<PAGE>
PAGE 1
- ---------------------------------------------------------
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
Dear Shareholders:
It often seems that when international investment
diversification makes the most intellectual sense, it makes the
least emotional sense.
In general, gold funds experienced very disappointing
performance during the 12 months that ended on October 31,
1997. This disappointing performance extended to the Keystone
Precious Metals Holding, Inc. even though it did better than
the average gold-oriented fund and outperformed the gold
market, as measured by the Financial Times Gold Mines Index. It
was a period during which speculators took advantage of rumors
to drive the price of gold to its lowest point in more than a
decade.
It's easy to see why some investors might question the value
of a gold fund. It just seems more comfortable to invest in a
stock or bond fund, which historically have provided good,
positive returns.
(Photo of
William M. Ennis)
WILLIAM M. ENNIS
THE ADVANTAGES OF DIVERSIFICATION
We continue to believe in your fund's long-term strategy. Gold-oriented
investments can be a strong tool of diversification and have the potential to
offset negative performance in other markets and act as a hedge against the
possibility of inflation. In addition, gold and gold-oriented stocks now are
considered by many investment experts to be attractively priced relative to
other types of investments that have enjoyed better recent performance.
We cannot predict when gold and the stocks of gold mining companies are likely
to return to favor. However, we still believe in the value of diversifying part
of your portfolio in a gold fund, and we will continue to manage your Fund
conservatively, emphasizing the stocks of high quality companies.
At Evergreen Funds, we encourage you to remain focused on your long-term goals
and to remain disciplined in your personal investment strategies. No one can
confidently say whether next year's market will follow last year's pattern, or
whether trends will reverse themselves so that last year's lagging strategy
becomes next year's winning strategy. We can say, however, that the most likely
winners in the long run are those who consistently follow long-term investment
strategies.
UPCOMING DEVELOPMENTS
In the next few weeks and months, shareholders of Evergreen and Keystone funds
will begin to notice some changes. The Evergreen Keystone Funds are becoming the
Evergreen Funds. On October 31, 1997 Keystone America Funds adopted the name of
Evergreen and in early 1998 the original Keystone Funds will take the Evergreen
name.
We believe that by putting all the funds under the umbrella name of Evergreen
Funds we will be creating a simpler and more cohesive image. Importantly, we
expect to create substantial cost savings for shareholders as a result of
consolidating prospectuses, annual reports, legal registrations and other
materials. It also will be easier for you to find all the funds of the Evergreen
Family, to which you have exchange privileges, under one heading in newspapers
and electronic services.
-- CONTINUED--
<PAGE>
PAGE 2
- ---------------------------------------------------------
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
What will not change will be our commitment to provide you with the finest
investment products and shareholder services possible.
If you should have any questions about these changes or other issues affecting
your investments, we encourage you to consult your financial adviser or call
Evergreen Funds at 1-800-343-2898.
Sincerely,
/s/ William M. Ennis
William M. Ennis
MANAGING DIRECTOR
<PAGE>
PAGE 3
- ---------------------------------------------------------
A Discussion With
Your Fund Manager
(photo of John C. Madden, Jr.)
JOHN C. MADDEN, JR. IS A VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER OF
KEYSTONE PRECIOUS METALS HOLDING, INC. 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 B.A. FROM YALE UNIVERSITY.
Please note that we have changed the Fund's fiscal year end from February 28 to
October 31. The next report you receive will be a semiannual report for the
period ending April 30, 1998, which you should receive in June 1998.
Q HOW DID THE FUND PERFORM DURING THE PAST TWELVE MONTHS?
A Keystone Precious Metals Holdings, Inc. produced a total return of -31.55% for
the twelve-month period which ended October 31, 1997. This compares to
- -33.2% for the Lipper Gold Fund Index, comprised of ten mutual funds, and -33.9%
for the Financial Times Gold Mines Index. Your Fund's modest outperformance
during this difficult period can be attributed to its greater exposure to North
American stocks than many other funds its size, and its relative underweighting
in the small exploration companies that were particularly hard hit in this
market.
Q HOW WOULD YOU CHARACTERIZE THE GOLD BULLION MARKET OVER THE PAST YEAR?
A The past year, in fact the past 18 months, has been a very difficult period
for gold-related investments. Since its peak in February, 1996, the price of
gold has dropped over $100 per ounce. In the past twelve months, depending on
their location, stock prices of gold mining companies have declined anywhere
from 25% to 50% or more. Gold is now the lowest it has been since the mid-1980s.
The XAU, an index comprised primarily of North American gold stocks, is
approaching low levels last seen in 1993.
Q WHAT FACTORS INFLUENCED THE PRICE OF GOLD DURING THE PERIOD?
A Increasingly, the market has been controlled by traders who are aware of the
last of investor interest in the metal and have managed to profit from this by
keeping downward pressure on the price. Their efforts have been helped along by
the steady flow of news and rumors regarding central bank sales, IMF sales and
company forward selling. Most recently, a report that Switzerland might sell a
significant portion of its reserves to set up a humanitarian fund drove the
price down to a new yearly low, regardless of the fact that any sales are years
away and must first be approved by a country-wide vote. Sentiment has become so
negative that even the currency turmoil that might ordinarily be expected to
buoy the gold markets has thus far had little positive effect.
<PAGE>
PAGE 4
- ---------------------------------------------------------
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
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 While recent returns have been negative, we continue to believe that long-term
investment in gold-related securities adds valuable diversification to any
portfolio. 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 financial market 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 HOW DID THE FUND'S GEOGRAPHIC ALLOCATIONS CHANGE OVER THE YEAR?
A We increased the Fund's exposure to North American gold stock during the year,
which helped its performance relative to the indices. Part of the change in
allocation percentages is related to active buying and selling, while the rest
can be attributed to the differential relative performance in these regions. For
example, South African gold stocks declined twice as much as stocks in North
American companies over the past year.
Q PLEASE DESCRIBE SOME OF THE FUND'S HOLDINGS.
A Positive structural changes in the South African mining industry and low stock
prices have created some attractive opportunities. One of the companies we have
been examining is Harmony Gold Mining, a former member of the Randgold &
Exploration Co. Ltd. portfolio, which is attempting to make significant
operating changes. While traditionally classified as a marginal operation,
Harmony has demonstrated its ability to profitably handle large quantities of
low-grade ore. Management has acquired several neighboring
Comparative performance of Keystone Precious Metals Holdings, Inc. and key
market indexes, October 31, 1996-October 31, 1997
(A bar graph appears here with the following plot points.)
Spot Gold -17.9%
KPMH* -31.5%
Lipper Gold Fund Index -33.2%
Financial Times Index
North America -24.9%
Australia -42.3%
Africa -49.8%
North American gold stocks had the best relative performance.
*Includes reinvested dividends.
ASSET ALLOCATION
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
<TABLE>
<CAPTION>
OCTOBER 31, 1997 OCTOBER 31, 1996
<S> <C> <C>
- ---------------------------------------------------------------
North America 66% 56%
- ---------------------------------------------------------------
South Africa 22% 26%
- ---------------------------------------------------------------
Australia 12% 18%
- ---------------------------------------------------------------
</TABLE>
properties and will attempt to realize cost savings and grade improvements by
combining these operations. Annual production is slated to approach 1.0 million
ounces over the next two to three years, up from 0.68 million in 1997.
We have also positioned ourselves to participate in another promising
restructuring through the purchase of Gencor Ltd., another South African
company. The planned merger of Gencor Ltd. and Ashanti Goldfields will create
one of the largest gold companies in the world.
<PAGE>
PAGE 5
- ---------------------------------------------------------
Q WHAT ABOUT NON-GOLD COMPANIES?
A We continue to look for non-gold assets to diversify the portfolio. Our most
recent purchase is SouthernEra Resources Ltd., a diamond company with a
promising new discovery in South Africa that it shares with Randgold. The nature
of the deposit and the local topography suggest that low-cost surface mining and
shallow underground mining will be possible, and that production could start as
early as next year.
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 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.
Q WHAT IS YOUR OUTLOOK FOR THE GOLD MARKET?
A Gold continues to languish in the absence of investor interest, despite
problems in various stock and currency markets around the world. This year it
reached low levels not seen since 1993-- a year that also saw a major upward
move in gold stocks. We would not be surprised to see this happen again, but it
would probably not occur unless the stock market correction becomes more serious
and concerns spread to credit markets as well. In the final analysis, as long as
investors are content to move out of stocks and into bonds, gold lacks appeal.
When this dynamic changes, gold will again become attractive, and the best
companies will prove to be rewarding investments.
TOP 10 HOLDINGS
AS OF OCTOBER 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF
STOCK (COUNTRY) NET ASSETS
<S> <C>
- -------------------------------------------------------------
Newmont Mining Corp. (United States) 10.9
- -------------------------------------------------------------
Euro Nevada Mining (Canada) 8.9
- -------------------------------------------------------------
Franco Nevada Mining (Canada) 8.7
- -------------------------------------------------------------
Pioneer Group (United States) 5.9
- -------------------------------------------------------------
Getchell Gold (Canada) 5.8
- -------------------------------------------------------------
Homestake Mining (United States) 5.3
- -------------------------------------------------------------
Stillwater Mining (United States) 4.1
- -------------------------------------------------------------
De Beers Centenary (South Africa) 3.3
- -------------------------------------------------------------
Normandy Mining (Australia) 3.3
- -------------------------------------------------------------
Prime Resources Group (Canada) 3.1
- -------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 6
- ---------------------------------------------------------
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
Growth of an Investment
Growth of an investment in
Keystone Precious Metals Holdings, Inc.
(A graph appears here with the following plot points.)
Initial Dividend
Investment Reinvestment
---------- ------------
(In Thousands)
10/31/87 10,000 10,000
10/89 6,371 10,337
10/91 5,749 9,588
10/93 8,461 14,218
10/95 7,632 12,887
10/97 5,800 10,224
<TABLE>
<CAPTION>
HISTORICAL PERFORMANCE AS OF OCTOBER 31, 1997
<S> <C>
- ----------------------------------------------------------
<CAPTION>
CUMULATIVE TOTAL RETURN
<S> <C>
1 year w/o sales charge -31.55%
1 year w/sales charge* -33.51%
5 years 20.28%
10 years 2.24%
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
<S> <C>
1 year w/o sales charge -31.55%
1 year w/sales charge* -33.51%
5 years 3.76%
10 years 0.22%
</TABLE>
*THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE IS 3.0% FOR THOSE INVESTORS WHO
SOLD FUND SHARES AFTER ONE CALENDAR YEAR.
INTERNATIONAL INVESTING INVOLVES INCREASED RISK AND VOLATILITY.
Comparison of a change in value of a $10,000 investment in Keystone Precious
Metals Holdings, Inc., the Standard & Poor's 500 Index and the Consumer Price
Index.
(A graph appears here with the following plot points.)
Fund CPI S&P 500
(In Thousands)
10/87 10,000 10,000 10,000
10/89 10,337 10,895 10,716
10/91 9,588 11,919 13,229
10/93 14,218 12,637 16,710
10/95 12,887 13,332 21,939
10/97 10,224 14,001 35,960
#Consumer Price Index
Past performance is no guarantee of future results. The one-year return reflects
the deduction of the Fund's 3% contingent deferred sales charge for the shares
held for at least one year.
<PAGE>
PAGE 7
- ---------------------------------------------------------
SCHEDULE OF INVESTMENTS-- OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
<C> <C> <S> <C>
- ---------------------------------------------------------------
<CAPTION>
COMMON STOCKS-- 98.5%
<C> <C> <S> <C>
AUSTRALIA-- 11.8%
GOLD MINING-- 9.2%
800,000 Delta Gold NL................. $ 675,120
3,381,582 Normandy Mining Ltd........... 3,686,052
3,500,000 * Perilya Mines NL **........... 1,058,392
1,052,000 Plutonic Resources Ltd........ 1,879,141
1,376,304 Ross Mining NL................ 754,951
799,600 Sons of Gwalia Ltd. **........ 2,120,505
------------
10,174,161
------------
METALS & MINING-- 2.6%
2,899,200 * Acacia Resources Ltd.......... 2,895,185
------------
TOTAL AUSTRALIA............... 13,069,346
------------
CANADA-- 37.5%
GOLD MINING-- 30.0%
26,000 Agnico Eagle Mines Ltd........ 183,560
650,000 Euro Nevada Mining Ltd........ 9,869,798
420,000 Franco Nevada Mining Ltd...... 9,700,217
179,700 * Getchell Gold Corp............ 6,469,200
100,000 * Greenstone Resources Ltd...... 815,979
300,000 * Kinross Gold Corp............. 1,256,250
337,100 * Orvana Minerals Corp.......... 729,524
524,800 Prime Resources Group, Inc.... 3,500,280
185,300 * TVX Gold, Inc................. 787,525
------------
33,312,333
------------
METALS & MINING-- 7.5%
100,100 * Aber Resources Ltd............ 1,179,026
154,700 Barrick Gold Corp............. 3,166,775
338,500 * Bema Gold Corp................ 1,080,817
50,000 * International Precious Metals
Corp........................ 233,594
300,000 * Repadre Capital Corp.......... 1,490,049
100,000 * SouthernEra Resources Ltd..... 1,046,582
429,000 * Vengold, Inc. **.............. 210,033
------------
8,406,876
------------
TOTAL CANADA.................. 41,719,209
------------
SOUTH AFRICA-- 22.2%
GOLD MINING-- 9.9%
2,932,916 * Avgold Ltd. **................ 2,011,142
358,000 Free State Consolidated Gold
Mines Ltd................... 1,826,265
18,500 Vaal Reefs Exploration &
Mining Ltd.................. 798,047
<CAPTION>
SHARES VALUE
<C> <C> <S> <C>
- ---------------------------------------------------------------
<CAPTION>
COMMON STOCKS-- CONTINUED
<C> <C> <S> <C>
SOUTH AFRICA-- CONTINUED
638,000 Vaal Reefs Exploration &
Mining Ltd., ADR............ $ 2,731,437
288,585 Western Areas Gold Mining
Ltd., ADR................... 1,685,019
20,900 Western Deep Levels Ltd....... 434,286
75,000 Western Deep Levels Ltd.,
ADR......................... 1,565,625
------------
11,051,821
------------
METALS & MINING-- 12.3%
72,800 Anglo-American Platinum
Holdings.................... 1,111,855
289,520 Ashanti Goldfields Ltd. GDR... 2,859,010
150,000 Avmin Ltd., ADR............... 1,275,000
155,200 De Beers Centenary............ 3,702,225
300,000 Elandsrand Gold Mining Co.
Ltd., ADR **................ 854,010
500,000 Gencor Ltd.................... 1,122,078
350,000 * Harmony Gold Mining Ltd....... 1,207,273
67,000 * Harmony Gold Mining Ltd., ADR
**.......................... 231,103
300,000 * Randgold & Exploration Co.
Ltd......................... 648,312
70,000 * Randgold Resources, Inc. **
+........................... 665,000
------------
13,675,866
------------
TOTAL SOUTH AFRICA............ 24,727,687
------------
UNITED STATES-- 27.0%
GOLD MINING-- 16.2%
473,000 Homestake Mining Co........... 5,853,375
347,650 Newmont Mining Corp........... 12,167,750
------------
18,021,125
------------
METALS & MINING-- 10.8%
499,000 * Canyon Resource Corp.......... 842,062
220,000 Pioneer Group Inc............. 6,558,750
220,900 * Stillwater Mining Co.......... 4,583,675
------------
11,984,487
------------
TOTAL UNITED STATES........... 30,005,612
------------
TOTAL COMMON STOCKS
(COST-- $135,286,955)......... 109,521,854
------------
</TABLE>
<PAGE>
PAGE 8
- ---------------------------------------------------------
EVERGREEN PRECIOUS METALS HOLDINGS, INC.
SCHEDULE OF INVESTMENTS-- OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <C> <S> <C>
- ---------------------------------------------------------------
<CAPTION>
REPURCHASE AGREEMENTS-- 2.5%
<C> <C> <S> <C>
$2,738,000 Keystone Joint Repurchase
Agreement, Investments in
repurchase agreements, in a
joint trading account,
purchased 10/31/97, 5.73%,
maturing 11/3/97, maturity
value $2,739,290 (a)
(cost-- $2,738,000)......... $ 2,738,000
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------
TOTAL INVESTMENTS--
(COST-- $138,024,955)................. 101.0% 112,259,854
INVESTMENT IN
WHOLLY-OWNED
UNCONSOLIDATED
FOREIGN
SUBSIDIARY............................ 0.7%
PRECIOUS METALS (BERMUDA) LTD......... 820,345
FOREIGN CURRENCY
HOLDINGS (COST-- $41,311)............. 0.0% 40,586
OTHER ASSETS AND
LIABILITIES-- NET..................... (1.7%) (1,948,083)
--------- ------------
NET ASSETS.............................. 100% $111,172,702
--------- ------------
</TABLE>
* Non-income producing securities.
** Illiquid securities. The total market value of these illiquid securities at
October 31, 1997 is $7,150,185 (6.4%).
+ 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 plus accrued interest at October
31, 1997.
LEGEND OF PORTFOLIO ABBREVIATIONS:
ADR American Depository Receipts
GDR Global Depository Receipts
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
Forward Foreign Currency Exchange Contracts to Buy:
<S> <C> <C> <C> <C>
UNREALIZED
EXCHANGE U.S. VALUE AT IN EXCHANGE APPRECIATION
DATE CONTRACTS TO RECEIVE OCTOBER 31, 1997 FOR U.S. $ (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------
10/31/97 9,950 Australian Dollar $ 70,290 $74,456 $ (4,166)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 9
- ---------------------------------------------------------
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
EIGHT-MONTH -------------------------------------------------
PERIOD ENDED FEB. 28, FEB. 29, FEB. 28, FEB. 28,
OCT. 31, 1997 (D) 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF PERIOD $ 23.94 $ 26.35 $ 19.30 $ 25.09 $ 14.38
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS (B):
Net investment income (loss) (0.14) (0.26) (0.25) (0.13) (0.17)
Net realized and unrealized gains (losses) on investments
and foreign currency related transactions (7.93) (1.16) 7.30 (5.54) 10.88
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (8.07) (1.42) 7.05 (5.67) 10.71
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income 0 0 0 (0.12) 0
Distributions in excess of net investment income 0 0 0 0 0
Distributions from realized capital gains 0 (0.99) 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions 0 (0.99) 0 (0.12) 0
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value end of period $ 15.87 $ 23.94 $ 26.35 $ 19.30 $ 25.09
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (A) (33.71%) (5.16%) 36.53% (22.70%) 74.48%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total Expenses 2.48%(c) 2.33% 2.28% 2.33% 2.34%
Total Expenses excluding indirectly paid expenses 2.48%(c) 2.31% 2.26% N/A N/A
Net investment income (loss) (1.04%)(c) (1.08%) (1.08%) (0.54%) (0.75%)
PORTFOLIO TURNOVER RATE 19% 41% 39% 75% 73%
AVERAGE COMMISSION RATE PAID $ 0.02672 $0.01636 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS END OF PERIOD (THOUSANDS) $ 111,173 $190,108 $217,270 $ 171,193 $200,489
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------------------
FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29,
1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF PERIOD $ 15.37 $ 14.22 $ 19.15 $ 16.82 $ 15.50 $ 17.31
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS (B):
Net investment income (loss) (0.12) (0.02) 0 0.06 0.05 (0.01)
Net realized and unrealized gains (losses) on investments
and foreign currency related transactions (0.76) 1.30 (4.61) 2.27 1.59 (0.17)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.88) 1.28 (4.61) 2.33 1.64 (0.18)
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income 0 0 (0.06) 0 (0.12) (0.41)
Distributions in excess of net investment income (0.11) (0.13) (0.26) 0 0 0
Distributions from realized capital gains 0 0 0 0 (0.20) (1.22)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.11) (0.13) (0.32) 0 (0.32) (1.63)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value end of period $ 14.38 $ 15.37 $ 14.22 $ 19.15 $ 16.82 $ 15.50
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (A) (5.74%) 9.07% (24.37%) 13.85% 10.64% (2.86%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total Expenses 2.83% 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 N/A
Net investment income (loss) (0.86%) (0.14%) (0.02%) 0.32% 0.28% (0.05%)
PORTFOLIO TURNOVER RATE 58% 53% 68% 95% 82% 62%
AVERAGE COMMISSION RATE PAID N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS END OF PERIOD (THOUSANDS) $114,364 $131,356 $150,200 $195,837 $222,079 $222,646
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculation based on average shares outstanding.
(c) Annualized.
(d) The Fund changed its fiscal year end from February 28 to October 31,
effective October 31, 1997.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 10
- ---------------------------------------------------------
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------
ASSETS
Investments at value (identified
cost-- $138,024,955) $112,259,854
Investment in wholly-owned unconsolidated
foreign subsidiary, at fair value 820,345
Foreign currency, at value (identified
cost-- $41,311) 40,586
- ------------------------------------------------------------
Total investments 113,120,785
Cash 436
Receivable for investments sold 264,387
Dividends and interest receivable 240,912
Receivable for Fund shares sold 109,927
Prepaid expenses and other assets 39,289
- ------------------------------------------------------------
Total assets 113,775,736
- ------------------------------------------------------------
LIABILITIES
Payable for Fund shares redeemed 2,282,149
Due to related parties 83,431
Accrued expenses and other liabilities 237,454
- ------------------------------------------------------------
Total liabilities 2,603,034
- ------------------------------------------------------------
NET ASSETS $111,172,702
- ------------------------------------------------------------
NET ASSETS REPRESENTED BY
Paid-in capital $131,737,025
Accumulated net investment loss (2,757)
Accumulated net realized gain on investments
and foreign currency related transactions 5,208,377
Net unrealized depreciation on investments
and foreign currency related transactions (25,769,943)
- ------------------------------------------------------------
Total net assets applicable to outstanding
shares of beneficial interest ($15.87 a
share on 7,003,255 shares outstanding) $111,172,702
- ------------------------------------------------------------
</TABLE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EIGHT-MONTH
PERIOD ENDED YEAR ENDED
OCTOBER 31, 1997(A) FEBRUARY 28, 1997
<S> <C> <C>
- ------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of
withholding tax of
$79,350 and $138,290,
respectively) $ 1,274,282 $ 2,084,778
Interest 95,571 285,499
- ------------------------------------------------------------
Total income 1,369,853 2,370,277
- ------------------------------------------------------------
EXPENSES
Management fee $ 678,437 $ 1,322,411
Distribution Plan
expenses 950,284 1,923,248
Transfer agent fees 413,682 805,132
Trustees fees 11,573 8,743
Miscellaneous 340,282 406,118
- ------------------------------------------------------------
Total expenses 2,394,258 4,465,652
Less: Indirectly paid
expenses (4,726) (31,743)
- ------------------------------------------------------------
Net expenses 2,389,532 4,433,909
- ------------------------------------------------------------
Net investment loss (1,019,679) (2,063,632)
- ------------------------------------------------------------
EQUITY IN EARNINGS OF
WHOLLY-OWNED
UNCONSOLIDATED
FOREIGN SUBSIDIARY 13,054 69,764
- ------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gain on
investments 3,399,855 14,615,767
Net realized loss on
foreign currency
related transactions (11,697) (591,050)
- ------------------------------------------------------------
Net realized gain on
investments and
foreign currency
related transactions 3,388,158 14,024,717
- ------------------------------------------------------------
Net change in
unrealized
appreciation
(depreciation) on
investments and
foreign currency
related transactions (61,446,526) (17,875,249)
- ------------------------------------------------------------
Net realized and
unrealized loss on
investments and
foreign currency
related transactions (58,058,368) (3,850,532)
- ------------------------------------------------------------
Net decrease in net
assets resulting from
operations $ (59,064,993) $ (5,844,400)
- ------------------------------------------------------------
</TABLE>
(a) The Fund changed its fiscal year end from February 28 to October 31,
effective October 31, 1997.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 11
- ---------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
EIGHT-MONTH ----------------------------
PERIOD ENDED FEBRUARY 28, FEBRUARY 29,
OCTOBER 31, 1997(A) 1997 1996
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment loss $ (1,019,679) $ (2,063,632) $ (2,123,645)
Equity in earnings of wholly-owned unconsolidated foreign
subsidiary 13,054 69,764 21,316
Net realized gain on investments and foreign currency related
transactions 3,388,158 14,024,717 15,952,451
Net change in unrealized appreciation (depreciation) on
investments and foreign currency related transactions (61,446,526) (17,875,249) 50,472,865
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (59,064,993) (5,844,400) 64,322,987
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net realized gains on investments and foreign currency related
transactions 0 (7,301,560) 0
- ------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 83,990,548 618,026,217 376,204,823
Payment for shares redeemed (103,860,464) (638,015,009) (394,450,262)
Net asset value of shares issued in reinvestment of
distributions 0 5,971,990 0
- ------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from capital share
transactions (19,869,916) (14,016,802) (18,245,439)
- ------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (78,934,909) (27,162,762) 46,077,548
NET ASSETS
Beginning of period 190,107,611 217,270,373 171,192,825
- ------------------------------------------------------------------------------------------------------------------------
End of period [including undistributed net investment income
(accumulated net investment loss) as follows:
October 31, 1997-- ($2,757)
February 28, 1997-- $4,722,048
February 29, 1996-- ($55,852)] $ 111,172,702 $190,107,611 $217,270,373
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Fund changed its fiscal year end from February 28 to October 31,
effective October 31, 1997.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 12
- ---------------------------------------------------------
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Keystone Precious Metals Holdings, Inc., (the "Fund") is a Delaware corporation
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as a diversified, open-end management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
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. Actual results could differ from these estimates.
A. VALUATION OF SECURITIES
The Fund values investments traded on an established exchange on the basis of
the last sales price on the exchange where primarily traded. The Fund values
securities traded in the over-the-counter market at the mean between the bid and
asked prices. Securities for which market quotations are not readily available,
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.
B. REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. The
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the securities
pledged falls below the carrying value of the repurchase agreement, including
accrued interest. The Fund will only enter into repurchase agreements with banks
and other financial institutions which are deemed by the investment advisor to
be creditworthy pursuant to guidelines established by the Board of Directors.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other funds managed by Keystone
Investment Management Company ("Keystone"), 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.
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 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 related transactions and
the difference between the amounts of interest and dividends recorded on the
books of the Fund and the amount actually received and is included in realized
gain (loss) on foreign currency related transactions. 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 13
- ---------------------------------------------------------
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 accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date or in the case of some foreign securities, on the date
thereafter when the Fund is made aware of the dividend. Foreign income may be
subject to foreign withholding taxes which are accrued as applicable. Capital
gains realized on some foreign securities are subject to foreign taxes which are
accrued as applicable.
F. FEDERAL 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 will not incur any federal
income tax liability since it is expected to distribute all of its net
investment company taxable income and net taxable capital gains, if any, to its
shareholders. The Fund also intends to avoid any excise tax liability by making
the required distributions under the Code. Accordingly, no provision for federal
taxes is required.
G. DISTRIBUTIONS
The Fund distributes net investment income and net capital gains, if any, at
least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. The significant differences between financial statement
amounts available for distributions and distributions made in accordance with
income tax regulations are primarily due to differing treatment of net operating
losses generated by the Fund.
H. FUTURES CONTRACTS
In order to gain exposure to or protect against changes in security values, the
Funds 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 on 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 the
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
<PAGE>
PAGE 14
- ---------------------------------------------------------
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
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.
3. 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 October 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 $836,980
Accrued expenses (16,635)
- ---------------------------------------------------------
$820,345
- ---------------------------------------------------------
</TABLE>
4. CAPITAL SHARE TRANSACTIONS
The Fund has an unlimited number of shares of beneficial interest with a par
value of $1.00 authorized. Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
EIGHT-MONTH
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 1997 FEBRUARY 28, 1997 FEBRUARY 29, 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Shares sold 4,394,845 25,602,726 16,257,907
Shares redeemed (5,332,804) (26,171,322) (16,883,225)
Shares issued in reinvestment of distributions 0 264,364 0
- ----------------------------------------------------------------------------------------------------------------------------
Net decrease (937,959) (304,232) (625,318)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities and foreign currencies) for the eight-month period ended
October 31, 1997 were $26,781,165 and $51,525,168, respectively. On October 31,
1997, the cost of investments for federal income tax purposes was $143,199,857,
gross unrealized appreciation of investments was $17,201,719 and gross
unrealized depreciation of investments was $47,116,788, resulting in net
unrealized depreciation of $29,915,069 for federal income tax purposes
6. DISTRIBUTION PLAN
Evergreen Distributors, Inc. ("EDI"), formerly Evergreen Keystone Distributors,
Inc., a wholly-owned subsidiary of The BISYS Group, Inc. ("BISYS") serves as
principal underwriter to the Fund. Prior to December 11, 1996, Evergreen
Investment Services, Inc. ("EIS"), formerly Evergreen Keystone Investment
Services, Inc. ("EKIS"), a wholly-owned subsidiary of Keystone, served as the
Fund's principal underwriter.
The Fund has adopted a Distribution Plan, as allowed by Rule 12b-1 of the 1940
Act. The Distribution Plan permits the Fund to reimburse its principal
underwriter for costs related to selling shares of the Fund and for various
other services. These costs, which consist primarily of commissions and services
fees to broker-dealers who sell shares of the fund, are paid by shareholders
through expenses called "Distribution Plan expenses". Under the Distribution
Plan, the Fund pays a distribution fee which may not exceed 1.00% of the Fund's
average daily net assets. Distribution Plan expenses are calculated daily and
paid monthly.
The principal underwriter may pay distribution costs greater than the
allowable annual amounts the Fund is permitted to pay. The Fund may reimburse
the principal underwriter for such excess amounts in later years with annual
interest at the prime rate plus 1.00%.
EDI 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
shares would be within permitted limits.
<PAGE>
PAGE 15
- ---------------------------------------------------------
The Distribution Plan may be terminated at any time by vote of the Independent
Directors or by vote of a majority of the shareholders. However, after the
termination of any Distribution Plan, and subject to the discretion of the
Independent Directors, payments to EIS and/or EDI may continue as compensation
for services which had been provided while the Distribution Plan was in effect.
7. INVESTMENT ADVISORY AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Keystone, a subsidiary of First Union Corporation ("First Union"), is the
investment advisor for the Fund. In return for providing investment management
and administrative services to the Fund, the Fund pays Keystone a management
fee, calculated daily and paid monthly, at an annual rate of 1.00% of the
average daily net asset value of the Fund. Keystone has entered into a
Sub-Investment Advisory Agreement with Equitilink International Management
Limited ("EIML"), under which EIML provides Keystone with investment research
and advice and may provide investment supervision or furnish an investment
program for certain assets of the Fund. For its services, EIML receives from
Keystone a monthly fee equal to (1) 20% of Keystone's net fee for such month for
services rendered in a non-discretionary capacity, plus (2) 10% of Keystone's
net fee for such month for services rendered in a discretionary capacity.
During the eight-month period ended October 31, 1997, the Fund paid or accrued
$15,528 to Keystone for certain administrative services.
Evergreen Service Company ("ESC"), formerly Evergreen Keystone Service Company
("EKSC"), a wholly-owned subsidiary of Keystone, serves as the transfer and
dividend disbursing agent for the Fund.
BISYS Fund Services, Inc., an affiliate of EDI, serves as the Fund's
sub-administrator. As sub-administrator, BISYS Fund Services, Inc. provides the
officers of the Fund. For this service, BISYS Fund Services, Inc. is paid a fee
by Keystone, which is not a Fund expense. Officers of the Fund and affiliated
Directors receive no compensation directly from the Fund.
8. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an expense offset arrangement with its custodian. The
assets deposited with the custodian under this expense offset arrangement could
have been invested in income-producing assets.
9. 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 affecting those
industries than a comparable general equity mutual fund.
10. DISTRIBUTION TO SHAREHOLDERS
A long-term capital gain distribution of $0.81 per share was declared payable on
November 17, 1997 to shareholders of record November 13, 1997. This distribution
is not reflected in the accompanying financial statements.
<PAGE>
PAGE 16
- ---------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE DIRECTORS AND SHAREHOLDERS
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
We have audited the accompanying statement of assets and liabilities of Keystone
Precious Metals Holdings, Inc. including the schedule of investments, as of
October 31, 1997, and the related statements of operations for the eight-month
period ended October 31, 1997 and the year ended February 28, 1997, the
statements of changes in net assets for the eight-month period ended October 31,
1997 and each of the years in the two-year period ended February 28, 1997 and
the financial highlights for the eight-month period ended October 31, 1997 and
each of the years in the ten-year period ended February 28, 1997. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone Precious Metals Holdings, Inc. as of October 31, 1997, the results of
its operations for the eight-month period ended October 31, 1997 and the year
ended February 28, 1997, the changes in its net assets for the eight-month
period ended October 31, 1997 and each of the years in the two-year period ended
February 28, 1997 and the financial highlights for the periods specified in the
first paragraph above in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
November 26, 1997
<PAGE>
(This Page Left Blank Intentionally)
<PAGE>
(This Page Left Blank Intentionally)
<PAGE>
(This Page Left Blank Intentionally)
<PAGE>
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 Funds, contact your
financial adviser or call Evergreen Funds.
<TABLE>
<C> <S>
NOT
FDIC MAY LOSE VALUE
INSURED NO BANK GUARANTEE
EVERGREEN DISTRIBUTOR, INC.
Evergreen is a Service Mark of Evergreen
Investment Services, Inc. Copyright 1997.
</TABLE>
542305 (Recycle logo appears here)
KEYSTONE
(Photo Exists in Film ONLY.
Will See on Dylux)
PRECIOUS METALS
HOLDINGS, INC.
(Evergreen logo appears here)
Evergreen Funds
Since 1942
ANNUAL REPORT
OCTOBER 31, 1997
