<PAGE>
PAGE 1
- --------------------------------------
KEYSTONE FUND FOR TOTAL RETURN
SEEKS TOTAL RETURN FROM A COMBINATION OF CAPITAL GROWTH AND INCOME FROM
INCOME-PRODUCING STOCKS AND BONDS IN THE U.S. AND ABROAD.
Dear Shareholder:
We are pleased to report on the performance of Keystone Fund for Total Return
for the six-month period, which ended May 31, l997. Following this letter, we
have included an interview with the Fund's portfolio manager Walter T.
McCormick.
PERFORMANCE
For the six-month and twelve-month periods, which ended May 31, l997, your Fund
produced the following returns, excluding maximum sales charges:
Class A shares returned 8.92% for the six-month period and 25.80% for the
twelve-month period.
Class B shares returned 8.41% for the six-month period and 24.81% for the
twelve-month period.
Class C shares returned 8.47% for the six-month period and 24.86% for the
twelve-month period.
The Standard & Poor's 500 Index (S&P 500) returned 12.1% and 25.7% for the
same six- and twelve-month periods, respectively.
Your Fund's strong performance was the result of good security selection
during a time when the types of stocks that your Fund emphasizes did well.
Sustained by excellent corporate earnings, large-company stocks were market
leaders throughout the six-month period.
INVESTMENT ENVIRONMENT
Despite short-term price fluctuations, large-company, dividend-paying stocks
made strong gains over the six-month period. These large, high-quality companies
were market leaders. While they sometimes lagged in market rallies, they tended
to maintain their prices better than the stocks of less well seasoned companies
when the market experienced short-term downturns.
Within this period, stocks made strong gains in late 1996 and during the first
three months of 1997, before experiencing a sharp correction in late March and
April. The correction was largely triggered by concerns about inflation and a
change in the Federal Reserve Board's monetary policy. In what it termed a
"pre-emptive strike" against inflation, the Federal Reserve raised short-term
interest rates 0.25% on March 25, l997. While the March-April downturn in the
market was short-lived, it erased the gains stocks had generated earlier in
1997. However, as inflation concerns subsided and interest rates declined, stock
prices began to rally again late in April and throughout May.
STRATEGY
During the period, we maintained our conservative approach of investing in the
stocks of large companies with proven records of consistent earnings growth and
market leadership. We continued to emphasize companies in a variety of
industries, including real estate, finance, pharmaceutical and capital goods.
During market rallies, we took profits in stocks that we believed had become
fully priced. When the stock market corrected, we sometimes bought back the very
stocks we sold at more attractive prices.
OUTLOOK
We continue to look favorably on large-company stocks. We believe that the
economy should continue to grow at a moderate pace, inflation should remain
under control and interest rates should fluctuate within a relatively low range.
While our long-term outlook is favorable, we think it would be unrealistic to
expect stocks to continue to make record-
-- CONTINUED--
<PAGE>
PAGE 2
- --------------------------------------
KEYSTONE FUND FOR TOTAL RETURN
setting gains without periods of consolidation. We experienced a brief market
decline in March and April, and no one can predict when another downturn may
occur. If the market does experience another normal correction, we would view it
as an opportunity to invest in selected stocks at lower prices. In the months
ahead we believe returns on stocks could be somewhat lower than the double-digit
returns stocks have produced for more than two years.
Thank you for your continued support of Keystone Fund for Total Return. If you
have any questions or comments about your investments, we encourage you to write
to us.
Sincerely,
(signature of Albert H. Elfner, III)
Albert H. Elfner, III
CHAIRMAN
KEYSTONE INVESTMENT MANAGEMENT COMPANY
Photo Photo
(signature of George S. Bissell)
George S. Bissell of of
CHAIRMAN OF THE BOARD
KEYSTONE FUNDS Albert H. Elfner, III George S. Bissell
June 1997
<PAGE>
PAGE 3
- --------------------------------------
A Discussion With
Your Fund Manager
Picture
of
Walter T. McCormick
WALTER T. MCCORMICK IS SENIOR VICE PRESIDENT AND CHIEF INVESTMENT OFFICER,
GROWTH & INCOME, AT KEYSTONE INVESTMENT MANAGEMENT COMPANY. HE IS ALSO
SENIOR PORTFOLIO MANAGER OF YOUR FUND, AND HE LEADS KEYSTONE'S CORE EQUITY
STOCK TEAM. A CHARTERED FINANCIAL ANALYST, MR. MCCORMICK HOLDS AN MBA FROM
RUTGERS UNIVERSITY AND HAS MORE THAN 25 YEARS OF INVESTMENT MANAGEMENT
EXPERIENCE. THE GROWTH & INCOME TEAM AT KEYSTONE ALSO INCLUDES PORTFOLIO
MANAGERS MAUREEN CULLINANE, ANDREW BALDASSARRE, JUDITH WARNERS AND WALTER
ZAGROBSKI AND A TEAM OF EQUITY ANALYSTS.
(Q) WHAT WAS THE ECONOMIC ENVIRONMENT LIKE DURING THE SIX-MONTH PERIOD?
(A) The economic environment changed dramatically during the six months. Stock
prices rallied, declined, and then rallied again. At the beginning of the
period, stocks generated strong gains. However, the wealth created by strong
stock market gains raised concerns about the possibility of accelerating
inflation. In December 1996, even the chairman of the Federal Reserve Board Alan
Greenspan, in an uncharacteristic move, warned investors about the "irrational
exuberance" of the stock market.
In mid-February, long-term interest rates began to rise, and on March 25, l997
the Fed raised short-term interest rates. The Fed's action triggered a steep
decline in stock prices. In effect, stock prices, which rose about 10% during
the first three months of l997, gave back their gains. As investors waited for
additional interest rate hikes, economic growth slowed and interest rates
declined. As interest rates declined, stock investors came back to the market,
and stock prices rebounded strongly from their lows.
(Q) WHAT WAS YOUR STRATEGY FOR INVESTING IN THIS TYPE OF ENVIRONMENT?
(A) We continued to invest in large, established companies that had proven
records of consistent earnings growth, market leadership and that had
consistently paid dividends over time. We diversified investments among several
different economic sectors and industries.
(Q) WHAT CONTRIBUTED TO THE FUND'S STRONG PERFORMANCE?
(A) Stock selection was key during the period. While large company stocks
continued to be market leaders, we experienced what we call a "rotational"
market. In a rotational market, no one industry or sector dominates, rather
industries or sectors move quickly in and out of favor with investors, with
little regard for fundamental prospects. Stock selection is more difficult in
this type of environment because even companies with strong earnings potential
and solid fundamentals experience price declines.
(Q) WHAT CHANGES DID YOU MAKE IN THE PORTFOLIO DURING THE PERIOD?
(A) At the end of l996, we began to pare back some of the Fund's largest
holdings-- stocks that had performed well and that we believed had reached full
valuation. Two examples are General Electric and IBM. Both of these companies
produced significant gains, and we correctly anticipated that there prices would
decline during the first few months of l997. Once the prices
<PAGE>
PAGE 4
- --------------------------------------
KEYSTONE FUND FOR TOTAL RETURN
TOP 5 INDUSTRIES
AS OF MAY 31, 1997
PERCENTAGE OF
INDUSTRY NET ASSETS
Real Estate Investment Trusts (REITs) 7.9%
Drugs 7.7%
Insurance 7.7%
Oil 7.0%
Electronics Products 5.8%
on these stocks reached levels that we believed were attractive, we repurchased
them.
(Q) EVEN THOUGH REAL ESTATE INVESTMENT TRUSTS (REITS) HAVE DECLINED FROM 10.3%
OF NET ASSETS ON NOVEMBER 30, 1996 TO 7.9% OF NET ASSETS ON MAY 31, L997, THEY
ARE STILL THE FUND'S LARGEST INDUSTRY WEIGHTING. WHY WERE REITS ATTRACTIVE?
(A) For nearly two years, the REITs in which we invested produced excellent
total returns, that is, they provided income and capital appreciation to the
Fund. During the six-month period, however, the returns on some REITs began to
lag the market, so we reduced exposure in this area. We took profits in the
REITs that we believed had reached their peak price levels. These included
Avalon Properties, Public Storage USA, and Beacon Properties.
We used the profits from the sale of these REITs to invest in new REITs that we
believe have the potential to generate strong total returns over time. One new
REIT we added to the portfolio is Golf Trust of America, a company that
purchases interests in upscale golf course properties. Golf has become a very
popular sport, with the number of golfers increasing rapidly. Demand for golf
courses is growing faster than the 2.5% annual growth in supply. Golf Trust of
America is one of the top ten companies in the country with interests in golf
courses. We believe the company is well-positioned to benefit from this growing
industry.
(Q) FINANCE STOCKS HAVE BEEN A THEME IN THE PORTFOLIO FOR MORE THAN A YEAR. WHY?
(A) Finance stocks include a broad range of industries-- banks, mortgage
companies, and insurance businesses. Some of the companies that were in the
portfolio during the six-month period were Bank America, Travelers Group, Inc.
and the Student Loan Marketing Association (Sallie Mae). While their stock
prices declined slightly when interest rates rose, we believe these companies
still have the potential for solid growth. Many of these businesses are leaders
in their market niche, and we believe they should continue to benefit from a
strong economy and relatively low interest rates.
(Q) ON MAY 31, L997, CONVERTIBLE SECURITIES ACCOUNTED FOR NEARLY 10% OF NET
ASSETS. HOW DO THESE TYPES OF SECURITIES ADD VALUE TO A PORTFOLIO?
(A) Convertible preferred stocks and bonds have been long-term holdings in the
portfolio and have provided it with attractive income. Convertible securities
have "all weather" characteristics. During changing market conditions, they can
provide a cushion against declines in a portfolio. In this investment category,
we added to the Fund's position in K-Mart convertible preferred stock. K-Mart is
in the process of turning around its business. The store has a new management
team, has sold off unprofitable ventures and has restructured its product line.
(Q) WERE THERE STOCKS THAT DID NOT LIVE UP TO YOUR EXPECTATIONS?
(A) Many of the stocks that did not meet our expectations were companies
affected by disappointing earnings forecasts. For example, when Eastman Kodak, a
company that had performed well in the portfolio for more than a year, predicted
that its first quarter earnings would lag expectations, its stock price
declined. We eliminated Eastman Kodak from the portfolio after its
<PAGE>
PAGE 5
- --------------------------------------
TOP 10 STOCK HOLDINGS
AS OF MAY 31, 1997
PERCENTAGE OF
STOCK INDUSTRY NET ASSETS
General Electric Co. Capital Goods 2.9%
Bristol-Myers Squibb Drugs 2.6%
Philip Morris Cos., Inc. Foods 2.3%
Kmart Financing I Conv. Pfd. Retail 2.1%
BMC Software, Inc. Software Services 1.9%
American Home Products Corp. Drugs 1.9%
Owens Illinois, Inc. Diversified 1.6%
Companies
Texas Instruments Electronic 1.6%
Products
Tyco International Ltd. Diversified 1.6%
Companies
General Cigar Holdings, Ltd. Retail 1.5%
stock rebounded. Another company that underperformed was Ikon Office Solutions
(formerly Alco Standard). Ikon appeared to have excellent fundamental prospects,
but its stock declined when investors became concerned about its restructuring
efforts. This led to a low short-term earnings forecast for the company. We are
still optimistic about Ikon's long-term growth potential, however, and we have
retained it in the portfolio. Hewlett Packard is another example of how a
company's stock price was affected by a disappointing earnings report. We kept
Hewlett Packard in the portfolio, because we believe it is well managed and that
it has the potential to grow over time.
(Q) DID YOU CHANGE THE FOREIGN COMPONENT OF THE PORTFOLIO?
(A) We reduced the number of foreign stocks in the portfolio from 8% of net
assets on November 30, l996 to almost 6% on May 31, l997. This lower percentage
of foreign stocks reflects the elimination of Japanese holdings. While the
Fund's Japanese investments performed well, our outlook for the Japanese market
was not favorable. We maintained the Fund's holdings in Canada and Germany.
(Q) WHAT IS YOUR OUTLOOK?
(A) We are optimistic about the long-term prospects for the stock market and
your Fund. However, large-company stocks have been market leaders for more than
two years, and we believe it would be unrealistic to expect them to continue to
produce double-digit returns. If economic growth accelerates and interest rates
rise, large-company stocks may experience price declines. If such declines
occur, we would view it as an opportunity to purchase more stocks at attractive
prices.
*
THIS COLUMN IS INTENDED TO ANSWER QUESTIONS ABOUT YOUR FUND.
IF YOU HAVE A QUESTION YOU WOULD LIKE ANSWERED, PLEASE WRITE TO:
EVERGREEN KEYSTONE INVESTMENT SERVICES, INC.
ATTN: SHAREHOLDER COMMUNICATIONS
201 SOUTH COLLEGE STREET, SUITE 400,
CHARLOTTE, N.C. 28288-1195
<PAGE>
PAGE 6
- --------------------------------------
KEYSTONE FUND FOR TOTAL RETURN
Your Fund's Performance
Growth of an investment in
Keystone Fund for Total Return Class A
In Thousands
$40
Dividend Reinvestment Total Value $31,120
30
Initial Investment
20
10
0
11/87 11/88 11/90 11/91 11/92 11/93 11/94 11/95 11/96 2/97 5/97
Class A shares were introduced on April 14, 1987. Performance is reported at the
current maximum front-end sales charge of 4.75%.
Class B and C shares were introduced on February 1, 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.
SIX-MONTH PERFORMANCE AS OF MAY 31, 1997
CLASS A CLASS B CLASS C CLASS Y
Total returns* 8.92% 8.41% 8.47% 6.19%
Net asset
value
11/30/96 $17.33 $17.31 $17.32 $17.94**
5/31/97 $18.75 $18.72 $18.74 $18.68
Dividends $ 0.16 $ 0.08 $ 0.08 $ 0.16
* BEFORE DEDUCTION OF FRONT-END OR CONTINGENT DEFERRED SALES CHARGE (CDSC).
CLASS Y TOTAL RETURN CALCULATED FOR PERIOD FROM JANUARY 13, 1997 (DATE OF
INITIAL PUBLIC OFFERING) TO MAY 31, 1997.
** CLASS Y SHARES WERE INITIALLY OFFERED ON JANUARY 13, 1997.
HISTORICAL RECORD AS OF MAY 31, 1997
CUMULATIVE TOTAL RETURNS CLASS A CLASS B CLASS C
1-year w/o sales charge 25.80 % 24.81 % 24.86 %
1-year 19.83 % 19.81 % 23.86 %
5-year 90.03 % -- --
10-year 207.80 % -- --
Life of Class -- 79.02 % 81.19 %
AVERAGE ANNUAL RETURNS
1-year w/o sales charge 25.80 % 24.81 % 24.86 %
1-year 19.83 % 19.81 % 23.86 %
5-year 13.70 % -- --
10-year 11.90 % -- --
Life of Class -- 14.39 % 14.71 %
Class C shares are subject to a 1% contingent deferred sales charge for 12
months after the month purchased. Performance reflects the return you would have
received after holding shares for one year or more and redeeming after the end
of that period.
Class Y shares were introduced on January 13, 1997. Class Y shares are
available without a front-end sales charge or contingent deferred sales charge.
<PAGE>
PAGE 7
- --------------------------------------
SCHEDULE OF INVESTMENTS-- MAY 31, 1997 (UNAUDITED)
MARKET
SHARES VALUE
- -------------------------------------------------------------
COMMON STOCKS (85.4%)
AEROSPACE (1.1%)
15,000 Boeing Co. (The)............. $ 1,578,750
AMUSEMENTS (0.9%)
35,000 Carnival Corp., Class A...... 1,330,000
AUTOMOTIVE (2.7%)
50,000 Federal-Mogul Corp........... 1,456,250
50,000 Ford Motors Co............... 1,875,000
10,000 General Motors Corp.......... 572,500
3,903,750
BUSINESS SERVICES (4.4%)
50,001 Ikon Office Solutions,
Inc........................ 1,450,029
100,000 Laidlaw, Inc., Class B....... 1,350,000
50,000 Thermo Electron Corp......... 1,725,000
50,000 * USA Waste Services, Inc...... 1,812,500
6,337,529
CAPITAL GOODS (5.0%)
30,000 Emerson Electric Co.......... 1,620,000
70,000 General Electric Co.......... 4,226,250
50,000 Regal Beloit Corp............ 1,331,250
7,177,500
CHEMICALS (3.5%)
15,000 Dow Chemical Co.............. 1,250,625
15,000 DuPont (E.I.) DeNemours &
Co......................... 1,633,125
50,000 Monsanto Co.................. 2,200,000
5,083,750
CONSUMER GOODS (1.0%)
10,000 Procter & Gamble Co. (The)... 1,378,750
DIVERSIFIED COMPANIES (4.4%)
125,000 * Brown & Sharpe Manufacturing
Co. Class A................ 1,781,250
75,000 * Owens-Illinois, Inc.......... 2,315,625
35,000 * Tyco International Ltd....... 2,222,500
6,319,375
DRUGS (7.7%)
35,000 American Home Products
Corp....................... 2,668,750
50,000 Bristol-Myers Squibb Co...... 3,668,750
25,000 Johnson & Johnson............ 1,496,875
14,700 Merck & Co., Inc............. 1,321,161
25,000 Rhone-Poulenc Rorer, Inc..... 1,881,250
11,036,786
MARKET
SHARES VALUE
- -------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ELECTRONIC PRODUCTS (5.8%)
50,033 * Analog Devices, Inc.......... $ 1,338,383
10,000 Intel Corp................... 1,514,375
25,000 Motorola, Inc................ 1,659,375
25,000 * Solectron Corp............... 1,562,500
25,000 Texas Instruments, Inc....... 2,246,875
8,321,508
FINANCE (4.1%)
15,000 BankAmerica Corp............. 1,753,125
17,500 BankBoston Corp.............. 1,277,500
15,000 Chase Manhattan Corp......... 1,417,500
12,500 Student Loan Marketing
Association................ 1,520,313
5,968,438
FOODS (6.5%)
25,000 Anheuser Busch Cos., Inc..... 1,071,875
75,000 * General Cigar Holdings,
Ltd........................ 2,212,500
35,000 Heinz (H.J.) Co.............. 1,505,000
30,000 Nabisco Holdings Corp.,
Class A.................... 1,188,750
75,000 Philip Morris Cos., Inc...... 3,300,000
9,278,125
INSURANCE (5.4%)
50,000 GCR Holdings Ltd............. 1,340,625
25,000 * Hartford Life, Inc. Class
A.......................... 837,500
30,000 * Nationwide Financial
Services, Inc. Class A..... 843,750
20,000 PMI Group, Inc. (The)........ 1,097,500
15,000 Providian Corp............... 898,125
25,000 Travelers Group, Inc......... 1,371,875
35,000 Travelers Property Casualty
Corp. Class A.............. 1,347,500
7,736,875
NATURAL GAS (2.2%)
15,000 Burlington Resources, Inc.... 697,500
25,000 Enron Corp................... 1,018,750
25,000 Sonat, Inc................... 1,437,500
3,153,750
OFFICE & BUSINESS EQUIPMENT (1.9%)
20,000 Hewlett Packard Co........... 1,030,000
20,000 IBM Corp..................... 1,730,000
2,760,000
<PAGE>
PAGE 8
- --------------------------------------
KEYSTONE FUND FOR TOTAL RETURN
SCHEDULE OF INVESTMENTS-- MAY 31, 1997 (UNAUDITED)
MARKET
SHARES VALUE
- ------------------------------------------------------------
COMMON STOCKS (CONTINUED)
OIL (7.0%)
20,000 Amoco Corp................... $ 1,787,500
5,000 Atlantic Richfield Co........ 727,500
15,000 Chevron Corp................. 1,050,000
20,000 Exxon Corp................... 1,185,000
6,000 Mobil Corp................... 839,250
30,000 Occidental Petroleum Corp.... 697,500
30,000 Pennzoil Co.................. 1,661,250
7,500 Texaco, Inc.................. 818,438
30,000 Unocal Corp.................. 1,278,750
10,045,188
OIL SERVICES (1.4%)
8,000 Halliburton Co............... 619,000
6,000 Schlumberger Ltd............. 714,750
15,000 Tidewater, Inc............... 631,875
1,965,625
PAPER & PACKAGING (1.3%)
50,000 Unisource Worldwide, Inc..... 868,750
20,000 Weyerhaeuser Co.............. 997,500
1,866,250
REAL ESTATE INVESTMENT TRUSTS (7.9%)
25,000 American General Hospitality
Corp....................... 646,875
35,000 Arden Realty Group, Inc...... 905,625
30,000 Bay Apartment Communities,
Inc........................ 1,057,500
25,000 Camden Property Trust........ 734,375
20,000 Equity Residential Property
Trust...................... 945,000
30,000 First Industrial Realty
Trust, Inc................. 885,000
33,000 Golf Trust of America,
Inc........................ 899,250
45,000 Patriot American Hospitality,
Inc........................ 973,125
49,000 Prentiss Properties Trust.... 1,151,500
25,000 Spieker Properties, Inc...... 921,875
30,000 Storage USA, Inc............. 1,143,750
35,000 TriNet Corporate Realty
Trust, Inc................. 1,146,250
11,410,125
RETAIL (2.2%)
50,000 * Costco Cos., Inc............. 1,690,625
50,000 Wal-Mart Stores, Inc......... 1,487,500
3,178,125
SOFTWARE SERVICES (1.9%)
50,000 * BMC Software, Inc............ 2,703,125
MARKET
SHARES VALUE
- ------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS (4.8%)
17,000 Ameritech Corp............... $ 1,113,500
14,000 BellSouth Corp............... 635,250
50,000 Deutche Telekom AG, ADR...... 1,137,500
18,000 GTE Corp..................... 794,250
25,000 Northern Telecom Ltd......... 2,100,000
19,000 SBC Communications, Inc...... 1,111,500
6,892,000
TRANSPORTATION (2.3%)
13,297 Burlington Northern Santa Fe,
Inc........................ 1,103,651
50,300 Canadian National Railway
Co......................... 2,100,025
3,203,676
TOTAL COMMON STOCKS
(COST-- $93,441,536)........................ 122,629,000
CONVERTIBLE PREFERRED STOCKS (7.7%)
FINANCE (0.5%)
Salomon, Inc.
25,000 7.625%, DECS................... 765,625
INSURANCE (2.3%)
Allstate Corp.
Exchangeable Notes
15,000 due 4/15/98.................... 699,375
Conseco, Inc.
10,000 7.00%, PRIDES.................. 1,405,000
SunAmerica, Inc.
27,500 $3.188, PERCS.................. 1,185,938
3,290,313
MISCELLANEOUS (0.5%)
Timet Cap Trust I
15,000 6.625% (b)..................... 751,875
OIL (0.4%)
Atlantic Richfield Co.
25,000 9.00%.......................... 537,500
RETAIL (2.1%)
Kmart Financing I
50,000 7.75%.......................... 2,950,000
SOFTWARE SERVICES (1.4%)
Houghton Mifflin Co.
35,000 6.00%, SAILS................... 1,960,000
TELECOMMUNICATIONS (0.5%)
Loral Space & Communications,
Inc.
15,000 6.00% (b)...................... 776,250
TOTAL CONVERTIBLE PREFERRED
STOCKS (COST-- $9,946,823).................. 11,031,563
<PAGE>
PAGE 9
- --------------------------------------
SCHEDULE OF INVESTMENTS-- MAY 31, 1997 (UNAUDITED)
PAR MARKET
VALUE VALUE
- ------------------------------------------------------------
CONVERTIBLE DEBENTURES (2.3%)
CAPITAL GOODS (1.0%)
Robbins & Myers, Inc.
$ 400,000 6.50%, 9/1/03.................. $ 536,000
US Filter Corp.
500,000 6.00%, 9/15/05 (b)............. 880,000
1,416,000
CONSUMER GOODS (0.7%)
CUC International, Inc.
1,000,000 3.00%, 2/15/02 (b)............. 992,360
RETAIL (0.6%)
Staples, Inc.
750,000 4.50%, 10/1/00 (b)............. 877,500
TOTAL CONVERTIBLE DEBENTURES
(COST-- $2,650,000)......................... 3,285,860
PAR MARKET
VALUE VALUE
- ------------------------------------------------------------
REPURCHASE AGREEMENTS (4.1%)
Investments in repurchase
$5,860,000 agreements, in a joint
trading account purchased
5/30/97, 5.5734%, maturing
6/2/97, maturity value
$5,862,722 (a)
(Cost-- $5,860,000).......... $ 5,860,000
TOTAL INVESTMENTS
(COST-- $111,898,359) 99.5% 142,806,423
OTHER ASSETS AND
LIABILITIES 0.5% 783,233
NET ASSETS 100% $143,589,656
* Non-income producing security.
(a) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at May 31, 1997.
(b) Securities that may be resold to qualified institutional buyers under Rule
144A or securities offered pursuant to section 144A of the Federal
Securities Act of 1933, as amended. These securities have been determined
to be liquid under guidelines established by the Board of Trustees.
ADR-- American Depositary Receipts.
DECS-- Dividend Enhanced Convertible Stock.
PERCS-- Preferred Equity Redemption Cumulative Stock.
PRIDES-- Preferred Redeemable Increased Dividend Equity Securities.
SAILS-- Stock Appreciation Income Linked Securities.
GEOGRAPHIC DIVERSIFICATION
The Fund may invest in securities principally traded in markets outside the
United States. While investments in such securities are intended to reduce risk
by providing further diversification, foreign investments involve sovereign risk
in addition to the credit and market risks normally associated with domestic
securities. Foreign investments may be affected favorably or unfavorably by
changes in currency rates and exchange control regulations. At May 31, 1997, the
Fund had investments, excluding repurchase agreements, in the following
countries:
MARKET PERCENT OF
COUNTRY VALUE NET ASSETS
United States $128,918,273 89.8%
Canada 5,550,025 3.9%
Bermuda 1,340,625 0.9%
Germany 1,137,500 0.8%
Total $136,946,423 95.4%
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 10
- --------------------------------------
KEYSTONE FUND FOR TOTAL RETURN
FINANCIAL HIGHLIGHTS-- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 31, 1997 YEAR ENDED NOVEMBER 30,
(UNAUDITED) 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $17.33 $13.83 $11.75 $12.31 $12.06 $11.45 $10.29 $10.89 $9.41
INCOME FROM
INVESTMENT
OPERATIONS
Net investment income 0.16 0.26 0.25 0.24 0.21 0.23 0.34 0.41 0.42
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
related
transactions 1.42 3.83 2.80 (0.56) 1.31 1.19 1.38 (0.61) 2.01
Total from investment
operations 1.58 4.09 3.05 (0.32) 1.52 1.42 1.72 (0.20) 2.43
LESS DISTRIBUTIONS
FROM:
Net investment income (0.16) (0.26) (0.25) (0.24) (0.21) (0.23) (0.35) (0.40) (0.42)
In excess of net
investment income 0.00 0.00 (0.07) 0.00 (0.03) (0.05) (0.05) 0.00 0.00
Net realized gain on
investments 0.00 (0.33) (0.65) 0.00 (1.03) (0.53) (0.16) 0.00 (0.53)
Total distributions (0.16) (0.59) (0.97) (0.24) (1.27) (0.81) (0.56) (0.40) (0.95)
NET ASSET VALUE END
OF PERIOD $18.75 $17.33 $13.83 $11.75 $12.31 $12.06 $11.45 $10.29 $10.89
TOTAL RETURN (A) 8.55% 29.83% 26.57% (2.65%) 12.67% 12.56% 16.70% (1.85%) 26.17%
RATIOS/SUPPLEMENTAL
DATA
RATIOS TO AVERAGE NET
ASSETS:
Net expenses 1.14%(b) 1.41% 1.69% 1.59% 1.85% 1.85% 1.88% 2.00% 2.00%
Net expenses,
excluding
indirect expenses 1.12%(b) 1.39% 1.67% N/A N/A N/A N/A N/A N/A
Total expenses,
excluding expense
reimbursement N/A N/A N/A N/A N/A N/A N/A 2.41% 2.48%
Net investment
income 1.79%(b) 1.66% 1.94% 1.93% 1.63% 1.87% 2.98% 3.85% 3.94%
PORTFOLIO TURNOVER
RATE 29% 41% 77% 57% 92% 66% 43% 51% 50%
AVERAGE COMMISSION
RATE PAID $ 0.0475 $0.0037 N/A N/A N/A N/A N/A N/A N/A
NET ASSETS END OF
PERIOD (THOUSANDS) $ 43,133 $40,487 $27,037 $23,162 $26,367 $23,607 $22,974 $22,080 $22,764
<CAPTION>
1988
<S> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $8.59
INCOME FROM
INVESTMENT
OPERATIONS
Net investment income 0.46
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
related
transactions 0.89
Total from investment
operations 1.35
LESS DISTRIBUTIONS
FROM:
Net investment income (0.53)
In excess of net
investment income 0.00
Net realized gain on
investments 0.00
Total distributions (0.53)
NET ASSET VALUE END
OF PERIOD $9.41
TOTAL RETURN (A) 15.98%
RATIOS/SUPPLEMENTAL
DATA
RATIOS TO AVERAGE NET
ASSETS:
Net expenses 1.47%
Net expenses,
excluding
indirect expenses N/A
Total expenses,
excluding expense
reimbursement 2.92%
Net investment
income 4.87%
PORTFOLIO TURNOVER
RATE 64%
AVERAGE COMMISSION
RATE PAID N/A
NET ASSETS END OF
PERIOD (THOUSANDS) $20,735
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 11
- --------------------------------------
FINANCIAL HIGHLIGHTS-- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 31, 1997 YEAR ENDED NOVEMBER 30,
(UNAUDITED) 1996 1995 1994 1993(C)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $17.31 $13.84 $11.77 $12.32 $12.65
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.10 0.15 0.15 0.15 0.10
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions 1.39 3.80 2.82 (0.56) 0.74
Total from investment operations 1.49 3.95 2.97 (0.41) 0.84
LESS DISTRIBUTIONS FROM:
Net investment income (0.08) (0.15) (0.15) (0.14) (0.10)
In excess of net investment income 0.00 0.00 (0.10) 0.00 (0.04)
Net realized gain on investments 0.00 (0.33) (0.65) 0.00 (1.03)
Total distributions (0.08) (0.48) (0.90) (0.14) (1.17)
NET ASSET VALUE END OF PERIOD $18.72 $17.31 $13.84 $11.77 $12.32
TOTAL RETURN (A) 8.34% 28.73% 25.59% (3.36%) 6.68%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Net expenses 1.91%(b) 2.18% 2.47% 2.31% 2.64%(b)
Net expenses, excluding indirect expenses 1.89%(b) 2.16% 2.46% N/A N/A
Net investment income 0.96%(b) 0.88% 1.06% 1.27% 0.84%(b)
PORTFOLIO TURNOVER RATE 29% 41% 77% 57% 92%
AVERAGE COMMISSION RATE PAID $ 0.0475 $0.0037 N/A N/A N/A
NET ASSETS END OF PERIOD (THOUSANDS) $ 80,877 $43,526 $20,605 $7,314 $4,283
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) For the period from February 1, 1993 (Date of Initial Public Offering) to
November 30, 1993.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 12
- --------------------------------------
KEYSTONE FUND FOR TOTAL RETURN
FINANCIAL HIGHLIGHTS-- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 31, 1997 YEAR ENDED NOVEMBER 30,
(UNAUDITED) 1996 1995 1994 1993(C)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $17.32 $13.85 $11.78 $12.33 $12.65
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.09 0.14 0.16 0.15 0.10
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions 1.41 3.81 2.81 (0.56) 0.75
Total from investment operations 1.50 3.95 2.97 (0.41) 0.85
LESS DISTRIBUTIONS FROM:
Net investment income (0.08) (0.15) (0.16) (0.14) (0.10)
In excess of net investment income 0.00 0.00 (0.09) 0.00 (0.04)
Net realized gain on investments 0.00 (0.33) (0.65) 0.00 (1.03)
Total distributions (0.08) (0.48) (0.90) (0.14) (1.17)
NET ASSET VALUE END OF PERIOD $18.74 $17.32 $13.85 $11.78 $12.33
TOTAL RETURN (A) 8.39% 28.71% 25.57% (3.36%) 6.76%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Net expenses 1.91%(b) 2.17% 2.47% 2.34% 2.64%(b)
Net expenses, excluding indirect expenses 1.89%(b) 2.15% 2.44% N/A N/A
Net investment income 1.01%(b) 0.89% 1.16% 1.21% 0.83%(b)
PORTFOLIO TURNOVER RATE 29% 41% 77% 57% 92%
AVERAGE COMMISSION RATE PAID $ 0.0475 $0.0037 N/A N/A N/A
NET ASSETS END OF PERIOD (THOUSANDS) $ 19,579 $14,562 $9,503 $5,968 $5,030
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) For the period from February 1, 1993 (Date of Initial Public Offering) to
November 30, 1993.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 13
- --------------------------------------
FINANCIAL HIGHLIGHTS-- CLASS Y SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
JANUARY 13, 1997
(DATE OF INITIAL
PUBLIC
OFFERING) TO MAY
31, 1997
(UNAUDITED)
<S> <C>
NET ASSET VALUE BEGINNING OF PERIOD $17.94
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05
Net realized and unrealized gain (loss) on investments and foreign currency related transactions 0.85
Total from investment operations 0.90
LESS DISTRIBUTIONS FROM:
Net investment income (0.16)
Total distributions (0.16)
NET ASSET VALUE END OF PERIOD $18.68
TOTAL RETURN (A) 6.19%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Net expenses 0.00%(a)
Net expenses, excluding indirect expenses 0.00%(a)
Net investment income 0.70%(a)
PORTFOLIO TURNOVER RATE 29%
AVERAGE COMMISSION RATE PAID $0.0475
NET ASSETS END OF PERIOD $19
</TABLE>
(a) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 14
- --------------------------------------
KEYSTONE FUND FOR TOTAL RETURN
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997 (UNAUDITED)
ASSETS
Investments at market value (identified
cost-- $111,898,359) $142,806,423
Cash 344
Receivable for investments sold 539,821
Receivable for Fund shares sold 232,285
Dividends and interest receivable 220,632
Prepaid expenses and other assets 131,584
Total assets 143,931,089
LIABILITIES
Payable for Fund shares repurchased 233,958
Distribution fee payable 91,634
Accrued expenses and other liabilities 15,841
Total liabilities 341,433
NET ASSETS $143,589,656
NET ASSETS REPRESENTED BY:
Paid-in capital $106,680,238
Accumulated net realized gains on investments
and foreign currency related transactions 6,228,478
Accumulated distributions in excess of net
investment income (227,124)
Net unrealized appreciation on investments 30,908,064
Total net assets $143,589,656
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
CLASS A SHARES
Net assets of $43,133,454 / 2,300,774
shares outstanding $ 18.75
Offering price per share ($18.75 / 0.9525)
(based
on a sales charge of 4.75% of the
offering price
at May 31, 1997) $ 19.69
CLASS B SHARES
Net assets of $80,877,343 / 4,319,918
shares outstanding $ 18.72
CLASS C SHARES
Net assets of $19,578,840 / 1,044,813
shares outstanding $ 18.74
CLASS Y SHARES
Net assets of $19 / 1 share outstanding $ 18.68
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1997 (UNAUDITED)
INVESTMENT INCOME
Dividend $ 1,388,531
Interest 373,903
Total income 1,762,434
EXPENSES
Management fee $ 387,159
Distribution Plan expenses 449,152
Shareholder services 88,555
Accounting expenses 10,563
Custodian fee expense 35,460
Miscellaneous expenses 38,351
Total expenses 1,009,240
Less: Indirectly paid expenses (14,235)
Net expenses 995,005
Net investment income 767,429
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gains:
Net realized gain on investments 6,160,753
Net realized gain on foreign
currency related transactions 67,725
NET REALIZED GAINS ON INVESTMENTS
AND FOREIGN CURRENCY RELATED
TRANSACTIONS 6,228,478
Net change in unrealized
appreciation on investments and
foreign currency related
transactions 3,419,386
Net realized and unrealized gain
on investments and foreign
currency related transactions 9,647,864
Net increase in net assets
resulting from operations $10,415,293
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 15
- --------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED MAY
31, 1997 YEAR ENDED
(UNAUDITED) NOVEMBER 30, 1996
<S> <C> <C>
OPERATIONS
Net investment income $ 767,429 $ 853,438
Net realized gain on investments and foreign currency related transactions 6,228,478 1,913,430
Net change in unrealized appreciation on investments and foreign currency related
transactions 3,419,386 16,084,525
Net increase in net assets resulting from operations 10,415,293 18,851,393
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares (368,839) (539,949)
Class B Shares (314,198) (273,356)
Class C Shares (78,416) (112,998)
Class Y Shares (a) 0 0
Net realized gains on investments
Class A Shares 0 (754,551)
Class B Shares 0 (808,105)
Class C Shares 0 (270,058)
Class Y Shares 0 0
Total distributions to shareholders (761,453) (2,759,017)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold:
Class A Shares 7,701,516 11,818,891
Class B Shares 40,515,326 23,867,265
Class C Shares 5,636,727 6,185,359
Class Y Shares 18 0
Payments for shares redeemed:
Class A Shares (8,573,167) (6,837,747)
Class B Shares (8,524,684) (8,156,600)
Class C Shares (2,075,898) (4,069,150)
Class Y Shares 0 0
Net asset value of shares issued in reinvestment of distributions:
Class A Shares 331,175 1,193,118
Class B Shares 275,911 974,432
Class C Shares 73,683 362,645
Class Y Shares 0 0
Net increase in net assets resulting from capital share transactions 35,360,607 25,338,213
Total increase in net assets 45,014,447 41,430,589
NET ASSETS:
Beginning of period 98,575,209 57,144,620
End of period, [including accumulated distributions in excess of net investment
income of $227,124 and $233,100, respectively] $143,589,656 $98,575,209
</TABLE>
(a) Distributions for class Y share amounted to less than $1 during the period
ended May 31, 1997.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 16
- --------------------------------------
KEYSTONE FUND FOR TOTAL RETURN
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Keystone Fund for Total Return (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
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's primary investment objective seeks total
return from a combination of growth and income.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the Fund.
A. VALUATION OF SECURITIES
Investments are usually valued at the closing sales price, or in the absence of
sales and for over-the-counter securities, the mean of the bid and asked prices.
Securities for which valuations are not available from an independent pricing
service (including restricted securities) are valued at fair value as determined
in good faith according to procedures established by the Board of 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 Evergreen 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 U.S. dollars as follows:
market value of investments, assets and liabilities at the daily rate of
exchange; purchases and sales of investments, income and expenses at the rate of
exchange prevailing on the respective dates of such transactions. Net unrealized
foreign exchange gain (loss) resulting from changes in foreign currency exchange
rates is a component of net unrealized appreciation (depreciation) on
investments and foreign currency related transactions. Net realized foreign
currency gains and losses resulting from changes in exchange rates include
foreign currency gains and losses between trade date and settlement date on
investment securities transactions, foreign currency 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
<PAGE>
PAGE 17
- --------------------------------------
and subsequent sale trade date is included in realized gain (loss) on
investments.
D. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to settle portfolio purchases and sales of securities denominated in
a foreign currency and to hedge certain foreign currency assets or liabilities.
Forward contracts are recorded at the forward rate and are marked-to-market
daily. Realized gains and losses arising from such transactions are included in
net realized gain (loss) on foreign currency related transactions. The Fund
bears the risk of an unfavorable change in the foreign currency exchange rate
underlying the forward contract and is subject to the credit risk that the other
party will not fulfill their obligations under the contract. Forward contracts
involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
E. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes
amortization of discounts and premiums. Dividend income is recorded on the
ex-dividend date.
F. FEDERAL INCOME TAXES
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code of 1986, as amended (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 or excise taxes is required.
G. DISTRIBUTIONS
The Fund distributes net investment income on a quarterly basis and net capital
gains, if any, at least annually. Distributions to shareholders are recorded at
the close of business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. The tax treatment of such distributions for the calendar
year will be reported to shareholders prior to February 1, 1998.
G. CLASS DESCRIPTIONS & 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. Class Y shares are available without a front-end
sales charge or contingent deferred sales charge only to investment advisory
clients of First Union and its affiliates and certain institutional clients.
Class Y shares were initially offered on January 13, 1997.
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 18
- --------------------------------------
KEYSTONE FUND FOR TOTAL RETURN
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. As of May 31, 1997, shares
of beneficial interest of the Fund were divided into Class A, Class B, Class C
and Class Y. Transactions in shares of the Fund were as follows:
SIX MONTHS
ENDED
MAY 31, 1997 YEAR ENDED
(UNAUDITED) NOVEMBER 30, 1996
CLASS A
Shares sold 431,847 756,854
Shares redeemed (485,722) (446,563)
Shares issued in
reinvestment of
distributions 18,071 71,945
Net increase
(decrease) (35,804) 382,236
CLASS B
Shares sold 2,270,207 1,503,008
Shares redeemed (479,660) (534,970)
Shares issued in
reinvestment of
distributions 15,072 57,897
Net increase 1,805,619 1,025,935
CLASS C
Shares sold 315,613 398,635
Shares redeemed (115,814) (265,577)
Shares issued in
reinvestment of
distributions 4,023 21,672
Net increase 203,822 154,730
During the six months ended May 31, 1997 one Class Y share had been sold.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) for the six months ended May 31, 1997, were $66,544,582
and $33,079,779 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.
On December 11, 1996, the Fund entered into a principal underwriting agreement
with Evergreen Keystone Distributors, Inc. (Formerly, Evergreen Fund
Distributor, Inc.) ("EKD"), a wholly owned subsidiary of The 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. During the six
months ended May 31, 1997, the Fund paid or accrued $48,860 under the Class A
Distribution Plan.
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 May 31, 1997, the Fund paid or accrued $314,622 under the
Class B Distribution Plan and $85,670 under the Class C Distribution Plan.
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 EKD
and/or EKIS may continue as compensation for services which had been earned
while the Distribution Plan was in effect.
<PAGE>
PAGE 19
- --------------------------------------
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.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EKD and/or its predecessor.
5. INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Under the terms of an investment advisory agreement dated December 11, 1996,
Keystone serves as the investment adviser and manager to the Fund. As such,
Keystone manages the Funds investments, provides certain administrative services
and supervises the Funds daily business affairs. In return, Keystone is paid a
management fee, computed daily and paid monthly calculated at a rate of 1.50% of
the Fund's gross investment income plus an amount which is determined by
applying percentage rates starting at 0.60% and declining as net assets increase
to 0.30% per annum, to the average daily net asset value of the Fund.
During the six months ended May 31, 1997, the Fund paid or accrued $10,563 to
Keystone for certain accounting services. Evergreen Keystone Service Company
("EKSC") (formerly Keystone Investor Resource Center, Inc.), a wholly-owned
subsidiary of Keystone, serves as the Fund's transfer and dividend disbursing
agent.
Effective January 1, 1997, BISYS Fund Services, Inc. ("BISYS"), an affiliate
of EKD, began serving as the Fund's sub-administrator. As sub-administrator,
BISYS provides the officers of the Fund. For this service, BISYS was paid a fee
by Keystone, which was not a Fund expense.
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 May 31, 1997, the Fund incurred total custody fees of
$35,460 and received a credit of $14,235 pursuant to this expense offset
arrangement, resulting in a net custody expense of $21,225. The assets deposited
with the custodian under this expense offset arrangement could have been
invested in income-producing assets.
<PAGE>
PAGE 20
- --------------------------------------
KEYSTONE FUND FOR TOTAL RETURN
OTHER INFORMATION (UNAUDITED)
The Fund held a special meeting of shareholders on Monday, December 9, 1996. On
October 18, 1996, the record date for the meeting, the Fund had 5,142,181 shares
outstanding, of which 3,195,595 shares were represented at the meeting. The
votes at the meeting were as follows:
1. TO ELECT THE FOLLOWING TRUSTEES:
AFFIRMATIVE WITHHELD
Frederick Amling 3,131,534 64,061
Laurence B. Ashkin 3,131,534 64,061
Charles A. Austin III 3,132,318 63,277
Foster Bam 3,131,534 64,061
George S. Bissell 3,131,534 64,061
Edwin D. Campbell 3,131,534 64,061
Charles F. Chapin 3,131,534 64,061
K. Dun Gifford 3,134,453 61,142
James S. Howell 3,131,534 64,061
Leroy Keith, Jr. 3,133,583 62,012
F. Ray Keyser, Jr. 3,131,534 64,061
Gerald M. McDonell 3,134,453 61,142
Thomas L. McVerry 3,134,453 61,142
William Walt Pettit 3,133,583 62,012
David M. Richardson 3,134,453 61,142
Russell A. Salton, III MD 3,133,583 62,012
Michael S Scofield 3,134,453 61,142
Richard J. Shima 3,134,453 61,142
Andrew J. Simons 3,134,453 61,142
2. TO APPROVE AN INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT BETWEEN THE FUND
AND KEYSTONE INVESTMENT MANAGEMENT COMPANY:
Affirmative 3,073,234
Against 35,049
Abstain 87,312
<PAGE>
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<PAGE>
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<PAGE>
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<PAGE>
KEYSTONE AMERICA
FAMILY OF FUNDS
*
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
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 Development Fund
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
541254
FFTR-R
KEYSTONE
(Keystone Logo)
FUND FOR
TOTAL RETURN
(Evergreen Keystone Funds Logo)
SEMI-ANNUAL REPORT
May 31, 1997
