a wholly-owned subsidiary of Keystone,
for services rendered as the Fund's transfer and dividend disbursing agent.
BISYS Fund Services, Inc. ("BISYS"), an affiliate of EKD, serves as the Fund's
sub-administrator. As sub-administrator, BISYS provides the officers of the
Fund. For this service, BISYS is paid a fee by Keystone, which is not a Fund
expense.
Officers of the Fund and affiliated Trustees receive no compensation directly
from the Fund.
7. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an expense offset arrangement with its custodian. For
the six months ended August 31, 1997, the Fund incurred total custody fees of
$62,847 and received a credit of $4,725 pursuant to this expense offset
arrangement, resulting in a net custody expense of $58,122. The assets deposited
with the custodian under this expense offset arrangement could have been
invested in income-producing assets.
8. CONCENTRATION OF RISK
The Fund invests a substantial portion of its assets in issuers involved in gold
mining and metals and mining industries. This concentration may result in the
Fund being more affected by economic and political developments than a
comparable general equity mutual fund.
<PAGE>
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.
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.
<TABLE>
<C> <S>
NOT
FDIC MAY LOSE VALUE
INSURED NO BANK GUARANTEE
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
Evergreen Keystone(SM) is a Service Mark of
Evergreen
Keystone Investment Services, Inc.
Copyright 1997.
[Graphic Goes Here]
</TABLE>
KEYSTONE
(Graphic of Coins here)
PRECIOUS METALS
HOLDINGS, INC.
EVERGREEN KEYSTONE
[KEYSTONE [KEYSTONE
LOGO FUNDS LOGO
GOES GOES
HERE] HERE]
SEMI-ANNUAL REPORT
AUGUST 31, 1997
KPMH-R Rev01
