KEYSTONE GLOBAL RESOURCES & DEVELOPMENT FUND
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
Shares Value
- -------- -----------
COMMON STOCKS (90.1%)
AUSTRALIA (14.2%)
Finance & Insurance (0.7%)
600,000 First Resources Development Fund $ 174,228
---------------
Iron & Steel (4.0%)
43,787 Broken Hill Proprietary Co. Ltd. 511,138
38,055 CRA Limited 573,240
---------------
1,084,378
---------------
Metals & Mining (4.1%)
102,000 North Limited 360,979
155,022 Western Mining Corp. Ltd. 729,248
---------------
1,090,227
---------------
Oil / Energy (5.4%)
119,800 Santos Ltd. - ADR 617,479
86,800 Woodside Petroleum 830,000
---------------
1,447,479
---------------
TOTAL AUSTRALIA 3,796,312
===============
BRAZIL (1.7%)
Utilities - Telephone (1.7%)
3,500 Telecomunicacoes Brasileiros S.A.ADR 450,625
---------------
CANADA (16.0%)
Chemical & Agricultural Products (3.1%)
10,500 Potash Corp of Saskatchewan Inc. 824,319
---------------
Metals & Mining (8.3%)
24,700 Alcan Aluminum Ltd. 865,005
23,300 Inco Limited 582,733
25,000 * Repadre Corp. 138,381
31,200 Teck Corp. 643,392
---------------
2,229,511
---------------
Oil / Energy (2.5%)
25,100 Canadian Occidental Petroleum Ltd. 671,973
---------------
Oil Field Services (2.1%)
64,600 * Arakis Energy Corp. 203,893
30,000 Seven Seas Petroleum Inc. 360,000
---------------
563,893
---------------
TOTAL CANADA 4,289,696
===============
FRANCE (3.6%)
Building, Construction &
Furnishings (1.1%)
3,900 Lafarge 285,829
---------------
Oil / Energy (2.5%)
2,500 Societe Nationale Elf Aquitaine 333,746
2,944 Total S.A. 336,945
---------------
670,691
---------------
TOTAL FRANCE 956,520
===============
MEXICO (2.3%)
Metals & Mining (2.3%)
130,000 Industrias Penoles S.A. de CV 627,413
---------------
PERU (1.6%)
Metals & Mining (1.6%)
47,370 Minas Buenaventura 428,769
---------------
SWEDEN (2.9%)
Electrical Equipment & Services (2.9%)
55,210 AAB, Series B 778,579
---------------
THAILAND (0.7%)
Construction & Minong Equipment (0.7%)
52,500 Siam City Cement Public Co., Ltd. 188,017
---------------
UNITED KINGDOM (5.7%)
Iron & Steel (2.1%)
<PAGE>
KEYSTONE GLOBAL RESOURCES & DEVELOPMENT FUND
SCHEDULE OF INVESTMENTS--(continued)
SEPTEMBER 30, 1997 (UNAUDITED)
Shares Value
- -------- -----------
192,000 British Steel PLC 556,351
---------------
Metals & Mining (2.4%)
41,539 RTZ Corp. 659,099
---------------
Conglomerates (1.2%)
171,000 Lonrho PLC 318,477
---------------
TOTAL UNITED KINGDOM 1,533,927
===============
UNITED STATES (41.4%)
Building, Construction &
Furnishings (1.6%)
8,200 Fluor Corp. 439,725
---------------
Chemical & Agricultural Products (3.6%)
30,600 AGCO Corp. 969,638
---------------
Forest Products (1.7%)
7,600 Weyerhaeuser Co. 451,250
---------------
Industrial Specialty Products & Services (1.5%)
7,500 Deere & Co. 403,125
---------------
Iron & Steel (1.9%)
10,000 Nucor Corp. 526,875
---------------
Metals & Mining (5.3%)
10,000 Aluminum Company of America 820,000
7,500 Freeport Mcmoran Copper & Gold 216,094
10,000 Homestake Mining Co. 153,125
5,000 Newmont Mining Corp. 224,687
---------------
1,413,906
---------------
Machinery - Diversified (4.6%)
16,800 Caterpillar Inc. 906,150
7,500 Lindsay Manufacturing Co. 319,687
---------------
1,225,837
---------------
Oil / Energy (6.1%)
11,000 Halliburton Co. 572,000
5,000 Texaco, Inc. 307,188
5,500 * Triton Energy Corp. Ltd. 227,906
12,000 Unocal Corp. 519,000
---------------
1,626,094
---------------
Oil Field Services (13.7%)
9,000 * BJ Services Co., Inc. 668,250
21,000 * Diamond Offshore Drilling, Inc. 1,158,938
13,800 Schlumberger Ltd. 1,161,787
11,500 Tidewater Inc. 681,375
---------------
3,670,350
---------------
Telecommunication Services & Equipment (1.4%)
4,000 Nokia Corp. ADR 375,250
---------------
TOTAL UNITED STATES 11,102,050
===============
TOTAL COMMON STOCKS
(Cost---$17,980,774) $24,151,908
===============
PREFERRED STOCKS (6.6%)
BRAZIL (6.6%)
Iron & Steel (3.4%)
5,970,000 * Caemi Min E Metal 337,858
23,588 Vale do Rio Doce Navegacao S.A. 576,808
---------------
914,666
---------------
Oil / Energy (1.7%)
1,580,000 Petrol Brasileiros 449,966
---------------
Utilities - Electric (1.5%)
690,000 * Eletrobras 390,482
---------------
TOTAL BRAZIL 1,755,114
===============
TOTAL PREFERRED STOCKS
(Cost---$1,219,681) $1,755,114
===============
<PAGE>
KEYSTONE GLOBAL RESOURCES & DEVELOPMENT FUND
SCHEDULE OF INVESTMENTS--(continued)
SEPTEMBER 30, 1997 (UNAUDITED)
Principal
Amount Value
- -------- -----------
CONVERTIBLE DEBENTURES (0.0%)
BRAZIL (0.0%)
Iron & Steel (0.0%)
$23,588 Vale do Rio Doce Navegacao S.A. 2
---------------
TOTAL CONVERTIBLE
DEBENTURES(0.0%) $2
===============
Shares
- ------------
PUT OPTION PURCHASED (0.0%)
AUSTRALIA (0.0%)
Options (0.0%)
600,000 First Resources Development Fund,
options, expire December 1997* 6,098
---------------
TOTAL PUT OPTION
PURCHASED (0.0%) $6,098
===============
Principal
Amount
- -------------
REPURCHASE AGREEMENT (3.9%)
1,056,000 Keystone Joint Repurchase Agreement
Investments in repurchase agreements,
in a joint trading account purchased
9/30/97, 6.15%, maturing 10/1/97, maturity
value $1,056,178 (cost, $1,056,000).** $1,056,000
===============
TOTAL INVESTMENTS
(Cost $20,256,455) (100.6%) 26,969,122
OTHER ASSETS AND LIABILITIES-
NET ((0.6%)) (163,528)
NET ASSETS (100%) $26,805,594
==============
* Non-income producing securities
** The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at September 30, 1997.
Legend of Portfolio Abbreviations:
ADR-American Depository Receipts
See Notes to Financial Statements.
<PAGE>
KEYSTONE GLOBAL RESOURCES & DEVELOPMENT FUND
SCHEDULE OF INVESTMENTS-(continued)
September 30, 1997 - (unaudited)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
Unrealized
Exchange U.S. Value at In Exchange Appreciation
Date September 30, 1997 for U.S. $ (Depreciation)
- --------------------------------------------------------------------------------------------------------------
Forward Foreign Currency Exchange Contracts to Sell:
Contracts to Deliver
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10/9/97 2,124,832 Australian Dollar $1,542,850 $1,581,300 $38,450
11/3/97 2,560,355 French Franc 432,548 416,000 (16,548)
----------
Unrealized appreciation on forward foreign currency exchange contracts $21,902
==========
</TABLE>
<PAGE>
Keystone Global Resources and Development Fund
FINANCIAL HIGHLIGHTS-CLASS A SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
October 7, 1994
Six Months Ended (Commencement of
September 30, 1997 Year Ended March 31, operations) to
(Unaudited) 1997 1996 March 31, 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value beginning of period $ 12.11 $ 10.74 $ 9.02 $ 10.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04 (0.04) (0.04) 0 (b)
Net realized and unrealized gain (loss) on
investments and foreign currency related transactions 1.62 1.41 1.76 (0.98)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.66 1.37 1.72 (0.98)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value end of period $ 13.77 $ 12.11 $ 10.74 $ 9.02
- -------------------------------------------------------------------------------------------------------------------------
Total return(a) 13.71% 12.76% 19.07% (9.80%)
Ratios/supplemental data
Ratios to average net assets:
Expenses 1.93%(c) 2.40% 2.38% 2.77%(c)
Expenses excluding indirectly paid expenses 1.92%(c) 2.39% 2.37% N/A
Net investment income (loss) 0.15%(c) (0.45%) (0.41%) (0.07%)(c)
Portfolio turnover rate 11% 39% 40% 13%
Average commission rate paid $ 0.0052 $ 0.0023 $ 0.0025 N/A
Net assets, end of period (thousands) $ 4,418 $ 4,462 $ 4,574 $4,890
- -------------------------------------------------------------------------------------------------------------------------
(a) Excluding applicable sales charges.
(b) Represents less than $0.01 per share.
(c) Annualized.
- -------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
<PAGE>
Keystone Global Resources and Development Fund
FINANCIAL HIGHLIGHTS-CLASS B SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
October 7, 1994
Six Months Ended (Commencement of
September 30, 1997 Year Ended March 31, operations) to
(Unaudited) 1997 1996 March 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value beginning of period $ 11.89 $ 10.62 $ 8.99 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.05) (0.14) (0.13) (0.03)
Net realized and unrealized gain (loss) on investments and foreign
currency related transactions 1.64 1.41 1.76 (0.98)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.59 1.27 1.63 (1.01)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value end of period $ 13.48 $ 11.89 $ 10.62 $ 8.99
- -----------------------------------------------------------------------------------------------------------------------------------
Total return(a) 13.37% 11.96% 18.13% (10.10%)
Ratios/supplemental data
Ratios to average net assets:
Expenses 2.70%(b) 3.16% 3.13% 3.55%(b)
Expenses excluding indirectly paid expenses 2.69%(b) 3.15% 3.12% N/A
Net investment loss (0.64%)(b) (1.22%) (1.16%) (0.80%)(b)
Portfolio turnover rate 11% 39% 40% 13%
Average commission rate paid $ 0.0052 $0.0023 $ 0.0025 N/A
Net assets, end of period (thousands) $ 17,657 $17,208 $ 15,161 $ 4,688
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Excluding applicable sales charges.
(b) Annualized.
- -----------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
<PAGE>
Keystone Global Resources and Development Fund
FINANCIAL HIGHLIGHTS-CLASS C SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
October 7, 1994
Six Months Ended (Commencement of
September 30, 1997 Year Ended March 31, operations) to
(Unaudited) 1997 1996 March 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value beginning of period $ 11.89 $10.62 $ 8.99 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.05) (0.10) (0.10) (0.03)
Net realized and unrealized gain (loss)
on investments and foreign currency related transactions 1.63 1.37 1.73 (0.98)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.58 1.27 1.63 (1.01)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value end of period $ 13.47 $11.89 $ 10.62 $ 8.99
- -----------------------------------------------------------------------------------------------------------------------------------
Total return(a) 13.29% 11.96% 18.13% (10.10%)
Ratios/supplemental data
Ratios to average net assets:
Expenses 2.71%(b) 3.13% 3.13% 3.51%(b)
Expenses excluding indirectly paid expenses 2.70%(b) 3.12% 3.12 N/A
Net investment loss (0.64%)(b) (1.27%) (1.16%) (0.93%)(b)
Portfolio turnover rate 11% 39% 40% 13%
Average commission rate paid $0.0052 $0.0023 $0.0025 N/A
Net assets, end of period (thousands) $ 4,731 $ 4,567 $ 2,023 $ 1,393
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Excluding applicable sales charges
(b) Annualized.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
Keystone Global Resources and Development Fund
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997 (Unaudited)
<TABLE>
- ---------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value (identified cost - $20,256,455) $ 26,969,122
Foreign currency holdings (identified cost -$6,714) 6,713
Cash 625
Dividends and interest receivable 60,040
Unrealized appreciation on forward foreign currency exchange contracts 38,450
Receivable for Fund shares sold23,653 Deferred organization expense 13,823
Foreign tax reclaim receivable 11,576
Prepaid expenses and other assets 43,082
- ---------------------------------------------------------------------------------------
Total assets 27,167,084
- ---------------------------------------------------------------------------------------
Liabilities:
Payable for Fund shares redeemed 309,261
Due to affiliates 22,492
Unrealized depreciation on forward foreign currency exchange contracts 16,548
Foreign taxes withheld 204
Accrued expenses and other liabilities 12,985
- ---------------------------------------------------------------------------------------
Total liabilities 361,490
- ---------------------------------------------------------------------------------------
Net assets $ 26,805,594
- ---------------------------------------------------------------------------------------
Net assets represented by
Paid-in-capital $ 17,926,324
Accumulated net investment loss (101,634)
Accumulated net realized gain on investments and foreign
currency related transactions 2,247,379
Net unrealized appreciation on investments and foreign
currency related transactions 6,733,525
- ---------------------------------------------------------------------------------------
Total net assets $ 26,805,594
- ---------------------------------------------------------------------------------------
Net asset value per share:
Class A Shares
Net assets of ($4,417,712 / 320,781 shares outstanding) $ 13.77
Offering price (based on sales charge of 4.75%) $ 14.46
Class B Shares
Net assets of ($17,657,241 / 1,310,124 shares outstanding) $ 13.48
Class C Shares
Net assets of ($4,730,641 / 351,136 shares outstanding) $ 13.47
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
See Notes to Financial Statements
</TABLE>
<PAGE>
Keystone Global Resources and Development Fund
STATEMENT OF OPERATIONS
Six Months Ended September 30, 1997 (Unaudited)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------
Investment income
Dividends (net of withholding tax of $24,172) $ 272,911
Interest 7,226
- --------------------------------------------------------------------------------------
Total income 280,137
- --------------------------------------------------------------------------------------
Expenses
Management fee $ 135,321
Distribution Plan expenses 117,781
Transfer agent fee 35,167
Custodian fees 21,822
Amortization of organization expenses 7,095
Administrative service fees 1,199
Trustees fees 991
Miscellaneous expenses 30,630
- --------------------------------------------------------------------------------------
Total expenses 350,006
- --------------------------------------------------------------------------------------
Less: Indirectly paid expenses (1,290)
- --------------------------------------------------------------------------------------
Net expenses 348,716
- --------------------------------------------------------------------------------------
Net investment loss (68,579)
- --------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency
related transactions
Net realized gain on investments 1,754,976
Net realized gain on foreign currency related transactions 130,705
- --------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency related
transactions 1,885,681
- --------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments
and foreign currency related transactions 1,574,933
- --------------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and foreign currency related transactions 3,460,614
- --------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $2,392,035
- --------------------------------------------------------------------------------------
See Notes to Financial Statements
</TABLE>
<PAGE>
Keystone Global Resources and Development Fund
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
September 30, 1997 Year Ended
(Unaudited) March 31, 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment loss $ (68,579) $ (261,955)
Net realized gain on investments and foreign currency related
transactions 1,885,681 1,096,497
Net change in unrealized appreciation (depreciation) on investments
and foreign currency related transactions 1,574,933 1,919,418
- -------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,392,035 2,753,960
- -------------------------------------------------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold 1,565,221 9,241,182
Payments for shares redeemed (4,388,784) (7,515,475)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital share transactions (2,823,563) 1,725,707
- -------------------------------------------------------------------------------------------------------------------------
Total increase in net assets 568,472 4,479,667
- -------------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period 26,237,122 21,757,455
- -------------------------------------------------------------------------------------------------------------------------
End of period Including accumulated net investment loss
as follows: 9/30/97 - ($101,634) and 3/31/97 - ($33,055) $ 26,805,594 $ 26,237,122
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements
</TABLE>
<PAGE>
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND
NOTES TO FINANCIAL STATEMENTS - (UNAUDITED)
(1) Significant Accounting Policies
Keystone Global Resources and Development Fund, (the "Fund") is a Massachusetts
business trust registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as a diversified, open-end investment company.
The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a maximum front-end sales charge of 4.75%. Class B and C shares are sold
without a front-end sales charge, but pay a higher ongoing distribution fee than
Class A. 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 rights.
Class C shares are sold subject to a contingent deferred sales charge payable on
shares redeemed within one year after the month of purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein. Actual results could differ from these estimates.
A. Valuation of Securities
The Fund values investments traded on an established exchange on the basis of
the last sales price on the exchange where primarily traded. The Fund values
securities traded in the over-the-counter market at the mean between the bid and
asked prices. Securities for which market quotations are not available,
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.
B. Repurchase Agreements
The Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. The
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the securities
pledged falls below the carrying value of the repurchase agreement, including
accrued interest. The Fund will only enter into repurchase agreements with banks
and other financial institutions which are deemed by the investment advisor to
be creditworthy pursuant to guidelines established by the Board of Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange Commission,
the Fund, along with certain other funds managed by Keystone Investment
Management Company ("Keystone"), may transfer uninvested cash balances into a
joint trading account. These balances are invested in one or more repurchase
agreements that are fully collateralized by U.S. Treasury and/or federal agency
obligations.
C. Foreign Currency
The books and records of the Fund are maintained in United States ("U.S.")
dollars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, assets and liabilities at the daily rate of
exchange; purchases and sales of investments, income and expenses at the rate of
exchange prevailing on the respective dates of such transactions. Net unrealized
foreign exchange gain (loss) resulting from changes in foreign currency exchange
rates is a component of net unrealized appreciation (depreciation) on
investments and foreign currency related transactions. Net realized foreign
currency gains and losses resulting from changes in exchange rates include
foreign currency gains and losses between trade date and settlement date on
investment securities transactions, foreign currency related transactions and
the difference between the amounts of interest and dividends recorded on the
books of the Fund and the amount actually received are reflected in realized
gain (loss) on foreign
<PAGE>
currency related transactions. The portion of foreign currency gains and losses
related to fluctuations in exchange rates between the initial purchase trade
date and subsequent sale trade date is included in realized gain (loss) on
foreign currency related transactions.
D. Forward Foreign Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to settle portfolio purchases and sales of securities denominated in
a foreign currency and to hedge certain foreign currency assets or liabilities.
Forward contracts are recorded at the forward rate and are marked-to-market
daily. Realized gains and losses arising from such transactions are included in
net realized gain (loss) on foreign currency related transactions. The Fund
bears the risk of an unfavorable change in the foreign currency exchange rate
underlying the forward contract and is subject to the credit risk that the other
party will not fulfill their obligations under the contract. Forward contracts
involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
E. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date or in the case of some foreign securities, on the date
thereafter when the Fund is made aware of the dividend. Foreign income may be
subject to foreign withholding taxes which are accrued as applicable. Capital
gains realized on some foreign securities are subject to foreign taxes and are
accrued as applicable.
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 will not incur any federal income tax liability since it
is expected to distribute all of its net investment company taxable income and
net taxable capital gains, if any, to its shareholders. The Fund also intends to
avoid any excise tax liability by making the required distributions under the
Code. Accordingly, no provision for federal income or excise tax is required.
G. Distributions
The Fund distributes net investment income and net capital gains, if any, at
least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. The significant differences between financial statement
amounts available for distributions and distributions made in accordance with
income tax regulations are primarily due to differing treatment of net operating
losses generated by the Fund.
H. Class Allocations
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.
I. Organization Expenses
Organization expenses are amortized to operations over a five-year period on a
straight-line basis. In the event any of the initial shares of the Funds are
redeemed by any holder during the five-year amortization period, redemption
proceeds will be reduced by any unamortized organization expenses in the same
proportion as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of the redemption.
<PAGE>
(2.) Capital Share Transactions
The Fund has an unlimited number of shares of beneficial interest with no par
value authorized. Shares of beneficial interest of the Fund are currently
divided into Class A, Class B, and Class C. Transactions in shares of the Fund
were as follows:
Six Months Ended Year Ended
September 30, 1997 March 31, 1997
----------------------- -------------------------
Class A Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Shares sold 17,048 215,635 99,899 1,149,694
Shares redeemed (64,648) (852,821) (157,432) (1,830,659)
- --------------------------------------------------------------------------------
Net decrease (47,600) (637,186) (57,533) (680,965)
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Shares sold 77,332 1,004,257 391,020 4,494,545
Shares redeemed (214,025) (2,748,180) (371,723) (4,250,880)
- --------------------------------------------------------------------------------
Net increase (decrease) (136,693) (1,743,923) 19,297 243,665
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Shares sold 27,295 345,329 317,784 3,596,943
Shares redeemed (60,140) (787,783) (124,231) (1,433,936)
- --------------------------------------------------------------------------------
Net increase (decrease) (32,845) (442,454) 193,553 2,163,007
- --------------------------------------------------------------------------------
(3.) Securities Transactions
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities and foreign cash) for the six months ended September 30,
1997 were $2,941,483 and $5,940,846, respectively.
(4.) Distribution Plan
Evergreen Keystone Distributor, Inc. ("EKD"), a wholly-owned subsidiary of The
BISYS Group, Inc. ("BISYS") serves as principal underwriter to the Fund. Prior
to December 11, 1996, Evergreen Keystone Investment Services, Inc. ("EKIS"), a
wholly-owned subsidiary of Keystone, served as the Fund's principal underwriter.
The Fund has adopted Distribution Plans for each class of shares, as allowed by
Rule 12b-1 of the 1940 Act. Distribution Plans permit the Fund to reimburse its
principal underwriter for costs related to selling shares of the Fund and for
various other services. These costs, which consist primarily of commissions and
services fees to broker-dealers who sell shares of the fund, are paid by
shareholders through expenses called "Distribution Plan expenses". Each class,
currently pays a service fee equal to 0.25% of the average daily net asset of
the class. Class B and Class C also presently pay distribution fees equal to
0.75% of the average daily net assets of the Class. Distribution Plan expenses
are calculated daily and paid monthly.
With respect to Class B and Class C shares, the principal underwriter may pay
distribution costs greater than the allowable annual amounts the Fund is
permitted to pay. The Fund may reimburse the principal underwriter for such
excess amounts in later years with annual interest at the prime rate plus 1.00%.
During the year ended September 30, 1997, amounts paid to EKD and/or EKIS
pursuant to each Fund's Class A, Class B and Class C Distribution Plans were
$5,101, $88,252, and $24,428, respectively.
<PAGE>
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
provided 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.
(5.) Investment Advisory Agreement and Other Affiliated Transactions Keystone, a
subsidiary of First Union Corporation ("First Union"), is the investment advisor
for the Fund. In return for providing investment management and administrative
services to the Fund, the Fund pays Keystone a management fee, calculated daily
and paid monthly, at an annual rate of 1.00% of the aggregate net asset value of
the Fund. Keystone has entered into a Sub-Investment Advisory Agreement with
Equitilink International Management Limited ("EIML"), under which EIML provides
Keystone with investment research and advice and may provide investment
supervision or furnish an investment program for certain assets of the Fund. For
its services, EIML receives from Keystone a monthly fee equal to (1) 20% of
Keystone's net fee for such month for services rendered in a non-discretionary
capacity, plus (2) 10% of Keystone's net fee for such month for services
rendered in a discretionary capacity.
During the year ended September 30, 1997, the Fund paid or accrued $1,199, to
Keystone for certain administrative services.
Evergreen Keystone Services Company ("EKSC"), a wholly-owned subsidiary of
Keystone, serves as the transfer and dividend disbursing agent for the Fund.
BISYS Fund Services, Inc., an affiliate of EKD, serves as the Fund's
sub-administrator. As sub-administrator, BISYS Fund Services, Inc. provides the
officers of the Fund. For this service, BISYS Fund Services, Inc. is paid a fee
by Keystone, which is not a Fund expense.
Officers of the Fund and affiliated Trustees receive no compensation directly
from the Fund.
(6.) Expense Offset Arrangement
The Fund has entered into an expense offset arrangement with its custodian. The
assets deposited with the custodian under this expense offset arrangement could
have been invested in income-producing assets.
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