[Back cover]
Keystone America
Family Of Funds
[diamond]
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Insured Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Pennsylvania Tax Free Fund
Texas Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Hartwell Growth Fund
Omega Fund
Fund of the Americas
Strategic Development Fund
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied by
the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you invest
or send money. For a free prospectus on other Keystone funds, contact your
financial adviser or call Keystone.
[Keystone logo] KEYSTONE
INVESTMENTS
P.O. Box 2121
Boston, Massachusetts 02106-2121
WBF-AR-12/95 ["Recycled" symbol]
2.5M
[Front cover]
KEYSTONE
WORLD
BOND FUND
[photo--telescope and map]
ANNUAL REPORT
OCTOBER 31, 1995
<PAGE>
PAGE 1
- --------------------------------------
Keystone World Bond Fund
Seeks current income from debt securities in the U.S. and abroad.
Dear Shareholder:
We are writing to report to you on activities of Keystone World Bond Fund for
the twelve-month period which ended October 31, 1995.
Performance
For the periods which ended October 31, 1995, your Fund produced the
following total returns.
Class A shares returned 8.44% for the six-month period and 7.62% for the
twelve-month period.
Class B shares returned 7.89% for the six-month period and 6.68% for the
twelve-month period.
Class C shares returned 7.91% for the six-month period and 6.83% for the
twelve-month period.
The Salomon World Government Bond Index--a benchmark of world government
bond performance--returned 3.10% for the six-month period and 15.20% for the
twelve-month period which ended October 31, 1995.
Your Fund's performance improved substantially over the last six months,
outperforming the Salomon World Government Bond Index. Earlier your Fund had
been adversely affected by rising interest rates at the end of 1994 and the
effects of the Mexican financial crisis at the beginning of 1995. While we
did not hold any Mexican bonds in the portfolio during the period, the
devaluation of the Mexican peso had a ripple effect on nearly every emerging
world bond market. In the last six months, the world bond markets have
recovered strongly with the support of the U.S. and the World Bank bailout of
Mexico and lower interest rates around the world. This improved environment
helped your Fund's performance.
Market Environment
Strong performance in the U.S. bond market in 1995 helped many foreign
markets recover from a period of volatility and weakness in 1994. During the
last two months of 1994, rising U.S. interest rates created unfavorable
conditions for U.S. investors and also had negative repercussions overseas.
Currency volatility worldwide was further aggravated when the value of the
U.S. dollar dropped to historic lows during the first quarter of 1995.
During the second half of the period, however, the world bond markets
improved significantly. Declining interest rates in the U.S. fueled a
prolonged bond rally. This helped spark lower rates and rising bond prices in
countries with currencies linked to the U.S. dollar. The value of the dollar
also began to recover, and your Fund's bond holdings recovered, especially
its holdings of U.S. dollar-denominated Latin American bonds.
Managing for Income
In managing your Fund for income, we try to minimize the impact of currency
fluctuations on portfolio holdings. This defensive strategy was particularly
valuable given the volatility of both the bond and currency markets during
the year. We maintained a major portion of your Fund's assets in U.S.
dollar-denominated or hedged investments. These securities contributed to
positive performance when the dollar rallied in the second half of the year.
--continued--
<PAGE>
PAGE 2
- --------------------------------------
Keystone World Bond Fund
Looking Ahead
We believe the investment environment for world bonds should continue to grow
more favorable. With low interest rates in the U.S., we expect a positive
environment for bonds worldwide, especially in Europe. The strengthening
dollar should also help limit currency volatility in Latin America. Looking
ahead, we expect an improved environment with returns coming primarily from
income rather than capital appreciation.
We appreciate your continued support of Keystone World Bond Fund. If you
have any questions or comments, please feel free to write to us.
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
December 1995
<PAGE>
PAGE 3
- --------------------------------------
A Discussion With
Your Fund Manager
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. Mr. Gunn is supported by Richard Wisentaner,
international fixed-income analyst.
Q How would you characterize the world bond market over the twelve-month
period?
A. It's been a year of unusual volatility in international markets, related
directly to economic conditions in the United States. Rising interest rates
in the U.S. at the end of 1994 depressed bond prices worldwide, but when
rates began to decline in early 1995, the rally in U.S. bonds triggered a
similar trend in Europe and other countries with currencies linked to the
U.S. dollar. Declining interest rates and the strengthening dollar also had a
calming effect on the tumultuous markets in Latin America. Liquidity in those
markets has improved significantly compared to a year ago.
Q. How did the Fund perform under these
conditions?
A. Your Fund was fairly well positioned to benefit from the improving investment
environment. The investment grade bonds in the portfolio (those rated in the
top four bond rating categories) provided a reliable income base throughout
the year and modest appreciation when the market rallied. Canadian, Thai and
Danish government bonds were among the largest investment grade holdings.
Consistent with your Fund's high income strategy, about 41% of assets were
invested in higher-yielding, U.S. dollar-denominated bonds. As of October 31,
1995, most of these holdings had fully recovered to their pre-December 1994
price levels. A weak Australian dollar hampered the performance of the
Australian securities in your Fund's portfolio.
Q. How were the Fund's assets diversified?
A. To reduce overall investment risk, we diversified Fund investments among
dollar-block, European and emerging markets. Dollar-block markets are
generally linked to the U.S. dollar, such as Canada, Australia and New
Zealand. European bond markets are primarily influenced by German bond market
activity. Asia and the Pacific Rim (excluding Japan) and Latin America are
generally considered emerging markets.
During the second half of the period we decreased our holdings in Australia
to 3% of net assets to enhance the diversification of the portfolio. As part
of the Fund's acquisition of Keystone Australia Income Fund, Inc. Australian
bonds had accounted for 21% of net assets as of April 30, 1995. We added to
holdings in Europe and Canada. As of October 31, 1995, 25% of the Fund's net
assets were invested in the dollar-block markets, with the largest holding in
Canadian government bonds.
Fund Profile
Objective: Seeks current income from debt securities in the U.S. and abroad.
Commencement of investment operations: January 9, 1987
Average quality: A
Average maturity: 6 years
Net assets: $15 million
<PAGE>
PAGE 4
- --------------------------------------
Keystone World Bond Fund
Geographic Diversification Percentage of
as of October 31, 1995 net assets
- ----------------------------------------------------
Americas 54
- ----------------------------------------------------
Europe 24
- ----------------------------------------------------
Pacific 12
- ----------------------------------------------------
Other(1) 10
- ----------------------------------------------------
(1)Includes other assets and liabilities and short-term obligations.
Q.What techniques do you use to minimize the effect of currency volatility on
the Fund?
A. We use three techniques to limit your Fund's exposure to currency
fluctuations. We hold cash in dollars, we invest in countries with currencies
linked to the U.S. dollar, such as Canada, and we hedge non-dollar
denominated securities into U.S. dollars. As of October 31, 1995, 64% of Fund
holdings were invested in or hedged into U.S. dollars.
Q. Did hedging help the Fund's performance?
A. During the second half of the period hedging was especially helpful. The
growing strength of the U.S. dollar against major world currencies had a
positive effect on the hedged securities in the portfolio.
Q. What is your outlook?
A. We believe the prospects for international bonds are improving. Declining
U.S. interest rates and the strengthening dollar have helped bolster the
world markets, and we think this trend will continue. We believe the recovery
in Latin American bonds reflects an improvement in the economic fundamentals
in those countries. In Europe, we expect to see a continuation of low rates,
low inflation and greater fiscal responsibility on the part of the European
nations. In Canada and New Zealand we think that budget surpluses and the
trend toward paying down debt are positive factors. We expect that returns in
the coming year will be derived primarily from income.
[diamond]
This column is intended to answer
shareholder questions about your Fund.
If you have a question you would like answered, please write to:
Keystone Investment Distributors, Inc.,
Attn: Manager, Shareholder Communications,
200 Berkeley Street, 22nd Floor,
Boston, Massachusetts 02116-5034.
<PAGE>
PAGE 5
- --------------------------------------
Your Fund's Performance
===============================[mountain chart]=================================
Growth of an investment in
Keystone World Bond Fund Class A
Initial Investment Reinvested Distributions
10/87 9761 10227
9566 10868
10/89 9201 11050
9629 12271
10/91 9858 13729
9668 14460
10/93 9125 16705
8020 15793
10/95 8020 16997
Total Value: $16,997
A $10,000 investment in Keystone World Bond Fund Class A made
on January 9, 1987 with all distributions reinvested was worth $16,997
on October 31, 1995. Past performance is no guarantee of future results.
================================================================================
Twelve-Month Performance as of October 31, 1995
===================================================================
Class A Class B Class C
Total returns* 7.62% 6.68% 6.83%
Net asset
value 10/31/94 $8.42 $8.46 $8.42
10/31/95 $8.42 $8.45 $8.42
Dividends $.600 $.540 $.540
Capital gains None None None
* Before deducting any sales charges.
Historical Record as of October 31, 1995
===================================================================
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 7.62% 6.68% 6.83%
1-year 2.51% 2.69% 6.83%
5-year 31.93% -- --
Life of class 69.97% 0.24% 2.59%
Average Annual Returns
1-year w/o sales charge 7.62% 6.68% 6.83%
1-year 2.51% 2.69% 6.83%
5-year 5.70% -- --
Life of class 6.21% 0.10% 1.14%
Class A shares were introduced on January 9, 1987. Performance is reported at
the current maximum front-end sales charge of 4.75%.
Class B shares were introduced on August 2, 1993. Shares purchased after
June 1, 1995 are subject to a contingent deferred sales charge (CDSC) that
declines from 5% to 1% over six years from the month purchased. Performance
assumes that shares were redeemed after the end of a one-year holding period
and reflects the deduction of a 4% CDSC.
Class C shares were introduced on August 2, 1993. Performance reflects the
deduction of the 1% contingent deferred sales charge which applies during the
first year owned.
The investment return and principal value will fluctuate so that your
shares, when redeemed, may be worth more or less than the original cost.
Performance for each class will differ.
You may exchange your shares for another Keystone fund by phone or in
writing for a $10 fee. The exchange fee is waived for individual investors
who make an exchange using Keystone's Automated Response Line (KARL). The
Fund reserves the right to change or terminate the exchange offer.
<PAGE>
PAGE 6
- --------------------------------------
Keystone World Bond Fund
Growth of an Investment
Comparison of change in value of a $10,000 investment in Keystone World Bond
Fund Class A, the Salomon World Government Bond Index, and the Consumer Price
Index.
In Thousands January 9, 1987 through October 31, 1995
Class A SWGBI CPI
10/87 9458 10000 10000
10/88 10227 10974 10434
10/89 10868 12299 10878
10/90 11050 12624 11367
10/91 12271 13889 12081
10/92 13729 15458 12434
10/93 14460 17606 12833
10/94 16705 19720 13186
10/95 15793 20432 13529
10/96 16997 23538 13910
Past performance is no guarantee of future results. The performance of Class B
or Class C shares will be greater or less than the line shown based on
differences in loads and fees paid by the shareholder investing in the different
classes. Class B and Class C shares were introduced August 2, 1993. The Salomon
World Government Bond Index and the Consumer Price Index are from December 31,
1986.
Fund Average Total Return
1 Year 5 Year Life of Class
Class A 2.51% 5.70% 6.21%
Class B 2.69% -- 0.10%
Class C 6.83% -- 1.14%
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 World Bond Fund Class A
Your Fund seeks current income from debt securities in the U.S. and abroad.
The return is quoted after deducting sales charges (if applicable), fund
expenses, and transaction costs and assumes reinvestment of all
distributions.
2. Salomon Brothers World Government Bond Index (SWGBI)
The SWGBI is a broad-based unmanaged index of foreign government bonds. It is
comprised of over 800 issues from 14 countries including the U.S. These
securities are selected and compiled by Salomon Brothers, Inc. according to
criteria that may be unrelated to your Fund's investment objective.
3. Consumer Price Index (CPI)
This index is a widely recognized measure of the cost of goods and services
produced in the US. The index contains factors such as prices of services,
housing, food, transportation and electricity which are compiled by the US
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.
Limitations of the Chart
The chart, however, limits the evaluation of Fund per-
<PAGE>
PAGE 7
- --------------------------------------
formance 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 8
- --------------------------------------
Keystone World Bond Fund
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 9
- --------------------------------------
SCHEDULE OF INVESTMENTS--October 31, 1995
<TABLE>
<CAPTION>
COUPON MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
==================================================================================================
<S> <C> <C> <C> <C>
FOREIGN GOVERNMENT AGENCIES AND ISSUES (90.1%)
[bullet] AUSTRALIAN DOLLAR (3.2%)
New South Wales Treasury Corp. 12.600% 5/01/2006 500,000 $ 470,114
- --------------------------------------------------------------------------------------------------
[bullet] BRITISH POUND STERLING (3.2%)
European Investor Bank 8.000 6/10/2003 306,000 478,654
- --------------------------------------------------------------------------------------------------
[bullet] CANADIAN DOLLAR (13.1%)
Government of Canada 8.750 12/01/2005 1,500,000 1,215,293
Government of Canada 7.500 9/01/2000 950,000 721,470
- --------------------------------------------------------------------------------------------------
1,936,763
- --------------------------------------------------------------------------------------------------
[bullet] DANISH KRONE (5.3%)
Kingdom of Denmark 9.000 11/15/1998 4,000,000 783,382
- --------------------------------------------------------------------------------------------------
[bullet] NETHERLANDS GUILDER (5.1%)
Government of Netherlands 7.750 3/01/2005 1,100,000 758,873
- --------------------------------------------------------------------------------------------------
[bullet] NEW ZEALAND DOLLAR (8.6%)
Government of New Zealand 6.500 2/15/2000 1,150,000 738,249
Government of New Zealand 8.000 4/15/2004 325,000 224,190
Government of New Zealand
(Effective Yield 8.780%) (d) 0.000 3/20/1996 500,000 320,250
- --------------------------------------------------------------------------------------------------
1,282,689
- --------------------------------------------------------------------------------------------------
[bullet] SPANISH PESETA (4.5%)
Government of Spain 11.450 8/30/1998 32,000,000 269,701
Government of Spain 11.850 8/30/1996 24,000,000 199,425
Government of Spain 12.250 3/25/2000 23,000,000 199,407
- --------------------------------------------------------------------------------------------------
668,533
- --------------------------------------------------------------------------------------------------
[bullet] SWEDISH KRONA (6.5%)
Kingdom of Sweden 10.250 5/05/2003 6,000,000 957,320
- --------------------------------------------------------------------------------------------------
[bullet] UNITED STATES DOLLAR (40.6%)
CVRD Cenibra 9.375 12/21/2003 830,000 796,800
Companhia Brasileiras de Petroleo Ipiranga 8.625 2/25/2002 550,000 530,750
Ispat Mexicana S.A. 10.375 3/15/2001 1,025,000 902,000
Kingdom of Thailand 8.250 3/15/2002 1,000,000 1,088,030
Klabin Fabricadora Papel 12.125 12/28/2002 250,000 248,750
Republic of Argentina 8.375 12/20/2003 350,000 253,313
Telecom Argentina 8.375 10/18/2000 500,000 433,750
Telecom Brasileiras S.A. (a) 10.000 10/22/1997 500,000 503,750
Telefonica de Argentina 11.875 11/01/2004 760,000 741,000
Yacimientos Petroliferos Fiscales S.A. (YPF) 8.000 2/15/2004 600,000 512,250
- --------------------------------------------------------------------------------------------------
6,010,393
- --------------------------------------------------------------------------------------------------
See Notes to Schedule of Investments.
<PAGE>
PAGE 10
- --------------------------------------
Keystone World Bond Fund
SCHEDULE OF INVESTMENTS--October 31, 1995
COUPON MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
==================================================================================================
TOTAL FOREIGN GOVERNMENT AGENCIES & ISSUES (Cost--$12,778,963) $13,346,721
==================================================================================================
Maturity
Value
==================================================================================================
REPURCHASE AGREEMENT (2.6%)
Keystone Joint Repurchase Agreement
(Investments in repurchase agreements, in
a joint trading account, purchased
10/31/95)(Cost $387,000) (c) 5.872% 11/01/1995 $387,187 387,000
==================================================================================================
TOTAL INVESTMENTS (Cost $13,165,963) (b) 13,733,721
OTHER ASSETS AND LIABILITIES--NET (7.3%) 1,085,226
- --------------------------------------------------------------------------------------------------
NET ASSETS (100.0%) $14,818,947
==================================================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) 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
Trustees.
(b) The cost of investments for federal income tax purposes is identical.
Gross unrealized appreciation and depreciation of investments based on
identified tax cost, is as follows:
Gross unrealized
appreciation $ 688,552
Gross unrealized
depreciation (120,794)
---------
Net unrealized depreciation $ 567,758
=========
(c) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices at October 31, 1995.
(d) Effective yield (calculated at the date of purchase) is the yield at
which the bond accretes on an accrual basis until maturity date.
See Notes to Financial Statements.
<PAGE>
PAGE 11
- --------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Period from January 9, 1987
Year Ended January 1, 1994 (Commencement of
October 31, to October 31, Year Ended December 31, Operations to
1995 1994 1993 1992 1991 1990 1989 1988 December 31, 1987
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period $ 8.42 $ 9.56 $ 8.69 $10.77 $ 9.82 $ 9.76 $ 10.04 $11.02 $10.00
- ------------------------------------------------------------------------------------------------------------------------------
Income from
investment
operations
Net investment
income 0.61 0.32 0.44 0.64 0.66 0.63 0.61 0.54 0.56
Net realized and
unrealized gain
(loss) on
investment and
foreign currency
related transactions (0.01) (0.96) 1.03 (0.79) 0.99 0.31 (0.27) (0.92) 1.27
- ------------------------------------------------------------------------------------------------------------------------------
Total from
investment
operations 0.60 (0.64) 1.47 (0.15) 1.65 0.94 0.34 (0.38) 1.83
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions
from:
Net investment
income (0.54) 0 (0.43) (0.96) (0.45) (0.52) (0.62) (0.54) (0.56)
In excess of net
investment income
(c) 0 0 (0.17) (0.28) 0 (0.04) 0 0 0
Tax basis return of
capital (0.06) (0.50) 0 0 0 0 0 0 0
Net realized gains
on investment and
foreign currency
related
transactions 0 0 0 (0.69) (0.25) (0.32) 0 (0.06) (0.25)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.60) (0.50) (0.60) (1.93) (0.70) (0.88) (0.62) (0.60) (0.81)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value end
of period $ 8.42 $ 8.42 $ 9.56 $ 8.69 $ 10.77 $ 9.82 $ 9.76 $10.04 $11.02
==============================================================================================================================
Total return (d) 7.62% (6.72%) 17.26% (1.24%) 17.48% 10.11% 3.07% (3.34%) 19.10%
Ratios/supplemental
data
Ratios to average
net assets:
Total expenses (a) 2.46%(e) 2.20%(b) 2.20% 2.20% 2.00% 2.00% 1.81% 1.19% 1.88%(b)
Net investment
income 7.21% 4.66%(b) 4.62% 5.44% 6.43% 6.48% 5.81% 5.34% 5.68%(b)
Portfolio turnover
rate 108% 100% 107% 185% 204% 154% 73% 335% 171%
- ------------------------------------------------------------------------------------------------------------------------------
Net assets end of
period (thousands) $9,956 $6,047 $8,403 $7,121 $11,843 $13,833 $14,806 $5,043 $4,774
==============================================================================================================================
</TABLE>
(a) Figures are net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 2.25%,
3.12%, 2.50%, 2.15% and 2.47% for the period from January 1, 1994 to
October 31, 1994 and the years ended December 31, 1993, 1992, 1991 and
1990, respectively.
(b) Annualized.
(c) Effective January 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 net investment income".
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 capital gains". For the fiscal years ended
December 31, 1992 and 1990, distributions in excess of book basis net
investment income were charged to paid-in capital.
(d) Excluding applicable sales charges.
(e) The expense ratio includes indirectly paid expenses for the year ended
October 31, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 2.44%.
See Notes to Financial Statements.
<PAGE>
PAGE 12
- --------------------------------------
Keystone World Bond Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
August 2, 1993
Period from (Date of Initial
Year Ended January 1, 1994 to Public Offering) to
October 31, 1995 October 31, 1994 December 31, 1993
================================================================================================================
<S> <C> <C> <C>
Net asset value beginning of period $ 8.46 $ 9.58 $ 9.47
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.52 0.31 0.16
Net realized and unrealized gain (loss) on
investment and foreign currency related
transactions 0.01 (0.99) 0.21
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 0.53 (0.68) 0.37
- ----------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.48) 0 (0.11)
In excess of net investment income (c) 0 0 (0.15)
Tax basis return of capital (0.06) (0.44) 0
Net realized gains on investment and foreign
currency related transactions 0 0 0
- ----------------------------------------------------------------------------------------------------------------
Total distributions (0.54) (0.44) (0.26)
- ----------------------------------------------------------------------------------------------------------------
Net asset value end of period $ 8.45 $ 8.46 $ 9.58
================================================================================================================
Total return (d) 6.68% (7.18%) 3.93%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (a) 3.21%(e) 2.95%(b) 2.95%(b)
Net investment income 6.43% 4.05%(b) 3.79%(b)
Portfolio turnover rate 108% 100% 107%
- ----------------------------------------------------------------------------------------------------------------
Net assets end of period (thousands) $3,680 $3,429 $2,544
================================================================================================================
</TABLE>
(a) Figures are net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the
"Ratio of total expenses to average net assets would have been 3.03% and
3.47% for the period from January 1, 1994 to October 31, 1994 and for the
period from August 2, 1993 (Date of Initial Public Offering) to December
31, 1993, respectively.
(b) Annualized.
(c) Effective January 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 net investment income".
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 capital gains".
(d) Excluding applicable sales charges.
(e) The expense ratio includes indirectly paid expenses for the year ended
October 31, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 3.19%
See Notes to Financial Statements.
<PAGE>
PAGE 13
- --------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
August 2, 1993
Year Ended Period from (Date of Initial
October 31, January 1, 1994 to Public Offering) to
1995 October 31, 1994 December 31, 1993
================================================================================================================
<S> <C> <C> <C>
Net asset value beginning of period $ 8.42 $ 9.58 $ 9.47
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.56 0.30 0.18
Net realized and unrealized gain (loss) on
investment and foreign currency related
transactions (0.02) (1.02) 0.19
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 0.54 (0.72) 0.37
- ----------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.48) 0 (0.12)
In excess of net investment income (c) 0 0 (0.14)
Tax basis return of capital (0.06) (0.44) 0
Net realized gains on investment and foreign
currency related transactions 0 0 0
- ----------------------------------------------------------------------------------------------------------------
Total distributions (0.54) (0.44) (0.26)
- ----------------------------------------------------------------------------------------------------------------
Net asset value end of period $ 8.42 $ 8.42 $ 9.58
================================================================================================================
Total return (d) 6.83% (7.61%) 3.93%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (a) 3.21%(e) 2.95%(b) 2.95%(b)
Net investment income 6.49% 3.94%(b) 3.79%(b)
Portfolio turnover rate 108% 100% 107%
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (thousands) $1,183 $1,591 $1,878
================================================================================================================
</TABLE>
(a) Figures are net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 3.03% and
3.40% for the period from January 1, 1994 to October 31, 1994 and for the
period from August 2, 1993 (Date of Initial Public Offering) to December
31, 1993, respectively.
(b) Annualized.
(c) Effective January 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 net investment income".
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 capital gains".
(d) Excluding applicable sales charges.
(e) The expense ratio includes indirectly paid expenses for the year ended
October 31, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 3.19%.
See Notes to Financial Statements.
<PAGE>
PAGE 14
- --------------------------------------
Keystone World Bond Fund
STATEMENT OF ASSETS AND LIABILITIES--
October 31, 1995
=======================================================================
Assets:
Investments at market value
(identified cost--$13,165,963) (Notes 1 and 6) $13,733,721
Cash 984
Receivable for:
Investments sold 802,497
Unrealized appreciation on open currency contracts
(Notes 1 and 6) 152,139
Interest 409,636
Fund shares sold 258
Foreign taxes reclaimed 5,783
Prepaid expenses 7,368
- -----------------------------------------------------------------------
Total assets 15,112,386
- -----------------------------------------------------------------------
Liabilities:
Payable for:
Unrealized depreciation on open currency contracts
(Notes 1 and 6) 193,620
Fund shares redeemed 4,758
Income distribution 24,167
Foreign taxes withheld 2,399
Other accrued expenses 68,495
- -----------------------------------------------------------------------
Total liabilities 293,439
- -----------------------------------------------------------------------
Net assets $14,818,947
=======================================================================
Net assets represented by: (Note 1)
Paid-in capital $15,595,032
Accumulated distributions in excess of net investment
income (24,213)
Accumulated net realized loss on investment and
foreign currency related transactions (1,279,623)
Net unrealized appreciation (depreciation) on:
Investments, foreign currency related transactions
and other assets and liabilities 569,232
Open currency contracts (41,481)
- -----------------------------------------------------------------------
Total net assets $14,818,947
=======================================================================
Net Asset Value: (Note 1)
Class A Shares
Net assets of $9,956,467 / 1,182,807 shares
outstanding $8.42
Offering price per share ($8.42 / 0.9525)
(based on a sales charge of 4.75% of the
offering price) $8.84
Class B Shares
Net assets of $3,679,877 / 435,713 shares
outstanding $8.45
Class C Shares
Net assets of $1,182,603 / 140,478 shares
outstanding $8.42
- -----------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended October 31, 1995
=======================================================================
Investment income: (Note 1)
Interest (net of foreign withholding
taxes of $12,648) $1,399,550
Expenses: (Notes 2 and 4)
Management fee $ 93,806
Transfer agent fees 74,907
Accounting, auditing and legal fees 44,513
Custodian fees 36,114
Printing expenses 25,991
Distribution Plan expenses 68,432
Registration fees 45,584
Miscellaneous 1,720
- -----------------------------------------------------------------------
Total expenses 391,067
Less: Expenses paid indirectly (Note 4) (2,523)
- -----------------------------------------------------------------------
Net expenses 388,544
- -----------------------------------------------------------------------
Net investment income 1,011,006
- -----------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment and foreign
currency related transactions:
(Notes 1 and 3)
Net realized loss on investment and
foreign currency related
transactions (583,415)
- -----------------------------------------------------------------------
Net change in unrealized
appreciation or depreciation on
investment and other assets and
liabilities 654,874
Net change in unrealized
appreciation or depreciation on
open currency contracts 30,546
- -----------------------------------------------------------------------
Net change in unrealized
appreciation or depreciation 685,420
- -----------------------------------------------------------------------
Net gain on investment and foreign
currency related transactions 102,005
- -----------------------------------------------------------------------
Net increase in net assets resulting
from operations $1,113,011
=======================================================================
See Notes to Financial Statements.
<PAGE>
PAGE 15
- --------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period from
Year Ended January 1, 1994 to
October 31, 1995 Ocotber 31, 1994
===============================================================================================================
<S> <C> <C>
Operations:
Net investment income $ 1,011,006 $ 448,846
Net realized loss on investment and foreign currency
related transactions (583,415) (728,796)
Net change in unrealized appreciation or depreciation 685,420 (665,302)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 1,113,011 (945,252)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders from: (Note 1)
Net investment income:
Class A Shares (653,425) 0
Class B Shares (187,676) 0
Class C Shares (82,887) 0
Tax basis return of capital:
Class A Shares (65,389) (389,502)
Class B Shares (24,167) (165,761)
Class C Shares (7,767) (85,383)
- ---------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1,021,311) (640,646)
- ---------------------------------------------------------------------------------------------------------------
Capital share transactions: (Note 2)
Shares issued in acquisition of Keystone Australia Income Fund:
(Note 5) 6,401,180 0
Proceeds from shares sold:
Class A Shares 379,004 455,701
Class B Shares 1,382,294 1,661,349
Class C Shares 226,771 833,775
Payments for shares redeemed:
Class A Shares (3,470,274) (2,151,391)
Class B Shares (1,277,770) (497,081)
Class C Shares (680,398) (948,169)
Net asset value of shares issued in reinvestment of dividends and
distributions:
Class A shares 467,191 267,045
Class B shares 168,229 140,950
Class C shares 64,105 66,089
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital share
transactions 3,660,332 (171,732)
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 3,752,032 (1,757,630)
- ---------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period 11,066,915 12,824,545
- ---------------------------------------------------------------------------------------------------------------
End of period [including accumulated distributions in excess of net
investment income on October 31, 1995 of ($24,213) and
undistributed net investment income on October 31, 1994 of $22]
(Note 1) $14,818,947 $11,066,915
===============================================================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 16
- --------------------------------------
Keystone World Bond Fund
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone World Bond Fund (the "Fund") (formerly Keystone America World Bond
Fund) is a Massachusetts business trust for which Keystone Investment
Management Company (formerly Keystone Custodian Funds, Inc.) ("Keystone") is
the investment adviser. The Fund became part of the Keystone America Family
on April 19, 1989 and Keystone became the Fund's adviser on that date. It is
registered under the Investment Company Act of 1940 as a non-diversified,
open-end investment company.
The Fund offers three classes of shares. Class A shares are offered at a
public offering price which includes a maximum sales charge of 4.75% payable
at the time of purchase. Class B shares are sold subject to a contingent
deferred sales charge payable upon redemption which decreases depending on
when shares were purchased and how long they have been held. Class C shares
are sold subject to a contingent deferred sales charge payable upon
redemption within one year of purchase. Class C shares are available only
through dealers who have entered into special distribution agreements with
Keystone Investment Distributors Company (formerly Keystone Distributors,
Inc.) ("KIDC"), the Fund's principal underwriter.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc.
(formerly Keystone Group, Inc.) ("KII"), a Delaware corporation. KII is
privately owned by an investor group consisting of current and former members
of management of Keystone. Keystone 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 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, by or under the direction of the Board of Trustees, 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. Foreign currency amounts are translated into
United States 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
dates of such transactions. Net unrealized foreign exchange gains/losses are
a component of unrealized appreciation/depreciation of investments, foreign
currency related transactions, and other assets and liabilities.
Short-term investments, if purchased with maturities of sixty days or
less, are valued at amortized cost (original purchase price 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, which are held on the sixtieth day prior to maturity, are valued
at amortized cost (market value on the sixtieth day adjusted for amortization
of premium or accretion of discount) which, when combined with accrued
interest, approximates market. All other securities and other assets are
valued at fair value as determined in good faith using methods prescribed by
the Board of Trustees.
<PAGE>
PAGE 17
- --------------------------------------
Investments denominated in foreign currencies are adjusted daily to
reflect changes in exchange rates. Market quotations are not considered to be
readily available for long-term corporate bonds and notes; such investments
are stated at fair value on the basis of valuations furnished by a pricing
service, approved by the Board of Trustees, which determines valuations for
normal, institutional-size trading units of such securities using methods
based on market transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders.
B. Securities transactions are accounted for no later than the day following
the trade date. 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. Interest income is
recorded on the accrual basis and dividend income is recorded on the
ex-dividend date. Distributions to the shareholders are recorded by the Fund
at the close of business on the record date.
C. The Fund has qualified, and intends to qualify in the future, as a
regulated investment company under the Internal Revenue Code of 1986, as
amended ("Internal Revenue Code"). Thus, the Fund expects to be relieved of
any federal income or excise 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.
D. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed
upon date and price), the repurchase price of the securities will generally
equal the amount paid by the Fund plus a negotiated interest amount. The
seller under the repurchase agreement will be required to provide securities
("collateral") to the Fund whose value will be maintained at an amount not
less than the repurchase price, and which generally will be maintained at
101% of the repurchase price. The Fund monitors the value of collateral on a
daily basis, and if the value of the collateral falls below required levels,
the Fund intends to seek additional collateral from the seller or terminate
the repurchase agreement. If the seller defaults, the Fund would suffer a
loss to the extent that the proceeds from the sale of the underlying
securities were less than the repurchase price. Any 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.
E. In connection with portfolio purchases and sales of securities denominated
in a foreign currency, the Fund may enter into forward foreign currency
exchange contracts ("contracts"). 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
<PAGE>
PAGE 18
- --------------------------------------
Keystone World Bond Fund
currency related transactions. The Fund is subject to the credit risk that
the other party will not complete the obligations of the contract.
F. The Fund distributes net investment income monthly and net capital gains,
if any, annually. Distributions from net investment income are based on tax
basis net income. Distributions from taxable net income can exceed book basis
net investment income and net capital gains can exceed book basis net
investment income and net capital gains.
The significant differences between financial statement amounts available
for distribution and distributions made in accordance with income tax
regulations are due to the deferral of losses for income tax purposes that
have been recognized for financial statement purposes and treatment of
foreign currency gains as ordinary income for tax purposes.
(2.) Capital Share Transactions
The Trust Agreement authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of
the Fund were as follows:
<TABLE>
<CAPTION>
Class A Shares
- ----------------------------------------------------------------
Period from
Year Ended January 1, 1994 to
October 31, 1995 October 31, 1994
- ----------------------------------------------------------------
<S> <C> <C>
Shares sold 42,522 49,122
Shares redeemed (425,398) (240,295)
Shares issued in
acquisition of
Australia Income
Fund (Note 5) 789,935 0
Shares issued in
reinvestment of
dividends and
distributions 57,481 30,841
- ----------------------------------------------------------------
Net increase
(decrease) 464,540 (160,332)
================================================================
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
- ----------------------------------------------------------------
Period from
Year Ended January 1, 1994 to
October 31, 1995 October 31, 1994
- ----------------------------------------------------------------
<S> <C> <C>
Shares sold 166,498 179,486
Shares redeemed (156,895) (55,559)
Shares issued in
reinvestment of
dividends and
distributions 20,548 16,263
- ----------------------------------------------------------------
Net increase 30,151 140,190
================================================================
</TABLE>
<TABLE>
<CAPTION>
Class C Shares
- ----------------------------------------------------------------
Period from
Year Ended January 1, 1994 to
October 31, 1995 October 31, 1994
- ----------------------------------------------------------------
<S> <C> <C>
Shares sold 27,481 88,183
Shares redeemed (83,800) (102,789)
Shares issued in
reinvestment of
dividends and
distributions 7,882 7,619
- ----------------------------------------------------------------
Net decrease (48,437) (6,987)
================================================================
</TABLE>
The Fund bears some of the costs of selling its shares under a
Distribution Plan adopted with respect to its Class A, Class B and Class C
shares pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("1940
Act").
The Class A Distribution Plan provides for payments which are currently
limited to 0.25% annually of the average daily net asset value of Class A
shares to pay expenses of the distribution of Class A shares. Amounts paid by
the Fund to KIDC under the Class A Distribution Plan are currently used to
pay others, such as dealers, service fees at an annual rate of up to 0.25% of
the average net asset value of Class A shares maintained by such others and
remaining outstanding on the Fund's books for specified periods.
<PAGE>
PAGE 19
- --------------------------------------
The Class B Distribution Plan provides for payments at an annual rate of up to
1.00% of the average daily net asset value of Class B shares to pay expenses of
the distribution of Class B shares. Amounts paid by the Fund under the Class B
Distribution Plan are currently used to pay others (dealers) a commission at the
time of purchase normally equal to 4.00% of the price paid for each Class B
share sold plus the first year's service fee in advance in the amount of 0.25%
of the price paid for each Class B share sold. Beginning approximately 12 months
after the purchase of a Class B share, the dealer or other party will receive
service fees at an annual rate of 0.25% of the average daily net asset value of
such Class B shares maintained by such others and remaining outstanding on the
Fund's books for specified periods. A contingent deferred sales charge will be
imposed, if applicable, on Class B shares purchased after June 1, 1995 at rates
decreasing from a maximum of 5.00% of amounts redeemed during the first 12
months following the date of purchase to 1.00% of amounts redeemed during the
sixth twelve month period following the date of purchase. Class B shares
purchased on or after June 1, 1995 that have been outstanding for eight years
following the month of purchase will automatically convert to Class A shares
without a front end sales charge or exchange fee. Class B shares purchased prior
to June 1, 1995 will retain their existing conversion rights.
The Class C Distribution Plan provides for payments at an annual rate of
up to 1.00% of the average daily net asset value of Class C shares to pay
expenses for the distribution of Class C shares. Amounts paid by the Fund
under the Class C Distribution Plan are currently used to pay others
(dealers) a commission at the time of purchase in the amount of 0.75% of the
price paid for each Class C share sold, plus the first year's service fee in
advance in the amount of 0.25% of the price paid for each Class C share sold.
Beginning approximately 15 months after purchase, the dealer or other party
will receive a commission at an annual rate of 0.75% (subject to applicable
limitations imposed by the rules of the National Association of Securities
Dealers, Inc.) ("NASD Rule") and service fees at the annual rate of 0.25%,
respectively, of the average net asset value of each Class C share maintained
by such others and remaining outstanding on the Fund's books for specified
periods.
Each of the Distribution Plans may be terminated at any time by vote of
the Independent Trustees or by vote of a majority of the outstanding voting
shares of the respective class. However, after the termination of any
Distribution Plan, at the discretion of the Board of Trustees, payments to
KIDC may continue as compensation for its services which had been earned
while the Distribution Plan was in effect.
For the year ended October 31, 1995, the Fund paid KIDC $22,659 under its
Class A Distribution Plan. The Fund paid KIDC $29,857 for Class B shares sold
prior to June 1, 1995, and $1,996 for Class B Shares sold on or after June 1,
1995. The Fund paid KIDC $13,920 under its Class C Distribution Plan.
Under the NASD Rule, the maximum uncollected amounts for which KIDC may
seek payment from the Fund under its Distribution Plans were $191,513 for
Class B shares purchased prior to June 1, 1995, and $18,809 for Class B
shares purchased on or after June 1, 1995. The maximum uncollected amount for
which KIDC may seek payment from the Fund under its Class C Distribution Plan
was $117,401 as of October 31, 1995.
Presently, the Fund's class-specific expenses are limited to Distribution
Plan expenses incurred by a class of shares.
<PAGE>
PAGE 20
- --------------------------------------
Keystone World Bond Fund
(3.) Securities Transactions
Keystone World Bond FundAs of October 31, 1995, the Fund has a capital
loss carryover for federal income tax purposes of approximately $1,286,000
which expires as follows: $472,000-2002 and $814,000-2003. Purchases and
sales of investment securities (including proceeds received at maturity) for
the year ended October 31, 1995 were as follows:
Cost of Proceeds
Purchases From Sales
=============================================================
Portfolio securities $ 16,444,213 $ 14,016,995
Short-term investments 163,288,618 163,319,824
- -------------------------------------------------------------
$179,732,831 $177,336,819
=============================================================
(4.) Investment Management and Transactions with Affiliates
Under the terms of an Investment Advisory and Management Agreement between
Keystone and the Fund, Keystone provides investment management and
administrative services to the Fund. In return, Keystone receives a fee,
computed and charged to the net assets of the Fund daily, calculated at a
rate of 1.5% of gross investment income plus an amount determined by applying
percentage rates, which start at 0.50% and decline, as net assets increase,
to 0.40% per annum, to the net asset value of the Fund. During the year ended
October 31, 1995, the Fund paid or accrued to Keystone investment management
and advisory fees of $93,806, which represented 0.65% of the Fund's average
net assets.
During the year ended October 31, 1995, the Fund paid or accrued to KII
$19,141 as reimbursement for certain accounting and printing services and
$74,907 was paid 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 $33,591 and received a credit of $2,523 pursuant to the expense
offset arrangement, resulting in a total expense of $36,114. The assets
deposited with the custodian under the expense offset arrangement could have
been invested in an income producing asset.
The Fund is subject to certain state annual expense limits, the most
restrictive of which is as follows: 2.5% of the first $30 million of Fund
average net assets; 2.0% of the next $70 million of Funds average net assets;
and 1.5% of Fund average net assets over $100 million.
Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the Fund. Officers of Keystone and affiliated Trustees receive no
compensation directly from the Fund. Currently, the Independent Trustees of
the Fund receive no compensation for their services.
(5.) Fund Reorganization
On December 30, 1994, the Fund acquired the net assets of Keystone Australia
Income Fund in exchange for Class A Shares of the Fund pursuant to a plan of
reorganization approved by the shareholders of Keystone World Bond Fund on
December 30, 1994. The acquisition was accomplished by a tax-free exchange of
789,935 shares of the Fund for the net assets of Keystone Australia Income
Fund. The net assets of Keystone Australia Income Fund on that date,
including $32,769 of unrealized depreciation on investments, were combined
with the assets of the Fund. The aggregate net assets of the Fund and
Keystone Australia Income Fund immediately before the acquisition
<PAGE>
PAGE 21
- --------------------------------------
were $10,313,320 and $6,401,180, respectively. The net assets of the Fund
immediately after the acquisition was $16,714,500.
(6.) Forward Foreign Currency Exchange Contracts
At October 31, 1995, the Fund had entered into the following forward
foreign currency exchange contracts that obligate the Fund to deliver
currencies at specified future dates. The net unrealized depreciation of
$41,481 on these contracts is included in the accompanying financial
statements. The terms of the open contracts are as follows:
<TABLE>
<CAPTION>
Exchange Currency to U.S. $ value Currency to U.S. $ value
date be delivered at 10/31/95 be received at 10/31/95
- --------- ---------------- -------------- ---------------- ------------
<S> <C> <C> <C> <C>
11/01/95 4,384,843 $ 802,497 $ 809,027 $ 809,027
Danish Krone U.S.$
11/03/95 482,292 482,292 2,440,494 499,036
U.S.$ French Francs
11/03/95 185,145 185,145 936,871 191,573
U.S.$ French Francs
11/03/95 2,440,494 499,036 511,334 511,334
French Francs U.S.$
11/03/95 936,871 191,573 185,000 185,000
French Francs U.S.$
11/10/95 1,110,000 1,110,000 1,510,718 1,150,193
U.S.$ Australian$
11/10/95 1,248,000 1,248,000 1,687,901 1,285,092
U.S.$ Australian$
11/10/95 225,000 225,000 304,395 231,753
U.S.$ Australian$
11/10/95 3,794,595 2,889,034 2,811,795 2,811,795
Australian$ U.S.$
11/10/95 180,000 180,000 22,456,800 183,798
U.S.$ Sp. Peseta
11/10/95 41,571,852 $ 340,246 $ 342,381 $ 342,381
Sp. Peseta U.S.$
11/20/95 352,000 352,000 1,969,440 360,507
U.S.$ Danish Krone
11/20/95 211,000 211,000 1,151,997 210,874
U.S.$ Danish Krone
11/20/95 4,165,676 762,530 728,138 728,138
Danish Krone U.S.$
11/20/95 112,000 112,000 71,538 113,049
U.S.$ Pound Sterling
11/20/95 148,316 234,378 229,979 229,979
Pound Sterling U.S.$
11/20/95 166,256 166,257 267,705 169,860
Netherland
U.S.$ Guilders
11/20/95 573,128 363,653 348,756 348,756
Netherland
Guilders U.S.$
12/08/95 354,250 354,250 1,761,083 359,868
U.S.$ French Francs
12/08/95 184,685 184,685 910,589 186,074
U.S.$ French Francs
12/08/95 2,671,673 545,943 525,000 525,000
French Francs U.S.$
01/03/96 1,544,569 231,477 221,000 221,000
Swedish Krona U.S.$
01/25/96 1,267,480 945,572 921,000 921,000
Canadian$ U.S.$
- --------- -------------- ------------ -------------- ----------
Total $12,616,568 $12,575,087
- --------- -------------- ------------ -------------- ----------
</TABLE>
<PAGE>
PAGE 22
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Keystone World Bond Fund
(7.) Distributions to Shareholders
A distribution of net investment income of $0.05, $0.045 and $0.045 for Class A,
Class B and Class C shares, respectively, was declared payable December 6, 1995,
for shareholders of record November 24, 1995. This distribution is not reflected
in the accompanying financial statements. The Fund distributes to its
shareholders dividends from net investment income monthly and all net realized
long-term capital gains, if any, annually. Any taxable distribution which is
declared in December and paid in the following fiscal year will be taxable to
shareholders in the year declared.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FEDERAL TAX STATUS--Fiscal 1995 Distributions (Unaudited)
The per share distributions paid to you for fiscal year ended October 31,
1995, whether taken in shares or cash, are as follows:
Class A Shares Class B Shares Class C Shares
- ------------------------- ------------------------- -----------------------
Income Return of Income Return of Income Return of
Dividends Capital Dividends Capital Dividends Capital
- ---------- ----------- ---------- ----------- ---------- ---------
.54 .06 .48 .06 .48 .06
In January of 1996, complete information on the calendar year 1995
distributions will be forwarded to you to assist you in completing your 1995
federal income tax return.
<PAGE>
PAGE 23
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INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone World Bond Fund
We have audited the accompanying statement of assets and liabilities of
Keystone World Bond Fund (formerly Keystone America World Bond Fund),
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 and for the period from January
1, 1994 to October 31, 1994, and the financial highlights for the year then
ended, the period from January 1, 1994 to December 31, 1994, and the five
year period ended December 31, 1993 for Class A shares and for the year ended
October 31, 1995 and the periods from January 1, 1994 to October 31, 1994 and
August 2, 1993 (date of initial public offering) to December 31, 1993 for
Class B and Class C shares. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for the
year ended December 31, 1988 and for the period January 9, 1987 (commencement
of operations) to December 31, 1987 were audited by other auditors whose
report, dated February 3, 1989, expressed an unqualified opinion thereon.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of 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 World Bond Fund 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 and for the period from January 1, 1994 to October 31, 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
