PAGE 1
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Keystone International Fund Inc.
Seeks long-term growth from foreign securities.
Dear Shareholder:
We are writing to report to you on activities of Keystone International Fund
Inc. for the twelve-month period which ended October 31, 1995.
Performance
We were pleased with your Fund's positive results, especially considering
the difficult international market conditions during the twelve-month period
which ended October 31, 1995. Keystone International Fund Inc. provided
particularly strong performance during the last six months when it returned
7.56%; for the twelve-month period your Fund returned 2.19%.
Among its peers, your Fund outperformed the average international fund for
the twelve-month period according to Lipper Analytical Services, Inc.(1) In
addition, your Fund also outperformed the Morgan Stanley Europe Australia and
Far East Index (EAFE), a barometer of world stock market performance. EAFE
returned -1.60% for the six-month period and -0.37% for the twelve-month
period. We have included the EAFE and Lipper results as general indicators of
performance. These indexes are not entirely comparable to your Fund's
regional composition yet, they serve as useful performance benchmarks.
A period of contrast and improvement
The international capital markets generally failed to keep pace with the
robust returns of the U.S. capital markets over the year. However, some signs
of improvement in the foreign markets could be seen as the year progressed.
Sustainable non-inflationary growth, declining interest rates, and strong
corporate earnings in the U.S. fueled a rally led by technology and financial
stocks. Foreign market performance varied by country, but generally reflected
the persistence of slow economic growth in many parts of the world. One of
the main issues in some leading foreign markets has been the slow pace of
easing monetary policy, particularly in Japan and Germany.
The fiscal year was a period of change and uncertainty. The decline of the
U.S. dollar to post-World War II lows resulted in unusual volatility in the
world currency markets. The financial crisis in Mexico also surprised
investors. In addition, real estate and bank loan losses in Japan and trading
losses at respected investment banking firms Barings and Daiwa shook investor
confidence.
However, as 1995 unfolded, the world market environment showed significant
improvements.
Declining interest rates in the U.S. helped spark lower rates in countries
with currencies linked to the U.S. dollar. Germany and Japan also followed
with their own rate cuts during the summer. This benefited financial markets
around the world. The U.S. dollar recovered to about 100 yen to the dollar,
helping to stabilize the world markets. And, for the first time, we began to
see governments confront the costs of social welfare systems that have
restrained competitiveness in some countries. We were also encouraged by the
U.S. technology stock rally, which spurred technology stocks in Europe and
Japan; in the first ten months of 1995, technology stocks were among the best
performing sectors.
(1) Source: Lipper Analytical Services, Inc., an independent mutual fund rating
service. The average international fund return was -1.10% for the 1-year,
8.71% for the 5-year, and 13.12% for the 10-year periods which ended
October 31, 1995. There were 233 funds in the 1-year, 58 funds in the
5-year, and 20 funds in the 10-year international fund category.
Performance is based on total return which includes reinvestment of
dividends, and does not include the effects of sales charges. Past
performance is no guarantee of future results.
(continued on next page)
<PAGE>
PAGE 2
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Keystone International Fund Inc.
Defensive and selective strategy
Our investment strategy was defensive during the period, punctuated by
investments in selected areas. Positive performance came from our holdings of
financial companies which we expected to benefit from declining interest
rates around the world. We also emphasized selected technology companies in
Europe and Japan. We believed these companies were attractively valued and
would benefit from the long-term global technology revolution that is
underway.
The value of international diversification
We believe your Fund's careful security selection and diversification were
responsible for its positive performance during this challenging period. Our
basic strategy was to find attractive values and steer clear of the trouble
spots, which were numerous. Strategic diversification of Fund investments by
country and by industry helped ensure that severe market conditions in
specific countries did not have a disproportionate effect on your Fund's
performance.
Looking ahead
Longer term, we believe that prospects for international markets are
improving. The rebound of the U.S. dollar should provide better stability
over 1995. We expect the slow growth of the U.S. economy and low U.S.
interest rates should continue in 1996, exerting a positive influence on
world markets. Although Europe's growth has been disappointing in 1995, we
anticipate slightly better growth next year. Many companies around the world
are coming under increasing pressure to restructure and cut costs to remain
competitive in the global marketplace. We have begun to see signs of this
trend in selected countries, including in Europe, where we have several
holdings that should benefit from an acceleration in economic activity. We
believe even modest increases in economic activity abroad could have a
positive effect on many foreign markets. We think these improved conditions
should translate into stronger performance over the coming year.
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
Keystone Funds
December 1995
[picture of Albert H. Elfner, III] [picture of George S. Bissell]
Albert H. Elfner, III George S. Bissell
<PAGE>
PAGE 3
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A Discussion With
Your Fund Manager
[picture of Gilman C. Gunn]
Gilman C. Gunn is portfolio manager of your Fund and leads Keystone's
international investment team. An investment professional with 23 years of
experience, Mr. Gunn has spent more than ten years in investment management
positions in London, Kuwait and Thailand.
Keystone's international team is comprised of several investment
professionals who have expertise on the economic, political and business
environments in specific areas. The team includes Sami Karam (Europe), John
Madden (natural resource and infrastructure), Eleanor Marsh (Far East), and
Francis X. Claro and Antonio Docal (Latin America).
Q How would you characterize investment conditions in international markets
over the twelve-month period?
A It's been a year of unusual volatility in international markets. Rising
interest rates in the U.S. at the end of 1994 had a negative impact on stock
and bond prices worldwide. While the U.S. snapped back and enjoyed a strong
bull market in 1995, the international markets did not. The downward trend in
U.S. interest rates during the second half of the period triggered a similar
trend in Europe, but a market rally did not materialize.
Better liquidity, a rebound in the U.S. dollar and an improving
environment all helped provide a more favorable world investment environment.
But, returns for the year were still well below historical averages. However,
growth-seeking investors did return to the emerging markets of Asia and the
Pacific Rim where selected markets showed some signs of strength. In Latin
America, the aftermath of Mexico's currency crisis limited growth
opportunities for the near term.
Q Have these difficult market conditions changed the prospects for investing
in foreign stocks?
A No, we don't believe they have. Look at the U.S. stock market. In 1994 the
Standard and Poor's 500 returned a meager 1.32%. In 1995, it was up 29.30%
for the first ten months of the year. Securities markets tend to move in
cycles, and we think that many foreign markets are poised for a rebound in
1996.
Fund Profile
Objective: Seeks long-term growth from foreign securities.
Commencement of investment operations: 1954
Number of Countries: 23
Number of Stocks: 102
Net Assets: $129 million
<PAGE>
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Keystone International Fund Inc.
=========================== [GRAPHIC-MAP] ==================================
Geographic Diversification
as of October 31,1995
ASIA/PACIFIC 34.5%
CANADA 4.6%
EUROPE 39.8%
LATIN AMERICA 3.9%
OTHER(2) 17.2%
(as a percentage of net assets)
================================================================================
Q What are Keystone's credentials as an international investment manager?
A Keystone International Fund Inc. is one of eight international funds
managed by Keystone. Founded in 1954, the Fund was one of the first
international mutual funds. Keystone has a long history of managing
international portfolios. We consider our investment team one of our biggest
strengths. They are experienced investment professionals who understand the
complexities of the international markets. Collectively, the team speaks
several languages and travels frequently to the countries and companies they
cover. We consider visiting companies in person important to developing a
full understanding of a company's strengths and to the successful management of
international portfolios.
Q How does the Fund minimize the risks of international investing?
A We maintain a conservative investment approach. We seek to limit risk by
diversifying both geographically and by investment style. In addition to
investing in more than twenty countries and at least that many industries, we
also buy a combination of growth and value stocks. These stocks tend to be in
favor at different times during an economic cycle, so combining the two
styles reduces some of the fluctuation inherent in equity investing. For
additional protection, about 50% of the portfolio is denominated in U.S.
dollars or hedged into U.S. dollars through foreign currency contracts.
(2) Includes short-term obligations, foreign currency holdings and other
assets and liabilities.
<PAGE>
PAGE 5
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Q What is hedging and how does it affect the Fund's performance?
A Hedging is a common investment technique that is frequently used in
managing international investments. It can significantly reduce the risk of
foreign currency price changes. We hedge selected investments to protect the
holdings from the price fluctuations of foreign currencies.
Q What was the geographical allocation of the Fund's assets?
A We increased our holdings in Europe and the Asia/Pacific region during
the year and decreased holdings in Canada and Latin America. As of October
31, 1995, 39.8% of the Fund's net assets were in Europe, 34.5% in the
Asia/Pacific, 4.6% in Canada and 3.9% in Latin America. The largest portion
of stock holdings--about 20% of net assets--were in Japan, followed by 8%
each in the United Kingdom and Sweden. Latin American holdings were reduced
over the course of the year and stood at about 4% of net assets at the end of
the period.
Q What countries did you emphasize?
A We increased our holdings of Japanese technology companies at mid-year, just
before the Japanese market began to recover. We believe that the Japanese
economy is beginning to improve, and we have a more favorable long-term outlook
for the Japanese market. In Europe we emphasized companies in the United
Kingdom, Netherlands, Sweden and Switzerland. We eliminated all Fund holdings
in Brazil, due to the volatility in that market.
================================ BAR CHART =====================================
Performance of World Markets
as of October 31, 1995
[GRAPHIC-PLOT POINTS FOR BAR GRAPH]
Region 12-month total return
Americas 21.66
Europe/Africa 9.89
Asia Pacific -12.39
World (ex. U.S.) -4.06
Source: Dow Jones & Co. Inc. (expressed in U.S. dollars)
================================================================================
Q What industries did you favor?
A We increased our banking and financial services holdings which performed
relatively well during the period. We believed banks were among the most
attractively priced stocks worldwide and were likely to do well in the
declining interest rate environment. We held shares of HSBC Holdings, a bank
in Hong Kong and Credit Commercial de France. We also favored Japanese
technology stocks including NEC and Canon, two world-class Japanese
technology-based companies. In addition, we held Sony, a global consumer
electronics company.
Q What is your outlook for the international markets?
A We believe that the success of the "soft landing" of the U.S. economy will
continue to contribute to an improved investment environment overseas. We
think that companies around the world, particularly in Europe and Japan, are
now following the lead of U.S. corporations. Some of these foreign
corporations are cutting costs and increasing productivity to become more
competitive in the global marketplace. We have begun to see this in France
where prime minister Chirac is attempting to cut government spending to
reduce the budget deficit. In Japan, we think that easing monetary policy and
a stronger U.S. dollar will be positive forces on the Japanese market,
although progress may be slow. Modern facilities and low labor costs in
countries such as China and Indonesia are creating attractive opportunities
there. In Europe, we are focusing on the financial, cyclical and small-cap
sectors which we believe are most likely to benefit from a market turnaround.
<PAGE>
PAGE 6
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Keystone International Fund Inc.
Your Fund's Performance
============================== MOUNTAIN CHART ================================
Growth of an investment in
Keystone International Fund Inc.
In Thousands
Initial Investment Reinvested Distributions
10/85 $10000 $10000
10/86 13092 14577
10/87 13178 17351
10/88 12280 19500
10/89 12418 19915
10/90 10121 17062
10/91 10294 18159
10/92 10242 18793
10/93 12625 23322
10/94 13420 24885
10/95 12280 25429
A $10,000 investment in Keystone International Fund Inc. made on
October 31, 1985 with all distributions reinvested was worth $25,429 on
October 31, 1995. Past performance is no guarantee of future results.
================================================================================
Top 10 Stock Holdings
as of October 31, 1995
Percentage of
Stock Industry net assets
- -------------------------------------------------------------------------
Nestle (Switzerland) Food 3.9
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Canon (Japan) Office equipment 3.8
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Lonrho (U.K.) Conglomerate 2.4
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Royal Dutch Petroleum (Netherlands) Energy 2.3
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NEC (Japan) Electronics 2.1
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HSBC Holdings (Hong Kong) Finance 2.0
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Antofagasta (Chile) Conglomerate 1.9
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Pharmacia (Sweden) Health Products 1.8
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British Steel (U.K.) Metals 1.8
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Sumitomo Marine (Japan) Insurance 1.7
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Twelve-Month Performance as of October 31, 1995
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Total return* 2.19%
Net asset value 10/31/94 $7.77
10/31/95 $7.11
Dividends $.035
Capital gains $.740
*Before deduction of contingent deferred sales charge (CDSC).
Historical Record as of October 31, 1995
- --------------------------------------------------------------------------------
If you If you did
Cumulative total return redeemed not redeem
1-year -0.56% 2.19%
5-year 49.04% 49.04%
10-year 154.29% 154.29%
Average annual total return
1-year -0.56% 2.19%
5-year 8.31% 8.31%
10-year 9.78% 9.78%
The "if you redeemed" returns reflect the deduction of the 3% contingent
deferred sales charge (CDSC) for those investors who bought and 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
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Growth of an Investment
Comparison of change in value of a $10,000 investment in Keystone International
Fund Inc., the Morgan Stanley Europe, Australia, and Far East Index and the
Consumer Price Index.
Fund Average
Annual Total Return
----------------------------------------------
1 Year 5 Year 10 Year
-0.56% 8.31% 9.78%
============================= LINE CHART ====================================
In Thousands October 1985 through October 1995
Morgan Stanley Europe,
Australia, and Consumer
Far East Index Price Index
Fund (EAFE) (CPI)
10/85 $10000 $10000 $10000
14577 16627 10147
10/87 17351 22169 10607
19500 28042 11058
10/89 19915 30424 11555
17062 26470 12281
10/91 18159 28349 12640
18793 24663 13045
10/93 23322 33897 13404
24885 37318 13753
10/95 25429 37179 14140
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.
================================================================================
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 International Fund Inc.
The Fund seeks long-term growth from foreign securities. The return is quoted
after deducting sales charges (if applicable), fund expenses and transaction
costs and assumes reinvestment of all distributions.
2. Morgan Stanley Europe, Australia and Far East Index (EAFE)
The EAFE is a broad-based, unmanaged index of non-U.S. stocks. It is comprised
of stocks of developed world markets. These stocks are selected and compiled by
Morgan Stanley 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 other
important financial considerations such as safety, stability and consistency.
<PAGE>
PAGE 8
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Keystone International Fund Inc.
Limitations of the Chart
The chart, however, limits the evaluation of Fund performance in several ways.
Because the measurement is based on total returns over an extended period of
time, the comparison often favors those funds which emphasize capital
appreciation when the market is rising. Likewise, when the market is declining,
the comparison usually favors those funds which take less risk.
Performance Can Be Distorted
Funds which are more conservative in their orientation and which place an
emphasis on capital preservation will tend to compare less favorably when the
market is rising. In addition, funds which have income as one of their
objectives also will tend to compare less favorably to relevant indexes.
Indexes may also reflect the performance of some securities which a fund
may be prohibited from buying. A bond fund, for example, may be limited to
investments in only high quality bonds, or a stock fund may only be able to
buy stocks that have been traded on a stock exchange for a minimum number of
years or 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
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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
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Keystone International Fund Inc.
SCHEDULE OF INVESTMENTS--October 31, 1995
NUMBER OF MARKET
SHARES VALUE
================================================================================
COMMON STOCKS (82.8%)
(bullet) ARGENTINA (0.3%)
Beverages & Tobacco (0.3%)
Nobleza Piccardo 108,746 $ 418,630
================================================================================
(bullet) AUSTRALIA (3.9%)
Banking (1.8%)
National Australia Bank Ltd. 155,500 1,331,368
Westpac Banking Corp. 231,000 948,423
- --------------------------------------------------------------------------------
2,279,791
- --------------------------------------------------------------------------------
Business & Public Services (0.2%)
Memtec Ltd. 170,000 279,708
- --------------------------------------------------------------------------------
Beverages & Tobacco (0.2%)
Foster's Brewing Group Ltd. 270,000 257,084
- --------------------------------------------------------------------------------
Energy Sources (1.7%)
Broken Hill Proprietary Co. Ltd. 162,765 2,204,419
- --------------------------------------------------------------------------------
(bullet) TOTAL AUSTRALIA 5,021,002
================================================================================
(bullet) BELGIUM (1.2%)
Industrial Components (1.2%)
Bekaert S.A. 2,180 1,600,726
================================================================================
(bullet) CANADA (4.6%)
Advertising & Publishing (1.8%)
Quebecor, Inc. 147,906 2,249,264
- --------------------------------------------------------------------------------
Conglomerates (0.5%)
Brascan Ltd. 26,400 413,793
Imasco Ltd. 15,000 268,697
- --------------------------------------------------------------------------------
682,490
- --------------------------------------------------------------------------------
Beverages & Tobacco (0.5%)
Canada Malting Ltd. 43,800 662,002
- --------------------------------------------------------------------------------
Fertilizer (1.8%)
Potash Corp. of Saskatchewan, Inc. 32,380 2,271,772
- --------------------------------------------------------------------------------
(bullet) TOTAL CANADA 5,865,528
================================================================================
(bullet) CHILE (2.0%)
Conglomerates (2.0%)
Antofagasta Holdings 519,000 $2,502,688
================================================================================
(bullet) FINLAND (0.3%)
Industrial Components (0.3%)
Fiskars Oy AB, Series K 4,400 207,176
Fiskars Oy AB 3,533 178,829
- --------------------------------------------------------------------------------
(bullet) TOTAL FINLAND 386,005
================================================================================
(bullet) FRANCE (5.0%)
Building Materials (0.7%)
Lafarge 13,200 874,853
- --------------------------------------------------------------------------------
Cosmetics (0.7%)
L'Oreal S.A. 3,500 855,299
- --------------------------------------------------------------------------------
Banking (1.5%)
Credit Commerce de France 39,888 1,982,124
- --------------------------------------------------------------------------------
Industrial Components (0.8%)
Michelin 26,200 1,058,158
- --------------------------------------------------------------------------------
Leisure/Tourism (0.5%)
Accor S.A. 5,651 671,404
- --------------------------------------------------------------------------------
Energy Sources (0.8%)
Societe Nationale Elf Aquitaine 14,555 991,148
- --------------------------------------------------------------------------------
(bullet) TOTAL FRANCE 6,432,986
================================================================================
(bullet) HONG KONG (3.4%)
Banking (2.3%)
HSBC Holdings 175,677 2,556,186
Wing Hang Bank 117,700 379,054
- --------------------------------------------------------------------------------
2,935,240
- --------------------------------------------------------------------------------
Beverages & Tobacco (0.1%)
Tsingtao Brewery 535,000 141,851
- --------------------------------------------------------------------------------
Merchandising (0.5%)
Giordano Holdings 771,000 638,204
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments.
<PAGE>
PAGE 11
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--October 31, 1995
NUMBER OF MARKET
SHARES VALUE
================================================================================
Telecommunications (0.5%)
Hong Kong Telecommunications Ltd. 378,000 $ 660,010
- --------------------------------------------------------------------------------
(bullet) TOTAL HONG KONG 4,375,305
================================================================================
(bullet) INDONESIA (1.6%)
Health and Personal (0.4%)
Kalbe Farma 159,840 506,758
- --------------------------------------------------------------------------------
Merchandising (0.4%)
Matahari Putra 240,750 503,550
- --------------------------------------------------------------------------------
Textiles & Apparel (0.8%)
Indorama Synthetic 300,500 992,404
- --------------------------------------------------------------------------------
(bullet) TOTAL INDONESIA 2,002,712
================================================================================
(bullet) ITALY (1.8%)
Chemicals (0.1%)
Saes Getters 4,500 85,822
- --------------------------------------------------------------------------------
Food & Household Products (0.2%)
Industrie Natuzzi 7,400 296,000
- --------------------------------------------------------------------------------
Telecommunications (1.5%)
Telecom Italia MOB 630,000 1,057,246
Telecom Italia 630,000 956,462
- --------------------------------------------------------------------------------
2,013,708
- --------------------------------------------------------------------------------
(bullet) TOTAL ITALY 2,395,530
================================================================================
(bullet) JAPAN (20.2%)
Appliances/Household Durables (2.8%)
Sharp Corp. 79,000 1,096,632
Sony Corp. 56,700 2,549,685
- --------------------------------------------------------------------------------
3,646,317
- --------------------------------------------------------------------------------
Beverages & Tobacco (0.1%)
Kita Kyushu Coca Cola 7,000 136,175
- --------------------------------------------------------------------------------
Chemicals (0.4%)
Rohm 9,000 546,361
- --------------------------------------------------------------------------------
Electrical/Electronics (4.4%)
Hitachi Ltd. 141,000 1,447,285
- --------------------------------------------------------------------------------
Electrical/Electronics (Continued)
NEC Corp. 207,000 $ 2,731,805
Toshiba Corp. 203,000 1,470,482
- --------------------------------------------------------------------------------
5,649,572
- --------------------------------------------------------------------------------
Electronic Components (2.7%)
Advantest 20,500 1,162,325
Fanuc 16,000 692,898
Kyocera Corp. 8,000 655,360
Murata Manufacturing Co. 8,000 280,757
Tokyo Electronics 16,000 694,462
- --------------------------------------------------------------------------------
3,485,802
- --------------------------------------------------------------------------------
Financial Services (0.6%)
Nichiei Co. 12,000 744,904
- --------------------------------------------------------------------------------
Food & Household Products (0.0%)
Plenus 2,000 94,433
- --------------------------------------------------------------------------------
Industrial Components (1.7%)
Bridgestone Corp. 93,000 1,290,972
NGK Spark Plug Co. 63,000 862,212
- --------------------------------------------------------------------------------
2,153,184
- --------------------------------------------------------------------------------
Insurance (3.3%)
Mitsui Marine and Fire 108,000 649,299
Nichido Fire and Marine 181,000 1,353,585
Sumitomo Marine and Fire 305,000 2,176,548
- --------------------------------------------------------------------------------
4,179,432
- --------------------------------------------------------------------------------
Leisure & Tourism (0.4%)
Fuji Photo Film Co. 19,000 469,915
- --------------------------------------------------------------------------------
Office & Business Equipment (3.8%)
Canon, Inc. 283,000 4,841,390
- --------------------------------------------------------------------------------
(bullet) TOTAL JAPAN 25,947,485
================================================================================
(bullet) KOREA (1.8%)
Electronic Components (0.2%)
Chung Ho Computer 2,390 221,774
- --------------------------------------------------------------------------------
Electric/Electronics (0.9%)
Samsung Electronics Co., Ltd., Global
Depository Shares 5,500 1,207,606
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments. (continued on next page)
<PAGE>
PAGE 12
- --------------------------------------------------------------------------------
Keystone International Fund Inc.
SCHEDULE OF INVESTMENTS--October 31, 1995
NUMBER OF MARKET
SHARES VALUE
================================================================================
Metals & Mining (0.2%)
Pohang Iron & Steel Co., Ltd. 2,500 $ 217,604
- --------------------------------------------------------------------------------
Utilities (0.5%)
Korea Electric Power 16,300 671,045
- --------------------------------------------------------------------------------
(bullet) TOTAL KOREA 2,318,029
================================================================================
(bullet) MALAYSIA (1.3%)
Wholesale/International (0.2%)
Sime Darby BHD 88,000 219,913
- --------------------------------------------------------------------------------
Foods & Household Products (0.4%)
Nestle Malay Berhad 90,000 634,002
- --------------------------------------------------------------------------------
Leisure & Tourism (0.7%)
Genting Berhad 98,500 857,431
- --------------------------------------------------------------------------------
(bullet) TOTAL MALAYSIA 1,711,346
================================================================================
(bullet) MEXICO (0.3%)
Metals & Mining (0.3%)
Industrias Penoles S.A. de C.V. 96,500 362,975
================================================================================
(bullet) NETHERLANDS (8.9%)
Advertising & Publishing (2.4%)
Telegraaf N.V. 10,000 1,438,712
Wolters Kluwer N.V. 17,424 1,585,807
- --------------------------------------------------------------------------------
3,024,519
- --------------------------------------------------------------------------------
Appliances/Household Durables (0.5%)
Philips Electronics N.V. 17,350 670,776
- --------------------------------------------------------------------------------
Beverages & Tobacco (1.6%)
Heineken N.V. 11,788 2,091,925
- --------------------------------------------------------------------------------
Health & Personal Products (0.6%)
Unilever N.V. 5,615 735,594
- --------------------------------------------------------------------------------
Insurance (0.8%)
AEGON N.V. 26,920 1,021,998
- --------------------------------------------------------------------------------
Energy Sources (2.3%)
Royal Dutch Petroleum Co. 23,740 $ 2,947,564
- --------------------------------------------------------------------------------
Merchandising (0.7%)
Ahold 24,383 924,137
- --------------------------------------------------------------------------------
(bullet) TOTAL NETHERLANDS 11,416,513
================================================================================
(bullet) NEW ZEALAND (0.2%)
Forest Products (0.2%)
Fletcher Challenge 12,769 17,616
Fletcher Challenge Forest 90,000 238,234
- --------------------------------------------------------------------------------
(bullet) TOTAL NEW ZEALAND 255,850
================================================================================
(bullet) SINGAPORE (1.5%)
Business & Public Services (0.1%)
Venture Manufacturing 38,500 114,437
- --------------------------------------------------------------------------------
Conglomerates (0.6%)
Jardine Matheson 128,166 781,813
- --------------------------------------------------------------------------------
Beverages & Tobacco (0.8%)
Fraser & Neave 89,000 1,051,875
- --------------------------------------------------------------------------------
(bullet) TOTAL SINGAPORE 1,948,125
================================================================================
(bullet) SPAIN (0.9%)
Energy Sources (0.9%)
Repsol S.A. 37,300 1,113,912
================================================================================
(bullet) SWEDEN (7.5%)
Appliances & Household Durables (1.1%)
Electrolux AB 33,925 1,450,878
- --------------------------------------------------------------------------------
Automotive (1.6%)
Volvo AB 93,200 2,098,214
- --------------------------------------------------------------------------------
Business & Public Services (0.9%)
Esselte AB 79,500 1,167,251
- --------------------------------------------------------------------------------
Electrical & Electronics (0.4%)
Asea AB 5,000 493,178
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments.
<PAGE>
PAGE 13
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--October 31, 1995
NUMBER OF MARKET
SHARES VALUE
================================================================================
Health & Personal Products (3.1%)
AB Astra 20,900 $ 767,943
Elekta 21,425 887,250
Pharmacia AB 67,000 2,330,663
- --------------------------------------------------------------------------------
3,985,856
- --------------------------------------------------------------------------------
Capital Goods (0.4%)
Assa Abloy (c) 69,000 457,188
- --------------------------------------------------------------------------------
(bullet) TOTAL SWEDEN 9,652,565
================================================================================
(bullet) SWITZERLAND (6.7%)
Business & Public Services (0.7%)
SGS Holding 475 897,450
- --------------------------------------------------------------------------------
Chemicals (1.6%)
Ciba-Geigy AG 2,435 2,101,911
- --------------------------------------------------------------------------------
Food/Household Products (3.9%)
Nestle S.A. 4,731 4,958,945
- --------------------------------------------------------------------------------
Health and Personal Products (0.5%)
Sandoz AG 825 680,899
- --------------------------------------------------------------------------------
(bullet) TOTAL SWITZERLAND 8,639,205
================================================================================
(bullet) TAIWAN, PROVINCE OF CHINA (0.6%)
Electronic Components (0.1%)
Taiwan Semiconductor (c) 14,400 44,822
United Micro Electric 16,500 40,353
- --------------------------------------------------------------------------------
85,175
- --------------------------------------------------------------------------------
Finance (0.5%)
Chronicle 2001 Mutual Fund 1,653,374 628,585
- --------------------------------------------------------------------------------
Transportation (0.0%)
Evergreen Marine 30,800 46,223
- --------------------------------------------------------------------------------
(bullet) TOTAL TAIWAN, PROVINCE OF CHINA 759,983
================================================================================
(bullet) UNITED KINGDOM (7.5%)
Advertising/Publishing (1.1%)
Blenheim Group PLC 60,000 $ 242,846
Pearson 132,000 1,311,652
- --------------------------------------------------------------------------------
1,554,498
- --------------------------------------------------------------------------------
Miscellaneous Materials (0.7%)
Pilkington PLC 285,000 851,621
- --------------------------------------------------------------------------------
Conglomerates (2.4%)
Lonrho PLC 1,253,184 3,100,764
- --------------------------------------------------------------------------------
Health and Personal Products (0.3%)
Takare PLC 110,000 356,522
- --------------------------------------------------------------------------------
Metals & Mining (1.8%)
British Steel PLC 892,000 2,302,277
- --------------------------------------------------------------------------------
Oil (1.2%)
British Petroleum Co., PLC 204,000 1,499,763
- --------------------------------------------------------------------------------
(bullet) TOTAL UNITED KINGDOM 9,665,445
================================================================================
(bullet) VENEZUELA (1.3%)
Building Materials (0.2%)
Venezolana de Ceme 126,390 241,190
- --------------------------------------------------------------------------------
Conglomerates (0.1%)
H L Boulton & Co. 1,351,329 32,632
- --------------------------------------------------------------------------------
Forest Products (0.2%)
Venezolana de Papeles 377,775 322,739
- --------------------------------------------------------------------------------
Utilities (0.8%)
La Electricidad de Caracas C.A. 945,266 1,080,081
- --------------------------------------------------------------------------------
(bullet) TOTAL VENEZUELA 1,676,642
================================================================================
(bullet) TOTAL COMMON STOCKS
(Cost--$88,194,222) 106,469,187
================================================================================
See Notes to Schedule of Investments. (continued on next page)
<PAGE>
PAGE 14
- --------------------------------------------------------------------------------
Keystone International Fund Inc.
SCHEDULE OF INVESTMENTS--October 31, 1995
Maturity Market
Value Value
================================================================================
SHORT-TERM INVESTMENTS (10.6%)
REPURCHASE AGREEMENTS (10.6%)
Keystone Joint Repurchase
Agreement (Investments in
repurchase agreements, in a
joint trading account,
purchased 10/31/95, 5.870
to 5.8750%, maturing
11/01/95) (d) $13,666,229 $ 13,664,000
================================================================================
TOTAL SHORT-TERM INVESTMENTS
(Cost--$13,664,000) 13,664,000
================================================================================
TOTAL INVESTMENTS
(Cost--$101,858,222) (e) 120,133,187
================================================================================
FOREIGN CURRENCY HOLDINGS (3.6%)
Japanese Yen $ 4,343,267
New Taiwan Dollar (a) 14,070
Venezuelan Bolivar (a) 263,122
- --------------------------------------------------------------------------------
TOTAL FOREIGN CURRENCY HOLDINGS
(Cost--$4,716,137) 4,620,459
================================================================================
OTHER ASSETS AND LIABILITIES--NET
(3.0%) 3,920,009
- --------------------------------------------------------------------------------
NET ASSETS (100%) $128,673,655
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Investments denominated in the local currency and/or foreign currency
holdings of certain countries are considered illiquid due to foreign
exchange restrictions of these markets.
(b) Securities that may be resold to "qualified institutional buyers" under
Rule 144A of the Federal Securities Act of 1933. These securities have
been determined to be liquid under guidelines established by the Board of
Directors.
(c) Non-income-producing security.
(d) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at October 31, 1995.
(e) The cost of investments for income tax purposes amounted to $101,953,236.
Gross unrealized appreciation and depreciation of investments, based on
identified tax cost at October 31, 1995 are as follows:
Gross unrealized appreciation $21,445,442
Gross unrealized depreciation (3,361,169)
-----------
Net unrealized appreciation $18,084,273
===========
See Notes to Financial Statements.
<PAGE>
PAGE 15
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
One Month
Year Ended Ended
October October
31, 31, Year Ended September 30,
1995 1994(e) 1994(e) 1993(e) 1992(e) 1991 1990 1989 1988 1987 1986
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value beginning
of period $ 7.77 $ 7.67 $ 7.08 $ 6.01 $ 5.91 $ 5.35 $ 7.51 $ 6.66 $ 9.53 $ 8.05 $ 5.35
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.07 0 0 (0.03) (0.01) (0.01) (0.07) (0.14) 0.03 0 0.11
Net gains (losses) on
investments and foreign
currency related
transactions 0.05 0.10 0.62 1.14 0.34 0.83 (1.74) 1.06 (1.60) 2.65 3.25
Net commissions paid on
fund share sales (a) 0 0 0 0 0 0 0 0 0 0 (0.07)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 0.12 0.10 0.62 1.11 0.33 0.82 (1.81) 0.92 (1.57) 2.65 3.29
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.04) 0 (0.02) 0 0 0 0 (0.07) (0.08) (0.06) (0.13)
In excess of net
investment income 0 0 (0.01) (0.04) (0.23) (0.03) 0 0 0 0 0
Net realized gains on
investments and foreign
currency related
transactions (0.74) 0 0 0 0 (0.23) (0.35) 0 (1.22) (1.11) (0.46)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.78) 0 (0.03) (0.04) (0.23) (0.26) (0.35) (0.07) (1.30) (1.17) (0.59)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value end of
period $ 7.11 $ 7.77 $ 7.67 $ 7.08 $ 6.01 $ 5.91 $ 5.35 $ 7.51 $ 6.66 $ 9.53 $ 8.05
===================================================================================================================================
Total return (c) 2.19% 1.30% 8.75% 18.59% 5.78% 15.59% (25.12%) 13.55% (15.55%) 39.96% 67.76%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.57%(b) 2.52%(d) 2.54% 2.94% 3.41% 3.14% 2.92% 2.65% 2.04% 2.17% 1.49%
Net investment income 0.88% (0.20%)(d) 0.01% (0.46%) (0.09%) (0.07%) (0.51%) (0.79%) 0.33% (0.04%) 1.53%
Portfolio turnover rate 76% 2% 121% 68% 74% 85% 42% 42% 60% 61% 97%
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets end of period
(thousands) $128,674 $157,929 $154,529 $111,752 $64,135 $72,923 $73,768 $121,047 $115,712 $173,319 $89,895
===================================================================================================================================
</TABLE>
(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 periods ended on or after June 30,
1987, that net commissions paid under Rule 12b-1 Distribution Plans be
treated as operating expenses rather than capital charges. Accordingly,
beginning with the fiscal year ended September 30, 1987, the Fund's
financial statements reflect 12b-1 Distribution Plan expenses (i.e.,
shareholder service 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
October 31, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses for the year ended October 31, 1995, the expense ratio
would have been 2.56%.
(c) Excluding contingent deferred sales charges (CDSC).
(d) Annualized.
(e) Calculation based on average shares outstanding.
See Notes to Financial Statements.
<PAGE>
PAGE 16
- --------------------------------------------------------------------------------
Keystone International Fund Inc.
STATEMENTS OF ASSETS AND LIABILITIES--
October 31, 1995
================================================================================
Assets:
Investments at market value (identified cost--
$88,194,222) (Note 1) $106,469,187
Repurchase Agreements (identified cost--
$13,664,000) (Note 1) 13,664,000
Foreign currency holdings (identified cost--
$4,716,137) (Note 1) 4,620,459
- --------------------------------------------------------------------------------
Total investments and foreign currency holdings
(identified cost--$106,574,359) 124,753,646
- --------------------------------------------------------------------------------
Cash 271
Receivable for:
Unrealized appreciation on open foreign currency
contracts
(Notes 1 and 5) 654,349
Investments sold 4,270,517
Fund shares sold 338,050
Interest and dividends 190,714
Refundable foreign tax withheld 100,125
Prepaid expenses 13,072
- --------------------------------------------------------------------------------
Total assets 130,320,744
- --------------------------------------------------------------------------------
Liabilities:
Payable for:
Unrealized depreciation on open foreign currency
contracts
(Notes 1 and 5) 1,328,394
Fund shares redeemed 121,169
Foreign tax withholding 23,689
Other accrued expenses 173,837
- --------------------------------------------------------------------------------
Total liabilities 1,647,089
- --------------------------------------------------------------------------------
Net assets $128,673,655
================================================================================
Net assets represented by (Notes 1, 2 and 5):
Paid-in capital $108,440,042
Undistributed net investment income 1,985,964
Accumulated net realized gains on investments
and foreign currency related transactions 744,780
Net unrealized appreciation (depreciation) on:
Investments, foreign currency holdings and
other assets and liabilities 18,176,914
Foreign currency contracts (674,045)
- --------------------------------------------------------------------------------
Total net assets applicable to outstanding
shares of beneficial interest at 10/31/95
($7.11 a share on 18,088,843 shares
outstanding) $128,673,655
================================================================================
STATEMENT OF OPERATIONS--
For the Year Ended October 31, 1995
==========================================================================
Investment income (Note 1):
Dividends (net of foreign
withholding taxes of $305,494) $ 2,327,124
Interest 2,200,392
- --------------------------------------------------------------------------
Total income 4,527,516
- --------------------------------------------------------------------------
Expenses (Notes 2 and 4):
Management fee $ 985,652
Transfer agent fees 616,119
Accounting, auditing and legal 65,683
Custodian fees--foreign 154,575
Custodian fees--domestic 89,856
Distribution Plan expenses 1,315,600
Printing expense 40,526
Registration fees 48,734
Other foreign investment taxes 50,579
Miscellaneous expenses 22,959
- --------------------------------------------------------------------------
Total expenses 3,390,283
Less: Expenses paid indirectly
(Note 4) (19,366)
- --------------------------------------------------------------------------
Net expenses 3,370,917
- --------------------------------------------------------------------------
Net investment income 1,156,599
- --------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions
(Notes 1, 3 and 5):
Realized gain (loss) on:
Investments 3,055,864
Foreign currency holdings (352,786)
- --------------------------------------------------------------------------
Net realized gain (loss) on
investments and foreign currency
related transactions 2,703,078
- --------------------------------------------------------------------------
Net change in unrealized
appreciation (depreciation) on:
Investments foreign currency
holdings and other assets and
liabilities (2,836,275)
Foreign currency contracts 363,133
- --------------------------------------------------------------------------
Net change in unrealized
appreciation or depreciation (2,473,142)
- --------------------------------------------------------------------------
Net gain on investments and foreign
currency related transactions 229,936
- --------------------------------------------------------------------------
Net increase in net assets resulting
from operations $ 1,386,535
==========================================================================
See Notes to Financial Statements.
<PAGE>
PAGE 17
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
One Month
Period
Year Ended Ended Year Ended
October 31, 1995 October 31, 1994 September 30, 1994
===================================================================================================================
<S> <C> <C> <C>
Operations (Notes 1 and 3):
Net investment income (loss) $ 1,156,599 $ (26,579) $ 9,601
Net realized gain (loss) on investments and foreign
currency related transactions 2,703,078 (325,955) 11,373,326
Net change in unrealized appreciation or depreciation (2,473,142) 2,527,836 (2,252,430)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 1,386,535 2,175,302 9,130,497
- -------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from (Note 1):
Net investment income (701,392) 0 (385,197)
In excess of net investment income 0 0 (214,920)
Net realized gains on investments and foreign currency
related transactions (14,792,324) 0 0
- -------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (15,493,716) 0 (600,117)
- -------------------------------------------------------------------------------------------------------------------
Capital share transactions (Note 2):
Proceeds from shares sold 84,005,110 11,958,676 146,821,752
Payments for shares redeemed (112,505,516) (10,734,623) (113,073,728)
Net asset value of shares issued in reinvestment of
dividends and distributions 13,352,659 0 499,199
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
capital share transactions (15,147,747) 1,224,053 34,247,223
- -------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (29,254,928) 3,399,355 42,777,603
- -------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period 157,928,583 154,529,228 111,751,625
- -------------------------------------------------------------------------------------------------------------------
End of period [including undistributed net investment
income (accumulated distributions in excess of net
investment income) as follows:
October 31, 1995--$1,985,964
October 31, 1994--$1,266,496
September 30, 1994--($3,808,221)] (Note 1) $ 128,673,655 $157,928,583 $ 154,529,228
===================================================================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 18
- --------------------------------------------------------------------------------
Keystone International Fund Inc.
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone International Fund Inc. (the "Fund") is a Massachusetts corporation
for which Keystone Management, Inc. ("KMI") is the Investment Manager and
Keystone Investment Management Company (formerly Keystone Custodian Funds,
Inc.) ("Keystone") is the Investment Adviser. The Fund is registered under
the Investment Company Act of 1940 as a diversified, open-end investment
company.
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. 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. Those securities traded in
foreign currency amounts are translated into United States dollars as
follows: market value of investments, assets, and liabilities at the daily
rate of exchange; and purchases and sales of investments, income, and
expenses at the rate of exchange prevailing on the respective dates of such
transactions.
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. Investments denominated in a foreign currency are
adjusted daily to reflect changes in exchange rates.
B. 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 market risk, the Fund is subject to the credit risk that the other party
will not complete the obligations of the contract.
C. Securities transactions are accounted for no later than the day after the
trade date. Realized gains and losses are recorded on the identified cost
basis. Interest
<PAGE>
PAGE 19
- --------------------------------------------------------------------------------
income is recorded on the accrual basis and dividend income is recorded on
the ex-dividend date. Distributions to shareholders are recorded on the
ex-dividend date.
D. 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.
E. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed
upon date and price) the repurchase price of the securities will generally
equal the amount paid by the Fund plus a negotiated interest amount. The
seller under the repurchase agreement will be required to provide securities
("collateral") to the Fund whose value will be maintained at an amount not
less than the repurchase price, and which generally will be maintained at
101% of the repurchase price. The Fund monitors the value of collateral on a
daily basis, and if the value of the collateral falls below required levels,
the Fund intends to seek additional collateral from the seller or terminate
the repurchase agreement. If the seller defaults, the Fund would suffer a
loss to the extent that the proceeds from the sale of the underlying
securities were less than the repurchase price. Any such loss would be
increased by any cost incurred on disposing of such securities. If bankruptcy
proceedings are commenced against the seller under the repurchase agreement,
the realization on the collateral may be delayed or limited. Repurchase
agreements entered into by the Fund will be limited to transactions with
dealers or domestic banks believed to present minimal credit risks, and the
Fund will take constructive receipt of all securities underlying repurchase
agreements until such agreements expire.
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.
F. 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"). Additionally, from time to time the Fund
may enter into 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. In addition to market risk,
the Fund is subject to the credit risk that the other party will not complete
the obligations of the contract.
G. The Fund distributes net investment income and net capital gains, if any,
annually. Distributions are determined in accordance with income tax
regulations. The significant difference between financial statement amounts
available for distribution and distributions made in accordance with income
tax regulations is due to the differing treatment of 12b-1 expenses and
foreign currency gains and losses for financial statement and federal income
tax purposes.
(2.) Capital Share Transactions
One 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:
<PAGE>
PAGE 20
- --------------------------------------------------------------------------------
Keystone International Fund Inc.
<TABLE>
<CAPTION>
Year One Month Year
Ended Ended Ended
10/31/95 10/31/94 9/30/94
====================================================================
<S> <C> <C> <C>
Shares sold 12,460,964 1,555,441 18,905,283
Shares redeemed (16,703,211) (1,394,884) (14,595,196)
Shares issued in
reinvestment of
dividends and
distributions 2,010,943 0 64,579
- --------------------------------------------------------------------
Net increase (decrease) (2,231,304) 160,557 4,374,666
====================================================================
</TABLE>
The Fund bears some of the costs of selling its shares under a
Distribution Plan adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940. Under the Distribution Plan, the Fund pays Keystone Investment
Distributors Company (formerly Keystone Distributors, Inc.) ("KIDC"), 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 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 4.0% 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.
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
1.0%, 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 12b-1 Distribution
Plan, plus interest at the prime rate plus 1.0% on unpaid amounts thereof
(less any contingent deferred sales charges paid by the shareholders to
KIDC).
The Fund has operated its Distribution Plan in accordance with both the
Plan and the NASD Rule since July 8, 1992, except that until July 7, 1993,
maximum annual payments with respect to Net Asset Value as represented by
shares sold prior to January 1, 1992 remained at the then current rate of
0.3125% quarterly (approximately 1.25% annually).
To the extent Fund shares purchased prior to July 8, 1992 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 4.0%, applied to the lesser of the net
asset value of shares redeemed or the total cost of such shares.
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.
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 1.0%) at such time in the future as, and to the extent that, pay-
<PAGE>
PAGE 21
- --------------------------------------------------------------------------------
ment 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 October 31, 1995, the Fund recovered $1,380 in
deferred sales charges. During the period, the Fund paid KDI $1,316,980 under
the Distribution Plan. The amount paid by the Fund under its Distribution
Plan, net of contingent deferred sales charges, was $1,315,600 (1.00% of the
Fund's average daily net asset value during the period.) During the year
ended October 31, 1995, KIDC received $524,433 after payments of commissions
on new sales and service fees to dealers and others of $792,547. During the
same period, KIDC received $375,704 in contingent deferred sales charges. At
October 31, 1995, KIDC's total unreimbursed Distribution expenses amounted to
$1,721,992 (1.31% of the Fund's net asset value as of October 31, 1995).
(3.) Securities Transactions
For the year ended October 31, 1995, purchases and sales of investment
securities were as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
===========================================================
<S> <C> <C>
Portfolio securities $ 94,396,748 $ 140,495,266
Short-term investments 1,548,344,495 1,539,065,000
- -----------------------------------------------------------
$1,642,741,243 $1,679,560,266
===========================================================
</TABLE>
(4.) Investment Management and Transactions with Affiliates
Under the terms of the Investment Management Agreement between KMI and the
Fund, Keystone 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 by applying percentage rates, which start at
0.75% and decline, as net assets increase, to 0.45% per annum, to the net
asset value of the Fund. KMI has 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.
For the year ended October 31, 1995, the Fund paid or accrued to KMI
investment management and administrative services fees of $985,652, which
represented 0.75% of the Fund's average net assets on an annualized basis. Of
this amount paid to KMI, $837,804 was paid to Keystone for its investment
advisory services to the Fund.
During the year ended October 31, 1995, the Fund paid or accrued to KII
$62,044 for certain accounting and printing services, and $616,119 to KIRC
for transfer agent fees.
The Fund has entered into an expense offset arrangement with its
custodian. For the year ended October 31, 1995, the Fund paid custody fees in
the amount of $225,065 and received a credit of $19,366 pursuant to the
expense offset arrangement, resulting in a total expense of $244,431. The
assets deposited with the custodian under the expense offset arrangement
could have been invested in income-producing assets.
(5.) Forward Foreign Currency Exchange Contracts
At October 31, 1995, the Fund had open currency exchange contracts that
obligate the Fund to deliver currencies at specified future dates. The
unrealized depreciation of $674,045 on these contracts is included in the
accompanying financial statements. The terms of the open contracts are as
follows:
<PAGE>
PAGE 22
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Keystone International Fund Inc.
<TABLE>
<CAPTION>
Exchange Currency to U.S. $ value Currency to U.S. $ value
date be delivered as of 10/31/95 be received as of 10/31/95
=====================================================================================
<S> <C> <C> <C> <C>
01/05/96 3,321,160 2,522,555 2,535,374 2,535,374
Australian $ U.S. $
01/25/96 6,351,864 4,738,652 4,589,000 4,589,000
Canadian $ U.S. $
11/01/95 81,306 84,535 84,579 84,579
Brazilian U.S. $
11/01/95 620,365 645,004 645,340 645,340
Brazilian U.S. $
11/01/95 651,254 677,120 677,473 677,473
Brazilian U.S. $
11/01/95 677,184 704,080 704,446 704,446
Brazilian U.S. $
11/01/95 3,852 4,005 4,007 4,007
Brazilian U.S. $
11/01/95 677,391 704,295 704,661 704,661
Brazilian U.S. $
11/03/95 1,608,649 1,608,649 8,142,337 1,664,957
U.S. $ French Franc
11/03/95 10,333,084 2,112,924 2,164,994 2,164,994
French Franc U.S. $
11/03/95 5,386,500 1,101,439 1,050,000 1,050,000
French Franc U.S. $
11/20/95 16,860,671 583,185 558,485 558,485
Belgian Franc U.S. $
11/20/95 8,868,200 306,738 290,000 290,000
Belgian Franc U.S. $
11/20/95 1,923,000 1,923,000 2,253,660 1,989,565
U.S. $ Swiss Franc
11/20/95 2,876,603 2,539,508 2,365,627 2,365,627
Swiss Franc U.S. $
11/20/95 1,830,272 1,615,791 1,515,000 1,515,000
Swiss Franc U.S. $
11/10/95 73,918,520 604,989 608,784 608,784
Spanish Peseta U.S. $
11/20/95 507,907 119,604 117,102 117,102
Finnish Markka U.S. $
11/20/95 444,120 104,583 100,000 100,000
Finnish Markka U.S. $
11/20/95 3,183,000 3,183,000 2,052,158 3,242,950
U.S. $ Pound Sterling
11/20/95 2,439,475 3,855,013 3,782,650 3,782,650
Pound Sterling U.S. $
11/20/95 1,657,709 2,619,616 2,560,000 2,560,000
Pound Sterling U.S. $
</TABLE>
<PAGE>
PAGE 23
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Exchange Currency to U.S. $ value Currency to U.S. $ value
date be delivered as of 10/31/95 be received as of 10/31/95
=====================================================================================
<S> <C> <C> <C> <C>
11/20/95 1,615,184,140 $ 1,010,564 987,639 $ 987,639
Italian Lira U.S. $
11/20/95 178,871,000 111,913 110,000 110,000
Italian Lira U.S. $
11/20/95 3,201,000 3,201,000 5,239,077 3,324,218
U.S. $ Netherland
11/20/95 6,980,789 4,429,342 4,247,901 4,247,901
Netherlands U.S. $
11/20/95 3,561,281 2,259,649 2,140,000 2,140,000
Netherlands U.S. $
11/22/95 8,147,303 1,224,546 1,100,095 1,100,095
Swedish Krona U.S. $
11/22/95 13,824,192 2,077,788 1,920,000 1,920,000
Swedish Krona U.S. $
11/22/95 9,241,213 1,388,963 1,325,000 1,325,000
Swedish Krona U.S. $
12/29/95 719,352,928 7,099,594 7,301,000 7,301,000
Japanese Yen U.S. $
12/29/95 317,881,800 3,137,307 3,182,000 3,182,000
Japanese Yen U.S. $
12/29/95 198,283,410 1,956,941 1,989,000 1,989,000
Japanese Yen U.S. $
- -------------------------------------------------------------------------------------
$60,255,892 $59,581,847
=====================================================================================
</TABLE>
<PAGE>
PAGE 24
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Keystone International Fund Inc.
(6.) Distributions to Shareholders
A distribution of net investment income of $0.10 per share and a distribution
of long-term capital gains of $0.05 per share were declared payable by
December 6, 1995 to shareholders of record November 24, 1995. These
distributions are not reflected in the accompanying financial statements.
================================================================================
Federal Tax Status--Fiscal 1995
Distributions (Unaudited)
A distribution of $0.74 per share of net long-term capital gains and $0.04
per share of net investment income was paid during the fiscal year ended
October 31, 1995.
In January of 1996 we will send you complete information on distributions
paid during the calendar year 1995 to help you in completing your federal tax
return.
<PAGE>
PAGE 25
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Directors and Shareholders of
Keystone International Fund Inc.
We have audited the accompanying statement of assets and liabilities of
Keystone International Fund Inc., including the schedule of investments, as
of October 31, 1995, and the related statement of operations for the year
then ended, the statements of changes in net assets for the year then ended,
the period from October 1, 1994 to October 31, 1994 and the year ended
September 30, 1994, and the financial highlights for the year then ended, the
period from October 1, 1994 to October 31, 1994 and for each of the years in
the nine-year period ended September 30, 1994. 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 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 October 31, 1995 by correspondence with the custodian.
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 International Fund Inc., as of October 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for the
year then ended, the period from October 1, 1994 to October 31, 1994 and the
year ended September 30, 1994, and the financial highlights for each of the
years or periods specified in the first paragraph above in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
December 8, 1995
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
PAGE 27
- --------------------------------------------------------------------------------
Keystone's Services
for Shareholders
KEYSTONE AUTOMATED RESPONSE LINE (KARL)--Receive up-to-date account
information on your balance, last transaction and recent Fund distribution.
You may also process transactions such as investments, redemptions and
exchanges using a touch-tone telephone as well as receive quotes on price,
yield, and total return of your Keystone Fund. Call toll-free,
1-800-346-3858.
EASY ACCESS TO INFORMATION ON YOUR ACCOUNT--Information about your
Keystone account is available 24 hours a day through KARL. To speak with a
Shareholder Services representative about your account, call toll-free
1-800-343-2898 between 8:00 A.M. and 6:00 P.M. Eastern time. Retirement Plan
investors should call 1-800-247-4075.
ADDITIONS TO YOUR ACCOUNT--You can buy additional shares for your account
at any time, with no minimum additional investment.
REINVESTMENT OF DISTRIBUTIONS--You can compound the return on your
investment by automatically reinvesting your Fund's distributions at net
asset value with no sales charge.
EXCHANGE PRIVILEGE--You may move your money among funds in the same
Keystone family quickly and easily for a nominal service fee. KARL gives you
the added ability to move your money any time of day, any day of the week.
Keystone offers a variety of funds with different investment objectives for
your changing investment needs.
ELECTRONIC FUNDS TRANSFER (EFT)--Referred to as the "paper-less
transaction," EFT allows you to take advantage of a variety of preauthorized
account transactions, including automatic monthly investments and systematic
monthly or quarterly withdrawals. EFT is a quick, safe and accurate way to
move money between your bank account and your Keystone account.
CHECK WRITING--Shareholders of Keystone Liquid Trust may exercise the
check writing privilege to draw from their accounts.
EASY REDEMPTION--KARL makes redemption services available to you 24 hours
a day, every day of the year. The amount you receive may be more or less than
your original account value depending on the value of fund shares at time of
redemption.
RETIREMENT PLANS--Keystone offers a full range of retirement plans,
including IRA, SEP-IRA, profit sharing, money purchase, and defined
contribution plans. For more information, please call Retirement Plan
Services, toll-free at 1-800-247-4075.
Keystone is committed to providing you with quality, responsive account
service. We will do our best to assist you and your financial adviser in
carrying out your investment plans.
<PAGE>
[back cover]
Keystone
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
Liquid Trust
Mid-Cap Growth Fund (S-3)
Precious Metals Holdings
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 logo] KEYSTONE
INVESTMENTS
P.O. Box 2121
Boston, Massachusetts 02106-2121
KIF-AR-12/95
17.5 M ["Recycled" symbol]
<PAGE>
[front cover]
K E Y S T O N E
[photo: father & young son reading a book together]
INTERNATIONAL
FUND INC.
[Keystone logo]
ANNUAL REPORT
OCTOBER 31, 1995
