PAGE 1
- ---------------------------------
Keystone Omega Fund
Seeks maximum capital growth from
common stocks.
Dear Shareholder:
We are writing to report to you on the performance of Keystone Omega Fund for
the twelve-month period which ended December 31, 1995.
Performance
For the twelve months which ended December 31, 1995, your Fund produced the
following total returns.
Class A shares returned 36.94%.
Class B shares returned 35.70%.
Class C shares returned 35.62%.
The Standard & Poor's 500 Index--a widely recognized benchmark of stock
price performance--returned 37.58% for the same period. Keystone Omega Fund
maintained a **** (four-star) rating from Morningstar for its risk-adjusted
performance as of December 31, 1995.(1)
Your Fund's excellent performance reflected the strong bull market during
the year, which was fueled by moderate economic growth, declining interest
rates and low inflation. Continued strong earnings and an improved
international position for many U.S. companies helped sustain the year-long
stock market rally. In this environment, your Fund benefited from our
emphasis on stable growth companies and companies benefiting from
productivity enhancement. These holdings produced strong performance,
particularly as the year progressed.
Portfolio strategy
In early 1995 our strategy was generally cautious and designed to minimize
the impact of a possible market correction. In retrospect, we may have been
overly cautious. As a result of our defensive positioning, Omega Fund got off
to a slow start during the first few months of the year, although it caught
up quickly. During the second half of the year, holdings in the technology,
finance and healthcare sectors performed very well, contributing to your
Fund's strong performance.
Two dominant investment themes
We maintained our emphasis on two key investment themes throughout the year:
productivity enhancement and stable growth. This led us to invest in
electronics, telecommunications and software companies, because we believed
they would provide the productivity tools to help U.S. corporations compete
more effectively in a global economy. In the second half of the year, we
trimmed back our technology holdings and increased holdings in
healthcare-related industries, including biotechnology and drug companies. We
believed there were good opportunities in these stable growth companies
because they historically have provided solid returns regardless of economic
conditions.
(continued)
- --------------------------
(1) Source: Morningstar, Inc. Morningstar's proprietary ratings reflect the
Fund's historical risk-adjusted performance as of December 31, 1995.
Ratings are subject to change monthly. They are calculated based on the
Fund's 3-, 5- and 10-year average annual return in excess or below the
90-day Treasury bill return. Ratings are not adjusted for sales charges,
but are adjusted for other fees. The top 10% of the funds in an
investment category receive 5 stars, the next 22.5% receive 4 stars, the
next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom
10% receive 1 star. In the equity category, the Fund received a 3-star
rating for the 3-year and 5-year periods and a 4-star rating for the
10-year period. There were 1397 funds in the 3-year, 591 funds in the
5-year, and 508 funds in the 10-year equity category. Past performance is
no guarantee of future results.
<PAGE>
PAGE 2
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Keystone Omega Fund
In addition, the stocks we select for Keystone Omega Fund must meet our
requirements for accelerating earnings, attractive valuations and low debt
levels. As a result, the portfolio's holdings included a variety of small-,
mid- and large-cap stocks. We believe this diversification by company size
has the potential to smooth out price fluctuations as different sectors of
the market rise and fall over time. We believe it has also contributed to the
Fund's attractive long-term performance.
Looking Ahead
The favorable economic fundamentals of 1995--slow growth, low interest rates
and low inflation--should remain intact as we enter 1996. We anticipate that
this favorable environment should continue to be positive for stocks, but we
would not be surprised if some companies reported more modest earnings in
1996. If the market does experience a normal correction, we would view it as
an opportunity to invest in selected stocks at lower prices. Overall, we
continue to believe that the outlook remains healthy for stocks, although we
believe returns for 1996 may be lower than those experienced in 1995.
After a year of strong performance, short-term expectations often rise. We
encourage you to maintain a long-term perspective on the performance of
Keystone Omega Fund and view it as a means of pursuing your long-term
financial goals. Thank you for your continued support of Keystone Omega Fund.
If you have any questions about your Keystone investment, please feel free to
write to us.
Sincerely,
[photos of Albert H. Elfner, III and George S. Bissell]
/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
February 1996
<PAGE>
Page 3
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A Discussion With
Your Fund Manager
[photo of Maureen E. Cullinane]
Maureen E. Cullinane is senior portfolio manager of your Fund and leads
Keystone's growth stock team. A Chartered Financial Analyst, Ms. Cullinane
has over 20 years of investment experience. She received BA and MA degrees
from Emmanuel College with post-graduate study at the Universite de Paris.
She holds an MBA from Boston University. Together with Margery C. Parker,
portfolio manager of Keystone Mid-Cap Growth Fund (S-3), the team focuses on
selecting companies with growing earnings.
Q How did market conditions in 1995 affect the Fund?
A 1995 was a very good year for the stock market. The Dow Jones Industrial
Average passed two major milestones during the year, breaking 4000 in
February and 5000 in November. While we were positioned conservatively at the
beginning of the year, our strategy of investing in a combination of
productivity enhancement and stable growth stocks paid off. We sold our oil
holdings early in the year and reinvested the profits in technology stocks.
This worked out well, in our opinion, because technology companies led the
market rally for most of the year. Toward the end of the year we pared back
our technology holdings and increased our exposure to finance and
healthcare-related stocks. Both of these sectors produced strong fourth
quarter returns. We also benefited from diversification among small-, mid-
and large-capitalization stocks, because each of those sectors surged at
different times during the year.
Q What percentage of the Fund's holdings were invested in technology stocks?
A We were well-represented in technology stocks because they fit our theme of
productivity enhancement. The percentage of technology holdings varied
throughout the year, from a high of about 33% to a low of 20% of net assets.
As of year-end, technology-related companies comprised 25% of net assets.
During the first part of the year holdings included a full range of
telecommunications, software and electronics companies. Late in 1995, we took
some profits when we felt that stock prices fully reflected earnings growth.
Toward year-end, we scaled back on electronics manufacturing companies and
increased our emphasis on software companies. Going forward, we believe
technology stock prices may experience periodic corrections, but we think
they should continue to provide strong growth opportunities.
Fund Profile
Objective: Seeks maximum capital growth from common stocks.
Number of stocks: 71
Net assets: $221 million
Commencement of investment operations: February 8, 1968
Newspaper listing: Omeg
<PAGE>
PAGE 4
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Keystone Omega Fund
The Omega Investment Discipline
Management carefully selects growth stocks which meet
Omega's specific investment criteria:
(bullet) Earnings growth rates which exceed the S&P 500
(bullet) Strong management
(bullet) Industry leadership
(bullet) New products or services that are believed to provide a competitive
advantage
Q Parametric Technology was the Fund's largest software holding. How does it
fit in with the productivity enhancement theme?
A Parametric Technology develops software products to automate the industrial
design process. Parametric's CAD/CAM system allows automotive or aeronautical
engineers to design new cars or planes on the computer rather than building
expensive mockups of new product designs. This enables companies to design
products more quickly and cost-effectively. While we have reduced our
holdings somewhat since the end of the period, Parametric Technology was an
important contributor to the Fund's positive performance during the
twelve-month period.
Q What about the Fund's health care holdings?
A Regardless of economic conditions, people still need basic services,
particularly medical services. Healthcare and pharmaceutical stocks accounted
for about 20% of net assets. Medaphis, the Fund's fifth-largest holding,
provides management services for physicians' offices, including billing and
insurance administration. St. Jude Medical, the third-largest holding, is a
leader in cardiovascular devices primarily heart valves and pacemakers. The
Fund's top two holdings are the pharmaceutical companies SmithKline Beecham
and Warner Lambert. We think these holdings contributed to our stable growth
theme.
Q What are some other examples of stable growth holdings?
A Other stable growth holdings included CUC International which provides
consumers with discounted travel and restaurant dining, and Thermo Electron,
whose diversified subsidiaries have contributed to a steady 17% growth over
the past five years. We also owned shares of Gillette, a leading provider of
personal care products, and the new offering of Estee Lauder. We believe that
Estee Lauder's strong marketing and distribution network position it well for
growth both domestically and abroad.
Q What other types of industries are represented in the portfolio?
A We held several finance-related companies which benefited from declining
interest rates and industry consolidation. Bank holdings included Bank of
Boston, which announced its intention to acquire BayBanks, and BankAmerica.
We also owned Progressive Corp. of
Top 5 Industries
as of December 31, 1995
Percentage of
Industry net assets
---------------------------------------
Drugs 13.4
---------------------------------------
Software services 9.8
---------------------------------------
Finance 9.1
---------------------------------------
Health care 7.4
---------------------------------------
Telecommunications 6.2
---------------------------------------
<PAGE>
PAGE 5
- ---------------------------------
Ohio, an automobile insurance company and MBIA, an insurer of municipal
bonds.
Q What is your outlook for 1996?
A Our outlook remains cautiously optimistic. We believe moderate economic
growth, low inflation and relatively strong corporate earnings should create
an attractive environment for the growth stocks. We think stock prices may
rise over the next six to twelve months, but we do not expect them to
duplicate the impressive gains they made in 1995. We are also alert to the
possibility of earnings disappointments, which could have a negative impact
on selected stocks. In addition, concerns about the federal budget and the
political rhetoric of an election year may have an effect on market
conditions. Nevertheless, we believe your Fund's flexible investment approach
and its emphasis on companies with above-average growth rates give it the
potential to generate above-average returns over the long term.
Top 10 Stock Holdings
as of December 31, 1995
Percentage of
Company Industry net assets
- ------------------------------------------------------------------
Warner Lambert Drugs 3.5
- ------------------------------------------------------------------
SmithKline Beecham Drugs 3.0
- ------------------------------------------------------------------
St. Jude Medical Health care 2.9
- ------------------------------------------------------------------
Parametric Technology Software services 2.6
- ------------------------------------------------------------------
Medaphis Health care 2.3
- ------------------------------------------------------------------
Gilead Sciences Drugs 2.1
- ------------------------------------------------------------------
Gillette Consumer goods 2.0
- ------------------------------------------------------------------
Winstar Communication Telecommunications 2.0
- ------------------------------------------------------------------
Apple South Restaurants 1.9
- ------------------------------------------------------------------
Potash Corp. of Saskatchewan Chemicals 1.9
- ------------------------------------------------------------------
[diamond]
This column is intended to answer
questions about your Fund. If you have a question
you would like answered, please write to:
Keystone Investments, Inc. Attn: Shareholder Communications
200 Berkeley Street, 22nd Floor,
Boston, Massachusetts 02116-5034
<PAGE>
PAGE 6
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Keystone Omega Fund
Your Fund's Performance
[typeset representation of mountain chart]
Growth of an investment in
Keystone Omega Fund Class A
In Thousands
Initial Reinvested
Investment Distributions
12/85 9425 9425
8971 10563
12/87 8064 11437
9118 13044
12/89 10700 17354
8925 16941
12/91 11802 26173
10573 27221
12/93 11421 32482
10373 30643
12/95 13057 41963
A $10,000 investment in Keystone Omega Fund Class A made on December 31, 1985
with all distributions reinvested was worth $41,963 on December 31, 1995.
Past performance is no guarantee of future results.
[end mountain chart]
Twelve-Month Performance as of December 31, 1995
- ----------------------------------------------------------------------------
Class A Class B Class C
Total returns* 36.94% 35.70% 35.62%
Net asset value 12/31/94 $15.54 $15.34 $15.37
12/31/95 $19.56 $19.10 $19.13
Dividends None None None
Capital gains $ 1.56 $ 1.56 $ 1.56
* Before deduction of front-end or contingent deferred sales charge (CDSC).
Historical Record as of December 31, 1995
- ------------------------------------------------------------------------
Cumulative Total Returns Class A Class B Class C
1-year w/o sales charge 36.94% 35.70% 35.62%
1-year 29.07% 31.70% 35.62%
5-year 133.46% -- --
10-year 319.63% -- --
Life of Class -- 35.21% 38.39%
Average annual returns
1-year w/o sales charge 36.94% 35.70% 35.62%
1-year 29.07% 31.70% 35.62%
5-year 18.48% -- --
10-year 15.42% -- --
Life of Class -- 13.31% 14.41%
Class A share performance is reported at the current maximum front-end sales
charge of 5.75%.
Class B shares were initially offered 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 initially offered on August 2, 1993. Performance
reflects the return you would have received for holding shares for one year
and redeeming after the end of the 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.
<PAGE>
PAGE 7
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Growth of an Investment
[typeset representation of line chart]
Comparison of change in value of a $10,000 investment in Keystone Omega Fund,
Class A, the Standard & Poor's 500 Index and the Consumer Price Index.
In thousands December 31, 1985 through December 31, 1995
Fund Average Total Return
-------------------------------------------------------
1 Year 5 Year 10 Year
Class A 29.07% 18.48% 15.42%
Class B 31.70% -- 13.31%*
Class C 35.62% -- 14.41%*
Class A S&P 500 CPI
12/85 9425 10000 10000
10563 11831 10110
12/87 11437 12439 10558
13044 14493 11025
12/89 17354 19012 11537
16941 18386 12241
12/91 26173 23998 12617
27221 25832 12983
12/93 32482 28436 13339
30643 28813 13696
12/95 41963 39640 14053
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. The Consumer Price Index is through November
30, 1995.
[end line chart]
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 Omega Fund Class A
The Fund seeks maximum capital growth from common stocks. The return is
quoted after deducting sales charges (if applicable), fund expenses and
transaction costs and assumes reinvestment of all distributions.
2. Standard & Poor's 500 Index (S&P 500)
The S&P 500 is a broad-based unmanaged index of common stock prices. It is
comprised of stocks of the largest U.S. companies. These stocks are selected
and compiled by Standard & Poor's Corporation according to criteria that may
be unrelated to your Fund's investment objective.
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
PAGE 8
- ---------------------------------
Keystone Omega Fund
other important financial considerations such as safety, stability and
consistency.
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 of a certain company size. 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 index does 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
- ---------------------------------
Glossary of
Mutual Fund Terms
MUTUAL FUND--A company which combines the investment money of many people
whose financial goals are similar, and invests that money in a variety of
securities. A mutual fund allows the smaller investor the benefits of
diversification, professional management and constant supervision usually
available only to large investors.
PORTFOLIO MANAGER--An investment professional who is responsible for
managing a portfolio's assets prudently and making appropriate investment
decisions, such as which securities to buy, hold and sell, based on the
investment objectives of the portfolio.
STOCK--Equity or ownership interest in a corporation, which represents a
claim on the corporation's assets and earnings.
BOND--Security issued by a government or corporation to those from whom it
has borrowed money. A bond usually promises to pay interest income to the
bondholder at regular intervals and to repay the entire amount borrowed at
maturity date.
CONVERTIBLE SECURITY--A corporate security (usually preferred stock or
bonds) that is exchangeable for a set number of another security type
(usually common stocks) at a pre-stated price.
MONEY MARKET FUND--A mutual fund whose assets are invested in a diversified
portfolio of short-term securities, including commercial paper, bankers'
acceptances, certificates of deposit and other short-term instruments. The
fund pays income which can fluctuate daily. Liquidity and safety of principal
are primary objectives.
NET ASSET VALUE (NAV) PER SHARE--The value of one share of a mutual fund.
The NAV per share is determined by subtracting a fund's total liabilities
from its total assets, and dividing that amount by the number of fund shares
outstanding.
DIVIDEND--A per share distribution of the income earned from the fund's
portfolio holdings. When a dividend distribution is made, the fund's net
asset value drops by the amount of the distribution because the distribution
is no longer considered part of the fund's assets.
CAPITAL GAIN--The profit from the sale of securities, less any losses.
Capital gains are paid to fund shareholders on a per share basis. When a
capital gain distribution is made, the fund's net asset value drops by the
amount of the distribution because the distribution is no longer considered
part of the fund's assets.
YIELD--The annualized rate of income as measured against the current net
asset value of fund shares.
TOTAL RETURN--The change in value of a fund investment over a specified
period of time, taking into account the change in a fund's market price and
the reinvestment of all fund distributions.
SHORT-TERM--An investment with a maturity of one year or less.
LONG-TERM--An investment with a maturity of greater than one year.
AVERAGE MATURITY--The average number of days until the notes, drafts,
acceptances, bonds or other debt instruments in a portfolio become due and
payable.
OFFERING PRICE--The offering price of a share of a mutual fund is the price
at which the share is sold to the public.
<PAGE>
PAGE 10
- ---------------------------------
Keystone Omega Fund
SCHEDULE OF INVESTMENTS--December 31, 1995
Number Market
of Shares Value
==============================================================================
COMMON STOCKS (97.1%)
ADVERTISING & PUBLISHING (1.6%)
Clear Channel Communications, Inc. (a) 80,000 $ 3,530,000
- ------------------------------------------------------------------------------
AEROSPACE (1.8%)
Boeing Co. 51,100 4,004,963
- ------------------------------------------------------------------------------
AMUSEMENTS (2.5%)
HFS Inc. (a) 35,000 2,861,250
La Quinta Inns, Inc. 100,000 2,737,500
- ------------------------------------------------------------------------------
5,598,750
- ------------------------------------------------------------------------------
BUILDING MATERIALS (2.9%)
Mohawk Industries, Inc. (a) 240,000 3,675,000
Sherwin-Williams Co. 65,000 2,648,750
- ------------------------------------------------------------------------------
6,323,750
- ------------------------------------------------------------------------------
BUSINESS SERVICES (5.8%)
Molten Metal Technology, Inc. (a) 76,500 2,495,813
Peak Technologies Group, Inc. (a) 89,500 2,774,500
Thermo Electron Corp. (a) 80,000 4,160,000
US Filter Corp. (a) 130,000 3,461,250
- ------------------------------------------------------------------------------
12,891,563
- ------------------------------------------------------------------------------
CAPITAL GOODS (4.3%)
AGCO Corp. 56,800 2,896,800
General Electric Co. 50,000 3,600,000
Idex Corp. 75,000 3,056,250
- ------------------------------------------------------------------------------
9,553,050
- ------------------------------------------------------------------------------
CHEMICALS (2.5%)
Potash Corp. of Saskatchewan, Inc. 60,000 4,252,500
Praxair, Inc. 41,600 1,398,800
- ------------------------------------------------------------------------------
5,651,300
- ------------------------------------------------------------------------------
CONSUMER GOODS (4.8%)
CUC International, Inc. (a) 100,000 3,412,500
Gillette Co. (The) 85,000 4,430,625
Estee Lauder Companies, Inc. (The) (a) 78,500 2,737,688
- ------------------------------------------------------------------------------
10,580,813
- ------------------------------------------------------------------------------
DRUGS (13.4%)
Agouron Pharmaceuticals, Inc. (a) 43,900 1,454,188
Amylin Pharmaceuticals, Inc. (a) 100,000 937,500
Centocor, Inc. (a) 9,300 $ 288,300
Genzyme Corp. (a) 40,000 2,490,000
Gilead Sciences, Inc. (a) 142,300 4,589,175
Human Genome Sciences, Inc. (a) 43,400 1,654,625
Merck & Co., Inc. 55,000 3,616,250
SmithKline Beecham PLC, ADR 120,000 6,660,000
Warner-Lambert Co. 80,000 7,770,000
- ------------------------------------------------------------------------------
29,460,038
- ------------------------------------------------------------------------------
ELECTRONICS PRODUCTS (5.7%)
Analog Devices, Inc. (a) 55,000 1,945,625
Maxim Integrated Products, Inc. (a) 86,600 3,334,100
Microchip Technology, Inc. (a) 63,000 2,307,375
Solectron Corp. (a) 50,000 2,206,250
Teradyne, Inc. (a) 115,000 2,875,000
- ------------------------------------------------------------------------------
12,668,350
- ------------------------------------------------------------------------------
FINANCE (9.1%)
BISYS Group, Inc. (The) (a) 80,000 2,440,000
Bank of Boston Corp. 32,000 1,480,000
BankAmerica Corp. 51,400 3,328,150
Fleet Financial Group, Inc. 75,000 3,056,250
Greenpoint Financial Corp. 110,700 2,947,388
Merrill Lynch & Co., Inc. 32,500 1,657,500
Standard Federal Bancorporation, Inc. 75,000 2,953,125
Washington Mutual, Inc. 80,600 2,317,250
- ------------------------------------------------------------------------------
20,179,663
- ------------------------------------------------------------------------------
FOODS (1.2%)
Sara Lee Corp. 80,000 2,550,000
- ------------------------------------------------------------------------------
HEALTH CARE (7.4%)
Boston Scientific Corp. (a) 60,000 2,940,000
Idexx Labs Inc. (a) 40,700 1,902,725
Medaphis Corp. (a) 135,000 5,011,875
St. Jude Medical, Inc. (a) 150,000 6,431,250
- ------------------------------------------------------------------------------
16,285,850
- ------------------------------------------------------------------------------
INSURANCE (3.1%)
MBIA, Inc. 46,000 3,450,000
Progressive Corp. 50,000 2,443,750
UnionAmerica Holdings PLC, ADR (a) 55,000 935,000
- ------------------------------------------------------------------------------
6,828,750
- ------------------------------------------------------------------------------
<PAGE>
PAGE 11
- ---------------------------------
SCHEDULE OF INVESTMENTS--December 31, 1995
Number Market
of Shares Value
==============================================================================
NATURAL GAS (4.7%)
Anadarko Petroleum Corp. 65,000 $ 3,518,125
Louisiana Land & Exploration Co. 80,000 3,430,000
Nuevo Energy Corp. (a) 150,000 3,356,250
- ------------------------------------------------------------------------------
10,304,375
- ------------------------------------------------------------------------------
OFFICE & BUSINESS EQUIPMENT (1.1%)
Compaq Computer Corp. (a) 50,300 2,414,400
- ------------------------------------------------------------------------------
OIL (0.9%)
Mobil Corp. 17,300 1,937,600
- ------------------------------------------------------------------------------
OIL SERVICES (3.0%)
ENSCO International, Inc. (a) 150,000 3,450,000
100,000 3,150,000
6,600,000
- ------------------------------------------------------------------------------
RESTAURANTS (1.9%)
Apple South, Inc. 200,000 4,275,000
- ------------------------------------------------------------------------------
RETAIL (3.4%)
Barnes & Noble, Inc. (a) 105,000 3,045,000
Staples, Inc. (a) 108,000 2,646,000
Sunglass Hut International, Inc. (a) 74,000 1,748,250
- ------------------------------------------------------------------------------
7,439,250
- ------------------------------------------------------------------------------
SOFTWARE SERVICES (9.8%)
Adobe Systems, Inc. 25,000 1,553,125
America On-Line, Inc. (a) 100,000 3,731,250
BMC Software, Inc. (a) 75,000 3,196,875
Davidson & Association, Inc. (a) 45,500 989,625
Epic Design Technology, Inc. (a) 105,200 2,209,200
Parametric Technology Corp. (a) 85,600 5,681,700
Project Software & Development, Inc. (a) 44,800 1,570,800
System Software Associates, Inc. 127,500 2,757,188
- ------------------------------------------------------------------------------
21,689,763
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (6.2%)
Cisco Systems, Inc. (a) 50,000 3,734,375
DSC Communications Corp. (a) 42,400 1,568,800
Netmanage, Inc. (a) 170,000 3,931,250
Winstar Communications, Inc. (a) 250,000 4,328,122
- ------------------------------------------------------------------------------
13,562,547
- ------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost--$175,947,514) 214,329,775
- ------------------------------------------------------------------------------
Maturity
Value
==============================================================================
SHORT-TERM INVESTMENTS (2.4%)
REPURCHASE AGREEMENTS (2.4%)
Investments in repurchase agreements in a
joint trading account, purchased 12/29/95,
5.909%, maturing 01/02/96 (Cost
$5,367,000)(b) $5,370,476 5,367,000
==============================================================================
TOTAL INVESTMENTS
(Cost--$181,314,514) (c) 219,696,775
OTHER ASSETS AND LIABILITIES (0.5%) 981,615
==============================================================================
NET ASSETS (100.0%) $220,678,390
==============================================================================
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income-producing security.
(b) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at December 31, 1995.
(c) The cost of investments for federal income tax purposes is $181,501,023.
Gross unrealized appreciation and depreciation of investments, based on
identified tax cost, at December 31, 1995 are as follows:
Gross unrealized appreciation $40,815,344
Gross unrealized depreciation (2,619,592)
------------
Net unrealized appreciation $38,195,752
============
See Notes to Financial Statements.
<PAGE>
PAGE 12
- ---------------------------------
Keystone Omega Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992(b) 1991
===========================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value beginning of year $ 15.54 $ 17.11 $ 15.84 $ 17.68 $ 13.37
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00 0.04 (0.07) 0.00 (0.04)
Net realized and unrealized gains
(losses) on investments 5.58 (1.00) 3.07 0.39 6.92
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 5.58 (0.96) 3.00 0.39 6.88
- -----------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income 0.00 0.00 0.00 0.00 (0.02)
In excess of net investment income 0.00 0.00 0.00 0.00 (0.05)
Capital gains (1.56) (0.61) (1.73) (2.23) (2.50)
- -----------------------------------------------------------------------------------------------------------
Total distributions (1.56) (0.61) (1.73) (2.23) (2.57)
- -----------------------------------------------------------------------------------------------------------
Net asset value end of year $ 19.56 $ 15.54 $ 17.11 $ 15.84 $ 17.68
===========================================================================================================
Total return (a) 36.94% (5.66%) 19.33% 4.00% 54.49%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.38%(c) 1.41% 1.51% 1.52% 1.57%
Net investment income (loss) 0.00% 0.27% (0.48%) (0.01%) (0.31%)
Portfolio turnover rate 159% 137% 162% 176% 115%
- -----------------------------------------------------------------------------------------------------------
Net assets end of year (thousands) $135,079 $99,569 $90,404 $73,144 $58,671
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1990 1989 1988 1987 1986
===========================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value beginning of year $ 16.03 $ 13.66 $ 12.08 $ 13.44 $ 14.12
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.11 0.17 0.30(d) 0.02 0.23
Net realized and unrealized gains
(losses) on investments (0.39) 4.30 1.40 1.11 1.49
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (0.28) 4.47 1.70 1.13 1.72
- -----------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.25) (0.20) (0.12) (0.24) (0.28)
In excess of net investment income (0.04) 0.00 0.00 0.00 0.00
Capital gains (2.09) (1.90) 0.00 (2.25) (2.12)
- -----------------------------------------------------------------------------------------------------------
Total distributions (2.38) (2.10) (0.12) (2.49) (2.40)
- -----------------------------------------------------------------------------------------------------------
Net asset value end of year $ 13.37 $ 16.03 $ 13.66 $ 12.08 $ 13.44
===========================================================================================================
Total return (a) (2.38%) 33.05% 14.05% 8.27% 12.07%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.73% 1.84% 1.78% 1.99% 1.47%
Net investment income (loss) 0.70% 1.03% 2.22% 0.13% 1.60%
Portfolio turnover rate 108% 77% 84% 106% 178%
- -----------------------------------------------------------------------------------------------------------
Net assets end of year (thousands) $38,531 $39,682 $33,951 $30,246 $31,812
===========================================================================================================
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculated on average shares outstanding.
(c) The annualized expense ratio includes indirectly paid expenses for the
year ended December 31, 1995. Excluding indirectly paid expenses, the
expense ratio would have been 1.37%.
(d) Includes $0.17 per share relating to a special non-recurring distribution
from Inco Limited.
See Notes to Financial Statements.
<PAGE>
PAGE 13
- ---------------------------------
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each year)See Notes to Financial Statements.
<TABLE>
<CAPTION>
August 2, 1993
(Date of Initial
Year Ended December 31, Public Offering) to
1995 1994 December 31, 1993
=====================================================================================================
<S> <C> <C> <C>
Net asset value beginning of year $ 15.34 $ 17.06 $17.29
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.09) (0.06) (0.05)
Net realized and unrealized gains (losses) on
investments 5.41 (1.05) 1.55
- -----------------------------------------------------------------------------------------------------
Total from investment operations 5.32 (1.11) 1.50
- -----------------------------------------------------------------------------------------------------
Less distributions from:
Capital gains (1.56) (0.61) (1.73)
- -----------------------------------------------------------------------------------------------------
Total distributions (1.56) (0.61) (1.73)
- -----------------------------------------------------------------------------------------------------
Net asset value end of year $ 19.10 $ 15.34 $17.06
=====================================================================================================
Total return (b) 35.70% (6.57%) 9.02%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.29%(c) 2.30% 2.57%(a)
Net investment loss (0.94%) (0.58%) (1.73%)(a)
Portfolio turnover rate 159% 137% 162%
- -----------------------------------------------------------------------------------------------------
Net assets end of year (thousands) $71,636 $32,266 $7,423
=====================================================================================================
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charge.
(c) The annualized expense ratio includes indirectly paid expenses for the
year ended December 31, 1995. Excluding indirectly paid expenses, the
expense ratio would have been 2.27%.
<PAGE>
PAGE 14
- ---------------------------------
Keystone Omega Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each year)See Notes to Financial Statements.
<TABLE>
<CAPTION>
August 2, 1993
(Date of Initial
Year Ended December 31, Public Offering) to
1995 1994 December 31, 1993
=====================================================================================================
<S> <C> <C> <C>
Net asset value beginning of year $ 15.37 $17.09 $17.29
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.13) (0.07) (0.06)
Net realized and unrealized gains (losses) on
investments 5.45 (1.04) 1.59
- -----------------------------------------------------------------------------------------------------
Total from investment operations 5.32 (1.11) 1.53
- -----------------------------------------------------------------------------------------------------
Less distributions from:
Capital gains (1.56) (0.61) (1.73)
- -----------------------------------------------------------------------------------------------------
Total distributions (1.56) (0.61) (1.73)
- -----------------------------------------------------------------------------------------------------
Net asset value end of year $ 19.13 $15.37 $17.09
=====================================================================================================
Total return (b) 35.62% (6.56%) 9.20%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.30%(c) 2.30% 2.48%(a)
Net investment loss (0.91%) (0.63%) (1.64%)(a)
Portfolio turnover rate 159% 137% 162%
- -----------------------------------------------------------------------------------------------------
Net assets end of year (thousands) $13,963 $9,900 $3,620
=====================================================================================================
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The annualized expense ratio includes indirectly paid expenses for the
year ended December 31, 1995. Excluding indirectly paid expenses, the
expense ratio would have been 2.29%.
See Notes to Financial Statements.
<PAGE>
PAGE 15
- ---------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
==================================================================
Assets:
Investments at market value (identified
$181,314,514) (Note 1) $219,696,775
Cash 134
Receivable for:
Fund shares sold 880,289
Investments sold 1,145,278
Dividends and interest 165,605
Prepaid expenses and other assets 61,235
- ------------------------------------------------------------------
Total assets 221,949,316
- ------------------------------------------------------------------
Liabilities:
Payable for:
Investments purchased 1,215,722
Fund shares redeemed 52,687
Other liabilities 2,517
- ------------------------------------------------------------------
Total liabilities 1,270,926
- ------------------------------------------------------------------
Net assets $220,678,390
==================================================================
Net assets represented by (Notes 1 and 3):
Paid-in-capital $177,670,527
Accumulated net realized gain (loss) on
investment transactions 4,625,602
Net unrealized appreciation (depreciation) on
investments and other assets and liabilities 38,382,261
- ------------------------------------------------------------------
Total net assets $220,678,390
==================================================================
Net asset value per share (Notes 1 and 2):
Class A Shares
Net assets $135,078,994/6,907,644 shares
outstanding $ 19.56
Offering price per share ($19.56/0.9425) (based
on sales charge of 5.75% of the offering
price at December 31, 1995) $ 20.75
Class B Shares
Net assets $71,635,998/3,751,051 shares
outstanding $ 19.10
Class C Shares
Net assets $13,963,398/730,073 shares
outstanding $ 19.13
==================================================================
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
====================================================================
Investment income (Note 1):
Dividends (net of foreign withholding
tax of $2,930) $ 1,626,337
Interest 695,345
- --------------------------------------------------------------------
Total income 2,321,682
- --------------------------------------------------------------------
Expenses (Notes 2, 4, and 5):
Management fee $1,280,436
Shareholder services 565,768
Accounting 15,027
Auditing and legal 36,881
Custodian fees 103,716
Printing 24,434
Trustees' fees and expenses 7,179
Distribution Plan expenses 745,640
Registration fees 82,006
Miscellaneous expenses 32,192
- --------------------------------------------------------------------
Total expenses 2,893,279
Less: Expenses paid indirectly (Note 4) (22,735)
- --------------------------------------------------------------------
Net expenses 2,870,544
- --------------------------------------------------------------------
Net investment income (548,862)
- --------------------------------------------------------------------
Net Realized and unrealized gain (loss)
on investments (Notes 1 and 3):
Net realized gain on investments 24,020,841
Net change in unrealized appreciation
or depreciation on investments 30,134,778
- --------------------------------------------------------------------
Net gain on investments 54,155,619
- --------------------------------------------------------------------
Net increase in net assets resulting
from operations $53,606,757
====================================================================
See Notes to Financial Statements.
<PAGE>
PAGE 16
- ---------------------------------
Keystone Omega Fund
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
===================================================================================================
<S> <C> <C>
Operations:
Net investment income (loss) ($ 548,862) $ 79,708
Net realized gain (loss) on investments 24,020,841 (2,218,472)
Net change in unrealized appreciation or depreciation on
investments 30,134,778 (4,649,148)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 53,606,757 (6,787,912)
- ---------------------------------------------------------------------------------------------------
Distributions to shareholders from (Notes 1 and 5):
Net realized gain on investment transactions:
Class A Shares (9,531,332) (3,782,055)
Class B Shares (4,676,811) (984,992)
Class C Shares (973,850) (322,709)
- ---------------------------------------------------------------------------------------------------
Total distributions to shareholders (15,181,993) (5,089,756)
- ---------------------------------------------------------------------------------------------------
Capital share transactions (Note 2):
Proceeds from shares sold:
Class A Shares 21,425,010 25,532,191
Class B Shares 33,563,718 30,415,780
Class C Shares 4,723,834 8,044,614
Payments for shares redeemed:
Class A Shares (20,370,219) (10,802,653)
Class B Shares (8,682,058) (4,383,078)
Class C Shares (4,086,346) (1,273,016)
Net asset value of shares issued in reinvestment of dividends and
distributions:
Class A Shares 8,685,153 3,419,022
Class B Shares 4,332,038 909,009
Class C Shares 927,300 303,801
- ---------------------------------------------------------------------------------------------------
Net increase in net assets resulting from capital share
transactions 40,518,430 52,165,670
- ---------------------------------------------------------------------------------------------------
Total increase in net assets 78,943,194 40,288,002
- ---------------------------------------------------------------------------------------------------
Net assets:
Beginning of year 141,735,196 101,447,194
- ---------------------------------------------------------------------------------------------------
End of year $220,678,390 $141,735,196
===================================================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 17
- ---------------------------------
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Principles
Keystone Omega Fund (formerly Keystone America Omega Fund, Inc.) (the "Fund")
is an open-end diversified management investment company incorporated in
Massachusetts on February 8, 1968. Keystone Management, Inc. ("KMI") is the
Investment Manager and Keystone Investment Management Company (formerly
Keystone Custodian Funds, Inc.) ("Keystone") is the Investment Adviser. It is
registered under the Investment Company Act of 1940 as a diversified open-end
management investment company. The Fund seeks maximum capital growth by
investing in a varied portfolio consisting primarily of common stocks and
securities convertible into common stocks.
The Fund currently issues three classes of shares. Class A shares are sold
subject to a maximum sales charge of 5.75% payable at the time of purchase.
Class B shares are sold subject to a contingent deferred sales charge which
varies depending on when the shares were purchased and how long the shares
have been held. Class C shares are sold subject to a contingent deferred
sales charge payable upon redemption within one year after purchase. Class C
shares are available only through dealers who have entered into special
distribution agreements with Keystone Investment Distributors Company
(formerly Keystone Distributors, Inc.) ("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 Management, Inc. ("KMI") is a
wholly-owned subsidiary 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. The
policies are in conformity with generally accepted accounting principles.
A. Investments, including American Depository Receipts ("ADRs"), 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. ADRs, which are certificates representing shares of
foreign securities deposited in domestic and foreign banks, are traded and
valued in United States dollars.
Short-term investments which are 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
<PAGE>
PAGE 18
- ---------------------------------
Keystone Omega Fund
is recorded on the accrual basis and dividend income is recorded on the
ex-dividend date. Distributions to the shareholders are recorded by the Fund
at the close of business on the ex-dividend date.
C. The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code of 1986, as amended
("Internal Revenue Code"). Thus, the Fund is relieved of any federal income
tax liability by distributing all of its net taxable investment income and
net taxable capital gains, if any, to its shareholders. The Fund intends to
avoid excise tax liability by making the required distributions under the
Internal Revenue Code.
D. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed
upon date and price) the repurchase price of the securities will generally
equal the amount paid by the Fund plus a negotiated interest amount. The
seller under the repurchase agreement will be required to provide securities
("collateral") to the Fund whose value will be maintained at an amount not
less than the repurchase price, and which generally will be maintained at
101% of the repurchase price. The Fund monitors the value of collateral on a
daily basis, and if the value of the collateral falls below required levels,
the Fund intends to seek additional collateral from the seller or terminate
the repurchase agreement. If the seller defaults, the Fund would suffer a
loss to the extent that the proceeds from the sale of the underlying
securities were less than the repurchase price. Any 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.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other Keystone funds, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are fully collateralized
by U.S. Treasury and/or Federal Agency obligations.
E. In connection with portfolio purchases and sales of securities denominated
in a foreign currency, the Fund may enter into forward foreign currency
exchange contracts ("contracts") to hedge certain foreign currency assets.
Contracts are recorded at market value and marked-to-market daily. Realized
gains and losses arising from such transactions are included in net realized
gain (loss) on foreign currency related transactions. The Fund is subject to
the credit risk that the other party will not complete the obligations of the
contract.
F. The Fund distributes net income to shareholders quarterly and net capital
gains, if any, annually. Distributions are determined from taxable net
investment income and net capital gains and can differ from 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 due to the differing treatment of net operating losses and
short-term capital gains for financial statement and federal income tax
purposes.
<PAGE>
PAGE 19
- ---------------------------------
(2.) Capital Share Transactions
Two hundred million shares of the Fund with a par value of $1.00 are
authorized for issuance. Transactions in shares of the Fund were as follows:
Class A Shares
- ----------------------------------------------
Year Ended December 31,
1995 1994
- ----------------------------------------------
Shares sold 1,178,460 1,577,169
Shares redeemed (1,161,391) (668,733)
Shares issued in
reinvestment of
dividends and
distributions 482,356 216,943
- ----------------------------------------------
Net increase 499,425 1,125,379
==============================================
Class B Shares
- ----------------------------------------------
Year Ended December 31,
1995 1994
- ----------------------------------------------
Shares sold 1,902,255 1,881,751
Shares redeemed (499,966) (271,676)
Shares issued in
reinvestment of
dividends and
distributions 245,291 58,195
- ----------------------------------------------
Net increase 1,647,580 1,668,270
==============================================
Class C Shares
- ----------------------------------------------
Year Ended December 31,
1995 1994
- ----------------------------------------------
Shares sold 273,387 493,899
Shares redeemed (240,110) (80,825)
Shares issued in
reinvestment of
dividends and
distributions 52,465 19,425
- ----------------------------------------------
Net increase 85,742 432,499
==============================================
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 which 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 up to 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 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) a commission at
the time of purchase normally equal to 4.00% of the price paid for each Class
B share sold plus the first year's service fee in advance in the amount of
0.25% of the price paid for each Class B share sold. Beginning approximately
12 months after the purchase of a Class B share, the dealer or other party
will receive service fees at an annual rate of 0.25% of the average daily net
asset value of such Class B shares maintained by such others and remaining
outstanding on the Fund's books for specified periods. A contingent deferred
sales charge will be imposed, if applicable, on Class B shares purchased on
or after June 1, 1995 at rates ranging from a maximum of 5.00% of amounts
redeemed during the first 12 months following the date of purchase to 1.00%
of amounts redeemed during the sixth twelve month period following the date
<PAGE>
PAGE 20
- ---------------------------------
Keystone Omega Fund
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 for the distribution of Class C shares. Amounts paid by the Fund
under the Class C Distribution Plan are currently used to pay others
(dealers) a commission at the time of purchase in the amount of 0.75% of the
price paid for each Class C share sold, plus the first year's service fee in
advance in the amount of 0.25% of the price paid for each Class C share.
Beginning approximately 15 months after purchase, the dealer or other party
will receive a commission at an annual rate of 0.75% (subject to applicable
limitations imposed by a rule of the National Association of Securities
Dealers, Inc.) ("NASD Rule") plus service fees at the annual rate of 0.25%,
of the average net asset value of each Class C share maintained by such
others and remaining outstanding on the Fund's books for specified periods.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting
shares of the respective class. However, after the termination of any
Distribution Plan, at the discretion of the Board of Trustees, payments to
KIDC may continue as compensation for its services which had been earned
while the Distribution Plan was in effect.
For the year ended December 31, 1995, the Fund paid KIDC $152,234 under its
Class A Distribution Plan. The Fund paid KIDC $422,149 for Class B shares
sold prior to June 1, 1995, and $57,588 for Class B shares sold on or after
June 1, 1995. The Fund paid KIDC $113,669 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 Plans $2,337,905 for
Class B shares purchased prior to June 1, 1995, and $1,219,354 for Class B
shares purchased on or after June 1, 1995. The maximum uncollected amounts
for which KIDC may seek payment from the Fund under its Class C Distribution
Plan $829,901 as of December 31, 1995.
(3.) Securities Transactions
Cost of purchases and proceeds from sales of investment securities excluding
short-term securities, during the year ended December 31, 1995, were
$297,238,175 and $253,812,150, respectively.
(4.) Investment Management and Transactions with Affiliates
Under the terms of the Investment Management Agreement between KMI and the
Fund, KMI provides investment management and administrative services to the
Fund. In return, KMI is paid a management fee computed and paid daily. The
management fee is determined by applying percentage rates, starting at 0.75%
and declining as net assets increase, to 0.50% per annum, to the net asset
value of the Fund. KMI has entered into an Investment Advisory Agreement with
Keystone, under which Keystone provides investment advisory and management
services to the Fund and receives for its services an annual fee representing
85% of the management fee received by KMI. During the year ended December 31,
1995, the Fund paid or accrued to KMI investment management and adminis-
<PAGE>
PAGE 21
- ---------------------------------
trative services fees of $1,280,436, which represented 0.75% of the Fund's
average net assets on an annualized basis. Of such amounts paid to KMI,
$1,088,371 was paid to Keystone for its services to the Fund.
During the year ended December 31, 1995, the Fund paid or accrued to KII
$39,461 as reimbursement for the cost of accounting and printing services
provided to the Fund and $565,768 was paid or accrued to KIRC for transfer
agent fees.
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 the Fund
average net assets and 2.0% the next $70 million of the Fund average net
assets; and 1.5% of the Fund average net assets over $100 million.
Keystone has agreed to reimburse the Fund annually for certain operating
expenses incurred by the Fund in excess of the applicable state expense
limit. However, Keystone is not required to make such reimbursement to an
extent which would result in the Fund's inability to qualify as a Regulated
Investment Company and provisions of the Internal Revenue Code.
The Fund has entered into an expense offset arrangement with its custodian.
For the year ended December 31, 1995, the Fund paid custody fees in the
amount of $80,981 and received a credit of $22,735 pursuant to the expense
offset arrangement, resulting in a total expense of $103,716. The assets
deposited with the custodian under the expense offset arrangement could have
been invested in income-producing assets.
Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the Fund. Officers of Keystone and affiliated Trustees receive no
compensation directly from the Fund. Currently, the Independent Trustees
receive no compensation for their service.
(5.) Distributions to Shareholders
The Fund intends to distribute to its shareholders dividends from net
investment income, and all net taxable realized long-term capital gains, if
any, annually. Any distribution which is declared in December and paid before
the next February 1 will be taxable to shareholders in the year declared.
(6.) Class Level Expenses
Presently, the Fund's class-specific expenses are limited to expenses
incurred by a class of shares pursuant to its respective Distribution Plan.
For the year ended December 31, 1995, the total amount of expenses incurred
by each class' Distribution Plan is set forth in Note (2.) "Capital Share
Transactions."
<PAGE>
PAGE 22
- ---------------------------------
Keystone Omega Fund
================================================================================
Shareholder Meeting (Unaudited)
A special Meeting of Shareholders was held on April 21, 1995. The following
is a brief description of the matters which were submitted to shareholders,
and certain information about how shareholders voted:
1. Proposal 1 was to approve the reorganization of the Fund as a
Massachusetts business trust, pursuant to which the existing Board of
Directors would become the Board of Trustees of the new entity, and the
present investment manager and investment adviser to the Fund would remain
the same. Action on this Proposal was postponed and the meeting adjourned
until May 30, 1995. The May 30, 1995 meeting was postponed and adjourned
until June 30, 1995, at which time the following vote was received and the
proposal was approved.
FOR AGAINST ABSTAIN
6,155,612.347 300,564.114 519,525.686
2. Proposal 2 was to select KPMG Peat Marwick LLP as the independent public
accountant of the Fund for the 1995 fiscal year.
FOR AGAINST ABSTAIN
6,159,296.725 95,860.769 334,863.015
Federal Tax Status--Fiscal 1995 Distributions (Unaudited)
The per-share distributions paid to you for fiscal 1995, whether taken in
shares or cash, are as follows:
Short-term Long-term
Gains Gains Totals
- ----------------- ---------- --------- ------
Class A shares $0.86 $0.70 $1.56
- ----------------- ----- ----- -----
Class B shares $0.86 $0.70 $1.56
- ----------------- ----- ----- -----
Class C shares $0.86 $0.70 $1.56
- ----------------- ----- ----- -----
<PAGE>
PAGE 23
- ---------------------------------
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone Omega Fund
We have audited the accompanying statement of assets and liabilities of
Keystone Omega Fund (formerly Keystone America Omega Fund, Inc.), including
the schedule of investments, as of December 31, 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 seven-year period ended
December 31, 1995 for Class A shares and for each of the years in the
two-year period ended December 31, 1995 and the period from August 2, 1993
(Date of Initial Public Offering) to December 31, 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 financial highlights for Class A Shares for each of the years in
the three-year period ended December 31, 1988 were audited by other auditors
whose report, dated February 3, 1989, expressed an unqualified opinion
thereon.
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 December 31, 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 Omega Fund as of December 31, 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 years or periods subsequent to 1988 specified in the first paragraph
above in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 23, 1996
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[COVER]
KEYSTONE
[photo of blossoming tree]
OMEGA
FUND
[Keystone logo]
ANNUAL REPORT
DECEMBER 31, 1995
[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
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
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.
[Keystone logo] KEYSTONE
I N V E S T M E N T S
P.O. Box 2121
Boston, Massachusetts 02106-2121
OFI-AR-2/96
21M [recycle logo]
