PAGE 1
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Keystone Tax Free Fund
Seeks a high level of current income, exempt from federal income taxes,
while preserving capital by investing in high quality municipal bonds.
Dear Shareholder:
We are writing to report to you on the activities of Keystone Tax Free Fund
for the six-month period which ended June 30, 1996. Following this letter, we
have included a discussion with your Fund's manager discussing portfolio
strategy.
With this report we also welcome those of you who were former shareholders
of Keystone Tax Exempt Trust. As many of you know, Keystone Tax Exempt Trust
was acquired by Keystone Tax Free Fund on February 29, 1996.
We believe this merger was in the best interest of shareholders of both
funds. We expect the combined fund should have lower management fees and the
potential for lower operating expenses and greater efficiencies than two
separate funds. Keystone Tax Free Fund has a substantially similar investment
objective, strategy and portfolio manager as Keystone Tax Exempt Trust.
Again, welcome and thank you for your support through this transition.
Performance
For the six-month period your Fund returned -1.23%; for the twelve-month
period it returned 5.52%. These results include price changes and
reinvestment of dividends. The Lehman Municipal Bond Index--a widely
recognized benchmark of municipal bond performance--returned -0.45% for the
same six-month period and 6.64% for the same twelve-month period.
Your Fund's six-month results reflect the unfavorable market environment of
rising interest rates which caused municipal bond prices to decline. Despite
this difficult environment, your Fund performed in line with market
benchmarks.
These returns reflect an uneasy and changed environment for municipal bond
investors during the first half of 1996. The unsettled period was triggered
by unusually strong employment and economic growth reports in the first
quarter. This was not expected by many professional investment managers who
had anticipated a continuation of the moderate economic growth and relatively
low interest rate environment. Caution still influences the bond market's
tone; however, it appears to us that most of the increase in long-term rates
has already occurred.
Over the long term, we believe tax-free bonds should continue to provide
attractive returns and tax-free income. Today, we think municipal bonds offer
significant opportunities for investors. Inflation is still relatively low by
historical standards and, real yields--after factoring in the effects of
taxes and inflation--are historically high, in our opinion. For example, a
10-year AA-rated bond recently yielded 5.15% as of June 30, 1996. For an
investor in the 36% tax bracket, the taxable equivalent yield was 8.05%.
Yields are presented for illustrative purposes only and do not reflect your
Fund's yield. Your yield and return is dependent on the Fund's yield and your
individual tax situation. We think municipal bond yields are very attractive
especially when you consider that inflation has been relatively low.
Outlook
In the coming months, we expect municipal bonds to trade in a narrow range,
with yields somewhat higher than in 1995. During the second half of 1996, we
expect moderate economic strength and well contained inflation, which should
help to support prices close to current levels.
As you evaluate your investment and market conditions, we encourage you to
remember a few investment principles that have withstood the test of time in
all types of markets. Diversify your investments. By putting your money in
different types of investments, you can minimize your risk. Have a long-term
perspective. The longer you keep your money
<PAGE>
PAGE 2
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Keystone Tax Free Fund
invested, the more time you have to weather the market's fluctuations. Invest
regularly. By making periodic investments over time, you can build a nest egg
and lower your average cost per share. Of course, your investment will
fluctuate with market conditions, and there is no assurance that it will be
worth more when you sell shares.
Your investment adviser can help you with these strategies by developing a
plan to meet your particular needs. He or she is a professional with the
resources and expertise to help you achieve your investment goals. We
encourage you to take advantage of the valuable services your adviser can
provide.
We appreciate your continued support of Keystone funds. If you have any
questions or comments about your investment, please feel free to write to us.
Sincerely,
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Chairman and President
Keystone Investments, Inc. [PHOTO OF [PHOTO OF
/s/ George S. Bissell ALBERT H. ELFNER, III] GEORGE S. BISSELL]
George S. Bissell
Chairman of the Board
Keystone Funds
Albert H. Elfner, III George S. Bissell
August 1996
[DALBAR LOGO] Dalbar Key Honors
Honoring Commitment to Excellence
Keystone was recently recognized by Dalbar, an independent
mutual fund rating organization, for demonstrating a
commitment to serving the needs of customers. The award is
intended to distinguish companies who are committed to
investors and have a proven ability to provide good service.
[TELEPHONE Keystone Introduces Investment Insight [TELEPHONE
LOGO] Line for Shareholders LOGO]
Now you can keep up-to-date on your fund's current
strategy and outlook by calling Keystone Investment
Insight Line. You can hear Keystone portfolio
managers discuss their latest strategies, or listen
to Keystone's overall market outlook from James
McCall, chief investment officer. Of course, your
financial adviser can provide you with more
complete information on Keystone Funds. This
service is available 24 hours a day, seven days a
week and updated at least monthly.
Keystone Investment Insight Line 1-800-346-3858, Press 2 after the greeting
<PAGE>
PAGE 3
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A Discussion With
Your Fund's Manager
[PHOTO OF BETSY A. BLACHER, DANIEL RABASCO, GEORGE KIMBALL, DAVID MOORE, AND
CRAIG KASAP]
Betsy A. Blacher (second from right) is senior portfolio manager of your Fund
and leads Keystone's municipal bond investment team. Ms. Blacher is a
professional with 16 years of investment experience specializing in municipal
bonds. She holds a Bachelor's degree from Wheaton College in economics and
sociology. Together, with portfolio managers Daniel Rabasco (left) and George
Kimball (center, standing), analyst David Moore (right), and trader Craig
Kasap (second from left), the team evaluates credit quality and the economic
environment in selecting municipal bonds for Keystone tax-free funds.
Q What does the Fund offer investors?
A Keystone Tax Free Fund is designed for tax-sensitive investors who seek a
high level of current income exempt from federal income tax, while preserving
capital. For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT). The Fund offers
professional management and diversification. Because many investors do not
have the time or the resources to monitor credit quality, the economy and
interest rates, we believe the Fund can add value. Diversification is also
important. In selecting bonds for the portfolio we attempt to invest in
securities with various maturities from across the nation. We think this
diversification helps to reduce the potential for wide fluctuations in the
Fund's share price.
Q How do you select securities for the Fund?
A Our management team employs an intensive research process, paying careful
attention to credit quality and financial stability. We structure the
portfolio with bonds that meet our high credit standards. Our holdings
typically have the characteristics that we believe are necessary for good
performance in the current and anticipated interest rate environment. We
emphasize diversification and focus on maximizing the Fund's income.
Q How would you describe the market environment?
A This was a difficult period for municipal bonds as the rise in interest
rates came as a surprise to many investors. Our forecast for 1996 was for a
continuation of the slow growth, low interest rate and controlled inflation
environment. The lowering of short-term interest rates in January by the
Federal Reserve Bank supported a continuation of this favorable environment
which had provided excellent price appreciation to municipal bond investors
in 1995.
Q What happened to change the positive environment?
A The bond market's mood changed abruptly in February when the government
released a report showing a jump in employment growth. This raised concerns
that the economy might be growing much faster than expected, which some
believed could lead to the possibility of higher inflation. As a result,
interest rates rose and bond prices declined. The announcement of each new
economic statistic in the months that followed resulted in increased price
volatility.
- --------------------------------------------------------------------------------
Fund Profile
Objective: Seeks a high level of current income, exempt from federal income
taxes, while preserving capital by investing in high quality municipal bonds.
Commencement of investment operations: April 12, 1977
Average quality: AA
Average maturity: 19 years
Net assets: $1,665 million
Newspaper listing: "TaxF"
- --------------------------------------------------------------------------------
<PAGE>
PAGE 4
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Keystone Tax Free Fund
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Your Fund Invests In . . .
(bullet) Municipal bonds that provide tax-free income
(bullet) Investment grade bonds (AAA, AA, A, and BBB rated)
(bullet) A variety of bonds from different sectors
(bullet) Issues from 42 states
- --------------------------------------------------------------------------------
However, municipal bonds performed better than their taxable
counterparts--U.S. Treasury securities--during the six-month period.
Q How did you manage the Fund in this
environment?
A At the beginning of 1996 we had a slightly longer average maturity based
on our forecast for slower economic growth, controlled inflation and stable
to declining interest rates. When it became apparent that economic growth
might be faster than expected, we shorted our average maturity. A portfolio
with a short average maturity tends to experience more limited price changes
than a portfolio with a long average maturity.
As yields rose, we concentrated on building income. We swapped out of the
lower yielding issues that the Fund held into higher yielding bonds that we
considered undervalued. We took advantage of a new bond issue of New York
City bonds which came to market during the period. The issue was well
received by investors, and despite falling bond prices, it performed
comparatively well. On June 30, 1996, the Fund's average maturity was 19
years, comparable to that of its peer group.
Q How did you structure the Fund, in terms
of quality?
A We sought to maintain the Fund's high credit standards and maximize its
income by utilizing a "barbelled" approach to quality. Primarily, we invested
in insured issues, which were rated AAA. We also
- --------------------------------------------------------------------------------
[DESCRIPTION OF PIE CHART]
Portfolio Quality Summary
as of June 30, 1996
S&P rating(1)
Not rated (5%)
A (15%)
AA (16%)
AAA (47%)
BBB (17%)
(as a percentage of portfolio assets) Average Quality: AA
- --------------------------------------------------------------------------------
(1) When a Standard & Poor's rating was not available, we used ratings assigned
by another nationally recognized statistical rating organization such as
Fitch Investor's Service, Inc. or Moody's Investor's Service, Inc.
invested in BBB and non-rated securities. We conduct our own credit research
on non-rated issues, and believed that these issues were of comparable
quality to investment grade obligations.
Q How does the municipal bond market look going forward?
A We continue to believe that the economy is growing at a healthy pace and
inflation poses no immediate threat. Near term price volatility may persist
because of mixed economic indicators. Once signs of moderate growth and tame
inflation emerge as we expect, interest rates should stabilize or decline.
The supply of municipal bonds should continue to decline as more bond calls
are expected than new issues over the next twelve months.
Q Municipal bonds have seen a lot of price
volatility over the last few years. Are they
still a good investment?
A It is true that municipal bonds have fluctuated more than you would expect
in comparison to long-term historical price changes. However, we have
recently witnessed some of the most dramatic and
<PAGE>
PAGE 5
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abrupt changes in interest rates in more than 20 years. Because changes in
interest rates are an important influence on municipal bonds, the dramatic
changes have resulted in greater bond price fluctuations than usual. While
predicting the short-term movements of interest rates can be difficult, we
expect an improved environment over the long term. In fact, we think that
municipal bonds have become more attractive as opportunities to shelter
income have dwindled.
In addition, we looked at a selection of 20-year A-rated municipal bonds and
compared them to Treasuries maturing in 20 years. On June 30, 1996, these
20-year A-rated municipals were yielding approximately 88% of comparable U.S.
Treasuries.(3) With inflation relatively low, we think the after-tax and after
inflation yields on municipals was very attractive during the period.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Taxable Equivalent Yields(2)
Federal Tax Bracket
- --------------------------------
31% 36% 39.6%
- --------------------------------
Yield Taxable Equivalent Yield
- --------------------------------
5.5% 8.0% 8.6% 9.1%
6.0% 8.7% 9.4% 9.9%
6.5% 9.4% 10.2% 10.8%
- --------------------------------
</TABLE>
A tax free yield of 5.5% is equal to a taxable yield of 8.6% for investors in
the 36% federal tax bracket. The yields shown are for illustrative purposes
only. They are not intended to represent actual performance of the Fund.
- ---------------
(2) The table is based on federal tax brackets. The 31% bracket includes single
filers earning $53,501-115,000 and joint filers earning $89,151-140,000;
the 36% bracket includes single filers earning $115,001-250,000 and joint
filers earning $140,001-250,000; the 39.6% bracket includes single and
joint filers earning over $250,000.
(3) Source: Keystone Investments, Inc. Based on a selection of 20-year A-rated
municipal bonds versus the yield on a 20-year U.S. Treasury bond on June
30, 1996.
[DIAMOND]
This column is intended to answer
questions about your Fund. If you have a question
you would like answered, please write to:
Keystone Investment Distributors Company
Attn: Shareholder Communications, 22nd Floor
200 Berkeley Street, Boston, Massachusetts 02116-5034.
<PAGE>
PAGE 6
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Keystone Tax Free Fund
Your Fund's Performance
- --------------------------------------------------------------------------------
[DESCRIPTION OF MOUNTAIN CHART]
Growth of an investment in
Keystone Tax Free Fund
In Thousands
Initial Investment Reinvested Distributions
6/86 10000 10000
9663 10742
6/88 9512 11424
9686 12740
6/90 9175 13466
9175 14485
6/92 9443 16143
9698 17819
6/94 8618 17443
8757 18774
6/96 8792 19811
A $10,000 investment in Keystone Tax Free Fund made on June 30, 1986 with all
distributions reinvested was worth $19,810 on June 30, 1996. Past performance is
no guarantee of future results.
- --------------------------------------------------------------------------------
Six-Month Performance as of June 30, 1996
- -----------------------------------------
Total return* -1.23%
Net asset value 12/31/95 $7.86
6/30/96 $7.57
Dividends $0.19
Capital gains None
* Before deduction of contingent deferred sales charge (CDSC).
Historical Record as of June 30, 1996
- -----------------------------------------------------
If you If you did
Cumulative total return redeemed not redeem
1-year 2.52% 5.52%
5-year 36.77% 36.77%
10-year 98.10% 98.10%
Average annual total return
1-year 2.52% 5.52%
5-year 6.46% 6.46%
10-year 7.08% 7.08%
The "if you redeemed" returns reflect the deduction
of the 3% contingent deferred sales charge for those investors who sold Fund
shares after one calendar year. Investors who retained their fund investment
earned the returns reported in the second column of the table.
The investment return and principal value will fluctuate so that your
shares, when redeemed, may be worth more or less than the original cost.
You may exchange your shares for another Keystone fund by phone or in
writing for a $10 fee. The exchange fee is waived for individual investors
who make an exchange using Keystone's Automated Response Line (KARL). The
Fund reserves the right to change or terminate the exchange offer.
<PAGE>
PAGE 7
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Glossary of
Mutual Fund Terms
MUTUAL FUND--A company which combines the investment money of many people
whose financial goals are similar, and invests that money in a variety of
securities. A mutual fund allows the smaller investor the benefits of
diversification, professional management and constant supervision usually
available only to large investors.
PORTFOLIO MANAGER--An investment professional who is responsible for
managing a portfolio's assets prudently and making appropriate investment
decisions, such as which securities to buy, hold and sell, based on the
investment objectives of the portfolio.
STOCK--Equity or ownership interest in a corporation, which represents a
claim on the corporation's assets and earnings.
BOND--Security issued by a government or corporation to those from whom it
has borrowed money. A bond usually promises to pay interest income to the
bondholder at regular intervals and to repay the entire amount borrowed at
maturity date.
CONVERTIBLE SECURITY--A corporate security (usually preferred stock or
bonds) that is exchangeable for a set number of another security type
(usually common stocks) at a pre-stated price.
MONEY MARKET FUND--A mutual fund whose assets are invested in a diversified
portfolio of short- term securities, including commercial paper, bankers'
acceptances, certificates of deposit and other short-term instruments. The
fund pays income which can fluctuate daily. Liquidity and safety of principal
are primary objectives.
NET ASSET VALUE (NAV) PER SHARE--The value of one share of a mutual fund.
The NAV per share is determined by subtracting a fund's total liabilities
from its total assets, and dividing that amount by the number of fund shares
outstanding.
DIVIDEND--A per share distribution of the income earned from the fund's
portfolio holdings. When a dividend distribution is made, the fund's net
asset value drops by the amount of the distribution because the distribution
is no longer considered part of the fund's assets.
CAPITAL GAIN--The profit from the sale of securities, less any losses.
Capital gains are paid to fund shareholders on a per share basis. When a
capital gain distribution is made, the fund's net asset value drops by the
amount of the distribution because the distribution is no longer considered
part of the fund's assets.
YIELD--The annualized rate of income as measured against the current net
asset value of fund shares.
TOTAL RETURN--The change in value of a fund investment over a specified
period of time, taking into account the change in a fund's market price and
the reinvestment of all fund distributions.
SHORT-TERM--An investment with a maturity of one year or less.
LONG-TERM--An investment with a maturity of greater than one year.
AVERAGE MATURITY--The average number of days until the notes, drafts,
acceptances, bonds or other debt instruments in a portfolio become due and
payable.
OFFERING PRICE--The offering price of a share of a mutual fund is the price
at which the share is sold to the public.
<PAGE>
PAGE 8
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Keystone Tax Free Fund
SCHEDULE OF INVESTMENTS--June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.6%)
ALABAMA
Alabama Agricultural and Mechanic
University (MBIA) 6.500% 11/01/2025 $ 2,035,000 $ 2,159,746
Mobile, Alabama, Industrial Development
Board, Solid Waste Disposal,
Mobile Energy Services Co. Project 6.950 01/01/2020 3,500,000 3,598,945
ALASKA
Alaska Energy Authority, Utilities Revenue (FGIC) 6.600 07/01/2015 15,000,000 15,759,000
Alaska State Housing Finance Corp. 8.000 12/01/2013 610,000 630,520
North Slope Borough, Alaska, General
Obligation, Series A (MBIA) 5.900 06/30/2003 3,000,000 3,156,000
North Slope Borough, Alaska, General
Obligation, Series G (ETM) 8.350 06/30/1998 3,000,000 3,212,340
Valdez, Alaska, Marine Term Revenue 6.200 08/01/2008 3,000,000 3,004,620
ARIZONA
Central Arizona, Water Conservation
District, Contract Revenue, Central
Arizona Project, Series A 5.500 11/01/2009 11,000,000 11,012,760
Chandler, Arizona, Water and Sewer (FGIC) 6.750 07/01/2006 850,000 913,971
Maricopa County, Arizona, Elementary
School District #008, Osborn Refunding (MBIA) 7.500 07/01/2007 2,000,000 2,359,900
Maricopa County, Arizona, Elementary
School District #068 6.750 07/01/2014 3,750,000 4,073,850
Maricopa County, Arizona, University
School District (MBIA) 8.125 01/01/2010 6,000,000 6,898,380
Northern Arizona University, College and
University Revenue (FGIC) 6.300 06/01/2005 2,770,000 2,948,914
Pima County, Arizona, Industrial
Development Authority, Health Care Corp. Revenue 8.000 07/01/2013 3,015,000 3,293,586
Pima County, Arizona, Industrial
Development Authority, Health Care Corp.
Revenue (MBIA) 8.000 07/01/2013 370,000 400,248
Pima County, Arizona, Industrial
Development Authority, Irvington Project (FSA) 7.250 07/15/2010 15,000,000 16,217,700
Pima County, Arizona, Unified School
District, Tucson Refunding (FGIC) 7.500 07/01/2003 2,030,000 2,339,494
Santa Cruz County, Arizona, Unified School
District (AMBAC)
(effective yield 5.95%) (b) 0.000 01/01/2008 1,100,000 584,914
Santa Cruz County, Arizona, Unified School
District (AMBAC)
(effective yield 5.95%) (b) 0.000 07/01/2008 1,100,000 569,074
ARKANSAS
Arkansas State Development Finance
Authority, Single Family Mortgage Revenue
Refunding 8.000 08/15/2011 2,155,000 2,302,553
CALIFORNIA
California Educational Facilities
Authority, Stanford University Project, Series H 5.000 01/01/2015 250,000 227,663
California Health Facilities Financing,
St. Francis Medical Center, Series A 5.500 10/01/2009 200,000 202,552
California Housing Finance Agency, Revenue Bonds 6.250 08/01/2027 2,000,000 1,986,700
California State Public Works Board, Lease
Department Correctional State Prison, Series E 5.500 06/01/2015 3,700,000 3,499,608
California State Public Works Board,
Various California University Projects, Series B 5.500 06/01/2019 350,000 322,588
</TABLE>
<PAGE>
PAGE 9
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SCHEDULE OF INVESTMENTS--June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
Eden Township, California, Hospital
District Revenue 7.400% 11/01/2019 $ 5,615,000 $ 5,743,640
Los Angeles, California, Metropolitan
Transportation Authority, Proposition C,
Series A (AMBAC) 5.500 07/01/2017 4,500,000 4,300,110
Los Angeles, California, Transportation
Commission, Series A (MBIA) 6.250 07/01/2013 7,800,000 8,007,168
Metropolitan Water District, Southern
California Waterworks Revenue, Series B 4.750 07/01/2021 6,000,000 5,048,160
Oakland, California, Revenue Refunding,
Series A (FGIC) 7.600 08/01/2021 2,265,000 2,438,793
Rancho, California, Water District
Financing Authority 5.000 08/15/2014 475,000 431,613
Sacramento, California, Power Authority,
Cogeneration Project 5.875 07/01/2015 15,100,000 14,311,931
San Joaquin Hills, California,
Transportation Corridor Agency, Toll Road Revenue 6.750 01/01/2032 6,000,000 6,101,280
San Joaquin Hills, California,
Transportation Corridor Agency, Toll Road Revenue 7.000 01/01/2030 9,355,000 9,663,996
Walnut Valley, California, Unified School
District, Series A (MBIA) 6.000 08/01/2014 190,000 194,832
COLORADO
Araphoe County, Colorado, Single Family
Mortgage Revenue (effective yield 6.00%) (b) 0.000 09/01/2010 4,000,000 1,731,720
City and County of Denver, Colorado,
Airport System, Series A 7.000 11/15/1999 2,000,000 2,092,120
City and County of Denver, Colorado,
Airport System, Series A 7.500 11/15/2023 6,625,000 7,214,758
City and County of Denver, Colorado,
Airport System, Series A 8.500 11/15/2023 7,750,000 8,880,493
City and County of Denver, Colorado,
Airport System, Series A 8.750 11/15/2023 23,830,000 28,064,591
City and County of Denver, Colorado,
Airport System, Series A 5.500 11/15/2025 5,450,000 5,147,471
City and County of Denver, Colorado,
Airport System, Series A 8.000 11/15/2025 525,000 588,189
City and County of Denver, Colorado,
Airport System, Series B 7.250 11/15/2012 3,500,000 3,720,605
City and County of Denver, Colorado,
Airport System, Series C 6.650 11/15/2005 5,980,000 6,284,920
City and County of Denver, Colorado,
Airport System, Series C 6.000 12/01/2025 5,000,000 5,050,950
City and County of Denver, Colorado,
Airport System, Series D 7.750 11/15/2013 7,100,000 8,250,555
City and County of Denver, Colorado,
Airport System, Series D 7.750 11/15/2021 12,250,000 13,525,715
Colorado Health Facilities Authority,
Rocky Mountain Adventist Health Care 6.625 02/01/2022 3,000,000 2,975,820
Colorado Health Facilities Authority,
Sisters Charity Health Care, Series A (MBIA) 6.250 05/15/2009 1,880,000 2,002,726
Jefferson County, Colorado, Single Family
Refunding, Series A 8.875 10/01/2013 715,000 753,295
Larimer County, Colorado, School District (MBIA) 7.000 12/15/2016 2,250,000 2,640,218
CONNECTICUT
Connecticut Special Tax Obligation, Series B 6.500 10/01/2012 1,600,000 1,742,736
Connecticut State Resources Recovery
Authority, Bridgeport Resco Company Project 8.500 01/01/2000 1,375,000 1,414,916
DELAWARE
Delaware State Health Facilities
Authority, Medical Center of Delaware (MBIA) 6.250 10/01/2006 8,000,000 8,692,960
Delaware State Health Facilities
Authority, Medical Center of Delaware (MBIA) 7.000 10/01/2015 1,600,000 1,707,920
Delaware State Housing Authority Revenue,
Residential Mortgage, Series A 9.375 06/01/2012 140,000 141,113
</TABLE>
(continued on next page)
<PAGE>
PAGE 10
- ----------------------------------------------
Keystone Tax Free Fund
SCHEDULE OF INVESTMENTS--June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLORIDA
Broward County, Florida, Resource
Recovery, South Project 7.950% 12/01/2008 $ 8,720,000 $ 9,592,959
City of Tarpon Springs Health Facilities
Authority, Florida, Hospital Refunding,
Tarpon Springs Hospital Foundation, Inc. 8.750 05/01/2012 500,000 524,820
Dade County, Florida, General Obligation (MBIA) 5.125 10/01/2026 5,000,000 4,462,750
Dade County, Florida, General Obligation (FGIC) 12.000 10/01/1998 2,300,000 2,674,164
Dade County, Florida, Health Facilities
Authority, Mount Sinai Medical Center 8.400 12/01/2017 3,000,000 3,240,240
Dade County, Florida, Water and Sewer
System Revenue (FGIC) 5.500 10/01/2025 13,500,000 12,824,865
Dade County, Florida, Water and Sewer
System Revenue (FGIC) 8.400 12/01/2007 1,250,000 1,350,100
Escambia County, Florida, Pollution
Control, Champion International Corp. Project 6.900 08/01/2022 600,000 630,504
Florida Housing Finance Agency, GNMA
Collaterallized Home Mortgage 8.000 12/01/2020 670,000 706,642
Florida Housing Finance Agency, Single
Family Mortgage, Series B 5.875 01/01/2027 500,000 483,255
Florida State Board of Education, Capital
Outlay, General Obligation 5.000 01/01/2015 2,000,000 1,810,720
Florida State Board of Education, Capital
Outlay, Series E 5.000 06/01/2020 3,250,000 2,865,590
Florida State, Bond Finance Department,
Environmental Preservation 5.250 07/01/2010 16,925,000 16,392,878
Florida State, Jacksonville Transportation Authority 9.200 01/01/2015 3,580,000 4,820,434
Hillsborough County, Florida, Housing
Finance Agency, Single Family Mortgage Revenue 7.300 04/01/2022 495,000 507,702
Jacksonville, Florida, Health Facilities
Authority, New Children's Hospital (MBIA) 7.000 06/01/2021 1,800,000 1,960,560
Lee County, Florida, School Board,
Certificates of Participation (FSA) 7.750 08/01/2004 3,630,000 4,191,053
Lee County, Florida, School Board,
Certificates of Participation, Series A (FSA) 7.750 08/01/2005 3,490,000 4,029,414
Lee County, Florida, Solid Waste System, Series B 7.000 10/01/2011 300,000 328,746
Orange County, Florida, Health Facilities
Authority, Adventist Health System (AMBAC) 5.250 11/15/2020 4,435,000 4,058,779
Orange County, Florida, Housing Finance Authority,
GNMA Collateralized Mortgage, Series B 5.250 11/01/2021 385,000 411,915
Orlando-Orange County, Florida, Expressway
Authority (FGIC) 8.250 07/01/2014 3,000,000 3,874,500
Orlando-Orange County, Florida, Expressway
Authority (FGIC) 8.250 07/01/2015 2,960,000 3,829,648
Palm Beach County, Florida, Health
Revenue, John F. Kennedy Hospital 9.500 08/01/2013 3,050,000 4,032,100
Palm Beach County, Florida, Solid Waste
Industrial Development, Okeelanta Power Project 6.700 02/15/2015 3,000,000 2,825,010
Palm Beach County, Florida, Solid Waste
Industrial Development, Okeelanta Power Project 6.850 02/15/2021 2,500,000 2,338,700
Palm Beach County, Florida, Solid Waste,
Osceola Power Project, Series A 6.950 01/01/2022 7,000,000 6,623,470
St. Petersburg, Florida, Health Facilities
Authority (MBIA) 7.000 12/01/2015 3,250,000 3,584,848
Tampa, Florida, Allegheny Health Systems 6.500 12/01/2023 500,000 541,540
Tampa, Florida, Guaranteed Entitlement, Series A 8.375 10/01/2008 3,290,000 3,580,935
Tampa, Florida, Subordinate Guaranteed
Entitlement, Series B (Pre-refunded) 8.500 10/01/2018 1,825,000 1,991,221
</TABLE>
<PAGE>
PAGE 11
- ----------------------------------------------
SCHEDULE OF INVESTMENTS--June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLORIDA (CONTINUED)
Tampa, Florida, Utility Tax, Capital
Appreciation
(effective yield 6.13%) (b) 0.000% 10/01/2017 $ 5,800,000 $ 1,631,076
GEORGIA
Forsyth County, Georgia, School District 6.750 07/01/2016 3,000,000 3,300,780
Georgia State, General Obligation, Series B 8.375 01/01/2020 2,000,000 2,080,620
Georgia State, General Obligation, Series B 6.800 03/01/2011 10,000,000 11,292,400
Georgia State, General Obligation, Series C 5.250 04/01/2011 11,700,000 11,399,895
Georgia State, General Obligation, Series D 6.700 08/01/2010 1,500,000 1,681,965
Metropolitan Atlanta Rapid Transit
Authority, Georgia, Sales Tax (AMBAC) 6.250 07/01/2011 4,255,000 4,550,127
HAWAII
Hawaii State Department of Budget and
Finance, Special Purpose Revenue, Hawaii
Electric Co. (MBIA) 7.375 12/01/2020 8,000,000 8,778,400
IDAHO
Idaho Housing Finance Authority, Single
Family Mortgage Bonds, Series D-1 8.000 01/01/2020 1,225,000 1,282,134
ILLINOIS
Chicago, Illinois, Gas Supply Revenue,
People's Gas Light and Coke Co., Series A 8.100 05/01/2020 15,860,000 17,486,919
Chicago, Illinois, Public Building
Commission (effective yield 6.18%) (b) 0.000 01/01/2008 4,440,000 2,374,201
Cook County, Illinois, General Obligation,
District Number 508, Lease Certificates,
Series C (MBIA) 7.700 12/01/2005 5,970,000 6,979,229
Illinois Development Finance Authority,
Pollution Control Revenue Refunding,
Commonwealth Edison Co. Project, Series D 6.750 03/01/2015 4,000,000 4,264,040
Illinois State, Sales Tax, Series P 6.500 06/15/2022 9,000,000 9,765,810
Kankakee, Illinois, Sewer Revenue (FGIC) 6.875 05/01/2011 2,965,000 3,183,906
Metropolitan Pier and Exposition
Authority, Illinois, Dedicated State Tax
Revenue (MBIA) (effective yield 6.60%) (b) 0.000 06/15/2013 5,625,000 2,058,019
Metropolitan Pier and Exposition
Authority, Illinois, Dedicated State Tax
Revenue (FGIC) (effective yield 6.70%) (b) 0.000 06/15/2015 19,440,000 6,201,166
Metropolitan Pier and Exposition
Authority, Illinois, Dedicated State Tax
Revenue (MBIA) 5.000 06/01/2015 3,000,000 2,631,810
Metropolitan Pier and Exposition
Authority, McCormick Place Expansion Project 7.250 06/15/2005 10,180,000 11,569,875
Quincy, Illinois, Blessing Hospital Revenue 6.000 11/15/2018 3,200,000 2,993,664
Robbins, Illinois, Robbins Resources
Recovery, Partners-A 9.250 08/15/2014 9,000,000 8,639,550
INDIANA
Indianapolis, Indiana, Local Public
Improvement Bond Bank, Series 1992D 6.750 02/01/2020 2,000,000 2,047,140
</TABLE>
(continued on next page)
<PAGE>
PAGE 12
- ----------------------------------------------
Keystone Tax Free Fund
SCHEDULE OF INVESTMENTS--June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KANSAS
Burlington, Kansas, Pollution Control,
Kansas Gas and Electric Company (MBIA) 7.000% 06/01/2031 $ 2,000,000 $ 2,181,820
Kansas City, Kansas, Utility Systems,
Refunding and Improvement (FGIC) 6.375 09/01/2023 12,150,000 12,617,046
KENTUCKY
Carroll County, Kentucky, Kentucky Utility
Company, Series A 7.450 09/15/2016 8,000,000 8,993,600
Jefferson County, Kentucky, Hospital
Revenue (MBIA) 6.435 10/23/2014 6,000,000 6,185,640
Kentucky Housing Corp., Housing Revenue
Bond, Series C 7.900 01/01/2021 5,350,000 5,625,043
Trimble County, Kentucky, Pollution
Control, Louisville Gas and Electric Co. 7.625 11/01/2020 2,725,000 2,999,053
Trimble County, Kentucky, Pollution
Control, Louisville Gas and Electric Co.,
Series A (Pre-refunded) 7.625 11/01/2020 545,000 611,070
LOUISIANA
Louisiana Public Facilities Authority,
Health and Educational Facilities, Our
Lady of the Lake Hospital 8.200 12/01/2015 7,250,000 7,951,220
Louisiana Public Facilities Authority,
Hospital Refunding, Pendleton Memorial
Methodist 6.750 06/01/2022 7,000,000 6,897,520
Louisiana Public Facilities Authority,
Hospital, Woman Hospital Foundation Project 7.250 10/01/2022 1,750,000 1,801,100
Louisiana State, Series B (MBIA) 5.625 08/01/2013 3,000,000 2,939,100
New Orleans, Louisiana, Capital
Appreciation (AMBAC)
(effective yield 7.05%) (b) 0.000 09/01/2012 4,700,000 1,827,689
New Orleans, Louisiana, Capital
Appreciation (AMBAC)
(effective yield 7.05%) (b) 0.000 09/01/2011 5,000,000 2,070,500
Orleans Parish, Louisiana, School Board (ETM) 9.050 02/01/2010 5,175,000 6,768,331
Orleans Parish, Louisiana, School Board,
Refunding Bonds, Series B 5.200 02/01/2014 3,500,000 3,236,065
Ouachita Parish, Louisiana, Louisiana
Hospital Service, Glenwood Regional
Medical Center 7.500 07/01/2021 2,000,000 2,124,920
MAINE
Maine State Housing Authority, Mortgage
Purchase, Series A3 7.800 11/15/2015 2,580,000 2,644,113
Regional Waste System, Maine, Solid Waste
Resources Recovery Revenue 8.150 07/01/2011 2,500,000 2,721,025
MARYLAND
Maryland State Community Development
Administration, Multi-Family Housing 8.750 05/15/2012 3,345,000 3,394,707
MASSACHUSETTS
Lawrence, Massachusetts, General
Obligation (AMBAC) 6.250 02/15/2009 750,000 787,927
Massachusetts Bay Transportation
Authority, Refunding, General
Transportation Systems, Series A 7.000 03/01/2008 4,550,000 5,136,723
Massachusetts Bay Transportation
Authority, Series A 7.000 03/01/2007 5,000,000 5,646,350
Massachusetts Bay Transportation
Authority, Series A 7.000 03/01/2011 6,110,000 6,902,406
Massachusetts Bay Transportation
Authority, Series A 6.250 03/01/2012 7,600,000 8,025,676
Massachusetts Bay Transportation
Authority, Series B 6.200 03/01/2016 2,125,000 2,226,086
</TABLE>
<PAGE>
PAGE 13
- ----------------------------------------------
SCHEDULE OF INVESTMENTS--June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
Massachusetts Industrial Finance Agency,
Harvard Community Health Plan, Inc. 8.125% 10/01/2017 $13,750,000 $14,665,612
Massachusetts Municipal Wholesale
Electric, Power Supply Systems 6.750 07/01/2008 6,540,000 6,946,199
Massachusetts State Health and Educational
Facilities Authority (MBIA) 7.300 10/01/2018 1,700,000 1,833,416
Massachusetts State Health and Educational
Facilities Authority, Brigham & Womens
Hospital (MBIA) 6.750 07/01/2024 2,000,000 2,115,920
Massachusetts State Health and Educational
Facilities Authority, Massachusetts
General Hospital, Series F (AMBAC) 6.250 07/01/2012 5,000,000 5,306,050
Massachusetts State Health and Educational
Facilities Authority, New England
Deaconness Hospital (AMBAC) 6.875 04/01/2022 2,980,000 3,190,895
Massachusetts State Health and Educational
Facilities Authority, McLean Hospital,
Series C 6.500 07/01/2010 500,000 534,125
Massachusetts State Health and Educational
Facilities Authority, Milton Hospital 7.250 07/01/2005 700,000 766,549
Massachusetts State Health and Educational
Facilities Authority, New England
Deaconess Hospital 6.875 04/01/2022 500,000 516,400
Massachusetts State Industrial Finance
Agency, Solid Waste Disposal 9.000 08/01/2016 8,000,000 6,899,520
Massachusetts State Water Pollution, Series A 6.375 02/01/2015 125,000 129,440
Massachusetts State Water Resources
Authority, Series A 7.000 04/01/1999 1,000,000 1,061,650
Massachusetts State Water Resources
Authority, Series A 7.125 04/01/2000 1,500,000 1,621,800
Massachusetts State Water Resources
Authority, Series B 4.000 12/01/2018 19,545,000 14,555,552
Massachusetts State, General Obligation,
Consolidated Loan, Series C (FGIC) 6.600 11/01/2008 8,000,000 8,774,960
Massachusetts State Water Pollution,
Abatement Trust Water Pollution Abatement
Revenue (MWRA Loan Program), Series A 5.000 08/01/2014 750,000 683,003
Massachusetts State Water Pollution,
Abatement Trust Pooled Loan Program,
Series 2 6.125 02/01/2008 85,000 91,021
Massachusetts Water Resources Authority,
Series A (MBIA) 6.000 08/01/2024 1,500,000 1,524,540
MICHIGAN
Monroe County, Michigan, Economic
Development Corp., Detroit Edison Co. (FGIC) 6.950 09/01/2022 9,500,000 11,019,715
Okemos, Michigan, Public School District,
Series I (effective yield 7.35%) (b) 0.000 05/01/2021 51,525,000 10,543,045
Romulus, Michigan, Community Schools,
Capital Appreciation, Series I (effective
yield 8.02%) (b) 0.000 05/01/2017 39,490,000 10,662,300
West Ottawa, Michigan, Public School
District, Capital Appreciation (effective
yield 7.55%) (b) 0.000 05/01/2015 35,490,000 10,978,122
MINNESOTA
Dakota County, Minnesota, Housing and
Redevelopment Authority, Single Family
Mortgage (FGIC) 9.375 05/01/2018 15,000 15,880
Dakota County, Minnesota, Single Family Mortgage 8.100 09/01/2012 1,540,000 1,612,765
Minnesota State Housing and Finance Agency 8.000 01/01/2023 1,435,000 1,477,390
</TABLE>
(continued on next page)
<PAGE>
PAGE 14
- ----------------------------------------------
Keystone Tax Free Fund
SCHEDULE OF INVESTMENTS--June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MISSISSIPPI
Harrison County, Mississippi, Wastewater
Treatment Management 8.500% 02/01/2013 $ 1,000,000 $ 1,331,450
MISSOURI
Kansas City Missouri Municipal Assistance
Corporation, Refunding Leasehold, H Roe
Bartle, Revenue Bonds, Series A 5.000 04/15/2020 11,500,000 10,224,075
Missouri State Health and Educational
Facilities Authority, Barnes Jewish
Hospital (MBIA) 5.150 05/15/2010 5,000,000 4,820,450
Phelps County, Missouri, Phelps County
Regional Medical Center
(Connie Lee) 6.000 05/15/2013 125,000 124,177
University of Missouri, University
Improvement Systems Facilities 5.500 11/01/2023 25,000 23,554
NEBRASKA
Nebraska Higher Education Loan Program 6.450 06/01/2018 8,320,000 8,308,269
NEVADA
Clark County, Nevada, School District,
Series A (MBIA) 6.750 03/01/2007 3,000,000 3,224,160
Clark County, Nevada, Series A (AMBAC) 7.500 06/01/2009 6,000,000 7,022,460
NEW HAMPSHIRE
New Hampshire Higher Education & Health
Facilities Authority, Frisbie Memorial
Hospital, Revenue Bonds 6.125 10/01/2013 5,405,000 5,215,068
NEW JERSEY
Camden County, New Jersey, Municipal
Utilities Authority, Sewer Revenue 5.125 07/15/2017 4,650,000 4,202,019
Camden County, New Jersey, Municipal
Utilities Authority, Sewer Revenue, Series
A (FGIC) (effective yield 6.45%) (b) 0.000 09/01/2016 3,600,000 1,088,640
Essex County, New Jersey Lease Improvement
Authority, County Jail and Youth House 5.350 12/01/2024 4,830,000 4,453,695
Gloucester County, New Jersey Improvement
Authority, Solid Waste Resource Recovery
Revenue, Gloucester County Project A 8.125 07/01/2010 1,000,000 1,036,000
Hudson County, New Jersey, Fiscal Year
Adjustment Bonds 5.125 08/01/2008 3,000,000 2,848,230
New Jersey Health Care Facilities
Financing Authority, Jersey Shore Medical
Center (AMBAC) 6.125 07/01/2012 1,000,000 1,021,120
New Jersey Health Care Facilities
Financing Authority, Jersey Shore Medical
Center (AMBAC) 6.250 07/01/2016 2,000,000 2,033,660
New Jersey Health Care Facilities
Financing Authority, Kimball Medical
Center, Series C 8.000 07/01/2013 3,000,000 3,174,300
New Jersey Health Care Facilities
Financing Authority, St. Elizabeth's
Hospital, Series B 7.750 07/01/1998 1,750,000 1,793,242
NEW MEXICO
Albuquerque, New Mexico Joint Water and
Sewer System Revenue, Series A (FGIC)
(effective yield 6.90%) (b) 0.000 07/01/2008 2,950,000 1,503,143
City of Albuquerque, New Mexico, Hospital
System, Presbyterian Hospital, Series A (MBIA) 6.375 08/01/2007 1,500,000 1,591,755
New Mexico Educational Assistance
Foundation, Series B 6.300 12/01/2004 2,460,000 2,634,439
New Mexico Educational Assistance
Foundation, Series B 5.750 12/01/2008 2,250,000 2,166,885
</TABLE>
<PAGE>
PAGE 15
- ----------------------------------------------
SCHEDULE OF INVESTMENTS--June 30, 1996 (Unaudited)
<TABLE>
Coupon Maturity Principal Market
Rate Date Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK
Metropolitan Transportation Authority, New
York, Commuter Facilities Revenue Bonds,
Series A (FGIC) 6.000% 07/01/2021 $13,000,000 $13,060,970
New York City, New York, City Municipal
Water Finance Authority, Water and Sewer
Revenue (FGIC) 7.000 06/15/2015 4,270,000 4,650,713
New York City, New York, City Municipal
Water Finance Authority, Water and Sewer
Revenue (FGIC), Prerefunded, Series A 7.000 06/15/2015 1,305,000 1,443,461
New York City, New York, City Municipal
Water Finance Authority, Water and Sewer
System, Revenue Bonds, Series B (MBIA) 5.750 06/15/2026 17,550,000 17,207,775
New York City, New York, General
Obligation, Fiscal 1992, Series A 5.875 03/15/2011 6,000,000 5,694,600
New York City, New York, General
Obligation, Fiscal 1992, Series A 7.750 08/15/2008 10,000,000 11,049,400
New York City, New York, General
Obligation, Fiscal 1992, Series A 7.750 08/15/2014 5,460,000 6,216,354
New York City, New York, General
Obligation, Series A 8.000 08/15/2020 500,000 577,670
New York City, New York, General
Obligation, Series A (FGIC) Refunding 5.750 08/01/2010 400,000 400,772
New York City, New York, Industrial
Special Facility, Terminal One Group
Association Project 6.000 01/01/2015 2,500,000 2,444,975
New York City, NewYork, Municipal Water
Finance Authority, Water and Sewer System (FGIC) 7.000 06/15/2015 3,025,000 3,242,588
New York City, New York, Prerefunded, Series A 7.750 08/15/2015 7,980,000 9,149,629
New York City, New York, Series F 5.750 02/01/2015 5,500,000 5,090,635
New York City, New York, Series G 5.750 02/01/2014 16,000,000 14,875,040
New York City, New York, Unrefunded
Balance, Series A 7.750 08/15/2015 270,000 295,053
New York Energy Research and Development
Authority, Consolidated Edison Project 7.750 01/01/2024 7,400,000 7,790,424
New York State Care Facilities, New York
Hospital, Series A 6.800 08/15/2024 3,800,000 4,108,674
New York State Dormitory Authority Mental
Health Facility (MBIA) 5.125 02/15/2021 7,535,000 6,807,948
New York State Dormitory Authority
Revenue, State University Educational
Facilities, Series B 7.500 05/15/2011 10,500,000 11,985,120
New York State Dormitory Authority
Revenue, State University Educational
Facilities, Series B 5.250 05/15/2019 3,850,000 3,417,645
New York State Dormitory Authority
Revenue, State University Educational, Series C 7.375 05/15/2010 1,100,000 1,248,214
New York State Dormitory Authority, City
University Educational Facilities (FGIC) 5.250 05/15/2013 9,500,000 8,632,175
New York State Dormitory Authority, City
University Educational Facilities (FGIC) 7.000 07/01/2009 3,780,000 4,353,124
New York State Environmental Facilities
Corp., State Water Pollution Control (New
York City Water Finance Authority) Series E 6.875 06/15/2010 5,000,000 5,490,750
New York State Local Government Assistance
Corporation, Series C 5.500 04/01/2017 2,000,000 1,927,620
New York State Local Government Assistance
Corporation, Series D 6.750 04/01/2021 900,000 998,415
New York State Medical Care Facilities,
Finance Agency Revenue (FGIC) 6.375 08/15/2014 2,900,000 2,995,468
New York State Medical Care Facilities,
Finance Agency Revenue 6.375 11/15/2019 1,250,000 1,271,562
</TABLE>
(continued on next page)
<PAGE>
PAGE 16
- ----------------------------------------------
Keystone Tax Free Fund
SCHEDULE OF INVESTMENTS--June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
New York State Medical Care Facilities,
Finance Agency Revenue (AMBAC) 6.375% 11/15/2019 $ 2,255,000 $ 2,332,211
New York State Medical Care Facilities,
Finance Agency Revenue, Mental Health
Services Facilities 6.000 08/15/2015 1,500,000 1,517,970
New York State Medical Care Facilities,
Finance Agency, New York Hospital, Series A 6.750 08/15/2014 2,250,000 2,423,925
New York State Medical Care Facilities,
Finance Agency, Series A 7.700 02/15/2009 5,300,000 5,986,615
New York State Mortgage Agency, Homeowner
Mortgage, Series 27 6.900 04/01/2015 4,500,000 4,764,690
New York State Mortgage Agency, Homeowner
Mortgage, Series 56 6.450 10/01/2021 1,000,000 1,005,800
New York State Mortgage Agency, Series A 6.875 04/01/2017 1,565,000 1,586,284
New York State Urban Development
Corporation, Correctional Facilities,
Series A 6.500 01/01/2009 575,000 600,128
New York State Urban Development
Corporation, Correctional Facilities,
Series A 7.500 04/01/2011 9,500,000 10,749,155
New York State Urban Development
Corporation, Revenue Refunding,
Correctional Facilities, Series A 6.500 01/01/2010 15,920,000 16,624,301
Niagara Falls, New York, Public
Improvement (MBIA) 7.500 03/01/2014 300,000 362,244
Port Authority, New York and New Jersey 4.750 01/15/2026 3,000,000 2,498,220
Port Authority, New York and New Jersey,
Special Obligation Revenue 6.750 10/01/2011 3,000,000 3,018,180
Port Authority, New York and New Jersey,
Special Obligation Revenue 6.750 10/01/2019 3,500,000 3,495,135
Suffolk County, New York, Industrial
Development Agency, Southwest Sewer Systems 6.000 02/01/2007 1,655,000 1,758,835
Triborough Bridge and Tunnel Authority,
Highway Revenue Tolls, General Purpose, Series Y 6.625 01/01/2012 12,750,000 14,103,922
Triborough Bridge and Tunnel Authority,
New York, Series Q 5.500 01/01/2017 1,000,000 975,920
OHIO
Adams County, Ohio Valley School District (MBIA) 7.000 12/01/2015 2,000,000 2,297,780
Cleveland, Ohio, Public Power Systems,
First Mortgage, Series A (MBIA) 7.000 11/15/2014 7,000,000 7,826,280
Cleveland, Ohio, Public Power Systems,
First Mortgage, Series A (MBIA) 7.000 11/15/2024 1,000,000 1,110,160
Columbus, Ohio, General Obligation 12.375 02/15/2006 1,285,000 1,958,430
Ohio Housing Finance Agency, Single Family
Mortgage Revenue, Series C (GNMA) 9.000 09/01/2018 10,000,000 11,128,600
Ohio State Building Authority, State
Facilities, Adult Correctional,
Series A (AMBAC) 5.500 04/01/2016 2,000,000 1,938,740
Ohio State Higher Educational Facility
Commission (MBIA) 6.125 11/15/2017 1,000,000 1,029,220
Ohio State Turnpike, Community Turnpike
Revenue, Series A 5.500 02/15/2026 5,000,000 4,768,750
Ohio State Water Development Authority (AMBAC) 9.375 12/01/2018 225,000 234,493
OKLAHOMA
Oklahoma State Industrial Authority,
Baptist Medical Center 7.000 08/15/2014 2,250,000 2,487,578
OREGON
Oregon Health Sciences University, Revenue
Bonds, Series A 5.250 07/01/2025 5,000,000 4,544,900
Western Generation Agency, Oregon, Wauna
Cogeneration Project,
Series B (c) 7.400 01/01/2016 3,300,000 3,472,788
</TABLE>
<PAGE>
PAGE 17
- ----------------------------------------------
SCHEDULE OF INVESTMENTS--June 30, 1996 (Unaudited)
<TABLE>
Coupon Maturity Principal Market
Rate Date Amount Value
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
PENNSYLVANIA
Allegheny County, Pennsylvania, Sewer
Revenue Refunding (FGIC) (effective yield
6.10%) (b) 0.000% 06/01/2015 $2,500,000 $ 805,250
Beaver County, Pennsylvania, Industrial
Development Authority, Pollution Control
Revenue, Ohio Edison Project, Series A 7.750 09/01/2024 80,000 84,441
Beaver County, Pennsylvania, Ohio Edison (FGIC) 7.000 06/01/2021 4,390,000 4,692,295
Butler County, Pennsylvania, Hospital
Authority, Butler Memorial Hospital 8.000 07/01/2016 6,170,000 6,293,400
Delaware County, Pennsylvania, Hospital
Revenue, Crozier Chester Medical Center
(Pre-refunded) 7.500 12/15/2020 2,545,000 2,869,437
Delaware County, Pennsylvania, Industrial
Development Authority 7.375 04/01/2021 500,000 531,910
Delaware County, Pennsylvania, Industrial
Development Authority, Resource Recovery
Project, Series A (LOC Security Pacific) 8.100 12/01/2013 7,500,000 7,796,325
McKeesport, Pennsylvania, Hospital
Authority Revenue, McKeesport Hospital 6.500 07/01/2008 875,000 857,124
Montgomery County, Pennsylvania,
Industrial Development and Pollution
Control, Philadelphia Electric 7.600 04/01/2021 900,000 957,609
North Penn, Pennsylvania, Water Authority (FGIC) 6.875 11/01/2019 2,500,000 2,832,425
Northumberland County, Pennsylvania,
Commonwealth Lease Authority Revenue
(Pre-refunded) 7.750 10/15/2004 2,110,000 2,397,213
Pennsylvania Economic Development
Financing Authority, Resources Recovery,
Colver Project, Series D (c) 7.125 12/01/2015 3,000,000 3,064,140
Pennsylvania Economic Development
Financing Authority, Resources Recovery,
Colver Project, Series D (c) 7.150 12/01/2018 2,500,000 2,548,700
Pennsylvania Economic Development
Financing Authority, Resources Recovery,
Northampton Project (c) 6.400 01/01/2009 9,500,000 9,059,770
Pennsylvania Economic Development
Financing Authority, Resources Recovery,
Northampton Project (c) 6.500 01/01/2013 4,000,000 3,784,880
Pennsylvania Economic Development
Financing Authority, Resources Recovery,
Northampton Project (c) 6.600 01/01/2019 3,800,000 3,566,414
Pennsylvania Economic Development
Financing Authority, Resources Recovery,
Colver Project, Series D (c) 7.050 12/01/2009 6,500,000 6,627,335
Pennsylvania Housing Finance Agency,
Residential Development Section 8, Series A 7.600 07/01/2013 5,545,000 5,916,404
Pennsylvania Housing Finance Agency,
Single Family Mortgage, Section 8 8.200 07/01/2024 8,000,000 8,545,280
Pennsylvania Housing Finance Agency,
Single Family Mortgage, Series 34 A 6.850 04/01/2016 500,000 516,570
Pennsylvania Housing Finance Agency,
Single Family Mortgage, Series P 8.000 04/01/2016 3,000,000 3,085,200
Pennsylvania Housing Finance Agency,
Single Family Mortgage, Series T 7.750 10/01/2009 4,000,000 4,180,720
Pennsylvania Housing Finance Agency,
Single Family Mortgage, Series V 7.800 04/01/2016 3,950,000 4,098,757
Pennsylvania Intergovernmental Cooperative
Authority, Philadelphia Funding (FGIC) 6.750 06/15/2021 1,910,000 2,134,119
Pennsylvania State Higher Educational
Facilities Authority Revenue, Allegheny
General Hospital, Series A 7.125 09/01/2007 4,000,000 4,321,760
</TABLE>
(continued on next page)
<PAGE>
PAGE 18
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Keystone Tax Free Fund
SCHEDULE OF INVESTMENTS--June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Pennsylvania State Higher Educational
Facilities Authority, Thomas Jefferson
University 6.625% 08/15/2009 $ 150,000 $ 161,487
Pennsylvania State, Industrial Development
Authority 7.000 01/01/2006 500,000 561,355
Philadelphia, Pennsylvania, Hospital and
Higher Education Facilities, Albert
Einstein Medical Center 7.625 04/01/2011 2,350,000 2,490,460
Philadelphia, Pennsylvania, Hospital and
Higher Education Facilities, Albert
Einstein Medical Center 7.000 10/01/2021 3,055,000 3,177,017
Philadelphia, Pennsylvania, Hospital and
Higher Education Facilities, Chestnut Hill
Hospital 6.500 11/15/2022 5,000,000 5,019,000
Philadelphia, Pennsylvania, Hospital and
Higher Education Facilities, Community
College, Series B (MBIA) 6.500 05/01/2007 280,000 300,818
Philadelphia, Pennsylvania, Hospital and
Higher Education Facilities, Graduate
Health System Obligation 7.250 07/01/2018 4,500,000 4,564,935
Philadelphia, Pennsylvania, Hospital and
Higher Education Facilities, Temple
University Authority 6.625 11/15/2023 1,725,000 1,735,453
Philadelphia, Pennsylvania, Municipal
Development Authority, Criminal Justice
Center, Series A (MBIA) 7.100 11/15/2006 4,095,000 4,509,946
Philadelphia, Pennsylvania, Water and
Wastewater (FGIC) 10.000 06/15/2005 10,000,000 13,114,000
Philadelphia, Pennsylvania, Water and
Wastewater, Series A 6.250 08/01/2012 3,000,000 3,191,130
Pittsburgh, Pennsylvania, Urban
Redevelopment Authority, Multi-Family
Housing Mortgage, 1985 Series A 9.250 12/01/2027 3,175,000 3,290,506
Ridley Park, Pennsylvania, Hospital
Authority Revenue 6.125 12/01/2020 4,100,000 3,569,255
Sayre, Pennsylvania, Health Care
Facilities Authority, Guthrie Healthcare,
Series A 7.100 03/01/2017 6,350,000 6,793,103
Westmoreland County, Pennsylvania,
Municipal Authority, Capital Appreciation,
Series C (FGIC) (effective yield 5.69%) (b) 0.000 08/15/2015 5,000,000 1,605,700
PUERTO RICO
Puerto Rico Commonwealth Highway &
Transportation Authority, Highway Revenue
Bonds, Series Y 5.500 07/01/2036 10,000,000 9,303,600
Puerto Rico Commonwealth, General
Obligation (AMBAC) 7.000 07/01/2010 5,000,000 5,703,800
Puerto Rico Commonwealth, General
Obligation (MBIA) 7.000 07/01/2010 16,750,000 19,107,730
Puerto Rico Commonwealth, Refunding
(Capital Guarantee) 6.450 07/01/2017 3,000,000 3,151,860
Puerto Rico Electric Power Authority
Revenue, Refunding, Series N 6.000 07/01/2010 500,000 503,390
Puerto Rico Electric Power Authority,
Refunding, Series S 7.000 07/01/2007 2,000,000 2,269,100
Puerto Rico Electric Power Authority,
Series Y (MBIA) 6.500 07/01/2006 4,000,000 4,414,320
Puerto Rico Industrial, Tourist,
Educational, Medical, Environmental
Control Facilities Authority (MBIA) 6.250 07/01/2024 1,500,000 1,543,485
Puerto Rico Industrial, Tourist,
Educational, Medical, Environmental
Control Facilities Finance Authority 5.700 08/01/2013 400,000 367,528
Puerto Rico Industrial, Tourist,
Educational, Medical, Environmental
Control Facilities Finance Authority 5.500 08/01/2024 1,000,000 849,950
</TABLE>
<PAGE>
PAGE 19
- ----------------------------------------------
SCHEDULE OF INVESTMENTS--June 30, 1996 (Unaudited)
<TABLE>
Coupon Maturity Principal Market
Rate Date Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PUERTO RICO (CONTINUED)
Puerto Rico Public Buildings Authority,
Guaranteed Public Education and Health
Facilities, Series M 5.700% 07/01/2009 $ 1,800,000 $ 1,802,646
Puerto Rico Public Buildings Authority,
Guaranteed Public Education and Health
Facilities, Series M 3.750 07/01/2016 6,250,000 5,492,688
RHODE ISLAND
Rhode Island State Health and Educational
Building Corp., Hospital Financing
Revenue, Roger Williams General Hospital 9.500 07/01/2016 5,710,000 5,812,552
SOUTH CAROLINA
South Carolina State Public Services
Authority, Fixed Option Bonds 5.342 06/30/2006 10,400,000 10,302,760
SOUTH DAKOTA
South Dakota, Student Loan Finance
Corporation, Series A 6.650 08/01/2008 1,335,000 1,356,400
TENNESSEE
Bristol, Tennessee, Health and Education
Authority, Bristol Memorial Hospital (FGIC) 6.750 09/01/2010 4,200,000 4,670,988
Knox County, Tennessee, Health and
Educational Facilities, Fort Sanders
Hospital Alliance, Series C (MBIA) 7.250 01/01/2010 7,000,000 8,067,640
Knox County, Tennessee, Health and
Educational Facilities, Fort Sanders
Hospital Alliance, Series C (MBIA) 5.250 01/01/2015 3,500,000 3,313,170
Metro Government, Nashville & Davidson
Counties, Tennessee (FGIC) (effective
yield 4.26%) (b) 0.000 01/01/2012 9,000,000 9,235,350
Tennessee Housing Development Authority,
Home Ownership Program, Issue H 7.825 07/01/2015 6,255,000 6,366,839
TEXAS
Austin, Texas, Utility Systems Capital
Appreciation (AMBAC) (effective yield
6.80%) (b) 0.000 11/15/2011 12,000,000 4,939,680
Bexar, Texas, Metropolitan Water District
Waterworks Systems (AMBAC) 6.625 05/01/2014 1,825,000 2,010,292
Bexar, Texas, Metropolitan Water District
Waterworks Systems (AMBAC) 6.350 05/01/2025 2,750,000 2,848,725
Bexar, Texas, Metropolitan Water District
Waterworks Systems (Unrefunded) 6.625 05/01/2014 25,000 26,442
Brazos River Authority, Texas, Houston
Light and Power Project B (MBIA) 8.100 05/01/2019 8,500,000 9,151,100
Brownsville, Texas Utility System Revenue (MBIA) 6.250 09/01/2014 2,400,000 2,564,640
Cypress-Fairbanks, Texas, Independent
School District, Capital Appreciation,
Series A (effective yield 6.03%) (b) 0.000 02/15/2013 6,675,000 2,503,125
Fort Bend County, Texas, Levee Improvement
District # 11 (MBIA) 6.900 09/01/2020 1,165,000 1,240,445
Fort Bend County, Texas, Levee Improvement
District # 11 (MBIA) 6.900 09/01/2018 1,245,000 1,325,626
Fort Bend County, Texas, Levee Improvement
District # 11 (MBIA) 6.900 09/01/2019 1,000,000 1,064,760
Harris County, Texas, Flood Control
District (effective yield 7.20%) (b) 0.000 10/01/2006 7,000,000 3,644,550
Harris County, Texas, Health Facilities
Development Corporation 6.600 06/01/2014 5,000,000 5,111,250
Harris County, Texas, Health Facilities
Development Corporation, Hermann Hospital
Project (MBIA) 6.375 10/01/2017 2,480,000 2,568,139
</TABLE>
(continued on next page)
<PAGE>
PAGE 20
- ----------------------------------------------
Keystone Tax Free Fund
SCHEDULE OF INVESTMENTS--June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXAS (CONTINUED)
Harris County, Texas, Health Facilities
Development Corporation, Memorial Hospital
Systems 6.625% 06/01/2024 $ 1,500,000 $ 1,530,555
Harris County, Texas, Health Facilities,
Memorial Hospital System 7.125 06/01/2015 2,525,000 2,683,898
Harris County, Texas, Senior Lien, Toll
Road, Series A (MBIA) 6.375 08/15/2024 4,000,000 4,217,120
Harris County, Texas, Toll Road 7.000 08/15/2010 3,000,000 3,414,120
Houston, Texas Water and Sewer System
Revenue, Refunding, Junior Lien, Series C
(effective yield 6.85%) (b) 0.000 12/01/2010 2,700,000 1,182,735
Houston, Texas, Airport System Revenue,
Senior Lien 8.200 07/01/2017 4,565,000 4,931,524
Houston, Texas, General Obligation 7.000 03/01/2008 15,000,000 17,045,700
Houston, Texas, Hotel Occupancy Tax,
Senior Lien Bonds (FSA) 5.500 07/01/2015 3,000,000 2,863,530
Houston, Texas, Water & Sewer System
Revenue, Series C
(effective yield 6.90%) (b) 0.000 12/01/2011 13,000,000 5,337,670
Lower Colorado River Authority, Texas,
Series B (AMBAC)
(effective yield 7.05%) (b) 0.000 01/01/2005 2,135,000 1,372,058
Midland County, Texas, Hospital District,
Midland Memorial Hospital 7.500 06/01/2016 600,000 619,104
Northwest Texas, Independent School
District, Capital Appreciation (AMBAC)
(effective yield 7.28%) (b) 0.000 08/15/2010 3,690,000 1,625,888
Port of Corpus Christi, Texas, Industrial
Development Corporation, Valero Refining
and Marketing Co. Project, Series A 10.250 06/01/2017 16,600,000 17,807,152
Rio Grande Valley, Texas, Health
Facilities Corporation, Hospital Revenue,
Baptist Medical Center Project (MBIA) 8.000 08/01/2017 1,085,000 1,167,547
Rio Grande Valley, Texas, Health
Facilities Corporation, Hospital Revenue,
Baptist Medical Center Project
(Pre-refunded) 8.000 08/01/2017 5,915,000 6,465,923
San Antonio, Texas Hotel Occupancy, Texas
Revenue Bonds (FGIC) 5.700 08/15/2026 9,000,000 8,711,280
San Antonio, Texas, Electric & Gas Utility
Revenue Bonds 5.375 02/01/2013 3,000,000 2,870,700
San Antonio, Texas, Electric and Gas Revenue 5.375 02/01/2017 10,000,000 9,434,300
Tarrant County, Texas, Health Facilities System 5.125 09/01/2018 5,000,000 4,483,450
Tarrant County, Texas, Housing Finance
Corp., Series A (MBIA) (effective yield
11.00%) (b) 0.000 09/15/2016 6,415,000 1,868,689
Texas Housing Agency, Residential Development 8.400 01/01/2021 4,330,000 4,514,025
Texas Housing Agency, Single Family Mortgage 8.200 03/01/2016 2,940,000 3,011,324
Texas Municipal Power Agency (effective
yield 9.13%) (b) 0.000 09/01/2006 4,455,000 2,576,638
Texas Municipal Power Agency (effective
yield 9.62%) (b) 0.000 09/01/2008 4,500,000 2,282,355
Texas Municipal Power Agency Revenue
(effective yield 6.15%) (b) 0.000 09/01/2015 3,500,000 1,118,915
Texas Municipal Power Agency Revenue
(effective yield 6.15%) (b) 0.000 09/01/2017 13,000,000 3,651,440
Texas Municipal Power Agency Revenue
(effective yield 6.10%) (b) 0.000 09/01/2013 12,100,000 4,430,899
Texas Municipal Power Agency Revenue Bonds 6.100 09/01/2009 130,000 137,063
Texas Municipal Power Agency Revenue
Bonds, Capital Appreciation, Refunding
(MBIA) (effective yield 6.10%) (b) 0.000 09/01/2014 33,885,000 11,599,513
Texas Municipal Power Agency, Refunding
Bonds (MBIA) 5.250 09/01/2012 175,000 166,877
Texas National Research Lab, Super
Conducting, Super Collider 6.950 12/01/2012 15,000,000 16,621,500
Texas State, General Obligation 6.200 09/30/2011 5,000,000 5,261,500
Titus County, Texas, Water District #1,
Southwest Electric Power 8.200 08/01/2011 9,000,000 10,263,600
</TABLE>
<PAGE>
PAGE 21
- ----------------------------------------------
SCHEDULE OF INVESTMENTS--June 30, 1996 (Unaudited)
<TABLE>
Coupon Maturity Principal Market
Rate Date Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXAS (CONTINUED)
Tomball, Texas, Hospital Authority,
Tomball Regional Hospital 6.125% 07/01/2023 $11,500,000 $10,732,145
University of Texas, University Revenues 6.750 08/15/2013 2,180,000 2,374,951
UTAH
Intermountain Power Agency, Utah, Power
Supply, Series A
(effective yield 7.10%) (b) 0.000 07/01/2004 8,000,000 5,334,400
Intermountain Power Agency, Utah, Power
Supply, Series A
(effective yield 7.10%) (b) 0.000 07/01/2006 2,150,000 1,283,163
Intermountain Power Agency, Utah, Power
Supply, Series B
(effective yield 6.30%) (b) 0.000 07/01/2011 3,000,000 3,603,360
Intermountain Power Agency, Utah, Power
Supply, Series C (ETM) (effective yield 21.29%) 0.000 07/01/2002 6,500,000 991,055
Intermountain Power Agency, Utah, Power
Supply, Series D 8.375 07/01/2012 3,020,000 3,210,200
Intermountain Power Agency, Utah, Power
Supply, Series G
(effective yield 4.01%) (b) 0.000 07/01/2012 24,350,000 23,255,711
Utah State Housing Finance Agency, Single
Family Mortgage, Series C-2 7.950 07/01/2010 415,000 438,846
Utah State Housing Finance Agency, Single
Family Mortgage, Series I-2 5.950 01/01/2024 1,000,000 967,260
VERMONT
Vermont Housing Finance Agency, Single Family 8.150 05/01/2025 1,485,000 1,561,745
VIRGINIA
Fairfax County, Virginia, Industrial
Development Authority 5.000 08/15/2023 6,000,000 5,193,060
Hanover County, Virginia, Industrial
Development Authority, Memorial Regional
Medical Center Project (MBIA) 5.500 08/15/2025 7,595,000 7,164,743
Norfolk, Virginia, Industrial Development
Authority, Hospital Refunding, Sentara
Hospital, Series A 5.500 11/01/2017 4,170,000 3,914,921
Pittsylvania County, Virginia, Industrial
Development, Multitrade Project (c) 7.450 01/01/2009 2,000,000 2,049,140
Virginia State Housing Development
Authority, Residential Mortgage, Series B
(effective yield 10.63%) (b) 0.000 09/01/2014 790,000 120,633
Winchester, Virginia, Industrial
Development Hospital 6.150 01/01/2015 2,300,000 2,095,116
Winchester, Virginia, Industrial
Development Hospital 6.300 01/01/2015 3,200,000 2,938,208
WASHINGTON
Washington Public Power Supply System,
Nuclear Project #1, Series A 14.500 07/01/2002 1,350,000 1,486,836
Washington Public Power Supply System,
Nuclear Project #3
(effective yield 10.09%) (b) 0.000 07/01/2012 4,000,000 1,548,840
Washington State Health Care Facilities
Authority, Multi-Care Medical Center of
Tacoma (FGIC) 7.875 08/15/2011 1,300,000 1,394,224
WISCONSIN
Wisconsin Health and Education Facilities
Authority, Bellin Memorial Hospital, Inc.
(Pre-refunded) 7.625 04/01/2019 5,000,000 5,493,950
Wisconsin Housing and Economic Development
Authority, Home Ownership 8.000 03/01/2021 1,550,000 1,611,860
</TABLE>
(continued on next page)
<PAGE>
PAGE 22
- ----------------------------------------------
Keystone Tax Free Fund
SCHEDULE OF INVESTMENTS--June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WYOMING
Wyoming Community Development Authority,
Housing Revenue, Series 5 6.250% 06/01/2027 $10,000,000 $ 9,866,300
Wyoming Community Development Authority,
Single Family Mortgage, Series B 8.125 06/01/2021 2,710,000 2,831,164
- --------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost--$1,558,041,307) 1,625,549,782
- --------------------------------------------------------------------------------------------------------
TEMPORARY TAX-EXEMPT INVESTMENTS (1.4%)
Anaheim, California, Certificate of
Participation (a) 3.100 08/01/2019 1,555,000 1,555,000
Dade County, Florida, Water and Sewer
Systems (FGIC) (a) 3.300 10/05/2022 2,425,000 2,425,000
Kansas City, Missouri, Industrial
Development Hospital, Resh Health Services
System (MBIA) (a) 3.650 04/15/2015 5,000 5,000
Massachusetts State Health and Educational
Facilities Authority (Capital Assets
Program), Series D (a) 3.400 01/01/2035 6,465,000 6,465,000
Missouri State Health and Educational
Facilities Authority Revenue (a) 3.250 12/01/2019 715,000 715,000
New York City, New York, General
Obligation, Series A (a) 3.600 08/15/2018 190,000 190,000
New York City, New York, General
Obligation, Series A (a) 3.600 08/15/2003 150,000 150,000
New York City, New York, Municipal Water
Finance Authority, Series C (FGIC) (a) 3.600 06/15/2022 180,000 180,000
New York City, New York, Municipal Water
Finance Authority, Series G (FGIC) (a) 3.550 06/15/2024 3,500,000 3,500,000
Sayre, Pennsylvania, Health Care
Facilities Authority Revenue, Series F (a) 3.250 12/01/2020 1,300,000 1,300,000
Sayre, Pennsylvania, Health Care
Facilities Authority Revenue, Series I (a) 3.250 12/01/2020 545,000 545,000
Sayre, Pennsylvania, Health Care
Facilities Authority Revenue, Series K (a) 3.250 12/01/2020 3,000,000 3,000,000
Washington State Health Care Facilities
Authority (a) 3.550 10/01/2005 700,000 700,000
West Feliciana Parish, Louisiana,
Pollution Control Revenue Bonds
(LOC--Canadian Imperial Bank) (a) 3.600 04/01/2016 2,500,000 2,500,000
- --------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY TAX-EXEMPT INVESTMENTS (Cost--$23,230,000) 23,230,000
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost--$1,581,271,307) 1,648,779,782
OTHER ASSETS AND LIABILITIES--NET (1.0%) 16,089,729
- --------------------------------------------------------------------------------------------------------
NET ASSETS (100.0%) $1,664,869,511
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 23
- ----------------------------------------------
Keystone Tax Free Fund
SCHEDULE OF INVESTMENTS--June 30, 1996 (Unaudited)
(a) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued
interest upon surrendering the security to the issuing agent.
(b) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
(c) Securities that may be resold to "qualified institutional buyers" under
rule 144A or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended. These securities have been determined
to be liquid under guidelines established by the Board of Trustees.
Legend of Portfolio Abbreviations:
AMBAC--American Municipal Bond Assurance Corporation
ETM--Escrowed to Maturity
FGIC--Federal Guaranty Insurance Company
FSA--Financial Security Assurance
GNMA--Government National Mortgage Association
LOC--Line of Credit
MBIA--Municipal Bond Investors Assurance Corporation
See Notes to Financial Statements.
<PAGE>
PAGE 24
- ----------------------------------------------
Keystone Tax Free Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six
Months
Ended
June 30, Year Ended December 31,
1996 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $7.86 $7.10 $8.12 $8.04 $8.07 $7.90
- -------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.21 0.41 0.37 0.39 0.46 0.46
Net realized and
unrealized gain (loss)
on investments (0.31) 0.74 (0.96) 0.48 0.12 0.36
- -------------------------------------------------------------------------------------------------------------
Total from investment
operations (0.10) 1.15 (0.59) 0.87 0.58 0.82
- -------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.19) (0.39) (0.37) (0.39) (0.46) (0.46)
In excess of net
investment income 0.00 0.00 (0.06) (0.06) (0.04) (0.07)
Net realized gain on
investments 0.00 0.00 0.00 (0.33) (0.11) (0.12)
In excess of net
realized gain on
investments 0.00 0.00 0.00 (0.01) 0.00 0.00
- -------------------------------------------------------------------------------------------------------------
Total distributions (0.19) (0.39) (0.43) (0.79) (0.61) (0.65)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $7.57 $7.86 $7.10 $8.12 $8.04 $8.07
- -------------------------------------------------------------------------------------------------------------
Total Return (a) (1.23%) 16.61% (7.34%) 11.15% 7.55% 10.80%
- -------------------------------------------------------------------------------------------------------------
Ratios/supplemental data
Ratios to average net
assets:
Total expenses 0.83%(b) 0.95%(b) 1.55% 1.66% 1.38% 1.75%
Net investment income 5.42% 5.41% 4.92% 4.72% 5.71% 5.78%
Portfolio turnover rate 38% 56% 84% 76% 78% 77%
- -------------------------------------------------------------------------------------------------------------
Net assets, end of
period (thousands) $1,664,870 $1,204,468 $1,197,727 $1,548,503 $1,453,199 $1,146,185
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excluding applicable sales charges.
(b) "Ratio of total expenses to average net assets" for the six months ended
June 30, 1996 and the year ended December 31, 1995 includes indirectly
paid expenses. Excluding indirectly paid expenses for the six months
ended June 30, 1996 and the year ended December 31, 1995, the expense
ratio would have been 0.82% and 0.94%, respectively.
See Notes to Financial Statements.
<PAGE>
PAGE 25
- ----------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
- ------------------------------------------------------------------
Assets (Note 1)
Investments at market value
(identified cost--$1,581,271,307) $1,648,779,782
Cash 576,385
Receivable for:
Investments sold 1,493,985
Fund shares sold 226,390
Interest 28,457,433
Prepaid expenses and other assets 207,702
- ------------------------------------------------------------------
Total assets 1,679,741,677
- ------------------------------------------------------------------
Liabilities (Notes 2 and 4)
Payable for:
Investments purchased 7,027,492
Fund shares redeemed 1,073,602
Distributions to shareholders 6,745,251
Accrued trustees' fees and expenses 23,040
Accrued reimbursable accounting fees 2,781
- ------------------------------------------------------------------
Total liabilities 14,872,166
- ------------------------------------------------------------------
Net assets $1,664,869,511
- ------------------------------------------------------------------
Net assets represented by (Notes 1 and 2)
Paid-in capital $1,626,403,526
Undistributed net investment income 548,929
Accumulated net realized loss on investments
and closed futures contracts (29,591,419)
Net unrealized appreciation on investments 67,508,475
- ------------------------------------------------------------------
Total net assets $1,664,869,511
- ------------------------------------------------------------------
Net asset value per share (Note 2)
Net asset value of $1,664,869,511 /
219,881,244 outstanding shares of beneficial
interest $7.57
- ------------------------------------------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996 (Unaudited)
- -------------------------------------------------------------------------------
Investment income (Note 1)
Interest $ 47,308,428
- -------------------------------------------------------------------------------
Expenses (Notes 2 and 4)
Investment management fee $3,205,365
Other administrative service fees 813,478
Reimbursable accounting fees 8,646
Trustees' fees and expenses 25,950
Distribution Plan expenses 2,232,191
- -------------------------------------------------------------------------------
Total expenses 6,285,630
Less: Expenses paid indirectly (Note 4) (84,988)
- -------------------------------------------------------------------------------
Net expenses 6,200,642
- -------------------------------------------------------------------------------
Net investment income 41,107,786
- -------------------------------------------------------------------------------
Net realized and unrealized loss on
investments (Notes 1 and 3)
Net realized loss on investments (657,141)
Net change in unrealized depreciation on
investments (60,689,674)
- -------------------------------------------------------------------------------
Net realized and unrealized loss on
investments (61,346,815)
- -------------------------------------------------------------------------------
Net decrease in net assets resulting from
operations ($ 20,239,029)
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
PAGE 26
- ----------------------------------------------
Keystone Tax Free Fund
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 1996 December 31, 1995
(Unaudited)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 41,107,786 $ 65,921,672
Net realized gain (loss) on investments
and closed futures contracts (657,141) 8,930,765
Net change in unrealized appreciation
(depreciation) on investments (60,689,674) 113,250,664
- -----------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (20,239,029) 188,103,101
- -----------------------------------------------------------------------------------
Distributions to shareholders from net
investment income (Note 1) (38,895,771) (63,827,615)
- -----------------------------------------------------------------------------------
Capital share transactions (Notes 2 and 5)
Shares issued in connection with the
acquisition of Keystone
Tax Exempt Trust 658,278,376 0
Proceeds from shares sold 82,448,423 133,114,586
Payment for shares redeemed (240,569,936) (283,907,474)
Net asset value of shares issued in
reinvestment of dividends and
distributions 19,379,406 33,258,548
- -----------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from capital share
transactions 519,536,269 (117,534,340)
- -----------------------------------------------------------------------------------
Total increase in net assets 460,401,469 6,741,146
Net assets:
Beginning of period 1,204,468,042 1,197,726,896
- -----------------------------------------------------------------------------------
End of period [Including undistributed net
investment income (accumulated
distributions in excess of net
investment income)
as follows: 1996--$548,929 and
1995--($1,663,086)](Note 1) $1,664,869,511 $1,204,468,042
- -----------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 27
- ----------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1.) Significant Accounting Policies
Keystone Tax Free Fund (the "Fund") is a Massachusetts business trust for
which Keystone Management, Inc. ("KMI") is the Investment Manager and
Keystone Investment Management Company ("Keystone") is the Investment
Adviser. The Fund is registered under the Investment Company Act of 1940, as
amended (the "1940 Act") as a diversified, open-end management investment
company. The Fund's investment objective is to provide shareholders with the
highest possible current income, exempt from federal income taxes, while
preserving capital.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc. ("KII"),
a Delaware corporation. KII is a private corporation predominately owned by
current and former members of management of Keystone and its affiliates. KMI
is a wholly-owned subsidiary of Keystone. Keystone Investor Resource Center,
Inc. ("KIRC"), a wholly-owned subsidiary of Keystone, serves as the Fund's
transfer and dividend disbursing agent. Keystone Investment Distributors
Company ("KIDC"), a wholly-owned subsidiary of Keystone, serves as the Fund's
principal underwriter.
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. Tax-exempt bonds are stated on the basis of valuations provided by a
pricing service that uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities in determining value. The Fund's
pricing service has been approved by its Board of Trustees.
Short-term investments maturing in sixty days or less are valued at
amortized cost (original purchase cost as adjusted for amortization of
premium or accretion of discount), which, when combined with accrued
interest, approximates market. Short-term investments maturing in more than
sixty days for which market quotations are readily available are valued at
current market value. Short-term investments maturing in more than sixty
days when purchased that are held on the sixtieth day prior to maturity are
valued at amortized cost (market value on the sixtieth day adjusted for
amortization of premium or accretion of discount), which, when combined with
accrued interest, approximates market.
Non-tax-exempt securities for which market quotations are readily
available are valued at the price quoted which, in the opinion of the Board of
Trustees or their representative, most nearly represents their market value. All
other securities are valued at fair value as determined in good faith using
methods prescribed by the Board of Trustees.
B. The Fund may enter into futures contracts. A futures contract is an
agreement between two parties to buy and sell a specific amount of a
commodity, security, financial instrument, or, in the case of a stock
index, cash at a set price on a future date. Upon entering into a futures
contract, the Fund is required to deposit with a broker an amount (initial
margin) equal to a certain percentage of the purchase price indicated in the
futures contract. Subsequent payments (variation margin) are made or received
by the Fund each day, as the value of the underlying instrument or index
fluctuates, and are recorded for book purposes as unrealized gains or losses by
the Fund. For federal tax purposes, any futures con-
<PAGE>
PAGE 28
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Keystone Tax Free Fund
(Unaudited)
tracts that remain open at fiscal year-end are marked-to-market and the
resultant net gain or loss is included in federal taxable income. In addition
to the market risk, the Fund is subject to the credit risk that the other
party will not be able to complete the obligations of the contract.
C. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed
upon date and price), the repurchase price of the securities will generally
equal the amount paid by the Fund plus a negotiated interest amount. The
seller under the repurchase agreement will be required to provide securities
(collateral) to the Fund whose value will be maintained at an amount not less
than the repurchase price, and which generally will be maintained at 101% of
the repurchase price. The Fund monitors the value of collateral on a daily
basis. If the value of the collateral falls below required levels, the Fund
intends to seek additional collateral from the seller or terminate the
repurchase agreement. If the seller defaults, the Fund would suffer a loss to
the extent that the proceeds from the sale of the underlying securities were
less than the repurchase price. Any such loss would be increased by any cost
incurred on disposing of such securities. If bankruptcy proceedings are
commenced against the seller under the repurchase agreement, the realization
on the collateral may be delayed or limited. Repurchase agreements entered
into by the Fund will be limited to transactions with dealers or domestic
banks believed to present minimal credit risks. The Fund will take
constructive receipt of all securities underlying repurchase agreements until
such agreements expire.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other Keystone funds, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury and/or Federal Agency obligations.
D. Securities transactions are accounted for no later than the day following
the trade date. Realized gains and losses are recorded on the identified cost
basis. Interest income is recorded on the accrual basis. All premiums and
original issue discounts are amortized/accreted for both financial reporting
and federal income tax purposes.
E. 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 expects to be 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 intends
to avoid any excise tax liability by making the required distributions under
the Code.
F. The Fund declares as daily dividends all of its net investment income and
pays them out to its shareholders monthly. Net realized long-term capital
gains, if any, are distributed annually. Distributions are determined in
accordance with income tax regulations. The significant differences between
financial statement amounts available for distribution and distributions made
in accordance with income tax regulations are the differences in treatment of
12b-1 Distribution Plan charges for financial statement and federal tax
purposes.
(2.) Capital Share Transactions
The Fund's Declaration of Trust authorizes the issuance of an unlimited
number of shares of beneficial interest with no par value. Transactions in
shares of the Fund were as follows:
<PAGE>
PAGE 29
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Six Months
Ended Year Ended
6/30/96 12/31/95
- --------------------------------------------------------------------------------
Shares issued in connection with the
acquisition of Keystone Tax Exempt Trust
(Note 5) 84,656,452 -0-
Shares sold 10,762,439 17,669,831
Shares redeemed (31,359,834) (37,618,182)
Shares issued in reinvestment of dividends
and distributions 2,527,143 4,437,352
- --------------------------------------------------------------------------------
Net increase (decrease) 66,586,200 (15,510,999)
- --------------------------------------------------------------------------------
The Fund bears some of the costs of selling its shares under a Distribution
Plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the
Distribution Plan, the Fund pays KIDC amounts that in total may not exceed
the Distribution Plan maximum.
In connection with the Distribution Plan and subject to the limitations
discussed below, the Fund's shares are offered for sale at net asset value
without any initial sales charge. From the amounts received by KIDC in
connection with the Distribution Plan, and subject to the limitations
discussed below, KIDC generally pays brokers or others a commission equal to
4.00% of the price paid to the Fund for each sale of Fund shares as well as a
shareholder service fee at a rate of 0.25% per annum of the net asset value
of shares sold by such brokers or others and maintained on the books of the
Fund for specified periods.
To the extent Fund shares purchased prior to July 8, 1992 are redeemed
within four calendar years of original issuance, the Fund may be eligible to
receive a deferred sales charge from the investor as partial reimbursement
for sales commissions previously paid on those shares. During the six months
ended June 30, 1996, the Fund recovered $342,790 in contingent deferred sales
charges. Since July 8, 1992, contingent deferred sales charges applicable to
shares of the Fund issued after January 1, 1992 have, to the extent permitted
by a rule of the National Association of Securities Dealers, Inc. ("NASD
Rule"), been paid to KIDC rather than to the Fund.
The Distribution Plan provides that the Fund may incur certain expenses that
may not exceed a maximum amount equal to 0.3125% of the Fund's average daily
net assets for any calendar quarter (approximately 1.25% annually) occurring
after the inception of the Distribution Plan. The NASD Rule limits the annual
expenditures which the Fund may incur under the Distribution Plan to 1.00%,
of which 0.75% may be used to pay distribution expenses and 0.25% may be used
to pay shareholder service fees. The NASD Rule also limits the aggregate
amount that the Fund may pay for such distribution costs to 6.25% of gross
share sales since the inception of the Fund's Distribution Plan, plus
interest at the prime rate plus 1.00% on unpaid amounts thereof (less any
contingent deferred sales charges paid by the shareholders to KIDC). During
the six months ended June 30, 1996, the Fund paid KIDC $2,574,981 under the
Distribution Plan. The amount paid by the Fund under its Distribution Plan,
net of deferred sales charges, was $2,232,191.
KIDC intends, but is not obligated, to continue to pay or accrue
distribution charges that exceed current annual payments permitted to be
received from the Fund. KIDC intends to seek full payment of such charges
from the Fund (together with annual interest thereon at the prime rate plus
1.00%) at such time in the future as, and to the extent that, payment thereof
by the Fund would be within permitted limits.
<PAGE>
PAGE 30
- ----------------------------------------------
Keystone Tax Free Fund
(Unaudited)
(3.) Securities Transactions
As of December 31, 1995, the Fund had a capital loss carryover for federal
income tax purposes of approximately $28,660,000, which expires as follows:
$25,307,000 in 2002 and $3,353,000 in 2003.
For the six months ended June 30, 1996, cost of purchases and proceeds from
sales of investment securities (excluding short-term securities) were
$1,009,837,579 and $540,096,409, respectively.
(4.) Investment Management Agreement and Other Transactions
Under the terms of the Investment Management Agreement between KMI and the
Fund (the "Management Agreement"), KMI provides investment management and
administrative services to the Fund. In return, KMI is paid a management fee
computed and paid daily. The management fee is calculated at an annual rate
of 2.0% of the Fund's gross investment income plus an amount determined by
applying percentage rates, starting at 0.50% and declining as net assets
increase to 0.25% per annum, to the net asset value of the Fund.
Pursuant to the Management Agreement, KMI has entered into an Investment
Advisory Agreement with Keystone under which Keystone provides investment
advisory and management services to the Fund and receives for its services an
annual fee equal to 85% of the management fee received by KMI.
During the six months ended June 30, 1996, the Fund paid or accrued a
management fee of $3,205,365 which represented 0.42% of the Fund's average
net assets. Of such amount paid to KMI, $2,724,560 was paid to Keystone for
its services to the Fund.
In providing or obtaining additional operating services, facilities and
supplies to the Fund, KMI incurred administrative expenses of $813,478 which
consisted of $707,240 for shareholder services fees and $106,238 for custodian
fees, audit and legal, printing, registration and other miscellaneous expenses.
The Fund has entered into an expense offset arrangement with its custodian.
For the six months ended June 30, 1996, the Fund paid custody fees in the
amount of $151,520 and received a credit of $84,988 pursuant to the expense
offset arrangement, resulting in a total expense of $236,508. The assets
deposited with the custodian under the expense offset arrangement could have
been invested in income-producing assets.
For the six months ended June 30, 1996, the Fund paid $8,646 to KII for
certain accounting services.
Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the Fund. Officers of Keystone and affiliated Trustees receive no
compensation directly from the Fund.
(5.) Fund Reorganization
On February 29, 1996, the Fund acquired the net assets of Keystone Tax Exempt
Trust in exchange for shares of the Fund pursuant to a plan of reorganization
approved by the shareholders of Keystone Tax Exempt Trust on February 29,
1996. The acquisition was accomplished by a tax-free exchange of shares of
the Fund for the net assets of Keystone Tax Exempt Trust. The net assets of
Keystone Tax Exempt Trust on that date, including $40,609,975 of unrealized
appreciation on investments, were combined with the Fund. The aggregate net
assets of the Fund and Keystone Tax Exempt Trust immediately before the
acquisition were $1,142,691,716 and $658,278,376, respectively. The net
assets of the Fund immediately after the acquisition was $1,800,970,092.
<PAGE>
PAGE 31
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Keystone's Services
for Shareholders
KEYSTONE AUTOMATED RESPONSE LINE (KARL)--Receive up-to-date account
information on your balance, last transaction and recent Fund distribution.
You may also process transactions such as investments, redemptions and
exchanges using a touch-tone telephone as well as receive quotes on price,
yield, and total return of your Keystone Fund. Call toll-free,
1-800-346-3858.
EASY ACCESS TO INFORMATION ON YOUR ACCOUNT--Information about your Keystone
account is available 24 hours a day through KARL. To speak with a Shareholder
Services representative about your account, call toll-free 1-800-343-2898
between 8:00 A.M. and 6:00 P.M. Eastern time. Retirement Plan investors
should call 1-800-247-4075.
ADDITIONS TO YOUR ACCOUNT--You can buy additional shares for your account at
any time, with no minimum additional investment.
REINVESTMENT OF DISTRIBUTIONS--You can compound the return on your
investment by automatically reinvesting your Fund's distributions at net
asset value with no sales charge.
EXCHANGE PRIVILEGE--You may move your money among funds in the same Keystone
family quickly and easily for a nominal service fee. KARL gives you the added
ability to move your money any time of day, any day of the week. Keystone
offers a variety of funds with different investment objectives for your
changing investment needs.
ELECTRONIC FUNDS TRANSFER (EFT)--Referred to as the "paper-less
transaction," EFT allows you to take advantage of a variety of preauthorized
account transactions, including automatic monthly investments and systematic
monthly or quarterly withdrawals. EFT is a quick, safe and accurate way to
move money between your bank account and your Keystone account.
CHECK WRITING--Shareholders of Keystone Liquid Trust may exercise the check
writing privilege to draw from their accounts.
EASY REDEMPTION--KARL makes redemption services available to you 24 hours a
day, every day of the year. The amount you receive may be more or less than
your original account value depending on the value of fund shares at time of
redemption.
RETIREMENT PLANS--Keystone offers a full range of retirement plans,
including IRA, SEP-IRA, profit sharing, money purchase, and defined
contribution plans. For more information, please call Retirement Plan
Services, toll-free at 1-800-247-4075.
Keystone is committed to providing you with quality, responsive account
service. We will do our best to assist you and your financial adviser in
carrying out your investment plans.
<PAGE>
[BACK COVER]
-------------------------------
KEYSTONE
FAMILY OF FUNDS
[DIAMOND]
Balanced Fund (K-1)
Diversified Bond Fund (B-2)
Growth and Income Fund (S-1)
High Income Bond Fund (B-4)
International Fund Inc.
Liquid Trust
Mid-Cap Growth Fund (S-3)
Precious Metals Holdings, Inc.
Quality Bond Fund (B-1)
Small Company Growth Fund (S-4)
Strategic Growth Fund (K-2)
Tax Free Fund
-------------------------------
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied by
the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you invest
or send money. For a free prospectus on other Keystone funds, contact your
financial adviser or call Keystone.
[KEYSTONE LOGO] KEYSTONE
INVESTMENTS
P.O. Box 2121
Boston, Massachusetts 02106-2121
KTFF-R-8/96
55M [RECYCLE LOGO]
-------------------------------
K E Y S T O N E
[GRAPHIC
OF
AMERICAN
FLAG]
TAX FREE
FUND
-------------------------------
[KEYSTONE LOGO]
SEMIANNUAL REPORT
JUNE 30, 1996
