<PAGE>
KEYSTONE
(Photo of building)
FLORIDA
TAX FREE FUND
Evergreen Keystone
(Logo) FUNDS (Logo)
ANNUAL REPORT
MARCH 31, 1997
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PAGE 1
KEYSTONE FLORIDA TAX FREE FUND
SEEKS GENEROUS TAX-FREE INCOME FROM HIGH-QUALITY MUNICIPAL BONDS.
Dear Shareholders:
We are pleased to report to you on the activities of Keystone Florida Tax Free
Fund for the 12-month period which ended March 31, 1997. Following our letter to
you, we have included a discussion with your Fund's manager and complete
financial information.
PERFORMANCE
Your Fund provided a positive total return for the twelve-month period, with the
following investment results:
Class A shares returned 3.50%.
Class B shares returned 2.75%.
Class C shares returned 2.74%.
The total return of the benchmark Lehman Municipal Bond Index was 5.46% for
the 12-month period. The Fund's results reflected the overall underperformance
of higher-quality municipal bonds, as well as the Fund's overweighting in longer
maturity bonds at the beginning of the fiscal year. Your Fund's performance was
hurt when interest rates rose in April and May 1996, and prices of bonds,
especially long-term bonds, fell.
A YEAR OF CONTRASTS
The 12-month period covered a number of contrasting environments in the
fixed-income markets, with interest rates rising in the spring and summer of
1996, then declining in the fourth quarter of the calendar year, and going up
again in the first three months of 1997. The volatility in the market occurred
despite the fact that the economy was growing moderately and inflation was
benign, corporate earnings were strong, and there were no serious credit
problems. Despite these solid fundamentals, the dominant emotion among investors
was that of uncertainty.
During most of the fiscal year, your Fund was positioned for a favorable
municipal-bond market, with a heavy weighting of longer-maturity bonds. That
strategy held back our results in the first six months of the fiscal year, when
interest rates unexpectedly rose. Generally, the values of long-term bonds
decline more than those of shorter-term bonds when interest rates rise. However,
the reverse is also true, and when rates declined, the Fund was in a good
position to take profits by selling its long-term bonds into a strong market.
POSITIVE LOCAL ECONOMY
The local economic climate was kind to investors. Florida's economy continued to
outperform the national economy, due to the state's population growth and
low-cost business environment. Although tourism and agriculture are still key
contributors to Florida's fiscal health, international trade and service sectors
have become increasingly important.
OUTLOOK
At this writing, the Federal Reserve has started to raise short-term interest
rates in an effort to contain inflationary pressures. It is possible that
interest rates may rise further before they stabilize or start moving down. This
would contribute to some short-term price fluctuations. However, the longer-term
outlook at Evergreen Keystone is that inflation is not likely to get out of
control, and the bond market should stabilize. In this environment investors in
Keystone Florida Tax Free Fund should continue to have opportunities for
attractive, real returns on an after-tax, after-inflation basis.
-- CONTINUED--
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PAGE 2
KEYSTONE FLORIDA TAX FREE FUND
We believe it makes sense for investors-- particularly those in higher income
tax brackets-- to maintain a portion of their portfolios in municipal bond funds
as part of an overall asset allocation plan. At the close of April 1997, long-
term tax exempt bonds yielded 5.88%. For a married couple in the 36% federal
income tax bracket, a 5.88% tax-free yield is equivalent to a taxable bond
paying a 9.19% yield.
We appreciate your continued support of the Evergreen Keystone funds. If you
have any questions or comments, please feel free to write to us.
Sincerely,
/s/ Albert H. Elfner, III (photo of Albert H. Elfner, III)
Albert H. Elfner, III ALBERT H. ELFNER, III
CHAIRMAN (photo of George S. Bissell)
KEYSTONE INVESTMENT MANAGEMENT COMPANY GEORGE S. BISSELL
/s/ George S. Bissell
George S. Bissell
CHAIRMAN OF THE BOARD
KEYSTONE FUNDS
May 1997
<PAGE>
PAGE 3
A Discussion with
Your Fund's Manager
(Photo of George J. Kimball)
YOUR FUND IS MANAGED BY GEORGE J. KIMBALL, A KEYSTONE VICE PRESIDENT AND
PORTFOLIO MANAGER. AN INVESTMENT PROFESSIONAL WITH 11 YEARS' EXPERIENCE,
MR. KIMBALL IS A CHARTERED FINANCIAL ANALYST, AND HOLDS A B.A. FROM
HAMILTON COLLEGE AND AN M.B.A. FROM DUKE UNIVERSITY. HE IS SUPPORTED BY
THE MUNICIPAL BOND TEAM OF KEYSTONE INVESTMENT MANAGEMENT COMPANY. THE
TEAM MANAGES MORE THAN $2 BILLION IN MUNICIPAL BOND ASSETS IN A
VARIETY OF PORTFOLIOS.
Q WHAT WAS THE ENVIRONMENT LIKE FOR MUNICIPAL BONDS DURING THE PAST FISCAL YEAR?
A The municipal market experienced both ups and downs during the 12-month period
ended on March 31, 1997. The initial period, from April to August, was very
difficult. Fears of excessive growth and potentially higher inflation caused
interest rates to rise and bond prices to decline. The erosion in values was
more pronounced among taxable bonds, but municipal securities were also
affected. However, the market rebounded within a few months, and by September,
bond investors were enjoying a strong rally in which municipal bonds did
particularly well. The market rotation came full circle during the first three
months of 1997, when renewed fears of rising rates brought yields up and prices
down.
Q HOW DID THE FUND PERFORM IN THIS ENVIRONMENT?
A The performance was mixed, consistent with the market. During most of 1996,
the portfolio reflected our fundamentally favorable outlook on the municipal
market. That means we had a heavy weighting in longer maturity bonds, which held
back our performance when interest rates rose unexpectedly in the spring and
summer of 1996. On the other hand, when rates declined in the fall, we were able
to take profits from selling our long bonds and boost returns.
Q HOW DID YOU POSITION THE FUND GOING INTO 1997?
A Early in January of 1997, the Fund began structuring the portfolio more
defensively by replacing the 25- and 30-year bonds with shorter-maturity bonds,
which are generally not as sensitive to interest rate moves as long bonds. At
the close of the fiscal year, the average maturity of the bonds in the portfolio
was 17.5 years, slightly less than the Fund's peer group. We felt that with a
high likelihood of a tighter interest rate policy, a more conservative posture
was appropriate.
Q WHAT WAS THE QUALITY OF THE PORTFOLIO?
A The Fund maintained a high overall quality. By far the heaviest weighting was
in top-rated AAA bonds, at 42.46% of net assets. However, we were mindful of the
shareholders' need for competitive current income. To maximize the Fund's income
potential, we bought bonds with a lower credit rating, but no lower than BBB. At
the close of the fiscal year, the average credit quality of the portfolio was
AA.
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PAGE 4
KEYSTONE FLORIDA TAX FREE FUND
Q HOW DID FLORIDA'S MUNICIPAL-BONDS RESPOND TO GENERAL MARKET'S EVENTS?
A The state of Florida was just recently upgraded from an AA to AA+ by the
Standard & Poor's, as a result of budget stabilization, sound financial
position, and strong economic growth. Florida is a good place for new
businesses, because of relatively low business costs. Moreover, a large senior
population creates solid demand for municipal bonds. So the overall economic
backdrop is favorable for municipal bonds in Florida.
Q THERE HAVE BEEN SERIOUS CONCERNS ABOUT CREDITWORTHINESS OF MIAMI. WHAT'S THE
CURRENT SITUATION THERE?
A The Fund did not hold any debt issued by Miami, as the city has had financial
difficulties. Miami has $130 million of bonds outstanding. Most of these bonds
are insured, but the large shortfall in Miami's budget prompted alarm among
investors. The state of Florida has appointed an oversight board to help manage
that shortfall.
Q WHAT IS YOUR OUTLOOK?
A Short term, we believe the fixed-income markets will continue to experience
volatility, because of the recent tightening of interest rates by the Federal
Reserve and the possibility of another hike in the near future. However, the
state of the economy bodes well for the long-term performance of municipal
bonds. Despite the Fed's ongoing concerns about inflation, there have been no
real indications that inflation is heating up. Economic growth is within a
moderate range. Corporate earnings continue to meet or even exceed expectations.
These are favorable fundamentals for municipal bonds.
PORTFOLIO QUALITY SUMMARY
AS OF MARCH 31, 1997
(Pie chart appears here with the following plot points.)
AAA AA A BBB Not rated
42.5% 24.8% 9.3% 21.0% 2.4%
Average portfolio quality: AA
For investors in certain tax situations, a portion of income may be subject to
the federal alternative minimum tax (AMT).
Where Standard & Poor's ratings were not available, we used ratings from Moody's
Investor Service, Inc., Fitch Investors' Service, LLP, or ratings assigned by
another nationally recognized statistical rating organization.
<TABLE>
<CAPTION>
THE BENEFITS OF TAX-FREE INVESTING
FEDERAL TAX BRACKET
<S> <C>
31% 36% 39.6%
TAXABLE EQUIVALENT
Yield YIELD
4.5% 6.5% 7.0% 7.5%
5.0% 7.2% 7.8% 8.3%
5.5% 8.0% 8.6% 9.1%
</TABLE>
The yields shown are for illustrative purposes only. They are not intended to
represent actual performance of the Fund.
(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
200 BERKELEY STREET, 22ND FLOOR,
BOSTON, MASSACHUSETTS 02116-5034.
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PAGE 5
Growth of an Investment
Growth of an investment in
Keystone Florida Tax Free Fund Class A
In Thousands
12/90 3/91 3/93 3/95 3/97
Reinvested Distributions (PLEASE FILL IN)
Initial Investment (PLEASE FILL IN)
Total Value: $14,708
A $10,000 investment in Keystone Florida Tax Free Fund Class A made on
December 28, 1990 with all distributions reinvested was worth $14,708 on
March 31, 1997. Past performance is no guarantee of future results.
Performance for each class will differ. The investment return and principal
value will fluctuate so that your shares, when redeemed, may be worth more or
less than the original cost.
You may exchange your shares for another Keystone fund by phone or in writing.
You may also exchange funds through the Evergreen Keystone Express Line,
800-346-3858. The Fund reserves the right to change or terminate the exchange
offer.
[CAPTION]
<TABLE>
<CAPTION>
TWELVE-MONTH PERFORMANCE AS OF MARCH 31, 1997
<S> <C> <C> <C> <C>
CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C>
Total returns* 3.50 % 2.75 % 2.74 %
Net asset value 3/31/96 $10.60 $10.48 $10.50
3/31/97 10.40 10.28 10.30
Dividends 0.56 0.48 0.48
Capital gains None None None
</TABLE>
* BEFORE DEDUCTION OF FRONT-END OR CONTINGENT DEFERRED SALES CHARGE (CDSC), IF
APPLICABLE.
[CAPTION]
<TABLE>
<CAPTION>
HISTORICAL RECORD AS OF MARCH 31, 1997
<S> <C> <C> <C>
CUMULATIVE TOTAL RETURNS CLASS A CLASS B CLASS C
<S> <C> <C> <C>
1-year w/o sales charge 3.50% 2.75% 2.74%
1-year -1.41 -2.16 1.76
5-year 28.77 N/A N/A
Life of Class 47.08 17.35 19.21
AVERAGE ANNUAL RETURNS
1-year w/o sales charge 3.50% 2.75% 2.74%
1-year -1.41 -2.16 1.76
5-year 5.19 N/A N/A
Life of Class 6.35 3.92 4.31
</TABLE>
Class A shares were introduced on December 28, 1990. Performance is reported at
the current maximum front-end sales charge of 4.75%.
Class B 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.
Class C shares were introduced on February 1, 1993. Shares purchased after
January 1, 1997 are subject to a 1% CDSC during the twelve month period
following the month of purchase. Performance reflects the return you would have
received after holding shares for one year or more and redeeming after the end
of that period.
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PAGE 6
KEYSTONE FLORIDA TAX FREE FUND
Your Fund's Performance
Comparison of change in value of a $10,000 investment in Keystone Florida
Tax Free Fund Class A, the Lehman Municipal Bond Index and the
Consumer Price Index.
In Thousands December 28, 1990 through March 31, 1997
Average Annual Total Return
1 Year 5 Year Life of Class LMBI $15,905
Class A -1.41% 5.19% 6.35% Class A $14,708
Class B -2.16% -- 3.92%
Class C 1.76 -- 4.31%
CPI $11,928
(Bar graph appears here with the following plot points.)
12/90 3/91 3/93 3/95 3/97
Class A (PLEASE FILL IN)
Lehman Municipal Bond
Index (LMBI) (PLEASE FILL IN)
Consumer Price Index
(CPI) (PLEASE FILL IN)
Past performance is no guarantee of future results. The performance of Class B
or Class C shares may be greater or less than the line shown based on
differences in loads and fees paid by the shareholder investing in the
different classes. The Consumer Price Index is through February 28, 1997.
This chart graphically compares your Fund's total return performance to certain
investment indexes. It is the result of fund performance guidelines issued by
the Securities and Exchange Commission. The intent is to provide investors with
more information about their investment.
COMPONENTS OF THE CHART
The chart is composed of several lines that represent the accumulated value of
an initial $10,000 investment for the period indicated. The lines illustrate a
hypothetical investment in:
1. KEYSTONE FLORIDA TAX FREE FUND
The Fund seeks generous tax-free income from high-quality municipal bonds. Total
return quotations are stated after deducting sales charges (if applicable), fund
expenses and transaction costs, and assumes reinvestment of all distributions.
2. LEHMAN MUNICIPAL BOND INDEX (LMBI)
The LMBI is a broad-based, unmanaged market index of securities issued by state
and local governments. It represents the price change and coupon income of
several thousand securities of various credit qualities and maturities.
Securities are selected and compiled by Lehman Brothers, Inc. according to
criteria that may be unrelated to your Fund's investment objective.
3. CONSUMER PRICE INDEX (CPI)
This index is a widely recognized measure of the cost of goods and services
produced in the U.S.. The index contains factors such as prices of services,
housing, food, transportation and electricity which are compiled by the U.S.
Bureau of Labor Statistics. The CPI is generally considered a valuable benchmark
for investors who seek to outperform increases in the cost of living.
These indexes do not include transaction costs associated with buying and
selling securities, and do not hold cash to meet redemptions. It would be
difficult for most individual investors to duplicate these indexes.
UNDERSTANDING WHAT THE CHART MEANS
The chart demonstrates your Fund's total return performance in relation to a
well known investment index and to increases in the cost of living. It is
important to understand what the chart shows and does not show.
This illustration is useful because it charts Fund and index performance over
the same time frame and over a long period. Long-term performance is a more
reliable and useful measure of performance than measurements of short-term
returns or temporary swings in the market. Your financial adviser can help you
evaluate fund performance in conjunction with the other important financial
considerations such as safety, stability and consistency.
<PAGE>
PAGE 7
LIMITATIONS OF THE CHART
The chart, however, limits the evaluation of Fund performance in several ways.
Because the measurement is based on total returns over an extended period of
time, the comparison often favors those funds which emphasize capital
appreciation when the market is rising. Likewise, when the market is declining,
the comparison usually favors those funds which take less risk.
PERFORMANCE CAN BE DISTORTED
Funds which are more conservative in their orientation and which place an
emphasis on capital preservation will tend to compare less favorably when the
market is rising. In addition, funds which have income as one of their
objectives also will tend to compare less favorably to relevant indexes.
Indexes may also reflect the performance of some securities which a fund may
be prohibited from buying. A bond fund, for example, may be limited to
investments in only high quality bonds, or a stock fund may only be able to buy
stocks that have been traded on a stock exchange for a minimum number of years
or stocks that have a certain market capitalization. Indexes usually do not have
the same investment restrictions as your Fund.
INDEXES DO NOT INCLUDE COSTS OF INVESTING
The comparison is further limited in its utility because the indexes do not take
into account any deductions for sales charges, transaction costs or other fund
expenses. Your Fund's performance figures do reflect such deductions. Sales
charges-- whether up-front or deferred-- pay for the cost of the investment
advice of your financial adviser. Transaction costs pay for the costs of buying
and selling securities for your Fund's portfolio. Fund expenses pay for the
costs of investment management and various shareholder services. None of these
costs are reflected in index total returns. The comparison is not completely
realistic because an index cannot be duplicated by an investor-- even an
unmanaged index-- without incurring some charges and expenses.
ONE OF SEVERAL MEASURES
The chart is one of several tools you can use to understand your investment. It
should be read in conjunction with the Fund's prospectus, and annual and
semiannual reports. Also, your financial adviser, who understands your personal
financial situation, can best explain the features of your Keystone fund and how
it applies to your financial needs.
FUTURE RETURNS MAY BE DIFFERENT
Shareholders also should be mindful that the long-run performance of either the
Fund or the indexes is not representative of what shareholders should expect to
receive from their Fund investment in the future; it is presented to illustrate
only past performance and is not a guarantee of future returns.
<PAGE>
PAGE 8
KEYSTONE FLORIDA TAX FREE FUND
SCHEDULE OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
COUPON MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
<S> <C> <C> <C> <C>
MUNICIPAL BONDS-- 97.8%
Alliance Airport Authority, Texas, Federal Express Project 6.375 % 04/01/2021 $ 1,500,000 $ 1,477,185
Bay County, Florida, Hospital Systems Revenue Refunding, Bay Medical
Center Project 8.000 10/01/2019 2,500,000 2,993,300
Brevard County, Florida, Health Facilities Authority Revenue Refunding,
Wuesthoff Memorial Hospital (MBIA) 7.200 04/01/2013 2,000,000 2,244,380
Broward County, Florida, Collateralized Home Mortgage, Series B 7.125 03/01/2017 195,000 203,506
Broward County, Florida, Resource Recovery, South Project 7.950 12/01/2008 2,405,000 2,611,806
Charlotte County, Florida, Utility Revenue (FGIC) 6.750 10/01/2013 1,000,000 1,120,610
City of Tarpon Springs Health Facilities Authority, Florida, Hospital
Refunding, Helen Ellis Hospital 7.625 05/01/2021 1,000,000 1,070,780
Commonwealth of Puerto Rico, Aqueduct and Sewer Authority Revenue 6.250 07/01/2012 2,000,000 2,140,040
Commonwealth of Puerto Rico, Highway Authority & Transportation Authority,
Series Y 5.000 07/01/2036 1,000,000 852,320
Commonwealth of Puerto Rico, General Obligation, Linked Bond Payment
Obligation (MBIA)(d) 7.000 07/01/2010 500,000 573,980
Dade County, Florida, Educational Facilities Authority Revenue (St. Thomas
University) 6.000 01/01/2010 2,000,000 2,026,020
Dade County, Florida, Housing Finance Agency, Single Family Mortgage,
Series E 7.000 03/01/2024 185,000 192,124
Dade County, Florida, School District, General Obligation 7.375 07/01/2008 40,000 43,212
Dade County, Florida, School District, General Obligation (MBIA) 5.000 02/15/2010 1,000,000 962,470
Duval County, Florida, Single Family Mortgage Refunding (FGIC) 7.300 07/01/2011 80,000 83,950
Escambia County, Florida, Pollution Control, Champion International Corp.
Project 6.900 08/01/2022 4,000,000 4,171,200
Florida Housing Finance Agency, Home Ownership Mortgage 7.500 09/01/2014 150,000 158,574
Florida Housing Finance Agency, Multi-Family Housing, Series C 6.200 08/01/2016 2,000,000 2,022,400
Florida State Board of Education Capital Outlay Refunding, Public
Education, Series D 4.750 06/01/2016 1,000,000 865,440
Florida State Transportation, Jacksonville Transportation Authority 9.000 01/01/2000 1,000,000 1,056,160
Gainesville, Florida, Utilities System Revenue, Series B 7.500 10/01/2008 3,435,000 4,116,813
Gainesville, Florida, Utilities System Revenue, Series B 7.500 10/01/2009 3,695,000 4,436,734
Georgia State, General Obligation, Series C 5.250 04/01/2011 1,000,000 981,930
Halifax Hospital Medical Center, Florida, Hospital Revenue, Series A
(MBIA) 5.200 10/01/2013 1,000,000 950,650
Hillsborough County, Florida, Hospital Authority, Hospital Revenue, Tampa
General Hospital Project (FSA) 6.375 10/01/2013 2,000,000 2,100,040
Jacksonville, Florida, Health Facilities Authority, St. Luke's Hospital
Association 7.125 11/15/2020 3,000,000 3,232,770
Martin County, Florida, Industrial Development Authority, Industrial
Development Revenue, Indiantown Cogeneration Project A 7.875 12/15/2025 1,500,000 1,703,445
McKeesport, Pennsylvania, Hospital Authority Revenue,
McKeesport Hospital Project 6.500 07/01/2008 875,000 886,121
Miami Beach, Florida, Resort Tax Revenue (AMBAC) 6.250 10/01/2022 1,470,000 1,549,762
Miramar, Florida, Wastewater Improvement Assessment Revenue (FGIC) 6.750 10/01/2016 1,000,000 1,085,220
</TABLE>
(CONTINUED ON NEXT PAGE)
<PAGE>
PAGE 9
<TABLE>
<CAPTION>
COUPON MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
<S> <C> <C> <C> <C>
MUNICIPAL BONDS-- CONTINUED
New York, New York, General Obligation, Series H 6.000 % 08/01/2013 $ 3,300,000 $ 3,192,189
New York, New York, General Obligation, Series I 5.875 03/15/2011 1,000,000 967,740
North Broward County, Florida, Hospital District Revenue (MBIA) 5.375 01/15/2012 1,945,000 1,879,259
North Broward County, Florida, Hospital District Revenue (MBIA) 5.375 01/15/2013 1,000,000 959,840
North Broward County, Florida, Hospital District Revenue (MBIA) 5.250 01/15/2017 1,250,000 1,162,288
North Springs Improvement District, Florida, Water and Sewer Revenue,
Series B (MBIA) 6.500 12/01/2016 1,335,000 1,445,124
Okaloosa County, Florida, Gas District, Refunding and Improvement (MBIA) 6.850 10/01/2014 2,550,000 2,851,946
Orange County, Florida, Health Facilities Authority, Hospital Revenue,
Adventist Health (AMBAC) 5.250 11/15/2020 1,000,000 922,340
Orange County, Florida, Health Facilities Authority, Hospital Revenue,
Orlando Regional Healthcare, Series C (MBIA) 6.250 10/01/2021 2,000,000 2,109,200
Orlando, Florida, Utilities Commission, Water and Electric Revenue 6.000 10/01/2010 4,000,000 4,233,640
Orlando-Orange County, Florida, Expressway Authority (FGIC) 8.250 07/01/2015 40,000 51,803
Palm Beach County, Florida, General Obligation, Series B 6.500 07/01/2010 1,880,000 2,052,152
Palm Beach County, Florida, Solid Waste Authority, Revenue Improvement,
Series B (AMBAC) 5.375 10/01/2011 1,000,000 971,490
Palm Beach County, Florida, Solid Waste Industrial Development, Osceola
Power Limited Partnership, Project A (AMT)(c) 6.850 01/01/2014 2,500,000 1,934,650
Panama City, Florida, Water and Sewer Revenue 5.625 10/01/2016 1,000,000 984,100
Puerto Rico Electric Power Authority, Power Revenue, Series X 6.000 07/01/2015 2,200,000 2,208,690
Puerto Rico Industrial Tourist, Educational, Medical and Environmental
Control Facilities, Hospital Auxilio Mutuo Group, Series A (MBIA) 6.250 07/01/2024 2,000,000 2,072,600
Sunrise, Florida, Utility System Revenue, Capital Appreciation, Series A
(AMBAC)(effective yield 5.65%)(b) 0.000 10/01/2009 1,000,000 503,340
Sunrise, Florida, Utility System Revenue, Capital Appreciation, Series A
(AMBAC)(effective yield 5.75%)(b) 0.000 10/01/2010 1,000,000 470,230
Tallahassee, Florida, Health Facilities, Tallahassee Memorial Regional
Medical Project (MBIA) 6.625 12/01/2013 2,000,000 2,193,340
Tampa, Florida, Capital Improvement Program Revenue, Series B 8.375 10/01/2018 1,250,000 1,307,088
Tampa, Florida, Subordinate Guaranteed Entitlement Revenue, Series B (ETM) 8.500 10/01/2018 45,000 47,754
Texas Municipal Power Agency Revenue, Capital Appreciation (AMBAC)
(effective yield 7.30%)(b) 0.000 09/01/2006 750,000 457,057
West Melbourne, Florida, Water and Sewer Revenue (FGIC) 6.750 10/01/2014 1,000,000 1,098,190
TOTAL MUNICIPAL BONDS (COST-- $82,078,191) 83,988,992
TEMPORARY TAX-EXEMPT INVESTMENTS (0.6%) (COST-- $480,000)
Dade County, Florida, Water and Sewer System Revenue Bond, Series 1994 (a) 3.350 10/05/2022 480,000 480,000
TOTAL INVESTMENTS (COST-- $82,558,191) (E) (98.4%) 84,468,992
OTHER ASSETS AND LIABILITIES-- NET (1.6%) 1,402,889
NET ASSETS (100.0%) $85,871,881
</TABLE>
(CONTINUED ON NEXT PAGE)
<PAGE>
PAGE 10
KEYSTONE FLORIDA TAX FREE FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
(a) Variable or floating rate instruments with periodic demand features. The
Fund is entitled to full payment of principal and accrued interest upon
surrendering the security to the issuing agent according to the terms of
the demand features.
(b) Effective yield (calculated at the date of purchase) is the yield at which
the bond accretes on an annual basis until maturity.
(c) 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.
(d) At the discretion of the portfolio manager, these securities may be
separated into securities with interest or principal payments that are
linked to another rate or index and therefore would be considered derivative
securities.
(e) The cost of investments for federal income tax purposes amounted to
$82,816,143. Gross unrealized appreciation and depreciation of investments,
based on identified tax cost, at March 31, 1997 are as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation $2,624,177
Gross unrealized depreciation (971,328)
Net unrealized appreciation $1,652,849
</TABLE>
Legend of Portfolio Abbreviations:
AMBAC-- American Municipal Bond Assurance Corporation
AMT-- Subject to Alternative Minimum Tax
ETM-- Escrowed to Maturity
FGIC-- Federal Guaranty Insurance Company
FSA-- Federal Security Assistance
MBIA-- Municipal Bond Investors Assurance
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 11
FINANCIAL HIGHLIGHTS-- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
DECEMBER 28,
1990
(COMMENCEMENT OF
YEAR ENDED MARCH 31, OPERATIONS) TO
1997 1996 1995 1994 1993 1992 MARCH 31, 1991
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR $10.60 $10.33 $10.29 $10.94 $10.43 $10.17 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.55 0.56 0.56 0.58 0.61 0.72 0.18
Net realized and unrealized gain (loss)
on investments and closed futures contracts (0.19) 0.27 0.07 (0.44) 0.64 0.30 0.17
Total from investment operations 0.36 0.83 0.63 0.14 1.25 1.02 0.35
LESS DISTRIBUTIONS FROM:
Net investment income (0.55) (0.54) (0.56) (0.58) (0.61) (0.72) (0.18)
In excess of net investment income (0.01) (0.02) (0.03) (0.05) (0.03) 0 0
Net realized gain on investments 0 0 0 (0.16) (0.10) (0.04) 0
Total distributions (0.56) (0.56) (0.59) (0.79) (0.74) (0.76) (0.18)
NET ASSET VALUE END OF YEAR $10.40 $10.60 $10.33 $10.29 $10.94 $10.43 $10.17
TOTAL RETURN (C) 3.50% 8.16% 6.42% 1.01% 12.32% 10.34% 3.52%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses 0.76%(b) 0.76%(b) 0.75% 0.75% 0.68% 0.65% 0.65%(a)
Total expenses excluding reimbursement and
waivers 0.92% 0.92% 0.95% 1.00% 1.13% 1.21% 2.06%(a)
Net investment income 5.26% 5.32% 5.60% 5.16% 5.60% 6.82% 6.33%(a)
Portfolio turnover rate 104% 89% 129% 113% 95% 63% 5%
NET ASSETS END OF YEAR (THOUSANDS) $29,305 $37,286 $42,239 $45,150 $42,997 $29,258 $ 6,922
</TABLE>
(a) Annualized.
(b) Ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would have
been 0.75% and 0.75% for the years ended March 31, 1997 and 1996,
respectively.
(c) Excluding applicable sales charges.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 12
KEYSTONE FLORIDA TAX FREE FUND
FINANCIAL HIGHLIGHTS-- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
(DATE OF INITIAL
YEAR ENDED MARCH 31, PUBLIC OFFERING) TO
1997 1996 1995 1994 MARCH 31, 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR $10.48 $10.24 $10.27 $10.94 $10.81
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.46 0.48 0.53 0.52 0.08
Net realized and unrealized gain (loss) on investments
and closed futures contracts (0.18) 0.28 0.02 (0.47) 0.14
Total from investment operations 0.28 0.76 0.55 0.05 0.22
LESS DISTRIBUTIONS FROM:
Net investment income (0.47) (0.50) (0.49) (0.48) (0.08)
In excess of net investment income (0.01) (0.02) (0.09) (0.08) (0.01)
Net realized gain on investments 0 0 0 (0.16) 0
Total distributions (0.48) (0.52) (0.58) (0.72) (0.09)
NET ASSET VALUE END OF YEAR $10.28 $10.48 $10.24 $10.27 $10.94
TOTAL RETURN (C) 2.75% 7.48% 5.61% 0.19% 2.06%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses 1.51%(b) 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses excluding reimbursement and waivers 1.68% 1.68% 1.68% 1.74% 1.73%(a)
Net investment income 4.51% 4.58% 4.81% 4.21% 4.00%(a)
Portfolio turnover rate 104% 89% 129% 113% 95%
NET ASSETS END OF YEAR (THOUSANDS) $46,918 $54,433 $51,083 $19,984 $ 1,704
</TABLE>
(a) Annualized.
(b) Ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would have
been 1.50% and 1.47% for the years ended March 31, 1997 and 1996,
respectively.
(c) Excluding applicable sales charges.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 13
FINANCIAL HIGHLIGHTS-- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
(DATE OF INITIAL
YEAR ENDED MARCH 31, PUBLIC OFFERING) TO
1997 1996 1995 1994 MARCH 31, 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR $10.50 $10.26 $10.28 $10.93 $10.81
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.45 0.48 0.47 0.51 0.07
Net realized and unrealized gain (loss) on investments and closed
futures contracts (0.17) 0.28 0.08 (0.45) 0.14
Total from investment operations 0.28 0.76 0.55 0.06 0.21
LESS DISTRIBUTIONS FROM:
Net investment income (0.47) (0.50) (0.49) (0.49) (0.07)
In excess of net investment income (0.01) (0.02) (0.08) (0.06) (0.02)
Net realized gain on investments 0 0 0 (0.16) 0
Total distributions (0.48) (0.52) (0.57) (0.71) (0.09)
NET ASSET VALUE END OF YEAR $10.30 $10.50 $10.26 $10.28 $10.93
TOTAL RETURN (C) 2.74% 7.47% 5.61% 0.27% 1.95%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses 1.51%(b) 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses excluding reimbursement and waivers 1.68% 1.68% 1.70% 1.84% 1.63%(a)
Net investment income 4.51% 4.60% 4.86% 4.26% 2.95%(a)
Portfolio turnover rate 104% 89% 129% 113% 95%
NET ASSETS END OF YEAR (THOUSANDS) $9,650 $11,795 $12,831 $13,096 $ 1,987
</TABLE>
(a) Annualized.
(b) Ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would have
been 1.50% and 1.47% for the years ended March 31, 1997 and 1996,
respectively.
(c) Excluding applicable sales charges.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 14
KEYSTONE FLORIDA TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments at market value
(identified cost-- $82,558,191) $84,468,992
Cash 978
Interest receivable 1,885,531
Receivable for investments sold 980,853
Prepaid expenses 5,491
Total assets 87,341,845
LIABILITIES
Payable for investments purchased 986,303
Distributions to shareholders 353,652
Payable for Fund shares redeemed 75,010
Distribution fee payable 24,167
Due to related parties 4,010
Other accrued expenses 26,822
Total liabilities 1,469,964
NET ASSETS $85,871,881
NET ASSETS REPRESENTED BY
Paid-in capital $87,506,452
Accumulated distributions in excess of net
investment income (352,869)
Accumulated net realized loss on investments (3,192,503)
Net unrealized appreciation on investments 1,910,801
TOTAL NET ASSETS $85,871,881
NET ASSET VALUE PER SHARE
Class A Shares
Net assets of $29,304,555/2,816,405 shares
outstanding $10.40
Offering price per share
($10.40/0.9525)(based on a sales charge of H
4.75% of the offering price at March 31,
1997) $10.92
Class B Shares
Net assets of $46,917,530/4,562,101 shares
outstanding $10.28
Class C Shares
Net assets of $9,649,796/936,597 shares
outstanding $10.30
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Interest $5,809,797
EXPENSES
Distribution Plan expenses $613,577
Management fee 507,576
Transfer agent fees 103,813
Custodian fees 64,048
Professional fees 23,459
Reimburseable accounting 18,143
Other 35,294
Fees waived by Investment Manager (160,819)
Total expenses 1,205,091
Less: Expenses paid indirectly (8,966)
Net expenses 1,196,125
Net investment income 4,613,672
Net realized and unrealized loss on
investments and closed futures
contracts (Note 3)
Net realized loss on:
Investments (872,314)
Closed futures contracts (81,932)
Realized loss on investments and
closed futures contracts (954,246)
Net change in unrealized
appreciation (depreciation) on
investments (593,956)
Net realized and unrealized loss on
investments and closed futures
contracts (1,548,202)
Net increase in net assets
resulting from operations $3,065,470
</TABLE>
<PAGE>
PAGE 15
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996
<S> <C> <C>
OPERATIONS
Net investment income $ 4,613,672 $ 5,235,282
Net realized gain (loss) on investments and closed futures contracts (954,246) 3,334,947
Net change in unrealized appreciation (depreciation) on investments (593,956) (479,647)
Net increase in net assets resulting from operations 3,065,470 8,090,582
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A (1,760,650) (2,068,359)
Class B (2,363,748) (2,582,018)
Class C (489,274) (584,905)
In excess of net investment income:
Class A (46,750) (81,365)
Class B (62,764) (101,572)
Class C (12,992) (23,009)
Total distributions to shareholders (4,736,178) (5,441,228)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold:
Class A 1,516,596 2,637,449
Class B 3,171,407 10,874,867
Class C 362,937 980,649
Payment for shares redeemed:
Class A (9,405,525) (9,315,509)
Class B (10,685,777) (9,762,560)
Class C (2,508,025) (2,573,632)
Net asset value of shares issued in reinvestment of distributions:
Class A 497,684 564,333
Class B 896,419 1,035,196
Class C 182,889 271,631
Net decrease in net assets resulting from capital share transactions (15,971,395) (5,287,576)
Total decrease in net assets (17,642,103) (2,638,222)
NET ASSETS:
Beginning of year 103,513,984 106,152,206
End of year [Including accumulated distributions in excess of net investment income as
follows: 1996-- ($352,869) and 1996-- ($436,130)] $ 85,871,881 $103,513,984
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 16
KEYSTONE FLORIDA TAX FREE FUND
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Keystone Florida Tax Free Fund (the "Fund") is a separate series of the Keystone
State Tax Free Fund, a Massachusetts business trust for which Keystone
Investment Management Company ("Keystone") is the Investment Adviser and
Manager. Keystone was formerly a wholly-owned subsidiary of Keystone
Investments, Inc. ("KII") and is currently a subsidiary of First Union Keystone,
Inc. First Union Keystone, Inc. is a wholly-owned subsidiary of First Union
National Bank of North Carolina which in turn is a wholly-owned subsidiary of
First Union Corporation ("First Union"). The Fund is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a
non-diversified, open-end investment company. The Fund offers several classes of
shares. The Fund's investment objective is to achieve the highest possible
current income exempt from federal income taxes, while preserving 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
Securities held by the Fund are valued 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
investments with greater than 60 days to maturity are valued at market value.
B. FUTURES CONTRACTS
In order to gain exposure to or protect against changes in security values, the
Fund may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures
transaction is subsequently adjusted by daily payments or receipts as the value
of the contract changes. Such changes are recorded as unrealized gains or
losses. Realized gains or losses are recognized on closing the contract.
Risks of entering into futures contracts include (i) the possibility of an
illiquid market for the contract, (ii) the possibility that a change in the
value of the contract may not correlate with changes in the value of the
underlying instrument or index, and (iii) the credit risk that the other party
will not fulfill their obligations under the contract. Futures contracts also
involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
C. 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.
D. 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.
<PAGE>
PAGE 17
E. DISTRIBUTIONS
Distributions from net investment income are declared and paid monthly. The Fund
distributes net capital gains, if any, at least, annually.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. These differences are primarily due to the differing
treatment of market discount on securities.
F. CLASS ALLOCATIONS
Class A shares are 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 after January 1, 1997 will automatically convert
to Class A shares after seven years. Class B shares purchased prior to January
1, 1997 retain their existing conversion features.
Class C shares are sold subject to a contingent deferred sales charge payable
on shares redeemed within one year after the month of purchase.
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the relative
net assets of each class. Currently, class specific expenses are limited to
expenses incurred under the Distribution Plans for each class.
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:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
<S> <C> <C>
1997 1996
CLASS A
Shares sold 143,758 247,533
Shares redeemed (892,684) (873,200)
Shares issued in reinvestment of
dividends and distributions 47,237 53,198
Net decrease (701,689) (572,469)
CLASS B
Shares sold 306,536 1,027,017
Shares redeemed (1,025,655) (918,380)
Shares issued in reinvestment of
dividends and distributions 86,179 98,392
Net increase (decrease) (632,940) 207,029
CLASS C
Shares sold 35,183 92,047
Shares redeemed (239,822) (244,752)
Shares issued in reinvestment of
dividends and distributions 17,534 25,773
Net decrease (187,105) (126,932)
</TABLE>
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) for the year ended March 31, 1997 were $98,820,748 and
$114,559,136, respectively.
As of March 31, 1997, the Fund has a capital loss carryover for federal income
tax purposes of approximately $2,934,000 which expires as follows:
$1,845,000-- 2002 and $1,089,000-- 2005.
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
<PAGE>
PAGE 18
KEYSTONE FLORIDA TAX FREE 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 0.15% 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 0.90% 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 0.15% is used to pay service fees.
During the year ended March 31, 1997, amounts paid to EKD and/or EKIS pursuant
to the Fund's Class A, Class B and Class C Distribution Plans were $46,410,
$469,958 and $97,209, respectively.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class. However, after the termination of any Distribution
Plan, and subject to the discretion of the Independent Trustees, payments to
EKIS and/or EKD may continue as compensation for services 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 March 31, 1997 total unpaid distribution costs were $3,352,712 for Class B
shares and $1,350,164 for Class C shares.
EKD has advised the Fund that it has retained $4,353 from front-end sales
charges resulting from the sales of Class A shares during the year ended March
31, 1997.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EKD or its predecessor.
5. INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Under the terms of an investment advisory agreement, 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 amount determined by applying
percentage rates starting at 0.55% and declining as net assets increase to 0.25%
per annum, to the average daily net asset value of the Fund.
Keystone has voluntarily limited the expenses, excluding indirectly paid
expenses, of Class A shares to 0.75% of its average daily net assets and has
limited the expenses, excluding indirectly paid expenses, of Class B and C to
1.50% of the average daily net assets of each respective class. For the year
ended March 31, 1997, Keystone waived $160,819 of its fee.
During the year ended March 31, 1997, the Fund paid or accrued $18,143 to
Keystone for certain accounting services. Evergreen Keystone Service Company
(formerly, Keystone Investor Resource Center, Inc.), a wholly-owned subsidiary
of Keystone, serves 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.
<PAGE>
PAGE 19
6. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an expense offset arrangement with its custodian. For
the year ended March 31, 1997, the Fund incurred total custody fees of $64,048
and received a credit of $8,966 pursuant to this expense offset arrangement,
resulting in a net custody expense of $55,082. The assets deposited with the
custodian under this expense offset arrangement could have been invested in
income-producing assets.
7. CONCENTRATION OF CREDIT RISK
The Fund invests a substantial portion of its assets in issuers located in the
state of Florida and, therefore, may be more affected by economic and political
developments in Florida than would be a comparable general tax-exempt mutual
fund.
<PAGE>
PAGE 20
KEYSTONE FLORIDA TAX FREE FUND
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND SHAREHOLDERS
KEYSTONE STATE TAX FREE FUND
We have audited the accompanying statement of assets and liabilities of Keystone
Florida Tax Free Fund (one of the portfolios constituting Keystone State Tax
Free Fund), including the schedule of investments, as of March 31, 1997, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years in the six-year period then
ended and the period from December 28, 1990 (commencement of operations) to
March 31, 1991 for Class A shares and for each of the years in the four-year
period ended March 31, 1997 and the period from February 1, 1993 (date of
initial public offering) to March 31, 1993 for Class B and Class C shares. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone Florida Tax Free Fund as of March 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years or periods specified in the first paragraph above in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
May 2, 1997
<PAGE>
PAGE 21
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,
below each proposal are the results of that vote.
1. TO ELECT THE FOLLOWING TRUSTEES:
<TABLE>
<CAPTION>
AFFIRMATIVE WITHHELD
<S> <C> <C>
Laurence B. Ashkin 7,632,639 134,730
Frederick Amling 7,637,980 129,389
Charles A. Austin III 7,637,980 129,389
Foster Bam 7,634,470 132,899
George S. Bissell 7,637,980 129,389
Edwin D. Campbell 7,637,980 129,389
Charles F. Chapin 7,634,563 132,806
K. Dun Gifford 7,637,980 129,389
James S. Howell 7,634,225 133,144
Leroy Keith, Jr. 7,636,394 130,975
F. Ray Keyser 7,637,980 129,389
Gerald M. McDonnell 7,636,056 131,313
Thomas L. McVerry 7,636,394 130,975
William Walt Pettit 7,636,056 131,313
David M. Richardson 7,637,980 129,389
Russell A. Salton, III M.D. 7,634,470 132,899
Michael S. Scofield 7,636,056 131,313
Richard J. Shima 7,637,980 129,389
Andrew J. Simons 7,636,394 130,975
</TABLE>
2. TO APPROVE AN INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT BETWEEN THE FUND
AND KEYSTONE INVESTMENT MANAGEMENT COMPANY:
<TABLE>
<S> <C>
Affirmative 7,425,501
Against 111,920
Abstain 229,947
</TABLE>
FEDERAL TAX STATUS-- 1997
FISCAL YEAR DISTRIBUTIONS (UNAUDITED)
96.04% of the dividends distributed by the Fund for the year ended March 31,
1997 are exempt from federal income tax.
<PAGE>
(This Page Left Blank Intentionally)
<PAGE>
(This Page Left Blank Intentionally)
<PAGE>
KEYSTONE AMERICA
FAMILY OF FUNDS
(diamond)
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Tax Free Fund
Pennsylvania Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Omega Fund
Fund of the Americas
Small Company Growth Fund II
Strategic Development 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 Keystone funds, contact your
financial adviser or call Keystone.
Evergreen Keystone
(Logo) FUNDS (Logo)
P.O. Box 2121
Boston, Massachusetts 02106-2121
FLTFF-4 5/97 (recycled logo)
