[front cover]
K E Y S T O N E
[photo of different coins]
PRECIOUS METALS
HOLDINGS, INC.
[Keystone logo]
SEMIANNUAL REPORT
AUGUST 31, 1996
<PAGE>
PAGE 1
Keystone Precious Metals Holdings, Inc.
Seeks long-term capital appreciation and protection of purchasing
power by investing 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, 1996.
Following our letter to you we have included a discussion with your Fund's
manager and complete financial information.
Performance
Your Fund produced a total return of -3.57% for the six-month period which
ended August 31, 1996. The Financial Times Gold Mines Index, an index of gold
stocks, returned -13.19% for the same six-month period. For the twelve-month
period, your Fund returned 7.67% and the index returned 3.0%.
We believe your Fund's six-month performance was satisfactory during a
period of significant price declines for gold stocks. We think your Fund's
strategy of investing in established gold mining companies with expanding
reserves and solid financials helped to limit price declines during this
difficult period.
Market overview
Gold bullion prices declined, despite concerns about higher inflation rates
in the U.S. during the six-month period. The prices of gold and gold mining
stocks have historically responded favorably to political or financial
instability, and the threat of inflation. However, gold investors interpreted
the environment as uneventful. As your Fund's fiscal year began on February
29, 1996, gold bullion prices had been declining from a peak of $417 an ounce
reached at the beginning of February. Prices remained in the $390 to $400
range through the end of May, and then found support at the $380 level in
June. Gold prices rebounded somewhat during the summer, but not enough to
rekindle investor interest. Gold started the period at $400.75 per ounce on
February 29, 1996 and closed the period at $386.50 on August 31, 1996.(1)
Gold stocks responded slowly to the decline in gold prices, trending up for
the first three months of the period until it became clear that bullion
prices were no longer rising. Gold stocks declined in June and July, then
picked up again in August, buoyed by modest increases in the price of gold.
A conservative investment strategy
Your Fund employs a consistent, conservative management style. We focus on
well established gold mining companies with good track records and proven
operating reputations. We also prefer companies with growing reserves and
strong exploration programs to ensure future growth. We believe companies
with these characteristics are likely to be more resilient under difficult
market conditions, and offer good appreciation potential in favorable market
environments.
Maintaining a long-term view
With its characteristic volatility and quick short-term moves, gold attracts
its share of speculative investors. However, we take a long-term approach to
managing your Fund. Long-term investing in gold-related securities can add
diversification to your portfolio, help offset market fluctuations, and
provide a hedge against inflation and currency uncertainties.
--continued--
(1)Source: Bloomberg
<PAGE>
PAGE 2
Keystone Precious Metals Holdings, Inc.
Our outlook
While the market for gold has been relatively quiet in recent months,
worldwide demand for mined gold continues to outpace supply. We believe that
this basic dynamic should support higher gold stock prices over the long
term. We continue to believe that precious metals funds remain an important
component of a properly diversified investment strategy, and the best way to
take advantage of the unpredictable nature of these markets is to remain
invested in high quality gold stocks.
We are pleased to inform you that Keystone has agreed to be acquired by First
Union Corporation. The acquisition is subject to a number of conditions,
including approvals of investment advisory agreements with Keystone by fund
shareholders. First Union is a financial services firm based in Charlotte,
North Carolina. It is the nation's sixth largest bank holding company with
assets of approximately $140 billion. First Union, through its wholly-owned
subsidiary Evergreen Asset Management Corp., manages more than $16 billion in
36 mutual funds. Keystone will remain a separate entity after its acquisition
and will continue to provide investment advisory and management services to
the Fund. We believe First Union's acquisition of Keystone should strengthen
the investment management services we provide to you.
We appreciate your continued support of Keystone Precious Metals Holdings,
Inc., and encourage you to write to us with any questions or comments about
your Keystone investment.
Sincerely,
/s/ Albert H. Elfner, III [PHOTO] [PHOTO]
Albert H. Elfner, III [CAPTION: [CAPTION:
Chairman and President Albert H. Elfner, III] George S. Bissell]
Keystone Investments, Inc.
/s/George S. Bissell
George S. Bissell
Chairman of the Board
Keystone Funds
October 1996
[DALBAR LOGO] Dalbar Key Honors
Honoring Commitment to Excellence
Keystone was recently recognized by Dalbar, an independent
mutual fund rating organization, for demonstrating a commitment
to serving the needs of customers. The award is intended to
distinguish companies who are committed to investors and have a
proven ability to provide good service.
<PAGE>
PAGE 3
A Discussion With
Your Fund Manager
[PHOTO OF JOHN C. MADDEN, JR.]
[CAPTION]
John C. Madden, Jr. is a vice president and senior portfolio
manager of Keystone Precious Metals Holdings, Inc. and
Keystone Global Resources and 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 your strategy for managing the Fund?
A The Fund's objective is to seek long-term capital appreciation and
protection of purchasing power by investing in gold-oriented or other
precious metal and minerals companies. As a sector fund, it is prone to
greater price fluctuation than more diversified investments, but we rely on a
conservative strategy to reduce the level of volatility. We focus on
companies with proven, growing reserves and expanding production that may
have a greater ability to maintain their value during periods of lower gold
prices. We believe this approach offers Fund investors the advantages of
ongoing exposure to the potential of gold stocks, but with reduced downside
risk.
Q What factors contributed to the declining price of gold during the
period?
A Gold's brief rise above $400 in February provided investors, dealers and
speculators with a good opportunity to take profits, but as speculator
interest dropped off, price levels drifted down, bottoming at about $380 in
June. Forward selling by producers and central bank sales, including Belgium,
contributed to lower prices as did positive world economic conditions.
Q How did the Fund perform during the period?
A Strong economic conditions in the U.S., including low inflation and the
continuing bull market for U.S. stocks during most of the year, reduced
investor demand for gold stocks. The gold-related stocks in which your Fund
invests generally experienced a delayed reaction to changes in the price of
gold. They remained high during May, even as gold bullion prices were
declining. But once it became clear that the price of gold had settled lower,
gold stocks followed suit. We believe part of the reason for the lag was
because gold stock investors tend to have a longer term perspective than gold
speculators and were less likely to sell or take profits before a trend had
become established. The chart on page 4 shows the price of gold bullion over
the last five years.
Fund Profile
Objective: Seeks long-term capital appreciation and protection of purchasing
power by investing in gold-oriented or other precious metal and minerals
companies.
Commencement of investment operations: June 5, 1972
Stocks: 50
Net assets: $198 million
Newspaper listing: "PrecMtl"
<PAGE>
PAGE 4
Keystone Precious Metals Holdings, Inc.
Gold Spot Closing Prices
(Month-end price per ounce in U.S. dollars)
August 31, 1992 through August 31, 1996
[typeset representation of line chart]
Aug 1992 Aug 93 Aug 94 Aug 95 Aug 96
340.5 370.05 383.3 382.6 386.5
348.35 357.4 395.35 383.75
338.8 369.1 388.4 382.55
334.05 376.3 384.55 383.5
322.9 390.65 382.5 386.7
330.75 378.15 380 407.4
328.75 377.6 379.6 397.75
332.7 389.7 386.55 396.7
353.45 376.45 389.5 393.1
381 383.4 385.8 390.55
374.6 390.7 387.05 381.3
403.7 384.05 383.2 384.9
[end line chart]
Past performance of the index and gold is not indicative of our fund's return.
Source: Factset
Q How were supply and demand during the period?
A The supply-demand dynamic continued to be positive during the six-month
period, despite the relatively low inflation environment in the U.S. 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 should provide a favorable environment for
gold stocks.
Q Please comment on some of the Fund's key holdings.
A During the period we expanded our holdings in North America and South
Africa and reduced our exposure in Australia. Among our larger holdings is
the South African company Target Exploration. The Target mine is being
developed by Anglovaal, one of the mining houses in South Africa. The mine
should be operational in three years producing over 500,000 ounces per year.
More importantly, Anglovaal is restructuring, and the gold assets will be
concentrated in one subsidiary for which Target will be the listed vehicle.
Therefore, under the new structure Target will provide further exploration
exposure to other nearby properties as well as to the cash generated by
existing mines. Another holding, Middle Witswatersrand, should also benefit
from this same restructuring.
This investment theme--the importance of expanding output and exploration
potential--is present in many of the Fund's holdings. In Australia, for
example, one of our more successful investments has been in a company called
Sons of Gwalia. This company produced about 100,000 ounces of gold in
1993-94, but through acquisition and development, production should increase
to over 600,000 ounces annually by the year 2000. This would make Sons of
Gwalia one of the five largest producers in Australia, and we believe the
stock price should eventually reflect this increase in production.
Asset Allocation
as of August 31, 1996
[typeset representation of pie chart]
North America 56%
South Africa 23%
Australia 21%
[end pie chart]
(as a percentage of portfolio assets)
<PAGE>
PAGE 5
Top 10 Holdings
as of August 31, 1996 Percentage of
Stock (Country) net assets
- ----------------------------------------------------------
Euro Nevada Mining (Canada) 5.2
- ----------------------------------------------------------
Randgold + Exploration (South Africa) 4.9
- ----------------------------------------------------------
Newmont Gold (United States) 4.7
- ----------------------------------------------------------
Newmont Mining (United States) 4.2
- ----------------------------------------------------------
Franco Nevada Mining (Canada) 4.0
- ----------------------------------------------------------
Pioneer Group (United States) 3.6
- ----------------------------------------------------------
Getchell Gold (United States) 3.6
- ----------------------------------------------------------
Acacia Resources (Australia) 3.3
- ----------------------------------------------------------
Barrick Gold (Canada) 3.1
- ----------------------------------------------------------
North Flinders Mines (Australia) 3.0
- ----------------------------------------------------------
Q What is your outlook for the gold market?
A The fundamentals remain positive--demand by jewelry fabricators continues
to outpace mined production. Most recently, relatively strong economic
conditions in the U.S. have created concern about higher inflation and
interest rates, which could bring gold back into favor with investors. We
believe the companies in your Fund's portfolio are well positioned to benefit
from even small increases in the price of gold over the coming year.
Gold Stocks outperformed both inflation and the price of gold over ten years
10-year total returns 8/31/86 to 8/31/96
[typeset representation of bar chart]
Lipper Gold-
Oriented Funds CPI Gold
136.71% 43.39% 15.22%
Does not represent performance of the Fund.
Sources: The Lipper Gold-Oriented Funds Average represents the average
cumulative total return of gold-oriented mutual funds according to Lipper
Analytical Services, Inc. The Consumer Price Index (CPI) is the measure of
the change in consumer prices as calculated by the U.S. Bureau of Labor
Statistics. The total return for gold represents the change in the spot price
of gold according to Bloomberg. Calculations assume reinvestment of
distributions. Sales charges are not included. Investors cannot invest
directly in averages or indexes.
[diamond]
This column is intended to answer
questions about your Fund. If you have a question
you would like answered, please write to:
Keystone Investment Distributors Company,
Attn: Shareholder Communications, 22nd floor,
200 Berkeley Street, Boston, Massachusetts 02116-5034.
<PAGE>
PAGE 6
Keystone Precious Metals Holdings, Inc.
Your Fund's Performance
Growth of an investment in
Keystone Precious Metals Holdings, Inc.
In Thousands
Initial Reinvested
Investment Distributions
8/86 10000 10000
21353 21833
8/88 13798 15153
14116 15806
8/90 13366 15206
11752 13479
8/92 12274 14183
18321 21244
8/94 20399 23699
19234 22412
8/96 20709 24131
Six-Month Performance as of August 31, 1996
Total return* -3.57%
Net asset value 2/28/96 $26.35
8/31/96 $25.41
Dividends None
Capital gains None
* Before deducting contingent deferred sales charge (CDSC).
Historical Record as of August 31, 1996
If you If you did
Cumulative total return redeemed not redeem
1-year 4.67% 7.67%
5-year 79.03% 79.03%
10-year 141.31% 141.31%
Average annual total return
1-year 4.67% 7.67%
5-year 12.35% 12.35%
10-year 9.21% 9.21%
There is no sales charge when you buy Fund shares. The Fund currently imposes
a contingent deferred sales charge that declines from 4% to 1% if you redeem
shares within four years of purchase. 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.
<PAGE>
PAGE 7
SCHEDULE OF INVESTMENTS--August 31, 1996
(Unaudited)
Number Market
of Shares Value
COMMON STOCKS (95.1%)
GOLD MINING (63.1%)
Cameco Corp. 40,000 $ 1,996,055
Delta Gold NL (a) 1,200,000 2,866,862
Euro-Nevada Mining Ltd. 410,000 10,184,847
Getchell Gold Corp. 154,700 6,768,125
Franco-Nevada Mining Corp. Ltd. 235,000 7,898,005
Free State Consolidated Gold Mines Ltd. ADR 440,000 4,840,000
Goldcorp Inc. 700,000 6,833,062
Great Central Mountains 580,000 1,789,415
Homestake Mining Co. 255,000 4,207,500
Menzies Gold 1,000,000 450,914
Kinross Gold Corp. (a) 700,000 5,512,500
Loraine Gold Mines Ltd. ADR (a) 670,000 2,493,338
Newcrest Mining 654,572 2,376,778
Newmont Gold Co. 170,000 9,158,750
Newmont Mining Corp. 155,000 8,195,625
North Flinders Mines 900,000 5,980,540
Orion Resources (a) 1,000,000 1,400,206
Orvana Minerals Corp. (a) 337,100 2,056,539
Perilya Mines NL (a) 3,500,000 2,270,390
Plutonic Resources NL 950,000 4,772,170
Prime Resources Group Inc. (a) 524,800 4,064,353
Ranger Minerals NL (a) 1,050,000 3,364,053
Ross Mining NL 2,048,100 2,235,882
Santa Fe Pacific Gold Corp. (a) 255,000 3,315,000
Sons of Gwalia Ltd. 799,600 5,180,543
TVX Gold Inc. (a) 185,300 1,505,563
Vaal Reefs Exploration & Mining Ltd. ADR 699,000 5,810,437
Vengold, Warrants 429,000 188,062
Western Areas Gold Mining Ltd. ADR 317,056 4,279,681
Western Deep Levels Ltd. ADR 75,000 2,779,687
- -------------------------------------------------------------------------
124,774,882
- -------------------------------------------------------------------------
METALS & MINING (32.0%)
Acacia Resources (a) 2,899,200 $ 6,421,770
Agnico Eagle Mines Ltd. 80,000 1,396,946
Ashanti Goldfields Ltd. 285,000 5,308,125
METALS & MINING (cont'd)
Barrick Gold 312,200 $ 8,429,088
Bema Gold Corp. 100,000 767,151
Bre X Minerals Ltd. 25,000 449,331
Canyon Resource Corp. 400,000 1,150,000
DeBeers Centenary 50,000 1,557,104
DeBeers Consolidated Mines Ltd. 45,200 1,401,200
Elandsrand Gold Mining Ltd. ADR 300,000 1,831,710
Harmony Gold Mining (a) 350,000 3,509,718
Middle Witwatersrand ADR 250,000 3,008,326
Pioneer Group Inc. 270,000 7,087,500
Randgold + Exploration 1,429,666 9,621,373
Repadre Capital Corp. (a) 200,000 986,337
Target Exploration 1,790,000 5,783,844
Stillwater Mining Company (a) 220,900 4,583,675
- -------------------------------------------------------------------------
63,293,198
- -------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost--$147,361,349) 188,068,080
- -------------------------------------------------------------------------
Par
Value
- -------------------------------------------------------------------------
FIXED INCOME (1.0%)
OTHER MINING & INDUSTRIAL (1.0%)
Target Exploration, 11.250%, 01/01/97
(Cost--$582,533) SA RAND 655,000 2,043,454
- -------------------------------------------------------------------------
Maturity
Value
- -------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (3.1%)
REPURCHASE AGREEMENTS (3.1%)
Investments in repurchase agreements, in a
joint trading account purchased 8/30/96,
5.243%, maturing 9/3/96
(Cost--$6,133,000)(b) $6,136,524 6,133,000
- -------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost--$154,076,882) 196,244,534
- -------------------------------------------------------------------------
<PAGE>
PAGE 8
Keystone Precious Metals Holdings, Inc.
Market
Value
- -------------------------------------------------------------------------
INVESTMENTS IN WHOLLY-OWNED UNCONSOLIDATED FOREIGN SUBSIDIARY (0.4%)
Precious Metals (Bermuda) Ltd. $ 741,034
- -------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES--NET (0.4%) 799,938
- -------------------------------------------------------------------------
NET ASSETS (100.0%) $197,785,506
- -------------------------------------------------------------------------
(a) Non-income-producing security.
(b) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at August 31, 1996.
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Exchange U.S. Value at In Exchange Appreciation/
Date August 31, 1996 for U.S. $ (Depreciation)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Forward Foreign Currency Exchange Contracts to Buy:
Contracts to Receive
- ---------------------------------------------------------------------------------------------------------
09/30/96 $ 842,561 Australian Dollar $664,233 $666,530 $2,297
09/30/96 $ 382,219 Australian Dollar $301,322 $302,364 $1,042
09/30/96 $1,188,460 Canadian Dollar $868,757 $868,313 $ (444)
------
Net Unrealized Appreciation/Depreciation on Forward Foreign Currency Exchange Contracts ($2,895)
======
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 9
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------
Six Months Ended Feb. 29, Feb. 28, Feb. 28, Feb. 28, Feb. 29,
August 31, 1996 (a) 1996 (a) 1995 (a) 1994 (a) 1993 (a) 1992 (a)
- -------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of period $26.35 $19.30 $25.09 $14.38 $15.37 $14.22
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (1.00) (0.25) (0.13) (0.17) (0.12) (0.02)
Net gains (losses) on securities 0.06 7.30 (5.54) 10.88 (0.76) 1.30
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.94) 7.05 (5.67) 10.71 (0.88) 1.28
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -0- -0- (0.12) -0- -0- -0-
Distributions in excess of net investment
income -0- -0- -0- -0- (0.11) (0.13)
Distributions from realized capital gains -0- -0- -0- -0- -0- -0-
- -------------------------------------------------------------------------------------------------------------------------
Total distributions 0.00 0.00 (0.12) 0.00 (0.11) (0.13)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value end of period $25.41 $26.35 $19.30 $25.09 $14.38 $15.37
- -------------------------------------------------------------------------------------------------------------------------
Total return (b) (3.57%) 36.53% (22.70%) 74.48% (5.74%) 9.07%
Ratios/supplemental data
Ratios to average net assets:
Operating and Management expenses 2.27%(c)(d) 2.28% 2.33% 2.34% 2.83% 2.70%
Net investment income (loss) (1.00%) (d) (1.08%) (0.54%) (0.75%) (0.86%) (0.14%)
Portfolio turnover rate 13% 39% 75% 73% 58% 53%
Average comissions rate paid $0.0206 N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (thousands) $197,786 $217,270 $171,193 $200,489 $114,364 $131,356
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Calculation based on average shares outstanding.
(b) Excluding applicable sales charges.
(c) "Ratio of operating and management expenses to average net assets" for
the six months ended August 31, 1996 includes indirectly paid expenses.
Excluding indirectly paid expenses for the six months ended August 31,
1996, the expense ratio would have been 2.25%.
(d) Annualized.
See Notes to Financial Statements.
<PAGE>
PAGE 10
Keystone Precious Metals Holdings, Inc.
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996 (Unaudited)
- -----------------------------------------------------------
Assets:
Investments at market value (identified
cost--$154,076,882) (Note 1) $196,244,534
Investment in wholly-owned unconsolidated
foreign subsidiary, at fair value (Note 2) 741,034
- -----------------------------------------------------------
Total investments 196,985,568
Cash 930
Receivable for:
Investments sold 997,076
Fund shares sold 1,369,205
Interest and dividends 640,886
Prepaid expenses 32,454
Other assets 3,677
- -----------------------------------------------------------
Total assets 200,029,796
- -----------------------------------------------------------
Liabilities:
Payable for:
Investments purchased 1,834,313
Fund shares redeemed 409,977
- -----------------------------------------------------------
Total liabilities 2,244,290
- -----------------------------------------------------------
Net assets $197,785,506
- -----------------------------------------------------------
Net assets represented by (Notes 1 and 3):
Paid-in capital $149,244,422
Accumulated distributions in excess of net
investment income (1,081,854)
Accumulated net realized gains (losses) on
investment transactions 7,454,952
Net unrealized appreciation on investments
and foreign currency 42,167,986
- -----------------------------------------------------------
Total net assets applicable to outstanding
shares of beneficial interest ($25.41 a
share on 7,783,006 shares outstanding) $197,785,506
- -----------------------------------------------------------
STATEMENT OF OPERATIONS
Six Months Ended August 31, 1996 (Unaudited)
- ---------------------------------------------------------------------------
Investment income (Note 1):
Dividends (net of withholding taxes of
$78,132) $ 1,101,005
Interest 190,546
- ---------------------------------------------------------------------------
Total investment income 1,291,551
- ---------------------------------------------------------------------------
Expenses (Notes 3 and 5):
Management fee $ 703,002
Transfer agent fees 423,464
Accounting, auditing and legal 28,888
Custodian fees 63,237
Printing 15,019
Directors' fees and expenses 5,086
Distribution Plan expenses 1,035,317
Registration fees 47,451
State tax expense 9,590
Insurance expense 2,244
Miscellaneous expenses 4,221
- ---------------------------------------------------------------------------
Total expenses 2,337,519
Less: Expenses paid indirectly (Note 7) (16,459)
- ---------------------------------------------------------------------------
Net expenses 2,321,060
- ---------------------------------------------------------------------------
Net investment loss (1,029,509)
- ---------------------------------------------------------------------------
Equity in earnings of wholly-owned
unconsolidated foreign subsidiary (Note 2) 3,507
- ---------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions (Note 4):
Realized gain on:
Investments 7,580,776
Foreign currency related transactions 623
- ---------------------------------------------------------------------------
Net realized gain on investments and foreign
currency related transactions 7,581,399
Unrealized appreciation on investments:
Beginning of period 53,551,832
End of period 42,167,986
- ---------------------------------------------------------------------------
Net change in unrealized appreciation or
depreciation on investments: (11,383,846)
- ---------------------------------------------------------------------------
Net gain (loss) on investments and foreign
currency related transactions (3,802,447)
- ---------------------------------------------------------------------------
Net decrease in net assets resulting from
operations ($ 4,828,449)
- ---------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
PAGE 11
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
Six Months Ended Year Ended
August 31, 1996 February 29, 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
Operations: (Unaudited)
Net investment loss $ (1,029,509) $ (2,123,645)
Equity in earnings of wholly-owned
unconsolidated foreign subsidiary 3,507 21,316
Net realized gain on investments and foreign
currency related transactions 7,581,399 15,952,451
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency holdings (11,383,846) 50,472,865
- ------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (4,828,449) 64,322,987
- ------------------------------------------------------------------------------------
Capital share transactions (Note 3):
Proceeds from shares sold 303,287,043 376,204,823
Payments for shares redeemed (317,943,461) (394,450,262)
- ------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from capital share transactions (14,656,418) (18,245,439)
- ------------------------------------------------------------------------------------
Total increase (decrease) in net assets (19,484,867) 46,077,548
Net assets:
Beginning of year 217,270,373 171,192,825
- -----------------------------------------------------------------------------------
End of year [including accumulated
distributions in excess of net investment
income as follows: August 1996--$1,081,854,
February, 1995--$55,852] (Note 1) $ 197,785,506 $ 217,270,373
- -----------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 12
Keystone Precious Metals Holdings, Inc.
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 ("Keystone") is
the Investment Adviser. Keystone is a wholly- owned subsidiary of Keystone
Investments, Inc. ("KII"). The Fund is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a diversified open-end
investment company.
Since August 1, 1995, Harbor Capital Management Company, Inc. ("Harbor
Capital") has served as consultant to Keystone with respect to the Fund.
Pursuant to the terms of its consulting agreement, Harbor Capital provides
Keystone with monthly reports, and advice regarding economic factors and
trends in the precious metals sector.
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
("GAAP"), which require management to make estimates and assumptions that
affect amounts reported herein. Although actual results could differ from
these estimates, any such differences are expected to be immaterial to the
net assets of the Fund.
A. Valuation of Securities
Investments, including American Depository Receipts ("ADR's"), are usually
valued at the closing sales price, or, in the absence of sales and for
over-the-counter securities, the mean of the bid and asked prices.
Securities for which valuations are not available from an independent
pricing service (including restricted securities) are valued at fair value as
determined in good faith according to procedures established by the Board of
Directors.
Short-term investments with remaining maturities of 60 days or less are
carried at amortized cost, which approximates market value. Short-term
securities with greater than 60 days to maturity are valued at market value.
B. Repurchase Agreements
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.
Securities pledged as collateral for repurchase agreements are held by the
custodian on the Fund's behalf. The Fund monitors the adequacy of the
collateral daily and will require the seller to provide additional collateral
in the event the market value of the securities pledged falls below the
carrying value of the repurchase agreement.
C. Foreign Currency
The books and records of the Fund are maintained in United States ("U.S.")
dollars. Foreign currency amounts are translated into U.S. dollars as
follows: market value of investments, assets and liabilities at the daily
rate of exchange; purchases and sales of investments, income and expenses at
the rate of exchange prevailing on the respective dates of such transactions.
Net unrealized foreign exchange gain (loss) resulting from changes in foreign
currency exchange rates is a component of net unrealized appreciation
(depreciation) on investments and foreign currency transactions. Net realized
foreign currency gains and losses resulting from changes in exchange rates
include foreign currency gains and losses between trade date and settlement
date on investment securities
<PAGE>
PAGE 13
transactions, foreign currency transactions and the difference between the
amounts of interest and dividends recorded on the books of the Fund and the
amount actually received. The portion of foreign currency gains and losses
related to fluctuations in exchange rates between the initial purchase trade
date and subsequent sale trade date is included in realized gain (loss) on
foreign currency transactions.
D. Futures Contracts
In order to gain exposure to or protect against changes in security values,
the Fund may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures
transaction is subsequently adjusted by daily payments or receipts as the
value of the contract changes. Such changes are recorded as unrealized gains
or losses. Realized gains or losses are recognized upon closing the contract.
Risks of entering into futures contracts include (i) the possibility of an
illiquid market for the contract, (ii) the possibility that a change in value
of the contract may not correlate with changes in the value of the underlying
instrument or index, and (iii) the credit risk that the other party will not
fulfill their obligations under the contract. Futures contracts also involve
elements of market risk in excess of the amount reflected in the statement of
assets and liabilities.
E. Forward Foreign Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts
("forward contracts") to settle portfolio purchases and sales of securities
denominated in a foreign currency and to hedge certain foreign currency
assets or liabilities. Forward contracts are recorded at the forward rate and
are marked-to-market daily. Realized gains and losses arising from such
transactions are included in net realized gain (loss) on foreign currency
related transactions. The Fund bears the risk of an unfavorable change in the
foreign currency exchange rate underlying the forward contract and is subject
to the credit risk that the other party will not fulfill their obligations
under the contract. Forward contracts involve elements of market risk in
excess of the amount reflected in the statement of assets and liabilities.
F. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day
after the trade date. Realized gains and losses are computed on the
identified cost basis. Interest income is recorded on the accrual basis and
includes amortization of discounts and premiums. Dividend income is recorded
on the ex-dividend date.
G. Federal Income Taxes
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Fund is relieved of any federal income tax liability by
distributing all of its net taxable investment income and net taxable capital
gains, if any, to its shareholders.The Fund also intends to avoid excise tax
liability by making the required distributions under the Code. Accordingly,
no provision for federal income tax is required.
H. Distributions
The Fund distributes net investment income if any on or about the 15th day
of April and October each year and net capital gains, if any annually.
Distributions to shareholders are recorded at the close of business on the
ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from GAAP. These
differences are primarily due to differing treatment of the deferral
<PAGE>
PAGE 14
Keystone Precious Metals Holdings, Inc.
of losses and capital loss carryforwards for income tax purposes that have
been recognized for financial statement purposes.
(2.) Investments 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, 1996, the fair value of
the Fund's investment in the foreign subsidiary was determined as follows:
Cash and cash equivalents $752,570
Accrued expenses (11,536)
- -------------------------------------
$741,034
- -------------------------------------
During the six months ended August 31, 1996, 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 $9,072, $5,565 and $3,507,
respectively. Management fees paid or accrued by the foreign subsidiary to
Keystone totaled $2,105 for the six months ended August 31, 1996.
(3.) Capital Share Transactions
The Fund's Certificate of Incorporation authorizes the issuance of an
unlimited number of shares of beneficial interest with par value of $1.00.
Transactions in shares of the Fund were as follows:
Six months ended Year ended
August 31, 1996 February 29, 1996
- --------------------------------------------------------
Shares sold 11,828,417 16,257,907
Shares redeemed (12,290,856) (16,883,225)
- --------------------------------------------------------
Net decrease (462,439) (625,318)
- --------------------------------------------------------
(4.) Securities Transactions
Cost of purchases and proceeds from sales of investment securities,
excluding short-term securities, for the six months ended August 31, 1996
were $25,004,127 and $42,547,581, respectively. As of February 29, 1996 the
Fund had capital loss carryforwards of approximately $126,000 which expires
in 2001.
(5.) Distribution Plan
The Fund bears some of the costs of selling its shares under a Distribution
Plan (the "Plan") adopted pursuant to Rule 12b-1 under the 1940 Act. Under
the Plan, the Fund pays its principal underwriter, Keystone Investment
Distributors Company ("KIDC"), a wholly-owned subsidiary of Keystone, amounts
which are calculated and paid daily.
Under the Plan, the Fund pays a distribution fee amount, which may not
exceed 1.00% of the Fund's average daily net assets. Of that amount, 0.75% is
used to pay distribution expenses and 0.25% may be used to pay service fees.
Contingent deferred sales charges paid by redeeming shareholders may be paid
to KIDC. During the six months ended August 31, 1996, the Fund received
$4,270 in contingent deferred sales charges.
The Plan may be terminated at any time by vote of the Independent Directors
or by vote of a majority of
<PAGE>
PAGE 15
the outstanding voting shares of the Fund. However, after the termination of
the Plan, and subject to the discretion of the Independent Directors,
payments to KIDC may continue as compensation for its services which had been
earned while the Plan was in effect.
KIDC intends, but is not obligated, to continue to pay distribution costs
that exceed the current annual payments from the Fund. KIDC intends to seek
full payment of such distribution costs from the Fund at such time in the
future as, and to the extent that, payment thereof by the Fund would be
within permitted limits.
Total unpaid distribution costs at August 31, 1996 amounted to $12,915,209.
(6.) Investment Management Agreement and Other Affiliated Transactions
Under the terms of the Investment Advisory Agreement between Keystone and
the Fund, Keystone provides investment advisory and management services to
the Fund. In return Keystone is paid a management fee. 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. Since August 1, 1995, Harbor Capital has served as a consultant
to Keystone with respect to the Fund. For its services 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 six months ended August 31, 1996, the Fund paid or accrued $9,469
to Keystone for certain accounting services. During the same period, the Fund
paid or accrued $423,464 to Keystone Investor Resource Center, Inc., a
wholly-owned subsidiary of Keystone, for services rendered as the Fund's
transfer and dividend disbursing agent.
Certain officers and/or Directors of Keystone are also officers and/or
Directors of the Fund. Officers of Keystone and affiliated Directors receive
no compensation directly from the Fund.
(7.) Expense Offset Arrangement
The Fund has entered into an expense offset arrangement with its custodian.
For the six months ended August 31, 1996, the Fund incurred total custody
fees of $63,237 and received a credit of $16,459 pursuant to this expense
offset arrangement, resulting in a net custody expense of $46,778. The assets
deposited with the custodian under this expense offset arrangement could have
been invested in income-producing assets.
8. Subsequent Event
On September 6, 1996, Keystone Investments, Inc. entered into an Agreement
and Plan of Acquisition and Merger (the "Acquisition") with First Union
Corporation and First Union National Bank of North Carolina ("First Union")
whereby First Union would acquire all the assets and liabilities of Keystone
Investments, Inc., in exchange for shares of First Union. Subject to the
receipt of the required regulatory and shareholder approvals, the Acquisition
is expected to take place in late December 1996.
<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 Inc.
Liquid Trust
Mid-Cap Growth Fund (S-3)
Precious Metals Holdings, Inc.
Quality Bond Fund (B-1)
Small Company Growth Fund (S-4)
Strategic Growth Fund (K-2)
Tax 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
I N V E S T M E N T S
P.O. Box 2121
Boston, Massachusetts 02106-2121
KPMH-R-10/96
23M [Recycle logo]
