Keystone America Hartwell Emerging Growth Fund, Inc.
Seeks capital appreciation from growth stocks of small- and medium-sized
companies with above-average appreciation potential.
Dear Shareholder:
We would like to take this opportunity to report on your Fund's performance
for the twelve-month period which ended September 30, 1995.
Performance
For the twelve-month period which ended September 30, 1995, your Fund
produced the following total returns.
Class A shares returned 37.20%.
Class B shares returned 35.61%.
Class C shares returned 35.89%.
The Russell 2000 index, a benchmark of small company stocks, returned 23.38%
for the same period.
We were pleased with your Fund's strong performance in 1995. After a volatile
period in 1994, your Fund rebounded sharply, easily surpassing several market
benchmarks including the Russell 2000.
Keystone America Hartwell Emerging Growth Fund, Inc., despite periodic
short-term setbacks, has shown itself to be a leading long-term performer. As
of September 30, 1995, Class A shares were ranked 4th out of 35 small company
growth funds for the 10-year period, according to Lipper Analytical Services,
Inc.(1) For the five-year period Class A shares ranked 52nd out of 79 funds;
for the one-year period Class A shares ranked 77th out of 287 funds.
Your Fund's portfolio manager, John M. Hartwell, founder of J.M. Hartwell,
LP, has developed a time-tested approach to investing in small, rapidly
growing companies. His strategy includes a stock-by-stock analysis of company
finances, products, management, and markets. During the twelve month period,
this fundamental approach lead to investments in fast growing companies in
the technology, retail, and health care industries. Following our letter to
you, Mr. Hartwell discusses his recent strategy.
We appreciate your continued support of Keystone America Hartwell Emerging
Growth Fund, Inc. If you have any questions or comments about your Fund, we
encourage you to write us.
Sincerely,
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Chairman and President
Keystone Investments, Inc.
/s/ George S. Bissell
George S. Bissell
Chairman of the Board
Keystone Funds
November 1995
[Photo: Albert H. Elfner, III] [Photo: George S. Bissell]
Albert H. Elfner, III George S. Bissell
(1)Source: Lipper Analytical Services, Inc., an independent mutual fund
rating service. Lipper ranks funds based on total returns which includes
reinvestment of dividends, and does not include the effects of sales
charges. Past performance is no guarantee of future results.
<PAGE>
A Report
From Your Fund Manager
[Photo: John M. Hartwell]
John M. Hartwell is one of the investment industry's best known
stock managers. He is the founder of J.M. Hartwell, LP
and portfolio manager of your Fund. Mr. Hartwell holds a BA
from Harvard College and an MBA from Harvard Business School.
To the Fund's Shareholders:
During the twelve-month period which ended September 30, 1995, small- and
medium-sized company stocks were strong performers. Our strategy of investing in
relatively small, entrepreneurial companies led us to select stocks in several
market niches. While technology stocks accounted for the largest portion of the
Fund's investments, specialty retail and health care stocks were also
significant contributors to its performance.
Technology Stocks Continued To Be Attractive
From Internet to global telecommunications networks, there is hardly an area
of our lives that hasn't been touched by technology. Not only has it become
an integral part of our personal lives, but businesses have turned to
technology to enhance productivity and to become more competitive in the
global economy. This is why some of the most attractive rapidly growing
companies continued to be found in the technology sector.
At the beginning of the period, approximately 28% of portfolio assets were
invested in technology stocks, including communication, semiconductor, and
software. That weighting peaked at 45% around March and dropped back to 39%
by the end of the period. Within the technology sector, our individual stock
choices centered around certain themes, such as software development, the
Internet, video conferencing, improved productivity, and equipment
manufacturers.
Software development: McAfee was one of the largest holdings in the portfolio
at 5.1% of net assets. McAfee is a software company that produces anti-virus
software for computers. With a 70% market share, the company dominates the
virus protection segment of the software market. For most of the twelve-month
period, McAfee generated growth in earnings at an annual rate of 50%. While
we anticipate a moderation in this growth, we believe the company has the
potential to maintain an annual growth rate of at least 30%.
The Internet: Netcom is a company that provides access to the Internet.
People who subscribe to Netcom can be connected to the Internet through a
dial-up telephone service. While approximately eight companies dominate this
market niche, none has more than a 20% market share. Netcom is an industry
leader, provides one of the least expensive services, and is expanding
rapidly.
Video conferencing: Until recently, these companies have focused on providing
services for conference rooms. We believe that within the next five years,
they will concentrate on developing products and services for individuals to
use through personal computers. We believe the biggest, best and most
successful company in this area is PictureTel, one of your Fund's top ten
holdings. We also hold two other video conferencing companies -- VTel and
Video Server.
Productivity enhancement: We believe productivity enhancement is an important
theme underlying rapidly growing companies. As companies continue to seek
ways to increase earnings, they are turning more and more to technology that
can improve productivity. We continued to hold Wonderware and Cognex,
companies that use technology to integrate and improve manufacturing
processes. We also hold PeopleSoft, a company that develops
2
<PAGE>
software for human resources departments. These companies provided
consistently strong earnings, and they continued to be strong contributors to
Fund performance.
Equipment manufacturers: We invested in several semiconductor companies,
including Integrated Silicon Solutions and Exar Corporation. Semiconductors
are electronic microcomputer components that are an integral part of personal
computers, automobiles, appliances and other products. After generating
strong gains, we reduced the Fund's holdings in semiconductor stocks, because
we believed their fast earnings growth was close to reaching a peak.
While most technology stocks produced strong gains during the twelve months,
some failed to live up to our expectations. At a time when most technology
stocks rose in value, Alantec and Digital Link were laggards, so we
eliminated them from the portfolio. When the reasons for holding a stock are
no longer valid, we are quick to remove them.
Retail and Restaurant Stocks
Helped Boost Gains
During the twelve-month period, specialty retail and restaurant stocks in the
portfolio grew from 15% of net assets to about 22%. Because we believed they
could meet our criteria for rapid growth, selected companies in the video rental
business and certain restaurants were particularly attractive.
Approximately 20% of the business video rental business is owned by large
companies, and about 80% is comprised of small, independent enterprises.
These small video rental businesses generate a significant amount of cash,
and we think they can be acquired for
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Fund Profile
Objective: Seeks capital appreciation from growth stocks of small- and
medium-sized companies with above-average appreciation potential.
Commencement of investment operations: September 1968
Number of stocks: 34
Net assets: $121 million
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Top 10 Holdings
as of September 30, 1995
Percent of
Stock Industry net assets
-----------------------------------------------------------------------
Steris Healthcare services 5.2
-----------------------------------------------------------------------
McAfee Associates Software/business 5.1
-----------------------------------------------------------------------
Netcom-On-Line
Communications Communications/software 4.5
-----------------------------------------------------------------------
Movie Gallery Specialty retail 4.4
-----------------------------------------------------------------------
Cycare Systems Healthcare/information
systems 4.3
-----------------------------------------------------------------------
Phycor Healthcare services 3.8
-----------------------------------------------------------------------
PeopleSoft Software/business 3.8
-----------------------------------------------------------------------
PictureTel Communications/software 3.7
-----------------------------------------------------------------------
Sunglass Hut
International Specialty retail 3.7
-----------------------------------------------------------------------
Cognex Software/manufacturing 3.6
-----------------------------------------------------------------------
reasonable prices. Two companies in which we invested -- Hollywood
Entertainment and Movie Gallery -- are both acquiring video stores. These
companies provided attractive returns for the Fund for most of the twelve
months. Shortly after the close of the period, however, they reported
disappointing earnings, so we cut back on our holdings.
Attractive prices and lower interest rates were factors we considered when
purchasing selected restaurant stocks. We invested in Apple South, a medium-
priced family dining chain. We also invested in DF&R Restaurants, a Mexican
restaurant chain,
which during the third quarter of 1995 was acquired by Apple South. Daka
International, an institutional food service company, was another restaurant
holding. Daka provides educational establishments and small restaurants in
shopping malls with catering facilities. It also owns the Fuddruckers chain.
All of these stocks generated solid gains. We expect them to grow at around
30% annually for the next two or three years.
Healthcare Stocks Generated Strong Returns
Heathcare stocks remained an exciting area of opportunity, comprising 19% of
net assets. Most of our
3
<PAGE>
health care holdings experienced solid price appreciation, positive earnings,
and strong revenue growth. Within the broad healthcare spectrum, we
identified selected stocks in areas that we believe have the potential to
experience significant growth.
Steris is a healthcare service company that manufactures equipment that helps
sterilize instruments in hospitals. Two additions to the portfolio -- Cycare
and Phamis -- are in the information management systems business. As
healthcare organizations strive to reduce costs and increase efficiency, they
are turning to computer-based information systems that can track inventory,
keep schedules, maintain medical records and other types of data. Companies
such as Cycare and Phamis are in demand because they provide these services.
We believe that these companies have excellent potential for growth because
the healthcare industry has only begun to benefit from the potential of
computer-based information systems.
The healthcare industry is also taking advantage of outsourcing. Outsourcing
means hiring a company with particular expertise to do a job, often for less
than if done in-house. One such business is Phycor, a physician practice
management group. Phycor is helping consolidate the fragmented physician
market. It helps operate clinics under long-term service agreements and
provides physicians with administrative and technical support. There are very
few companies in this area, and Phycor is one of the leaders. Phycor's stock
price appreciated significantly during the twelve-month period.
Our Outlook
Going forward, we believe that the economy should provide a positive backdrop
for small-company stocks. We expect to see a continuation of the trend we've
experienced over the past six months -- slower economic growth, but not a
recession, stable to declining interest rates, and moderate inflation.
While this may be a positive economic environment, we continue to evaluate
companies on their individual merits. Investing in small company stocks can
mean rapid changes in stock prices over the short term. However, over the
27-year history of this Fund, we believe long-term investors have been
rewarded for their commitment.
Sincerely,
/s/ John M. Hartwell
John M. Hartwell
Portfolio Manager and Founder
J.M. Hartwell, LP
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The J.M. Hartwell Investment Discipline
Purchase Strategy--criteria used to evaluate the purchase of a stock for your
Fund:
* Bottoms-up approach, individual company analysis
* Fast growing, emerging companies; minimum 30% earnings growth rate
* Durable and consistent earnings growth
* Long-term approach to investing; not influenced by short-term price swings
* Under $500 million market capitalization at time of purchase; companies with
an established and reliable earnings record
* Strong #1 or close #2 market position within industry
* Avoid cyclical businesses or heavily regulated industries
Sell Strategy--criteria used to evaluate when to eliminate a stock owned by
your Fund:
* Deteriorating financial situation
* Original purchase determinants no longer valid
* Price-to-earnings per share ratio exceeds growth rate by 50%
* Price decline of greater than 15% with a rise in trading volume without new
information
Overall Management Strategy
* Hands on approach, meet/in contact with company management regularly
* Focus on the limited number of companies that are leaders in their field
* Ignore short-term market fluctuations
* Concentrate on companies that will provide above-average capital appreciation
over the long-term
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4
<PAGE>
Your Fund's Performance
= = = = = = = = = = = = = = = = [Mountain chart] = = = = = = = = = = = = = = =
Growth of an investment in
Keystone America Hartwell Emerging Growth
Fund, Inc. Class A
In Thousands
Reinvested Initial
Distributions Investment
9/85 9425 10000
9/86 12607 12202.1
9/87 20564 15788.5
9/88 17192 14081.3
9/89 23735 17107
9/90 21137 12460.8
9/91 34562 18078.9
9/92 34176 20650.1
9/93 46949 27493.8
9/94 38565 28227.4
9/95 52908 34826.2
A $10,000 investment in Keystone America Hartwell Emerging Growth Fund, Inc.
Class A made on September 30, 1985 with all distributions reinvested was
worth $52,908 on September 30, 1995. Past performance is no guarantee of
future results.
================================================================================
Twelve-Month Performance as of September 30, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Class A Class B Class C
Total returns* 37.20% 35.61% 35.89%
Net asset value 9/30/94 $21.41 $21.22 $21.26
9/30/95 $26.28 $25.69 $25.80
Dividends None None None
Capital gains $ 2.89 $ 2.89 $ 2.89
* Before deducting front-end or contingent deferred sales charge
(CDSC), if applicable.
Historical Record as of September 30, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 37.20% 35.61% 35.89%
1-year 29.31% 31.61% 35.89%
5-year 135.92% -- --
10-year 429.08% -- --
Life of Class -- 15.27% 18.62%
Average Annual Returns
1-year w/o sales charge 37.20% 35.61% 35.89%
1-year 29.31% 31.61% 35.89%
5-year 18.73% -- --
10-year 18.13% -- --
Life of Class -- 6.79% 8.21%
Class A shares were introduced on September 10, 1968. Performance is reported
at the current maximum front-end sales charge of 5.75%.
Class B shares were introduced on August 2, 1993. Shares purchased after June
1, 1995 are subject to a contingent deferred sales charge (CDSC) that
declines from 5% to 1% over six years from the month purchased. Performance
assumes that shares were redeemed after the end of a one-year holding period
and reflects the deduction of a 4% CDSC.
Class C shares were introduced on August 2, 1993. Performance reflects the
return you would have received after holding shares for one year or more and
redeeming after the end of that period.
The investment return and principal value will fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost. Performance
for each class will differ.
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.
5
<PAGE>
Keystone America Hartwell Emerging Growth Fund, Inc.
Growth of an Investment
= = = = = = = = = = = = = = = = [Line Chart] = = = = = = = = = = = = = = = = =
Comparison of change in value of a $10,000 investment in Keystone America
Hartwell Emerging Growth Fund Inc. Class A, the Russell 2000 and the Consumer
Price Index
In Thousands September 30, 1985 through September 30, 1995
Average Annual Total Return
------------------------------------------
1 Year 5 Year 10 Year
Class A 29.31% 18.73% 18.13%
Class B 31.61% -- 6.79%
Class C 35.89% -- 8.21%
Russell
Class A 2000 CPI
9/85 9425 10000 10000
12607 12202.0 10175
9/87 20564 15788.4 10619
17192 14081.3 11062
9/89 23735 17107.0 11542
21137 12460.7 12253
9/91 34562 18078.9 12668
34176 20650.1 13047
9/93 46949 27493.8 13398
38565 28227.4 13795
9/95 52908 34826.2 14146
Past performance is no guarantee of future results. The performance of Class
B or Class C shares will be greater or less than the line shown based on
differences in loads and fees paid by the shareholder investing in the
different classes. *Class B and Class C shares were introduced August 2,
1993; performance is for life of class.
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
This chart graphically compares your Fund's total return performance to
certain investment indexes. It is the result of fund performance guidelines
issued by the Securities and Exchange Commission. The intent is to provide
investors with more information about their investment.
Components of the Chart
The chart is composed of several lines that represent the accumulated value
of an initial $10,000 investment for the period indicated. The lines
illustrate a hypothetical investment in:
1. Keystone America Hartwell Emerging Growth Fund, Inc. Class A
The Fund seeks capital appreciation from growth stocks of small- and
medium-sized companies with above-average appreciation potential. The return
is quoted after deducting sales charges (if applicable), fund expenses, and
transaction costs and assumes reinvestment of all distributions.
2. Russell 2000 Index
A broad-based securities market index, the Russell 2000 is an unmanaged index
of equities with small market capitalizations. The Index represents small
companies that may be less established, and may be more concentrated in
certain industries than other indexes. As a result, the Index may be more
volatile than other indexes such as the S&P 500.
3. Consumer Price Index (CPI)
This index is a widely recognized measure of the cost of goods and services
produced in the U.S. The index contains factors such as prices of services,
housing, food, transportation and electricity which are compiled by the U.S.
Bureau of Labor Statistics. The CPI is generally considered a valuable
benchmark for investors who seek to outperform increases in the cost of
living.
These indexes do not include transaction costs associated with buying and
selling securities, and do not hold cash to meet redemptions. It would be
difficult for most individual investors to duplicate these indexes.
Understanding What the Chart Means
The chart demonstrates your Fund's total return performance in relation to a
well known investment index and to increases in the cost of living. It is
important to understand what the chart shows and does not show.
This illustration is useful because it charts Fund and index performance over
the same time frame and over a long period. Long-term performance is a more
reliable and useful measure of performance than measurements of short-term
returns or temporary swings in the market. Your financial adviser can help
you evaluate fund performance in conjunction with the other important
financial considerations such as safety, stability and consistency.
6
<PAGE>
Limitations of the Chart
The chart, however, limits the evaluation of Fund performance in several
ways. Because the measurement is based on total returns over an extended
period of time, the comparison often favors those funds which emphasize
capital appreciation when the market is rising. Likewise, when the market is
declining, the comparison usually favors those funds which take less risk.
Performance Can Be Distorted
Funds which are more conservative in their orientation and which place an
emphasis on capital preservation will tend to compare less favorably when the
market is rising. In addition, funds which have income as one of their
objectives also will tend to compare less favorably to relevant indexes.
Indexes may also reflect the performance of some securities which a fund may
be prohibited from buying. A bond fund, for example, may be limited to
investments in only high quality bonds, or a stock fund may only be able to
buy stocks that have been traded on a stock exchange for a minimum number of
years or stocks that have a certain market capitalization. Indexes usually do
not have the same investment restrictions as your Fund.
Indexes Do Not Include Costs of Investing
The comparison is further limited in its utility because the indexes do not
take into account any deductions for sales charges, transaction costs or
other fund expenses. Your Fund's performance figures do reflect such
deductions. Sales charges--whether up-front or deferred--pay for the cost of
the investment advice of your financial adviser. Transaction costs pay for
the costs of buying and selling securities for your Fund's portfolio. Fund
expenses pay for the costs of investment management and various shareholder
services. None of these costs are reflected in index total returns. The
comparison is not completely realistic because an index cannot be duplicated
by an investor--even an unmanaged index--without incurring some charges and
expenses.
One of Several Measures
The chart is one of several tools you can use to understand your investment.
It should be read in conjunction with the Fund's prospectus, and annual and
semiannual reports. Also, your financial adviser, who understands your
personal financial situation, can best explain the features of your Keystone
fund and how it applies to your financial needs.
Future Returns May Be Different
Shareholders also should be mindful that the long-run performance of either
the Fund or the indexes is not representative of what shareholders should
expect to receive from their Fund investment in the future; it is presented
to illustrate only past performance and is not a guarantee of future returns.
7
<PAGE>
Keystone America Hartwell Emerging Growth Fund, Inc.
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.
8
<PAGE>
SCHEDULE OF INVESTMENTS--September 30, 1995
Market
Shares Value
==========================================================
COMMON STOCKS (94.7%)(a)
CELLULAR/WIRELESS (6.3%)
Arch Communications Group 160,000 $ 4,200,000
Pronet, Inc. 120,000 3,495,000
---------------------------------------------------------
7,695,000
---------------------------------------------------------
COMMUNICATIONS EQUIPMENT (2.6%)
Stratacom, Inc. 57,500 3,176,875
---------------------------------------------------------
COMMUNICATIONS/SOFTWARE (16.7%)
Computron Software, Inc. 65,000 1,121,250
Global Village Communications 75,000 1,031,250
Netcom-On-Line Communications 125,000 5,500,000
PictureTel Corp. 100,000 4,525,000
Transwitch Corp. 100,000 1,262,500
VideoServer, Inc. 100,000 3,525,000
VTel Corp. 130,000 3,233,750
---------------------------------------------------------
20,198,750
---------------------------------------------------------
HEALTHCARE/INFORMATION SYSTEMS (5.5%)
Cycare Systems, Inc. 155,000 5,153,750
Phamis, Inc. 56,000 1,533,000
---------------------------------------------------------
6,686,750
---------------------------------------------------------
HEALTHCARE SERVICES (13.6%)
Gulf South Medical Supply, Inc. 150,000 3,693,750
Med-Partners, Inc. 60,000 1,890,000
Phycor, Inc. 135,000 4,623,750
Steris Corp. 150,000 6,318,750
---------------------------------------------------------
16,526,250
---------------------------------------------------------
MISCELLANEOUS (6.2%)
Premenos Technology Corp. 110,000 3,575,000
Uniphase Corp. 110,000 3,877,500
---------------------------------------------------------
7,452,500
---------------------------------------------------------
OIL/OIL SERVICES (2.6%)
Input/Output, Inc. 43,000 $ 1,650,125
Petroleum Geo-Services, ADR 60,000 1,470,000
---------------------------------------------------------
3,120,125
---------------------------------------------------------
RESTAURANTS (8.7%)
Apple South, Inc. 150,000 3,412,500
Daka International, Inc. 115,000 3,766,250
DF & R Restaurants, Inc. 100,000 3,375,000
---------------------------------------------------------
10,553,750
---------------------------------------------------------
SEMI-CONDUCTORS (3.0%)
Exar Corp. 100,000 3,575,000
---------------------------------------------------------
SOFTWARE/BUSINESS (10.3%)
Alternative Resource Group 55,000 1,760,000
McAfee Associates, Inc. 120,000 6,180,000
PeopleSoft, Inc. 50,000 4,543,750
---------------------------------------------------------
12,483,750
---------------------------------------------------------
SOFTWARE/MANUFACTURING (6.0%)
Cognex Corp. 90,000 4,342,500
Wonderware Corp. 75,000 2,915,625
---------------------------------------------------------
7,258,125
---------------------------------------------------------
SPECIALTY RETAIL (13.2%)
Hollywood Entertainment, Inc. 185,000 3,965,938
Moovies, Inc. 40,000 785,000
Movie Gallery, Inc. 125,000 5,343,750
Sunglass Hut International,
Inc. 90,000 4,500,000
Trend Lines, Inc. 107,500 1,424,375
---------------------------------------------------------
16,019,063
---------------------------------------------------------
TOTAL COMMON STOCKS
(Cost -- $79,751,539) 114,745,938
=========================================================
See Notes to Schedule of Investments. (continued on next page)
9
<PAGE>
Keystone America Hartwell Emerging Growth Fund, Inc.
SCHEDULE OF INVESTMENTS--September 30, 1995
Maturity Market
Value Value
==========================================================
REPURCHASE AGREEMENT (2.9%)
State Street Bank & Trust
Co., 5.25%, purchased
09/29/95, (Collateralized
by $2,790,000 U.S. Treasury
Bond, 8.875%, due
02/15/19), maturing
10/02/95 (Cost $3,490,000) $3,491,527 $ 3,490,000
----------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost -- $3,490,000) 3,490,000
==========================================================
TOTAL INVESTMENTS
(Cost -- $83,241,540) (b) 118,235,938
OTHER ASSETS AND LIABILITIES --
NET (2.4%) 2,925,249
----------------------------------------------------------
NET ASSETS (100%) $121,161,187
==========================================================
NOTES TO SCHEDULE OF INVESTMENTS
(a) All common stocks with the exception of Apple South, Inc. are non-
income-producing securities.
(b) The cost of investments for federal income tax purposes amounted to
$83,241,540. Gross unrealized appreciation and depreciation on investments,
based on identified tax cost, at September 30, 1995, are as follows:
Gross unrealized
appreciation $36,399,559
Gross unrealized
depreciation (1,405,161)
----------
Net unrealized appreciation $34,994,398
==========
Legend of Portfolio Abbreviations:
ADR--American Depository Receipts.
See Notes to Financial Statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the year)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of
year $21.41 $ 28.56 $20.80 $22.91 $14.13 $ 15.96 $11.56 $ 24.37 $14.94 $11.17
- ----------------------------------------------------------------------------------------------------------------------------------
Income from
investment
operations
Net investment
loss (0.38) (0.37) (0.34) (0.26) (0.22) (0.29) (0.21) (0.20) (0.23) (0.26)
Net gain (loss)
on investments 8.14 (4.43) 8.10 0.05 9.13 (1.45) 4.61 (6.03) 9.66 4.03
- ----------------------------------------------------------------------------------------------------------------------------------
Total from
investment
operations 7.76 (4.80) 7.76 (0.21) 8.91 (1.74) 4.40 (6.23) 9.43 3.77
- ----------------------------------------------------------------------------------------------------------------------------------
Less
distributions
from:
Net realized
gain on
investments (2.89) (2.35) 0 (1.90) (0.13) (0.09) 0 (6.58) 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Total
distributions (2.89) (2.35) 0 (1.90) (0.13) (0.09) 0 (6.58) 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value
end of year $26.28 $ 21.41 $28.56 $20.80 $22.91 $ 14.13 $15.96 $ 11.56 $24.37 $14.94
===================================================================================================================================
Total return (a) 37.20% (17.86%) 37.31% (1.12%) 63.51% (10.95%) 38.06% (16.40%) 63.12% 33.75%
Ratios/supplemental
data
Ratios to
average net
assets:
Total expenses 1.81%(c) 1.80% 1.60% 1.63% 1.70% 2.50% 2.40% 2.40% 1.90%(b) 2.00%
Net investment
loss (1.58%) (1.62%) (1.34%) (1.18%) (1.18%) (1.80%) (1.60%) (1.70%) (1.20%) (1.70%)
Portfolio
turnover rate 164% 156% 155% 152% 137% 96% 136% 110% 224% 123%
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets end
of year
(thousands) $111,791 $120,689 $195,708 $152,714 $72,602 $21,855 $25,131 $23,596 $41,440 $24,883
==================================================================================================================================
</TABLE>
Per share calculation based on average weighted shares outstanding.
(a) Excluding applicable sales charges.
(b) Figure is net of expense reimbursement by Hartwell Keystone in connection
with voluntary expense limitations. Before expense reimbursement the
"Ratio of operating and management expenses to average net assets" would
have been 2.00% for the year ended September 30, 1987.
(c) "Ratio of total expenses to average net assets" for the year ended
September 30, 1995 includes indirectly paid expenses. Excluding
indirectly paid expenses for the year ended September 30, 1995, the
expense ratio would have been 1.78%.
See Notes to Financial Statements.
11
<PAGE>
Keystone America Hartwell Emerging Growth Fund, Inc.
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
August 2, 1993
Year Ended (Date of Initial
September 30, Public Offering)
------------------ to
September 30,
1995 1994 1993
=============================================================================
Net asset value
beginning of period $21.22 $ 28.56 $26.69
-----------------------------------------------------------------------------
Income from investment operations
Net investment loss (0.56) (0.49) (0.05)
Net gain (loss) on investments 7.92 (4.50) 1.92
-----------------------------------------------------------------------------
Total from investment operations 7.36 (4.99) 1.87
-----------------------------------------------------------------------------
Less distributions from:
Net realized gain on investments (2.89) (2.35) 0
-----------------------------------------------------------------------------
Total distributions (2.89) (2.35) 0
-----------------------------------------------------------------------------
Net asset value end of period $25.69 $ 21.22 $28.56
=============================================================================
Total return (a) 35.61% (18.58%) 7.01%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.58%(c) 2.49% 3.70%(b)
Net investment loss (2.34%) (2.27%) (3.4%)(b)
Portfolio turnover rate 164% 156% 155%
-----------------------------------------------------------------------------
Net assets end of period
(thousands) $6,970 $3,801 $823
=============================================================================
Per share calculation based on average weighted shares outstanding.
(a) Excluding applicable sales charges.
(b) Annualized.
(c) "Ratio of total expenses to average net assets" for the year ended
September 30, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses for the year ended September 30, 1995, the expense ratio would
have been 2.55%.
See Notes to Financial Statements.
12
<PAGE>
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
August 2, 1993
Year Ended (Date of Initial
September 30, Public Offering)
------------------ to
September 30,
1995 1994 1993
=============================================================================
Net asset value
beginning of period $21.26 $ 28.56 $26.69
-----------------------------------------------------------------------------
Income from investment operations
Net investment loss (0.56) (0.47) (0.08)
Net gain (loss) on investments 7.99 (4.48) 1.95
-----------------------------------------------------------------------------
Total from investment operations 7.43 (4.95) 1.87
-----------------------------------------------------------------------------
Less distributions from:
Net realized gain on investments (2.89) (2.35) 0
-----------------------------------------------------------------------------
Total distributions (2.89) (2.35) 0
-----------------------------------------------------------------------------
Net asset value end of period $25.80 $ 21.26 $28.56
=============================================================================
Total return (a) 35.89% (18.42%) 7.01%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.58%(c) 2.47% 3.09%(b)
Net investment loss (2.37%) (2.25%) (2.80%)(b)
Portfolio turnover rate 164% 156% 155%
-----------------------------------------------------------------------------
Net assets end of period
(thousands) $2,400 $1,679 $297
=============================================================================
Per share calculation based on average weighted shares outstanding.
(a) Excluding applicable sales charges.
(b) Annualized.
(c) "Ratio of total expenses to average net assets" for the year ended
September 30, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses for the year ended September 30, 1995, the expense ratio would
have been 2.55%.
See Notes to Financial Statements.
13
<PAGE>
Keystone America Hartwell Emerging Growth Fund, Inc.
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995
=============================================================================
Assets (Note 1):
Investments at market value (identified cost--
$83,241,540) $118,235,938
Cash 668
Receivable for:
Investments sold 2,984,750
Fund shares sold 264,135
Dividends and interest 1,528
Prepaid expenses 6,084
Other assets 1,851
-------------------------------------------------------------------
Total assets 121,494,954
-------------------------------------------------------------------
Liabilities (Note 4):
Payable for:
Fund shares redeemed 164,148
Accrued reimbursable expenses 4,148
Other accrued expenses 165,471
-------------------------------------------------------------------
Total liabilities 333,767
-------------------------------------------------------------------
Net assets $121,161,187
===================================================================
Net assets represented by (Note 1):
Paid-in capital $ 85,066,787
Accumulated net realized gains on investments 1,100,002
Net unrealized appreciation on investments 34,994,398
-------------------------------------------------------------------
Total net assets $121,161,187
===================================================================
Net asset value and redemption price per share
(Note 2):
Class A Shares
Net assets of $111,790,735/4,253,505 shares
outstanding $26.28
Offering price per share ($26.28/0.9425) (based
on a sales charge of 5.75% of the offering
price September 30, 1995) $27.88
Class B Shares
Net assets of $6,969,957/271,302 shares
outstanding $25.69
Class C Shares
Net assets of $2,400,495/93,058 shares
outstanding $25.80
===================================================================
STATEMENT OF OPERATIONS
Year Ended September 30, 1995
=============================================================================
Investment income (Note 1):
Dividend $ 900
Interest 244,286
----------------------------------------------------------
Total investment income 245,186
----------------------------------------------------------
Expenses (Notes 2, 4 and 5):
Management fee $1,030,145
Shareholder services 604,182
Accounting, auditing, and
legal 42,889
Custodian fee expense 92,672
Printing 44,885
Distribution Plan expenses 305,698
Registration fees 115,063
Directors' fees and expenses 9,164
Miscellaneous expenses 43,818
----------------------------------------------------------
Total expenses 2,288,516
Less: Expenses paid
indirectly (Note 4) (33,879)
----------------------------------------------------------
Net expenses 2,254,637
----------------------------------------------------------
Net investment loss (2,009,451)
----------------------------------------------------------
Net realized and unrealized
gain (loss) on investments
(Notes 1 and 3): 22,375,130
----------------------------------------------------------
Net change in unrealized
appreciation (depreciation)
on investments 17,446,189
----------------------------------------------------------
Net gain (loss) on investments 39,821,319
----------------------------------------------------------
Net increase in net assets
resulting from operations $37,811,868
==========================================================
See Notes to Financial Statements.
14
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1995 1994
===============================================================================================
<S> <C> <C>
Operations:
Net investment loss $ (2,009,451) $ (2,459,625)
Net realized gain (loss) on investments 22,375,130 8,820,946
Net change in unrealized appreciation (depreciation)
on investments 17,446,189 (38,936,468)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 37,811,868 (32,575,147)
-----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investments (Note 5):
Class A Shares (11,564,652) (15,655,783)
Class B Shares (718,070) (123,550)
Class C Shares (229,717) (52,384)
-----------------------------------------------------------------------------------------------
Total distributions to shareholders (12,512,439) (15,831,717)
-----------------------------------------------------------------------------------------------
Capital share transactions (Note 2):
Proceeds from shares sold:
Class A Shares 10,088,352 13,815,022
Class B Shares 27,935,012 5,015,690
Class C Shares 1,609,258 2,613,385
Payments for shares redeemed:
Class A Shares (52,915,813) (55,198,867)
Class B Shares (26,761,159) (1,615,154)
Class C Shares (1,469,796) (1,118,138)
Net asset value of shares issued in reinvestment of
distributions:
Class A Shares 10,351,036 14,084,578
Class B Shares 634,603 108,234
Class C Shares 221,110 42,421
-----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from capital share
transactions (30,307,397) (22,252,829)
-----------------------------------------------------------------------------------------------
Total decrease in net assets (5,007,968) (70,659,693)
Net Assets:
Beginning of year 126,169,155 196,828,848
-----------------------------------------------------------------------------------------------
End of year [including accumulated distributions in excess of
net investment income as follows: 1995--$0 and 1994--
($257,173)] (Note 1) $121,161,187 $126,169,155
===============================================================================================
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
Keystone America Hartwell Emerging Growth Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone America Hartwell Emerging Growth Fund, Inc. (the "Fund") is a
non-diversified, open-end investment company. The Fund was incorporated in
New York on April 8, 1968 and began operations on September 10, 1968. Through
January 30, 1995 Hartwell Keystone Advisers, Inc. ("Hartwell Keystone") a
wholly-owned subsidiary of Keystone Investment Management Company (formerly
Keystone Custodian Funds, Inc.) ("Keystone") was the Fund's investment
adviser. Effective January 31, 1995 Keystone became the Fund's investment
adviser.
J.M. Hartwell Limited Partnership (formerly Hartwell Management Company,
Inc.) ("Hartwell") has acted as subadviser to the Fund pursuant to a Sub
Advisory Agreement with Keystone. Subject to the supervision of the Fund's
Board of Directors and Keystone, Hartwell Management provides the Fund and
Keystone with investment research, advice, information and securities
recommendations.
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 payable
upon redemption which decreases 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 entered into special
distribution agreements with Keystone Investment Distributors Company
(formerly Keystone Distributors, Inc.)("KIDC"), the Fund's principal
underwriter.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc. (formerly
Keystone Group, Inc.) ("KII"), a Delaware corporation. KII is privately owned
by an investor group consisting of current and former members of management
of Keystone. Keystone Investor Resource Center, Inc. ("KIRC"), a wholly-owned
subsidiary of Keystone, is the Fund's transfer agent.
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.
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: (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 on the day after the trade date.
Realized gains and losses are computed on the identified cost basis. Interest
income
16
<PAGE>
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 record 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 any 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 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 investment income and net capital gains. The
significant differences between financial statement amounts available for
distribution and distributions made in accordance with income tax regulations
are primarily due to a net investment loss and treatment of short-term
capital gains.
(2.) Capital Share Transactions
Thirty million shares each of Class A, B, C, E, and F and one-hundred million
shares of Class D of the Fund, each with a par value of $1.00, are authorized
for issuance. Currently, only Class A, B, and C shares are outstanding.
Transactions in shares of the Fund were as follows:
Class A Shares
-------------------------------
Year Ended September 30,
1995 1994
==================================================
Shares sold 434,450 620,860
Shares redeemed (2,239,300) (2,410,004)
Shares issued in
reinvestment of
distributions 420,504 573,944
- --------------------------------------------------
Net decrease (1,384,346) (1,215,200)
==================================================
17
<PAGE>
Keystone America Hartwell Emerging Growth Fund, Inc.
Class B Shares
-------------------------------
Year Ended September 30,
1995 1994
==================================================
Shares sold 1,156,468 216,318
Shares redeemed (1,090,475) (70,467)
Shares issued in
reinvestment of
distributions 26,206 4,416
- --------------------------------------------------
Net increase 92,199 150,267
==================================================
Class C Shares
-------------------------------
Year Ended September 30,
1995 1994
==================================================
Shares sold 69,278 119,572
Shares redeemed (64,325) (52,718)
Shares issued in
reinvestment of
distributions 9,114 1,731
- --------------------------------------------------
Net increase 14,067 68,585
==================================================
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 ("1940 Act").
The Class A Distribution Plan provides for payments that are currently
limited to 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 KIDC 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 net asset value of the shares sold by such others and remaining
outstanding on the books of the Fund for specified periods.
The Class B Distribution Plan provides for payment 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 Plan are currently used to pay others (dealers) (i) a commission
at the time of purchase normally equal to 4.00% 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 after June 1, 1995 at
rates ranging from a maximum of 5.00% of amounts redeemed during the first
twelve months 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 normally equal to 0.75% of the
price paid for each 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 daily net asset
18
<PAGE>
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
Independent Directors 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 Directors, payments to
KIDC may continue as compensation for its services which had been earned
while the Distribution Plan was in effect.
During the fiscal year ended September 30, 1995, the Fund paid KIDC $231,932
under its Class A Distribution Plan. The Fund paid KIDC $52,294 for Class B
shares sold prior to June 1, 1995 and $1,470 for Class B shares sold on or
after June 1, 1995. The Fund paid KIDC $20,002 under its Class C Distribution
Plan.
Under the NASD Rule, the maximum uncollected amounts for which KIDC may seek
payment from the Fund under its Class B Distribution Plan were $312,791 for
shares purchased prior to June 1, 1995, and $96,072 for shares purchased on
or after June 1, 1995. The maximum uncollected amount for which KIDC may seek
payment from the Fund under its Class C Distribution Plan was $167,847 for
Class C shares as of September 30, 1995. Presently, the Fund's class-specific
expenses are limited to Distribution Plan expenses incurred by a class of
shares.Keystone America Hartwell Emerging Growth Fund, Inc.
(3.) Securities Transactions
Purchases and sales of investment securities (including proceeds received at
maturity) for the fiscal year ended September 30, 1995, were as follows:
Cost of Proceeds
Purchases from Sales
=====================================================
Portfolio securities $ 193,733,779 $ 242,378,224
Short-term
investments 1,377,950,000 1,378,998,900
-----------------------------------------------------
$1,571,683,779 $1,621,377,124
=====================================================
(4.) Investment Management Agreement and Other Transactions
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 fiscal year ended September 30, 1995, the Fund paid or accrued
$1,030,145 in management fees representing 0.84% of average daily net assets.
Of this amount $89,914 was paid or accrued to Hartwell Management Company for
the period October 31, 1994 through January 31, 1995, and $296,954 was paid
or accrued to JM Hartwell Limited Partnership for the period January 31, 1995
through September 30, 1995.
During the fiscal year ended September 30, 1995, the Fund paid or accrued
$22,382 to KII as reimbursement for certain accounting services. The Fund
paid or accrued $604,182 to KIRC 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.
The Fund has entered into an expense offset arrangement with its custodian.
For the year September 30, 1995, the Fund paid custody fees in the
19
<PAGE>
amount of $58,793 and received a credit of $33,879 pursuant to the expense
offset arrangement, resulting in a total expense of $92,672. The assets
deposited with the custodian under the expense offset arrangement could have
been invested in an income-producing asset.Keystone America Hartwell
Emerging Growth Fund, Inc.
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.
(5.) Distributions to Shareholders
The Fund intends to distribute to its shareholders dividends from net
investment income, if any, annually and all net taxable realized long-term
capital gains, if any, at least annually. Any distribution which is declared
in December and paid before the next February 1 will be taxable to
shareholders in the year declared.
20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Directors and Shareholders
Keystone America Hartwell Emerging Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Keystone America Hartwell Emerging Growth Fund, Inc. including the schedule
of investments, as of September 30, 1995 and the related statement of
operations for the year then ended, the statements of changes in net assets
for each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period ended September 30,
1995 for Class A shares and each of the years in the two-year period then
ended and the period from August 2, 1993 to September 30, 1993 for Class B
and Class C shares. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits. The Class A financial highlights for each of the years in the
five-year period ended September 30, 1990, were audited by other auditors
whose report, dated November 7, 1990, expressed an unqualified opinion on
those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 1995 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone America Hartwell Emerging Growth Fund, Inc. as of September 30,
1995, the results of its operations for the year then ended, the changes in
its net assets for each of the years in the two-year period then ended, and
the financial highlights for each of the periods referred to above in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
October 27, 1995
21
<PAGE>
Keystone America Hartwell Emerging Growth Fund, Inc.
FEDERAL TAX STATUS--FISCAL 1995 DISTRIBUTIONS (Unaudited)
During the fiscal year ended September 30, 1995, distributions of taxable
long-term capital gains totalling $2.89 per share were paid in shares or
cash.
The above figures may differ from those cited elsewhere in this report due to
differences in the calculation of income and capital gains for accounting
(book) purposes and Internal Revenue Service (tax) purposes.
In January 1996, we will send you complete information on the distributions
paid during the calendar year 1995 to help you in completing your federal tax
return.
22
<PAGE>
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 AMERICA
FAMILY OF FUNDS
[diamond]
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Insured Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Pennsylvania Tax Free Fund
Texas Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Hartwell Growth Fund
Omega Fund
Fund of the Americas
Strategic Development 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 at 1-800-343-2898.
[Keystone logo] K E Y S T O N E
I N V E S T M E N T S
P.O. Box 2121
Boston, Massachusetts 02106-2121
HEGF-AR-11/95
18M ["Recycle" symbol]
<PAGE>
[Front cover]
K E Y S T O N E
A M E R I C A
[Photo: Dad giving daughter a piggyback ride]
HARTWELL
EMERGING GROWTH
FUND, INC.
[Keystone logo]
ANNUAL REPORT
SEPTEMBER 30, 1995
