PAGE 1
Keystone Tax Exempt Trust
Seeks current income, exempt from federal income taxes, while preserving
capital by investing in high quality municipal bonds.
Keystone Tax Exempt Trust
Dear Shareholder:
We are writing to report to you on activities of Keystone Tax Exempt Trust
for the twelve-month period which ended November 30, 1995.
Performance
Your Fund's strong performance during the fiscal year represented a
significant recovery from the weak municipal bond market environment of 1994.
For the twelve-month period which ended November 30, 1995, your Fund returned
17.76%, including reinvestment of dividends. We were pleased with this
performance which resulted in significant price appreciation for
shareholders. This return was in line with municipal bond benchmarks during
the period. We attribute that performance to our careful credit analysis and
the positive performance of the municipal bond market in 1995.
Municipal bond market rebound
This was an unusually strong year for municipal bonds. After an unsettled
market in 1994, patience rewarded municipal bond investors in 1995. Interest
rates declined and bond prices rose as the slow growth economy kept inflation
under control. This 'soft landing' for the economy created a very positive
environment for bond investors, resulting in unusually strong one-year total
returns. The Lehman Municipal Bond Index -- a widely recognized benchmark of
municipal bond performance -- returned 18.91% for the twelve-month period
which ended November 30, 1995.
The efforts of the Federal Reserve Board in 1994 to engineer a soft
landing for the U.S. economy appeared to succeed in 1995. Economic growth
slowed throughout the year, inflation remained under control and interest
rates declined -- generally favorable indicators for municipal bonds. While
growth slowed, the fiscal condition of many municipalities generally
improved. Limited supply also had a positive influence on the municipal bond
market. New issue supply continued to decline from $298 billion in 1993 to
approximately half that amount in 1995.
Portfolio strategy
During the twelve-month period, we emphasized bonds that we believed would
benefit from a declining interest rate environment. We concentrated on
non-callable, discount and zero coupon bonds which typically tend to perform
better when rates decline. This strategy resulted in a lengthening of the
Fund's average maturity from 18 years at November 30, 1994 to 20 years by
November 30, 1995. We continued to focus on bonds with maturities in the
20-year area for their attractive income and lower risk characteristics than
longer term bonds. We also maintained an average portfolio quality of AA at
November 30, 1995.
Relatively attractive values
Despite the strong performance of municipal bonds in 1995, they remained
attractive versus comparable U.S. Treasury securities. In fact, municipal
bond yields averaged about 93% of the yields on comparable long-term U.S.
Treasury bonds, a historically high level.(1) This meant that many investors
could obtain significantly better yields from municipal bonds than Treasuries
on an after-tax basis.
(continued on next page)
- -----------
(1) Source: Keystone Investments, Inc. The average yield of a selection of
30-year AA-rated municipal bonds compared to the yield on a 30-year U.S.
Treasury bond yield on November 30, 1995.
<PAGE>
PAGE 2
Outlook
We anticipate a continuation of the positive environment for municipal bonds
over the next twelve months. Interest rates should trend down as the economy
continues to slow and level off. However, we do not expect a recession in
1996. A slow growth environment could result in some price appreciation for
shareholders, but we believe most of the returns should come from income.
Municipal bond supply should remain tight in 1996. With the possibility of
rising demand, we think these factors should continue to provide positive
support for municipal bond prices and your Fund.
We encourage you to maintain a long-term perspective about your Fund. Over
time, investment returns have tended to even out, rewarding municipal bond
investors who are able to tolerate short-term price fluctuations. This has
been particularly true for investors over the past couple of years. In all
market environments, we will continue to manage Keystone Tax Exempt Trust to
seek valuable tax-free income from a portfolio of quality municipal
obligations.(2)
We appreciate your continued support of Keystone funds. If you have any
questions or comments, please feel free to write to us.
Sincerely,
[signature of Albert H. Elfner, III]
Albert H. Elfner, III
Chairman and President
Keystone Investments, Inc.
[signature of George S. Bissell]
George S. Bissell
Chairman of the Board [photo: Albert H. Elfner] [photo: George S. Bissell]
Keystone Funds Albert H. Elfner, III George S. Bissell
January 1996
- -----------
(2) For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
<PAGE>
PAGE 3
A Discussion With
Your Fund Manager
[photo: Betsy A. Blacher]
Betsy A. Blacher is the senior portfolio manager of your Fund and
leads Keystone's municipal bond investment team. Ms. Blacher is a
professional with 16 years of investment experience specializing in
municipal bonds. She holds a Bachelor's degree from Wheaton
College in economics and sociology. Together, with Daniel Rabasco,
portfolio manager and analysts George Kimball and David
Moore, the team evaluates credit quality and the economic
environment in selecting municipal bonds for Keystone tax free
funds.
Q What does the Fund offer investors?
A The Fund is designed for tax-sensitive investors. It seeks consistent,
attractive income that is exempt from federal income tax.(3) The Fund offers
professional management and diversification by investing in investment grade
municipal bonds. We manage the Fund with careful attention to credit quality
and financial stability.
Q How did municipal bonds perform over the past year?
A Municipal bonds rebounded strongly as a slowing economy reduced the
threat of higher interest rates and inflation. Most bond holders more than
recovered from their losses in 1994 and recorded double-digit total returns.
This was a reversal from 1994 when yields rose and bond prices declined. As
growth moderated at the start of 1995, municipal bonds rallied resulting in
unusually positive total returns.
Q How did the Fund perform?
A The Fund generated returns that paralleled the strong performance of
the municipal bond market. At the beginning of 1995 we expected economic
growth to moderate and interest rates to decline. So, we emphasized bonds
that we expected to benefit from declining rates: non-callable, discount and
zero coupon bonds. Since callable bonds are likely to be bought back by the
issuer in this type of environment, we emphasized non-callable bonds to
preserve income as rates declined. At the same time, these bonds became
expensive relative to other municipal bonds and this contributed to the
Fund's price appreciation.
Discount bonds are sold at a discount from par, or value at maturity.
Historically these bonds have tended to provide more price appreciation in a
falling rate environment than bonds priced close to or above par.
Zero coupon bonds represented a small portion of the portfolio at about 5%
of net assets. But, these bonds were important contributors to the Fund's
strong price recovery. Because zeros pay income at maturity, they have
historically tended to be the most sensitive to changes in interest rates. As
rates declined,
- ----------------------------------------------------------------------
Fund Profile
Objective: Seeks current income, exempt from federal income taxes, while
preserving capital by investing in high quality municipal bonds.
Commencement of investment operations: October 7, 1985
Average maturity: 20 years
Net assets: $688 million
Newspaper symbol: TxETr
- ----------------------------------------------------------------------
- ------------
(3) For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
<PAGE>
PAGE 4
- ----------------------------------------------------------------------
In evaluating bonds for the Funds, Keystone
looks for . . .
(bullet) Strong credit ratings; bonds rated in the top 4 categories (AAA, AA,
A, BBB)
(bullet) Responsible fiscal policies
(bullet) Solid financial positions
(bullet) Attractive values
Keystone's municipal bond team also evaluates local economic conditions, the
state legislative climate, the taxing power of the issuer and expected cash
flows from the project.
- ----------------------------------------------------------------------
they were among the best performing holdings in the portfolio.
We were pleased with the results of this strategy which helped the Fund
participate in the strong recovery of municipal bonds this year.
Q Total returns were impressive, but municipal bond yields declined. Why?
A Yields declined for nearly every municipal bond investor, including
Keystone Tax Exempt Trust. Slower economic growth lessens the potential for
higher inflation which reduces net bond yields. We held a number of high
coupon bonds and attempted to lock-in income by emphasizing selected
non-callable bonds. While the Fund's income still declined, we believe the
portfolio's holdings of these bonds helped the portfolio to maintain income.
Q Did talk about a 'flat tax' in Washington affect municipal bonds?
A Discussions about a 'flat tax' limited performance that otherwise would
have been stronger than the impressive returns of 1995. The 'flat tax' would
have been a negative for municipal bonds because it would have taxed
municipal bond income. At this writing, the possibility of such a tax appears
remote. But, the mere discussion of it caused municipal bonds to rise less in
price than comparable U.S. Treasuries. As a result, we believe that
municipals are still attractive values.
Q What is your outlook?
A We continue to be cautiously optimistic about the municipal bond
market. We expect the economy to continue slowing to a sustainable,
non-inflationary level. This should provide the potential for stable to
declining interest rates over the next six months. In particular, we expect
short-term interest rates to decline further, which could result in some
price appreciation.
Q Why do you think growth will remain slow?
A Demographics are important to economic growth. With new home sales and
new family formation slowing, we think economic growth should remain moderate
compared to the 1980s and early 1990s. In addition, world economic growth is
a factor. In Europe,
- ------------------------------[pie chart]------------------------------
Portfolio Quality Summary
as of November 30, 1995
S&P rating(4)
AAA 42%
A 18%
AA 17%
BBB 12%
Not rated 8%
Other(5) 3%
Average portfolio quality: AA
(percentage of portfolio assets)
- ----------------------------------------------------------------------
- ------------
(4) Where Standard & Poor's (S&P) ratings were not available, we have used
ratings from Moody's Investor Service, Inc., Fitch Investor's Service,
Inc. or ratings assigned by another nationally recognized statistical
rating organization.
(5) Includes short-term obligations.
<PAGE>
PAGE 5
Relatively Attractive
Municipal Bond Yields(6)
as of November 30, 1995
- ------------------------------[bar chart]------------------------------
Municipal bond yields recently equalled 93% of
the yield on a comparable U.S. Treasury bond.
Municipal Bonds 5.7
U.S. Treasury Bond 6.13
- ------------
(6)Source: Keystone Investments, Inc. Based on a selection of 30-year
AA-rated municipal bonds versus the yield on the 30-year U.S. Treasury bond
on November 30, 1995.
- ----------------------------------------------------------------------
growth has been slow, even with cuts in interest rates. Because U.S. growth
is increasingly dependent on world growth, economic growth should not be a
threat to bond investors for some time. Combined with a proposal to balance
the federal budget, these could be strong positives for municipal bond
investors over the long term.
Q What should shareholders expect?
A We think shareholders should not expect a repeat of the unusually positive
performance in 1996; investors should look forward to returns to come
primarily from income rather than price appreciation in the months ahead.
Q Are municipal bond funds still a good value?
A Even after such a great year, we believe municipal bond yields are still
very attractive values compared to taxable bond yields. On November 30 the
yield on a 30-year AA-rated municipal bond equaled 93% of the yield on a
comparable U.S. Treasury bond. As rates declined, taxable bond yields
declined more than tax free yields. This increased the attractiveness of
municipal bonds compared to taxable bonds. As a result, the after-tax yield
of municipal bonds remains relatively high by historical standards.
Tax-Equivalent Yields
Federal Tax Bracket(7)
- --------------------------------------
31% 36% 39.6%
- --------------------------------------
Yield Taxable Equivalent Yield
- --------------------------------------
4.5% 6.5% 7.0% 7.5%
5.0% 7.2% 7.8% 8.3%
5.5% 8.0% 8.6% 9.1%
- --------------------------------------
The yields shown are for illustrative purposes only. They are not intended to
represent actual performance of the Fund.
- ------------
(7) The table is based on federal tax brackets. The 31% bracket includes
single filers earning $53,501-115,000 and joint filers earning
$89,151-140,000; the 36% bracket includes single filers earning
$115,001-250,000 and joint filers earning $140,001-250,000; the 39.6% bracket
includes single and joint filers earning over $250,000. Yields are
hypothetical and do not represent the returns of any particular investment.
[diamond]
This column is intended to answer questions about your Fund.
If you have a question you would like answered, please write to:
Keystone Investment Distributors, Inc.,
Attn: Shareholder Communications, 22nd Floor,
200 Berkeley Street, Boston, Massachusetts 02116-5034.
<PAGE>
PAGE 6
Your Fund's Performance
---------------------------[mountain chart] ---------------------------
Growth of an investment in
Keystone Tax Exempt Trust
In Thousands
Initial Reinvested
Investment Distributions
11/85 10000 10000
11/86 11276 12112
11/87 9970 11546
11/88 10485 13029
11/89 10781 14333
11/90 10643 15118
11/91 10801 16452
11/92 10940 17898
11/93 10959 19562
11/94 9624 18173
11/95 10752 21402
A $10,000 investment in Keystone Tax Exempt Trust made on November 30, 1985
with all distributions reinvested was worth $21,402 on November 30, 1995.
Past performance is no guarantee of future results.
- ----------------------------------------------------------------------
Twelve-Month Performance as of November 30, 1995
_________________________________________________
Total return* 17.76%
Net asset value 11/30/94 $ 9.73
11/30/95 $10.87
Dividends $ 0.55
Capital gains None
* Before deduction of contingent deferred sales charge (CDSC).
Historical Record as of November 30, 1995
_________________________________________________
If you If you did
Cumulative Total Return redeemed not redeem
1-year 14.76% 17.76%
5-year 41.56% 41.56%
10-year 114.02% 114.02%
Average annual total return
1-year 14.76% 17.76%
5-year 7.20% 7.20%
10-year 7.91% 7.91%
The "if you redeemed" returns reflect the deduction of the 3% CDSC for those
investors who sold Fund shares after one calendar year. Investors who
retained their fund investment earned the returns reported in the second
column of the table.
The investment return and principal value will fluctuate so that your shares,
when redeemed, may be worth more or less than the original cost.
You may exchange your shares for another Keystone fund by phone or in writing
for a $10 fee. The exchange fee is waived for individual investors who make
an exchange using Keystone's Automated Response Line (KARL). The Fund
reserves the right to change or terminate the exchange offer.
<PAGE>
PAGE 7
Growth of an Investment
-----------------------------[line chart] -----------------------------
Comparison of change in value of a $10,000 investment in Keystone Tax Exempt
Trust, the Lehman Municipal Bond Index, and the Consumer Price Index
$ In Thousands November 30, 1985 through November 30, 1995
Fund Average
Annual Total Returns
1 Year 5 Year 10 Year
14.76% 7.20% 7.91%
Fund LMBI* CPI**
10000 10000 10000
12112 12071 10128
11546 12043 10587
13029 13320 11037
14333 14786 11550
15118 15924 12275
16452 17559 12642
17898 19321 13028
19562 21461 13376
18173 20340 13734
21402 24185 14101
*LMBI = Lehman Municipal Bond Index
**CPI = Consumer Price Index
Past performance is no guarantee of future results. The one-year return
reflects the deduction of the Fund's 3% contingent deferred sales charge for
shares held for at least one year. CPI is through October 31, 1995.
- ----------------------------------------------------------------------
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 Tax Exempt Trust
Your Fund seeks current income, exempt from federal income taxes, while
preserving capital by investing in high quality municipal bonds. The return
is quoted after deducting sales charges (if applicable), fund expenses, and
transaction costs and assumes reinvestment of all distributions.
2. Lehman Municipal Bond Index (LMBI)
The LMBI is a broad-based, unmanaged market index of securities issued by
state and local governments. It represents the price change and coupon income
of several thousand securities with various maturities and qualities.
Securities are selected and compiled by Lehman Brothers, Inc. 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.
The 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 the 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
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 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
Keystone Tax Exempt Trust
SCHEDULE OF INVESTMENTS--November 30, 1995
Coupon Maturity Principal Market
Rate Date Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (96.8%)
ALABAMA
Mobile, Alabama, Solid
Waste Disposal, Mobile
Energy Services Co.
Project 6.950% 01/01/2020 $3,000,000 $3,170,610
ALASKA
Alaska Energy Authority,
Utility Revenue (FGIC) 6.600 07/01/2015 1,500,000 1,661,760
Alaska State Housing
Finance Corp.,
Collateralized Home
Mortgage 8.000 12/01/2013 980,000 1,027,628
North Slope Borough,
Alaska, General
Obligation Refunding,
Series G (ETM) 8.350 06/30/1998 1,000,000 1,094,410
Valdez, Alaska, Marine
Terminal Revenue, (Union
Alaska Pipeline Company
Project) 6.200 05/01/2008 3,000,000 3,010,470
ARIZONA
Maricopa County, Arizona,
Elementary School
District #068 6.750 07/01/2014 3,750,000 4,214,475
Maricopa County, Arizona,
School District #008,
Osborn Refunding (MBIA) 7.500 07/01/2007 2,000,000 2,452,040
Northern Arizona
University, Revenue
(FGIC) 6.300 06/01/2005 2,770,000 3,027,527
Pima County, Arizona,
Industrial Development
Authority, Irvington
Project (FSA) 7.250 07/15/2010 5,000,000 5,444,050
Pima County, Arizona,
Unified School District,
Tucson Refunding (FGIC) 7.500 07/01/2003 2,030,000 2,414,827
Santa Cruz County Arizona
Unified School District
No. 1, Nogales (AMBAC)
(effective yield 5.95%)
(b) 0.000 01/01/2008 1,100,000 587,048
Santa Cruz County Arizona
Unified School District
No. 1, Nogales (AMBAC)
(effective yield 5.95%)
(b) 0.000 07/01/2008 1,100,000 571,989
ARKANSAS
Arkansas State Development
Finance Authority, Single
Family Mortgage Refunding 8.000 08/15/2011 665,000 722,941
CALIFORNIA
California Educational
Facilities Authority,
Stanford University
Project, Series H 5.000 01/01/2015 250,000 236,408
Foothill Eastern
Transportation Corridor
Agency, California Toll
Road, Senior Lien, Series A 6.500 01/01/2032 6,650,000 6,780,340
Los Angeles County,
California, Metropolitan
Transportation Authority,
Series A (AMBAC) 5.000 07/01/2025 4,750,000 4,444,813
Los Angeles County,
California, Sales Tax
Revenue (MBIA) 6.250 07/01/2013 1,300,000 1,366,053
Pleasant Hill, California,
Joint Powers Financing,
Capital Improvement
Project, Series A (MBIA) 5.250 12/01/2016 2,100,000 2,037,546
Rancho, California, Water
District Financing
Authority 5.000 08/15/2014 675,000 640,278
Rio Linda, California,
Unified School District,
Series A (AMBAC) 7.400 08/01/2010 460,000 541,052
San Diego, California,
Water Authority,
Certificates of
Participation (FGIC) 5.681 04/23/2008 1,500,000 1,580,130
San Joaquin Hills,
California,
Transportation Corridor
Agency, Toll Road Revenue 7.000 01/01/2030 3,650,000 3,853,889
See Notes to Schedule of Investments.
<PAGE>
PAGE 10
CALIFORNIA (continued)
San Joaquin Hills,
California,
Transportation Corridor
Agency, Toll Road Revenue 6.750% 01/01/2032 $1,000,000 $1,038,680
San Jose, California,
Redevelopment Tax
Allocation 5.000 08/01/2020 1,000,000 934,180
San Pablo, California,
Redevelopment Agency,
Subordinated Tax
Allocation, Merged
Project Area 5.000 12/01/2013 1,250,000 1,180,338
University of California,
Certificates of
Participation, UCLA
Central, Chiller/Cogen 6.000 11/01/2021 3,000,000 3,052,080
University of California,
Multiple Purpose Project,
Series C (AMBAC) 5.125 09/01/2018 3,500,000 3,356,850
COLORADO
Arapahoe County, Colorado,
Single Family Mortgage
(effective yield 21.84%)
(b) 0.000 09/01/2010 4,000,000 1,697,680
City and County of Denver,
Colorado, Airport System,
Series A 7.500 11/15/2023 1,000,000 1,106,530
City and County of Denver,
Colorado, Airport System,
Series A 8.500 11/15/2023 6,000,000 6,828,780
City and County of Denver,
Colorado, Airport System,
Series A 8.750 11/15/2023 7,450,000 8,724,472
City and County of Denver,
Colorado, Airport System,
Series A (MBIA) 5.700 11/15/2025 6,250,000 6,285,000
City and County of Denver,
Colorado, Airport System,
Series B 7.250 11/15/2012 3,500,000 3,789,450
City and County of Denver,
Colorado, Airport System,
Series C 6.000 12/01/2025 2,000,000 2,052,180
City and County of Denver,
Colorado, Airport System,
Series D 7.750 11/15/2013 7,100,000 8,631,115
Jefferson County, Colorado,
Single Family Mortgage,
Series A 8.875 10/01/2013 670,000 725,302
CONNECTICUT
Connecticut State Resources
Recovery Authority,
Bridgeport Resco Co.
Project B 8.500 01/01/2000 1,375,000 1,405,938
DELAWARE
Delaware State Health
Facilities Authority,
Medical Center of
Delaware (MBIA) 6.250 10/01/2006 2,000,000 2,242,400
Delaware State Health
Facilities Authority,
Medical Center of
Delaware (MBIA) 7.000 10/01/2015 1,600,000 1,733,504
Delaware State Housing
Authority, Residential
Mortgage, Series A 9.375 06/01/2012 170,000 172,149
FLORIDA
Dade County, Florida,
Aviation Revenue, Series
C (MBIA) 5.750 10/01/2025 1,000,000 1,012,840
Dade County, Florida,
Health Facilities
Authority, Mt. Sinai
Medical Center 8.400 12/01/2007 1,250,000 1,380,288
Dade County, Florida,
Health Facilities
Authority, Mt. Sinai
Medical Center 8.400 12/01/2017 3,000,000 3,312,690
Dade County, Florida,
General Obligation (FGIC) 12.000 10/01/1998 2,300,000 2,777,227
Florida Housing Finance
Agency, Single Family
Mortgage, Series B 5.875 01/01/2027 500,000 494,840
Florida State Board of
Education Capital Outlay,
Series B 5.875 06/01/2020 2,000,000 2,042,940
Florida State Board of
Education Capital Outlay
Series B 5.875 06/01/2024 2,000,000 2,034,980
Florida State Board of
Education Capital Outlay,
Series E 5.800 06/01/2024 2,400,000 2,434,224
Florida State Department of
Transportation, Right of
Way 5.800 07/01/2018 4,000,000 4,078,600
Florida State,
Jacksonville,
Transportation Authority
(ETM) 9.200 01/01/2015 1,580,000 2,227,832
See Notes to Schedule of Investments.
<PAGE>
PAGE 11
FLORIDA (continued)
Florida State, Turnpike
Authority, Department of
Transportation, Series A
(FGIC) 5.625% 07/01/2025 $2,000,000 $ 2,008,360
Jacksonville, Florida,
River City Renaissance
Project (FGIC) 5.375 10/01/2018 1,250,000 1,241,075
Lee County, Florida, School
Board Certificate of
Participation, Series A
(FSA) 7.750 08/01/2004 4,630,000 5,393,441
Lee County, Florida, Solid
Waste System, Series B 7.000 10/01/2011 300,000 334,191
Lee County, Florida, Solid
Waste System, Series B 6.500 10/01/2013 200,000 215,260
Orange County, Florida,
Health Facilities
Authority, Adventist
Health System (AMBAC) 5.250 11/15/2020 2,935,000 2,813,227
Orange County, Florida,
Housing Finance Mortgage,
Series B 8.100 11/01/2021 400,000 423,204
Orlando and Orange County,
Florida, Expressway
Authority 8.250 07/01/2014 3,000,000 4,025,730
Palm Beach County, Florida,
Health Revenue, John F.
Kennedy Hospital 9.500 08/01/2013 3,050,000 4,253,988
Palm Beach County, Florida,
Solid Waste Department,
Osceola Project A 6.950 01/01/2022 2,000,000 2,061,940
Reedy Creek, Florida,
District Utilities
Improvement, Series 1
(MBIA) 5.000 10/01/2019 2,320,000 2,190,451
Tampa, Florida, Allegheny
Health Systems 6.500 12/01/2023 500,000 548,595
Tampa, Florida, Guaranteed
Entitlement, Series A 8.375 10/01/2008 3,290,000 3,662,790
GEORGIA
De Kalb County, Georgia,
Water and Sewer 5.250 10/01/2023 2,000,000 1,937,880
Forsyth County, Georgia,
School District, General
Obligation 6.750 07/01/2016 3,000,000 3,475,260
Georgia Municipal Electric
Authority 8.375 01/01/2020 2,000,000 2,121,520
Georgia State, General
Obligation, Series B 6.800 03/01/2011 4,000,000 4,685,280
Georgia State, General
Obligation, Series C 5.250 04/01/2011 2,500,000 2,522,475
Georgia State, General
Obligation, Series D 6.700 08/01/2010 1,500,000 1,743,435
ILLINOIS
Chicago, Illinois, Gas
Supply Revenue, People's
Gas Light and Coke Co.,
Series A 8.100 05/01/2020 9,120,000 10,298,395
Chicago, Illinois, Public
Building Commission,
Series A
(effective yield 7.30%)
(b) 0.000 01/01/2008 4,440,000 2,411,808
Metropolitan Pier and
Exposition Authority,
McCormick Place Expansion
Project 7.250 06/15/2005 4,680,000 5,509,249
Metropolitan Fair and
Exposition Authority,
Series A (MBIA) 5.000 06/01/2015 1,000,000 917,000
Quincy, Illinois, Blessing
Hospital Revenue 6.000 11/15/2018 4,200,000 4,107,306
Robbins, Illinois, Robbins
Resources Recovery,
Partners A 9.250 10/15/2014 3,500,000 3,778,565
KANSAS
Burlington, Kansas,
Pollution Control, Kansas
Gas and Electric Company
(MBIA) 7.000 06/01/2031 2,000,000 2,249,800
Kansas City, Kansas,
Utility Systems,
Refunding and Improvement
(FGIC) 6.375 09/01/2023 5,000,000 5,403,500
KENTUCKY
Carroll County, Kentucky,
Kentucky Pollution
Project, Series A 7.450 09/15/2016 3,000,000 3,479,640
LOUISIANA
Louisiana Public Facilities
Authority, Woman Hospital
Foundation Project 7.250 10/01/2022 1,750,000 1,837,255
(continued on next page)
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LOUISIANA (continued)
New Orleans, Louisiana,
Capital Appreciation,
(AMBAC)
(effective yield 7.05%)
(b) 0.000% 09/01/2012 $3,700,000 $1,460,871
Ouachita Parish, Louisiana,
Louisiana Hospital
Service, District 1 7.500 07/01/2021 2,000,000 2,156,040
MAINE
Maine State Housing
Authority, Mortgage
Purchase, Series A3 7.800 11/15/2015 2,580,000 2,665,192
MARYLAND
Prince Georges County,
Maryland, Single Family
Mortgage, Series A 9.100 09/01/2010 40,000 43,167
Prince Georges County,
Maryland, Solid Waste
Management Systems 6.500 06/15/2007 4,225,000 4,680,202
MASSACHUSETTS
Lawrence, Massachusetts,
General Obligation
(AMBAC) 6.250 02/15/2009 900,000 973,143
Massachusetts Bay
Transportation Authority,
Series A 7.000 03/01/2007 5,000,000 5,834,150
Massachusetts Bay
Transportation Authority,
Series A 7.000 03/01/2011 2,500,000 2,922,475
Massachusetts Bay
Transportation Authority,
Series A 6.250 03/01/2012 3,600,000 3,943,404
Massachusetts Municipal
Wholesale Electric, Power
Supply Systems, Series B 6.750 07/01/2008 2,540,000 2,792,730
Massachusetts State
Consolidated Loan, Series
B (FGIC) 6.000 08/01/2012 2,000,000 2,104,360
Massachusetts State Health
and Educational
Facilities Authority,
Massachusetts General
Hospital, Series F
(AMBAC) 6.250 07/01/2012 4,000,000 4,433,600
Massachusetts State Health
and Educational
Facilities Authority,
Massachusetts General
Hospital, Series F
(AMBAC) 6.250 07/01/2020 2,000,000 2,106,900
Massachusetts State Health
and Educational
Facilities Authority,
McLean Hospital, Series C 6.500 07/01/2010 700,000 762,825
Massachusetts State Health
and Educational
Facilities Authority,
Milton Hospital 7.250 07/01/2005 700,000 784,672
Massachusetts State Health
and Educational
Facilities Authority, Mt.
Auburn Hospital, Series B 6.300 08/15/2024 1,000,000 1,058,940
Massachusetts State Health
and Educational
Facilities Authority, New
England Deaconess
Hospital 6.875 04/01/2022 500,000 523,355
Massachusetts State Health
and Educational
Facilities Authority,
Smith College, Series D 5.750 07/01/2016 350,000 357,179
Massachusetts State
Industrial Finance
Agency, Harvard Community
Health Plan, Inc., Series
B 8.125 10/01/2017 1,700,000 1,852,082
Massachusetts State
Industrial Finance
Agency, Solid Waste
Disposal 9.000 08/01/2016 2,500,000 2,512,025
Massachusetts State Port
Authority, Series A 5.000 07/01/2013 980,000 915,594
Massachusetts State Water
Resources Authority,
Series A 7.000 04/01/1999 1,000,000 1,082,670
Massachusetts State Water
Resources Authority,
Series A 7.125 04/01/2000 1,500,000 1,658,520
Massachusetts State Water
Resources Authority
Series A 5.750 12/01/2021 1,000,000 1,001,000
Massachusetts State Water
Resources Authority
Series C 5.250 12/01/2020 5,000,000 4,851,800
MICHIGAN
Monroe County, Michigan,
Economic Development
Corp., Detroit Edison Co.
(FGIC) 6.950 09/01/2022 3,500,000 4,252,465
MINNESOTA
Dakota County, Minnesota,
Housing & Redevelopment
Authority 8.100 09/01/2012 1,705,000 1,806,686
See Notes to Schedule of Investments.
<PAGE>
PAGE 13
MINNESOTA (continued)
Minnesota State Housing
Finance Agency, Single
Family Mortgage, Series D 8.000% 01/01/2023 $1,460,000 $1,530,781
North Branch Minnesota
Independent School
District, Series A (FGIC) 5.625 02/01/2017 5,220,000 5,267,920
Southern Minnesota
Municipal Power Agency,
Power Supply System 9.500 01/01/2017 500,000 512,050
MISSISSIPPI
Harrison County,
Mississippi, Wastewater
Treatment Management 8.500 02/01/2013 1,000,000 1,377,230
MISSOURI
Cape Girardeau County,
Missouri, Industrial
Development Authority,
Southeast Missouri,
Hospital Association 5.250 06/01/2016 750,000 714,660
Missouri State Health and
Educational Facilities
Authority, Barnes Jewish
Hospital 5.250 05/15/2021 3,000,000 2,823,720
Missouri State Health and
Educational Facilities
Authority, St. Luke
Health System 5.125 11/15/2019 1,000,000 949,130
University of Missouri,
University Improvement
Systems Facilities 5.200 11/01/2008 500,000 499,875
University of Missouri,
University Improvement
Systems Facilities 5.500 11/01/2023 25,000 25,260
NEBRASKA
Nebraska Higher Education
Loan Program 6.450 06/01/2018 3,320,000 3,524,545
Nebraska Public Power
District Revenue, Series A 5.250 01/01/2028 3,500,000 3,344,005
NEVADA
Clark County, Nevada,
General Obligation,
Series A (AMBAC) 7.500 06/01/2009 2,000,000 2,434,780
NEW JERSEY
Camden County, New Jersey,
Municipal Utilities
Authority, Sewer Revenue,
Series A (FGIC)
(effective yield 7.35%)
(b) 0.000 09/01/2016 3,600,000 1,147,572
Gloucester County, New
Jersey, Improvement
Authority, Solid Waste
Resources Recovery 8.125 07/01/2010 1,000,000 1,059,110
Hudson County, New Jersey,
Fiscal Year Adjustment
Bonds 5.125 08/01/2008 3,000,000 2,949,750
New Jersey Health Care
Facilities Financing
Authority, St.
Elizabeth's Hospital,
Series A 7.750 07/01/1998 650,000 676,696
NEW MEXICO
Albuquerque, New Mexico,
Water and Sewer Systems,
Series A (FGIC)
(effective yield 7.20%) (b) 0.000 07/01/2008 2,950,000 1,522,731
New Mexico Educational
Assistance Foundation,
Series B 6.300 12/01/2004 2,570,000 2,814,793
New Mexico Educational
Assistance Foundation,
Series B 5.750 12/01/2008 2,250,000 2,228,108
NEW YORK
Battery Park City
Authority, New York,
Refunding, Series A 5.000 11/01/2013 3,000,000 2,790,450
New York City, New York,
General Obligation 5.750 08/01/2010 400,000 413,016
New York City, New York,
General Obligation,
Series A 7.750 08/15/2008 4,000,000 4,525,920
New York City, New York,
General Obligation,
Series A 7.750 08/15/2015 5,250,000 5,951,400
New York City, New York,
General Obligation,
Series A 8.000 08/15/2020 500,000 597,560
New York City, New York,
Municipal Water Finance
Authority, Water and
Sewer System, Series A
(FGIC) 7.000 06/15/2015 1,310,000 1,429,564
(continued on next page)
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PAGE 14
NEW YORK (continued)
New York City, New York,
Municipal Water Finance
Authority, Water and
Sewer System, Series A
(FGIC) 6.000% 06/15/2015 $5,000,000 $5,155,550
New York City, New York,
Municipal Water Finance
Authority, Water and
Sewer System, Series A
(FGIC) 7.000 06/15/2015 1,290,000 1,469,916
New York State Dormitory
Authority, State
University Educational
Facilities, Series B 7.500 05/15/2011 3,500,000 4,196,885
New York State Dormitory
Authority, State
University Educational,
Facilities, Series C 7.375 05/15/2010 1,100,000 1,303,357
New York State Energy
Research and Development
Authority, Electric
Facilities, Series A 7.750 01/01/2024 4,500,000 4,848,525
New York State Housing
Finance Agency,
Multi-family Mortgage,
Series A (AMBAC) 6.250 08/15/2014 500,000 517,245
New York State Housing
Finance Agency,
Multi-family Mortgage,
Series B (AMBAC) 6.250 08/15/2014 2,095,000 2,157,138
New York State Housing
Finance Agency, Service
Contract Obligation,
Series D 5.375 03/15/2023 4,410,000 4,069,592
New York State Local
Government Assistance
Corp., Series A 6.000 04/01/2016 1,765,000 1,816,044
New York State Medical Care
Facilities, Finance
Agency, Health Center
Project, Series A 6.375 11/15/2019 3,505,000 3,713,890
New York State Medical Care
Facilities, Finance
Agency, New York
Hospital, Series A (FHA) 6.750 08/15/2014 2,250,000 2,480,265
New York State Medical Care
Facilities, Finance
Agency, Series A 7.700 02/15/2009 5,300,000 6,169,624
New York State Mortgage
Agency, Series A 6.875 04/01/2017 1,565,000 1,599,884
New York State Power
Authority Revenue and
General Purpose, Series B 5.000 01/01/2014 1,500,000 1,436,040
New York State Urban
Development Corp.,
Correctional Facilities 5.625 01/01/2007 2,500,000 2,499,775
New York State Urban
Development Corp.,
Correctional Facilities,
Series A 6.500 01/01/2009 575,000 623,277
New York State Urban
Development Corp.,
Correctional Facilities,
Series A 6.500 01/01/2010 6,000,000 6,769,140
New York State Urban
Development Corp.,
Correctional Facilities,
Series A 7.500 04/01/2011 1,500,000 1,742,160
New York State Urban
Development Corp.,
Refunding Correctional
Facilities, Series A 6.500 01/01/2010 2,000,000 2,176,720
Niagara Falls, New York,
Public Improvement (MBIA) 7.500 03/01/2014 300,000 374,961
Suffolk County, New York,
Industrial Development
Agency, Southwest Sewer
Systems 6.000 02/01/2007 1,655,000 1,820,732
Triborough Bridge and
Tunnel Authority, New
York Revenue, General
Purpose, Series A 5.000 01/01/2024 9,000,000 8,433,990
Triborough Bridge and
Tunnel Authority, New
York Revenue, General
Purpose, Series Q 5.000 01/01/2017 4,150,000 3,922,248
Triborough Bridge and
Tunnel Authority, New
York Revenue, General
Purpose, Series X 6.625 01/01/2012 4,000,000 4,577,480
Triborough Bridge and
Tunnel Authority, New
York Revenue, General
Purpose, Series Y 5.500 01/01/2017 1,000,000 1,012,450
OHIO
Adams County, Ohio Valley
Local School District 7.000 12/01/2015 2,000,000 2,419,400
See Notes to Schedule of Investments.
<PAGE>
PAGE 15
OHIO (continued)
Cleveland, Ohio, Public
Power Systems, First
Mortgage, Series A (MBIA) 7.000% 11/15/2016 $3,000,000 $3,449,040
Ohio State Air Quality
Development Authority,
Pollution Control,
Cincinnati Gas and
Electric 10.125 12/01/2015 2,000,000 2,050,000
OKLAHOMA
Oklahoma State Industrial
Authority, Baptist
Medical Center 7.000 08/15/2014 2,250,000 2,413,980
OREGON
Western Generation Agency,
Oregon, Wauna
Cogeneration Project,
Series B 7.400 01/01/2016 3,300,000 3,574,791
PENNSYLVANIA
Beaver County,
Pennsylvania, Pollution
Control Revenue, Series A 7.750 09/01/2024 80,000 86,038
Butler County,
Pennsylvania, Hospital
Authority, Butler
Memorial Hospital 8.000 07/01/2016 6,170,000 6,410,568
Delaware County,
Pennsylvania, Pollution
Control, Philadelphia
Electric Co. 7.375 04/01/2021 500,000 543,850
Delaware County,
Pennsylvania, Industrial
Development Authority,
Resource Recovery
Project, Series A 8.100 12/01/2013 3,500,000 3,667,510
Montgomery County,
Pennsylvania, Industrial
Development and Pollution
Control, Philadelphia
Electric Co. 8.875 06/01/2016 1,500,000 1,560,705
Montgomery County,
Pennsylvania, Industrial
Development and Pollution
Control, Philadelphia
Electric Co. 7.600 04/01/2021 900,000 979,002
Pennsylvania Economic
Development Financing
Authority, Resources
Recovery, Colver Project,
Series D 7.050 12/01/2010 4,500,000 4,808,745
Pennsylvania Economic
Development Financing
Authority, Resources
Recovery, Colver Project,
Series D 7.125 12/01/2015 2,000,000 2,124,400
Pennsylvania Economic
Development Financing
Authority, Resources
Recovery, Northampton
Project 6.400 01/01/2009 3,000,000 2,973,960
Pennsylvania Economic
Development Financing
Authority, Resources
Recovery, Northampton
Project 6.500 01/01/2013 1,500,000 1,493,085
Pennsylvania Economic
Development Financing
Authority, Resources
Recovery, Northampton
Project 6.600 01/01/2019 2,500,000 2,499,025
Pennsylvania Housing
Finance Agency,
Residential Development
Section 8, Series A 7.600 07/01/2013 5,545,000 5,995,143
Pennsylvania Housing
Finance Agency, Single
Family Mortgage, Section
8 8.200 07/01/2024 2,000,000 2,175,920
Pennsylvania Housing
Finance Agency, Single
Family Mortgage, Series P 8.000 04/01/2016 3,000,000 3,118,620
Pennsylvania Housing
Finance Agency, Single
Family Mortgage, Series V 7.800 04/01/2016 3,950,000 4,150,028
Pennsylvania State Higher
Education Facilities
Authority, Allegheny
General Hospital, Series
A 7.125 09/01/2007 4,000,000 4,431,200
Pennsylvania State Higher
Educational Facilities
Authority, Thomas
Jefferson University,
Series A 6.625 08/15/2009 150,000 164,139
Pennsylvania State
Industrial Development
Authority 7.000 01/01/2006 500,000 585,515
Philadelphia, Pennsylvania,
Authority for Industrial
Development 5.250 07/01/2017 2,000,000 1,927,300
Philadelphia, Pennsylvania,
Hospitals and Higher
Education Facilities
Authority, Albert
Einstein Medical Center 7.625 04/01/2011 2,350,000 2,538,729
(continued on next page)
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PENNSYLVANIA (continued)
Philadelphia, Pennsylvania,
Hospitals and Higher
Education Facilities
Authority, Graduate
Health System Obligation 7.250% 07/01/2018 $ 2,000,000 $ 2,074,940
Philadelphia, Pennsylvania,
Municipal Authority
Revenue, Series A (FGIC) 5.625 11/15/2014 1,575,000 1,580,702
Philadelphia, Pennsylvania,
School District, Series B
(AMBAC) 5.375 07/01/2005 1,500,000 1,557,090
Philadelphia, Pennsylvania,
Water and Wastewater
(FGIC) 10.000 06/15/2005 3,000,000 4,210,290
Philadelphia, Pennsylvania,
Water and Wastewater
(MBIA) 5.600 08/01/2018 6,570,000 6,583,534
Pottsville, Pennsylvania,
Hospital Authority, Good
Samaritan Hospital 8.250 08/01/2012 4,340,000 4,718,665
Ridley Park, Pennsylvania,
Hospital Authority,
Taylor Hospital, Series A 6.125 12/01/2020 1,600,000 1,465,232
Sayre, Pennsylvania,
Healthcare Facilities
Authority, Guthrie
Healthcare, Series A
(MBIA) 7.100 03/01/2017 5,100,000 5,553,900
Westmoreland County,
Pennsylvania Municipal
Authority, Capital
Appreciation, Series A
(effective yield 6.10%)
(b) 0.000 08/15/2017 2,000,000 585,880
PUERTO RICO
Puerto Rico Commonwealth,
General Obligation 6.450 07/01/2017 1,000,000 1,066,690
Puerto Rico Commonwealth,
General Obligation (MBIA) 7.000 07/01/2010 10,000,000 11,780,600
Puerto Rico Electric Power
Authority, Series S 7.000 07/01/2007 2,000,000 2,334,100
Puerto Rico Electric Power
Authority, Series Y
(MBIA) 6.500 07/01/2006 4,000,000 4,527,160
Puerto Rico Industrial
Tourist Educational
Medical and Environmental
Control Facilities (MBIA) 6.250 07/01/2024 1,500,000 1,589,130
Puerto Rico Industrial
Tourist Educational
Medical and Environmental
Control Facilities,
Series A 5.700 08/01/2013 800,000 750,648
Puerto Rico Public
Buildings Authority
Guaranteed, Public
Education and Health
Facilities, Series M 5.700 07/01/2009 700,000 723,198
RHODE ISLAND
Rhode Island State Health
and Educational Building
Corp.
Hospital Financing Revenue,
Roger Williams General
Hospital 9.500 07/01/2016 1,500,000 1,534,140
SOUTH CAROLINA
South Carolina State Public
Service Authority 5.342 06/30/2006 2,000,000 2,064,280
SOUTH DAKOTA
South Dakota Student Loan
Finance Corporation,
Series A 6.650 08/01/2008 1,335,000 1,391,657
TENNESSEE
Knox County, Tennessee,
Health and Educational
Facilities,
Fort Sanders Hospital
Alliance, Series B (MBIA) 7.250 01/01/2010 4,000,000 4,774,800
Tennessee Housing
Development Authority,
Home Ownership Program,
Issue H 7.825 07/01/2015 2,485,000 2,568,372
TEXAS
Austin Texas Utilities
System, Revenue
(effective yield 6.80%)
(b) 0.000 11/15/2011 8,000,000 3,352,800
Austin Texas Utilities
System, Revenue
(effective yield 6.80%)
(b) 0.000 11/15/2012 6,000,000 2,353,740
Bexar County, Texas,
Metropolitan Water
District (MBIA) 6.350 05/01/2025 2,750,000 2,918,493
Brazos River Authority,
Texas, Houston Light and
Power Project B (MBIA) 8.100 05/01/2019 8,500,000 9,289,310
See Notes to Schedule of Investments.
<PAGE>
PAGE 17
TEXAS (continued)
Brazos River Authority,
Texas, Special Facilities
(FGIC) 5.500% 08/15/2021 $3,455,000 $3,398,960
Brownsville, Texas, Utility
System Revenue (MBIA) 6.250 09/01/2014 2,240,000 2,479,322
Cypress Fairbanks, Texas,
Independent School
District, Capital
Appreciation Series A
(PSFG) (effective yield
6.03%) (b) 0.000 02/15/2013 2,675,000 1,033,272
Fort Bend County, Texas,
Levee Improvement
District Number 011
(MBIA) 6.900 09/01/2018 1,245,000 1,368,653
Fort Bend County, Texas,
Levee Improvement
District Number 011
(MBIA) 6.900 09/01/2019 1,000,000 1,099,320
Harris County, Texas, Flood
Control District, Series
B
(effective yield 7.20%)
(b) 0.000 10/01/2006 2,500,000 1,290,825
Harris County, Texas,
Health Facilities
Development Corp.,
Hermann Hospital Project
(MBIA) 6.375 10/01/2024 3,000,000 3,172,350
Harris County, Texas,
Health Facilities
Development Corp.,
Memorial Hospital Systems
Project, Series A 6.625 06/01/2024 1,500,000 1,576,785
Harris County, Texas,
Health Facilities
Development Corp.,
Memorial Hospital Systems 7.125 06/01/2015 2,525,000 2,719,476
Harris County, Texas,
Hospital District
Mortgage Revenue (AMBAC) 8.500 04/01/2015 500,000 517,465
Harris County, Texas, Toll
Road Subordinated Lien,
Series A 7.000 08/15/2010 3,000,000 3,566,220
Houston, Texas, Airport
System, Senior Lien 8.200 07/01/2017 2,725,000 3,006,111
Houston, Texas, Hotel
Occupancy Tax, Senior
Lien Bonds (FSA) 5.500 07/01/2015 3,000,000 2,974,800
Houston, Texas, Water &
Sewer System, Junior
Lien, Series A (MBIA) 6.200 12/01/2023 3,000,000 3,141,870
Lower Colorado River
Authority, Texas, Series
B (AMBAC)
(effective yield 7.05%)
(b) 0.000 01/01/2005 2,135,000 1,373,467
Northwest, Texas State,
Independent School
District,
Capital Appreciation
(AMBAC) (effective yield
7.28%) (b) 0.000 08/15/2010 1,190,000 535,429
Port of Corpus Christi,
Texas, Industrial
Development Corp.,
Valero Refining and
Marketing Co. Project,
Series A 10.250 06/01/2017 5,550,000 6,131,307
San Antonio, Texas,
Electric & Gas 5.375 02/01/2013 3,000,000 2,991,000
State of Texas, Veterans
Housing Assistance,
Series B-1 5.700 12/01/2014 250,000 243,428
Texas Housing Agency,
Residential Development,
Series D 8.400 01/01/2021 2,030,000 2,143,436
Texas Housing Agency,
Single Family Mortgage,
Series A 9.375 09/01/2016 860,000 877,200
Texas Housing Agency,
Single Family Mortgage,
Series B 8.200 03/01/2016 3,280,000 3,391,094
Texas Municipal Power
Agency (effective yield
9.13%) (b) 0.000 09/01/2006 4,455,000 2,612,991
Texas Municipal Power
Agency (effective yield
9.62%) (b) 0.000 09/01/2008 4,500,000 2,316,915
Texas State, General
Obligation 6.200 09/30/2011 2,000,000 2,208,360
Texas State, National
Research Laboratory
Commission Financial
Corp., Super Collider 6.950 12/01/2012 5,400,000 6,250,446
Titus County, Texas, Fresh
Water Supply, Water
District #1,
Southwest Electric Power 8.200 08/01/2011 3,455,000 4,052,059
Tomball, Texas, Hospital
Authority, Tomball
Regional Hospital 6.125 07/01/2023 3,000,000 2,776,680
UTAH
Intermountain Power Agency,
Utah, Power Supply,
Series A 5.000 07/01/2023 2,000,000 1,835,100
(continued on next page)
<PAGE>
PAGE 18
UTAH (continued)
Intermountain Power Agency,
Utah, Power Supply,
Series A
(effective yield 7.10%) 0.000% 07/01/2006 $2,150,000 $ 1,303,459
Intermountain Power Agency,
Utah, Power Supply,
Series B
(effective yield 6.30%) 0.000 07/01/2011 3,000,000 3,584,970
Intermountain Power Agency,
Utah, Power Supply,
Series C
(effective yield 21.28%) 0.000 07/01/2020 3,000,000 455,850
Intermountain Power Agency,
Utah, Power Supply,
Series D 8.375 07/01/2012 3,020,000 3,269,694
Intermountain Power Agency,
Utah, Power Supply,
Series G
(effective yield 4.01%) 0.000 07/01/2012 4,000,000 3,837,960
VERMONT
Vermont Housing Finance
Agency, Single Family,
Series 1 6.800 05/01/2025 940,000 959,872
Vermont Housing Finance
Agency, Single Family,
Series 1 8.150 05/01/2025 1,485,000 1,586,901
VIRGINIA
Fairfax County, Virginia,
Industrial Development
Authority 5.000 08/15/2023 6,000,000 5,403,000
Loudoun County, Virginia,
Sanitation Authority,
Water and Sewer Revenue 6.250 01/01/2016 2,000,000 2,110,720
Norfolk, Virginia,
Industrial Development
Authority, Hospital
Refunding, Sentara
Hospital, Series A 5.500 11/01/2017 4,170,000 4,127,841
Pittsylvania County,
Virginia, Industrial
Development, Series A 7.500 01/01/2014 1,200,000 1,285,692
Pittsylvania County,
Virginia, Industrial
Development, Series A 7.450 01/01/2009 2,000,000 2,143,180
Virginia State Housing
Development Authority,
Residential Mortgage,
Series B (effective yield
10.63%) 0.000 09/01/2014 200,000 29,128
Winchester, Virginia,
Industrial Development
Authority, Winchester
Medical Center (AMBAC) 6.150 01/01/2015 2,300,000 2,281,209
Winchester, Virginia,
Industrial Development
Authority, Winchester
Medical Center (AMBAC) 6.300 01/01/2015 3,200,000 3,185,120
WASHINGTON
Port of Seattle,
Washington, General
Obligation 5.750 05/01/2014 1,500,000 1,509,000
Seattle, Washington,
Metropolitan Seattle
Sewer Revenue, Series W 6.250 01/01/2018 2,750,000 2,894,760
Washington Public Power
Supply System, Nuclear
Project #1 14.500 07/01/2002 1,350,000 1,564,029
Washington Public Power
Supply System, Nuclear
Project #3
(effective yield 10.09%)
(b) 0.000 07/01/2012 4,000,000 1,568,440
WEST VIRGINIA
West Virginia State
Hospital Finance
Authority (MBIA) 6.100 01/01/2018 1,350,000 1,392,471
WISCONSIN
Wisconsin Health and
Educational Facilities
Authority,
Sorrowful Mother
Corporation, Series D 5.400 08/15/2013 2,000,000 1,968,200
WYOMING
Wyoming Community
Development Authority,
Single Family Mortgage,
Series B 8.125 06/01/2021 1,610,000 1,709,196
----------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost--$615,680,068) 665,562,631
----------------------------------------------------------------------------
See Notes to Schedule of Investments.
<PAGE>
PAGE 19
TEMPORARY TAX-EXEMPT
INVESTMENTS (3.1%)
Anaheim, California,
Certificate of
Participation (a) 3.800% 08/01/2019 $1,595,000 $ 1,595,000
California Health
Facilities Financing,
Catholic Healthcare,
Series B (MBIA) (a) 3.600 07/01/2016 100,000 100,000
Emmaus Pagen Authority,
Local Government Pool,
Series H (a) 3.750 03/01/2024 800,000 800,000
Jackson County,
Mississippi, Pollution
Control, Chevron USA,
Inc. Project (a) 3.650 12/01/2020 1,000,000 1,000,000
Jackson County,
Mississippi, Pollution
Control, Chevron USA,
Inc. Project (a) 3.650 06/01/2023 3,400,000 3,400,000
Louisiana State, Offshore
Terminal Authority, Deep
Water Port, Loop, Inc.,
1st Stage (a) 3.700 09/01/2006 1,300,000 1,300,000
Massachusetts State Health
and Education Facilities
Authority, Series D
(MBIA) (a) 3.800 01/01/2035 950,000 950,000
Missouri Higher Educational
Student Loan, Series A
(a) 3.850 06/01/2017 125,000 125,000
Missouri State Health and
Educational Facilities
Authority, Christian
Health Services, Series B
(a) 3.650 12/01/2019 705,000 705,000
New York City, Series A-5
(a) 3.800 08/01/2015 4,375,000 4,375,000
New York City, Municipal
Water Financing Authority
and Sewer Systems, Series
C (FGIC) (a) 3.800 06/15/2023 220,000 220,000
New York City, Municipal
Water Financing Authority
and Sewer Systems, Series
G (FGIC) (a) 3.700 06/15/2024 2,030,000 2,030,000
Washington State Health
Care Facilities
Authority, Sister
Providence, Series D (a) 3.700 10/01/2005 5,000,000 5,000,000
----------------------------------------------------------------------------
TOTAL TEMPORARY TAX-EXEMPT INVESTMENTS
(Cost--$21,600,000) 21,600,000
----------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost--$637,280,068) (c) 687,162,631
----------------------------------------------------------------------------
OTHER ASSETS AND
LIABILITIES--NET (0.1%) 583,944
----------------------------------------------------------------------------
NET ASSETS (100.0%) $687,746,575
----------------------------------------------------------------------------
Notes to Schedule of Investments:
(a) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued interest
upon surrendering the security to the issuing agent.
(b) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
(c) The cost of investments for federal income tax purposes amounted to
$637,497,079. Gross unrealized appreciation and unrealized depreciation of
investments, based on identified tax cost, at November 30, 1995 are as follows:
Gross appreciation $50,606,176
Gross depreciation (940,624)
----------
Net unrealized appreciation $49,665,552
==========
Legend of Portfolio Abbreviations:
AMBAC--American Municipal Bond Assurance Corp.
ETM--Escrowed to Maturity
FGIC--Federal Guaranty Insurance Co.
FHA--Federal Housing Authority
FSA--Financial Security Assurance
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements.
<PAGE>
PAGE 20
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Year Ended November 30,
--------------------------------------------------------
1995 1994 1993 1992 1991
============================================================================
Net asset value,
beginning of
year $ 9.73 $11.08 $11.06 $10.92 $10.76
----------------------------------------------------------------------------
Income from
investment
operations:
Net investment
income 0.54 0.49 0.53 0.58 0.59
Net realized and
unrealized gain
(loss) on
investments and
closed futures
contracts 1.15 (1.25) 0.48 0.36 0.33
Net commissions
paid on fund
share sales (a) 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------------------------
Total from
investment
operations 1.69 (0.76) 1.01 0.94 0.92
----------------------------------------------------------------------------
Less
distributions
from:
Net investment
income (0.51) (0.49) (0.53) (0.58) (0.59)
In excess of net
investment
income (0.04) (0.10) (0.08) (0.09) (0.10)
Realized capital
gains 0.00 0.00 (0.38) (0.13) (0.07)
----------------------------------------------------------------------------
Total
distributions (0.55) (0.59) (0.99) (0.80) (0.76)
----------------------------------------------------------------------------
Net asset value,
end of year $10.87 $ 9.73 $11.08 $11.06 $10.92
============================================================================
Total return (c) 17.76% (7.10%) 9.30% 8.79% 8.83%
Ratios/supplemental
data
Ratios to
average net
assets:
Total expenses 1.18%(b) 1.65% 1.71% 1.86% 1.91%
Net investment
income 5.22% 4.69% 4.66% 5.08% 5.44%
Portfolio
turnover rate 54% 83% 66% 49% 65%
----------------------------------------------------------------------------
Net assets, end
of year
(thousands) $687,747 $676,691 $814,326 $720,271 $628,835
============================================================================
Year Ended November 30,
-------------------------------------------------------
1990 1989 1988 1987 1986
===========================================================================
Net asset value,
beginning of
year $10.90 $10.60 $10.08 $11.40 $10.11
---------------------------------------------------------------------------
Income from
investment
operations:
Net investment
income 0.61 0.66 0.67 0.68 0.78
Net realized and
unrealized gain
(loss) on
investments and
closed futures
contracts (0.04) 0.37 0.59 (1.19) 1.41
Net commissions
paid on fund
share sales (a) 0.00 0.00 0.00 0.00 (0.12)
---------------------------------------------------------------------------
Total from
investment
operations 0.57 1.03 1.26 (0.51) 2.07
---------------------------------------------------------------------------
Less
distributions
from:
Net investment
income (0.63) (0.73) (0.74) (0.75) (0.78)
In excess of net
investment
income (0.08) 0.00 0.00 0.00 0.00
Realized capital
gains 0.00 0.00 0.00 (0.06) 0.00
---------------------------------------------------------------------------
Total
distributions (0.71) (0.73) (0.74) (0.81) (0.78)
---------------------------------------------------------------------------
Net asset value,
end of year $10.76 $10.90 $10.60 $10.08 $11.40
===========================================================================
Total return (c) 5.48% 10.00% 12.85% (4.67%) 21.12%
Ratios/supplemental
data
Ratios to
average net
assets:
Total expenses 1.84% 1.80% 1.72% 1.65% 1.02%
Net investment
income 5.70% 5.90% 6.33% 6.29% 6.89%
Portfolio
turnover rate 73% 71% 83% 112% 50%
---------------------------------------------------------------------------
Net assets, end
of year
(thousands) $588,237 $605,044 $522,821 $474,815 $387,740
===========================================================================
(a) Prior to June 30, 1987, net commissions paid on new sales of shares under
the Fund's Rule 12b-1 Distribution Plan had been treated for both financial
statement and tax purposes as capital charges. On June 11, 1987, the
Securities and Exchange Commission adopted a rule which required for
financial statements for the periods ended on or after June 30, 1987, that
net commissions paid under Rule 12b-1 be treated as operating expenses rather
than capital charges. Accordingly, beginning with the year ended November 30,
1987, the Fund's financial statements reflect 12b-1 Distribution Plan
expenses (i.e., maintenance fees plus commissions paid net of deferred sales
charges received by the Fund) as a component of net investment income.
(b) "Ratio of total expenses to average net assets" for the year ended
November 30, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses for the year ended November 30, 1995, the expense ratio would
have been 1.16%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 21
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995
--------------------------------------------------------------------
Assets:
Investments at market value
(identified cost--$637,280,068) (Note 1) $687,162,631
Cash 92,105
Receivable for:
Fund shares sold 220,956
Interest 13,304,185
Prepaid expenses 66,920
--------------------------------------------------------------------
Total assets 700,846,797
--------------------------------------------------------------------
Liabilities: (Notes 2 and 4)
Payable for:
Investments purchased 9,806,940
Fund shares redeemed 271,661
Income distribution 2,903,284
Trustees' fees 6,023
Other accrued expenses 112,314
--------------------------------------------------------------------
Total liabilities 13,100,222
--------------------------------------------------------------------
Net assets $687,746,575
--------------------------------------------------------------------
Net assets represented by (Notes 1 and 2):
Paid-in capital $652,754,825
Accumulated distributions in excess of net
investment income (829,819)
Accumulated net realized gain (loss) on
investments (14,060,994)
Net unrealized appreciation (depreciation) on
investments 49,882,563
--------------------------------------------------------------------
Total net assets $687,746,575
--------------------------------------------------------------------
Net asset value per share (Note 2):
Net asset value of $687,746,575 / 63,262,100
outstanding shares of beneficial interest $10.87
--------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended November 30, 1995
-------------------------------------------------------------------
Investment Income (Note 1):
Interest $ 44,217,059
Expenses (Notes 2 and 4):
Investment management fee $ 3,370,748
Other administrative services 540,062
Shareholder services 756,300
Accounting services 22,470
Trustees' fees and expenses 33,678
Distribution Plan expenses 3,433,806
------------------------------------------------------------------
Total expenses 8,157,064
Less: Expenses paid indirectly
(Note 4) (92,611)
------------------------------------------------------------------
Net expenses 8,064,453
------------------------------------------------------------------
Net investment income 36,152,606
------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and closed
futures contracts (Notes 1 and 3):
Net realized gain (loss) on:
Investments 4,597,186
Closed futures contracts (1,138,741)
------------------------------------------------------------------
Net realized gain (loss) on
investments
and closed futures contracts 3,458,445
Net change in unrealized
appreciation (depreciation) on
investments 73,587,540
------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and closed
futures contracts 77,045,985
------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $113,198,591
------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
PAGE 22
Keystone Tax Exempt Trust
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended November 30,
1995 1994
============================================================================
Operations:
Net investment income $ 36,152,606 $ 35,981,419
Net realized gain (loss) on investments
and closed futures contracts 3,458,445 (17,270,498)
Net change in unrealized appreciation
(depreciation) on investments 73,587,540 (73,476,043)
--------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 113,198,591 (54,765,122)
--------------------------------------------------------------------------
Distributions to shareholders from
(Note 1):
Net investment income (36,152,606) (35,981,419)
In excess of net investment income (608,743) (7,013,590)
--------------------------------------------------------------------------
Total distributions to shareholders (36,761,349) (42,995,009)
--------------------------------------------------------------------------
Capital share transactions (Note 2):
Proceeds from shares sold 56,858,348 109,096,368
Payment for shares redeemed (143,022,290) (171,235,006)
Net asset value of shares issued in
reinvestment of dividends and
distributions 20,782,227 22,264,022
--------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from capital share
transactions (65,381,715) (39,874,616)
--------------------------------------------------------------------------
Total increase (decrease) in net
assets 11,055,527 (137,634,747)
--------------------------------------------------------------------------
Net assets:
Beginning of year 676,691,048 814,325,795
--------------------------------------------------------------------------
End of year [including accumulated
distributions in excess of net
investment income as follows:
1995--($829,819) and
1994--($2,350,752)] (Note 1) $ 687,746,575 $ 676,691,048
==========================================================================
See Notes to Financial Statements.
<PAGE>
PAGE 23
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone Tax Exempt Trust (the "Fund") is an open end, diversified management
investment company for which Keystone Management, Inc. ("KMI") is the
Investment Manager and Keystone Investment Management Company ("Keystone")
(formerly Keystone Custodian Funds, Inc.) is the Investment Adviser. The Fund
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"). It was established under Massachusetts law as a Massachusetts business
trust on June 20, 1985 and had no operations until October 7, 1985 other than
those relating to organization matters and the initial sale of its shares.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc. ("KII")
(formerly Keystone Group, Inc.) a Delaware corporation. KII is privately
owned by an investor group consisting of current and former members of
management of Keystone and its affiliates. KMI is a wholly-owned subsidiary
of Keystone.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A.Tax-exempt bonds are stated on the basis of valuations provided by a
pricing service, approved by the Board of Trustees, that uses information
with respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Non-tax-exempt securities for which market
quotations are readily available are valued at the price quoted which, in the
opinion of the Board of Trustees or their representative, most nearly
represents their market value.
Short-term investments maturing in sixty days or less are valued at amortized
cost (original purchase cost as adjusted for amortization of premium or
accretion of discount) which, when combined with accrued interest,
approximates market. Short-term investments maturing in more than sixty days
for which market quotations are readily available are valued at current
market value. Short-term investments maturing in more than sixty days when
purchased 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. All other securities and other assets are valued at fair
value as determined in good faith using methods prescribed by the Board of
Trustees.
B.The Fund may enter into futures contracts. A futures contract is an
agreement between two parties to buy and sell a specific amount of a
commodity, security, financial instrument, or, in the case of a stock index,
cash at a set price on a future date. Upon entering into a futures contract,
the Fund is required to deposit with a broker an amount ("initial margin")
equal to a certain percentage of the purchase price indicated in the futures
contract. Subsequent payments ("variation margin") are made or received by
the Fund each day, as the value of the underlying instrument or index
fluctuates, and are recorded for book purposes as unrealized gains or losses
by the Fund. For federal tax purposes, any futures contracts which remain
open at fiscal year-end are marked-to-market and the resultant net gain or
loss is included in federal taxable income. In addition to the market risk,
the Fund is subject to the credit risk that the other party will not be able
to complete the obligations of the contract.
C.When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed
upon date and price), the repurchase price of the securities will generally
equal the amount paid by the Fund plus
<PAGE>
PAGE 24
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
collateral falls below required levels, the Fund intends to seek additional
collateral from the seller or terminate the repurchase agreement. If the
seller defaults, the Fund would suffer a loss to the extent that the proceeds
from the sale of the underlying securities were less than the repurchase
price. Any such loss would be increased by any cost incurred on disposing of
such securities. If bankruptcy proceedings are commenced against the seller
under the repurchase agreement, the realization on the collateral may be
delayed or limited. Repurchase agreements entered into by the Fund will be
limited to transactions with dealers or domestic banks believed to present
minimal credit risks, and the Fund will take constructive receipt of all
securities underlying repurchase agreements until such agreements expire.
D.Securities transactions are accounted for no later than the day following
the trade date. Realized gains and losses are recorded on the identified cost
basis. Interest income is recorded on the accrual basis. All premiums and
original issue discounts are amortized/ accreted for both financial reporting
and federal income tax purposes.
E.The Fund has qualified, and intends to qualify in the future, as a
regulated investment company under the Internal Revenue Code of 1986, as
amended ("Internal Revenue Code"). Thus, the Fund expects to be relieved of
any federal income tax liability by distributing all of its net taxable
investment income and net taxable capital gains, if any, to its shareholders.
The Fund intends to avoid any excise tax liability by making the required
distributions under the Internal Revenue Code.
F.The Fund distributes net investment income monthly and capital gains, if
any, annually. Distributions are determined in accordance with income tax
regulations. The significant differences between financial statement amounts
available for distribution and distributions made in accordance with income
tax regulations are the differences in treatment of 12b-1 Distribution Plan
charges for financial statement and federal tax purposes.
(2.) Capital Share Transactions
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest with no par value. Transactions in shares of
the Fund were as follows:
Year Ended November 30,
1995 1994
- ----------------------------------------------------
Shares sold 5,504,163 10,341,899
Shares redeemed (13,769,584) (16,413,626)
Shares issued in
reinvestment of
dividends and
distributions 2,006,806 2,107,696
- ----------------------------------------------------
Net decrease (6,258,615) (3,964,031)
====================================================
The Fund bears some of the costs of selling its shares under a Distribution
Plan adopted pursuant to Rule 12b-1 under the 1940 Act. Under the
Distribution Plan, the Fund pays Keystone Investment Distributors Company
("KIDC") (formerly Keystone Distributors, Inc.), the principal underwriter
and a wholly-owned subsidiary of Keystone, amounts which in total may not
exceed the Distribution Plan maximum.
In connection with the Distribution Plan and subject to the limitations
discussed below, Fund shares are offered for sale at net asset value without
any initial
<PAGE>
PAGE 25
sales charge. From the amounts received by KIDC in connection with the
Distribution Plan, and subject to the limitations discussed below, KIDC
generally pays brokers or others a commission equal to 3.00% of the price
paid to the Fund for each sale of Fund shares as well as a shareholder
service fee at a rate of 0.25% per annum of the net asset value of shares
sold by such brokers or others and remaining outstanding on the books of the
Fund for specified periods.
To the extent Fund shares are redeemed within four calendar years of original
issuance, the Fund may be eligible to receive a deferred sales charge from
the investor as partial reimbursement for sales commissions previously paid
on those shares. This charge is based on declining rates, which begin at
4.00%, applied to the lesser of the net asset value of shares redeemed or the
total cost of such shares.
The Distribution Plan provides that the Fund may incur certain expenses which
may not exceed a maximum amount equal to 0.3125% of the Fund's average daily
net assets for any calendar quarter (approximately 1.25% annually) occurring
after the inception of the Distribution Plan. A rule of the National
Association of Securities Dealers, Inc. ("NASD Rule") limits the annual
expenditures which the Fund may incur under the Distribution Plan to 1.00% of
which 0.75% may be used to pay such distribution expenses and 0.25% may be
used to pay shareholder service fees. The NASD Rule also limits the aggregate
amount which the Fund may pay for such distribution costs to 6.25% of gross
share sales since the inception of the Fund's Distribution Plan, plus
interest at the prime rate plus 1.00% on unpaid amounts thereof (less any
contingent deferred sales charges paid by the shareholders to KIDC).
Since July 8, 1992, contingent deferred sales charges applicable to shares of
the Fund issued after January 1, 1992 have, to the extent permitted by the
NASD Rule, been paid to KIDC rather than to the Fund. During the year, KIDC
received $168,971 in deferred sales charges.
KIDC intends, but is not obligated, to continue to pay or accrue distribution
charges which exceed current annual payments permitted to be received by KIDC
from the Fund. KIDC intends to seek full payment of such charges from the
Fund (together with annual interest thereon at the prime rate plus 1.00%) at
such time in the future as, and to the extent that, payment thereof by the
Fund would be within permitted limits. KIDC currently intends to seek payment
of interest only on such charges paid or accrued by KIDC since January 1,
1992.
During the year ended November 30, 1995, the Fund recovered $317,158 in
contingent deferred sales charges. During the year ended November 30, 1995,
the Fund paid KIDC $3,750,964 under the Distribution Plan. The amount paid by
the Fund under its Distribution Plan, net of deferred sales charges, was
$3,433,806 (1.00% of the Fund's average daily net assets). During the year
ended November 30, 1995, KIDC received $1,593,013 after payments of
commissions on new sales and service fees to dealers and others of
$2,157,951.
(3.) Securities Transactions
As of November 30, 1995, the Fund had a capital loss carryover for federal
income tax purposes of approximately $13,650,000 which expires in 2002.
For the year ended November 30, 1995, cost of purchases and proceeds from
sales of investment securities (excluding short-term securities) were
$359,381,047 and $417,229,941, respectively.
<PAGE>
PAGE 26
(4.) Investment Management Agreement and Other Transactions
Under the terms of the Investment Management Agreement between KMI and the
Fund, dated December 29, 1989, KMI provides investment management and
administrative services to the Fund. In return, KMI is paid a management fee
computed and paid daily. The management fee is calculated at an annual rate
of 2.0% of the Fund's gross investment income plus an amount determined by
applying percentage rates starting at 0.50% and declining as net assets
increase to 0.25% per annum, to the net asset value of the Fund.
KMI has entered into an Investment Advisory Agreement with Keystone dated
December 30, 1989, 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 November 30, 1995, the Fund paid or accrued a
management fee of $3,370,748 which represented 0.49% of the Fund's average
net assets. Of such amount paid to KMI, $2,865,136 was paid to Keystone for
its services to the Fund.
Included in the administrative services fee paid by the Fund were the
following amounts incurred by KMI (and reimbursed by the Fund) in providing
or obtaining for the Fund additional operating services, facilities and
supplies: audit and legal--$53,175, custodian fees--$337,261, printing and
supplies--$35,415, registration fees--$41,150, and other--$73,061. In
addition during the year ended November 30, 1995, the Fund paid to KIRC
$756,300 for shareholder services. This amount for shareholder services is
included in the payments made by KMI.
The Fund has entered into an expense offset arrangement with its custodian.
For the year ended November 30, 1995, the Fund paid custody fees in the
amount of $244,650 and received a credit of $92,611 pursuant to the expense
offset arrangement, resulting in a total expense of $337,261. The assets
deposited with the custodian under the expense offset arrangement could have
been invested in income-producing assets.
For the year ended November 30, 1995, the Fund paid to KII $22,470 for
certain accounting and printing services.
Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the Fund. Officers of Keystone and affiliated Trustees receive no
compensation directly from the Fund.
- ----------------------------------------------------------------------
Federal Tax Status--Fiscal 1995
Distributions (Unaudited)
The per-share distributions paid to you for the fiscal year ended
November 30, 1995, whether taken in shares or cash, are as follows:
Income Dividends
Tax-exempt Taxable
- -------------------------------
$0.55 $0.00
===============================
In January 1996, we will send you complete information on the distributions
paid during the calendar year to assist you in completing your federal tax
return.
<PAGE>
PAGE 27
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone Tax Exempt Trust
We have audited the accompanying statement of assets and liabilities of
Keystone Tax Exempt Trust, including the schedule of investments, as of
November 30, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights in each of the years
in the ten-year period then ended. 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.
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 also
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 November 30, 1995 by correspondence with the
custodian and brokers. An audit 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 Tax Exempt Trust as of November 30, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the ten-year period then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 5, 1996
<PAGE>
PAGE 28
[BACK COVER]
--------------------------------------------------------
KEYSTONE
FAMILY OF FUNDS
[DIAMOND]
Balanced Fund (K-1)
Diversified Bond Fund (B-2)
Growth and Income Fund (S-1)
High Income Bond Fund (B-4)
International Fund Inc.
Liquid Trust
Mid-Cap Growth Fund (S-3)
Precious Metals Holdings, Inc.
Quality Bond Fund (B-1)
Small Company Growth Fund (S-4)
Strategic Growth Fund (K-2)
Tax Exempt Trust
Tax Free Fund
--------------------------------------------------------
This report was prepared primarily for the information of
the Fund's shareholders. It is authorized for
distribution if preceded or accompanied by the Fund's
current prospectus. The prospectus contains important
information about the Fund including fees and expenses.
Read it carefully before you invest or send money. For a
free prospectus on other Keystone funds, contact your
financial adviser or call Keystone.
[KEYSTONE] KEYSTONE
LOGO] INVESTMENTS
P.O. Box 2121
Boston, Massachusetts 02106-2121
TET-AR-1/96
20.5 M [RECYCLE LOGO]
[FRONT COVER]
K E Y S T O N E
[Mother and child beneath American flag]
TAX EXEMPT
TRUST
[KEYSTONE LOGO]
ANNUAL REPORT
NOVEMBER 30, 1995
