[front cover]
KEYSTONE
[photo of spyglass with world map behind it]
WORLD
BOND FUND
[Keystone logo]
SEMIANNUAL REPORT
APRIL 30, 1996
<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 six-month period which ended April 30, 1996.
Performance
For the periods which ended April 30, 1996, your Fund produced the following
total returns.
Class A shares returned 5.16% for the six-month period and 14.04% for the
twelve-month period.
Class B shares returned 4.66% for the six-month period and 12.91% for the
twelve-month period.
Class C shares returned 4.67% for the six-month period and 12.96% for the
twelve-month period.
This highly satisfactory performance reflects your Fund's careful asset
allocation during the period. The Salomon World Government Bond Index
returned -0.13% and 2.97% respectively for the six- and twelve-month periods.
The Lehman Aggregate Bond Index returned 0.52% for six-month period and 8.63%
for twelve-month period.
Market Environment
Bond markets worldwide responded favorably to lower rates during the period.
In Europe, favorable conditions continued throughout the six-month period,
helped by low inflation in Germany, Spain, Denmark and France. The U.S.
market performed well from November through February, but experienced some
volatility in March when it appeared that the economy was growing faster than
many economists had expected, and long-term interest rates rose. The emerging
markets rebounded in November and December, then rose higher in January and
February, due to an influx of new money from institutional investors after
the first of the year. A stronger U.S. dollar helped the markets of
Australia, New Zealand and Canada.
Greater emphasis on Europe
We increased the Fund's exposure to European bonds during the period to take
advantage of low inflation and low economic growth. While interest rates had
stopped declining in the U.S., they were still trending lower in Europe
throughout the period. European securities accounted for 36% of your Fund's
holdings on April 30, 1996, up from 27% on October 31, 1995. We positioned
our U.S. holdings more defensively toward the end of the period by selling
holdings we believed were most susceptible to higher interest rates.
Looking Ahead
We believe the U.S. market may remain somewhat volatile in the short term but
that rates may trend lower before they head upward again. We believe
conditions in Europe will continue to remain attractive, and expect rates to
continue their downward trend. We think credit quality should begin to
improve in Latin America, providing a more solid foundation for the gains we
have already seen in the markets. The stronger dollar should also help limit
currency volatility. We believe investment returns on world bonds will come
primarily from income rather than capital appreciation.
(continued on next page)
<PAGE>
PAGE 2
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Keystone World Bond Fund
We appreciate your continued support of Keystone funds. If you have any
questions or comments, please feel free to write to us.
Sincerely,
/s/Albert H.Elfner, III /s/ George S. Bissell
Albert H. Elfner, III George S. Bissell
Chairman and President Chairman of the Board
Keystone Investments, Inc. Keystone Funds
June 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.
[start screen box]
[receiver graphic]
Keystone Introduces Investment Insight Line for Shareholders
Now you can keep up-to-date on your fund's current strategy and outlook by
calling Keystone Investment Insight Line. You can hear Keystone portfolio
managers discuss their latest strategies. You can also listen to Keystone's
overall market outlook from James McCall, Chief Investment Officer. The
service is available 24 hours a day, seven days a week and updated at least
monthly.
Keystone Investment Insight Line 1-800-346-3858, Press 2
[telephone graphic]
[end screen box]
<PAGE>
PAGE 3
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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 past six months?
A The bond world markets generally rose at the start of the period, taking
their lead from falling rates in the U.S. The European market remained
positive throughout the period, due to low inflation and improving economic
fundamentals in many European countries. Unexpectedly high U.S. employment
numbers released in early March sparked inflation fears, and lowered bond
prices in the U.S. and emerging markets. Even so, emerging markets gained
ground during the six-month period. In Canada, defeat of the Quebec
referendum had a positive effect, removing the risk premium from Canadian
bonds.
Q How did the Fund perform?
A Your Fund benefitted from the generally favorable environment for world
bonds during the period. Extensive exposure to European bonds helped
compensate for declines in the U.S. market during March and April. The
investment grade bonds in the portfolio (bonds rated in the top four rating
categories) provided a reliable income base. Canadian, Danish and Swedish
government bonds were among the largest investment grade holdings. In keeping
with your Fund's high income strategy, about 34% of assets were invested in
higher-yielding, dollar-denominated Latin American bonds. These holdings
appreciated in value as economic conditions in many Latin American countries
improved. Real yields (measured after inflation) on Australian securities
were attractive. Your Fund's dollar-block holdings benefitted from a stronger
U.S. dollar during the period.
Q How were the Fund's assets diversified?
A To reduce overall investment risk, we diversify 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. Latin America represents the emerging markets exposure.
During the period we added to holdings in Europe, especially in Italy, and
reduced holdings in the U.S. As of April 30, 1996, 26.8% of the Fund's assets
were invested in the dollar-block markets, with the largest holding in
Canadian government bonds. European holdings accounted for 32% of net assets
and dollar-denominated Latin American bonds totaled 34%.
Q How did the improved strength of the U.S. dollar affect the Fund?
A It helped the value of your Fund's dollar-denominated and hedged
securities. As of April 30, 1996, 51% of Fund holdings were invested in or
hedged into U.S. dollars. The Fund usually has a high dollar-weighting. We
hold cash in dollars, we invest
[start screen box]
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: $14.5 million
[end screen box]
<PAGE>
PAGE 4
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Geographic Diversification
as of April 30, 1996
- --------------------
Americas 49%
- --------------------
Europe 36%
- --------------------
Pacific 14%
- --------------------
Other(1) 1%
- --------------------
in countries with currencies linked to the U.S. dollar, such as Canada, and
we hedge some non-dollar-denominated securities into U.S. dollars.
Q What is your outlook?
A We believe the prospects for non-U.S. bonds are good. We think the
recovery in Latin American dollar-denominated bonds will continue, drawing
greater support from improved economic fundamentals in those countries. We
believe more traditional U.S. high yield investors will be attracted to Latin
American dollar bonds because of the historically narrow yield spreads on
U.S. high yield instruments. In Europe, we expect to see rates fall even
lower and expect inflation to remain low as well.
[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.
- -------------
(1)Includes other assets and liabilities and short-term obligations.
<PAGE>
PAGE 5
- ---------------------------------
Your Fund's Performance
[typeset representation of mountain chart]
Growth of an investment in
Keystone World Bond Fund Class A
In Thousands
Initial Investment Reinvested Distributions
1/87 9458 9458
9619 9777
4/88 10177 11215
9315 10845
4/90 8782 10850
9344 12625
4/92 9629 13928
8744 15509
4/94 8506 16076
7667 15674
4/96 8144 17875
A $10,000 investment in Keystone World Bond Fund Class A made on January 9, 1987
with all distributions reinvested was worth $17,875 on April 30, 1996. Past
performance is no guarantee of future results.
Six-Month Performance as of April 30, 1996
- --------------------------------------------------------------------
Class A Class B Class C
Total returns* 5.16% 4.66% 4.67%
Net asset value 10/31/95 $8.42 $8.45 $8.42
4/30/96 $8.55 $8.57 $8.54
Dividends $0.30 $0.27 $0.27
Capital gains None None None
* Before deduction of front-end or contingent deferred sales charge (CDSC).
Historical Record as of April 30, 1996
- ----------------------------------------------------------------------
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 14.04% 12.91% 12.96%
1-year 8.62% 8.91% 12.96%
5-year 34.85% -- --
Life of class 78.75% 4.99% 7.38%
Average Annual Returns
1-year w/o sales charge 14.04% 12.91% 12.96%
1-year 8.62% 8.91% 12.96%
5-year 6.16% -- --
Life of class 6.44% 1.79% 2.63%
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
return you would have received on shares held for at least one year and
redeeming after the end of the period.
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
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Keystone World Bond Fund
SCHEDULE OF INVESTMENTS--April 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- -------------------------------------------------------- ------ --------- ------------ -----------
<S> <C> <C> <C> <C>
FOREIGN GOVERNMENT AGENCIES AND ISSUES (93.2%)
AUSTRALIAN DOLLAR (3.3%)
New South Wales Treasury 12.600% 5/01/2006 500,000 $ 483,720
- -------------------------------------------------------- ---- ------- ---------- ---------
CANADIAN DOLLAR (13.0%)
Government of Canada 8.750 12/01/2005 1,500,000 1,171,686
Government of Canada 7.500 9/01/2000 950,000 710,668
- -------------------------------------------------------- ---- ------- ---------- ---------
1,882,354
- -------------------------------------------------------- ---- ------- ---------- ---------
DANISH KRONE (9.5%)
Kingdom of Denmark 7.000 12/15/2004 3,750,000 636,966
Kingdom of Denmark 9.000 11/15/1998 4,000,000 742,935
- -------------------------------------------------------- ---- ------- ---------- ---------
1,379,901
- -------------------------------------------------------- ---- ------- ---------- ---------
GERMAN DEUTCHE MARK (4.5%)
Federal Republic of Germany 6.875 5/12/2005 950,000 645,124
- -------------------------------------------------------- ---- ------- ---------- ---------
ITALIAN LIRA (4.9%)
Republic of Italy 9.500 2/01/2006 1,105,000,000 701,908
- -------------------------------------------------------- ---- ------- ---------- ---------
NETHERLANDS GUILDER (3.9%)
Netherlands Government 7.750 3/01/2005 875,000 564,524
- -------------------------------------------------------- ---- ------- ---------- ---------
NEW ZEALAND DOLLAR (10.5%)
New Zealand Government 9.000 11/15/1996 850,000 582,452
New Zealand Government 8.000 4/15/2004 750,000 495,380
New Zealand Government 6.500 2/15/2000 700,000 443,841
- -------------------------------------------------------- ---- ------- ---------- ---------
1,521,673
- -------------------------------------------------------- ---- ------- ---------- ---------
SPANISH PESETA (4.6%)
Kingdom of Spain 11.450 8/30/1998 32,000,000 269,812
Kingdom of Spain 11.850 8/30/1996 24,000,000 189,847
Kingdom of Spain 12.250 3/25/2000 23,000,000 203,546
- -------------------------------------------------------- ---- ------- ---------- ---------
663,205
- -------------------------------------------------------- ---- ------- ---------- ---------
SWEDISH KRONA (4.8%)
Kingdom of Sweden 10.250 5/05/2003 6,000,000 695,766
- -------------------------------------------------------- ---- ------- ---------- ---------
UNITED STATES DOLLAR (34.2%)
Cellulose Nipo--Brasileira 9.375 12/21/2003 830,000 813,400
Companhia Brasilieras de Petroleo Ipiranga 8.625 2/25/2002 550,000 547,938
Ispat Mexicana S.A. 10.375 3/15/2001 1,025,000 968,625
Klabin Fabricadora Papel 12.125 12/28/2002 250,000 257,500
Telecom Argentina Stet France 8.375 10/18/2000 500,000 483,125
<PAGE>
PAGE 7
- ------------------------------------
SCHEDULE OF INVESTMENTS--April 30, 1996
(Unaudited)
Coupon Maturity Principal Market
Rate Date Amount Value
- -------------------------------------------------------- ------ --------- ------------ -----------
UNITED STATES DOLLAR -- CONTINUED
Telecom Argentina Stet France 12.000% 11/15/2002 190,000 $ 204,250
Telecommunicacaos Brasileiras S.A. (a) 10.000 10/22/1997 200,000 204,750
Telecommunicacaos Brasileiras S.A. 10.000 10/22/1997 100,000 102,375
Telefonica de Argentina 11.875 11/01/2004 760,000 809,400
Yacimientos Petroliferos Fiscales S.A. (YPF) 8.000 2/15/2004 600,000 568,500
- -------------------------------------------------------- ---- ------- ---------- ---------
4,959,863
- -------------------------------------------------------- ---- ------- ---------- ---------
TOTAL FOREIGN & U.S. GOV'TS AGENCIES & ISSUES (Cost--$12,987,796) 13,498,038
- ------------------------------------------------------------------------------- ---------- ---------
REPURCHASE AGREEMENT (1.7%)
Keystone Joint Repurchase Agreement Maturity
(Investments in repurchase agreements, in a joint Value
trading account, purchased 4/29/96)(Cost $251,000) (b) 5.340 5/01/1996 $251,074 251,000
- -------------------------------------------------------- ---- ------- ---------- ---------
TOTAL INVESTMENTS (COST $13,238,796) 13,749,038
- -------------------------------------------------------- ---- ------- ---------- ---------
OTHER ASSETS AND LIABILITIES--NET (5.1%) 738,834
- -------------------------------------------------------- ---- ------- ---------- ---------
NET ASSETS (100.0%) $14,487,872
- -------------------------------------------------------- ---- ------- ---------- ---------
</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 repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices at April 30, 1996.
See Notes to Financial Statements.
<PAGE>
PAGE 8
- ---------------------------------
Keystone World Bond Fund
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Exchange U.S. $ Value at In Exchange Appreciation/
Date April 30, 1996 for U.S. $ (Depreciation)
- --------- ---------- ---------------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Forward Foreign Currency Exchange Contracts to Sell:
- ----------------------------------------------------------------------------------------------------------
05/03/96 846,367,188 Italian Lira $541,848 $541,155 ($ 693)
05/13/96 323,590 Australian Dollar 253,996 244,000 (9,996)
05/13/96 21,052,080 Spanish Peseta 165,363 168,000 2,637
05/20/96 355,000 Danish Krone 341,671 355,000 13,329
05/20/96 78,306 Pound Sterling 177,835 120,000 2,165
05/20/96 484,818 Netherlands Guilde 283,365 296,000 12,635
05/31/96 740,966 Deutsche Mark 484,856 512,000 27,144
07/05/96 1,160,454 Swedish Krona 170,814 173,500 2,687
---------------
49,908
---------------
Forward Foreign Currency Exchange Contracts to Receive:
- ----------------------------------------------------------------------------------------------------------
05/03/96 333,489,421 Italian Lira $213,502 $213,229 $ 273
05/20/96 78,306 Pound Sterling 117,835 118,207 (372)
---------------
(99)
---------------
Net Unrealized Appreciation/Depreciation on Forward Foreign Currency Exchange Contracts $49,809
===============
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 9
- ---------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Period from
Ended Year Ended January 1, 1994 to
April 30, 1996 October 31, 1995 October 31, 1994
======================================= =============== ================== ====================
(Unaudited)
<S> <C> <C> <C>
Net asset value beginning of period $8.42 $8.42 $9.56
--------------------------------------- ------------- ----------------- ------------------
Income from investment operations
Net investment income 0.30 0.61 0.32
Net realized and unrealized gain (loss)
on investment and foreign currency
related transactions 0.13 (0.01) (0.96)
--------------------------------------- ------------- ----------------- ------------------
Total from investment operations 0.43 0.60 (0.64)
--------------------------------------- ------------- ----------------- ------------------
Less distributions from:
Net investment income (0.30) (0.54) 0
In excess of net investment income (c) 0 0 0
Tax basis return of capital 0 (0.06) (0.50)
Net realized gains on investments and
foreign currency related transactions 0 0 0
--------------------------------------- ------------- ----------------- ------------------
Total distributions (0.30) (0.60) (0.50)
--------------------------------------- ------------- ----------------- ------------------
Net asset value end of period $8.55 $8.42 $8.42
======================================= ============= ================= ==================
Total return (d) 5.16% 7.62% (6.72%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses (a),(e) 2.21%(b) 2.46% 2.20%(b)
Net investment income 7.06%(b) 7.21% 4.66%(b)
Portfolio turnover rate 28% 108% 100%
--------------------------------------- ------------- ----------------- ------------------
Net assets end of period (thousands) $8,971 $9,956 $6,047
======================================= ============= ================= ==================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991 1990
======================================= =========== =========== =========== =============
<S> <C> <C> <C> <C>
Net asset value beginning of period $8.69 $10.77 $9.82 $9.76
--------------------------------------- --------- --------- --------- -----------
Income from investment operations
Net investment income 0.44 0.64 0.66 0.63
Net realized and unrealized gain (loss)
on investment and foreign currency
related transactions 1.03 (0.79) 0.99 0.31
--------------------------------------- --------- --------- --------- -----------
Total from investment operations 1.47 (0.15) 1.65 0.94
--------------------------------------- --------- --------- --------- -----------
Less distributions from:
Net investment income (0.43) (0.96) (0.45) (0.52)
In excess of net investment income (c) (0.17) (0.28) 0 (0.04)
Tax basis return of capital 0 0 0 0
Net realized gains on investments and
foreign currency related transactions 0 (0.69) (0.25) (0.32)
--------------------------------------- --------- --------- --------- -----------
Total distributions (0.60) (1.93) (0.70) (0.88)
--------------------------------------- --------- --------- --------- -----------
Net asset value end of period $9.56 $8.69 $10.77 $9.82
======================================= ========= ========= ========= ===========
Total return (d) 17.26% (1.24%) 17.48% 10.11%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (a),(e) 2.20% 2.20% 2.00% 2.00%
Net investment income 4.62% 5.44% 6.43% 6.48%
Portfolio turnover rate 107% 185% 204% 154%
--------------------------------------- --------- --------- --------- -----------
Net assets end of period (thousands) $8,403 $7,121 $11,843 $13,833
======================================= ========= ========= ========= ===========
</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 period ended
April 30, 1996 and the year ended October 31, 1995. Excluding indirectly
paid expenses, the expense ratios would have been 2.19% and 2.44% for the
respective periods.
See Notes to Financial Statements.
<PAGE>
PAGE 10
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Keystone World Bond Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
August 2, 1993
Six Months Period from (Date of Initial
Ended Year Ended January 1, 1994 to Public Offering) to
April 30, 1996 October 31, 1995 October 31, 1994 December 31, 1993
=============================== ================ ================ ================== ===================
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value beginning of
period $8.45 $8.46 $9.58 $9.47
------------------------------- --------------- --------------- ----------------- -----------------
Income from investment
operations
Net investment income 0.26 0.52 0.31 0.16
Net realized and unrealized
gain (loss) on investment and
foreign currency related
transactions 0.13 0.01 (0.99) 0.21
------------------------------- --------------- --------------- ----------------- -----------------
Total from investment
operations 0.39 0.53 (0.68) 0.37
------------------------------- --------------- --------------- ----------------- -----------------
Less distributions from:
Net investment income (0.27) (0.48) 0 (0.11)
In excess of net investment
income (c) 0 0 0 (0.15)
Tax basis return of capital 0 (0.06) (0.44) 0
Net realized gains on
investments and foreign
currency related transactions 0 0 0 0
------------------------------- --------------- --------------- ----------------- -----------------
Total distributions (0.27) (0.54) (0.44) (0.26)
------------------------------- --------------- --------------- ----------------- -----------------
Net asset value end of period $8.57 $8.45 $8.46 $9.58
=============================== =============== =============== ================= =================
Total return (d) 4.66% 6.68% (7.18%) 3.93%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (a),(e) 2.96%(b) 3.21% 2.95%(b) 2.95%(b)
Net investment income 6.25%(b) 6.43% 4.05%(b) 3.79%(b)
Portfolio turnover rate 28% 108% 100% 107%
------------------------------- --------------- --------------- ----------------- -----------------
Net assets end of period
(thousands) $4,405 $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 period ended
April 30, 1996 and the year ended October 31, 1995. Excluding indirectly
paid expenses, the expense ratios would have been 2.94% and 3.19% for the
respective periods.
See Notes to Financial Statements.
<PAGE>
PAGE 11
- ---------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
August 2, 1993
Six Months Period from (Date of Initial
Ended Year Ended January 1, 1994 to Public Offering) to
April 30, 1996 October 31, 1995 October 31, 1994 December 31, 1993
=============================== ================ ================ ================== ===================
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value beginning of
period $8.42 $8.42 $9.58 $9.47
------------------------------- --------------- --------------- ----------------- -----------------
Income from investment
operations
Net investment income 0.27 0.56 0.30 0.18
Net realized and unrealized
gain (loss) on investment
and foreign currency related
transactions 0.12 (0.02) (1.02) 0.19
------------------------------- --------------- --------------- ----------------- -----------------
Total from investment
operations 0 0.54 (0.72) 0.37
------------------------------- --------------- --------------- ----------------- -----------------
Less distributions from:
Net investment income (0.27) (0.48) 0 (0.12)
In excess of net investment
income (c) 0 0 0 (0.14)
Tax basis return of capital 0 (0.06) (0.44) 0
Net realized gains on
investments and foreign
currency related transactions 0 0 0 0
------------------------------- --------------- --------------- ----------------- -----------------
Total distributions (0) (0.54) (0.44) (0.26)
------------------------------- --------------- --------------- ----------------- -----------------
Net asset value end of period $8.54 $8.42 $8.42 $9.58
=============================== =============== =============== ================= =================
Total return (d) 4.67% 6.83% (7.61%) 3.93%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (a),(e) 2.96%(b) 3.21% 2.95%(b) 2.95%(b)
Net investment income 6.23%(b) 6.43% 3.94%(b) 3.79%(b)
Portfolio turnover rate 28% 108% 100% 107%
------------------------------- --------------- --------------- ----------------- -----------------
Net assets, end of period
(thousands) $1,111 $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 operating and management 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 period ended
April 30, 1996 and the year ended October 31, 1995. Excluding indirectly
paid expenses, the expense ratios would have been 2.94% and 3.19% for the
respective periods.
See Notes to Financial Statements.
<PAGE>
PAGE 12
- ---------------------------------
Keystone World Bond Fund
STATEMENT OF ASSETS AND LIABILITIES--
April 30, 1996 (Unaudited)
==================================================== ============
Assets:
Investments at market value (identified cost--
$13,238,796) (Note 1) $13,749,038
Cash 32
Receivable for:
Investments sold 541,848
Unrealized appreciation on open currency
contracts (Notes 1 & 6) 60,870
Interest 433,952
Fund shares sold 168
Foreign taxes reclaimed 9,130
Prepaid expenses 8,132
- ---------------------------------------------------- ------------
Total assets 14,803,170
- ---------------------------------------------------- ------------
Liabilities:
Payable for:
Investments purchased 213,502
Unrealized depreciation on open currency
contracts (Notes 1 & 6) 11,061
Fund shares redeemed 16,731
Income distribution 24,795
Foreign taxes withheld 3,948
Other accrued expenses 45,261
- ---------------------------------------------------- ------------
Total liabilities 315,298
- ---------------------------------------------------- ------------
Net assets $14,487,872
==================================================== ============
Net assets represented by: (Note 1)
Paid-in capital $15,049,145
Accumulated distributions in excess of net
investment income (26,993)
Accumulated net realized loss on investment and
foreign currency related transactions (1,092,780)
Net unrealized appreciation (depreciation) on:
Investments, foreign currency related
transactions and other assets and liabilities 508,691
Open currency contracts 49,809
- ---------------------------------------------------- ------------
Total net assets $14,487,872
==================================================== ============
Net Asset Value: (Note 1)
Class A Shares
Net assets of $8,971,450 / 1,049,905 shares
outstanding $8.55
Offering price per share ($8.55 / 0.9525) (based
on a sales charge of 4.75% of the offering
price) $8.98
Class B Shares
Net assets of $4,405,119 / 513,948 shares
outstanding $8.57
Class C Shares
Net assets of $1,111,303 / 130,165 shares
outstanding $8.54
- ----------------------------------------------------- ------------
STATEMENT OF OPERATIONS--
Six Months Ended April 30, 1996 (Unaudited)
========================================= ======= =========
Investment income: (Note 1)
Interest (net of foreign withholding
taxes of $1,559) $687,255
Expenses: (Notes 2 and 4)
Management fee $ 47,904
Transfer agent fees 30,160
Accounting, auditing and legal fees 23,391
Custodian fees 16,921
Printing expenses 13,377
Distribution Plan expenses 38,281
Registration fees 12,925
Miscellaneous 1,372
- ----------------------------------------- ------- ---------
Total expenses 184,331
Less: Expenses paid indirectly (Note 4) (916)
- ----------------------------------------- ------- ---------
Net expenses 183,415
Net investment income 503,840
- ----------------------------------------- ------- ---------
Net realized and unrealized gain (loss)
on investments and foreign currency
related transactions: (Notes 1 and 3)
Net realized gain on investments and
foreign currency related
transactions 186,842
- ----------------------------------------- ------- ---------
Net change in unrealized appreciation
(depreciation) on investments and
other assets and liabilities (60,541)
Net change in unrealized appreciation
(depreciation) on open currency
contracts 91,290
- ----------------------------------------- ------- ---------
Net change in unrealized appreciation
(depreciation) 30,749
- ----------------------------------------- ------- ---------
Net gain on investments and foreign
currency related transactions 217,591
- ----------------------------------------- ------- ---------
Net increase in net assets resulting
from operations $721,431
========================================= ======= =========
See Notes to Financial Statements.
<PAGE>
PAGE 13
- ---------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
April 30, 1996 October 31, 1995
=================================================================== =============== ================
(Unaudited)
<S> <C> <C>
Operations:
Net investment income $ 503,840 $ 1,011,006
Net realized gain (loss) on investments and foreign currency
related transactions 186,842 (583,415)
Net change in unrealized appreciation (depreciation) 30,749 685,420
------------------------------------------------------------------- ------------- ---------------
Net increase in net assets resulting from operations 721,431 1,113,011
------------------------------------------------------------------- ------------- ---------------
Distributions to shareholders from: (Note 1)
Net investment income:
Class A Shares (333,167) (653,425)
Class B Shares (134,960) (187,676)
Class C Shares (38,495) (82,887)
Tax basis return of capital:
Class A Shares 0 (65,389)
Class B Shares 0 (24,167)
Class C Shares 0 (7,767)
Total distributions to shareholders (506,622) (1,021,311)
------------------------------------------------------------------- ------------- ---------------
Capital share transactions: (Note 2)
Shares issued in acquisition of Keystone Australia Income Fund:
(Note 5) 0 6,401,180
Proceeds from shares sold:
Class A Shares 84,809 379,004
Class B Shares 1,148,045 1,382,294
Class C Shares 141,421 226,771
Payments for shares redeemed:
Class A Shares (1,446,321) (3,470,274)
Class B Shares (572,221) (1,277,770)
Class C Shares (252,953) (680,398)
Net asset value of shares issued in reinvestment of distributions:
Class A shares 223,539 467,191
Class B shares 103,531 168,229
Class C shares 24,266 64,105
Net increase (decrease) in net assets resulting from capital
share transactions (545,884) 3,660,332
------------------------------------------------------------------- ------------- ---------------
Total increase (decrease) in net assets (331,075) 3,752,032
------------------------------------------------------------------- ------------- ---------------
Net assets:
Beginning of period 14,818,947 11,066,915
------------------------------------------------------------------- ------------- ---------------
End of period [including distributions in excess of net investment
income in 1996 of ($26,992) and 1995 of ($24,213)](Note 1) $14,487,872 $14,818,947
=================================================================== ============= ===============
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 14
- ---------------------------------
Keystone World Bond Fund
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone World Bond Fund (the "Fund") is a non-diversified open-end
registered investment company. The Fund was formed as a Massachusetts
business trust on September 5, 1986. The Fund currently issues shares of one
non-diversified portfolio, the World Bond Portfolio (the "Portfolio").
Keystone Investment Management Company (formerly Keystone Custodian Funds,
Inc.) ("Keystone") is the Fund's Investment Adviser. The Portfolio's
objective is to seek current income by investing primarily in a
non-diversified portfolio consisting of debt securities denominated in United
States and foreign currencies. The Portfolio seeks capital appreciation as a
secondary objective.
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 predominantly 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 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.) ("KIDCO"), the Fund's principal underwriter.
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
<PAGE>
PAGE 15
- ---------------------------------
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.
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 ex-dividend 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
<PAGE>
PAGE 16
- ---------------------------------
Keystone World Bond Fund
Fund may enter into forward foreign currency exchange contracts
("contracts"). Additionally, from time to time the Fund may enter into
contracts to hedge certain foreign currency assets. Contracts are recorded at
market value and marked-to-market daily. Realized gains and losses arising
from such transactions are included in net realized gain (loss) on foreign
currency related transactions. In additon to market risk, 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 Fund's Declaration of Trust authorizes the issuance of an unlimited
number of shares of beneficial interest without par value. Transactions in
shares of the Fund were as follows:
Class A Shares
------------------------------------------
Six Months Ended Year Ended
April 30, 1996 October 31, 1995
-------------------- ------------------ --------------------
Sales 9,933 42,522
Redemptions (168,991) (425,398)
Shares issued in
acquisition of
Australia Income
Fund (Note 5) 0 789,935
Reinvestment of
dividends and
distributions 26,156 57,481
-------------------- ----------------- ------------------
Net increase (132,902) 464,540
==================== ================= ==================
Class B Shares
------------------------------------------
Six Months Ended Year Ended
April 30, 1996 October 31, 1995
-------------------- ------------------ --------------------
Sales 132,888 166,498
Redemptions (66,726) (156,895)
Reinvestment of
dividends and
distributions 12,073 20,548
-------------------- ----------------- ------------------
Net increase 78,235 30,151
==================== ================= ==================
Class C Shares
------------------------------------------
Six Months Ended Year Ended
April 30, 1996 October 31, 1995
-------------------- ------------------ --------------------
Sales 16,471 27,481
Redemptions (29,624) (83,800)
Reinvestment of
dividends and
distributions 2,840 7,882
-------------------- ----------------- ------------------
Net decrease (10,313) (48,437)
==================== ================= ==================
<PAGE>
PAGE 17
- ---------------------------------
The Fund bears some of the costs of selling its shares under Distribution
Plans 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").
Under its Distribution Plans, the Fund pays Keystone Investment Distributors
Company (formerly Keystone Distributors, Inc.) ("KIDCO"), the principal
underwriter and a wholly-owned subsidiary of Keystone, amounts which in total
may not exceed each Distribution Plan's maximum.
The Class A Distribution Plan provides for expenditures 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 KIDCO 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 daily net asset value of Class A shares maintained by such
recipients on the Fund's books for specified periods.
The Class B Distribution Plans provide for expenditures at an annual rate of
up to 1.00% of the average daily net asset value of Class B shares to pay
expenses associated with the distribution of Class B shares. Amounts paid by
the Fund under the Class B Distribution Plans are currently paid to KIDCO
(which may reallow or part to others, such as dealers) (1.) as commissions
for Class B shares sold and (2.) as shareholders service fees. KIDCO
generally reallows 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 on the Fund's books for specified
periods. A contingent deferred sales charge will be imposed, if applicable,
on Class B shares purchased on or after June 1, 1995 at rates decreasing from
a maximum of 5.00% of amounts redeemed during the first 12 months from and
including the month of purchase to 1.00% of amounts redeemed during the
succeeding 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 from and including 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 expenditures at an annual rate of
up to 1.00% of the average daily net asset value of Class C shares to pay
expenses associated with the distribution of Class C shares. Amounts paid by
the Fund under the Class C Distribution Plan are currently paid to KIDCO
(which may reallow all or part to others, such as dealers) (1.) as
commissions for Class C shares sold and (2) as shareholder service fees.
KIDCO generally reallows 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 National Association of
Securities Dealers, Inc.) ("NASD") 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 on the Fund's books for specified periods.
<PAGE>
PAGE 18
- ---------------------------------
Keystone World Bond Fund
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
KIDCO may continue as compensation for its services which had been earned
while the Distribution Plan was in effect.
During the six months ended April 30, 1996, the Fund paid KIDCO $10,996
under its Class A Distribution Plan. During the six months ended April 30,
1996, the Fund paid KIDCO $13,348 for Class B shares sold prior to June 1,
1995, and $7,961 for Class B Shares sold on or after June 1, 1995. The Fund
paid KIDCO $5,976 under its Class C Distribution Plan for the six months
ended April 30, 1996.
As of April 30, 1996 unpaid distribution expenses with respect to Class B
shares purchased prior to June 1, 1995 were $231,823, and $34,179 for Class B
shares purchased on or after June 1, 1995. As of April 30, 1996, unpaid
distribution expenses with respect to Class C shares were $123,338.
Presently, the Fund's class-specific expenses are limited to Distribution
Plan expenses incurred by a class of shares.
(3.) Securities Transactions
As 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. Cost of purchases and proceeds from sales
of investment securities (excluding short-term securities) for the six months
ended April 30, 1996 were $4,008,349 and $4,051,385, respectively.
(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. For the six month
period ended April 30, 1996, the Fund paid or accrued to Keystone investment
management and advisory fees of $47,904, which represented 0.64% of the
Fund's average net assets.
For the six month period ended April 30, 1996, the Fund paid or accrued to
KII $23,889 as reimbursement for certain accounting and printing services and
$30,160 was paid to KIRC for transfer agent fees.
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.
Keystone has agreed to reimburse the Fund annually for certain operating
expenses incurred by the Fund in excess of the applicable state expense
limit. However, Keystone is not required to make such reimbursement to an
extent which would result in the Fund's inability to qualify as a regulated
investment company under provisions of the Internal Revenue Code.
<PAGE>
PAGE 19
- ---------------------------------
The Fund has entered into an expense offset arrangement with its custodian
bank, State Street Bank & Trust ("SSB&T"). For the six months ended April 30,
1996, the Fund paid custody fees in the amount of $16,921 and received a
credit of $916 pursuant to the expense offset arrangement, resulting in a
total expense of $16,005. The assets deposited with SSB&T under the expense
offset arrangement could have been invested in an income-producing asset.
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 Australia Income 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 were
$10,313,320 and $6,401,180, respectively. The net assets of the Fund
immediately after the acquisition was $16,714,500.
(6.) Foreign Currency Exchange Contracts
At April 30, 1996, the Fund had entered into currency exchange contracts that
obligate the Fund to deliver currencies at specified future dates. The
unrealized appreciation of $49,809 on these contracts is included in the
accompanying financial statements.
<PAGE>
[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
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Omega Fund
Fund of the Americas
Small Company Growth Fund II
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-R-6/96
4.2M [Recycle logo]
