- ------------------------------------------------------ ------------
Keystone Hartwell Growth Fund Revised
05/20/96
STATEMENT OF ASSETS AND LIABILITIES ---- 10:45 AM
------------
March 31, 1996 (Unaudited)
<TABLE>
- -------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at market value (identified cost -- $11,900,281) (Note 1) $19,349,094
Cash 537
Receivable for:
Dividends and interest 18,302
Prepaid expenses and other assets 27,703
- -------------------------------------------------------------------------------------------------------
Total assets 19,395,636
- -------------------------------------------------------------------------------------------------------
Liabilities (Note 4)
Accrued reimbursable expenses 1,307
Other accrued expenses and liabilities 19,950
- -------------------------------------------------------------------------------------------------------
Total liabilities 21,257
- -------------------------------------------------------------------------------------------------------
Net assets $19,374,379
- -------------------------------------------------------------------------------------------------------
Net assets represented by (Notes 1 and 3)
Paid-in-capital $10,085,465
Accumulated distribution in excess of net investment income (123,530)
Accumulated net realized gains (loss) on investment transactions 1,963,631
Net unrealized appreciation (depreciation) on investments 7,448,813
- -------------------------------------------------------------------------------------------------------
Total net assets $19,374,379
- -------------------------------------------------------------------------------------------------------
Net asset value (Notes 1 and 2)
Class A Shares
Net assets of $17,690,203 / 907,200 shares outstanding $19.50
Offering price per share ($19.50/0.9425)(based on sales charge of 5.75%
of the offering price at March 31,1996) $20.69
Class B Shares
Net assets of $1,234,701 / 65,024 shares outstanding $18.99
Class C Shares
Net assets of $449,475 / 23,831 shares outstanding $18.86
- -------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements
<PAGE>
- ------------------------------------------- -------------
Keystone Hartwell Growth Fund Revised
05/20/96
STATEMENTS OF CHANGES IN NET ASSETS ---- 10:45 AM
-------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 1996 September 30, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ($123,530) ($249,031)
Net realized gain on investment transactions 1,979,374 3,551,166
Net change in unrealized depreciation on investments (2,045,404) 1,076,375
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (189,560) 4,378,510
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from (Notes 1 and 5)
Net realized gain on
investment transactions:
Class A Shares (2,909,364) (2,039,209)
Class B Shares (179,018) (59,908)
Class C Shares (68,772) (25,743)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (3,157,154) (2,124,860)
- -----------------------------------------------------------------------------------------------------------------------------------
Capital share transactions (Note 2)
Proceeds from shares sold
Class A Shares 140,959 556,392
Class B Shares 297,880 718,805
Class C Shares 119,302 564,290
Payments for shares redeemed
Class A Shares (2,506,515) (3,781,942)
Class B Shares (182,759) (242,274)
Class C Shares (356,917) (181,910)
Net asset value of shares issued in reinvestment of dividends and distributions
Class A Shares 2,529,387 1,798,447
Class B Shares 163,385 57,500
Class C Shares 56,932 23,782
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital share transactions 261,654 (486,910)
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (3,085,060) 1,766,740
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period 22,459,439 20,692,699
- -----------------------------------------------------------------------------------------------------------------------------------
End of period [including accumulated distribution in excess of net
investment income as follows:
March 1996 -------($123,530) and September 1995 - $0] $19,374,379 $22,459,439
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
Keystone Hartwell Growth Fund Revised
05/20/96
STATEMENT OF OPERATIONS 10:45 AM
-----------
Six Months Ended March 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income (Note 1)
Dividends (net of foreign withholding tax of $4,355) $57,554
Interest 15,047
- --------------------------------------------------------------------------------------------------------------------
Total income 72,601
- --------------------------------------------------------------------------------------------------------------------
Expenses (Notes 2, 4, and 5)
Management fee $55,605
Transfer agent fees 35,418
Accounting 9,448
Auditing and legal 40,979
Printing 9,186
Custodian fees 12,165
Distribution Plan expenses 13,053
Registration fees 19,872
Miscellaneous expenses 1,320
- --------------------------------------------------------------------------------------------------------------------
Total expenses 197,046
Less: Expenses paid indirectly (Note 4) (915)
- --------------------------------------------------------------------------------------------------------------------
Net expenses 196,131
- --------------------------------------------------------------------------------------------------------------------
Net investment loss (123,530)
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment
transactions (Notes 1 and 3)
Net realized gain on investments 1,979,374
- --------------------------------------------------------------------------------------------------------------------
Net change in unrealized depreciation on investment transactions (2,045,404)
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (66,030)
- --------------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations ($189,560)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<PAGE>
- --------------------------------------------------- -------------
Keystone Hartwell Growth Fund Revised
05/20/96
FINANCIAL HIGHLIGHTS ---- CLASS A SHARES 10:45 AM
-------------
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six months Year Ended September 30,
ended --------------------------------------------------------------
March 31, 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of period $23.05 $20.96 $25.41 $21.73 $19.41 $16.39
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.23) (0.24) (0.33) (0.29) (0.25) (0.20)
Net gains (losses) on securities (0.00) 4.53 (1.75) 3.97 3.27 5.59
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.23) 4.29 (2.08) 3.68 3.02 5.39
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from capital gains (3.32) (2.20) (2.37) 0.00 (0.70) (2.37)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.32) (2.20) (2.37) 0.00 (0.70) (2.37)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value end of period $19.50 $23.05 $20.96 $25.41 $21.73 $19.41
- ---------------------------------------------------------------------------------------------------------------------------------
Total return (b) -0.75% 23.28% (8.72%) 16.94% 15.91% 37.88%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (c) 1.81%(a) 1.85% 2.05% 1.89% 2.11% 2.38%
Net investment loss (1.10)%(a) (1.15%) (1.49%) (1.27%) (1.18%) (1.15%)
Portfolio turnover rate 22% 34% 27% 42% 32% 53%
Average commission rate paid $0.0600 N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets end of period (thousands) $17,690 $20,600 $19,971 $26,198 $25,697 $17,952
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Per share calculations for all periods are based on weighted average shares
outstanding.
(a) Annualized
(b) Excluding applicable sales charges.
(c) The annualized expense ratio includes indirectly paid expenses for the six
months ended March 31, 1996, and for the year ended September 30, 1995.
Excluding indirectly paid expenses for the six months ended March 31,
1996, and for the year ended September 30, 1995, the annualized expense
ratio would have been 1.80% and 1.84%, respectively.
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- ------------------------------------------------------------------------------
Keystone Hartwell Growth Fund Revised
05/20/96
FINANCIAL HIGHLIGHTS ---- CLASS B SHARES 10:45 AM
(For a share outstanding throughout the period) ---------------
<TABLE>
<CAPTION>
For the period
August 2, 1993
Six Months Year Ended September 30, (Date of Initial
Ended -------------------------- Public Offering) to
March 1996 1995 1994 September 30, 1993
- -------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value beginning of period $22.63 $20.80 $25.41 $23.85
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.41) (0.41) (0.52) (0.07)
Net gains (losses) on securities 0.09 4.44 (1.72) 1.63
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.32) 4.03 (2.24) 1.56
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from capital gains (3.32) (2.20) (2.37) 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.32) (2.20) (2.37) 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value end of period $18.99 $22.63 $20.80 $25.41
- ------------------------------------------------------------------------------------------------------------------------------
Total return (b) -1.21% 22.10% (9.40%) 6.54%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (c) 2.81%(a) 2.78% 3.04% 3.42%(a)
Net investment loss (2.08)%(a) (2.06%) (2.45%) (2.80%)(a)
Portfolio turnover rate 22% 34% 27% 42%
Average commission rate paid $ 0.0600 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------
Net assets end of period (thousands) $1,235 $1,150 $498 $44
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Per share calculations for all periods are based on weighted average shares
outstanding.
(a) Annualized
(b) Excluding applicable sales charges.
(c) The annualized expense ratio includes indirectly paid expenses for the
six months ended March 31, 1996, and for the year ended September 30,
1995. Excluding indirectly paid expenses for the six months ended March
31, 1996, and for the year ended September 30, 1995, the annualized
expense ratio would have been 2.80% and 2.77%, respectively.
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
Keystone Hartwell Growth Fund Revised
05/20/96
FINANCIAL HIGHLIGHTS ---- CLASS C SHARES 10:45 AM
(For a share outstanding throughout the period) ----------
<TABLE>
<CAPTION>
For the period
August 2, 1993
Six Months Year Ended September 30, (Date of Initial
Ended -------------------------- Public Offering) to
March 1996 1995 1994 September 30, 1993
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value beginning of period $22.51 $20.71 $25.41 $23.85
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.41) (0.41) (0.51) (0.01)
Net gains (losses) on securities 0.08 4.41 (1.82) 1.57
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.33) 4.00 (2.33) 1.56
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from capital gains (3.32) (2.20) (2.37) 0.00
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (3.32) (2.20) (2.37) 0.00
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value end of period $18.86 $22.51 $20.71 $25.41
- -----------------------------------------------------------------------------------------------------------------------------
Total return (b) -1.26% 22.04% (9.80%) 6.54%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (c) 2.81%(a) 2.78% 3.11% 0.37%(a)
Net investment loss (2.13)%(a) (2.06%) (2.47%) (0.14%)(a)
Portfolio turnover rate 22% 34% 27% 42%
Average commission rate paid $0.0600 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
Net assets end of period (thousands) $449 $709 $224 $27
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Per share calculations for all periods are based on weighted average shares
outstanding.
(a) Annualized
(b) Excluding applicable sales charges.
(c) The annualized expense ratio includes indirectly paid expenses for the
six months ended March 31, 1996, and for the year ended September 30,
1995. Excluding indirectly paid expenses for the six months ended March
31, 1996, and for the year ended September 30, 1995, the annualized
expense ratio would have been 2.80% and 2.77% respectively.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
Keystone Hartwell Growth Fund
SCHEDULE OF INVESTMENTS -- March 31, 1996
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (94.4%)
BUSINESS SERVICES (15.3%)
Fritz Companies (a) 24,000 $936,000
General Motors Corp., Class E 15,000 855,000
Reuters Holdings ADR B 18,000 1,172,250
- --------------------------------------------------------------------------------------------
2,963,250
- --------------------------------------------------------------------------------------------
CABLE/MEDIA (7.4%)
Tele Communications, Inc., TCI Group, Class A (a) 51,800 961,538
Tele Communications, Inc., Liberty Media Group, Class A (a) 17,950 473,431
- --------------------------------------------------------------------------------------------
1,434,969
- --------------------------------------------------------------------------------------------
CELLULAR (8.6%)
Airtouch Communications (a) 10,000 311,250
Vodafone Group ADR 36,000 1,350,000
- --------------------------------------------------------------------------------------------
1,661,250
- --------------------------------------------------------------------------------------------
CHEMICALS (7.6%)
Grace W.R. & Co. 2,900 226,925
Great Lakes Chemical Corp. 18,600 1,253,175
- --------------------------------------------------------------------------------------------
1,480,100
- --------------------------------------------------------------------------------------------
COMMUNICATIONS & EQUIPMENT (7.2%)
Cabletron Systems, Inc. (a) 21,000 1,391,250
- --------------------------------------------------------------------------------------------
COMPUTER SOFTWARE (18.8%)
Cisco Systems, Inc. (a) 8,000 371,000
Microsoft Corp. (a) 18,000 1,856,250
Sterling Software, Inc. (a) 20,000 1,410,000
- --------------------------------------------------------------------------------------------
3,637,250
- --------------------------------------------------------------------------------------------
FINANCIAL SERVICES (13.7%)
Federal Home Loan Mortgage Corp. 8,700 741,675
Federal National Mortgage Association 28,000 892,500
First Data Corp. 5,200 366,600
MGIC Investment Corporation 12,000 654,000
- --------------------------------------------------------------------------------------------
2,654,775
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
Keystone Hartwell Growth Fund
SCHEDULE OF INVESTMENTS -- March 31, 1996
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE SERVICES (4.6%)
Healthsource, Inc. (a) 5,700 220,875
United Healthcare Corp. 11,000 676,500
- --------------------------------------------------------------------------------------------
897,375
- --------------------------------------------------------------------------------------------
INSURANCE (5.8%)
American International Group, Inc. 12,000 1,123,500
- --------------------------------------------------------------------------------------------
MISCELLANEOUS (1.0%)
Molten Metal Tech., Inc. (a) 5,500 184,250
- --------------------------------------------------------------------------------------------
SEMICONDUCTOR (4.4%)
Intel Corp. 15,000 853,125
- --------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost - $10,832,281) 18,281,094
- --------------------------------------------------------------------------------------------
Maturity
Value
REPURCHASE AGREEMENTS (5.5%)
State Street Bank and Trust Co., 4.750%, purchased 03/29/96
(Collateralized by $740,000 U.S. Treasury Bonds, 11.25%,
02/15/15) maturing 04/01/96 (Cost - $1,068,000) $1,068,423 1,068,000
- --------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost - $11,900,281)(b) 19,349,094
OTHER ASSETS AND LIABILITIES -- NET (0.1%) 25,285
- --------------------------------------------------------------------------------------------
NET ASSETS (100%) $19,374,379
- --------------------------------------------------------------------------------------------
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income-producing security.
<PAGE>
Keystone Hartwell Growth Fund
NOTES FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone Hartwell Growth Fund, (formerly Keystone America Hartwell Growth Fund,
Inc.) (the "Fund") is a nondiversified, open-end investment company (mutual
fund). The Fund was incorporated in New York on November 30, 1965 and began
operations on March 31, 1966. Prior to January 30, 1995, Hartwell Keystone
Advisers, Inc. ("Hartwell Keystone"), a wholly-owned subsidiary of Keystone
Investment Management Co. (formerly Keystone Custodian Funds, Inc.) ("Keystone")
was the Fund's investment adviser. Since January 31, 1995 Keystone has served as
the Fund's investment adviser. On May 30, 1995, the Fund was reorganized as a
Massachusetts Business Trust. The Fund's investment objective is capital
appreciation.
J.M. Hartwell Limited Partnership (formerly Hartwell Management Company,
Inc.) ("Hartwell") acts as subadviser to the Fund pursuant to a Sub-Advisory
Agreement with Keystone. Subject to the supervision of the Fund's Board of
Trustees and Keystone, Hartwell provides the Fund and Keystone with investment
research, advice, information and securities recommendations.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc.
(formerly Keystone Group, Inc.)("KII"), a Delaware corporation. KII is a private
corporation predominately owned by current and former members of management of
Keystone and its affiliates. Keystone Investor Resource Center, Inc. ("KIRC"), a
wholly-owned subsidiary of Keystone, is the Fund's transfer agent.
The Fund currently issues three classes of shares. Class A Shares are sold
subject to a maximum sales charge of 5.75% payable at the time of purchase.
Class B shares are sold subject to a contingent deferred sales charge which
varies depending on when shares were purchased and how long they have been held.
Class C shares are sold subject to a contingent deferred sales charge payable
upon redemption within one year of purchase. Class C shares are available only
through dealers who have entered into special distribution agreements with
Keystone Investment Distributors Company (formerly Keystone Distributors,
Inc.)("KIDCO"), the Fund's principal underwriter and a wholly-owned subsidiary
of Keystone.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles which
requires 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.
<PAGE>
Keystone Hartwell Growth Fund
A. Investments are usually valued at the closing sales price, or in the absence
of sales and for over-the-counter securities, the mean of bid and asked
quotations. Management values the following securities at prices it deems in
good faith to be fair by or under the direction of the Board of Trustees: (a)
securities (including restricted securities) for which complete quotations are
not readily available and (b) listed securities if, in the opinion of
management, the last sales price does not reflect a current value, or if no sale
occurred.
Short-term investments, if purchased with maturities of 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, which 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.
B. Securities transactions are accounted for no later than one business day
after the trade date. Realized gains and losses are computed on the identified
cost basis. Interest income is recorded on the accrual basis and dividend income
is recorded on the ex-dividend date. Distributions to the shareholders are
recorded by the Fund at the close of business on the ex-dividend date.
C. 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
("Internal Revenue Code"). Thus, the Fund is relieved of any federal income or
excise 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 excise tax liability by making the required distributions under the
Internal Revenue Code.
D. 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,
and 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
<PAGE>
Keystone Hartwell Growth Fund
with dealers or domestic banks believed to present minimal credit risks, and the
Fund will take constructive receipt of all securities underlying repurchase
agreements until such agreements expire.
E. The Fund distributes net investment income and net capital gains, if any,
annually. Distributions are determined in accordance with income tax
regulations. Distributions from taxable net investment income and net capital
gains can exceed book basis net income and net capital gains. The significant
difference between financial statement amounts available for distribution and
distributions made in accordance with income tax regulations are primarily due
to differing treatment of 12b-1 expenses prior to April 1995.
(2.) Capital Share Transactions
The Trust Agreement authorizes the issuance of an unlimited number of shares of
beneficial interest without par value. Transactions in shares of the Fund were
as follows:
Class A Shares
-----------------------------------------------
Six Months Ended Year Ended
March 31, 1996 September 30, 1995
================================================================================
Sales 6,960 26,726
Redemptions (125,257) (184,792)
Reinvestment of
dividends and
distributions 131,945 98,925
- --------------------------------------------------------------------------------
Net increase (decrease) 13,648 (59,141)
================================================================================
<PAGE>
Keystone Hartwell Growth Fund
Class B Shares
-------------------------------------------
Six Months Ended Year Ended
March 31, 1996 September 30, 1995
================================================================================
Sales 14,580 35,697
Redemptions (9,093) (12,016)
Reinvestment of
dividends and
distributions 8,723 3,194
- --------------------------------------------------------------------------------
Net increase 14,210 26,875
================================================================================
Class C Shares
-------------------------------------------
Six Months Ended Year Ended
March 31, 1996 September 30, 1995
================================================================================
Sales 6,269 28,600
Redemptions (16,999) (9,229)
Reinvestment of
dividends and
distributions 3,061 1,328
- --------------------------------------------------------------------------------
Net increase (decrease) (7,669) 20,699
================================================================================
The Fund bears some of the costs of selling its shares under Distribution
Plans adopted with respect to its Class A, Class B, and Class C shares pursuant
to Rule 12b-1 under the Investment Company Act of 1940. Under its Distribution
Plans, the Fund pays Keystone Investment Distributors Company (formerly Keystone
Distributors, Inc.) ("KIDCO"), the principal underwriter and a wholly-owned
subsidiary of Keystone, amounts which in total may not exceed each Distribution
Plan's maximum.
The Class A Distribution Plan provides for payments that are currently
limited to
<PAGE>
Keystone Hartwell Growth Fund
0.25% annually of the average daily net asset value of Class A shares, to pay
expenses of the distribution of Class A shares. Amounts paid by the Fund to
KIDCO under the Class A Distribution Plan are currently used to pay others, such
as dealers, service fees at an annual rate of 0.25% of the average daily net
asset value of the shares maintained by such recipients and outstanding on the
books of the Fund for specified periods.
The Class B Distribution Plans provide for payments at an annual rate of
1.00% of the average daily net asset value of Class B shares to pay expenses of
the distribution of Class B shares. Amounts paid by the Fund under the Class B
Distribution Plans are currently used to pay others (dealers) a commission at
the time of purchase normally equal to 4.00% of the price paid for each share
sold plus the first year's service fee in advance of 0.25% of the price paid for
each Class B share sold. Beginning approximately 12 months after the purchase of
a Class B share, the dealer or other party will receive service fees at an
annual rate of 0.25% of the average daily net asset value of such Class B shares
maintained by such others and remaining outstanding on the Fund's books for
specified periods. A contingent deferred sales charge will be imposed, if
applicable, on Class B shares purchased on or after June 1, 1995 at rates
ranging from a maximum of 5% of amounts redeemed during the first 12 months
following the date of purchase to 1% of amounts redeemed during the sixth
twelve-month period following the date of purchase. Class B shares purchased on
or after June 1, 1995 that have been outstanding for eight years following the
month of purchase will automatically convert to Class A shares without a front
end sales charge or exchange fee. Class B shares purchased prior to June 1, 1995
will retain their existing conversion rights.
The Class C Distribution Plan provides for payments at an annual rate of up
to 1.00% of the average daily net asset value of Class C shares, to pay expenses
of the distribution of Class C shares. Amounts paid by the Fund under the Class
C Distribution Plan are currently used to pay others (dealers) a commission at
the time of purchase in the amount of 0.75% of the price paid for each Class C
share sold, plus the first year's service fee in advance in the amount of 0.25%
of the price paid for each Class C share. Beginning approximately 15 months
after purchase, the dealer or other party will receive a commission at an annual
rate of 0.75% (subject to applicable limitations imposed by the rules of the
National Association of Securities Dealers, Inc.) ("NASD Rule") plus service
fees at an annual rate of 0.25%, respectively, of the average net asset value of
each Class C share maintained by such others and remaining outstanding on the
Fund's books for specified periods.
Each of the Distribution Plans may be terminated at any time by a vote of
the Independent Trustees or by a vote of a majority of the outstanding voting
shares of the respective class. However, after the termination of any
Distribution Plan, at the discretion of the Board of Trustees, payments to KIDCO
may continue as compensation for its services which had been earned while the
Distribution Plan was in effect.
<PAGE>
Keystone Hartwell Growth Fund
KIDCO intends, but is not obligated, to continue to pay or accrue
distribution costs and service fees which exceed annual maximum payments
permitted to be received by KIDCO from the Fund. KIDCO intends to seek full
payment of such amounts from the Fund (together with annual interest thereon at
the prime rate plus 1.0%) at such time in the future as, and to the extent that,
payment thereof by the Fund would be within permitted limits. KIDCO currently
intends to seek payment of interest only on such amounts paid or accrued by
KIDCO subsequent to January 1, 1992.
During the six months ended March 31, 1996, the Fund paid KIDCO $4,697
under its Class A Distribution Plan. The Fund paid KIDCO $4,620 for Class B
shares sold prior to June 1, 1995, and $1,305 or Class B shares sold on or after
June 1, 1995 under its Class B Distribution Plans. The Fund paid KIDCO $2,431
under its Class C Distribution Plan.
Under the NASD Rule, the maximum uncollected amounts for which KIDCO may
seek payment from the Fund under its Class B Distribution Plans were $45,963 for
Class B shares purchased prior to June 1, 1995, and $18,103 for Class B shares
purchased on or after June 1, 1995 as of March 31, 1996. The maximum uncollected
amount for which KIDCO may seek payment from the Fund under its Class C
Distribution Plan was $32,488 as of March 31, 1996.
(3.) Securities Transactions
Cost of purchases and proceeds from sales of investment securities excluding
short-term securities during the six months ended March 31, 1996 were $4,449,075
and $8,419,091 respectively.
(4.) Investment Management Agreement and Other Transactions with Affiliates
The Fund pays Keystone a basic monthly advisory fee calculated by applying
percentage rates, starting at 1.0% and declining as net assets increase, to
0.65% to the Fund's average daily net asset value during the latest 12 months (a
moving average method). The basic advisory fee of the Fund is subject to an
incentive adjustment, by which the basic fee may be increased or decreased by up
to 1/2 of 1% of the average daily net asset value during the latest 12 months (a
moving average method) of the Fund depending upon the performance of the Fund
relative to the Standard and Poor's Index of 500 Stocks (S&P 500).
During the six months ended March 31, 1996, the Fund paid or accrued
$55,605 in management fees representing 0.54% of the Fund's average daily net
assets on an annualized basis. Of this amount $15,830 was paid or accrued to
Keystone, and $39,775 was paid to Hartwell for its services to the Fund.
<PAGE>
Keystone Hartwell Growth Fund
During the six months ended March 31, 1996, the Fund paid or accrued to
KIRC and KII $18,634 for certain accounting and printing services and $35,418
for shareholder services.
The Fund is subject to certain state annual expense limits, the most
restrictive of which is as follows: 2.5% of the first $30 million of fund
average net assets; 2.0% of the next $70 million of fund average net assets; and
1.5% of fund average net assets over $100 million.
Keystone has agreed to reimburse the Fund annually for certain operating
expenses incurred by the Fund in excess of the applicable state expense limit.
However, Keystone is not required to make such reimbursement to an extent which
would result in the Fund's inability to qualify as a regulated investment
company under provisions of the Internal Revenue Code.
The Fund has entered into an expense offset arrangement with its custodian.
For the six months ended March 31, 1996, the Fund incurred total custody fees in
the amount of $12,165 and received a credit of $915 pursuant to the expense
offset arrangement, resulting in a net custodian expense of $11,250. The assets
deposited with the custodian under the expense offset arrangement could have
been invested in an income-producing asset.
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. Currently the Independent Trustees receive
no compensation for their services.
(5.) Distributions to Shareholders
The Fund intends to distribute to its shareholders distributions from its net
investment income, if any, annually and net capital gains, if any, at least
annually. Any taxable dividend declared in October, November or December and
paid by January 31 of the following year will be included in the taxable income
of the shareholder in the year declared.
(6.) Class Level Expenses
Presently, the Fund's class-specific expenses are limited to expenses incurred
by a class of shares pursuant to its respective Distribution Plan. For the six
months ended March 31, 1996, the total amount of expenses incurred under each
class's Distribution Plan is set forth in Note (2.) "Capital Share
Transactions."
