PAGE 1
Keystone America Hartwell Emerging Growth Fund, Inc.
Seeks capital appreciation by investing in emerging growth companies.
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, 1996. Following our
letter to you, we have included a discussion by Adrian Dawes, portfolio
manager of your Fund, about his recent strategy.
Performance
Your Fund provided the following total returns for the periods which ended
September 30, 1996:
Class A shares returned 11.97% for the six-month and 9.96% for the
twelve-month periods.
Class B shares returned 11.50% for the six-month and 9.01% for the
twelve-month periods.
Class C shares returned 11.56% for the six-month and 9.17% for the
twelve-month periods.
The Russell 2000 Index, a broad-based index of small company stocks,
returned 5.37% and 13.19% respectively for the same six- and twelve-month
periods.
Your Fund's performance was particularly strong during the last six months
of its fiscal year, exceeding the total returns of small company (small-cap)
stocks during a period of increasing price volatility. We were encouraged by
these improving short-term results, which were achieved during a challenging
environment for small-cap stocks.
While small-cap stock averages rose during the period, they experienced
several short-term price declines. Stronger-than-expected economic growth and
concerns about higher inflation and rising interest rates precipitated
corrections at several points during the twelve-month period. Nevertheless,
your Fund's performance continued to improve, particularly in the second half
of the fiscal year.
This is the first report for portfolio manager Adrian Dawes, and we think he
has made an excellent start over six short and difficult months. Mr. Dawes
has continued the J.M. Hartwell tradition of investing in stocks with
earnings growth rates of 30% or more, and has also increased the Fund's
diversification by adding more names and industries to the portfolio. We
think this approach should result in more consistent results over the long
term.
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 to 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 1996
<PAGE>
PAGE 2
Keystone America Hartwell Emerging Growth Fund, Inc.
A Report From
Your Fund Manager
Adrian S. Dawes, vice president at J.M. Hartwell, LP, is portfolio manager
of your Fund. Mr. Dawes has 11 years of experience in North American growth
stock investing. He joined the Hartwell organization in September 1994
following nine years of service with Ivory & Sime PLC as head of U.S. equity
research. Ivory & Sime is a Scottish-based global investment management firm
specializing in growth investing.
To the Fund's Shareholders:
Managing a small-company stock fund during the twelve-month period that
ended September 30, 1996, was a little like riding a roller coaster. It was
an environment in which after several weeks of strong gains, small-company
stock prices would periodically decline. The short-term declines usually came
on the heels of economic data that indicated the economy was growing too
fast, that inflation and interest rates were sure to rise, or that corporate
profits were bound to decline. When these concerns proved to be unfounded,
small company stock prices rose. This situation repeated itself several times
throughout the twelve-month period.
In managing your Fund, we viewed the brief periods of declining prices as
opportunities to improve the earnings-per-share growth rate of the stocks in
the portfolio. The short-term corrections brought prices down to more
reasonable levels, which provided opportunities for us to purchase stocks at
bargain prices. We focused on selecting stocks that we believed had the
potential to generate strong returns over time rather than trying to capture
short-term gains.
The short-term price swings of small company stocks affected your Fund's
performance. However, at the end of the twelve-months, small-company stock
prices were on an upward course, and your Fund finished the period with very
respectable returns.
More stocks in several economic sectors
We maintained our investment strategy of investing in rapidly growing
companies that we believe are leaders in their market niches. We continued to
select stocks on a case-by-case basis, focusing on company fundamentals, such
as the potential for earnings growth, revenues, and the quality of
management. While maintaining our long-term bottoms-up approach to stock
selection, we expanded the number of industry sectors in which we invested
and increased the number of stocks in the portfolio. We believe this added
diversification has the potential to dampen price swings during periods of
stock market fluctuations and to provide more consistent returns over the
long term.
Fund Profile
Objective: Seeks capital appreciation by investing in emerging growth
companies.
Commencement of investment operations: September 10, 1968
Number of stocks: 31
Net assets: $99 million
<PAGE>
PAGE 3
Top 5 Industries
as of September 30, 1996
Percentage of
Industry net assets
--------------------------------- --------------
Health care services 19.1
Software/business 16.5
Technology: service/consulting 14.5
Communications equipment/service 9.5
Oil/oil services 9.5
We trimmed positions that we believed had reached full valuation and that
had grown to a significant portion of the Fund's assets. These included some
of the Fund's long-term holdings, such as StrataCom, PeopleSoft, and McAfee
Associates. By reducing these positions, we were able to lock in profits,
increase diversification, and make the Fund less susceptible to the stock
price movements of a few companies. We also attempted to add more stocks at
lower prices and at greater discounts to the companies' long-term growth
rates. This lowered the price-to-earnings (P/E) ratio in the portfolio. In
effect, we attempted to pay less for potential earnings growth on stocks in
which we invested.
Going for growth
Because your Fund seeks capital appreciation through investments in rapidly
growing companies, historically its holdings have been clustered in a few
high growth areas. One such area is technology. Our definition of technology
includes companies in the software, hardware, technical service consulting
and communications areas. On September 30, 1996, technology stocks accounted
for 46.9% of the Fund's net assets.
The Fund's strongest performing technology stock during the twelve-month
period was VIASOFT, a company that we have profiled in previous reports.
VIASOFT has developed software that can help solve the critical problems that
will affect virtually all large mainframe computer users in the year 2000.
Most mainframe systems have two-digit year codes that can accommodate dates
up to the turn of the century but will not advance to 2000. This problem
needs to be solved before the end of 1999. VIASOFT produces software that
identifies the problem and helps fix it. In the software sector, we also
invested in Legato, a leader in the network storage management market.
Storing and managing data is a major concern for most businesses, and
Legato's "NetWorker" software helps users protect, manage and access data
within computer networks.
We uncovered new investment opportunities among technical service consulting
businesses, or outsourcing companies. On September 30, 1996, these types of
businesses accounted for 14.5% of the Fund's net assets. We believed that
some of the most attractive outsourcing companies were those that handle the
"management information systems" (MIS) function for large companies. Managing
the fast-paced changes in technology has become a very costly endeavor for
businesses. Upgrades to computer operating systems account for some of their
largest expenditures. Where once the MIS function was performed internally,
many businesses have found that it is more efficient and less expensive to
use consultants to do the job. One of the leaders in this area is Vanstar, a
company that counts Microsoft and Federal Express among its clients. Vanstar
evaluates, develops, and deploys computer networks for its clients. Other
technical service consulting business in which we invested include Claremont
Technology, Computer Horizons, and Interim Services.
<PAGE>
PAGE 4
Keystone America Hartwell Emerging Growth Fund, Inc.
Top 10 Holdings
as of September 30, 1996
Percentage of
Stock Industry net assets
- -------------------------- ------------------------------ --------------
McAfee Associates Software/business 6.8
Uniphase Laser/electro-optic systems 6.1
Dura Pharmaceuticals Health care services 6.0
PhyCor Health care services 5.2
Legato Systems Software/business 5.0
Vanstar Technology: Service/
consulting 4.7
PeopleSoft Software/business 4.6
PictureTel Video conferencing 4.3
Computer Horizons Technology: Service/
consulting 3.5
Gulf South Medical Supply Health care services 3.4
Expanding our focus
Beyond the technology sector, we invested in selected companies that met our
criteria for growth in the oil/ oil services, financial, and retail areas. We
increased the oil services investments in the portfolio from 4.4% of net
assets on March 31, 1996 to 9.5% as of September 30, 1996. Oil services
companies support the drilling activities of the industry. They may supply
oil rigs, boats, pumping equipment or seismology services. Many of these
companies undertook major restructuring programs over the last several years.
They have become more streamlined and productive, and have more aggressive
and efficient management teams. In addition, demand for their services has
increased. This is because, after several years of overcapacity, demand for
energy has come in line with supply. In order to rebuild inventories, the
major oil companies have enlisted the help of oil services firms. Among the
new additions to the portfolio were Oceaneering International and Petroleum
Geo Services.
In the financial area, we added E-Trade to the portfolio, an on-line
brokerage transaction service. You may have seen E-Trade's ads in the Wall
Street Journal or other publications. Through the Internet, E-Trade provides
automated order placement, portfolio tracking, news and other information 24
hours a day, seven days a week. If you have a personal computer, E-Trade can
be an inexpensive way to trade and keep track of your investments. The
company's customer base is expanding rapidly, and E-Trade has plans to
provide several value-added services for its best customers.
Among specialty retailers, we found Petco Animal Suppliers attractive. Petco
is one of the top pet food and supply retailers. The company operates 202
stores in 15 states and the District of Columbia. Since 1991, Petco has made
the transition from a traditional pet store to a pet superstore chain by
opening new stores, acquiring competitors, and relocating existing stores.
Stocks that lagged
We were disappointed in the performance of some of the portfolio's holdings.
Health care stocks, which were solid performers during the first six months
of the period, declined in the second six months. We reduced the health care
position in the portfolio from 25% of net assets on March 31, 1996 to 19.1%
of net assets on September 30, 1996 by selling or eliminating selected
holdings. Relatively weak earnings growth contributed to the decline in
health care stock prices.
Restaurant stocks were also laggards during the twelve-month period. Lower
same store sales and slight increases in commodity prices for meat and grain
contributed to earnings disappointments in this sector. We eliminated the
Fund's position in Manhattan Bagel, after the company made an acquisition
that turned out to be less profitable than originally expected and earnings
estimates were cut. This resulted in a sharp stock price decline.
<PAGE>
PAGE 5
Analysis and outlook
While the small company stocks in which we invested weathered significant ups
and downs during the twelve-month period, we believe that the companies we
hold in the portfolio offer strong opportunities for high earnings growth.
Going into 1997, we believe that the strong economic growth we experienced
during 1996 may slow, and inflation and interest rates should remain at
relatively low levels. Historically, small company stocks have produced the
majority of their returns during the latter part of an economic expansion. We
believe we are half way through this cycle, and that small company stocks
have the potential to generate significantly stronger returns in the coming
months.
We will continue to seek high-quality companies with market capitalizations
of $500 million or less and that are trading at discounts to their long-term
growth rates. We will also continue to stick with our buy and sell
disciplines of locking in gains when we believe stocks have reached full
valuation, diversifying the portfolio among a variety of sectors and
companies, and by seeking stocks that are attractively priced and have the
potential earnings growth rates of 30% or more.
Sincerely,
/s/Adrian S. Dawes
Adrian Dawes
Vice President
J.M. Hartwell, LP
The J.M. Hartwell
Investment Discipline
Purchase Strategy--criteria used to evaluate the purchase of a stock for your
Fund:
(bullet) Bottoms-up approach, individual company analysis
(bullet) Fast growing, emerging companies; minimum 30% earnings growth rate
(bullet) Durable and consistent earnings growth
(bullet) Long-term approach to investing; not influenced by short-term price
swings
(bullet) Under $500 million market capitalization at time of purchase;
companies with an established and reliable earnings record
(bullet) Strong #1 or close #2 market position within industry
(bullet) Avoid cyclical businesses or heavily regulated industries
Sell Strategy--criteria used to evaluate when to eliminate a stock owned by
your Fund:
(bullet) Deteriorating financial situation
(bullet) Original purchase determinants no longer valid
(bullet) Price-to-earnings per share ratio exceeds growth rate by 50%
Overall Management Strategy
(bullet) Hands-on approach, meet/in contact with company management regularly
(bullet) Focus on the limited number of companies that are leaders in their
field
(bullet) Ignore short-term market fluctuations
(bullet) Concentrate on companies that will provide above-average capital
appreciation over the long-term
<PAGE>
PAGE 6
Keystone America Hartwell Emerging Growth Fund, Inc.
Your Fund's Performance
Growth of an investment in
Keystone America Hartwell Emerging Growth Fund, Inc.
Class A
[mountain chart]
In Thousands
Initial Investment Reinvested Distributions
9/86 9425 9425
15374 15374
9/88 7293 12853
10069 17746
9/90 8914 15803
14453 25840
9/92 13116 25552
18018 35101
9/94 13507 28833
16579 39558
9/96 18056 43496
Total Value: $43,496
A $10,000 investment in Keystone America Hartwell Emerging Growth Fund, Inc.
Class A made on September 30, 1986 with all distributions reinvested was
worth $43,496 on September 30, 1996. Past performance is no guarantee of
future results.
Twelve-Month Performance as of September 30, 1996
Class A Class B Class C
Total returns* 9.96% 9.01% 9.17%
Net asset value 9/30/95 $26.28 $25.69 $25.80
9/30/96 $28.62 $27.73 $27.89
Dividends None None None
Capital gains $ 0.25 $ 0.25 $ 0.25
*Before deducting sales charges.
Historical Record as of September 30, 1996
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 9.96% 9.01% 9.17%
1-year 3.64% 5.01% 9.17%
5-year 58.65% -- --
10-year 334.96% -- --
Life of Class -- 25.81% 29.50%
Average Annual Returns
1-year w/o sales charge 9.96% 9.01% 9.17%
1-year 3.64% 5.01% 9.17%
5-year 9.67% -- --
10-year 15.84% -- --
Life of Class -- 7.53% 8.51%
Commencement of operations 9/10/68 8/2/93 8/2/93
Class A share performance is reported at the current maximum front-end sales
charge of 5.75%.
Class B shares are sold without a front-end sales charge. 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 are sold without a front-end sales charge. 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. Past performance is no guarantee of
future results.
Shareholders may exchange shares for another Keystone fund. The exchange fee
is waived for individual investors who request an exchange through Keystone's
Automated Response Line (KARL). Investors who exchange by calling or writing
to Keystone directly are subject to a $10 exchange fee. The Fund reserves the
right to change or terminate the exchange offer.
<PAGE>
PAGE 7
Growth of an Investment
Comparison of change in value of a $10,000 investment in Keystone America
Hartwell Emerging Growth Fund, Inc. Class A, the Russell 2000 Index and the
Consumer Price Index.
[3-line chart]
In Thousands September 30, 1986 through September 30, 1996
Russell 2000 Index
Class A (Russell 2000) Consumer Price Index (CPI)
9/86 9425 10000 10000
15374 12939.16 10436
9/88 12853 11540.13 10871
17746 14019.77 11343
9/90 15803 10212.04 12042
25840 14816.28 12450
9/92 25552 16923.48 12822
35101 22532.09 13167
9/94 28833 23133.34 13557
39558 28541.25 13902
9/96 43498 32304.48 14274
Average Annual Total Returns
- -------------------------------------
1 Year 5 Year 10 Year
Class A 3.64% 9.67% 15.84%
Class B 5.01% -- 7.53%*
Class C 9.17% -- 8.51%*
Class A
$43,496
Russell 2000
$32,304
CPI
$14,274
*Life of Class
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.
The Consumer Price Index is through August 31, 1996.
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 by investing in emerging growth
companies. 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.
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.
<PAGE>
PAGE 8
Keystone America Hartwell Emerging Growth Fund, Inc.
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.
<PAGE>
PAGE 9
SCHEDULE OF INVESTMENTS--September 30, 1996
Market
Shares Value
- -------------------------------------- ----------- -------------
COMMON STOCKS (86.1%)(A)
BIOTECHNOLOGY (1.0%)
BioChem Pharmaceuticals, Inc. 25,000 $ 1,003,125
- -------------------------------------- ----------- -------------
COMMUNICATIONS EQUIPMENT/SERVICE (9.5%)
Cisco Systems, Inc. 50,000 3,103,125
National Techteam, Inc. 55,000 1,491,875
P-Com, Inc. 75,000 1,856,250
Precision Response Corp. 40,000 1,540,000
PMT Services, Inc. 68,750 1,392,187
- -------------------------------------- ----------- -------------
9,383,437
- -------------------------------------- ----------- -------------
FINANCIAL (0.5%)
E-Trade Group, Inc. 40,000 527,500
- -------------------------------------- ----------- -------------
HEALTHCARE SERVICES (19.1%)
Capstone Pharmacy Services, Inc. 200,000 2,475,000
Dura Pharmaceuticals, Inc. 160,000 5,900,000
Gulf South Medical Supply, Inc. 130,000 3,347,500
Medquist, Inc. 32,000 648,000
PhyCor, Inc. 135,000 5,138,438
Theratx, Inc. 120,000 1,425,000
- -------------------------------------- ----------- -------------
18,933,938
- -------------------------------------- ----------- -------------
LASER/ELECTRO-OPTIC SYSTEMS (6.1%)
Uniphase Corp. 143,000 6,041,750
- -------------------------------------- ----------- -------------
OIL/OIL SERVICES (9.5%)
Falcon Drilling Company, Inc. 115,000 2,990,000
Input/Output, Inc. 66,000 1,963,500
Oceaneering International, Inc. 100,000 1,700,000
Petroleum Geo Services 100,000 2,725,000
- -------------------------------------- ----------- -------------
9,378,500
- -------------------------------------- ----------- -------------
SOFTWARE/BUSINESS (16.5%)
Legato Systems, Inc. 105,000 4,987,500
McAfee Associates, Inc. 97,500 6,727,500
PeopleSoft, Inc. 55,000 4,578,750
- -------------------------------------- ----------- -------------
16,293,750
- -------------------------------------- ----------- -------------
SOFTWARE/MANUFACTURING (2.1%)
VIASOFT, Inc. 50,000 2,100,000
- -------------------------------------- ----------- -------------
SPECIALTY RETAIL (3.0%)
Alrenco, Inc. 40,000 $ 840,000
Petco Animal Supplies, Inc. 80,000 2,180,000
- -------------------------------------- ----------- -------------
3,020,000
- -------------------------------------- ----------- -------------
TECHNOLOGY: SERVICE/ CONSULTING (14.5%)
Alternative Resources Group 80,000 2,250,000
Claremont Technology Corp. 50,000 1,800,000
Computer Horizons Corp. 120,000 3,420,000
Interim Services, Inc. 50,000 2,137,500
Intelliquest Information Group, Inc. 5,000 127,500
Vanstar Corp. 190,000 4,607,500
- -------------------------------------- ----------- -------------
14,342,500
- -------------------------------------- ----------- -------------
VIDEO CONFERENCING (4.3%)
PictureTel Corp. 120,000 4,230,000
- -------------------------------------- ----------- -------------
TOTAL COMMON STOCKS (COST--$49,253,460) 85,254,500
- ----------------------------------------------------- -------------
Maturity
Value
- -------------------------------------- ----------- -------------
REPURCHASE AGREEMENT (14.6%)
State Street Bank & Trust Co., 4.75%,
purchased 09/30/96, (Collateralized by
$13,530,000 U.S. Treasury Bond,
8.750%, due 08/15/00), maturing
10/01/96 (Cost $14,475,000) $14,476,910 14,475,000
- -------------------------------------- ----------- -------------
TOTAL REPURCHASE AGREEMENT
(COST--$14,475,000) 14,475,000
- ----------------------------------------------------- -------------
TOTAL INVESTMENTS (COST--$63,728,460)(B) 99,729,500
OTHER ASSETS AND LIABILITIES--NET (-0.7%) (681,620)
- ----------------------------------------------------- -------------
NET ASSETS (100%) $99,047,880
- ----------------------------------------------------- -------------
(a) All common stocks are non-income-producing.
(b) The cost of investments for federal income tax purposes amounted
to $63,728,460. Gross unrealized appreciation and depreciation on
investments, based on identified tax cost, at September 30, 1996,
are as follows:
Gross unrealized appreciation $37,262,739
Gross unrealized depreciation (1,261,699)
-----------
Net unrealized appreciation $36,001,040
-----------
See Notes to Financial Statements.
<PAGE>
PAGE 10
Keystone America Hartwell Emerging Growth Fund, Inc.
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
================================== ======== ======== ======== ======== ======== ==========
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of year $ 26.28 $ 21.41 $ 28.56 $ 20.80 $ 22.91 $ 14.13
---------------------------------- -------- -------- -------- -------- -------- ----------
Income from investment operations
Net investment loss (0.30) (0.38) (0.37) (0.34) (0.26) (0.22)
Net gain (loss) on investments 2.89 8.14 (4.43) 8.10 0.05 9.13
---------------------------------- -------- -------- -------- -------- -------- ----------
Total from investment operations 2.59 7.76 (4.80) 7.76 (0.21) 8.91
---------------------------------- -------- -------- -------- -------- -------- ----------
Less distributions from
Net realized gain on investments (0.25) (2.89) (2.35) 0 (1.90) (0.13)
---------------------------------- -------- -------- -------- -------- -------- ----------
Total distributions (0.25) (2.89) (2.35) 0 (1.90) (0.13)
---------------------------------- -------- -------- -------- -------- -------- ----------
Net asset value end of year $ 28.62 $ 26.28 $ 21.41 $ 28.56 $ 20.80 $ 22.91
================================== ======== ======== ======== ======== ======== ==========
Total return (a) 9.96% 37.20% (17.86%) 37.31% (1.12%) 63.51%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.66%(b) 1.81%(b) 1.80% 1.60% 1.63% 1.70%
Net investment loss (1.10%) (1.58%) (1.62%) (1.34%) (1.18%) (1.18%)
Portfolio turnover rate 134% 164% 156% 155% 152% 137%
Average commission rate paid $0.0453 N/A N/A N/A N/A N/A
---------------------------------- -------- -------- -------- -------- -------- ----------
Net assets end of year (thousands) $89,726 $111,791 $120,689 $195,708 $152,714 $72,602
================================== ======== ======== ======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------
1990 1989 1988 1987
================================== ======== ======== ======== ==========
<S> <C> <C> <C> <C>
Net asset value beginning of year $ 15.96 $ 11.56 $ 24.37 $ 14.94
---------------------------------- -------- -------- -------- ----------
Income from investment operations
Net investment loss (0.29) (0.21) (0.20) (0.23)
Net gain (loss) on investments (1.45) 4.61 (6.03) 9.66
---------------------------------- -------- -------- -------- ----------
Total from investment operations (1.74) 4.40 (6.23) 9.43
---------------------------------- -------- -------- -------- ----------
Less distributions from
Net realized gain on investments (0.09) 0 (6.58) 0
---------------------------------- -------- -------- -------- ----------
Total distributions (0.09) 0 (6.58) 0
---------------------------------- -------- -------- -------- ----------
Net asset value end of year $ 14.13 $ 15.96 $ 11.56 $ 24.37
================================== ======== ======== ======== ==========
Total return (a) (10.95%) 38.06% (16.40%) 63.12%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.50% 2.40% 2.40% 1.90%
Net investment loss (1.80%) (1.60%) (1.70%) (1.20%)
Portfolio turnover rate 96% 136% 110% 224%
Average commission rate paid N/A N/A N/A N/A
---------------------------------- -------- -------- -------- ----------
Net assets end of year (thousands) $21,855 $25,131 $23,596 $41,440
================================== ======== ======== ======== ==========
</TABLE>
Per share calculations based on weighted average shares outstanding.
(a) Excluding applicable sales charges.
(b) The ratio of total expenses to average net assets includes indirectly
paid expenses. Excluding indirectly paid expenses, the expense ratio
would have been 1.64% and 1.78% for the years ended September 30, 1996
and 1995, respectively.
See Notes to Financial Statements.
<PAGE>
PAGE 11
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
August 2, 1993
(Date of Initial
Year Ended September 30, Public Offering)
-------------------------------- to
1996 1995 1994 September 30, 1993
================================== ======== ======== ======== ==================
<S> <C> <C> <C> <C>
Net asset value beginning of year $ 25.69 $21.22 $ 28.56 $26.69
---------------------------------- -------- -------- -------- ------------------
Income from investment operations
Net investment loss (0.49) (0.56) (0.49) (0.05)
Net gain (loss) on investments 2.78 7.92 (4.50) 1.92
---------------------------------- -------- -------- -------- ------------------
Total from investment operations 2.29 7.36 (4.99) 1.87
---------------------------------- -------- -------- -------- ------------------
Less distributions from
Net realized gain on investments (0.25) (2.89) (2.35) 0
---------------------------------- -------- -------- -------- ------------------
Total distributions (0.25) (2.89) (2.35) 0
---------------------------------- -------- -------- -------- ------------------
Net asset value end of year $ 27.73 $25.69 $ 21.22 $28.56
================================== ======== ======== ======== ==================
Total return (a) 9.01% 35.61% (18.58%) 7.01%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.46%(c) 2.58%(c) 2.49% 3.70%(b)
Net investment loss (1.89%) (2.34%) (2.27%) (3.42%)(b)
Portfolio turnover rate 134% 164% 156% 155%
Average commission rate paid $0.0453 N/A N/A N/A
---------------------------------- -------- -------- -------- ------------------
Net assets end of year (thousands) $ 6,953 $6,970 $ 3,801 $ 823
================================== ======== ======== ======== ==================
</TABLE>
Per share calculations based on weighted average shares outstanding.
(a) Excluding applicable sales charges.
(b) Annualized.
(c) The ratio of total expenses to average net assets includes indirectly
paid expenses. Excluding indirectly paid expenses, the expense ratio
would have been 2.43% and 2.55% for the years ended September 30, 1996
and 1995, respectively.
See Notes to Financial Statements.
<PAGE>
PAGE 12
Keystone America Hartwell Emerging Growth Fund, Inc.
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
August 2, 1993
(Date of Initial
Year Ended September 30, Public Offering)
-------------------------------- to
1996 1995 1994 September 30, 1993
================================== ======== ======== ======== ==================
<S> <C> <C> <C> <C>
Net asset value beginning of year $ 25.80 $21.26 $ 28.56 $26.69
---------------------------------- -------- -------- -------- ------------------
Income from investment operations
Net investment loss (0.50) (0.56) (0.47) (0.08)
Net gain (loss) on investments 2.84 7.99 (4.48) 1.95
---------------------------------- -------- -------- -------- ------------------
Total from investment operations 2.34 7.43 (4.95) 1.87
---------------------------------- -------- -------- -------- ------------------
Less distributions from
Net realized gain on investments (0.25) (2.89) (2.35) 0
---------------------------------- -------- -------- -------- ------------------
Total distributions (0.25) (2.89) (2.35) 0
---------------------------------- -------- -------- -------- ------------------
Net asset value end of year $ 27.89 $25.80 $ 21.26 $28.56
================================== ======== ======== ======== ==================
Total return (a) 9.17% 35.89% (18.42%) 7.01%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.46%(c) 2.58%(c) 2.47% 3.09% (b)
Net investment loss (1.90%) (2.37%) (2.25%) (2.80%)(b)
Portfolio turnover rate 134% 164% 156% 155%
Average commission rate paid $0.0453 N/A N/A N/A
---------------------------------- -------- -------- -------- ------------------
Net assets end of year (thousands) $ 2,368 $2,400 $ 1,679 $ 297
================================== ======== ======== ======== ==================
</TABLE>
Per share calculations based on weighted average shares outstanding.
(a) Excluding applicable sales charges.
(b) Annualized.
(c) The ratio of total expenses to average net assets includes indirectly
paid expenses. Excluding indirectly paid expenses, the expense ratio
would have been 2.43% and 2.55% for the years ended September 30, 1996
and 1995, respectively.
See Notes to Financial Statements.
<PAGE>
PAGE 13
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996
Assets
Investments at market value
(identified cost--$49,253,460) $85,254,500
Repurchase Agreement at market value
(identified cost--$14,475,000) 14,475,000
- ----------------------------------------------------- -------------
Total investments at market value
(identified cost--$63,728,460) 99,729,500
Cash 751
Receivable for:
Fund shares sold 16,101
Dividends and interest 1,911
Other assets 1,844
- ----------------------------------------------------- -------------
Total assets 99,750,107
- ----------------------------------------------------- -------------
Liabilities
Payable for:
Investments purchased 561,249
Fund shares redeemed 94,452
Accrued reimbursable expenses 1,531
Other expenses 5,017
Other accrued expenses 39,978
- ----------------------------------------------------- -------------
Total liabilities 702,227
- ----------------------------------------------------- -------------
Net assets $99,047,880
===================================================== =============
Net assets represented by
Paid-in capital $56,461,091
Accumulated net realized gains on investments 6,585,749
Net unrealized appreciation on investments 36,001,040
- ----------------------------------------------------- -------------
Total net assets $99,047,880
===================================================== =============
Net asset value and redemption price per share
Class A Shares
Net assets of $89,726,317 / 3,135,470 shares
outstanding $ 28.62
Offering price per share ($28.62 / 0.9425) (based on
a sales charge of 5.75% of the offering price
September 30, 1996) $ 30.37
Class B Shares
Net assets of $6,953,476 / 250,786 shares
outstanding $ 27.73
Class C Shares
Net assets of $2,368,087 / 84,921 shares
outstanding $ 27.89
- ----------------------------------------------------- -------------
STATEMENT OF OPERATIONS
Year Ended September 30, 1996
Investment income
Dividend $ 2,380
Interest 576,602
- ---------------------------------------- ---------- -------------
Total income 578,982
- ---------------------------------------- ---------- -------------
Expenses (Notes 4 and 5)
Management fee $1,066,413
Shareholder services 291,584
Accounting, auditing, and legal 99,880
Custodian fee expense 63,925
Printing 31,722
Distribution Plan expenses 277,825
Registration fees 13,907
Miscellaneous expenses 17,585
- ---------------------------------------- ---------- -------------
Total expenses 1,862,841
Less: Expenses paid indirectly (Note 6) (22,354)
- ---------------------------------------- ---------- -------------
Net expenses 1,840,487
- ---------------------------------------- ---------- -------------
Net investment loss (1,261,505)
- ---------------------------------------- ---------- -------------
Net realized and unrealized gain on
investments
Net realized gain on investments 8,826,136
- ---------------------------------------- ---------- -------------
Net change in unrealized
appreciation or depreciation on
investments 1,006,642
- ---------------------------------------- ---------- -------------
Net realized and unrealized gain on
investments 9,832,778
- ---------------------------------------- ---------- -------------
Net increase in net assets resulting
from operations $ 8,571,273
======================================== ========== =============
See Notes to Financial Statements.
<PAGE>
PAGE 14
Keystone America Hartwell Emerging Growth Fund, Inc.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended
September 30, Year Ended
1996 September 30, 1995
=================================================================== ================= ==================
<S> <C> <C>
Operations
Net investment loss $ (1,261,505) $ (2,009,451)
Net realized gain on investments 8,826,136 22,375,130
Net change in unrealized appreciation or depreciation on
investments 1,006,642 17,446,189
----------------------------------------------------------------- --------------- ----------------
Net increase in net assets resulting from operations 8,571,273 37,811,868
----------------------------------------------------------------- --------------- ----------------
Distributions to shareholders from net realized gains on investments
Class A Shares (1,044,733) (11,564,652)
Class B Shares (72,730) (718,070)
Class C Shares (23,366) (229,717)
----------------------------------------------------------------- --------------- ----------------
Total distributions to shareholders (1,140,829) (12,512,439)
----------------------------------------------------------------- --------------- ----------------
Capital share transactions (Note 2)
Proceeds from shares sold:
Class A Shares 19,954,246 10,088,352
Class B Shares 2,626,903 27,935,012
Class C Shares 839,389 1,609,258
Payments for shares redeemed:
Class A Shares (49,684,836) (52,915,813)
Class B Shares (3,254,694) (26,761,159)
Class C Shares (1,039,505) (1,469,796)
Net asset value of shares issued in reinvestment of
distributions:
Class A Shares 927,048 10,351,036
Class B Shares 66,202 634,603
Class C Shares 21,496 221,110
----------------------------------------------------------------- --------------- ----------------
Net decrease in net assets resulting from capital share
transactions (29,543,751) (30,307,397)
----------------------------------------------------------------- --------------- ----------------
Total decrease in net assets (22,113,307) (5,007,968)
Net Assets:
Beginning of year 121,161,187 126,169,155
----------------------------------------------------------------- --------------- ----------------
End of year $ 99,047,880 $121,161,187
================================================================= =============== ================
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 15
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone America Hartwell Emerging Growth Fund, Inc. (the "Fund") was
incorporated in New York on April 8, 1968 and began operations on September
10, 1968. Since January 31, 1995, Keystone Investment Management Company
("Keystone") has served as the Fund's investment adviser. Keystone is a
wholly-owned subsidiary of Keystone Investments, Inc. ("KII"). The Fund is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as a non-diversified, open-end investment company. The Fund offers
several classes of shares. The Fund's investment objective is capital
appreciation.
J.M. Hartwell Limited Partnership ("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 provides
the Fund and Keystone with investment research, advice, information, and
securities recommendations.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles,
which require management to make estimates and assumptions that affect
amounts reported herein. Although actual results could differ from these
estimates, any such differences are expected to be immaterial to the net
assets of the Fund.
A. Valuation of Securities
Investments are usually valued at the closing sales price, or in the absence
of sales and for over-the-counter securities, the mean of the bid and asked
prices. Securities for which valuations are not available from an independent
pricing service (including restricted securities) are valued at fair value as
determined in good faith according to procedures established by the Board of
Directors.
Short-term investments with remaining maturities of 60 days or less are
carried at amortized cost, which approximates market value. Short-term
securities with greater than 60 days to maturity are valued at market value.
B. Repurchase Agreements
Securities pledged as collateral for repurchase agreements are held by the
custodian on the Fund's behalf. The Fund monitors the adequacy of the
collateral daily and will require the seller to provide additional collateral
in the event the market value of the securities pledged falls below the
carrying value of the repurchase agreement.
C. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day
after the trade date. Realized gains and losses are computed on the
identified cost basis. Interest income is recorded on the accrual basis and
includes amortization of discounts and premiums. Dividend income is recorded
on the ex-dividend date.
D. Federal Income Taxes
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Fund is relieved of any federal income tax liability by
distributing all of its net taxable investment income and net taxable capital
gains, if any, to its shareholders. The Fund also intends to avoid excise tax
liability by making the required distributions under the Code. Accordingly,
no provision for federal income taxes is required.
<PAGE>
PAGE 16
Keystone America Hartwell Emerging Growth Fund, Inc.
E. Distributions
The Fund distributes net investment income and net capital gains, if any, at
least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. These differences are primarily due to a net
operating loss and distributions paid through share redemptions.
F. Class Allocations
Class A shares are offered at a public offering price which includes 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 that is payable upon
redemption and decreases depending on how long the shares have been held.
Class B shares purchased on or after June 1, 1995 that have been outstanding
for eight years will automatically convert to Class A shares. Class B shares
purchased prior to June 1, 1995 that have been outstanding for seven years
will automatically convert to Class A shares. Class C shares are sold subject
to a contingent deferred sales charge payable on shares redeemed within one
year of purchase.
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the
relative net assets of each class. Currently, class specific expenses are
limited to expenses incurred under the Distribution Plans for each class.
(2.) Capital Share Transactions
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:
Year ended September 30,
----------------------------
Class A 1996 1995
- ------------------------ ----------- -------------
Shares sold 691,682 434,450
Shares redeemed (1,845,621) (2,239,300)
Shares issued in
reinvestment of
distributions 35,904 420,504
- ------------------------ --------- -----------
Net decrease (1,118,035) (1,384,346)
======================== ========= ===========
Class B
Shares sold 105,037 1,156,468
Shares redeemed (128,181) (1,090,475)
Shares issued in
reinvestment of
distributions 2,628 26,206
- ------------------------ --------- -----------
Net increase (decrease) (20,516) 92,199
======================== ========= ===========
Class C
Shares sold 32,909 69,278
Shares redeemed (41,894) (64,325)
Shares issued in
reinvestment of
distributions 848 9,114
- ------------------------ --------- -----------
Net increase (decrease) (8,137) 14,067
======================== ========= ===========
(3.) Securities Transactions
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) for the year ended September 30, 1996, were
$131,125,931 and $170,450,146, respectively.
(4.) Distribution Plans
The Fund bears some of the costs of selling its shares under Distribution
Plans adopted for its Class A, B and C shares pursuant to Rule 12b-1 under
the 1940 Act. Under the Distribution Plans, the Fund pays its
<PAGE>
PAGE 17
principal underwriter, Keystone Investment Distributors Company ("KIDC"), a
wholly-owned subsidiary of Keystone, amounts that are calculated and paid
daily.
The Class A Distribution Plan provides for expenditures, which are currently
limited to 0.25% annually of the average daily net assets of the Class A
shares, to pay expenses related to the distribution of Class A shares. During
the year ended September 30, 1996, the Fund paid $185,509 to KIDC under the
Class A Distribution Plan.
Pursuant to the Fund's Class B and Class C Distribution Plans, the Fund pays
a distribution fee, which may not exceed 1.00% annually of the average daily
net assets of Class B and Class C shares, respectively. Of that amount, 0.75%
is used to pay distribution expenses and 0.25% is used to pay service fees.
During the year ended September 30, 1996, under the Class B Distribution
Plans, the Fund paid or accrued $47,939 for Class B shares purchased before
June 1, 1995 and $21,303 for Class B shares purchased on or after June 1,
1995. The Fund paid $23,074 under the Class C Distribution Plan.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Directors or by vote of a majority of the outstanding voting
shares of the respective class. However, after the termination of any
Distribution Plan, and subject to the discretion of the Independent
Directors, payments to KIDC may continue as compensation for services that
had been earned while the Distribution Plan was in effect.
KIDC intends, but is not obligated, to continue to pay distribution costs
that exceed the current annual payments from the Fund. KIDC intends to seek
full payment of such distribution costs from the Fund at such time in the
future as, and to the extent that, payment thereof by the Class B or Class C
shares would be within permitted limits.
At September 30, 1996, total unpaid distribution costs were $259,257 for
Class B shares purchased before June 1, 1995, and $173,625 for Class B shares
purchased on or after June 1, 1995. Unpaid distribution costs for Class C
were $202,256 at September 30, 1996.
Contingent deferred sales charges paid by redeeming shareholders are paid to
KIDC.
(5.) Investment Management Agreement and Other Affiliated Transactions
The Fund pays Keystone a basic monthly advisory fee calculated by applying
percentage rates, starting at 1.00% 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 1.00% of the average daily net asset value of the Fund during
the latest 12 months (a moving average method), depending upon the
performance of the Fund relative to the Standard and Poor's Index of 500
Stocks ("S&P 500").
During the year ended September 30, 1996, the Fund paid or accrued
$1,066,413 in management fees representing 0.99% of average daily net assets.
Of that amount $411,286 was paid or accrued to Hartwell.
During the year ended September 30, 1996, the Fund paid or accrued $20,900
to Keystone for certain accounting services. The Fund paid or accrued
$291,584 to Keystone Investor Resource Center, Inc., a wholly-owned
subsidiary of Keystone, for services rendered as the Fund's transfer and
dividend disbursing agent.
Certain officers and/or Directors of Keystone are also officers and/or
Directors of the Fund. Officers of Keystone and affiliated Directors receive
no compensation directly from the Fund.
<PAGE>
PAGE 18
Keystone America Hartwell Emerging Growth Fund, Inc.
(6.) Expense Offset Arrangement
The Fund has entered into an expense offset arrangement with its custodian.
For the year ended September 30, 1996, the Fund incurred total custody fees
of $63,925 and received a credit of $22,354 pursuant to this expense offset
arrangement, resulting in a net custody expense of $41,571. The assets
deposited with the custodian under this expense offset arrangement could have
been invested in income-producing assets.
(7.) Subsequent Event
On September 6, 1996, Keystone Investments, Inc. entered into an Agreement
and Plan of Acquisition and Merger (the "Acquisition") with First Union
Corporation and First Union National Bank of North Carolina ("First Union")
whereby First Union would acquire all the assets and liabilities of Keystone
Investments, Inc. in exchange for shares of First Union. Subject to the
receipt of the required regulatory and shareholder approvals, the Acquisition
is expected to take place in late December 1996.
FEDERAL TAX STATUS--FISCAL 1996 DISTRIBUTIONS (Unaudited)
During the fiscal year ended September 30, 1996, a distribution of taxable
long-term capital gains of $0.25 per share was paid in shares or cash.
In January 1997, we will send you complete information on the distributions
paid during the calendar year 1996 to help you in completing your federal tax
return.
<PAGE>
PAGE 19
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, 1996, 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 six-year period ended September 30,
1996 for Class A shares and each of the years in the three-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
four-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, 1996 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,
1996, 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 specified in the first
paragraph above in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
November 1, 1996
<PAGE>
[wraparound cover]
KEYSTONE AMERICA
FAMILY OF FUNDS
[DIAMOND]
Balanced Fund II
California Insured Tax Free Fund
Capital Preservation and Income Fund
Florida Tax Free Fund
Fund for Total Return
Fund of the Americas
Global Opportunities Fund
Global Resources & Development Fund
Government Securities Fund
Hartwell Emerging Growth Fund, Inc.
Intermediate Term Bond Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Omega Fund
Pennsylvania Tax Free Fund
Small Company Growth Fund II
Strategic Income Fund
Tax Free Income Fund
World Bond Fund
-------------------------------
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied by
the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you invest
or send money. For a free prospectus on other Keystone funds, contact your
financial adviser or call Keystone.
[KEYSTONE LOGO] KEYSTONE
INVESTMENTS
P.O. Box 2121
Boston, Massachusetts 02106-2121
HEGF-R-11/96
9.9M [RECYCLE LOGO]
-------------------------------
K E Y S T O N E
A M E R I C A
[GRAPHIC
OF
SUNFLOWER]
HARTWELL
EMERGING GROWTH
FUND, INC.
-------------------------------
[KEYSTONE LOGO]
ANNUAL REPORT
SEPTEMBER 30, 1996
