PAGE 1
Keystone Intermediate Term Bond Fund
Seeks generous income from intermediate-term investment grade bonds.
Dear Shareholder:
We would like to take this opportunity to report on your Fund's performance
and review market events for the six-month period which ended January 31,
1996.
Performance
Class A shares returned 6.21% for the six-month and 13.60% for the
twelve-month periods.
Class B shares returned 5.78% for the six-month and 12.68% for the
twelve-month periods.
Class C shares returned 5.78% for the six-month and 12.68% for the
twelve-month periods.
During the six- and twelve-month periods, your Fund provided strong total
returns, which includes income and price changes. The Lehman Intermediate
Government/Corporate Bond Index returned 5.20% for the six-month and 13.40%
for the twelve-month periods.
Investors in intermediate-term bonds enjoyed a healthy market over the past
six months. Slow, non-inflationary economic growth prompted the Federal
Reserve Board to lower short-term interest rates during the period. Further,
progress on shrinking the federal budget deficit caused investors to focus on
the potential of a reduced supply of bonds in the future. The main source of
concern during the period was the federal budget deadlock, but that has been
overshadowed by the positive theme of deficit reduction. Despite some interim
price volatility, interest rates declined and intermediate term bonds posted
attractive returns.
We employed three main strategies to add to your Fund's performance. First,
we upgraded credit quality by selling lower rated investment grade bonds and
buying U.S. Treasury bonds. On January 31, 1996, the average quality of the
portfolio stood at AA+, the second highest bond rating. We also sought
improved diversification and attractive yields by investing a portion of the
portfolio in the government bonds of Canada, Germany and Spain. We protected
these bonds from currency fluctuations by hedging them into U.S. dollars.
Finally, we maintained your Fund's weighting in the banking and finance
sector at 22% of net assets over the six-month period. This sector typically
benefits more than most others from declining interest rates. We believe
these three strategies contributed to your Fund's positive returns.
Looking ahead, we believe the prospects for intermediate term bonds appear
to be favorable in this environment. We expect a continuation of slow to
moderate growth with negligible inflationary pressures, coupled with the
ongoing effort to shrink the federal budget deficit.
After the close of the fiscal period, your Fund's dividend was reduced,
reflecting lower market rates. While bond investors have benefited from a
very good total return (income + price changes), it has been a difficult
period for those who are income-oriented. We have structured the portfolio to
maximize current income by investing in securities whose anticipated
performance is consistent with your Fund's investment objective. We believe
the strategies recently put in place should help to lock-in yields and build
generous returns.
(continued on next page)
<PAGE>
PAGE 2
Keystone Intermediate Term Bond Fund
Thank you for your continued support of Keystone Intermediate Term Bond
Fund. If you have questions or comments about your Keystone investment, we
encourage you to write to us.
Sincerely,
[signature]Albert H. Elfner, III
Albert H. Elfner, III
Chairman and President
Keystone Group, Inc.
[signature]George S. Bissell
George S. Bissell
Chairman of the Board
Keystone Funds
March 1996
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 senior portfolio
manager Chris Conkey discuss his latest strategy for Keystone's high grade
bond funds. 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
Keystone Fixed-Income Update Press 3
<PAGE>
PAGE 3
A Discussion With
Your Fund Manager
Christopher P. Conkey heads Keystone's high grade bond team and is portfolio
manager of your Fund. A Chartered Financial Analyst, Mr. Conkey has 11 years
of experience managing fixed-income investments. He holds a BA in economics
from Clark University and an MBA in finance from Boston University. Together
with senior portfolio manager Barbara McCue and analysts David J. Bowers and
Gary E. Pzegeo, the team evaluates the economic environment in selecting high
quality bonds for your Fund.
[Q] What were the greatest influences on intermediate term bonds over the
past six months?
[A] The bond market was influenced by the trend of declining interest rates
which continued from the first half of the year. Bond investors focused on
the economy, inflation and the federal budget negotiations. Most of this had
a favorable effect on the market. Economic growth slowed and inflation, as
measured by the Consumer Price Index, came in under 3% for the fifth year in
a row. This gave the Federal Reserve Board reason to lower interest rates
during the period.
[Q] What effect did the budget discussions have on the bond market?
[A] The federal budget negotiations were an important influence on the bond
market. A smaller deficit means the Treasury would need to borrow less,
driving bond prices higher. Another way to measure progress on the deficit is
to look at it as a percentage of our country's total economic output. This
percentage has been declining, which should also be good news for bonds.
Federal budget negotiations put some downward pressure on bond prices in the
short run because the outcome of those talks was unknown--and the market
dislikes uncertainty. However, we think there is a concerted effort to shrink
the deficit. So, we expect to see some price volatility while the budget
talks continue, but the issue of deficit reduction could have a positive
impact on bond prices over the longer term.
[Q] How was the Fund structured to capitalize on this interest rate environment?
[A] We implemented three strategies, which we believe, enhanced the Fund's
performance. First, we upgraded credit quality by selling lower rated investment
grade bonds and buying U.S. Treasury bonds. AAA rated bonds now account for 36%
of the portfolio's assets, and the overall portfolio quality stands at AA+, the
second highest rating.
[Q] You also increased the portfolio's diversification. How did you accomplish
this?
[A] We invested in the government bonds of Canada, Germany and Spain which
increased diversification outside of the U.S. and also increased the quality of
the portfolio. These issuers represent stable governments and their securities
markets are large and liquid. All of our foreign government bond holdings were
protected from currency changes through hedging. We believe that these bonds
offer good relative value when compared to domestic investments of similar
quality.
Finally, we maintained the Fund's holdings in the banking and finance
sector, at 22% of net assets over the six-month period. Banking and finance
bonds have historically benefited more from declining interest rates than
many industries. These bonds provided relatively good performance during the
period.
Fund Profile
Objective: Seeks generous income from intermediate-term, investment grade
bonds.
Commencement of investment operations: April 14, 1987
Average quality: AA+
Average maturity: 9 years
Net assets: $43 million
<PAGE>
PAGE 4
Keystone Intermediate Term Bond Fund
***********************************[pie chart]********************************
Portfolio Quality Summary
as of January 31, 1996
S&P rating((1))
U.S. government/agency (17%)
AAA (18%)
AA (22%)
A (23%)
BBB (20%)
(as a percentage of portfolio assets)
(1) Where Standard & Poor's Corporation ratings were not available, we have
used ratings from Duff & Phelps, Fitch Investor's Service, Inc., Moody's
Investor Service, Inc. or ratings assigned by another nationally
recognized statistical rating organization.
******************************************************************************
[Q] How did declining interest rates affect the Fund's yield?
[A] After the close of the fiscal period, your Fund's dividend was reduced,
reflecting lower market interest rates. As you are aware, interest rates
change over time and this can affect a Fund's dividend payout. While bond
investors received good total returns, it has been a difficult market for
investors who are income- oriented. We will continue to seek attractive
current income by investing in securities whose anticipated performance is
consistent with your Fund's investment objective. We believe the strategies
recently put in place should help to preserve income and provide the
potential for price appreciation.
[Q] What is your outlook for intermediate term bonds for the first half of
1996?
[A] We expect a continuation of many of the trends that have given us the
lower interest rate environment that we have now. The economy appears to be
growing at a slow to moderate pace, with inflationary pressures that are
well-contained. In fact, "real" interest rates, or the rate one receives
after subtracting inflation, are high by historical standards. By some
measures, short-term rates could fall by one percentage point. If the economy
proceeds on this path, we believe that the Federal Reserve Board should have
room to lower interest rates.
[Q] For what kind of investor is Keystone Intermediate Bond Fund an
attractive investment?
[A] Keystone Intermediate Bond Fund is attractive for someone seeking a
high-quality, income-oriented investment with limited price volatility. We
believe that it is a timely investment in light of our positive interest rate
outlook. If the Federal Reserve Board lowers interest rates, as we expect, we
anticipate intermediate term bond prices should rise. Further, under present
market conditions, bonds with a ten-year maturity provide 93% of the yield
offered by a thirty year bond, while incurring far less price risk. In the
current and anticipated environment, we believe intermediate term bonds
provide good relative value.
[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, Inc.,
Attn: Shareholder Communications, 22nd Floor,
200 Berkeley Street, Boston, Massachusetts 02116-5034.
<PAGE>
PAGE 5
Your Fund's Performance
***********************************[mountain chart]**************************
Growth of an investment in
Keystone Intermediate Term Bond Fund Class A
In Thousands
Initial Reinvested
Investment Distributions
4/87 9477 9477
1/88 9106 9591
8591 9848
1/90 8277 10301
8210 11136
1/92 9620 12701
8944 14203
1/94 9001 15355
8191 14962
1/96 8677 16998
Total Value: $16,998
A $10,000 investment in Keystone Intermediate Term Bond Fund Class A made on
April 14, 1987 with all distributions reinvested was worth $16,998 on January
31, 1996. Past performance is no guarantee of future results.
******************************************************************************
Six-Month Performance as of January 31, 1996
Class A Class B Class C
Total returns* 6.21% 5.78% 5.78%
Net asset value 7/31/95 $ 8.88 $ 8.89 $ 8.89
1/31/96 $ 9.11 $ 9.12 $ 9.12
Dividends $ .312 $ .276 $ .276
Capital gains None None None
*Before deduction of front-end or contingent deferred sales charge.
Historical Record as of January 31, 1996
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 13.60% 12.68% 12.68%
1-year 8.21% 8.68% 12.68%
5-year 45.39% -- --
Life of Class 69.98% 13.88% 16.80%
Average Annual Returns
1-year w/o sales charge 13.60% 12.68% 12.68%
1-year 8.21% 8.68% 12.68%
5-year 7.77% -- --
Life of Class 6.22% 4.43% 5.31%
Class A shares were introduced April 14, 1987. Performance is reported at the
current maximum front-end sales charge of 4.75%.
Class B shares were introduced on February 1, 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 share performance is reported from the commencement of investment
operations on February 1, 1993. Performance reflects the return you would
have received after holding shares for one year and redeeming at 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 to another Keystone fund for a $10 fee by
contacting Keystone directly. The exchange fee is waived for individual
investors who make an exchange using Keystone's Automated Response Line
(KARL). The Fund reserves the right to change or terminate the exchange
offer.
<PAGE>
PAGE 6
Keystone Intermediate Term Bond Fund
SCHEDULE OF INVESTMENTS--January 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Interest Maturity Par Market
Rate Date Value Value
- ---------------------------------------------------- --------------------- ------ ------- --------- -----------
<S> <C> <C> <C> <C> <C>
FIXED INCOME (96.5%)
BANK & FINANCE BONDS & NOTES (21.6%)
Caterpillar Financial Asset Trust Asset Backed 6.300% 2001 $1,000,000 $1,017,660
Chase Manhattan Corp. Notes (Subord.) 9.375 2001 1,250,000 1,449,100
Chrysler Financial Corp. Notes 5.875 2001 1,000,000 1,003,115
Commercial Credit Group, Inc. Deb. 10.000 1999 1,000,000 1,129,270
Donaldson Lufkin & Jenrette, Inc. Senior Note 6.875 2005 1,500,000 1,543,080
Golden West Financial Corp. Sub. Note 6.700 2002 1,000,000 1,031,540
Lehman Brothers Holdings, Inc. Senior Subordinate 6.125 2001 1,000,000 1,002,800
Paine Webber Group, Inc. Notes 8.250 2002 1,100,000 1,201,130
- ---------------------------------------------------- ------------------- ---- ----- ------- ---------
TOTAL BANK & FINANCE BONDS & NOTES (COST--$9,235,304) 9,377,695
- ----------------------------------------------------------------------------- ---- ----- ------- ---------
INDUSTRIAL BONDS & NOTES (19.8%)
UTILITIES (5.1%)
Georgia Power Co. First Mtge. 6.125 1999 1,150,000 1,168,826
Montana Power Co. First Mtge. 7.700 1999 1,000,000 1,059,590
- ---------------------------------------------------- ------------------- ---- ----- ------- ---------
2,228,416
AUTOMOTIVE (4.0%)
Ford Motor Co. Deb. 9.000 2001 1,500,000 1,718,805
- ---------------------------------------------------- ------------------- ---- ----- ------- ---------
RETAIL (3.0%)
Sears, Roebuck & Co. Med. Term Notes 6.340 2000 1,250,000 1,278,500
- ---------------------------------------------------- ------------------- ---- ----- ------- ---------
DIVERSIFIED COMPANIES (2.7%)
Tenneco, Inc. Notes 10.375 2000 1,000,000 1,183,890
- ---------------------------------------------------- ------------------- ---- ----- ------- ---------
TELECOMMUNICATIONS (2.5%)
Ameritech Capital Funding Corp. Deb. 7.500 2005 1,000,000 1,099,870
- ---------------------------------------------------- ------------------- ---- ----- ------- ---------
TRANSPORTATION (2.5%)
Missouri Pacific Railroad Co. Equip. Trust Cert. 15.000 1997 1,000,000 1,086,830
- ---------------------------------------------------- ------------------- ---- ----- ------- ---------
TOTAL INDUSTRIAL BONDS & NOTES (COST--$8,455,545) 8,596,311
- ----------------------------------------------------------------------------- ---- ----- ------- ---------
COLLATERALIZED MORTGAGE OBLIGATIONS (17.5%)
Criimi Mae Financial Corp. (Est. Mat. 2001) (a) Series 1 Class A 7.000 2033 499,186 498,874
Debartolo Capital Partnership (Est. Mat. 2001) (a)
(b) Class B1 7.610 2004 1,000,000 1,059,375
FHLMC (Est. Mat. 1996) (a) Series 41 Class E 10.000 2019 224,358 226,146
Series 1994-A Class
Green Tree Financial Corp. (Est. Mat. 1998) (a) A 6.900 2004 326,138 327,870
Merrill Lynch Mortgage Investors, Inc. Series 1995-C2
(Est. Mat. 2001) (a) Class C 7.930 2021 1,000,000 1,027,257
Morgan Stanley Capital (Est. Mat. 2001) (a) Series 96 Class A 6.475 2027 1,000,000 1,019,375
Paine Webber Mortgage Acceptance Corp. IV (Est. Mat. Series 1993-5 Class
1997) (a) A3 6.875 2008 373,811 374,980
Series 1994-S15
Residential Funding Corp. (Est. Mat. 1997) (a) Class A1 7.750 2024 995,678 1,012,167
<PAGE>
PAGE 7
SCHEDULE OF INVESTMENTS--January 31, 1996 (Unaudited)
Interest Maturity Par Market
Rate Date Value Value
- ---------------------------------------------------- --------------------- ------ ------- --------- -----------
COLLATERALIZED MORTGAGE OBLIGATIONS--CONTINUED
Series 1995-1 Class
Resolution Trust Corp. (Est. Mat. 2000) (a) A2C 7.500% 2028 $1,250,000 $1,267,969
Series 1991-2 Class
U.S. Home Equity Loan (Est. Mat. 1998) (a) B 9.125 2021 750,000 774,608
- ---------------------------------------------------- ------------------- ---- ----- ------- ---------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST--$7,435,107) 7,588,621
- --------------------------------------------------------------------------------------------------------------- ---------
FOREIGN BONDS (U.S. DOLLARS) (12.8%)
European Investment Bank Deb. 9.125 2002 1,250,000 1,471,788
Fomento Economico Mexico Euro-Dollar 9.500 1997 1,250,000 1,262,500
Telecom Brasileiras Yankee Notes 10.375 1997 1,200,000 1,221,000
Westdeutsche Landesbank Sub. Notes 6.750 2005 1,000,000 1,046,700
Wharf Capital International Yankee Notes 8.875 2004 500,000 537,070
- ---------------------------------------------------- ------------------- ---- ----- ------- ---------
TOTAL FOREIGN BONDS (U.S. DOLLARS) (COST--$5,282,527) 5,539,058
- --------------------------------------------------------------------------------------------------------------- ---------
FOREIGN BONDS (NON U.S. DOLLARS) (10.3%)
Canada Government Deb. 8.750 2005 2,600,000 2,117,005
German Fed Rep 6.875 2005 1,500,000 1,080,282
Kingdom of Spain 10.150 2006 1,500,000 1,243,139
- ---------------------------------------------------- ------------------- ---- ----- ------- ---------
TOTAL FOREIGN BONDS (NON U.S. DOLLARS) (COST--$4,485,456) 4,440,426
- --------------------------------------------------------------------------------------------------------------- ---------
UNITED STATES GOVERNMENT ISSUES (8.3%)
U.S. Treasury Notes 6.500 2005 1,000,000 1,063,120
U.S. Treasury Notes 7.875 2004 2,200,000 2,543,398
- ---------------------------------------------------- ------------------- ---- ----- ------- ---------
TOTAL UNITED STATES GOVERNMENT ISSUES (COST--$3,542,625) 3,606,518
- --------------------------------------------------------------------------------------------------------------- ---------
MORTGAGE PASS-THROUGH CERTIFICATES (6.2%)
FNMA Pool #002497 11.000 2016 626,564 703,838
FNMA Pool #004534 10.750 2012 623,241 687,560
FHLMC Pool #W00056 Gold Pool 7.500 2010 1,237,770 1,286,897
- ---------------------------------------------------- ------------------- ---- ----- ------- ---------
TOTAL MORTGAGE PASS-THROUGH CERTIFICATES (COST--$2,622,464) 2,678,295
- --------------------------------------------------------------------------------------------------------------- ---------
TOTAL FIXED INCOME (COST--$41,059,028) 41,826,924
- --------------------------------------------------------------------------------------------------------------- ---------
Maturity
Value
- ---------------------------------------------------- ------------------- ---- ----- ------- ---------
REPURCHASE AGREEMENT (2.0%) (COST--$857,000)
Keystone Joint Repurchase Agreement (Investment in repurchase agreement,
in a joint trading account, dated 1/31/96) (c) 5.939 02/01/96 857,141 857,000
- ----------------------------------------------------------------------------- ---- ----- ------- ---------
TOTAL INVESTMENTS (COST--$41,916,028) 42,683,924
OTHER ASSETS AND LIABILITIES--NET (1.5%) 656,202
- --------------------------------------------------------------------------------------------------------------- ---------
NET ASSETS (100.0%) $43,340,126
- --------------------------------------------------------------------------------------------------------------- ---------
</TABLE>
(continued on next page)
<PAGE>
PAGE 8
Keystone Intermediate Term Bond Fund
(a) The estimated maturity of a Collateralized Mortgage Obligation ("CMO") is
based on current and projected prepayment rates. Changes in interest
rates can cause the estimated maturity to differ from the listed date.
(b) Securities that may be resold to "qualified institutional buyers" under
Rule 144a or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended. These securities have been determined
to be liquid under guidelines established by the Board of Trustees.
(c) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at January 31, 1996.
Legend of Portfolio Abbreviations:
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
SCHEDULE OF FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
In
U.S. Value at Exchange
Exchange January 31, for U.S. Net Unrealized
Date 1996 $ Appreciation
- --------- ------------------------------- ------------- --------- --------------
<S> <C> <C> <C> <C>
Forward Foreign Currency Exchange Contracts to Sell
Contracts to Deliver
----------------------------------------------
3/05/96 1,660,000 German Marks $1,117,306 $1,153,980 $36,674
4/11/96 2,925,000 Canadian Dollars 2,128,829 2,140,035 11,206
4/12/96 159,000,000 Spanish Peseta 1,258,190 1,300,507 42,317
------------
Net Unrealized Appreciation on Forward Foreign Currency Exchange
Contracts $90,197
============
</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
Ended
January 31, Year Ended July 31,
1996 1995 1994(d) 1993 1992 1991
======================================== ============ ======= ======= ======= ======= =========
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of period $ 8.88 $ 8.84 $ 9.46 $ 9.23 $ 8.64 $ 8.60
- ---------------------------------------- ---------- ------ ------ ------ ------ -------
Income from investment operations:
Net investment income 0.29 0.63 0.57 0.70 0.71 0.72
Net realized and unrealized gain (loss)
on investments and futures contracts 0.25 0.02 (0.59) 0.18 0.60 0.05
- ---------------------------------------- ---------- ------ ------ ------ ------ -------
Total from investment operations 0.54 0.65 (0.02) 0.88 1.31 0.77
- ---------------------------------------- ---------- ------ ------ ------ ------ -------
Less distributions from:
Net investment income (0.31) (0.57) (0.57) (0.65) (0.71) (0.72)
In excess of net investment income 0.00 (0.04) (0.02) 0.00 (0.01) (0.01)
Tax basis return of capital 0.00 0.00 (0.01) 0.00 0.00 0.00
- ---------------------------------------- ---------- ------ ------ ------ ------ -------
Total distributions (0.31) (0.61) (0.60) (0.65) (0.72) (0.73)
- ---------------------------------------- ---------- ------ ------ ------ ------ -------
Net asset value end of period $ 9.11 $ 8.88 $ 8.84 $ 9.46 $ 9.23 $ 8.64
======================================== ========== ====== ====== ====== ====== =======
Total return (b) 6.21% 7.76% (0.29%) 9.88% 15.65% 9.42%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.09%(a)(c) 1.00% 1.00% 1.52% 1.88% 2.00%
Total expenses excluding reimbursement 1.52%(a) 1.48% 1.80% 1.99% 1.88% 2.06%
Net investment income 6.49%(a) 7.13% 6.81% 7.48% 7.85% 8.42%
Portfolio turnover rate 75% 149% 280% 160% 90% 76%
- ---------------------------------------- ---------- ------ ------ ------ ------ -------
Net assets end of period (thousands) $14,016 $14,558 $16,036 $18,032 $19,288 $20,227
======================================== ========== ====== ====== ====== ====== =======
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) "Ratio of total expenses to average net assets" for the six months ended
January 31, 1996 includes indirectly paid expenses. Excluding indirectly
paid expenses for the six months ended January 31, 1996, the expense
ratio would have been 1.07%.
(d) Calculation based on average shares outstanding.
See Notes to Financial Statements.
<PAGE>
PAGE 10
Keystone Intermediated Term Bond Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 1, 1993
Ended (Date of Initial
January 31, Year Ended July 31, Public Offering) to
1996 1995 1994(d) July 31, 1993
======================================== ============== ======== ======== ===================
<S> <C> <C> <C> <C>
(Unaudited)
Net asset value beginning of period $ 8.89 $ 8.85 $ 9.47 $ 9.35
- ---------------------------------------- ------------ ------ ------ ------------------
Income from investment operations:
Net investment income 0.26 0.56 0.49 0.29
Net realized and unrealized gain (loss)
on investments and futures contracts 0.25 0.02 (0.58) 0.12
- ---------------------------------------- ------------ ------ ------ ------------------
Total from investment operations 0.51 0.58 (0.09) 0.41
- ---------------------------------------- ------------ ------ ------ ------------------
Less distributions from:
Net investment income (0.28) (0.51) (0.49) (0.29)
In excess of net investment income 0.00 (0.03) (0.03) 0.00
Tax basis return of capital 0.00 0.00 (0.01) 0.00
- ---------------------------------------- ------------ ------ ------ ------------------
Total distributions (0.28) (0.54) (0.53) (0.29)
- ---------------------------------------- ------------ ------ ------ ------------------
Net asset value end of period $ 9.12 $ 8.89 $ 8.85 $ 9.47
- ---------------------------------------- ------------ ------ ------ ------------------
Total return (b) 5.78% 6.87% (1.05%) 4.42%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.84%(a)(c) 1.75% 1.75% 1.76%(a)
Total expenses excluding reimbursement 2.30%(a) 2.21% 2.36% 2.71%(a)
Net investment income 5.74%(a) 6.38% 5.48% 5.67%(a)
Portfolio turnover rate 75% 149% 280% 160%
- ---------------------------------------- ------------ ------ ------ ------------------
Net assets end of period (thousands) $ 18,458 $17,985 $17,819 $8,159
======================================== ============ ====== ====== ==================
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) "Ratio of total expenses to average net assets" for the six months ended
January 31, 1996 includes indirectly paid expenses. Excluding indirectly
paid expenses for the six months ended January 31, 1996, the expense
ratio would have been 1.82%.
(d) Calculation based on average shares outstanding.
See Notes to Financial Statements.
<PAGE>
PAGE 11
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 1, 1993
Ended (Date of Initial
January 31, Year Ended July 31, Public Offering) to
1996 1995 1994(d) July 31, 1993
======================================== ============ ======== ======== ===================
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value beginning of period $ 8.89 $ 8.85 $ 9.46 $ 9.35
- ---------------------------------------- ---------- ------ ------ ------------------
Income from investment operations:
Net investment income 0.26 0.55 0.49 0.29
Net realized and unrealized gain (loss)
on investments and futures contracts 0.25 0.03 (0.57) 0.11
- ---------------------------------------- ---------- ------ ------ ------------------
Total from investment operations 0.51 0.58 (0.08) 0.40
- ---------------------------------------- ---------- ------ ------ ------------------
Less distributions from:
Net investment income (0.28) (0.51) (0.49) (0.29)
In excess of net investment income 0.00 (0.03) (0.03) 0
Tax basis return of capital 0.00 0.00 (0.01) 0
- ---------------------------------------- ---------- ------ ------ ------------------
Total distributions (0.28) (0.54) (0.53) (0.29)
- ---------------------------------------- ---------- ------ ------ ------------------
Net asset value end of period $ 9.12 $ 8.89 $ 8.85 $ 9.46
- ---------------------------------------- ---------- ------ ------ ------------------
Total return (b) 5.78% 6.87% (0.95%) 4.31%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.84%(a)(c) 1.75% 1.75% 1.77%(a)
Total expenses excluding reimbursement 2.30%(a) 2.23% 2.37% 2.61%(a)
Net investment income 5.73%(a) 6.37% 5.44% 5.61%(a)
Portfolio turnover rate 75% 149% 280% 160%
- ---------------------------------------- ---------- ------ ------ ------------------
Net assets end of period (thousands) $ 10,866 $10,185 $13,086 $7,522
======================================== ========== ====== ====== ==================
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) "Ratio of total expenses to average net assets" for the six months ended
January 31, 1996 includes indirectly paid expenses. Excluding indirectly
paid expenses for the six months ended January 31, 1996, the expense
ratio would have been 1.82%.
(d) Calculation based on average shares outstanding.
See Notes to Financial Statements.
<PAGE>
PAGE 12
Keystone Intermediate Term Bond Fund
STATEMENT OF ASSETS AND LIABILITIES--
January 31, 1996 (Unaudited)
Assets (Notes 1 and 4)
Investments at market value (identified cost--
$41,916,028) $42,683,924
Cash 529
Receivable for:
Investments sold 1,062,001
Fund shares sold 35,306
Interest 566,433
Net unrealized appreciation on forward foreign
currency exchange contracts 90,197
Receivable from investment adviser 47,182
Prepaid expenses and other assets 2,870
----------------------------------------------------- ----------
Total assets 44,488,442
----------------------------------------------------- ----------
Liabilities (Notes 2 and 4)
Payable for:
Investments purchased 997,320
Fund shares redeemed 13,713
Distributions to shareholders 96,995
Due to related parties 10,741
Other accrued expenses 29,547
----------------------------------------------------- ----------
Total liabilities 1,148,316
----------------------------------------------------- ----------
Net assets $43,340,126
----------------------------------------------------- ----------
Net assets represented by (Notes 1 and 2)
Paid-in capital $46,251,929
Accumulated distributions in excess of net
investment income (175,181)
Accumulated net realized loss on investments and
futures contracts (3,593,073)
Net unrealized appreciation on investments and
foreign currency related transactions 856,451
----------------------------------------------------- ----------
Total net assets $43,340,126
----------------------------------------------------- ----------
Net Asset Value Per Share (Note 2)
Class A Shares
Net asset value of $14,016,067 / 1,538,606 shares
outstanding $9.11
Offering price per share ($9.11 / 0.9525) (based on
a sales charge of 4.75% of the offering price on
January 31, 1996) $9.56
Class B Shares
Net asset value of $18,458,125 / 2,023,343 shares
outstanding $9.12
Class C Shares
Net asset value of $10,865,934 / 1,191,465 shares
outstanding $9.12
----------------------------------------------------- ----------
STATEMENT OF OPERATIONS--
Six Months Ended January 31, 1996 (Unaudited)
Investment Income (Note 1)
Interest $1,649,183
Expenses (Notes 2 and 4)
Management fees $142,349
Transfer agent fee 56,501
Accounting, auditing and legal
fees 25,760
Custodian fees 24,662
Printing 9,864
Distribution Plan expense 162,948
Registration fees 20,533
Miscellaneous 2,744
Reimbursement from investment
adviser (98,140)
------------------------------------- ----- ---------
Total expenses 347,221
Less: Expenses paid indirectly
(Note 4) (3,887)
------------------------------------- ----- ---------
Net expenses 343,334
------------------------------------- ----- ---------
Net investment income 1,305,849
------------------------------------- ----- ---------
Net realized and unrealized gain
on investments and forward foreign
currency related transactions
(Notes 1 and 3)
Net realized gain on investments 331,218
Net change in unrealized
appreciation on:
Investments 777,108
Forward foreign currency
related transactions 88,555
------------------------------------- ----- ---------
Net change in unrealized
appreciation on investments and
forward foreign currency related
transactions 865,663
------------------------------------- ----- ---------
Net realized and unrealized gain
on investments and forward foreign
currency related transactions 1,196,881
------------------------------------- ----- ---------
Net increase in net assets resulting
from operations $2,502,730
------------------------------------- ----- ---------
See Notes to Financial Statements.
<PAGE>
PAGE 13
<TABLE>
<CAPTION>
Six Months
STATEMENTS OF CHANGES IN NET ASSETS Ended Year Ended
January 31, 1996 July 31, 1995
====================================================================== ================ ==============
<S> <C> <C>
Operations (Unaudited)
Net investment income $ 1,305,849 $ 2,911,914
Net realized gain (loss) on investments 331,218 (583,642)
Net change in unrealized appreciation on investments and forward
foreign currency exchange contracts and currency related
transactions 865,663 628,176
- ---------------------------------------------------------------------- -------------- ------------
Net increase in net assets resulting from operations 2,502,730 2,956,448
- ---------------------------------------------------------------------- -------------- ------------
Distributions to shareholders from (Note 1)
Net investment income
Class A Shares (493,187) (1,002,996)
Class B Shares (574,164) (1,010,554)
Class C Shares (319,351) (654,159)
In excess of net investment income
Class A Shares 0 (61,783)
Class B Shares 0 (62,249)
Class C Shares 0 (40,296)
- ---------------------------------------------------------------------- -------------- ------------
Total distributions to shareholders (1,386,702) (2,832,037)
- ---------------------------------------------------------------------- -------------- ------------
Capital share transactions (Note 2)
Proceeds from shares sold:
Class A Shares 690,174 1,875,188
Class B Shares 2,975,353 4,978,695
Class C Shares 1,717,194 2,124,333
Payments for shares redeemed:
Class A Shares (1,843,094) (3,937,486)
Class B Shares (3,299,528) (5,447,096)
Class C Shares (1,518,541) (5,505,917)
Net asset value of shares issued in reinvestment of dividends and
distributions:
Class A Shares 247,908 533,202
Class B Shares 312,653 576,332
Class C Shares 213,720 465,630
- ---------------------------------------------------------------------- -------------- ------------
Total decrease from capital share transactions (504,161) (4,337,119)
- ---------------------------------------------------------------------- -------------- ------------
Total increase (decrease) in net assets 611,867 (4,212,708)
- ---------------------------------------------------------------------- -------------- ------------
Net assets:
Beginning of period 42,728,259 46,940,967
- ---------------------------------------------------------------------- -------------- ------------
End of period [Including accumulated distributions in excess of net
investment income as follows: 1996--($175,181) and 1995--($94,328)]
(Note 1) $43,340,126 $42,728,259
====================================================================== ============== ============
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 14
Keystone Intermediate Term Bond Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1.) Significant Accounting Policies
Keystone Intermediate Term Bond Fund (formerly Keystone America Intermediate
Term Bond Fund) (the "Fund") is a Massachusetts business trust for which
Keystone Management, Inc. ("KMI") is the Investment Manager and Keystone
Investment Management Company (formerly Keystone Custodian Funds, Inc.)
("Keystone") is the Investment Adviser. The Fund was organized on October 24,
1986 and had no operations prior to February 13, 1987. It is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as a
diversified open-end investment company. The Fund seeks generous income from
intermediate-term investment grade bonds.
The Fund currently issues three classes of shares. Class A shares are sold
subject to 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 varies 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 predominantly of members of
current and former management of Keystone and its affiliates. Keystone
Investor Resource Center, Inc. ("KIRC"), a wholly-owned subsidiary of
Keystone, is the Fund's transfer and dividend disbursing 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
which requires management to make estimates and assumptions that affect
amounts reported herein. Although actual results could differ from these
estimates, any such differences are expected to be immaterial to the net
assets of the Fund.
A. 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 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.
Short-term investments that are purchased with maturities of sixty days or
less are valued at amortized cost (original purchase cost as adjusted for
amortization of premium or accretion of discount), which, when combined with
accrued interest, approximates market. Short-term investments maturing in
more than sixty days when purchased which are held on the sixtieth day prior
to maturity are valued at amortized cost (market value on the sixtieth day
adjusted for amortization of premium or accretion of discount) which when
combined with accrued interest, approximates market. Investments denominated
in a foreign currency are adjusted daily to reflect changes in exchange
rates. 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 Trustees, which determines valuations
<PAGE>
PAGE 15
NOTES TO FINANCIAL STATEMENTS (Unaudited)
for normal institutional-size trading units of such securities using methods
based on market transactions for comparable securities and various
relationships between securities that are generally recognized by
institutional traders.
B. The Fund may enter into futures contracts. A futures contract is an
agreement between two parties to buy and sell a specific amount of a
commodity, security, financial instrument, or, in the case of a stock index,
cash at a set price on a future date. The Fund enters into currency and other
financial futures contracts as a hedge against changes in interest or
currency exchange rates. Upon entering into a futures contract the Fund is
required to deposit with a broker an amount ("initial margin") equal to a
certain percentage of the purchase price indicated in the futures contract.
Subsequent payments ("variation margin") are made or received by the Fund
each day, as the value of the underlying instrument or index fluctuates, and
are recorded for book purposes as unrealized gains or losses by the Fund. For
federal tax purposes, any futures contracts which remain open at fiscal
year-end are marked-to-market and the resultant net gain or loss is included
in federal taxable income. In addition to the market risk, the Fund is
subject to the credit risk that the other party will not be able to complete
the obligations of the contract.
C. 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 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.
D. The Fund may enter into forward foreign currency exchange contracts
("contracts") to settle portfolio purchases and sales of securities
denominated in a foreign currency and to hedge certain foreign currency
assets. Contracts are recorded at the forward rate and are marked-to-market
daily. Realized gains and losses arising from such transactions are included
in net realized gain (loss) on foreign currency related transactions. The
Fund is subject to the credit risk that the other party will not complete the
obligations of the contract.
E. Securities transactions are accounted for no later than one business day
after the trade date. Realized gains and losses are recorded on the
identified cost
<PAGE>
PAGE 16
Keystone Intermediate Term Bond Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited)
basis. Interest income is recorded on the accrual basis. All discounts are
amortized for both financial reporting and federal income tax purposes.
F. The Fund has qualified, and intends to qualify in the future, as a
regulated investment company under the Internal Revenue Code of 1986, as
amended ("Internal Revenue Code"). Thus, the Fund expects to be relieved of
any federal income tax liability by distributing all of its net taxable
investment income and net taxable capital gains, if any, to its shareholders.
The Fund intends to avoid excise tax liability by making the required
distributions under the Internal Revenue Code.
G. The Fund distributes net investment income monthly and capital gains, if
any, annually. Distributions are determined in accordance with income tax
regulations. Distributions from taxable net investment income and net capital
gains can exceed book basis net investment income and net capital gains.
Distributions to shareholders are recorded at the close of business on the
ex-dividend date.
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 differences in the
treatment of paydown gains and losses.
(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:
Six
Months
Ended Year Ended
01/31/96 07/31/95
------------------------------------------ -------- ----------
Class A Shares
Shares sold 76,659 214,382
Shares redeemed (204,800) (449,814)
Shares issued in reinvestment of dividends
and distributions 27,641 61,155
------------------------------------------ ------ --------
Net decrease (100,500) (174,277)
========================================== ====== ========
Class B Shares
Shares sold 331,882 566,892
Shares redeemed (365,983) (624,636)
Shares issued in reinvestment of dividends
and distributions 34,808 66,016
------------------------------------------ ------ --------
Net increase 707 8,272
========================================== ====== ========
Class C Shares
Shares sold 190,512 243,954
Shares redeemed (168,445) (630,936)
Shares issued in reinvestment of dividends
and distributions 23,798 53,388
------------------------------------------ ------ --------
Net increase (decrease) 45,865 (333,594)
========================================== ====== ========
The Fund bears some of the costs of selling its shares under a Distribution
Plans adopted with respect to its Class A, Class B and Class C shares
pursuant to Rule 12b-1 under the 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 for the distribution of Class A shares. Amounts paid
by the Fund to KIDC under the Class
<PAGE>
PAGE 17
NOTES TO FINANCIAL STATEMENTS (Unaudited)
A Distribution Plan are currently used to pay others, such as dealers,
service fees at an annual rate of 0.25% of the average net asset value of
Class A shares maintained by such others.
The Class B Distribution Plans provide 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 for the distribution of Class B shares. For Class B shares sold on
or after June 1, 1995, 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 share
sold plus the first year's service fee in advance of 0.25% of the price paid
for each Class B share sold. Beginning approximately 12 months after the
purchase of such Class B shares, 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. A contingent deferred sales
charge will be imposed, if applicable, on Class B shares purchased on or
after June 1, 1995 at rates ranging from a maximum of 5% of amounts redeemed
during the first 12 month period from and including the month of purchase to
1% of amounts redeemed during the sixth twelve month period. 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 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.
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 Rules")) plus service fees at an annual rate of 0.25%,
respectively, of the average net asset value of each Class C share maintained
by such others.
Each of the Distribution Plans may be terminated at any time by a 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.
During the six months ended January 31, 1996, the Fund paid or accrued to
KIDC $16,258 for Class A Distribution Plan. During the six months ended
January 31, 1996, the Fund paid or accrued to KIDC $73,289 for Class B shares
sold prior to June 1, 1995 and $21,028 for Class B shares sold on or after
June 1, 1995. During the six months ended January 31, 1996, the Fund paid or
accrued to KIDC $52,373 for Class C Distribution Plan.
Under the applicable NASD Rules, the maximum uncollected amounts for which
KIDC may seek payment from the Fund under its Class B Distribution Plans at
January 31, 1996 are $1,096,901 for shares purchased prior to June 1, 1995
and $166,532 for shares purchased on or after June 1, 1995. The
<PAGE>
PAGE 18
Keystone Intermediate Term Bond Fund
NOTES TO FINANCIAL STATEMENTS (Unaudited)
maximum uncollected amounts for which KIDC may seek payment from the Fund
under its Class C Distribution Plan is $1,188,701 as of January 31, 1996.
Presently, The Fund's class-specific expenses are limited to Distribution
Plan expenses incurred by a class of shares pursuant to its respective
Distibution Plan.
(3.) Securities Transactions
As of July 31, 1995, the Fund had a capital loss carryover for federal income
tax purposes of approximately $3,658,000 which expires in as follows: 1999-
$970,000; 2003-$2,688,000.
For the six months ended January 31, 1996 cost of purchases and proceeds
from sales of investment securities (excluding short-term securities) were
$31,464,830 and $31,764,454, respectively.
(4.) Investment Management Agreement and Other Transactions
Under the terms of the Investment Management Agreement between KMI and the
Fund, KMI provides investment management and administrative services to the
Fund. In return, KMI is paid a management fee, computed and paid daily,
calculated at a rate of 2.0% of the Fund's gross investment income plus an
amount determined by applying percentage rates, which start at 0.50% and
decline, as net assets increase, to 0.25% per annum, to the net asset value
of the Fund.
KMI has entered into an Investment Advisory Agreement with Keystone under
which Keystone provides investment advisory and management services to the
Fund and receives for its services an annual fee representing 85% of the
management fee received by KMI.
During the six months ended January 31, 1996, the Fund paid or accrued
investment management fees of $142,349 which represented 0.65% of the Fund's
average net assets on an annualized basis. Of such amount paid to KMI,
$120,997 was paid to Keystone for its services to the Fund.
During the six months ended January 31, 1996 the Fund paid or accrued
$56,501 to KIRC for transfer agent fees and $9,337 to KII as reimbursement
for certain accounting services.
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
assets, 2.0 % of the next $70 million of Fund assets, and 1.5% of Fund assets
over $100 million.
Effective October 2, 1995 Keystone has voluntarily agreed to limit the
expenses of the Fund to 1.10% on Class A shares and 1.85% on Class B and
Class C shares. Prior to October 2, 1995, Keystone voluntarily agreed to
limit expenses of the Fund to 1.00% for Class A shares and 1.75% for Class B
and C shares. Keystone would not be required to make such reimbursement to an
extent which would result in the Fund's inability to qualify as a regulated
investment company under the provisions of the Internal Revenue Code. In
accordance with these voluntary expense limitations, Keystone reimbursed
$98,140 during the six months ended January 31, 1996. Keystone does not
intend to seek repayment of these amounts.
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.
<PAGE>
PAGE 19
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(5.) Distributions to Shareholders
Distributions of $0.045 per share for Class A, $0.039 for Class B, and $0.039
for Class C from net investment income were declared payable by March 6, 1996
to shareholders of record February 26, 1996. These distributions are not
reflected in the accompanying financial statements.
<PAGE>
[1 pg. cover]
[front]
KEYSTONE
[photo of pasture, fence and trees]
INTERMEDIATE TERM
BOND FUND
[keystone logo]
SEMIANNUAL REPORT
JANUARY 31, 1996
[back]
[boxed copy]
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
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.
[logo] KEYSTONE
INVESTMENTS
P.O. Box 2121
Boston, Massachusetts 02106-2121
ITBF-SAR-3/96
4.5M [recycled symbol]
