Keystone Precious Metals Holdings, Inc.
Seeks capital appreciation primarily from investments in
gold-oriented or other precious metal and minerals companies.
Dear Shareholder:
We are writing to report to you on the performance of Keystone Precious
Metals Holdings, Inc. for the six-month period which ended August 31, 1995.
Performance
Your Fund produced a total return of 22.28% for the six-month period. For the
same period, the Financial Times Gold Mines Index returned 13.99%. An
increase in the price of gold during March and April coincided with the start
of the six-month period and is reflected in your Fund's strong return. Firm
demand for gold contributed to a rally in Australian and North American gold
stocks during the summer.
Maintaining a Consistent Strategy
We understand that mining can be a risky business, and make it a priority to
moderate those risks. We concentrate on gold mining companies that are well
established and have good track records. We also look for long-lived
reserves, proven operating reputations and good exploration programs to plan
for future growth. By selecting companies that meet these criteria, we
believe we can moderate the volatility that is frequently associated with
these stocks.
Market Overview
The price of gold increased from its six-month low at the beginning of the
period, but failed to break out of its trading range, roughly between $375
and $395 an ounce. A lack of concern about inflation in the US and other
industrialized countries diminished gold's value as an inflation hedge.
However, improved economics worldwide helped increase jewelry demand for the
metal. Demand for gold bullion was especially strong in the Far East which
helped the performance of gold stocks. Investor demand remained weak.
New Fund Manager
We are pleased to introduce John Madden, your Fund's new portfolio manager.
Mr. Madden joined Keystone Investments last year and brings with him more
than 30 years experience managing both domestic and foreign investments. He
was previously involved in the management of a portfolio similar to that of
Keystone Precious Metals Holdings, Inc., with an emphasis on precious metals,
natural resources and energy. Mr. Madden is committed to building upon your
Fund's competitive long-term track record. He intends to manage the Fund in
the style established by Frederick G.P. Thorne of Harbor Capital Management
Company, Inc., who has been involved in the Fund's management since its
founding in 1974.
Keystone will continue to rely on the research capabilities and experience
of Mr. Thorne and Harbor Capital, with its outstanding reputation in managing
precious metals portfolios. We believe this combination of talents should
enhance the management of your Fund. This change is also consistent with
Keystone's long-term strategic goal to strengthen its global investment
management expertise.
--continued--
1
<PAGE>
Keystone Precious Metals Holdings, Inc.
Looking Ahead
With growing demand and only modest increases in production, we believe the
market outlook for gold is quite positive. Central bank sales of gold are
diminishing, and we expect global jewelry demand to remain high. Under this
scenario, even a slight increase in the price of gold could have positive
effects on the profitability of the mining companies in your Fund's portfolio in
our opinion. Gold stocks continue to offer investors a long-term hedge against
potential inflation and currency uncertainties, and remain an essential
component of a broadly-diversified investment strategy.
We appreciate your continued support of Keystone Precious Metals Holdings, Inc.
We encourage you to write to us with any questions or comments about your
Keystone investment.
Sincerely,
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Chairman and President
Keystone Investments, Inc.
/s/ George S. Bissell
George S. Bissell
Chairman of the Board
Keystone Funds
October 1995
[photo of Albert H. Elfner, III]
Albert H. Elfner, III
[photo of George S. Bissell]
George S. Bissell
2
<PAGE>
A Discussion With
Your Fund Manager
[photo of John C. Madden, Jr.]
John C. Madden, Jr. is a vice president and senior portfolio manager of
Keystone Precious Metals Holdings, Inc. and Keystone Strategic Development
Fund. A Chartered Financial Analyst, Mr. Madden has more than 30 years of
experience in investment research and management, specializing in precious
metals, natural resources and energy. He holds a BA from Yale University.
Q What is the Fund's investment philosophy?
A The objective of the Fund is to seek price appreciation from investments in
gold-oriented or other precious metal and minerals companies. As a sector
fund, it is prone to greater price volatility than more diversified
investments. However, we use a relatively conservative strategy in an effort
to mitigate the inherent volatility. Our emphasis tends to be on companies
with proven, long-lived reserves and growing production that can add value to
the portfolio even when the price of gold is relatively unchanged, as it has
been recently. This is the way the Fund has been run for years by Harbor
Capital Management, and we believe it is a philosophy that offers excellent
potential to the Fund's shareholders.
Q How were supply and demand during the period?
A The supply-demand dynamic is quite positive right now, despite relatively
low inflation and low interest rates in the US and other industrialized
countries. For several years, worldwide jewelry demand has substantially
exceeded the annual mined production of gold. The gap has been filled by
several sources, notably scrap supply, sales from central banks, and forward
sales by producers. This has kept supply and demand in balance and
contributed to a stable gold price. When central bank sales taper off, we
expect supply to tighten. Demand from jewelry fabricators remains strong.
Long-term, we believe this is a favorable combination for gold stocks.
Q How were the Fund's investments allocated?
A We decreased our exposure to South African gold stocks early in the period
and increased North American and Australian holdings. The strong returns in
North American and Australian gold stocks helped Fund performance. South
African gold stocks weakened during the period, but we believe the bottom has
been reached in that market. We have recently added to our South African
holdings.
Q What is your outlook for the gold market?
A We continue to believe that there is room for growth, both in gold price
and in gold mining stocks. We had a nice run this year after a rocky start.
We
- --------------------------------------------------------------------------------
Fund Profile
Objective: Seeks capital appreciation primarily from investments
in gold-oriented or other precious metal and minerals companies.
Commencement of investment operations: June 5, 1972
Net assets: $200 million
Newspaper listing: PrecMtl
- --------------------------------------------------------------------------------
3
<PAGE>
Keystone Precious Metals Holdings, Inc.
continue to be cautiously optimistic and expect that prices should move
higher over time. The price of gold typically responds to political and
economic worry factors. Those worries have been relatively mild over the past
six months, particularly with the American economy getting back on track and
the continuation of low inflation in the US. Many of the best gold mining
companies continue to improve their operations and expand reserves, which
should put them in a good position when gold prices eventually rise.
Asset Allocation
(as a percentage of portfolio assets)
2/28/95 5/31/95 8/31/95
- --------------------------------------------
North America 40% 49% 45%
- --------------------------------------------
South Africa 33% 25% 26%
- --------------------------------------------
Australia 23% 24% 27%
- --------------------------------------------
Other 4% 2% 2%
- --------------------------------------------
Q Please describe some of the Fund's largest holdings.
A Our largest Australian holding, Plutonic Resources, is a remarkable success
story. Discovered in 1988 and brought on stream in 1990, the Plutonic mine
will pour its millionth ounce some time this year. Meanwhile, the geology has
continued to improve and new reserves have been uncovered. When operations
move underground during the next few years, output will more than double.
This plus several acquisitions mean that Plutonic will be producing more than
600,000 ounces annually five years from now compared to 350,000 ounces in
1995.
Our largest US holding is Pioneer Group whose Teberebie mine in Ghana
produces over 200,000 ounces of low cost gold annually with considerable room
for expansion. The rest of the company's operations--primarily mutual funds
in the US and Europe--are also proceeding satisfactorily. The stock has done
well, but we believe the assets are still undervalued by the marketplace.
The largest South African holding is Western Areas Gold, one of the few
companies in that country with prospects for rising output from growing
reserves. Its merger with South Deep Exploration earlier this year
- --------------------------------------------------------------------------------
Update on South Africa
The political situation in South Africa continues to evolve, and we are
monitoring it carefully. While there are no clear signs as to who might
succeed Nelson Mandela, this change is still several years away. The South
African economy is fairly strong and continues to benefit from more open
trading policies. Mining companies are beginning to expand to take advantage
of opportunities in other African countries, which could ultimately have a
positive effect on stock prices.
Talks between gold mining companies and the national union of miners have
been progressing well. The key issues--the companies' desire for a seven-day
work week and miners' demands for higher pay--are likely to result in both
increased productivity and higher employment levels. The resolution of these
questions would also eliminate one level of uncertainty in the investment
climate. Prices of South African gold mining stocks have declined in the past
year, but we believe that improving political and labor conditions may
strengthen the market.
- --------------------------------------------------------------------------------
resulted in ownership of the largest unmined reserve in the world: 60 million
ounces. At full production, some time after the end of the decade, Western
Areas Gold will become one of the major producers in that country.
Q Usually, gold prices respond well to international crises, but that
correlation has not been strong in recent years. What is the benefit of
investing in a gold fund?
A The yearly price of gold hasn't averaged more than $400 since the
mid-1980s, but funds investing in gold mining stocks have had some very
strong years in the past decade. Stocks tend to outperform the
4
<PAGE>
Your Fund's Performance
Growth of an investment in
Keystone Precious Metal Holdings, Inc.
[Mountain graph]
Initial Reinvested
Date Investment Distributions
- ---- ---------- -------------
8/85 10000 10000
8/86 10242 10632
8/87 21870 23213
8/88 14132 16111
8/89 14457 16805
8/90 13689 16167
8/91 12037 14331
8/92 12571 15079
8/93 18765 22586
8/94 20893 25197
8/95 19700 23828
A $10,000 investment in Keystone Precious Metals Holdings, Inc. made on August
31, 1985 with all distributions reinvested was worth $23,828 on August 31, 1995.
Past performance is no guarantee of future results.
- --------------------------------------------------------------------------------
metal because of their leverage and sensitivity to factors other than the
price of gold. The nature of this market is that it can move up or down
quickly in the short-term, so we think the best way to enjoy the benefit of a
rising market is to maintain a long-term investment. Precious metals are an
important component of a diversified portfolio and have the potential to
provide a significant hedge against inflation, when it heats up again.
World Gold Supply and Demand
January 1 - June 30
in metric tonnes
1994 1995
- ----------------------------------------------------
Supply: mine production 1,116 1,110
- ----------------------------------------------------
Demand: jewelry consumption 1,147 1,391
- ----------------------------------------------------
Supply declined 1% while demand increased 21% during
the first half of 1995 compared to the same period in 1994.
Source: ORD Minnet, GFMS.
Six-Month Performance as of August 31, 1995
- -------------------------------------------------------
Total return* 22.28%
Net asset value 2/28/95 $19.30
8/31/95 $23.60
Dividends None
Capital gains None
*Before deducting contingent deferred sales charge (CDSC).
Historical Record as of August 31, 1995
- -------------------------------------------------------
Cumulative total return If you If you did
redeemed not redeem
1-year -8.26% -5.43%
5-year 47.39% 47.39%
10-year 138.28% 138.28%
Average annual total return
1-year -8.26% -5.43%
5-year 8.07% 8.07%
10-year 9.07% 9.07%
The one-year return reflects the deduction of the 3% contingent deferred
sales charge for those investors who bought and sold Fund shares after one
calendar year. Investors who retained their fund investment received the
one-year return 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 to another Keystone fund for a $10 fee by
contacting Keystone directly. The exchange fee is waived for individual
investors who make an exchange using Keystone's Automated Response Line
(KARL). The Fund reserves the right to change or terminate the exchange
offer.
5
<PAGE>
Keystone Precious Metals Holdings, Inc.
Glossary of
Mutual Fund Terms
MUTUAL FUND--A company which combines the investment money of many people
whose financial goals are similar, and invests that money in a variety of
securities. A mutual fund allows the smaller investor the benefits of
diversification, professional management and constant supervision usually
available only to large investors.
PORTFOLIO MANAGER--An investment professional who is responsible for
managing a portfolio's assets prudently and making appropriate investment
decisions, such as which securities to buy, hold and sell, based on the
investment objectives of the portfolio.
STOCK--Equity or ownership interest in a corporation, which represents a
claim on the corporation's assets and earnings.
BOND--Security issued by a government or corporation to those from whom it
has borrowed money. A bond usually promises to pay interest income to the
bondholder at regular intervals and to repay the entire amount borrowed at
maturity date.
CONVERTIBLE SECURITY--A corporate security (usually preferred stock or
bonds) that is exchangeable for a set number of another security type
(usually common stocks) at a pre-stated price.
MONEY MARKET FUND--A mutual fund whose assets are invested in a
diversified portfolio of short-term securities, including commercial paper,
bankers' acceptances, certificates of deposit and other short-term
instruments. The fund pays income which can fluctuate daily. Liquidity and
safety of principal are primary objectives.
NET ASSET VALUE (NAV) PER SHARE--The value of one share of a mutual fund.
The NAV per share is determined by subtracting a fund's total liabilities
from its total assets, and dividing that amount by the number of fund shares
outstanding.
DIVIDEND--A per share distribution of the income earned from the fund's
portfolio holdings. When a dividend distribution is made, the fund's net
asset value drops by the amount of the distribution because the distribution
is no longer considered part of the fund's assets.
CAPITAL GAIN--The profit from the sale of securities, less any losses.
Capital gains are paid to fund shareholders on a per share basis. When a
capital gain distribution is made, the fund's net asset value drops by the
amount of the distribution because the distribution is no longer considered
part of the fund's assets.
YIELD--The annualized rate of income as measured against the current net
asset value of fund shares.
TOTAL RETURN--The change in value of a fund investment over a specified
period of time, taking into account the change in a fund's market price and
the reinvestment of all fund distributions.
SHORT-TERM--An investment with a maturity of one year or less.
LONG-TERM--An investment with a maturity of greater than one year.
AVERAGE MATURITY--The average number of days until the notes, drafts,
acceptances, bonds or other debt instruments in a portfolio become due and
payable.
OFFERING PRICE--The offering price of a share of a mutual fund is the
price at which the share is sold to the public.
6
<PAGE>
SCHEDULE OF INVESTMENTS--August 31, 1995
(Unaudited)
Number Market
of Shares Value
========================================================================
COMMON STOCKS (98.4%)
GOLD MINING (68.0%)
Bolivar Goldfields Ltd. (a) 250,000 $ 297,841
Beatrix Mines Ltd 100,000 882,039
Cameco Corp 50,000 1,563,663
Delta Gold NL (a) 1,200,000 2,589,279
De Beers Cons Mines Ltd 45,000 1,155,938
Euro-Nevada Mining Ltd. 400,000 15,487,714
Franco-Nevada Mining Corp. Ltd. 130,000 8,385,145
Free State Consolidated Gold Mines Ltd. ADR 340,000 3,995,000
Goldcorp Inc. 300,000 3,043,559
Golden Shamrock (a) 7,000,000 4,841,741
Impala Platinum Holdings ADR 160,000 4,111,904
Kinross Gold Corp. (a) 950,000 7,718,750
Loraine Gold Mines Ltd. ADR (a) 670,000 2,564,425
Newmont Gold Co 140,000 5,810,000
Newcrest Mining 2,235,400 9,781,241
Newmont Mining Corp. 225,000 9,787,500
North Flinders Mines 900,000 5,074,806
Orion Resources (a) 1,000,000 1,052,553
Orvana Minerals Corp. (a) 275,000 972,636
Perilya Mines NL (a) 3,500,000 1,763,025
Plutonic Resources NL 2,200,000 10,254,868
Prime Resources Group Inc. (a) 425,000 3,401,899
Ranger Minerals NL (a) 1,050,000 2,439,290
Ross Mining Nl 2,048,100 1,586,003
Santa Fe Pacific Gold Corp. (a) 200,000 2,425,000
Sons of Gwalia Ltd 500,000 2,488,535
Target Exploration (a) 1,135,000 2,405,779
TVX Gold Inc. (a) 200,000 1,450,000
Vaal Reefs Exploration & Mining Ltd. ADR 500,000 3,500,000
Vengold Inc. 858,000 1,260,188
Western Areas Gold Mining Ltd. ADR 811,465 12,701,052
Wiluna Mines Ltd. (a) 1,000,000 1,037,516
- ------------------------------------------------------------------------
135,828,889
- ------------------------------------------------------------------------
METALS & MINING (29.5%)
Acacia Resources (a) 3,500,000 6,710,022
Argentina Gold Corp. (a) 400,000 967,982
Ashant Goldfield 335,000 $ 6,951,250
Barrick Gold Corp. (a) 350,000 8,881,250
Driefontein Consolidated Ltd. ADR 245,000 3,644,375
Elandsrand Gold Mining Ltd. ADR 300,000 1,640,370
Harmony Gold Mining Ltd. ADR (a) 200,000 1,804,420
Middle Witwatersrand ADR 250,000 2,153,000
Mount Edon Gold Mines Ltd. 500,000 1,187,881
Pioneer Group Inc. 360,000 10,237,500
Randgold & Exploration 1,200,000 4,348,658
Repadre Capital Corp. (a) 200,000 595,681
Rustenburg Platinum Holdings Ltd. ADR 150,000 3,424,305
Stillwater Mining Company (a) 300,000 6,506,250
- ------------------------------------------------------------------------
59,052,944
- ------------------------------------------------------------------------
OTHER MINING & INDUSTRIAL (0.9%)
Redstone Resources Inc. 650,000 1,790,767
- ------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost--$159,682,271) 196,672,600
========================================================================
WARRANTS (0.1%)
Vengold Inc. 429,000 239,575
- ------------------------------------------------------------------------
Par
Value
========================================================================
FIXED INCOME (1.4%)
OTHER MINING & INDUSTRIAL (1.4%)
Target Exploration, 11.250%, 01/01/97
(Cost--$1,165,066) SA Rand 1,165,066 2,866,286
- ------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost--$160,847,337) 199,778,461
========================================================================
INVESTMENTS IN WHOLLY-OWNED
UNCONSOLIDATED FOREIGN SUBSIDIARY (0.4%)
Precious Metals (Bermuda) Ltd. 733,099
- ------------------------------------------------------------------------
OTHER ASSETS AND LIABILITES--
NET (-0.3%) (562,397)
- ------------------------------------------------------------------------
NET ASSETS (100.0%) $199,949,163
========================================================================
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income-producing security.
See Notes to Schedule of Investments.
7
<PAGE>
Keystone Precious Metals Holdings, Inc.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the year)
<TABLE>
<CAPTION>
Six Months Year Ended
Ended --------------------------------------------------------------------
August 31, Feb. 28, Feb. 28, Feb. 28, Feb. 29, Feb. 28,
1995(a) 1995 (a) 1994 (a) 1993 (a) 1992 (a) 1991 (a)
<S> <C> <C> <C> <C> <C> <C>
============================================================================================================================
Net asset value beginning of period $ 19.30 $ 25.09 $ 14.38 $ 15.37 $ 14.22 $ 19.15
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income (loss) (0.09) (0.13) (0.17) (0.12) (0.02) 0
Net gain (loss) on investments and
futures contracts 4.39 (5.54) 10.88 (0.76) 1.30 (4.61)
Net commissions paid on fund share
sales--net 0 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.30 (5.67) 10.71 (0.88) 1.28 (4.61)
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income 0 (0.12) 0 0 0 (0.06)
In excess of net investment income
(b) 0 0 0 (0.11) (0.13) (0.26)
Net realized gain on investments 0 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions 0 (0.12) 0.00 (0.11) (0.13) (0.32)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value end of period $ 23.60 $ 19.30 $ 25.09 $ 14.38 $ 15.37 $ 14.22
============================================================================================================================
Total return (c) 22.28% (22.70%) 74.48% (5.74%) 9.07% (24.37%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.30%(d) 2.33% 2.34% 2.83% 2.70% 2.76%
Net investment income (loss) (0.82%)(d) (0.54%) (0.75%) (0.86%) (0.14%) (0.02%)
Portfolio turnover rate 26% 75% 73% 58% 53% 68%
Net assets, end of period
(thousands) 199,949 171,193 200,489 114,364 131,356 150,200
============================================================================================================================
</TABLE>
(a) Calculation based on average shares outstanding.
(b) Effective March 1, 1993 the Fund adopted Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions by Investment
Companies. As a result, distribution amounts exceeding book basis net
investment income (or tax basis net income on a temporary basis) are
presented as "Distributions in excess of investment income--net."
Similarly, capital gain distributions in excess of book basis capital
gains (or tax basis capital gains on a temporary basis) are presented as
"Distributions in excess of net realized capital gains." For the fiscal
years ended February 28, 1993, February 29, 1992, and February 28, 1991,
distributions in excess of book basis net income were charged to paid-in
capital.
(c) Excluding applicable sales charges.
(d) Annualized
See Notes to Financial Statements.
8
<PAGE>
Keystone Precious Metals Holdings, Inc.
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995 (Unaudited)
============================================================
Assets:
Investments at market value (identified
cost--$160,847,337) (Note 1) $199,778,461
Investment in wholly-owned unconsolidated
foreign subsidiary, at fair value (Note 2) 733,099
- ------------------------------------------------------------
Total investments 200,511,560
- ------------------------------------------------------------
Receivable for:
Forward foreign currency exchange contracts 527,806
Fund shares sold 362,438
Interest and dividends 532,206
Prepaid expenses 24,621
Other assets 8,848
- ------------------------------------------------------------
Total assets 201,967,479
- ------------------------------------------------------------
Liabilities:
Payable for:
Investments purchased 1,211,710
Forward foreign currency exchange
contracts 527,806
Fund shares redeemed 219,434
Payable to Investment Adviser (Note 5) 6,632
Accrued reimbursable expenses (Note 5) 1,760
Other accrued expenses 50,974
- ------------------------------------------------------------
Total liabilities 2,018,316
- ------------------------------------------------------------
Net assets $199,949,163
============================================================
Net assets represented by (Notes 1 and 3):
Paid-in capital $172,644,962
Undistributed investment income--net 336,311
Accumulated net realized gain (loss) on
investments (11,963,235)
Net unrealized appreciation (depreciation)
on investments and foreign currency 38,931,125
- ------------------------------------------------------------
Total net assets applicable to outstanding
shares of beneficial interest ($23.60 a
share on 8,471,868
shares outstanding) $199,949,163
============================================================
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
Six Months Ended August 31, 1995 (Unaudited)
========================================================================
Investment income (Note 1):
Dividends (net of foreign withholding taxes
of $123,178) $ 1,307,852
Interest 168,007
- ------------------------------------------------------------------------
Total investment income 1,475,859
- ------------------------------------------------------------------------
Expenses (Notes 3 and 5):
Management fee $ 678,605
Transfer agent fees 458,218
Accounting, auditing and legal 31,068
Custodian 68,658
Printing 13,819
Directors' fees and expenses 7,537
Distribution Plan expenses 991,688
Registration fees 17,024
State tax expense 11,461
Miscellaneous expenses 6,897
- ------------------------------------------------------------------------
Total expenses 2,284,975
- ------------------------------------------------------------------------
Net Investment loss (809,116)
- ------------------------------------------------------------------------
Equity in earnings of wholly-owned unconsolidated
foreign subsidiary (Note 2) 16,888
- ------------------------------------------------------------------------
Realized and unrealized gain (loss) on
investments and foreign currency related
transactions--net: (Note 4)
Realized gain on:
Investments 2,378,025
Foreign currency related transactions 1,742,441
- ------------------------------------------------------------------------
Realized gain on investments and foreign
currency related transactions--net 4,120,466
Unrealized appreciation on investments:
Beginning of year 3,078,967
End of year 38,931,125
- ------------------------------------------------------------------------
Net change in unrealized appreciation or
depreciation on investments: 35,852,158
- ------------------------------------------------------------------------
Net gain (loss) on investments and foreign
currency related transactions 39,972,624
- ------------------------------------------------------------------------
Net increase in net assets resulting from
operations $39,180,396
========================================================================
9
<PAGE>
Keystone Precious Metals Holdings, Inc.
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended Year Ended
August 31, 1995 February 28, 1995
- --------------------------------------------------------------------------------
Operations:
Net investment loss $ (809,116) $ (1,113,674)
Equity in earnings of wholly-owned
unconsolidated foreign subsidiary 16,888 16,070
Net realized gain on investments and
foreign currency related transactions 4,120,466 16,264,818
Net increase (decrease) in unrealized
appreciation or depreciation 35,852,158 (63,783,342)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 39,180,396 (48,616,128)
- --------------------------------------------------------------------------------
Distributions to shareholders from
investment income--net
(Notes 1 and 6) 0 (1,048,057)
- --------------------------------------------------------------------------------
Capital shares transactions (Note 3):
Proceeds from shares sold 151,039,771 374,710,377
Payments for shares redeemed (161,463,829) (355,122,400)
Reinvestment of distributions 0 779,722
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from capital share transactions (10,424,058) 20,367,699
- --------------------------------------------------------------------------------
Total increase (decrease) in net assets 28,756,338 (29,296,486)
- --------------------------------------------------------------------------------
Net assets:
Beginning of year 171,192,825 200,489,311
- --------------------------------------------------------------------------------
End of year [including net undistributed
investment income as follows: August,
1995--$336,311 and February,
1995--$1,129,201] (Note 1) $ 199,949,163 $ 171,192,825
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone Precious Metals Holdings, Inc. (the "Fund") is a Delaware
corporation for which Keystone Investment Management Company (formerly named
Keystone Custodian Funds, Inc.) ("Keystone") is the investment adviser. It is
registered as a diversified open-end management investment company under the
Investment Company Act of 1940 (the "Act").
Effective August 1, 1995, Harbor Capital Management Company, Inc. ("Harbor
Capital") (formerly the "Sub-Adviser") became a Consultant to the Fund.
Pursuant to the terms of the Consultant Agreement, Harbor Capital provides
Keystone with monthly reports discussing the world's gold bullion markets and
gold stocks markets, and advice regarding economic factors and trends in the
precious metals sector.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc.
(formerly Keystone Group, Inc.) ("KII"), a Delaware corporation. KII is
privately owned by an investor group consisting of current and former members
of management of Keystone and its affiliates. 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 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, 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 at the daily rate of exchange. Net unrealized foreign
exchange gains/losses are a component of unrealized appreciation/depreciation
of investments.
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 that are held on the sixtieth day prior to maturity are valued at
amortized cost (market value on the sixtieth day adjusted for amortization of
premium or accretion of discount) which, when combined with accrued interest,
approximates market.
B. The Fund enters into currency and other financial futures contracts as a
hedge against changes in interest or currency exchange rates. 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
11
<PAGE>
Keystone Precious Metals Holdings, Inc.
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 obligation of the contract.
C. Securities transactions are accounted for on the trade date. Interest
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-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 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 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. Realized gains and losses arising from such
transactions are included in net realized gain (loss) on investments and
forward foreign currency exchange contracts.
G. The Fund distributes net investment income to shareholders, if any,
semiannually, and net capital gains, if any, annually. Distributions from net
investment income are based on tax basis net income. The significant
difference between financial statement amounts available for distribution and
distributions made in accordance with income tax regulations are primarily
attributable to the deferral of post-October losses and utilization of
capital loss carryforwards.
12
<PAGE>
(2.) Investment in Foreign Subsidiary
Precious Metals (Bermuda) Ltd., the Fund's wholly-owned foreign subsidiary,
was acquired in May 1975 and has as its primary objective the acquisition of
precious metals. The Fund accounts for its investments in the subsidiary
under the equity method of accounting. At August 31, 1995, the fair value of
the Fund's investment in the foreign subsidiary was determined as follows:
=====================================
Cash and cash equivalents $741,903
Accrued expenses (8,804)
- -------------------------------------
$733,099
=====================================
During the six months ended August 31, 1995, the foreign subsidiary had no
purchases or sales of precious metals. Investment activities of the foreign
subsidiary resulted in gross investment income, general and administrative
expenses, and net investment income of $20,222, $3,334 and $16,888,
respectively. Management fees paid or accrued by the foreign subsidiary to
Keystone totaled $4,540 for the six months ended August 31, 1995.
(3.) 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:
Six months ended Year ended
August 31, 1995 February 28, 1995
==============================================================
Shares sold 6,940,978 15,698,308
Shares redeemed (7,339,874) (14,849,643)
Shares issued in
reinvestment of
distributions from:
Investment income--
net 0 32,096
- --------------------------------------------------------------
Net increase
(decrease) (398,896) 880,761
==============================================================
The Fund bears some of the cost 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,
Inc. ("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 above, 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 above,
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.
To the extent Fund shares are redeemed within four calendar years of
original issuance, depending upon when those shares were issued, 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.
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 quarter 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
13
<PAGE>
Keystone Precious Metals Holdings, Inc.
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 12b-1 Distribution
Plan, plus interest at the prime rate plus 1% 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 current rate of 0.3125%
quarterly (approximately 1.25% annually).
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 subsequent to January 1, 1992.
Commencing on 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 six months ended August 31, 1995, the Fund paid KIDC $991,688.
During the period, KIDC retained $821,152 after payments of commissions on
new sales and service fees to dealers and others of $816,957. Under a rule of
the NASD, the maximum uncollected amounts for which KIDC may seek payment
from the Fund under its Distribution Plan is $12,877,014 (6.44% of the Fund's
net asset value as of August 31, 1995).
(4.) Securities Transactions
Realized gains and losses are computed on the identified cost basis. Gains
and losses on foreign currency related transactions are treated as ordinary
income for federal income tax purposes. As of February 28, 1995, the Fund had
a capital loss carryover for federal income tax purposes of approximately
$12,350,000 which expires as follows: 2000--$3,812,000 and 2001--$8,538,000.
For the six months ended August 31, 1995, purchases and sales of investment
securities were as follows:
Cost of Proceeds
Purchases from Sales
=====================================================
Portfolio securities $ 50,145,964 $ 53,677,709
Short-term investments 275,536,000 276,636,000
- -----------------------------------------------------
$325,681,964 $330,313,709
=====================================================
(5.) Investment Management and Transactions with Affiliates
Officers and directors of the Fund who are employees of Keystone or the
Consultant receive no compensation directly from the Fund. Several officers
of the Fund are also officers, directors and/or stockholders of Keystone and
have an interest in the management fee paid by the Fund to Keystone. The
management fee paid by the Fund to Keystone is determined by applying
percentage rates, which start at 0.75%, and decline, as net assets increase,
to 0.50% per annum, to the average daily net assets of the Fund. Such fee is
reduced by the amount of any investment advisory fee paid to Keystone by the
Fund's subsidiary. Effective August 1, 1995, Harbor Capital became a
Consultant to Keystone. For its services
14
<PAGE>
as Consultant, Harbor Capital receives from Keystone a fee at the annual rate
of 0.10% of the Fund's average daily net assets.
During the period ended August 31, 1995, the Fund paid or accrued
management fees of $678,605 to Keystone, which represented 0.68% of the
Fund's average daily net assets on an annualized basis. Keystone paid or
accrued a fee of $201,645 to Harbor Capital which acted as sub-adviser for
the period from March 1, 1995 through July 31, 1995 and as Consultant for the
period from August 1, 1995 through August 31, 1995.
During the six months ended August 31, 1995, the Fund paid or accrued
$10,208 to KIRC and Keystone Investments, Inc., as reimbursement for the cost
of certain accounting services provided to the Fund. During the six months
ended August 31, 1995, $458,218 was paid or accrued to KIRC for shareholder
services.
15
<PAGE>
[begin 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 at 1-800-343-2898.
[Keystone logo] KEYSTONE
INVESTMENTS
P.O. Box 2121
Boston, Massachusetts 02106-2121
KPMH-SAR-10/95 [recycle logo]
24 M
KEYSTONE
PRECIOUS
METALS
HOLDINGS,
INC.
SEMIANNUAL
REPORT
[Keystone logo]
AUGUST 31, 1995
