-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P+XJ+9j2xg2YEEXkouRfGcClMqzs7YXvDwFGxGeR3AH4MdihaiFric+nn+LHgSVs AxGjkcqOYnn5ICYsEOD5Ag== 0000950168-97-002415.txt : 19970825 0000950168-97-002415.hdr.sgml : 19970825 ACCESSION NUMBER: 0000950168-97-002415 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970822 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEYSTONE OMEGA FUND CENTRAL INDEX KEY: 0000074458 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-01600 FILM NUMBER: 97668171 BUSINESS ADDRESS: STREET 1: 200 BERLELEY ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6183383200 MAIL ADDRESS: ZIP: 02110 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE AMERICA OMEGA FUND INC /MA/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: OMEGA FUND INC DATE OF NAME CHANGE: 19890604 N-30D 1 KEYSTONE OMEGA FUND N-30D 60437 PAGE 1 KEYSTONE OMEGA FUND SEEKS MAXIMUM CAPITAL GROWTH FROM COMMON STOCKS. Dear Shareholder: We are pleased to report on Keystone Omega Fund for the six-month period, which ended June 30, 1997. PERFORMANCE For the periods which ended June 30, 1997 your Fund produced the following investment results: Class A Shares returned 7.96% for the six-month period and 16.40% for the twelve-month period. Class B Shares returned 7.51% for the six-month period and 15.38% for the twelve-month period. Class C Shares returned 7.55% for the six-month period and 15.42% for the twelve-month period Class Y Shares returned 5.48% since they began operation on January 13, 1997. While the Fund lagged broad market averages for the six months and twelve months, the portfolio has been in a state of repositioning, so it now emphasizes large-company stocks that have been the market leaders. In fact, the Fund's relative performance accelerated sharply during the last three months of the period. INVESTMENT ENVIRONMENT Stocks made strong gains 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 Fed raised short-term interest rates 0.25% on March 25, 1997. While the March-April downturn in the market was short-lived, it erased the gains stocks had generated earlier in 1997. In late April, however, a succession of economic reports indicated that economic growth was moderating and that inflation was not accelerating. This positive economic news caused interest rates to decline and stocks to rally. Through June 30, 1997, stock prices continued to rise steadily. INVESTMENT STRATEGY During the six-month period, as we searched for strong companies we emphasized the stocks of large multinational companies with reasonable price/earnings ratios, relative to the overall market. The stocks of these types of companies have been market leaders for more than two years, and they tend to be of better quality and more liquid than smaller company stocks. At the end of the six-month period, approximately 70% of the portfolio's net assets were invested in such companies, up from 40% a year ago. The large companies in which we invested had several attractive characteristics. These included solid records of consistent earnings growth, industry leadership and strong management. We sought companies with these attributes in a variety of economic sectors, including finance, healthcare, business services, foods, and oil services. At nearly 16% of net assets on June 30, 1997, finance and bank stocks accounted for the portfolio's largest industry allocation. In this area, we maintained our focus on companies that we believe should continue to benefit from industry consolidation, increased productivity through the use of technology, and relatively low interest rates. The finance stocks in the portfolio included American Express, Travelers Group and BankBoston. The biggest change in the portfolio occurred in the healthcare area. The Fund's allocation in healthcare rose from nearly 9% of net assets on December 31, 1996 to 17% on June 30, 1997. This increase was the result of market appreciation as well the purchase of additional shares of companies we already held in the portfolio. For example, the Fund's largest holding is Warner Lambert. We invested in Warner Lambert about two years ago, because we believed it -- CONTINUED-- PAGE 2 KEYSTONE OMEGA FUND had promising products in the pipeline. With the release of two new drugs-- a cholesterol lowering medication and a diabetes drug-- Warner Lambert's market share increased significantly. This enhanced the company's appeal, and we purchased additional shares of stock for the portfolio. We also found opportunities among medium-sized companies, which accounted for 30% of the portfolio's net assets at the end of the period. For the past two years, medium-sized companies were out of favor with investors. As large-company stocks became more expensive, however, investors began to show renewed interest in mid-sized firms. Going forward, we will continue to invest a portion of the Fund's assets in medium-sized companies. In selecting these types of companies for the portfolio, we apply the same criteria that we use for choosing large companies. Because earnings growth is key to rising stock prices, we seek companies that we believe have the potential to produce consistent earnings over time. OUTLOOK Despite the lofty levels of stock prices at the conclusion of the six-month period, we believe the environment continues to be healthy for stocks in the foreseeable future. Gross Domestic Product (GDP) continues to grow at a more moderate rate than it had experienced earlier in 1997, and there are still relatively few signs of inflationary pressure that could prompt the Federal Reserve Board to push short-term interest rates up significantly. Despite our cautious optimism, it is important to remember that the financial markets move in cycles. To be sure, further market corrections, similar to that of March and April, would not be unexpected. We currently are well into our third year of strong, above-average returns from the stock markets. It seems reasonable to expect that the markets cannot indefinitely sustain their recent performance, and we recommend investors moderate their expectations about the level of returns they are likely to enjoy. With this outlook, we will continue to manage the Keystone Omega Fund with a strategy that emphasizes high-quality stocks that have helped the fund deliver consistent performance for so long. PORTFOLIO MANAGEMENT We would like to inform you that Maureen Cullinane, a Keystone Senior Vice President with more than 18 years of investment experience remains portfolio manger of Keystone Omega Fund. In the annual report, which we sent you earlier this year, we had announced that Warren Isabelle would become the Fund's portfolio manager. However, since that time, Mr. Isabelle has left the firm. Ms. Cullinane, who has successfully managed the Fund since 1989 will continue as portfolio manager. During her tenure as Omega Fund portfolio manager, the Omega Fund has produced a strong long-term performance record. Ms. Cullinane will continue to manage the Fund in the style that has produced such an excellent long-term record. We will provide an extensive report on the management of Omega Fund in the fall. PAGE 3 Thank you for your support of Keystone Omega Fund. If you have any questions about your Keystone investment, please feel free to write to us. Sincerely, /s/ Albert H. Elfner, III (Photo of Albert (Photo of George Albert H. Elfner, III H. Elfner, III S. Bissell CHAIRMAN appears here) appears here) KEYSTONE INVESTMENT MANAGEMENT COMPANY /s/ George S. Bissell George S. Bissell CHAIRMAN OF THE BOARD KEYSTONE FUNDS ALBERT H. ELFNER, III GEORGE S. BISSELL
August 1997 PAGE 4 KEYSTONE OMEGA FUND TOP 10 STOCKS AS OF JUNE 30, 1997
PERCENTAGE OF COMPANY INDUSTRY NET ASSETS Warner Lambert Healthcare 4.7% General Electric Electronics 3.4% Motorola Inc. Telecommunications 2.7% Greenpoint Financial Banks 2.6% EI DuPont de Nemours Chemicals & Agricultural products 2.6% Phillip Morris Food & Beverages 2.4% Exxon Oil 2.3% USA Waste Environmental Services Services 2.2% First American Corp. Banks 2.2% Coca Cola Foods & Beverages 2.2%
TOP FIVE INDUSTRIES AS OF JUNE 30, 1997
PERCENTAGE OF INDUSTRY NET ASSETS Healthcare products & services 16.6% Food & Beverage products 8.3% Banks 8.3% Electronics 8.0% Finance & Insurance 7.5%
(Diamond appears here) 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 5 Your Fund's Performance (Graph appears here with the following information) Growth of an investment in Keystone Omega Fund Class A In Thousands 6/87 6/88 6/89 6/90 6/91 6/92 6/93 6/94 6/95 6/96 6/97 Dividend Reinvestment (Customer to fill in plot points) Initial Reinvestment A $10,000 investment in Keystone Omega Fund made on June 30, 1987 with all distributions reinvested was worth $35,124 on June 30, 1997. Past performance is no guarantee of future results. The performance of each class may vary based on the differences in loads and fees paid by shareholders investing in the different classes. Class A share performance is reported at the current maximum front-end sales charge of 4.75%. Class B and C shares were introduced on August 2, 1993. Shares purchased after January 1, 1997 are subject to a contingent deferred sales charge (CDSC) that declines from 5% to 1% over six years after the month purchased. Performance assumes that shares were redeemed after the end of a one-year holding period and reflects the deduction of a 5% CDSC. [CAPTION]
SIX-MONTH PERFORMANCE AS OF JUNE 30, 1997 CLASS A CLASS B CLASS C CLASS Y Total returns* 7.96 % 7.51 % 7.55 % 5.48 % Net Asset Value 12/31/96 $19.52 $18.83 $18.86 $19.98 ** Net Asset Value 6/30/97 $20.17 $19.34 $19.37 $20.16 Capital Gain Distributions $ 0.85 $ 0.85 $ 0.85 $ 0.85
* 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 JUNE 30, 1997. ** INITIAL NET ASSET VALUE OF CLASS Y ON JANUARY 13, 1997. [CAPTION]
HISTORICAL RECORD AS OF JUNE 30, 1997 CUMULATIVE TOTAL RETURNS CLASS A CLASS B CLASS C CLASS Y 1-year w/o sales charge 16.40 % 15.38 % 15.42 % -- 1-year 10.87 % 10.38 % 14.42 % -- 5-year 95.46 % -- -- -- 10-year 251.24 % -- -- -- Life of Class -- 60.90 % 64.15 % 5.48 % AVERAGE ANNUAL RETURNS 1-year w/o sales charge 16.40 % 15.38 % 15.42 % -- 1-year 10.87 % 10.38 % 14.42 % -- 5-year 14.34 % -- -- -- 10-year 13.39 % -- -- -- Life of Class -- 12.92 % 13.50 % --
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, only to investment advisory clients of First Union or its affiliates and certain institutional clients. PAGE 6 KEYSTONE OMEGA FUND SCHEDULE OF INVESTMENTS-- JUNE 30, 1997 (UNAUDITED) [CAPTION]
SHARES VALUE COMMON STOCKS-- 95.1% BANKS-- 8.3% 34,700 BankBoston Corp............... $ 2,500,569 150,000 First American Corp........... 5,770,313 56,000 Firstplus Financial Group, Inc......................... 1,904,000 105,000 Greenpoint Financial Corp..... 6,989,062 100,000 TCF Financial Corp............ 4,937,500 22,101,444 BUILDING, CONSTRUCTION & FURNISHINGS-- 3.4% 196,300 * Furniture Brands International, Inc.......... 3,803,313 170,000 Sherwin-Williams Company...... 5,248,750 9,052,063 BUSINESS EQUIPMENT & SERVICES-- 3.2% 50,000 Hewlett-Packard Co............ 2,800,000 37,200 Stewart Enterprises, Inc...... 1,557,750 123,800 Thermo Electron Corp.......... 4,209,200 8,566,950 CAPITAL GOODS-- 2.9% 50,000 Case Corp..................... 3,443,750 40,000 Caterpillar, Inc.............. 4,295,000 7,738,750 CHEMICAL & AGRICULTURAL PRODUCTS-- 4.0% 110,000 Du Pont E. I. De Nemours & Co.......................... 6,916,250 85,000 Monsanto Co................... 3,660,312 10,576,562 DIVERSIFIED COMPANIES-- 1.6% 60,000 * Tyco Interational Ltd......... 4,173,750 ELECTRONICS-- 8.0% 151,666 * Analog Devices, Inc........... 4,028,628 140,000 General Electric Co........... 9,152,500 23,500 Intel Corp.................... 3,327,453 55,000 Texas Instruments, Inc........ 4,623,438 21,132,019 ENVIRONMENTAL SERVICES-- 3.1% 94,000 United States Filter Corp..... 2,561,500 150,000 * USA Waste Services, Inc....... 5,793,750 8,355,250 SHARES VALUE COMMON STOCKS-- CONTINUED FINANCE & INSURANCE-- 7.5% 65,000 American Express Co........... $ 4,842,500 35,000 American International Group, Inc......................... 5,228,125 45,000 Student Loan Marketing Association................. 5,715,000 63,333 Travelers Group, Inc.......... 3,993,937 19,779,562 FOOD & BEVERAGE PRODUCTS-- 8.3% 85,000 Coca Cola Co. (The)........... 5,737,500 268,200 Flowers Industries, Inc....... 4,509,113 145,000 Pepsico, Inc.................. 5,446,562 145,000 Philip Morris Companies, Inc......................... 6,434,375 22,127,550 HEALTHCARE PRODUCTS & SERVICES-- 16.6% 60,000 American Home Products Corp... 4,590,000 22,500 * Boston Scientific Corp........ 1,382,344 59,250 Cardinal Health, Inc.......... 3,392,063 162,600 Gilead Sciences, Inc.......... 4,501,987 200,000 * HEALTHSOUTH Corp.............. 4,987,500 50,000 Lilly (Eli) & Co.............. 5,465,625 21,900 Pfizer, Inc................... 2,617,050 50,000 SmithKline Beecham PLC, ADR... 4,581,250 100,000 Warner-Lambert Co............. 12,425,000 43,942,819 INFORMATION SERVICES & TECHNOLOGY-- 1.6% 34,000 * Microsoft Corp................ 4,299,938 LEISURE & TOURISM-- 1.0% 45,000 HFS, Inc...................... 2,610,000 NATURAL GAS-- 3.5% 80,000 Barrett Resources Corp........ 2,395,000 100,000 * Nuevo Energy Corp............. 4,100,000 97,100 * United Meridian Corp.......... 2,913,000 9,408,000 OFFICE EQUIPMENT & SUPPLIES-- 5.2% 140,000 * E M C Corp.................... 5,460,000 60,000 International Business Machines Corp............... 5,411,250 70,000 * Parametric Technology Corp.... 2,977,187 13,848,437
PAGE 7 SCHEDULE OF INVESTMENTS-- JUNE 30, 1997 (UNAUDITED)
SHARES VALUE COMMON STOCKS-- CONTINUED OIL-- 5.4% 30,000 Amoco Corp.................... $ 2,608,125 97,500 Exxon Corp.................... 5,996,250 74,200 Pennzoil Co................... 5,694,850 14,299,225 OIL FIELD SERVICES-- 5.9% 60,000 * BJ Services Co................ 3,217,500 44,100 Diamond Offshore Drilling, Inc......................... 3,445,312 90,000 * ENSCO International, Inc...... 4,747,500 72,800 * Falcon Drilling............... 4,195,100 15,605,412 RETAILING & WHOLESALE-- 1.4% 70,000 * CDW Computer Centers, Inc..... 3,714,375 TELECOMMUNICATION SERVICES & EQUIPMENT-- 4.2% 60,000 * Cisco Systems, Inc............ 4,029,375 95,000 Motorola, Inc................. 7,220,000 11,249,375 TOTAL COMMON STOCKS (IDENTIFIED COST, $197,604,810)................ 252,581,481 PAR VALUE VALUE REPURCHASE AGREEMENT-- 3.0% $ 7,884,000 Keystone Joint Repurchase Agreement, (investment in repurchase agreement, in joint trading account, purchased 6/30/97, 6.039%, maturing 7/1/97, maturity value $7,885,323) (a)............. $ 7,884,000
TOTAL INVESTMENTS-- (IDENTIFIED COST, $205,488,810) 98.1% 260,465,481 OTHER ASSETS AND LIABILITIES-- NET 1.9 5,034,590 NET ASSETS 100.0% $265,500,071
* Non-income producing securities. (a) The repurchase agreement is fully collateralized by U.S. Government and/or agency obligations based on market prices at June 30, 1997. ADR-- American Depository Receipts. SEE NOTES TO FINANCIAL STATEMENTS. PAGE 8 KEYSTONE OMEGA FUND FINANCIAL HIGHLIGHTS-- CLASS A SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS ENDED JUNE 30, 1997 YEAR ENDED DECEMBER 31, (UNAUDITED)(B) 1996 1995 1994 1993 1992(B) 1991 1990 1989 NET ASSET VALUE BEGINNING OF PERIOD $19.52 $19.56 $15.54 $17.11 $15.84 $17.68 $13.37 $16.03 $13.66 INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) (0.01) (0.06) 0.00 0.04 (0.07) 0.00 (0.04) 0.11 0.17 Net realized and unrealized gain (loss) on investments 1.51 2.15 5.58 (1.00) 3.07 0.39 6.92 (0.39) 4.30 Total from investment operations 1.50 2.09 5.58 (0.96) 3.00 0.39 6.88 (0.28) 4.47 LESS DISTRIBUTIONS FROM Net investment income 0.00 0.00 0.00 0.00 0.00 0.00 (0.02) (0.25) (0.20) In excess of net investment income 0.00 0.00 0.00 0.00 0.00 0.00 (0.05) (0.04) 0.00 Net realized gain on investments (0.85) (2.13) (1.56) (0.61) (1.73) (2.23) (2.50) (2.09) (1.90) Total distributions (0.85) (2.13) (1.56) (0.61) (1.73) (2.23) (2.57) (2.38) (2.10) NET ASSET VALUE END OF PERIOD $20.17 $19.52 $19.56 $15.54 $17.11 $15.84 $17.68 $13.37 $16.03 TOTAL RETURN(A) 7.96% 11.31% 36.94% (5.66%) 19.33% 4.00% 54.49% (2.38%) 33.05% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses 1.31%(d) 1.33% 1.38% 1.41% 1.51% 1.52% 1.57% 1.73% 1.84% Total expenses, excluding indirectly paid expenses 1.29%(d) 1.32% 1.37% N/A N/A N/A N/A N/A N/A Net investment income (loss) (0.13%)(d) (0.29%) 0.00% 0.27% (0.48%) (0.01%) (0.31%) 0.70% 1.03% PORTFOLIO TURNOVER RATE 53% 173% 159% 137% 162% 176% 115% 108% 77% AVERAGE COMMISSION RATE PAID $0.0580 $0.0621 N/A N/A N/A N/A N/A N/A N/A NET ASSETS END OF PERIOD (THOUSANDS) $148,871 $154,825 $135,079 $99,569 $90,404 $73,144 $58,671 $38,531 $39,682 1988 NET ASSET VALUE BEGINNING OF PERIOD $12.08 INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) 0.30(c) Net realized and unrealized gain (loss) on investments 1.40 Total from investment operations 1.70 LESS DISTRIBUTIONS FROM Net investment income (0.12) In excess of net investment income 0.00 Net realized gain on investments 0.00 Total distributions (0.12) NET ASSET VALUE END OF PERIOD $13.66 TOTAL RETURN(A) 14.05% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses 1.78% Total expenses, excluding indirectly paid expenses N/A Net investment income (loss) 2.22% PORTFOLIO TURNOVER RATE 84% AVERAGE COMMISSION RATE PAID N/A NET ASSETS END OF PERIOD (THOUSANDS) $33,951
(a) Excluding applicable sales charges. (b) Calculated based on average shares outstanding. (c) Includes $0.17 per share relating to a special non-recurring distribution from Inco Limited. (d) Annualized. SEE NOTES TO FINANCIAL STATEMENTS. PAGE 9 FINANCIAL HIGHLIGHTS-- CLASS B SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS ENDED JUNE 30, 1997 YEAR ENDED DECEMBER 31, (UNAUDITED)(B) 1996 1995 1994 1993(C) NET ASSET VALUE BEGINNING OF PERIOD $18.83 $19.10 $15.34 $17.06 $17.29 INCOME FROM INVESTMENT OPERATIONS Net investment loss (0.09) (0.17) (0.09) (0.06) (0.05) Net realized and unrealized gain (loss) on investments 1.45 2.03 5.41 (1.05) 1.55 Total from investment operations 1.36 1.86 5.32 (1.11) 1.50 LESS DISTRIBUTIONS FROM Net realized gain from investments (0.85) (2.13) (1.56) (0.61) (1.73) Total distributions (0.85) (2.13) (1.56) (0.61) (1.73) NET ASSET VALUE END OF PERIOD $19.34 $18.83 $19.10 $15.34 $17.06 TOTAL RETURN(A) 7.51% 10.31% 35.70% (6.57%) 9.02% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses 2.16%(d) 2.20% 2.29% 2.30% 2.57%(d) Total expenses, excluding indirectly paid expenses 2.14%(d) 2.18% 2.27% N/A N/A Net investment loss (0.97%)(d) (1.15%) (0.94%) (0.58%) (1.73%)(d) PORTFOLIO TURNOVER RATE 53% 173% 159% 137% 162% AVERAGE COMMISSION RATE PAID $0.0580 $0.0621 N/A N/A N/A NET ASSETS END OF PERIOD (THOUSANDS) $101,460 $89,921 $71,636 $32,266 $7,423
(a) Excluding applicable sales charges. (b) Calculated based on average shares outstanding. (c) For the period from August 2, 1993 (Date of Initial Public Offering) to December 31, 1993. (d) Annualized. SEE NOTES TO FINANCIAL STATEMENTS. PAGE 10 KEYSTONE OMEGA FUND FINANCIAL HIGHLIGHTS-- CLASS C SHARES (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS ENDED JUNE 30, 1997 YEAR ENDED DECEMBER 31, (UNAUDITED)(B) 1996 1995 1994 1993(C) NET ASSET VALUE BEGINNING OF YEAR $18.86 $19.13 $15.37 $17.09 $17.29 INCOME FROM INVESTMENT OPERATIONS Net investment loss (0.09) (0.18) (0.13) (0.07) (0.06) Net realized and unrealized gain (loss) on investments 1.45 2.04 5.45 (1.04) 1.59 Total from investment operations 1.36 1.86 5.32 (1.11) 1.53 LESS DISTRIBUTIONS FROM Net realized gain from investments (0.85) (2.13) (1.56) (0.61) (1.73) Total distributions (0.85) (2.13) (1.56) (0.61) (1.73) NET ASSET VALUE END OF YEAR $19.37 $18.86 $19.13 $15.37 $17.09 TOTAL RETURN(A) 7.55% 10.29% 35.62% (6.56%) 9.20% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses 2.17%(d) 2.21% 2.30% 2.30% 2.48%(d) Total expenses, excluding indirectly paid expenses 2.15%(d) 2.20% 2.29% N/A N/A Net investment loss (0.98%)(d) (1.17%) (0.91%) (0.63%) (1.64%)(d) PORTFOLIO TURNOVER RATE 53% 173% 159% 137% 162% AVERAGE COMMISSION RATE PAID $ 0.0580 $0.0621 N/A N/A N/A NET ASSETS END OF PERIOD (THOUSANDS) $ 15,169 $17,628 $13,963 $9,900 $3,620
(a) Excluding applicable sales charges. (b) Calculated based on average shares outstanding. (c) For the period from August 2, 1993 (Date of Initial Public Offering) to December 31, 1993. (d) Annualized. SEE NOTES TO FINANCIAL STATEMENTS. PAGE 11 FINANCIAL HIGHLIGHTS-- CLASS Y SHARES (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
FOR THE PERIOD FROM JANUARY 13, 1997 (DATE OF INITIAL OFFERING) TO JUNE 30, 1997 (UNAUDITED) NET ASSET VALUE BEGINNING OF PERIOD $19.98 INCOME FROM INVESTMENT OPERATIONS Net investment income 0.00 Net realized and unrealized gain on investments 1.03 Total from investment operations 1.03 LESS DISTRIBUTIONS FROM Net realized gain on investments (0.85) Total distributions (0.85) NET ASSET VALUE END OF PERIOD $20.16 TOTAL RETURN 5.48% RATIOS/SUPPLEMENTAL DATA RATIOS TO AVERAGE NET ASSETS: Total expenses 0.00%(a) Total expenses, excluding indirectly paid expenses 0.00%(a) Net investment income 0.00%(a) PORTFOLIO TURNOVER RATE 53% AVERAGE COMMISSION RATE PAID $0.0580 NET ASSETS END OF PERIOD $21
(a) Annualized. SEE NOTES TO FINANCIAL STATEMENTS. PAGE 12 KEYSTONE OMEGA FUND STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED)
ASSETS Investments, at value (identified cost, $205,488,810) $260,465,481 Cash 301 Receivable for investments sold 5,787,863 Receivable for Fund shares sold 289,374 Dividends and interest receivable 131,303 Prepaid expenses 65,264 Other assets 82,374 Total assets 266,821,960 LIABILITIES Payable for investments purchased 511,798 Payable for Fund shares redeemed 736,167 Distribution fees payable 45,215 Due to related parties 6,000 Accrued expenses and other liabilities 22,709 Total liabilities 1,321,889 NET ASSETS $265,500,071 NET ASSETS REPRESENTED BY Paid-in-capital $208,897,261 Accumulated net investment loss (627,658) Accumulated net realized gain on investments 2,253,797 Net unrealized appreciation on investments 54,976,671 Total net assets $265,500,071 NET ASSET VALUE AND REDEMPTION PRICE PER SHARE CLASS A SHARES Net assets of $148,871,373 4 7,380,550 shares outstanding $ 20.17 Offering price per share ($20.17 4 0.9525) (based on sales charge of 4.75% of the offering price at June 30, 1997) $ 21.18 CLASS B SHARES Net assets of $101,459,722 4 5,246,743 shares outstanding $ 19.34 CLASS C SHARES Net assets of $15,168,955 4 782,999 shares outstanding $ 19.37 CLASS Y SHARES Net assets of $21 4 1 share outstanding $ 20.16
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
INVESTMENT INCOME Dividends (net of foreign withholding taxes of $3,642) $ 1,021,738 Interest 478,030 Total income 1,499,768 EXPENSES Management fee $954,155 Distribution Plan expenses 649,980 Transfer agent fee 345,391 Accounting expense 13,123 Custodian fees 66,096 Trustees' fees and expenses 7,618 Miscellaneous expenses 112,513 Total expenses 2,148,876 Less: Expenses paid indirectly (21,450) Net expenses 2,127,426 Net investment loss (627,658) NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain on investments 2,536,082 Net change in unrealized appreciation on investments 17,022,368 Net realized and unrealized gain on investments 19,558,450 Net increase in net assets resulting from operations $18,930,792
SEE NOTES TO FINANCIAL STATEMENTS PAGE 13 STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 1997 YEAR ENDED (UNAUDITED) DECEMBER 31, 1996 OPERATIONS Net investment loss $ (627,658) $ (1,563,271) Net realized gain on investments 2,536,082 35,051,903 Net change in unrealized appreciation on investments 17,022,368 (8,092,996) Net increase in net assets resulting from operations 18,930,792 25,395,636 DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN ON INVESTMENTS: Class A Shares (6,111,942) (15,011,932) Class B Shares (4,388,061) (9,027,710) Class C Shares (657,416) (1,879,136) Class Y Shares (1) 0 Total distributions to shareholders (11,157,420) (25,918,778) CAPITAL SHARE TRANSACTIONS Proceeds from shares sold: Class A Shares 12,556,352 33,571,953 Class B Shares 21,579,395 28,806,348 Class C Shares 1,877,435 6,288,512 Class Y Shares 20 0 Payments for shares redeemed: Class A Shares (28,558,907) (44,999,521) Class B Shares (17,066,220) (19,500,081) Class C Shares (5,365,178) (4,608,982) Class Y Shares 0 0 Net asset value of shares issued in reinvestment of distributions: Class A Shares 5,545,839 13,822,516 Class B Shares 4,149,157 8,494,665 Class C Shares 635,076 1,743,341 Class Y Shares 1 0 Shares issued in acquisition of Hartwell Growth Fund: Class A Shares 0 16,929,242 Class B Shares 0 1,206,044 Class C Shares 0 464,444 Net increase (decrease) in net assets resulting from capital share transactions (4,647,030) 42,218,481 Total increase in net assets 3,126,342 41,695,339 NET ASSETS: Beginning of period 262,373,729 220,678,390 End of period, including net investment loss of $627,658 and $0, respectively $ 265,500,071 $ 262,373,729
SEE NOTES TO FINANCIAL STATEMENTS PAGE 14 KEYSTONE OMEGA FUND NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES Keystone Omega Fund (the "Fund") is a Massachusetts business trust for which Keystone Investment Management Company ("Keystone") is the Investment Adviser and Manager. Keystone was formerly a wholly-owned subsidiary of Keystone Investments, Inc. ("KII") and is currently a wholly-owned subsidiary of First Union Corporation ("First Union"). The Fund is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified, open-end investment company. The Fund's investment objective is to achieve maximum capital growth by investing in a varied portfolio consisting of common stocks and securities convertible into common stocks. The Fund offers Class A, Class B, Class C and Class Y shares. 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 that have been outstanding for seven years will automatically convert to Class A shares. 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 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 to the public on January 13, 1997. 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 The Fund values securities traded on a national securities exchange or included on the NASDAQ National Market System ("NMS") at the last reported sales price on the exchange where primarily traded. The Fund values securities traded on an exchange or NMS for which there has been no sale and other securities traded in the over-the-counter market at the mean between the last reported bid and asked price. 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 valued at amortized cost, which approximates market value. B. REPURCHASE AGREEMENTS Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with certain other funds managed by 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. 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. 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. Dividend income is recorded on the ex-dividend date. PAGE 15 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. E. 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. These differences are primarily due to differing treatment of net operating losses for tax purposes. F. 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. 2. CAPITAL SHARE TRANSACTIONS The Trust agreement authorizes the issuance of an unlimited number of shares of beneficial interest without par value. Transactions in shares of the Fund were as follows:
SIX MONTHS ENDED JUNE 30, 1997 YEAR ENDED (UNAUDITED) DECEMBER 31, 1996 CLASS A Shares sold 652,496 1,759,793 Shares redeemed (1,497,048) (2,381,626) Shares issued in Acquisition of Hartwell Growth Fund -- 910,037 Shares issued in reinvestment of distributions 292,502 736,752 Net increase (decrease) (552,050) 1,024,956 CLASS B Shares sold 1,151,467 1,552,928 Shares redeemed (907,946) (1,062,059) Shares issued in Acquisition of Hartwell Growth Fund -- 66,754 Shares issued in reinvestment of distributions 227,976 466,572 Net increase 471,497 1,024,195 CLASS C Shares sold 100,953 336,661 Shares redeemed (287,344) (253,439) Shares issued in Acquisition of Hartwell Growth Fund -- 25,665 Shares issued in reinvestment of distributions 34,837 95,593 Net increase (decrease) (151,554) 204,480
PAGE 16 KEYSTONE OMEGA FUND During the period from January 13, 1997 to June 30, 1997, one Class Y share was sold. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of investment securities (excluding short-term securities and U.S. government securities) for the six months ended June 30, 1997 were $126,294,487 and $139,232,697, respectively. 4. DISTRIBUTION PLANS The Fund has entered into a principal underwriting agreement with Evergreen Keystone Distributor, Inc. ("EKD"), a wholly-owned subsidiary of The BISYS Group Inc. The Fund has adopted Distribution Plans for each class of shares, except Class Y, 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 service fees to broker-dealers who sell shares of the fund, are paid by shareholders through expenses called "Distribution Plan expenses". Each class, except Class Y, 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 incur 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 six months ended June 30, 1997, amounts paid to EKD and/or its predecessor pursuant to the Fund's Class A, Class B and Class C Distribution Plans were $100,891, $468,692 and $80,397, 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 EKD and/or its predecessor 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. EKD and/or its predecessor has advised the Fund that it has retained front-end sales charges resulting from the sales of Class A shares of the Fund during the six months ended June 30, 1997 of $18,507. Contingent deferred sales charges paid by redeeming shareholders are paid to EKD or its predecessor. 5. INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS Under an investment advisory agreement dated December 11, 1996, Keystone serves as the Investment Adviser and Manager to the Fund. As such, Keystone manages the Fund's 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. The management fee is determined by applying percentage rates starting at 0.75% and declining as net assets increase to 0.50% per annum, to the average daily net asset value of the Fund. During the six months ended June 30, 1997, the Fund paid or accrued $13,123 to Keystone for certain accounting services. Evergreen Keystone Service Company, 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 PAGE 17 Fund's sub-administrator. As sub-administrator, BISYS provides the officers of the Fund. For this service, BISYS 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. 7. FUND REORGANIZATION On April 25, 1996, the Fund acquired the net assets of Keystone Hartwell Growth Fund in exchange for Class A, B, and C shares of the Fund pursuant to a plan of reorganization approved by the shareholders of Keystone Hartwell Growth Fund on April 25, 1996. The acquisition was accomplished by a tax-free exchange of 1,002,456 shares of the Fund for the net assets of Keystone Hartwell Growth Fund. The net assets of Keystone Hartwell Growth Fund on that date, including $7,665,038 of unrealized appreciation on investment, were combined with the assets of the Fund. The aggregate net assets of the Fund and Keystone Hartwell Growth Fund immediately before the acquisition were $236,927,458 and $18,599,730, respectively. The net assets of the Fund immediately after the acquisition was $255,527,188. (This Page Left Blank Intentionally) (This Page Left Blank Intentionally) KEYSTONE AMERICA FAMILY OF FUNDS (Diamond appears here) California Tax Free Fund Capital Preservation and Income Fund Florida Tax Free Fund Fund for Total Return Global Opportunities Fund Global Resources & Development Fund Hartwell Emerging Growth Fund, Inc. Intermediate Term Bond Fund Massachusetts Tax Free Fund Missouri Tax Free Fund New York Tax Free Fund Omega Fund Pennsylvania Tax Free Fund Small Company Growth Fund II Strategic Income Fund Tax Free Income Fund 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 (Evergreen tree appears here) FUNDS(SM) (Keystone logo appears here) P.O. Box 2121 Boston, Massachusetts 02106-2121 OFI-R Rev01 7/97 (Recycle logo appears here) KEYSTONE (Photo of mountain climber appears here) OMEGA FUND Evergreen Keystone (Evergreen tree appears here) FUNDS(SM) (Keystone logo appears here) SEMI-ANNUAL REPORT JUNE 30, 1997 -----END PRIVACY-ENHANCED MESSAGE-----