KEYSTONE AMERICA
FAMILY OF FUNDS
diamond
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 & 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.
[Evergreen Keystone
FUNDS
Logo]
P.O. Box 2121
Boston, Massachusetts 02106-2121
ITBF-R-3/97
7.6M RECYCLE LOGO
K E Y S T O N E
INTERMEDIATE TERM
BOND FUND
[Evergreen Keystone
FUNDS
Logo]
SEMIANNUAL REPORT
JANUARY 31, 1997
<PAGE>
PAGE 1
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Keystone Intermediate Term Bond Fund
Seeks generous income from intermediate-term investment grade bonds.
Dear Shareholder:
We are writing to report your Fund's performance for the six-month period
which ended January 31, 1997. Following our letter to you, we have included a
discussion with your Fund's manager.
Performance
Your Fund provided the following returns, including price changes and
reinvested dividends, for the six-month period ending January 31, 1997:
Class A shares returned 5.56%.
Class B shares returned 5.18%.
Class C shares returned 5.18%.
The Lehman Intermediate Government/Corporate Bond Index, a broad unmanaged
index of government and corporate bonds with intermediate maturities,
returned 4.37% for the same six-month period.
We were extremely pleased with your Fund's performance over this time
period. According to Lipper Analytical Services, your Fund's Class A shares
ranked 13 out of a total of 174 funds within its competitive group.(1) We also
are pleased to report that in September, your Fund increased its dividend to
$.047 per share from $.045 per share for Class A shares.(2)
Keystone Intermediate Term Bond Fund was designed to seek current income by
investing primarily in investment grade bonds with maturities between three
and ten years. In managing your Fund to meet these objectives, we consider
current and anticipated interest rates, economic growth and inflation. We
attempt to take advantage of the cyclical opportunities presented by a
changing environment.
Market environment
The value of maintaining a long-term perspective was realized in your Fund's
most recent reporting period. After enduring higher interest rates in the
first half of 1996, fixed-income investors enjoyed declining interest rates
over much of the last six months. An outlook for moderate economic growth
accompanied by low inflation, a strong dollar and significant global
liquidity compounded demand for U.S. bonds by attracting foreign investors.
Intermediate term bonds outperformed any other maturity range, as interest
rates with 3-10 year maturities declined more than those on any other part of
the yield curve.
We invested in those sectors that we believed would best capitalize on this
favorable economic environment. We maintained a solid core of corporate bonds
because of increasing profitability and improvement in the quality of
corporate earnings. Our investment in collateralized mortgage obligations
(CMOs) and mortgage-backed securities provided high yields and an attractive
stream of income, as well as the highest levels of credit quality. Finally,
we found opportunity in the foreign sector, specifically in the government
bonds of Canada and Germany. The economies of these countries have benefited
from budget deficit reduction and declining interest rates. These government
bonds provided the portfolio with attractive yields and solid price
appreciation. Holdings of foreign government bonds were currency-hedged.
We lengthened your Fund's average maturity from 4.5 years on July 31, 1996
to approximately 5 years on January 31, 1997. We extended the average
maturity late in the third quarter of 1996 when indications of slower
- ----------
(1)Class B and C shares ranked 43 and 41, respectively, out of the same 174
funds.
(2)$.042 per share from $.039 for Class B shares and $.042 per share from $.039
for Class C shares.
(continued on next page)
<PAGE>
PAGE 2
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Keystone Intermediate Term Bond Fund
economic growth began to emerge. We believe that this also maintained the
Fund's highest yields for a greater period of time and enhanced its total
return. As of January 31, 1997, the average rating of your Fund was AA.
Outlook
Looking forward, we expect a continuation of the favorable economic
environment that has existed over the past few months. We believe that the
economy is in a prolonged period of moderate growth, which will be
accompanied by low inflation. This environment should provide a favorable
setting for intermediate term bonds.
As investors monitor developments within the economy, however, the bond
market could be subject to periods of volatility. We look for this volatility
to be short-term in nature and for the fluctuations to be contained within a
narrow range. This outlook further supports the value of intermediate term
bonds, as historically the 3-10 year maturity range has provided much of the
yield of longer maturities, while incurring significantly less price
sensitivity.
Keystone acquired by First Union Corporation
We are pleased to inform you that Keystone has been acquired by First Union
Corporation. First Union, based in Charlotte, N.C., is the nation's sixth
largest bank holding company with assets of approximately $130 billion.
Keystone Investment Management Company will continue to be the investment
adviser, responsible for managing your Fund's portfolio. Your Fund will
continue to be managed with the same style and philosophy as in the past.
First Union also owns another mutual fund management company, Evergreen
Asset Management Corp. Together, Evergreen and Keystone manage approximately
$30 billion in assets. Service and marketing will now be conducted under the
"Evergreen Keystone Funds" umbrella.
We believe the partnership between Evergreen and Keystone will strengthen
our ability to offer you outstanding investment management services.
Thank you for your continued support of Keystone Intermediate Term Bond
Fund. If you have questions or comments about your investment, we encourage
you to write to us.
Sincerely,
[signature of Albert H. Elfner, III]
Albert H. Elfner, III
Chairman
Keystone Investment Management Company
[signature of George S. Bissell]
George S. Bissell
Chairman of the Board
Keystone Funds
March 1997
[photo of Albert H. Elfner, III]
Albert H. Elfner, III
[photo of George S. Bissell]
George S. Bissell
<PAGE>
PAGE 3
- ------------------------------------
A Discussion With Your Fund Manager
[photo of Christopher P. Conkey]
Christopher P. Conkey is Chief Investment Officer of Keystone's fixed income
group and is portfolio manager of your Fund. A Chartered Financial Analyst,
Mr. Conkey has 12 years of experience managing fixed-income investments. He
holds a BA in economics from Clark University and an MBA in finance from
Boston University. Together with analysts David J. Bowers and Gary E. Pzegeo,
the team evaluates the economic environment in selecting high quality bonds
for your Fund.
Q How did intermediate term fixed-income investments perform over the last
six months?
A Fixed-income investments in the 3-10 year range performed well, relative to
all other maturities. Interest rates in the intermediate term range fell
approximately 0.3% during this reporting period, a greater decline than
interest rates in any other part of the yield curve experienced. As a result,
securities with 3-10 year maturities outperformed other fixed-income
investments that had either longer or shorter maturities.
Q Why did they perform so well?
A All fixed-income investments benefited from an increasingly favorable
economic environment, characterized by moderate economic growth and low
inflation, as well as strong demand from foreign investors. Bonds with 3-10
year maturities attracted the most significant demand, since investors could
capture much of the yield provided by bonds with longer maturities, but incur
much less interest rate risk. For example, as of January 31, 1997, the most
current 10-year U.S. Treasury note provided 96% of the yield of the benchmark
30-year U.S. Treasury bond, with only 54% of its duration, a measure of
sensitivity to interest rate change.
Q Interest rates were so volatile in the first half of 1996. What created a
more positive economic environment over the past six months?
A Over the past six months, investors witnessed a slowdown in economic
activity from the stronger growth exhibited in the first half of 1996. This
slower, but steady pace of economic growth gave investors confidence that
inflation could remain well-contained and that the Federal Reserve Board
would not have to raise interest rates in the near future. Interest rates
continued to exhibit some volatility while investors waited for slower
economic growth to be confirmed; but the fluctuations took place within a
narrow range and gradually trended lower when a pattern of steady growth
became established.
Q How did you structure the portfolio during this time?
A We targeted what we believed would be the best performing sectors, based
on our economic and interest rate outlook. We maximized the portfolio's yield
by emphasizing corporate securities, collateralized mortgage obligations
(CMOs) and mortgage pass-through certificates and foreign bonds. We then
extended the Fund's average maturity when it appeared that interest rates had
peaked and were going to fall. This captured the highest yields for a longer
period of time and enhanced the Fund's total return.
Corporate securities performed well over the past six months. The economic
environment provided a
<PAGE>
PAGE 4
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Keystone Intermediate Term Bond Fund
solid background for corporations to increase profits and generate high
quality earnings. We believe the banking and finance sector particularly
benefited from this environment. Moderate economic growth and low inflation
helped to build strong and improving credit quality in the loan portfolios of
many banks. Also, there has been a trend toward banks diversifying into
fee-based earnings. This reduces the sector's reliance on loans and in our
opinion, enhances the stability of earnings.
The Fund's other investments also performed well. CMOs and mortgage-backed
securities offered high quality and attractive yields. Non-dollar holdings in
Canada and Germany generated high yields and price appreciation, as monetary
authorities in those countries lowered interest rates and focused on reducing
their deficits. These bonds also enabled the Fund to diversify while
maintaining the highest level of credit quality. Foreign holdings are
currency-hedged.
Q What is your outlook for the next six months?
A We anticipate a steady interest rate environment. We expect the economy to
grow at a pace of 1-1/2% to 3% and for inflation to remain well-contained. The
economy still exhibits signs of strength, particularly in the housing and
manufacturing sectors and in consumer confidence. However, consumer borrowing
has slowed. This could dampen the rate of growth, since consumer spending
accounts for two-thirds of domestic economic activity.
We believe that the U.S. economy is in a prolonged moderate growth cycle,
with periodic over-heating and recessionary scares. This leads to a bond
market that should trade in a volatile pattern, within a generally
well-defined range. Longer term, we do not see excesses in the economy that
could cause embedded higher inflation. That type of setting should bode well
for intermediate term fixed-income securities.
[diamond]
This column is intended to answer questions about your Fund.
If you have a question you would like answered, please write to:
Evergreen Keystone Investment Services, Inc.
Attn: Shareholder Communications, 22nd Floor
200 Berkeley Street, Boston, Massachusetts 02116-5034.
- --------------------------------------------------------------------------------
Fund Profile
Objective: Seeks generous income from intermediate-term investment grade bonds.
Inception Date: April 14, 1987
Average maturity: 5 years
Net assets: $34.3 million
- --------------------------------------------------------------------------------
<PAGE>
PAGE 5
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Your Fund's Performance
[graph]
Growth of an investment in
Keystone Intermediate Term Bond Fund
Class A
In Thousands
Total Value: $18,009
[graph]
4/87 9671.18 9671.18
9245.65 9738.57
1/89 8723.41 9999.2
8404.25 10459.3
1/91 8336.56 11306.8
8752.42 12896
1/93 9081.24 14421.2
9139.26 15590.7
1/95 8317.22 15192.3
8810.44 17259.2
1/97 8636.36 18002.2
[end graph]
A $10,000 investment in Keystone Intermediate Term Bond Fund Class A made on
April 14, 1987 with all distributions reinvested was worth $18,009 on January
31, 1997. Past performance is no guarantee of future results.
Six-Month Performance as of January 31, 1997
=================================================================
Class A Class B Class C
Total Returns* 5.56% 5.18% 5.18%
Net Asset Value 7/31/96 $8.73 $8.74 $8.74
1/31/97 $8.93 $8.94 $8.94
Dividends $ .28 $ .25 $ .25
Capital Gains None None None
*Before deduction of front-end or contingent deferred sales charge.
Historical Record as of January 31, 1997
=================================================================
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 4.31% 3.51% 3.52%
1-year 0.92% -0.41% 3.52%
5-year 35.06% -- --
Life of Class 80.09% 18.04% 20.91%
Average Annual Returns
1-year w/o sales charge 4.31% 3.51% 3.52%
1-year 0.92% -0.41% 3.52%
5-year 6.20% -- --
Life of Class 6.18% 4.23% 4.86%
Class A shares were introduced April 14, 1987. Performance is reported at the
current maximum front-end sales charge of 3.25% except where noted.
Class B shares were introduced on February 1, 1993. Performance assumes that
shares were redeemed after the end of a one-year holding period and reflects
the deduction of a 4% CDSC.
Class C shares were introduced on February 1, 1993. Performance reflects the
return you would have received after holding shares for one year and
redeeming after the end of the period.
The investment return and principal value will fluctuate so that your
shares, when redeemed, may be worth more or less than their original cost.
Performance for each class will differ.
You may exchange shares for another Keystone fund by phone or in writing.
You may also exchange funds through Keystone's Automated Response Line
(KARL). The Fund reserves the right to change or terminate the exchange
offer.
<PAGE>
PAGE 6
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Keystone Intermediate Term Bond Fund
<TABLE>
<CAPTION>
Interest Maturity Par Market
Rate Date Value Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIXED INCOME (96.8%)
COLLATERALIZED MORTGAGE OBLIGATIONS (22.4%)
Chase Mortgage Finance Corp.
(Est. Mat. 2003) (a) Series 1994-L Class B1 7.872% 2025 $ 482,877 $ 472,465
Criimi Mae Financial Corp. (Est.
Mat. 2004) (a) Series 1A 7.000 2033 462,754 446,991
FNMA (Est. Mat. 2004) (a) Series 1993-248 Class SA 3.258 2023 1,000,000 727,344
Merrill Lynch Trust (Est. Mat.
2005) (a) Class C 8.450 2018 500,000 528,750
Morgan Stanley Capital (Est.
Mat. 2001) (a) (b) Series 96-BKU1 Class A 6.475 2027 983,367 960,012
Paine Webber Mortgage Acceptance
Corp. IV (Est. Mat. 2006) (a) Series 1993-4 Class M1 7.500 2023 958,498 935,926
Resolution Trust Corp. (Est.
Mat. 2000) (a) Series 1995-1 Class A2C 7.500 2028 1,250,000 1,255,078
Ryland Acceptance Corp. Four
(Est. Mat. 2001) (a) Series 88 Class E 7.950 2019 1,396,932 1,410,021
Structured Asset Securities
Corp. (Est. Mat. 2001) (a) Series 1996-CFL Class B 6.303 2028 985,750 959,874
- ----------------------------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST--$7,752,003) 7,696,461
- ----------------------------------------------------------------------------------------------------------------
INDUSTRIAL BONDS & NOTES (16.4%)
AUTOMOTIVE (4.7%)
Ford Motor Co. Deb. 9.000 2001 1,500,000 1,634,310
- ----------------------------------------------------------------------------------------------------------------
FOOD SERVICES (3.0%)
ConAgra, Inc. Sr. Notes Putable 2006 7.125 2026 1,000,000 1,015,600
- ----------------------------------------------------------------------------------------------------------------
ELECTRONICS (2.9%)
Arrow Electronics, Inc. Notes 7.000 2007 1,000,000 996,537
- ----------------------------------------------------------------------------------------------------------------
SERVICES (2.9%)
Olsten Corp. Sr. Notes 7.000 2006 1,000,000 987,400
- ----------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS (2.9%)
U.S. West Capital Funding, Inc. Notes 6.850 2002 1,000,000 1,003,000
- ----------------------------------------------------------------------------------------------------------------
TOTAL INDUSTRIAL BONDS & NOTES (COST--$5,608,773) 5,636,847
- ----------------------------------------------------------------------------------------------------------------
BANK & FINANCE BONDS & NOTES (15.9%)
Amsouth Bancorporation Sub. Debentures Putable
2005 6.750 2025 1,000,000 979,800
Chase Manhattan Corp. Notes (Subord.) 9.375 2001 1,250,000 1,373,575
CIT Group Sub. Debentures 9.250 2001 1,000,000 1,097,500
Paine Webber Group, Inc. Medium Term Note Series C 7.490 2004 1,000,000 1,014,500
Notes (Subord.) Putable
Wachovia Corp. 2005 6.605 2025 1,000,000 986,550
- ----------------------------------------------------------------------------------------------------------------
TOTAL BANK & FINANCE BONDS & NOTES (COST--$5,484,702) 5,451,925
- ----------------------------------------------------------------------------------------------------------------
UNITED STATES GOVERNMENT (AND AGENCY) ISSUES (12.8%)
FHLMC Global Note 6.700 2007 750,000 747,656
U.S. Treasury Notes 5.750 1998 1,725,000 1,720,412
U.S. Treasury Notes 6.500 2006 1,935,000 1,933,181
- ----------------------------------------------------------------------------------------------------------------
TOTAL UNITED STATES GOVERNMENT (AND AGENCY) ISSUES (COST--$4,389,268) 4,401,249
- ----------------------------------------------------------------------------------------------------------------
<PAGE>
PAGE 7
- ------------------------------------
Interest Maturity Par Market
Rate Date Value Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOREIGN BONDS (U.S. DOLLARS) (10.3%)
Fomento Economico Mexico Euro-Dollars 9.500% 1997 $1,250,000 $1,264,063
Grand Metro Investment Corp. Putable 2005 7.450 2035 1,000,000 1,057,440
Telecom Brasileiras Yankee Notes 10.375 1997 1,200,000 1,219,500
- ----------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS (U.S. DOLLARS) (COST--$3,559,238) 3,541,003
- ----------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (8.0%)
Cargill Lease Receivables Trust Series 1996-A Class A2 6.430 2005 1,000,000 997,813
Southern Pacific Secured Assets
Corp. Series 1996-3 Class A4 7.600 2027 1,000,000 1,001,250
U.S. Home Equity Loan Series 1991-2 Class B 9.125 2021 750,000 759,375
- ----------------------------------------------------------------------------------------------------------------
TOTAL ASSET--BACKED SECURITIES (COST--$2,744,062) 2,758,438
- ----------------------------------------------------------------------------------------------------------------
FOREIGN BONDS (NON-U.S. DOLLARS) (8.0%)
Germany Federal Republic 6.500 2003 1,075,000 703,370
Deutsche Mark
Germany Federal Republic 6.875 2005 1,575,000 1,041,591
Deutsche Mark
United Kingdom Treasury 7.000 2001 625,000 996,747
Pound Sterling
- ----------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS (NON-U.S. DOLLARS) (COST--$2,867,126) 2,741,708
- ----------------------------------------------------------------------------------------------------------------
MORTGAGE PASS-THROUGH CERTIFICATES (3.0%)
GNMA Pool #414739 6.500 2025 96,572 92,135
GNMA Pool #417294 6.500 2026 992,103 945,593
- ----------------------------------------------------------------------------------------------------------------
TOTAL MORTGAGE PASS-THROUGH CERTIFICATES (COST--$1,024,715) 1,037,728
- ----------------------------------------------------------------------------------------------------------------
TOTAL FIXED INCOME (COST--$33,429,887) 33,265,359
- ----------------------------------------------------------------------------------------------------------------
Maturity
Value
- ----------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT (1.5%) (COST--$508,000)
Keystone Joint Repurchase Agreement (Investments in repurchase
agreements, in a joint trading account, dated 1/31/97) (c) 5.580 02/03/97 508,236 508,000
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST--$33,937,887) 33,773,359
OTHER ASSETS AND LIABILITIES--NET (1.7%) 573,555
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS (100.0%) $34,346,914
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(continued on next page)
<PAGE>
PAGE 8
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Keystone Intermediate Term Bond Fund
SCHEDULE OF INVESTMENTS--January 31, 1997 (Unaudited)
(a) The estimated maturity of a Collateralized Mortgage Obligation ("CMO") is
based on current and projected prepayment rates. Changes in interest
rates can cause the estimated maturity to differ from the listed date.
(b) Securities that may be resold to "qualified institutional buyers" under
Rule 144a or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended. These securities have been determined
to be liquid under guidelines established by the Board of Trustees.
(c) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at January 31, 1997.
Legend of Portfolio Abbreviations:
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
GNMA--Government National Mortgage Association
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
Exchange U.S. Value at In Exchange Net Unrealized
Date January 31, 1997 for U.S. $ Appreciation
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Forward Foreign Currency Exchange Contracts to Buy
Contracts to Receive
---------------------------------------------
02/28/97 4,728,000 Canadian Dollars $3,515,621 $3,488,527 $ 27,094
Forward Foreign Currency Exchange Contracts to Sell
Contracts to Deliver
---------------------------------------------
02/07/97 2,900,000 German Marks 1,773,607 1,925,401 151,794
02/28/97 4,728,000 Canadian Dollars 3,515,621 3,534,821 19,200
04/28/97 625,000 British Pounds 999,641 1,015,331 15,690
--------
Net Unrealized Appreciation on Forward Foreign Currency
Exchange Contracts $213,778
========
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 9
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FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended
January 31, Year Ended July 31,
1997 1996 1995 1994(c) 1993 1992
=============================================================================================================
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of period $8.73 $8.88 $8.84 $9.46 $9.23 $8.64
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.30 0.59 0.63 0.57 0.70 0.71
Net realized and unrealized gain
(loss) on investments and closed
futures contracts 0.18 (0.16) 0.02 (0.59) 0.18 0.60
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 0.48 0.43 0.65 (0.02) 0.88 1.31
- --------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.28) (0.58) (0.57) (0.57) (0.65) (0.71)
In excess of net investment income 0 0 (0.04) (0.02) 0 (0.01)
Tax basis return of capital 0 0 0 (0.01) 0 0
- --------------------------------------------------------------------------------------------------------------
Total distributions (0.28) (0.58) (0.61) (0.60) (0.65) (0.72)
- --------------------------------------------------------------------------------------------------------------
Net asset value end of period $8.93 $8.73 $8.88 $8.84 $9.46 $9.23
=============================================================================================================
Total return (a) 5.56% 4.95% 7.76% (0.29%) 9.88% 15.65%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.11%(b)(d) 1.10%(b) 1.00% 1.00% 1.52% 1.88%
Total expenses excluding
reimbursement 1.61%(d) 1.54% 1.48% 1.80% 1.99% 1.88%
Net investment income 6.43%(d) 6.57% 7.13% 6.81% 7.48% 7.85%
Portfolio turnover rate 97% 231% 149% 280% 160% 90%
- --------------------------------------------------------------------------------------------------------------
Net assets end of period (thousands) $11,870 $12,958 $14,558 $16,036 $18,032 $19,288
=============================================================================================================
</TABLE>
(a) Excluding applicable sales charges.
(b) Ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratios would
have been 1.10% (annualized) for the six months ended January 31, 1997
and 1.08% for the year ended July 31, 1996.
(c) Calculations based on average shares outstanding.
(d) Annualized.
See Notes to Financial Statements.
<PAGE>
PAGE 10
- ------------------------------------
Keystone Intermediate Term Bond Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
February 1, 1993
Six Months (Date of Initial
Ended Public Offering)
January 31, Year Ended July 31, to
1997 1996 1995 1994 (d) July 31, 1993
=========================================================================================================
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net asset value beginning of
period $8.74 $8.89 $8.85 $9.47 $9.35
- ---------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.26 0.52 0.56 0.49 0.29
Net realized and unrealized gain
(loss) on investments and
closed futures contracts 0.19 (0.16) 0.02 (0.58) 0.12
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 0.45 0.36 0.58 (0.09) 0.41
- ---------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.25) (0.51) (0.51) (0.49) (0.29)
In excess of net investment
income 0 0 (0.03) (0.03) 0
Tax basis return of capital 0 0 0 (0.01) 0
- ---------------------------------------------------------------------------------------------------------
Total distributions (0.25) (0.51) (0.54) (0.53) (0.29)
- ---------------------------------------------------------------------------------------------------------
Net asset value end of period $8.94 $8.74 $8.89 $8.85 $9.47
=========================================================================================================
Total return (b) 5.18% 4.10% 6.87% (1.05%) 4.42%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.86%(a)(c) 1.85%(c) 1.75% 1.75% 1.76%(a)
Total expenses excluding
reimbursement 2.38%(a) 2.32% 2.21% 2.36% 2.71%(a)
Net investment income 5.69%(a) 5.82% 6.38% 5.48% 5.67%(a)
Portfolio turnover rate 97% 231% 149% 280% 160%
- ---------------------------------------------------------------------------------------------------------
Net assets end of period
(thousands) $14,392 $16,034 $17,985 $17,819 $8,159
=========================================================================================================
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratios would
have been 1.85% (annualized) for the six months ended January 31, 1997
and 1.83% for the year ended July 31, 1996.
(d) Calculations based on average shares outstanding.
See Notes to Financial Statements.
<PAGE>
PAGE 11
- ------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
February 1, 1993
Six Months (Date of Initial
Ended Public Offering)
January 31, Year Ended July 31, to
1997 1996 1995 1994 (d) July 31, 1993
===================================================================================================
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net asset value beginning of
period $8.74 $8.89 $8.85 $9.46 $9.35
- ---------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.26 0.52 0.55 0.49 0.29
Net realized and unrealized gain
(loss) on investments and closed
futures contracts 0.19 (0.16) 0.03 (0.57) 0.11
- ---------------------------------------------------------------------------------------------------
Total from investment operations 0.45 0.36 0.58 (0.08) 0.40
- ---------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.25) (0.51) (0.51) (0.49) (0.29)
In excess of net investment
income 0 0 (0.03) (0.03) 0
Tax basis return of capital 0 0 0 (0.01) 0
- ---------------------------------------------------------------------------------------------------
Total distributions (0.25) (0.51) (0.54) (0.53) (0.29)
- ---------------------------------------------------------------------------------------------------
Net asset value end of period $8.94 $8.74 $8.89 $8.85 $9.46
===================================================================================================
Total return (b) 5.18% 4.10% 6.87% (0.95%) 4.31%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.86%(a)(c) 1.85%(c) 1.75% 1.75% 1.77%(a)
Total expenses excluding
reimbursement 2.38%(a) 2.31% 2.23% 2.37% 2.61%(a)
Net investment income 5.68%(a) 5.82% 6.37% 5.44% 5.61%(a)
Portfolio turnover rate 97% 231% 149% 280% 160%
- ---------------------------------------------------------------------------------------------------
Net assets end of period
(thousands) $8,085 $9,084 $10,185 $13,086 $7,522
===================================================================================================
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratios would
have been 1.85% (annualized) for the six months ended January 31, 1997
and 1.83% for the year ended July 31, 1996.
(d) Calculations based on average shares outstanding.
See Notes to Financial Statements.
<PAGE>
PAGE 12
- ------------------------------------
Keystone Intermediate Term Bond Fund
STATEMENT OF ASSETS AND LIABILITIES--
January 31, 1997 (Unaudited)
Assets (Notes 2 and 5)
Investments at market value (identified cost--
$33,937,887) $33,773,359
Cash 1,037
Receivable for:
Investments sold 2,262
Fund shares sold 3,978
Interest 542,172
Net unrealized appreciation on forward foreign
currency exchange contracts 213,778
Due from investment adviser 14,493
Prepaid expenses and other assets 2,992
- ----------------------------------------------------------------------
Total assets 34,554,071
- ----------------------------------------------------------------------
Liabilities (Notes 2, 4 and 5)
Payable for:
Fund shares redeemed 95,133
Distributions to shareholders 62,937
Distribution fees payable 18,166
Due to related parties 8,533
Other accrued expenses 22,388
- ----------------------------------------------------------------------
Total liabilities 207,157
- ----------------------------------------------------------------------
Net assets $34,346,914
======================================================================
Net assets represented by
Paid-in capital $38,196,703
Undistributed net investment income 33,275
Accumulated net realized loss on investments and
futures contracts (3,925,995)
Net unrealized appreciation on investments and
foreign currency related transactions 42,931
- ----------------------------------------------------------------------
Total net assets $34,346,914
======================================================================
Net asset value per share (Note 2)
Class A Shares
Net asset value of $11,869,992 / 1,329,326 shares
outstanding $8.93
Maximum offering price per share ($8.93 / 0.9675)
(based on a sales charge of 3.25% of the
offering price on January 31, 1997) $9.23
Class B Shares
Net asset value of $14,391,746 / 1,609,289 shares
outstanding $8.94
Class C Shares
Net asset value of $8,085,176 / 904,470 shares
outstanding $8.94
======================================================================
STATEMENT OF OPERATIONS
Six Months Ended January 31, 1997 (Unaudited).
Investment Income
Interest $1,393,035
Expenses (Notes 4, 5 and 6)
Distribution Plan expenses $136,751
Management fee 119,911
Transfer agent fees 49,419
Accounting, auditing and legal fees 31,161
Custodian fees 23,325
Registration fees 19,755
Other 12,883
Reimbursement from investment
adviser (95,414)
- ----------------------------------------------------------------
Total expenses 297,791
Less: Indirectly paid expenses (2,572)
- ----------------------------------------------------------------
Net expenses 295,219
- ----------------------------------------------------------------
Net investment income 1,097,816
- ----------------------------------------------------------------
Net realized and unrealized gain on
investments (Note 3)
Net realized gain (loss) on:
Investments 81,584
Forward foreign currency
transactions (74,649) 6,935
- ----------------------------------------------------------------
Net change in unrealized
appreciation (depreciation) on:
Investments 531,849
Forward foreign currency
transactions 250,640 782,489
- ----------------------------------------------------------------
Net realized and unrealized gain on
investments and foreign currency
related transactions 789,424
- ----------------------------------------------------------------
Net increase in net assets resulting
from operations $1,887,240
================================================================
See Notes to Financial Statements
<PAGE>
PAGE 13
- ------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
January 31, 1997 July 31, 1996
- -----------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Operations
Net investment income $ 1,097,816 $ 2,540,623
Net realized gain on investments 6,935 26,604
Net change in unrealized appreciation (depreciation) on investments
and foreign currency transactions 782,489 (730,346)
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,887,240 1,836,881
- ----------------------------------------------------------------------------------------------------------
Distributions to shareholders from (Note 1)
Net investment income:
Class A Shares (377,339) (898,299)
Class B Shares (427,173) (1,028,103)
Class C Shares (238,830) (576,335)
- ----------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1,043,342) (2,502,737)
- ----------------------------------------------------------------------------------------------------------
Net decrease in capital share transactions (Note 2)
Proceeds from shares sold:
Class A Shares 1,078,872 2,283,194
Class B Shares 1,278,570 4,965,806
Class C Shares 375,136 2,871,565
Payments from shares redeemed:
Class A Shares (2,685,954) (4,141,580)
Class B Shares (3,520,442) (7,205,208)
Class C Shares (1,736,158) (4,177,736)
Net asset value of shares issued in reinvestment of dividends and
distributions:
Class A Shares 230,025 469,775
Class B Shares 248,213 565,232
Class C Shares 158,837 382,466
- ----------------------------------------------------------------------------------------------------------
Total decrease from capital share transactions (4,572,901) (3,986,486)
- ----------------------------------------------------------------------------------------------------------
Total decrease in net assets (3,729,003) (4,652,342)
- ----------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period 38,075,917 42,728,259
- ----------------------------------------------------------------------------------------------------------
End of period [Including undistributed net investment income
(accumulated distributions in excess of net investment income) as
follows: 1997--$33,275 and 1996--($21,199)](Note 1) $34,346,914 $38,075,917
=========================================================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 14
- ------------------------------------
Keystone Intermediate Term Bond Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Significant Accounting Policies
Keystone Intermediate Term 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 diversified, open-end investment company. The
Fund offers several classes of shares. The Fund seeks current income by
investing primarily in investment quality debt securities. As a secondary
objective, the Fund seeks to protect capital.
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
U.S. 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 bonds, 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 and various
relationships between 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 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. Reverse Repurchase Agreements
The Fund enters into reverse repurchase agreements with qualified third-party
broker- dealers. Interest on the value of reverse repurchase agreements is
based upon competitive market rates at the time of issuance. At the time the
Fund enters into a reverse repurchase agreement, it will establish and
maintain a segregated account with its custodian containing liquid assets
having a value not less than the repurchase price
<PAGE>
PAGE 15
- ------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(including accrued interest). If the counterparty to the transaction is
rendered insolvent, the ultimate realization of the securities to be
repurchased by the Fund may be delayed or limited
D. 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 transactions. Net realized
foreign currency gains and losses resulting from changes in exchange rates
include foreign currency gains and losses between trade date and settlement
date on investment securities transactions, foreign currency transactions and
the difference between the amounts of interest and dividends recorded on the
books of the Fund and the amount actually received. The portion of foreign
currency gains and losses related to fluctuations in exchange rates between
the initial purchase trade date and subsequent sale trade date is included in
realized gain (loss) on foreign currency transactions.
E. 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 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.
F. 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.
G. 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.
H. 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
differing treatment for paydown gains (losses) and foreign currency
transactions for income tax
<PAGE>
PAGE 16
- ------------------------------------
Keystone Intermediate Term Bond Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited)
purposes that have been recognized for financial statement purposes.
I. Class Allocations
Effective January 1, 1997, Class A shares are currently offered at a public
offering price which includes a maximum sales charge of 3.25% payable at the
time of purchase. Prior to January 1, 1997, Class A shares were offered at a
public offering price which included 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 after January 1, 1997 will
automatically convert to Class A shares after seven years. Class B shares
purchased prior to January 1, 1997 will 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.
2. Capital Share Transactions
The Fund's Declaration of Trust authorizes the issuance of an unlimited
number of shares of beneficial interest with no par value. Shares of
beneficial interest of the Fund are currently divided into Class A, Class B
and Class C. Transactions in shares of the Fund were as follows:
Six Months
Ended Year Ended
01/31/97 07/31/96
- -------------------------------------------------------------
Class A
Shares sold 120,550 258,497
Shares redeemed (301,683) (465,961)
Shares issued in reinvestment of
dividends and distributions 25,883 52,934
- -------------------------------------------------------------
Net decrease (155,250) (154,530)
=============================================================
Class B
Shares sold 142,453 555,555
Shares redeemed (394,562) (808,199)
Shares issued in reinvestment of
dividends and distributions 27,869 63,537
- -------------------------------------------------------------
Net decrease (224,240) (189,107)
=============================================================
Class C
Shares sold 41,871 318,799
Shares redeemed (194,530) (468,122)
Shares issued in reinvestment of
dividends and distributions 17,855 42,997
- -------------------------------------------------------------
Net decrease (134,804) (106,326)
=============================================================
3. Securities Transactions
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the six months ended January 31,
1997:
Cost of Proceeds
Purchases from Sales
- -------------------------------------------------
Non-U.S.Government $12,030,274 $14,673,684
U.S. Government 21,997,155 24,068,184
=================================================
The average daily balance of reverse repurchase agreements outstanding
during the six months ended January 31, 1997 was approximately $1,518,000 at a
<PAGE>
PAGE 17
- ------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
weighted average interest rate of 4.42%. The maximum amount of borrowing
during the six months was $2,017,483 (including accrued interest).
As of July 31, 1996, the Fund had a capital loss carryover for federal
income tax purposes of approximately $3,752,000 which expires as follows:
$970,000--1999, $2,688,000--2002 and $94,000--2004.
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 and paid monthly.
On December 11, 1996, the Fund entered into a principal underwriting
agreement with Evergreen Keystone Distributor, Inc. (formerly, Evergreen
Funds Distributor, Inc.) ("EKD"), a wholly-owned subsidiary of BISYS Group
Inc. Prior to December 11, 1996, Evergreen Keystone Investment Services, Inc.
(formerly, Keystone Investment Distributors Company) ("EKIS"), a wholly-owned
subsidiary of Keystone, served as the Fund's principal underwriter.
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 January 31, 1997, amounts paid to EKD or EKIS
pursuant to the Fund's Class A, Class B and Class C Distribution Plans were
as follows:
Paid to Paid to
EKD EKIS
- -------------------------------------------------------
Class A -- $13,866
Class B prior to June 1, 1995 -- 60,104
Class B on or after June 1, 1995 $21 18,656
Class C 54 44,050
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 which
had been earned while the Distribution Plan was in effect.
EKD intends, but is not obligated, to continue to pay distribution costs
that exceed the current annual payments from the Fund. EKD intends to seek
full payment of such distribution costs from the Fund at such time in the
future as, and to the extent that, payment thereof by the Class B or Class C
shares would be within permitted limits.
At January 31, 1997 total unpaid distribution costs were $1,066,227 for
Class B shares purchased before June 1, 1995 and $226,546 for Class B shares
purchased on or after June 1, 1995. Unpaid distribution costs for Class C
were $1,224,900 at January 31, 1997.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EKD or its predecessor.
<PAGE>
PAGE 18
- ------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
5. Investment Management Agreement and Other Affiliated Transactions
Under an investment advisory agreement dated December 11, 1996, Keystone
serves as the Investment Adviser and Manager to the Fund. Keystone provides
the Fund with investment advisory and management services. In return,
Keystone is paid a management fee, computed and paid daily, at an annual rate
of 2.00% 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 0.25% per annum, to the average daily net asset value of the
Fund.
Prior to December 11, 1996, Keystone Management, Inc. ("KMI"), a
wholly-owned subsidiary of Keystone, served as Investment Manager to the Fund
and provided investment management and administrative services. Under an
investment advisory agreement between KMI and Keystone, Keystone served as
the Investment Adviser and provided investment advisory and management
services to the Fund. In return for its services, Keystone received an annual
fee equal to 85% of the management fee received by KMI.
Keystone has voluntarily limited the expenses of Class A shares to 1.10% of
its average daily net assets and has limited the expenses of Class B and C to
1.85% of the average daily net assets of each respective class. For the six
months ended January 31, 1997, Keystone reimbursed the Fund $95,414.
During the six months ended January 31, 1997, the Fund paid or accrued
$17,037 to Keystone for certain accounting services. The Fund paid or accrued
$49,419 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. Currently the Independent Trustees of the Fund
receive no compensation for their services.
6. Expense Offset Arrangement
The Fund has entered into an expense offset arrangement with its custodian.
For the six months ended January 31, 1997, the Fund incurred total custody
fees of $23,325 and received a credit of $2,572 pursuant to this expense
offset arrangement, resulting in a net custody expense of $20,753. The assets
deposited with the custodian under this expense offset arrangement could have
been invested in income-producing assets.
7. Subsequent Distribution to Shareholders
Distributions from net investment income of $0.47 for Class A, $0.42 for
Class B and $0.42 for Class C were declared payable by February 6, 1997 to
shareholders of record on January 24, 1997. These distributions are not
reflected in the accompanying financial statements.
<PAGE>
PAGE 19
- ------------------------------------
ADDITIONAL INFORMATION (Unaudited)
Shareholders of the Fund considered and acted upon the proposals listed
below at a special meeting of shareholders held Monday, December 9, 1996. In
addition, next to each proposal are the results of that vote.
Affirmative Withheld
------------- -----------
1. To elect the following Trustees:
Frederick Amling 2,822,637 39,293
Laurence B. Ashkin 2,821,316 40,614
Charles A. Austin III 2,822,621 39,309
Foster Bam 2,821,316 40,614
George S. Bissell 2,822,637 39,293
Edwin D. Campbell 2,822,637 39,293
Charles F. Chapin 2,822,637 39,293
K. Dun Gifford 2,822,621 39,309
James S. Howell 2,820,401 41,529
Leroy Keith, Jr. 2,822,621 39,309
F. Ray Keyser, Jr. 2,822,637 39,293
Gerald M. McDonell 2,821,300 40,630
Thomas L. McVerry 2,821,300 40,630
William Walt Pettit 2,822,621 39,309
David M. Richardson 2,822,621 39,309
Russell A. Salton, III MD 2,821,300 40,630
Michael S. Scofield 2,821,316 40,614
Richard J. Shima 2,822,621 39,309
Andrew J. Simons 2,822,637 39,293
2. To approve an Investment Advisory and Management Agreement
between the Fund and Keystone Investment Management Company.
Affirmative 2,755,643
Against 20,441
Abstain 85,835
