<PAGE>
PAGE 1
KEYSTONE WORLD BOND FUND
SEEKS CURRENT INCOME FROM DEBT SECURITIES IN THE U.S. AND ABROAD.
Dear Shareholder:
We are pleased to report to you on the activities of Keystone World Bond Fund
for the six-month period which ended April 30, 1997.
PERFORMANCE
Your Fund generated the following returns for the respective six-month and
twelve-month periods ending April 30, 1997:
Class A shares returned -0.25% for the six-month period and 8.13% for the
twelve-month period;
Class B shares returned -0.58% for the six-month period and 7.38% for the
twelve-month period; and
Class C shares returned -0.58% for the six-month period and 7.41% for the
twelve-month period.
We believe your Fund performed well in view of the difficult market conditions
of the period. The Salomon Brothers World Government Bond Index returned -4.50%
for the six-month period and 0.75% for the twelve-month period. We attribute
your Fund's relatively strong results to its exposure to the strengthening U.S.
dollar and its investment in emerging debt markets and selected European
markets.
MARKET ENVIRONMENT
Over the past six months, currency performance, positive economic, fiscal and
social trends in Europe and improving credit conditions in the emerging markets
shaped the world's bond markets. In Europe, countries continued their efforts to
meet the requirements needed to join the European Monetary Union. The debt of
emerging countries benefited from investor recognition of the progress they have
made in economic growth, declining government deficits and falling inflation.
MANAGING THE DOLLAR'S STRENGTH
The dollar rose strongly during the period. Since approximately 59% of Keystone
World Bond Fund was invested or hedged in U.S. dollar-denominated assets as of
April 30, 1997, the dollar's strength helped protect the returns earned by your
Fund. The dollar's strength had a negative effect on non-dollar denominated
assets, which partially off-set the gains generated in the international bond
markets.
PORTFOLIO STRATEGY
We continued to seek to maximize opportunity, while maintaining a high level of
stability. We invested in bonds that we believed offered the best relative value
in countries that demonstrated the potential for capital appreciation. As part
of our extensive review process, we thoroughly analyze the political, economic,
social and fiscal trends of each of these countries, selecting only those that
meet our high standards.
During the period, your Fund maintained a position in emerging market debt
that ranged between 30%-35%. Emerging market debt was a top-performing sector
within the international debt markets, over the past six months. We eliminated
holdings in New Zealand, when changes in its relative value, as well as
political and economic developments, caused us to believe its bonds would
underperform. We reinvested those assets in the United Kingdom and the U.S.
Yields in the United Kingdom and U.S. had recently risen; and we believed the
bonds offered better relative value.
-- CONTINUED--
<PAGE>
PAGE 2
KEYSTONE WORLD BOND FUND
OUR OUTLOOK
Our outlook for the world bond markets is favorable over the next six months.
Outside the U.S., we expect a continuation of positive economic trends. We look
for the efforts of European countries striving to meet European Monetary Union
standards to result in further declines in fiscal deficits and low inflation. In
the U.S., we think that the recent rise in yields, combined with the Federal
Reserve Board's resolve to keep inflation low, is creating solid longer-term
value. Typically, this type of environment has benefited the U.S. dollar, which
we believe is headed for a period of stability.
We appreciate your continued support of Keystone World Bond Fund. If you have
any questions or comments about your investment, we encourage you to write to
us.
Sincerely,
(Signature of Albert H. Elfner)
Albert H. Elfner, III
PRESIDENT
KEYSTONE INVESTMENT MANAGEMENT COMPANY
(Signature of George S. Bissell)
George S. Bissell
CHAIRMAN OF THE BOARD
KEYSTONE FUNDS
<TABLE>
<S> <C>
(Photo appears here of (Photo appears here of
Albert H. Elfner, III ) George S. Bissell)
ALBERT H. ELFNER, III GEORGE S. BISSELL
</TABLE>
June, 1997
<PAGE>
PAGE 3
A Discussion With
Your Fund Manager
(Photo of Richard Wisentaner appears here)
RICHARD WISENTANER IS THE PORTFOLIO MANAGER OF YOUR FUND. MR. WISENTANER
IS A CHARTERED FINANCIAL ANALYST WITH 10 YEARS PROFESSIONAL EXPERIENCE. HE
JOINED KEYSTONE AS AN ANALYST IN 1994.
Q WHAT FACTORS SHAPED THE INTERNATIONAL BOND MARKET OVER THE PAST SIX MONTHS?
A Returns in the international bond market were driven by currency performance,
continued favorable social, political and economic events in emerging countries
and positive fundamentals in local bond markets.
The U.S. dollar showed significant strength. Investors shifted assets to the
dollar, both to avoid uncertainty associated with other currencies and to
benefit from positive developments in the U.S. and emerging countries. The bonds
of many emerging countries are dollar-denominated.
Q HOW DID YOU STRUCTURE THE FUND?
A The Fund was structured in terms of relative value, bond market outlook and
currency. As of April 30, 1997, approximately 59% of the portfolio was invested
in or was hedged into U.S. dollars. Currency played an important role in total
return over the past six months. While the dollar's strength enhanced the
performance of dollar-denominated assets or those hedged into dollar-denominated
assets-- it had a negative effect on non-dollar denominated assets. The
performance of non-dollar currencies more than off-set the returns generated in
the local international bond markets.
Q IN WHAT COUNTRIES DID YOU INVEST?
A We continued to select countries that we believed provided a combination of
attractive relative value and strong and improving fundamentals. One of the
Fund's larger weightings was in Canada. We also maintained a position of
approximately 30%-35% of net assets in emerging market debt, which, led by
Argentina bonds, was a top-performing sector.
Among other countries, we invested in Australia, Spain, Portugal and Italy.
Their bond yields were attractive because they had experienced high inflation in
the past. These markets had a higher "inflation premium" built into their yields
because of this history. In our opinion, investors had undervalued these bonds
because inflation had begun to decline. Further, favorable monetary and fiscal
policies made them strong candidates for capital appreciation.
Also during the period, we eliminated the Fund's position in New Zealand to
reinvest in the United Kingdom and the U.S. At the time, we believed that New
Zealand provided less relative value and that political and economic
developments would cause it to underperform. This has since taken place. In
contrast, the United Kingdom had become "cheap" on a relative basis.
FUND PROFILE
OBJECTIVE: Seeks current income from debt securities in the U.S. and abroad.
COMMENCEMENT OF INVESTMENT OPERATIONS: January 9, 1987
AVERAGE QUALITY: A
AVERAGE MATURITY: 7.3 years
NET ASSETS: $14.2 million
<PAGE>
PAGE 4
KEYSTONE WORLD BOND FUND
Q WHAT MAJOR TRENDS TOOK PLACE IN THE INTERNATIONAL BOND MARKET?
A In Europe, there was a continuation of positive economic and fiscal trends, as
countries strove to meet the standards necessary to join the European Monetary
Union, which is scheduled to take place on January 1, 1999. Investors benefited
from a combination of tight fiscal policies resulting in declining budget
deficits; and relatively loose monetary policies. The monetary policies created
greater liquidity and enabled interest rates to fall faster. European economies
were able to maintain these looser monetary policies because of the point at
which they are in their business cycles.
Q HOW ABOUT THE EMERGING MARKETS?
A Emerging market debt benefited from strong fundamentals and increased demand.
Emerging market countries improved from a credit standpoint because of continued
growth in local economies, declining deficits and inflation, and improving
political climates. These events rewarded current investors and attracted new
buyers who could invest in emerging markets since the countries had achieved
stronger credit conditions.
Q WHAT IS YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A Overall, we have a positive outlook, expecting a continuation of many of the
trends we have seen recently in the world bond markets, including declining
"real" interest rates (the rates received by investors when inflation is
removed), falling inflation and deficit reductions. In terms of currency, we
look for the U.S. dollar to come off its highs and then stabilize.
We believe that Europe and the U.S. have the potential for attractive total
returns over the next six months. Our outlook for Europe is favorable, as the
efforts to meet European Monetary Union standards remain a powerful and positive
influence on bonds.
In the U.S., interest rates are approaching levels that we think offer
attractive relative value. We expect interest rates to rise over the near-term
and decline longer term. The Federal Reserve Board has shown resolve in
preventing a rise in inflation. We look for this to result in slower, but solid
economic growth in the future, combined with low inflation; an environment that
bodes well for fixed-income investments.
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 5
Your Fund's Performance
Growth of an investment in
Keystone World Bond Fund Class A
IN THOUSANDS
<TABLE>
<CAPTION>
<C> <S> <C>
Reinvested Distributions Initial Investment
4/87 $ 9,522 $ 9,522
4/88 $10,919 $10,075
4/89 $10,510 $ 9,174
4/90 $10,514 $ 8,649
4/91 $12,234 $ 9,203
4/92 $13,497 $ 9,484
4/93 $15,030 $ 8,612
4/94 $16,579 $ 9,377
4/95 $15,189 $ 7,552
4/96 $17,821 $ 8,021
4/97 $18,830 $ 8,086
</TABLE>
<TABLE>
<CAPTION>
SIX-MONTH PERFORMANCE AS OF APRIL 30, 1997
CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C>
Total returns* -0.25% -0.58% -0.58%
Net asset value 10/31/96 $8.95 $8.97 $8.94
4/30/97 $8.62 $8.64 $8.61
Dividends $0.31 $0.28 $0.28
Capital Gains None None None
</TABLE>
* BEFORE DEDUCTION OF FRONT-END OR CONTINGENT DEFERRED SALES CHARGE (CDSC).
<TABLE>
<CAPTION>
HISTORICAL RECORD AS OF APRIL 30, 1997
<S> <C> <C> <C>
CUMULATIVE TOTAL RETURNS CLASS A CLASS B CLASS C
<S> <C> <C> <C>
1-year w/o sales charge 8.13% 7.38% 7.41%
1-year 3.00% 2.38% 6.41%
5-year 32.18% -- --
10-year 88.30% -- --
Life of class -- 12.91% 15.34%
AVERAGE ANNUAL RETURNS
1-year w/o sales charge 8.13% 7.38% 7.41%
1-year 3.00% 2.38% 6.41%
5-year 5.74% -- --
10-year 6.53% -- --
Life of class -- 3.29% 3.88%
</TABLE>
Class A shares were introduced on January 9, 1987. Performance is reported at
the current maximum front-end sales charge of 4.75%.
Class B shares were introduced on August 2, 1993. Shares purchased after
January 1, 1997 are subject to a contingent deferred sales charge (CDSC) that
declines from 5% to 1% over six years after the month purchased. Performance
assumes that shares were redeemed after the end of a one-year holding period and
reflects the deduction of a 5% CDSC.
Class C shares are subject to a 1% contingent deferred sales charge for 12
months after the month purchased. Performance assumes that shares were redeemed
after the end of a one-year holding period and reflects the deduction of a 1%
CDSC.
The investment return and principal value will fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
You may exchange your shares by phone or in writing. You may also exchange
funds using the Evergreen Keystone Express Line. The Fund reserves the right to
change or terminate the exchange offer.
<PAGE>
PAGE 6
KEYSTONE WORLD BOND FUND
SCHEDULE OF INVESTMENTS-- APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COUPON MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
<S> <C> <C> <C> <C>
INTERNATIONAL GOVERNMENT AGENCIES AND ISSUES (91.4%)
AUSTRALIAN DOLLAR (3.5%)
New South Wales Treasury Corp. 12.600% 5/01/2006 500,000 $ 501,142
BRITISH POUND (8.2%)
European Investment Bank 7.625 12/07/2006 400,000 645,627
United Kingdom Treasury 7.000 11/06/2001 325,000 524,273
1,169,900
CANADIAN DOLLAR (8.6%)
Government of Canada 8.750 12/01/2005 1,500,000 1,226,092
DANISH KRON (6.5%)
Kingdom of Denmark 9.000 11/15/1998 2,000,000 325,003
Kingdom of Denmark 7.000 12/15/2004 3,750,000 593,450
918,453
GERMAN DEUTSCHE MARK (4.2%)
Federal Republic of Germany 6.875 5/12/2005 950,000 592,502
IRISH POUND (4.6%)
Republic of Ireland 8.000 8/18/2006 400,000 650,555
ITALIAN LIRA (5.1%)
Republic of Italy 9.500 2/01/2006 1,105,000,000 721,403
NETHERLANDS GUILDER (3.6%)
Government of Netherlands 7.750 3/01/2005 875,000 512,209
PORTUGUESE ESCUDO (4.2%)
Republic of Portugal 10.625 06/23/2003 85,000,000 595,746
SPANISH PESETA (3.0%)
Kingdom of Spain 11.450 8/30/1998 32,000,000 235,023
Kingdom of Spain 12.250 3/25/2000 23,000,000 184,434
419,457
SWEDISH KRONA (4.4%)
Kingdom of Sweden 10.250 5/05/2003 4,200,000 629,537
FOREIGN BONDS (U.S. DOLLARS) (35.5%)
Comtel Brasileira (Brazil) 10.750 9/26/2004 500,000 517,500
Grupo International Durango S.A. de CV (Mexico) 12.625 08/01/2003 600,000 646,500
</TABLE>
(CONTINUED ON NEXT PAGE)
<PAGE>
PAGE 7
<TABLE>
<CAPTION>
COUPON MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
<S> <C> <C> <C> <C>
FOREIGN BONDS (U.S. DOLLARS) -- CONTINUED
Grupo Televisa S.A. de CV (Mexico) 11.875 5/15/2006 600,000 $ 639,000
Republic of Argentina (Argentina) 11.000 10/09/2006 150,000 161,438
Republic of Argentina (Argentina) 11.375 1/30/2017 600,000 636,750
Telecom Argentina STET France (Argentina) 12.000 11/15/2002 190,000 218,025
Telefonica de Argentina S.A. (Argentina) 11.875 11/01/2004 760,000 891,100
Transportacion Maritima (Mexico) 10.000 11/15/2006 625,000 581,250
TV Azteca S.A. de CV (Mexico) 10.125 2/15/2004 750,000 736,875
5,028,438
TOTAL INTERNATIONAL GOVERNMENT AGENCIES & ISSUES (COST-- $12,800,698) 12,965,434
REPURCHASE AGREEMENT (4.9%) (COST-- $699,000) MATURITY
Keystone Joint Repurchase Agreement (Investments in repurchase VALUE
agreements, in a joint trading account, purchased 4/30/97)(a) 5.504 5/01/1997 $699,107 699,000
TOTAL INVESTMENTS (COST $13,499,698) 13,664,434
OTHER ASSETS AND LIABILITIES-- NET (3.7%) 526,617
NET ASSETS (100.0%) $14,191,051
</TABLE>
(a) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at April 30, 1997.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
U.S. VALUE AT UNREALIZED
EXCHANGE IN EXCHANGE APRIL 30, APPRECIATION/
DATE FOR U.S. $ 1997 (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
Forward Foreign Currency Exchange Contracts to Sell:
<CAPTION>
Contracts to Deliver
<S> <C> <C> <C> <C> <C>
05/20/97 322,531 Australian Dollar $ 250,000 $ 251,404 $ (1,404)
05/20/97 4,613,464 Danish Krone 719,000 700,816 18,184
05/20/97 777,095 Deutsche Mark 463,000 449,337 13,663
05/20/97 761,237 Netherlands Guilder 404,000 391,252 12,748
07/28/97 338,983 Pound Sterling 550,000 548,530 1,470
Net Unrealized Appreciation on Forward Foreign Currency Exchange Contracts $ 44,661
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 8
KEYSTONE WORLD BOND FUND
FINANCIAL HIGHLIGHTS-- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD FROM
APRIL 30, 1997 YEAR ENDED OCTOBER 31, JANUARY 1, 1994 TO
(UNAUDITED) 1996 1995 OCTOBER 31, 1994
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $ 8.95 $ 8.42 $ 8.42 $ 9.56
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.28 0.54 0.61 0.32
Net realized and unrealized gain (loss)
on investments and foreign currency
related transactions (0.30) 0.59 (0.01) (0.96)
Total from investment operations (0.02) 1.13 0.60 (0.64)
LESS DISTRIBUTIONS FROM:
Net investment income (0.31) (0.60) (0.54) 0
In excess of net investment income 0 0 0 0
Tax basis return of capital 0 0 (0.06) (0.50)
Net realized gains on investments and foreign
currency related transactions 0 0 0 0
Total distributions (0.31) (0.60) (0.60) (0.50)
NET ASSET VALUE END OF PERIOD $8.62 $8.95 $8.42 $8.42
TOTAL RETURN (C) (0.25%) 13.99% 7.62% (6.72%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses (a) 2.06%(b) 2.01% 2.46% 2.20%(b)
Total expenses excluding indirectly
paid expenses 2.05%(b) 2.00% 2.44% N/A
Net investment income 6.40%(b) 7.40% 7.21% 4.66%(b)
Portfolio turnover rate 23% 58% 108% 100%
NET ASSETS END OF PERIOD (THOUSANDS) $7,902 $8,618 $9,956 $6,047
</TABLE>
(a) Figures are net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the ratio
of total expenses to average net assets would have been 2.25% (annualized),
3.12%, 2.50%, 2.15% and 2.47% for the period from January 1, 1994 to
October 31, 1994 and the years ended December 31, 1993, 1992, 1991 and
1990, respectively.
(b) Annualized.
(c) Excluding applicable sales charges.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 9
FINANCIAL HIGHLIGHTS-- CLASS A SHARES-- CONTINUED
<TABLE>
<CAPTION>
JANUARY 9, 1987
(COMMENCEMENT OF
OPERATIONS) TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $8.69 $10.77 $9.82 $9.76 $10.04 $11.02 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.44 0.64 0.66 0.63 0.61 0.54 0.56
Net realized and unrealized gain (loss)
on investments and foreign currency
related transactions 1.03 (0.79) 0.99 0.31 (0.27) (0.92) 1.27
Total from investment operations 1.47 (0.15) 1.65 0.94 0.34 (0.38) 1.83
LESS DISTRIBUTIONS FROM:
Net investment income (0.43) (0.96) (0.45) (0.52) (0.62) (0.54) (0.56)
In excess of net investment income (0.17) (0.28) 0 (0.04) 0 0 0
Tax basis return of capital 0 0 0 0 0 0 0
Net realized gains on investments and foreign
currency related transactions 0 (0.69) (0.25) (0.32) 0 (0.06) (0.25)
Total distributions (0.60) (1.93) (0.70) (0.88) (0.62) (0.60) (0.81)
NET ASSET VALUE END OF PERIOD $9.56 $8.69 $10.77 $9.82 $9.76 $10.04 $11.02
TOTAL RETURN (C) 17.26% (1.24%) 17.48% 10.11% 3.07% (3.34%) 19.10%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses (a) 2.20% 2.20% 2.00% 2.00% 1.81% 1.19% 1.88%(b)
Total expenses excluding indirectly
paid expenses N/A N/A N/A N/A N/A N/A N/A
Net investment income 4.62% 5.44% 6.43% 6.48% 5.81% 5.34% 5.68%(b)
Portfolio turnover rate 107% 185% 204% 154% 73% 335% 171%
NET ASSETS END OF PERIOD (THOUSANDS) $8,403 $7,121 $11,843 $13,833 $14,806 $5,043 $4,774
</TABLE>
(a) Figures are net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the ratio
of total expenses to average net assets would have been 2.25% (annualized),
3.12%, 2.50%, 2.15% and 2.47% for the period from January 1, 1994 to
October 31, 1994 and the years ended December 31, 1993, 1992, 1991 and
1990, respectively.
(b) Annualized.
(c) Excluding applicable sales charges.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 10
KEYSTONE WORLD BOND FUND
FINANCIAL HIGHLIGHTS-- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD FROM
APRIL 30, 1997 (D) YEAR ENDED OCTOBER 31, JANUARY 1, 1994 TO
(UNAUDITED) 1996 1995 OCTOBER 31, 1994
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $8.97 $8.45 $8.46 $9.58
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.25 0.55 0.52 0.31
Net realized and unrealized gain (loss) on
investments
and foreign currency related
transactions (0.30) 0.51 0.01 (0.99)
Total from investment operations (0.05) 1.06 0.53 (0.68)
LESS DISTRIBUTIONS FROM:
Net investment income (0.28) (0.54) (0.48) 0
In excess of net investment income 0 0 0 0
Tax basis return of capital 0 0 (0.06) (0.44)
Total distributions (0.28) (0.54) (0.54) (0.44)
NET ASSET VALUE END OF PERIOD $8.64 $8.97 $8.45 $8.46
TOTAL RETURN (C) (0.58%) 13.04% 6.68% (7.18%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses (a) 2.82%(b) 2.76% 3.21% 2.95%(b)
Total expenses excluding indirectly paid
expenses 2.81%(b) 2.74% 3.19% N/A
Net investment income 5.64%(b) 6.40% 6.43% 4.05%(b)
Portfolio turnover rate 23% 58% 108% 100%
NET ASSETS END OF PERIOD (THOUSANDS) $4,910 $4,917 $3,680 $3,429
<CAPTION>
AUGUST 2, 1993
(DATE OF INITIAL
PUBLIC OFFERING) TO
DECEMBER 31, 1993
<S> <C>
NET ASSET VALUE BEGINNING OF PERIOD $9.47
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.16
Net realized and unrealized gain (loss) on
investments
and foreign currency related
transactions 0.21
Total from investment operations 0.37
LESS DISTRIBUTIONS FROM:
Net investment income (0.11)
In excess of net investment income (0.15)
Tax basis return of capital 0
Total distributions (0.26)
NET ASSET VALUE END OF PERIOD $9.58
TOTAL RETURN (C) 3.93%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses (a) 2.95%(b)
Total expenses excluding indirectly paid
expenses N/A
Net investment income 3.79%(b)
Portfolio turnover rate 107%
NET ASSETS END OF PERIOD (THOUSANDS) $2,544
</TABLE>
(a) Figures are net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the
annualized ratio of total expenses to average net assets would have been
3.03% and 3.47% for the period from January 1, 1994 to October 31, 1994 and
for the period from August 2, 1993 (Date of Initial Public Offering) to
December 31, 1993, respectively.
(b) Annualized.
(c) Excluding applicable sales charges.
(d) Computed using average shares outstanding during the period.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 11
FINANCIAL HIGHLIGHTS-- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD FROM
APRIL 30, 1997 (D) YEAR ENDED OCTOBER 31, JANUARY 1, 1994 TO
(UNAUDITED) 1996 1995 OCTOBER 31, 1994
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $8.94 $8.42 $8.42 $9.58
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.25 0.56 0.56 0.30
Net realized and unrealized gain (loss) on
investments
and foreign currency related
transactions (0.30) 0.50 (0.02) (1.02)
Total from investment operations (0.05) 1.06 0.54 (0.72)
LESS DISTRIBUTIONS FROM:
Net investment income (0.28) (0.54) (0.48) 0
In excess of net investment income 0 0 0 0
Tax basis return of capital 0 0 (0.06) (0.44)
Total distributions (0.28) (0.54) (0.54) (0.44)
NET ASSET VALUE END OF PERIOD $8.61 $8.94 $8.42 $8.42
TOTAL RETURN (C) (0.58%) 13.09% 6.83% (7.61%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses (a) 2.79%(b) 2.78% 3.21% 2.95%(b)
Total expenses excluding indirectly paid
expenses 2.78%(b) 2.77% 3.19% N/A
Net investment income 5.67%(b) 6.37% 6.49% 3.94%(b)
Portfolio turnover rate 23% 58% 108% 100%
NET ASSETS END OF PERIOD (THOUSANDS) $1,379 $1,057 $1,183 $1,591
<CAPTION>
AUGUST 2, 1993
(DATE OF INITIAL
PUBLIC OFFERING) TO
DECEMBER 31, 1993
<S> <C>
NET ASSET VALUE BEGINNING OF PERIOD $9.47
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.18
Net realized and unrealized gain (loss) on
investments
and foreign currency related
transactions 0.19
Total from investment operations 0.37
LESS DISTRIBUTIONS FROM:
Net investment income (0.12)
In excess of net investment income (0.14)
Tax basis return of capital 0
Total distributions (0.26)
NET ASSET VALUE END OF PERIOD $9.58
TOTAL RETURN (C) 3.93%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses (a) 2.95%(b)
Total expenses excluding indirectly paid
expenses N/A
Net investment income 3.79%(b)
Portfolio turnover rate 107%
NET ASSETS END OF PERIOD (THOUSANDS) $1,878
</TABLE>
(a) Figures are net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement the
annualized ratio of total expenses to average net assets would have been
3.03% and 3.40% for the period from January 1, 1994 to October 31, 1994 and
for the period from August 2, 1993 (Date of Initial Public Offering) to
December 31, 1993, respectively.
(b) Annualized.
(c) Excluding applicable sales charges.
(d) Computed using average shares outstanding during the period.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 12
KEYSTONE WORLD BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at market value
(identified cost-- $13,499,698) $13,664,434
Cash 56
Interest receivable 483,977
Unrealized appreciation on forward foreign
currency exchange contracts 46,065
Foreign tax reclaims receivable 3,553
Receivable for Fund shares sold 400
Prepaid expenses 44,047
Total assets 14,242,532
LIABILITIES:
Payable for income distribution 21,123
Payable for Fund shares redeemed 8,389
Payable for foreign taxes withheld 6,619
Unrealized depreciation on forward foreign
currency exchange contracts 1,404
Other accrued expenses 13,946
Total liabilities 51,481
NET ASSETS $14,191,051
NET ASSETS REPRESENTED BY
Paid-in-capital $14,651,063
Undistributed net investment income 6,505
Accumulated net realized loss on investments
and foreign currency related transactions (656,751)
Net unrealized appreciation on investments and
foreign currency related transactions 190,234
TOTAL NET ASSETS $14,191,051
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
CLASS A SHARES
Net assets of $7,901,938 916,712 shares
outstanding $8.62
Offering price per share ($8.62-0.9525)
(based on a sales charge of 4.75% of the
offering price at April 30, 1997) $9.05
CLASS B SHARES
Net assets of $4,909,728 568,304 shares
outstanding $8.64
CLASS C SHARES
Net assets of $1,379,385 160,278 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
Interest (net of foreign withholding
taxes of $5,328) $625,381
EXPENSES
Management fee $46,156
Distribution Plan expenses 41,330
Transfer agent fees 26,812
Administrative service fee 15,151
Custodian fees 14,840
Professional fees 12,379
Printing expenses 10,369
Registration fees 8,304
Miscellaneous expenses 1,242
Total expenses 176,583
Less: Expenses paid indirectly (795)
Net expenses 175,788
Net investment income 449,593
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Realized gain on:
Investment transactions 216,515
Foreign currency related
transactions 193,529
Net realized gain on investments and
foreign currency related
transactions 410,044
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency related
transactions (918,236)
Net realized and unrealized loss on
investments and foreign currency
related transactions (508,192)
Net decrease in net assets resulting
from operations $(58,599)
</TABLE>
<PAGE>
PAGE 13
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 income $449,593 $1,007,879
Net realized gain on investments and foreign currency
related transactions 410,044 274,506
Net change in unrealized appreciation (depreciation) on investments and foreign
currency related transactions (918,236) 580,719
Net increase (decrease) in net assets resulting from operations (58,599) 1,863,104
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A Shares (292,594) (635,884)
Class B Shares (159,712) (279,243)
Class C Shares (43,377) (71,306)
Total distributions to shareholders (495,683) (986,433)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold:
Class A Shares 217,544 195,332
Class B Shares 590,184 2,034,239
Class C Shares 459,814 282,296
Payments for shares redeemed:
Class A Shares (831,901) (2,510,565)
Class B Shares (534,097) (1,274,145)
Class C Shares (106,309) (514,425)
Net asset value of shares issued in reinvestment of distributions:
Class A shares 202,711 427,111
Class B shares 128,399 213,523
Class C shares 26,736 43,268
Net increase (decrease) in net assets resulting from capital
share transactions 153,081 (1,103,366)
Total decrease in net assets (401,201) (226,695)
NET ASSETS:
Beginning of period 14,592,252 14,818,947
End of period [including undistributed net investment income
at April 30, 1997 of $6,505 and at October 31, 1996 of $52,595] $ 14,191,051 $ 14,592,252
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 14
KEYSTONE WORLD BOND FUND
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Keystone World Bond Fund (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
non-diversified, open-end investment company. The Fund offers three classes of
shares. The Fund's investment objective is to earn investment income while also
seeking capital appreciation.
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
Government obligations held by the Fund are valued at the mean between the
over-the-counter bid and asked prices as furnished by an independent pricing
service. Listed corporate, other fixed income securities, mortgage and other
asset-backed securities, and other related securities are valued at prices
provided by an independent pricing service. In determining value for normal
institutional-size transactions, the pricing service uses methods based on
market transactions for comparable securities which are generally recognized by
institutional traders. 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 the procedures established by the
Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are
carried at amortized cost, which approximates market value. Short-term
securities with greater than 60 days to maturity are valued at market value.
B. REPURCHASE AGREEMENTS
Pursuant to an exemptive order issued by the Securities and Exchange Commission,
the Fund, along with certain other Keystone funds, may transfer uninvested cash
balances into a joint trading account. These balances are invested in one or
more repurchase agreements that are fully collateralized by U.S. Treasury and/or
Federal Agency obligations.
Securities pledged as collateral for repurchase agreements are held by the
custodian on the Fund's behalf. The Fund monitors the adequacy of the collateral
daily and will require the seller to provide additional collateral in the event
the market value of the securities pledged falls below the carrying value of the
repurchase agreement.
C. FOREIGN CURRENCY
The books and records of the Fund are maintained in United States (U.S.)
dollars. Foreign currency amounts are translated into 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
<PAGE>
PAGE 15
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.
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.
F. FEDERAL INCOME TAXES
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Fund is relieved of any federal income tax liability by
distributing all of its net taxable investment income and net taxable capital
gains, if any, to its shareholders. The Fund also intends to avoid excise tax
liability by making the required distributions under the Code. Accordingly, no
provision for federal income taxes is required.
G. DISTRIBUTIONS
The Fund distributes net investment income monthly 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 the deferral of
losses for income tax purposes that have been recognized for financial statement
purposes and treatment of foreign currency gains as ordinary income for tax
purposes.
H. CLASS ALLOCATIONS
Class A shares are currently offered at a public offering price which includes a
maximum sales charge of 4.75% payable at the time of purchase. Class B shares
are sold subject to a contingent deferred sales charge that is payable upon
redemption and decreases depending on how long the shares have been held. Class
B shares purchased on or after January 1, 1997 will convert to Class A shares
after seven years. Class B shares purchased prior to January 1, 1997 retain
their existing conversion features. Class C shares are sold subject to a
contingent deferred sales charge payable on shares redeemed within one year
after the month of purchase.
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the relative
net assets of each class. Currently, class specific expenses are limited to
expenses incurred under the Distribution Plans for each class.
<PAGE>
PAGE 16
KEYSTONE WORLD BOND FUND
2. CAPITAL SHARE TRANSACTIONS
The Trust Agreement authorizes the issuance of an unlimited number of shares of
beneficial interest without par value. Transactions in shares of the Fund were
as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1997 OCTOBER 31, 1996
<S> <C> <C>
CLASS A
Shares sold 24,036 22,718
Shares redeemed (93,358) (291,986)
Shares issued in
reinvestment of
distributions 22,872 49,623
Net decrease (46,450) (219,645)
CLASS B
Shares sold 65,417 132,888
Shares redeemed (59,735) (66,726)
Shares issued in
reinvestment of
distributions 14,449 12,073
Net increase 20,131 78,235
CLASS C
Shares sold 50,954 16,471
Shares redeemed (12,026) (29,624)
Shares issued in
reinvestment of
distributions 3,025 2,840
Net increase
(decrease) 41,954 (10,313)
</TABLE>
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) for the six months ended April 30, 1997, were $3,179,858
and $3,803,228, respectively.
4. DISTRIBUTION PLANS
The Fund bears some of the costs of selling its shares under Distribution Plans
adopted for its Class A, B and C shares pursuant to Rule 12b-1 under the 1940
Act. Under the Distribution Plans, 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.
The Class A Distribution Plan provides for expenditures, which are currently
limited to 0.25% annually of the average daily net assets of the Class A shares,
to pay expenses related to the distribution of Class A shares.
Pursuant to the Fund's Class B and Class C Distribution Plans, the Fund pays a
distribution fee which may not exceed 1.00% annually of the average daily net
assets of Class B and Class C shares, respectively. Of that amount, 0.75% is
used to pay distribution expenses and 0.25% is used to pay service fees.
During the six months ended April 30, 1997, amounts paid to EKD or EKIS
pursuant to the Fund's Class A, Class B and Class C Distribution Plans were
$9,777, $25,131 and $6,422, respectively.
Each of the distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class. However, after the termination of any Distribution
Plan, and subject to the discretion of the Independent Trustees, 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 Class B or Class C shares would
be within permitted limits.
<PAGE>
PAGE 17
At April 30, 1997, total unpaid distribution costs were $330,051 for Class B
shares and $158,565 for Class C shares.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EKD or its predecessor.
5. INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Under the terms of the investment advisory and management agreement with the
Fund, Keystone provides the Fund with investment advisory and management
services. In return, Keystone is paid a management fee, computed daily and paid
monthly, at an annual rate of 1.50% of the Fund's gross investment income plus
an amount determined by applying percentage rates starting at 0.50% and
declining as net assets increase to 0.40% per annum, to the average daily net
asset value of the Fund.
During the six months ended April 30, 1997, the Fund paid or accrued $15,151
to Keystone for certain accounting services. The Fund paid or accrued $26,812 to
Evergreen Keystone Service Company (formerly Keystone Investor Resource Center,
Inc.), a wholly-owned subsidiary of Keystone, for services rendered as the
Fund's transfer and dividend disbursing agent.
Officers of the Fund and affiliated Trustees receive no compensation directly
from the Fund.
6. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an expense offset arrangement with its custodian. For
the six months ended April 30, 1997, the Fund incurred total custody fees of
$14,840 and received a credit of $795 pursuant to this expense offset
arrangement, resulting in a net custody expense of $14,045. The assets deposited
with the custodian under this expense offset arrangement could have been
invested in income-producing assets.
<PAGE>
PAGE 18
KEYSTONE WORLD BOND FUND
ADDITIONAL INFORMATION
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 1,133,349 24,017
Laurence B. Ashkin 1,132,180 25,186
Charles A. Austin III 1,133,349 24,017
Foster Bam 1,132,180 25,186
George S. Bissell 1,133,349 24,017
Edwin D. Campbell 1,133,349 24,017
Charles F. Chapin 1,132,180 25,186
K. Dun Gifford 1,133,349 24,017
James S. Howell 1,133,349 24,017
Leroy Keith, Jr. 1,132,180 25,186
F. Ray Keyser 1,133,349 24,017
Gerald M. McDonnell 1,133,349 24,017
Thomas L. McVerry 1,132,180 25,186
William Walt Pettit 1,133,349 24,017
David M. Richardson 1,133,349 24,017
Russell A. Salton, III M.D. 1,132,180 25,186
Michael S. Scofield 1,133,349 24,017
Richard J. Shima 1,133,349 24,017
Andrew J. Simons 1,132,180 25,186
</TABLE>
2. TO APPROVE AN INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT BETWEEN THE FUND
AND KEYSTONE INVESTMENT MANAGEMENT COMPANY.
<TABLE>
<S> <C>
Affirmative 1,101,068
Against 20,441
Abstain 35,857
</TABLE>
<PAGE>
[This page left blank intentionally]
<PAGE>
KEYSTONE AMERICA
FAMILY OF FUNDS
(bullet)
Balanced Fund II
California Tax Free Fund
Capital Preservation and Income Fund
Florida Tax Free Fund
Fund for Total Return
Fund of the Americas
Global Opportunities Fund
Global Resources and Development Fund
Government Securities Fund
Hartwell Emerging Growth Fund, Inc.
Intermediate Term Bond Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Tax Free Fund
Omega Fund
Pennsylvania Tax Free Fund
Small Company Growth Fund II
Strategic Income Fund
Tax Free Income Fund
World Bond Fund
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied by
the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you invest
or send money. For a free prospectus on other Evergreen Keystone funds, contact
your financial adviser or call Evergreen Keystone.
Evergreeen Keystone
(Logo appears here)
P.O. Box 2121
Boston, Massachusetts 02106-2121
(Recycle logo appears here.)
KEYSTONE
(Photo appears here of world maps)
WORLD
BOND FUND
Evergreen Keystone
(Logo appears here)
SEMI-ANNUAL REPORT
APRIL 30, 1997
<PAGE>
