-----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, HHdDt6bZl6So4yPhcCcmXug4o/zy65ungjjF4iRcYZ2jQDa4Ek62ylgchYWfGXEW aq5n5670nXPP9yZZGHC2yg== 0000950168-97-003425.txt : 19971120 0000950168-97-003425.hdr.sgml : 19971120 ACCESSION NUMBER: 0000950168-97-003425 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971119 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEYSTONE STRATEGIC DEVELOPMENT FUND CENTRAL INDEX KEY: 0000927424 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046767171 STATE OF INCORPORATION: MA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08694 FILM NUMBER: 97724110 BUSINESS ADDRESS: STREET 1: KEYSTONE GROUP INC STREET 2: 200 BERKELEY STREET CITY: BOSTON STATE: MA ZIP: 02116-5034 BUSINESS PHONE: 6173383241 MAIL ADDRESS: STREET 1: KEYSTONE GROUP INC STREET 2: 200 BERKELEY STREET CITY: BOSTON STATE: MA ZIP: 02116-5034 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE PAN PACIFIC RESOURCES FUND DATE OF NAME CHANGE: 19950328 FORMER COMPANY: FORMER CONFORMED NAME: KEYSTONE AMERICA NATURAL RESOURCE FUND DATE OF NAME CHANGE: 19940725 N-30D 1 KEYSTONE GLOBAL RESOURCE & DEV. 63450.1 N-30D 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%) 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 =============== 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. KEYSTONE GLOBAL RESOURCES & DEVELOPMENT FUND SCHEDULE OF INVESTMENTS-(continued) September 30, 1997 - (unaudited) FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
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 - -------------------------------------------------------------------------------------------------------------- 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 ==========
Keystone Global Resources and Development Fund FINANCIAL HIGHLIGHTS-CLASS A SHARES (For a share outstanding throughout each period)
October 7, 1994 Six Months Ended (Commencement of September 30, 1997 Year Ended March 31, operations) to (Unaudited) 1997 1996 March 31, 1995 - ------------------------------------------------------------------------------------------------------------------------- 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.
Keystone Global Resources and Development Fund FINANCIAL HIGHLIGHTS-CLASS B SHARES (For a share outstanding throughout each period)
October 7, 1994 Six Months Ended (Commencement of September 30, 1997 Year Ended March 31, operations) to (Unaudited) 1997 1996 March 31, 1995 - ----------------------------------------------------------------------------------------------------------------------------------- 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.
Keystone Global Resources and Development Fund FINANCIAL HIGHLIGHTS-CLASS C SHARES (For a share outstanding throughout each period)
October 7, 1994 Six Months Ended (Commencement of September 30, 1997 Year Ended March 31, operations) to (Unaudited) 1997 1996 March 31, 1995 - ----------------------------------------------------------------------------------------------------------------------------------- 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. - -----------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. Keystone Global Resources and Development Fund STATEMENT OF ASSETS AND LIABILITIES September 30, 1997 (Unaudited) - --------------------------------------------------------------------------------------- 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
Keystone Global Resources and Development Fund STATEMENT OF OPERATIONS Six Months Ended September 30, 1997 (Unaudited) - -------------------------------------------------------------------------------------- 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
Keystone Global Resources and Development Fund STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended September 30, 1997 Year Ended (Unaudited) March 31, 1997 - ------------------------------------------------------------------------------------------------------------------------- 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
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 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. (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. 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. -----END PRIVACY-ENHANCED MESSAGE-----