[Front cover]
K E Y S T O N E
[Photo of family in front of house]
FUND FOR
TOTAL RETURN
[Keystone logo]
ANNUAL REPORT
NOVEMBER 30, 1995
<PAGE>
Page 1
Keystone Fund for Total Return
Seeks growth and income from income-producing stocks,
convertible securities, and bonds in the U.S. and abroad.
Dear Shareholder:
We would like to take this opportunity to report on your Fund's performance
and review recent market events for the twelve-month period which ended
November 30, 1995.
Performance
Your Fund produced satisfactory results, especially during the second half of
the twelve-month period. For the periods which ended November 30, 1995:
Class A shares returned 13.28% for the six-month period and 26.57% for the
twelve-month period.
Class B shares returned 12.83% for the six-month period and 25.59% for the
twelve-month period.
Class C shares returned 12.91% for the six-month period and 25.57% for the
twelve-month period.
The performance of your Fund improved during the year as we moved from a
relatively cautious strategy to one that took advantage of the increasing
strength of the market environment. At the start of your Fund's fiscal period
in December 1994, stock prices were fluctuating broadly in reaction to an
uncertain economic environment. At that time, we were pursuing a generally
cautious investment strategy that was aimed at minimizing the effects of a
possible market correction. As it turned out, we may have been too cautious.
Economic growth slowed, interest rates declined, fears of inflation
disappeared and the U.S. stock market rallied.
In 1995, we moderated our strategy to participate in the improved
environment for dividend-paying stocks in which your Fund invests. Stocks of
large, established companies rallied, benefiting your Fund's holdings of
finance, technology, and drug stocks. We were encouraged by the improved
performance.
As the year progressed, we took advantage of your Fund's flexibility and
added stocks of growth companies with accelerating earnings to the portfolio.
Growth company stocks were strong performers, contributing significantly to
your Fund's price appreciation during the second half of the twelve-month
period.
Our outlook
We were encouraged by the market's strong showing in 1995 and expect that the
positive environment for stocks should continue in 1996. We anticipate slow
but moderate economic growth, low inflation and stable-to-declining interest
rates. We have concentrated the Fund's investments in stocks that we believe
are appropriate.
We continue to believe that the current environment remains healthy for
stocks. However, we believe that returns in 1996 may be less than the
extraordinary performance of 1995. Investors should not be surprised to see a
short-term pullback in stock prices in the months ahead. If a normal
correction occurs, we would view it as an opportunity to invest in stocks at
lower prices. We believe your Fund's primary focus on established, dividend-
paying investments should continue to provide excellent long-term growth
opportunities.
Sincerely,
/s/Albert H. Elfner, III
Albert H. Elfner, III
Chairman and President
Keystone Investments, Inc.
/S/George S. Bissell
George S. Bissell
Chairman of the Board
Keystone Funds
January 1996
<PAGE>
Page 2
Keystone Fund for Total Return
A Discussion With
Your Fund Manager
Walter McCormick is senior portfolio manager of your Fund and leads
Keystone's core equity stock team. A Chartered Financial Analyst, Mr.
McCormick holds an MBA from Rutgers University and has more than 25 years
of investment management experience. Together with portfolio managers
Andrew Baldassarre, Jonathan Noonan, Judith Warners, George Wilkins and
Walter Zagrobski, the team focuses on income-producing stocks of
established companies that are attractively valued.
Q. What was the economic environment like during the period?
A. The economic and market environment improved remarkably during the period.
The end of 1994 was marked by strong economic growth and rising interest
rates, which were unsettling for stocks. Throughout 1995, economic growth
moderated to a slower, sustainable pace; interest rates declined; and
corporate earnings continued to exceed investor expectations. This was an
excellent environment for stocks, in our opinion.
Q. How did the Fund perform during the twelve-month period?
A. We believe the Fund provided satisfactory results, in line with the
performance of the typical equity- income fund. At the beginning of the
fiscal year in December 1994, economic growth was strong, interest rates had
risen significantly, and we were concerned that inflation might accelerate.
With this economic backdrop, we took a conservative approach to managing the
Fund. We held about 15% of the portfolio's assets in cash and maintained a
significant emphasis on companies that we believed would be less volatile.
However, at the beginning of 1995, economic growth appeared to slow,
interest rates declined and stocks rallied. The Fund generally benefited from
this improved environment. But, aggressive growth investments, which
typically involve more risk and fluctuate more than most of your Fund's
investments, fared better. The Fund's performance improved, resulting in a
13.28% return for Class A shares during the second half of the fiscal year
(May 31, 1995 through November 30, 1995).
Q. How did you manage the Fund?
A. Stock selection was key to the Fund's positive performance. We primarily
sought stable growth companies whose consistent earnings progress we believed
would provide price appreciation. We emphasized dividend-paying stocks of
selected well established U.S. companies. Early in 1995, large, blue chip
companies led the stock market rally. They benefited from a weak U.S. dollar
and from brisk demand for their products overseas.
Around midyear, we took advantage of the Fund's flexibility and invested
about 10% of the portfolio in stocks of growth companies with accelerating
earnings. These tended to be smaller companies, and they contributed
significantly to your Fund's price appreciation.
Q. Recently, you have been focusing on stable growth companies. What are
they?
A. Stable growth companies -- also known as noncyclicals -- tend to be less
affected by swings in the economic cycle. These companies tend to grow
regardless of the state of the economy. At Keystone, we often refer to the
stocks of stable growth companies as "ruler stocks." If we plot their
earnings-per-share over time, it typically results in a straight, upward
sloping line. Their growth tends to be steady and consistent. Gillette is a
good example of a "ruler stock." (See Chart, page 3)
Fund Profile
Objective: Seeks growth and income from income-producing stocks, convertible
securities and bonds in the U.S. and abroad.
Commencement of investment operations: April 14, 1987
Number of stocks: 71
Net assets: $57 million
Newspaper symbol: TotRt
<PAGE>
Page 3
Top 5 Industries
as of November 30, 1995
Percentage of
Industry net assets
Finance 13.8(1)
Chemicals 6.0
Oil 5.9
Software services 5.3
Consumer goods 4.8
(1)Includes 3.7% invested in real estate investment trusts.
Q. You added some new names to the portfolio in the financial services area.
Why?
A. We invested in several financial services stocks such as banks, brokerage
and mortgage companies. On November 30, 1995, financial stocks accounted for
14% of net assets. 1995 was a particularly advantageous time for financial
services companies. These companies enjoyed the rewards of declining interest
rates, and bank stocks benefited from the consolidation of the industry. We
added BankAmerica to the portfolio. We also invested in Donaldson Lufkin &
Jenrette, a brokerage firm that we believed was undervalued, and PMI Group, a
private mortgage insurance company. The latter two of these companies are
among your Fund's top ten holdings.
We also added real estate investment trusts (REITs) to the portfolio,
because we believed they were undervalued and an attractive source of income.
We invested in high-quality, low-risk REITs, such as Spieker Properties, an
owner and developer of commercial properties in northern California and the
Pacific northwest, and Storage USA, an organization that acquires and manages
self-storage properties throughout the U.S.
Q. You also emphasized technology companies which were strong performers
during the period.
A. We did. While the term "technology" tends to encompass a broad range of
businesses -- telecommunications, electronics, office and business equipment
- -- we found some of the most attractive stocks in the software area. We
invested in BMC Software, a company that develops programs for mainframe
computers, and Computer Associates, a company that produces software for a
variety of computer applications. These companies generated
better-than-expected earnings, and their stock prices generally benefited
because of it.
Q. Chemical stocks continued to be among the Fund's top industry holdings.
What opportunities did you find there?
A. Some of the best performing stocks were those of fertilizer companies and
those of large chemical companies that produce agricultural products. These
included Arcadia Corporation, Potash Corporation of Saskatchewan, Dow
Chemical and Monsanto. There are relatively few companies that produce
chemicals for agricultural purposes, and these companies have developed
products that we believe are in demand. The chemical companies in the
portfolio generated solid, steady earnings and were strong contributors to
your Fund's total return.
[typeset representation of line chart]
Historical Earnings of Gillette
Earnings per share
Share price
Dec. 8, 1995 53-1/4
1986 0.36
1987 0.5
1988 0.61
1989 0.67
1990 0.8
1991 0.87
1992 1.16
1993 1.33
1994 1.57
1995 1.85
1996 2.15
<PAGE>
Page 4
Keystone Fund for Total Return
Q.You also continued to hold convertible securities. What made them
attractive?
A. We emphasized convertible securities for their attractive yields and price
appreciation potential. Nearly 8% of the Fund's net assets were invested in
convertible securities. These securities are convertible into common stock at
predetermined prices. As a result, their prices tend to rise along with
increases in common stock prices. They were strong performers during the
twelve-month period. Alco Standard, a convertible preferred stock holding,
was one of your Fund's top ten holdings. Alco Standard is a marketer and
distributor of paper products. Its AOP division is the largest office
products dealer network in the world.
Q. What is your outlook?
A. Our outlook remains cautiously optimistic. We believe moderate economic
growth, low inflation, and stable-to-declining interest rates should create
an attractive environment for the stable growth companies in which your Fund
invests. In a slower growing economy, we believe investors will pay more for
the consistent earnings that these types of companies tend to generate. While
we think stock prices may rise over the next six to twelve months, we do not
expect stocks to duplicate the very strong gains they generated in 1995. We
believe your Fund's flexibility and its emphasis on income- producing
investments should provide it with the potential to produce above-average
returns over the long term.
Top 10 Stock Holdings
as of November 30, 1995
<TABLE>
<CAPTION>
Percentage of
Stock Industry net assets
<S> <C> <C>
General Electric Capital goods 2.9
Philip Morris Foods 2.7
Boeing Aerospace 2.6
Donaldson Lufkin & Jenrette Finance 2.3
Alco Standard (cpf) Diversified companies 2.1
PMI Group Finance 2.1
Regal Beloit Capital Goods 1.9
Computer Sciences Software services 1.9
Burlington Northern (cpf) Transportation 1.9
Dow Chemical Chemicals 1.9
</TABLE>
cpf - convertible preferred stock
(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, Inc.
Attn: Shareholder Communications, 22nd Floor,
200 Berkeley Street, Boston, Massachusetts 02116-5034.
<PAGE>
Page 5
Your Fund's Performance
[typeset representation of mountain chart]
Initial Reinvested
Investment Distributions
9500 9500
11/87 8209 8300
8982 9626
11/89 10858 12146
9793 11921
11/91 11037 13912
11800 15658
11/93 11602 17641
11074 17173
11/95 13035 21736
A $10,000 investment in Keystone Fund for Total Return Class A made on April 14,
1987 with all distributions reinvested was worth $21,736 on November 30, 1995.
Past performance is no guarantee of future results.
Twelve-Month Performance as of November 30, 1995
Class A Class B Class C
Total returns* 26.57% 25.59% 25.57%
Net asset value 11/30/94 $11.75 $11.77 $11.78
11/30/95 $13.83 $13.84 $13.85
Dividends $ 0.32 $ 0.25 $ 0.25
Capital Gains $ 0.65 $ 0.65 $ 0.65
* Before deducting any sales charges.
Historical Record as of November 30, 1995
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 26.57% 25.59% 25.57%
1-year 19.29% 21.59% 25.57%
5-year 71.85% -- --
Life of Class 117.36% 26.48% 29.56%
Average annual returns
1-year w/o sales charge 26.57% 25.59% 25.57%
1-year 19.29% 21.59% 25.57%
5-year 11.44% -- --
Life of Class 9.41% 8.64% 9.57%
Class A share performance is reported from the commencement of investment
operations on April 14, 1987. Performance is reported at the current maximum
front-end sales charge of 5.75%.
Class B share performance is reported from the commencement of investment
operations on February 1, 1993. Class B 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 for another Keystone fund by phone or in
writing for a $10 fee. The exchange fee is waived for individual investors
who make an exchange using Keystone's Automated Response Line (KARL). The
Fund reserves the right to change or terminate the exchange offer.
<PAGE>
Page 6
Keystone Fund for Total Return
Growth of an Investment
= = = = = = = = = = = = = = = = [Line Chart] = = = = = = = = = = = = = = = = =
Comparison of change in value of a $10,000 investment in Keystone Fund for Total
Return, the Standard & Poor's 500 Index, and the Consumer Price Index.
In Thousands April 14, 1987 through November 30, 1995
Average Annual Total Return
------------------------------------------
1 Year 5 Year Life of Class
Class A 19.29% 11.44% 9.41%
Class B 21.59% -- 8.64%
Class C 25.57% -- 9.57%
Class A S&P CPI
9500 10000 10000
11/87 8300 8071 10294
9626 9919 10731
11/89 12146 12940 11231
11921 12469 11936
11/91 13912 15003 12293
15658 17779 12667
11/93 17641 19575 13006
17173 19781 13354
11/95 21736 27096 13711
Past performance is no guarantee of future results. The performance of Class
B or Class C shares will be greater or less than the line shown based on
differences in loads and fees paid by the shareholder investing in the
different classes. Class B and Class C shares were introduced February 1,
1993. The Standard & Poor's 500 Index is from March 31, 1987. The Consumer
Price Index is through October 31, 1995.
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
This chart graphically compares your Fund's total return performance to
certain investment indexes. It is the result of fund performance guidelines
issued by the Securities and Exchange Commission. The intent is to provide
investors with more information about their investment.
Components of the Chart
The chart is composed of three lines that represent the accumulated value of
an initial $10,000 investment for the period indicated. The lines illustrate
a hypothetical investment in:
1. Keystone Fund for Total Return Class A
The Fund seeks growth with income from income- producing stocks, convertible
securities, and bonds in the U.S. and abroad. The return is quoted after
deducting sales charges (if applicable), fund expenses and transaction costs
and assumes reinvestment of all distributions.
2. Standard & Poor's 500 Index (S&P 500)
The S&P 500 is a broad-based unmanaged index of common stock prices. It is
comprised of stocks of the largest U.S. companies. These stocks are selected
and compiled by Standard & Poor's Corporation according to criteria that may
be unrelated to your Fund's investment objective.
3. Consumer Price Index (CPI)
This index is a widely recognized measure of the cost of goods and services
produced in the U.S. The index contains factors such as prices of services,
housing, food, transportation and electricity which are compiled by the U.S.
Bureau of Labor Statistics. The CPI is generally considered a valuable
benchmark for investors who seek to outperform increases in the cost of living.
These indexes do not include transaction costs associated with buying and
selling securities, and do not hold cash to meet redemptions. It would be
difficult for most individual investors to duplicate these indexes.
Understanding What the Chart Means
The chart demonstrates your Fund's total return performance in relation to a
well known investment index and to increases in the cost of living. It is
important to understand what the chart shows and does not show.
This illustration is useful because it charts Fund and index performance over
the same time frame and over a long period. Long-term performance is a more
reliable and useful measure of performance than measurements of short-term
returns or temporary swings in the market. Your financial adviser can help
you evaluate fund performance in conjunction with the other important
financial considerations such as safety, stability and consistency.
<PAGE>
Page 7
Limitations of the Chart
The chart, however, limits the evaluation of Fund performance in several
ways. Because the measurement is based on total returns over an extended
period of time, the comparison often favors those funds which emphasize
capital appreciation when the market is rising. Likewise, when the market is
declining, the comparison usually favors those funds which take less risk.
Performance Can Be Distorted
Funds which are more conservative in their orientation and which place an
emphasis on capital preservation will tend to compare less favorably when the
market is rising. In addition, funds which have income as one of their
objectives also will tend to compare less favorably to relevant indexes.
Indexes may also reflect the performance of some securities which a fund may
be prohibited from buying. A bond fund, for example, may be limited to
investments in only high quality bonds, or a stock fund may only be able to
buy stocks that have been traded on a stock exchange for a minimum number of
years or of a certain company size. Indexes usually do not have the same
investment restrictions as your Fund.
Indexes Do Not Include Costs of Investing
The comparison is further limited in its utility because the index does not
take into account any deductions for sales charges, transaction costs or
other fund expenses. Your Fund's performance figures do reflect such
deductions. Sales charges--whether up-front or deferred--pay for the cost of
the investment advice of your financial adviser. Transaction costs pay for
the costs of buying and selling securities for your Fund's portfolio. Fund
expenses pay for the costs of investment management and various shareholder
services. None of these costs are reflected in index total returns. The
comparison is not completely realistic because an index cannot be duplicated
by an investor--even an unmanaged index--without incurring some charges and
expenses.
One of Several Measures
The chart is one of several tools you can use to understand your investment.
It should be read in conjunction with the Fund's prospectus, and annual and
semiannual reports. Also, your financial adviser, who understands your
personal financial situation, can best explain the features of your Keystone
fund and how it applies to your financial needs.
Future Returns May Be Different
Shareholders also should be mindful that the long-run performance of either
the Fund or the indexes is not representative of what shareholders should
expect to receive from their Fund investment in the future; it is presented
to illustrate only past performance and is not a guarantee of future returns.
<PAGE>
Page 8
Keystone Fund for Total Return
SCHEDULE OF INVESTMENTS--November 30, 1995
<TABLE>
<CAPTION>
Number Market
of Shares Value
------------------------------------------ ---------- --------------
<S> <C> <C>
COMMON STOCKS (81.0%)
Advertising & Publishing (1.3%)
Viacom, Inc., Class B (a) 15,000 $ 723,750
------------------------------------------ -------- ------------
Aerospace (2.6%)
Boeing Co. (The) 20,000 1,457,500
------------------------------------------ -------- ------------
Automotive (4.1%)
Chrysler Corp. 15,000 778,125
General Motors Corp. 10,000 485,000
Lear Seating Corp. (a) 25,000 700,000
Volvo A.B., ADR, Class B* 18,200 381,063
------------------------------------------ -------- ------------
2,344,188
------------------------------------------ -------- ------------
Building Materials (1.4%)
Centex Corp. 25,000 821,875
------------------------------------------ -------- ------------
Business Services (1.3%)
Thermo Electron Corp. (a) 15,000 742,500
------------------------------------------ -------- ------------
Capital Goods (4.9%)
General Electric Co. 25,000 1,681,250
Regal Beloit Corp. 50,000 1,100,000
------------------------------------------ -------- ------------
2,781,250
------------------------------------------ -------- ------------
Chemicals (6.0%)
Arcadian Corp. 40,000 830,000
Dow Chemical Co. 15,000 1,063,125
Monsanto Co. 7,500 858,750
Potash Corp. of Saskatchewan, Inc. 10,000 691,250
------------------------------------------ -------- ------------
3,443,125
------------------------------------------ -------- ------------
Consumer Goods (4.8%)
Eastman Kodak Co. 10,000 680,000
Gillette Co. 20,000 1,037,500
International Flavors & Fragrances, Inc.,
Common Rts. 20,000 1,022,500
------------------------------------------ -------- ------------
2,740,000
------------------------------------------ -------- ------------
Drugs (4.5%)
Bristol Meyers Squibb Co. 10,000 802,500
Johnson & Johnson 10,000 866,250
Merck & Co., Inc. 14,700 909,562
------------------------------------------ -------- ------------
2,578,312
------------------------------------------ -------- ------------
Electronic Equipment (0.8%)
Texas Instruments, Inc. 7,500 $ 434,062
------------------------------------------ -------- ------------
Electronics Products (3.2%)
Microchip Technology, Inc. (a) 15,000 603,750
Motorola, Inc. 10,000 612,500
Solectron Corp. (a) 15,000 637,500
------------------------------------------ -------- ------------
1,853,750
------------------------------------------ -------- ------------
Engineering & Construction (1.0%)
Foster Wheeler Corp., Common Rts. 15,000 592,500
------------------------------------------ -------- ------------
Finance (13.8%)
Avalon Properties, Inc. (R.E.I.T.)* 27,500 536,250
BankAmerica Corp. 15,000 954,375
Bay Apartment Community, Inc. (R.E.I.T.)* 30,000 652,500
Beacon Properties Corp. (R.E.I.T.)* 30,000 615,000
Camden Property Trust (R.E.I.T.)* 25,000 515,625
Donaldson Lufkin & Jenrette, Inc. (a) 40,000 1,330,000
Liberty Property Trust (R.E.I.T.)* 25,000 487,500
Patriot American Hospitality, Inc.
(R.E.I.T.)* (a) 30,000 712,500
PMI Group, Inc. 25,000 1,187,500
Spieker Properties, Inc. (R.E.I.T.)* 25,000 612,500
Storage USA, Inc. (R.E.I.T.)* 10,000 303,750
------------------------------------------ -------- ------------
7,907,500
------------------------------------------ -------- ------------
Foods (2.7%)
Philip Morris Cos., Inc. 17,500 1,535,625
------------------------------------------ -------- ------------
Healthcare Services (1.4%)
Columbia/HCA Healthcare Corp. 15,000 774,375
------------------------------------------ -------- ------------
Insurance (1.6%)
General Reinsurance Corp. 2,000 299,250
Providian Corp. 15,000 601,875
------------------------------------------ -------- ------------
901,125
------------------------------------------ -------- ------------
Natural Gas (3.5%)
Burlington Resources, Inc., Rts. 15,000 577,500
Enron Corp. 20,000 750,000
Sonat, Inc. 20,000 645,000
------------------------------------------ -------- ------------
1,972,500
See Notes to Schedule of Investments.
<PAGE>
Page 9
Number Market
of Shares Value
- ------------------------------------------ -------- ------------
Office & Business Equipment (1.8%)
IBM Corp. 10,800 $ 1,043,550
------------------------------------------ -------- ------------
Oil (5.9%)
Amoco Corp. 6,000 406,500
Atlantic Richfield Co. 3,500 379,313
Chevron Corp., Common Rts. 15,000 740,625
Mobil Corp., Common Rts. 6,000 626,250
Occidental Petroleum Corp. 30,000 663,750
Unocal Corp. 20,000 537,500
------------------------------------------ -------- ------------
3,353,938
------------------------------------------ -------- ------------
Oil Services (2.6%)
Halliburton Co. 10,000 433,750
Schlumberger Ltd. 7,500 476,250
Tidewater, Inc., Common Rts. 20,000 572,500
------------------------------------------ -------- ------------
1,482,500
------------------------------------------ -------- ------------
Paper & Packaging (1.7%)
Bowater, Inc. 13,600 540,600
Weyerhaeuser Co. 10,000 452,500
------------------------------------------ -------- ------------
993,100
------------------------------------------ -------- ------------
Retail (1.0%)
Wal-Mart Stores, Inc. 25,000 600,000
------------------------------------------ -------- ------------
Software Services (5.3%)
BMC Software, Inc. (a) 20,000 847,500
Computer Associates International, Inc. 15,000 982,500
Computer Sciences Corp., Common Rts. (a) 15,000 1,091,250
DST Systems, Inc. Del (a) 3,000 86,625
------------------------------------------ -------- ------------
3,007,875
------------------------------------------ -------- ------------
Telecommunications (2.3%)
Bell South Corp. 14,000 544,250
GTE Corp. 18,000 767,250
------------------------------------------ -------- ------------
1,311,500
------------------------------------------ -------- ------------
Utilities (1.5%)
Central & South West Corp. 20,000 $ 537,500
Florida Progress Corp., Rts. 9,000 309,375
------------------------------------------ -------- ------------
846,875
------------------------------------------ -------- ------------
TOTAL COMMON STOCKS
(Cost--$36,444,859) $46,243,275
-------------------------------------------------------- ------------
PREFERRED STOCKS (10.4%)
Chemicals (1.1%)
Atlantic Richfield Co. 25,000 625,000
------------------------------------------ -------- ------------
Diversified Companies (2.1%)
Alco Standard Corp., Conv., Depository
Shares 12,500 1,209,375
------------------------------------------ -------- ------------
Insurance (2.6%)
Allstate Corp. 15,000 643,125
St. Paul Capital LLC. 15,000 856,875
------------------------------------------ -------- ------------
1,500,000
------------------------------------------ -------- ------------
Foreign (1.3%)
Canadian National RY Co. (a) 50,300 754,500
------------------------------------------ -------- ------------
Software Services (1.4%)
Houghton Mifflin Co., Conv. 11,000 825,000
------------------------------------------ -------- ------------
Transportation (1.9%)
Burlington Northern, Santa Fe, Inc.,
6.250%, Cumulative Conv., Pfd., Series A 12,500 1,073,437
------------------------------------------ -------- ------------
TOTAL PREFERRED STOCKS
(Cost--$4,522,163) $ 5,987,312
-------------------------------------------------------- ------------
</TABLE>
<TABLE>
<CAPTION>
Par
Value
- ------------------------------ ------- --------
<S> <C> <C>
FIXED INCOME/CONVERTIBLE BONDS (3.0%)
Capital Goods (1.7%)
AGCO Corp., Conv. Debentures,
6.500%, 2008 $125,000 422,500
U.S. Filter Corp., Conv.
Notes, 6.000%, 2005 (c) 500,000 517,500
- ------------------------------ ----- ------
940,000
- ------------------------------ ----- ------
</TABLE>
See Notes to Schedule of Investments.
<PAGE>
Page 10
Keystone Fund for Total Return
<TABLE>
<CAPTION>
Par Market
Value Value
- --------------------------------------------------------
<S> <C> <C>
OFFICE EQUIPMENT (1.3%)
Staples, Inc., Conv.
Debentures, 4.500%, 2000 (c) $750,000 $ 756,563
- --------------------------------------------------------
TOTAL FIXED INCOME
(Cost--$1,555,975) $1,696,563
- --------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Maturity
Value
- --------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.1%)
Repurchase Agreements (5.1%)
Investments in repurchase
agreements, in a joint trading
account purchased 11/30/95,
5.881%, maturing 12/01/95 (Cost
$2,943,000) (b) 2,943,481 2,943,000
- --------------------------------------------------------------
TOTAL INVESTMENTS
(Cost--$45,465,997) (d) 56,870,150
OTHER ASSETS AND LIABILITIES (0.5%) 274,470
- --------------------------------------------------------------
NET ASSETS (100.0%) $57,144,620
- --------------------------------------------------------------
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income-producing security.
(b) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at November 30, 1995.
(c) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to section 144A of the Federal
Securities Act of 1933, as amended. These securities have been determined
to be liquid under guidelines established by the Board of Trustees.
(d) The cost of investments for federal income tax purposes is identical.
Gross unrealized appreciation and depreciation of investments, based on
identified tax cost, at November 30, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized
appreciation $12,032,441
Gross unrealized
depreciation (628,288)
----------
$11,404,153
==========
</TABLE>
*Legend of Portfolio abbreviations:
ADR--American Depository Receipts.
R.E.I.T.--Real Estate Investment Trust.
<PAGE>
[RESTUBED TABLE]
Page 11
Keystone Fund for Total Return
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
See Notes to Schedule of Investments.
<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------------------
1995 1994 1993 1992
=============================== ======== ====== ====== ========
<S> <C> <C> <C> <C>
Net asset value beginning of
period $ 11.75 $ 12.31 $ 12.06 $ 11.45
- ------------------------------- ------ ---- ---- ------
Income from investment
operations:
Net investment income 0.25 0.24 0.21 0.23
Net gains (losses) on
securities 2.80 (0.56) 1.31 1.19
- ------------------------------- ------ ---- ---- ------
Total from investment
operations 3.05 (0.32) 1.52 1.42
- ------------------------------- ------ ---- ---- ------
Less distributions:
Dividends from net investment
income (0.25) (0.24) (0.21) (0.23)
Distributions in excess of net
investment income (0.07) 0.00 (0.03) (0.05)
Distributions from capital
gains (0.65) 0.00 (1.03) (0.53)
- ------------------------------- ------ ---- ---- ------
Total distributions (0.97) (0.24) (1.27) (0.81)
- ------------------------------- ------ ---- ---- ------
Net asset value end of period $ 13.83 $ 11.75 $ 12.31 $ 12.06
=============================== ====== ==== ==== ======
Total return (a) 26.57% (2.65%) 12.67% 12.56%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.69%
(d) 1.59% 1.85% 1.85%
Net investment income 1.94% 1.93% 1.63% 1.87%
Portfolio turnover rate 77% 57% 92% 66%
- ------------------------------- ------ ---- ---- ------
Net assets end of period
(thousands) $27,037 $23,162 $26,367 $23,607
=============================== ====== ==== ==== ======
</TABLE>
<PAGE>
Page 11
Keystone Fund for Total Return
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 13, 1987
(Commencement of
Operations) to
1991 1990 1989 1988 November 30, 1987
=============================== ========= =========== ======= ======= ================
<S> <C> <C> <C> <C> <C>
Net asset value beginning of
period $ 10.29 $ 10.89 $ 9.41 $ 8.59 $ 10.00
- ------------------------------- ------- --------- ----- ----- --------------
Income from investment
operations:
Net investment income 0.34 0.41 0.42 0.46 0.30
Net gains (losses) on
securities 1.38 (0.61) 2.01 0.89 (1.47)
- ------------------------------- ------- --------- ----- ----- --------------
Total from investment
operations 1.72 (0.20) 2.43 1.35 (1.17)
- ------------------------------- ------- --------- ----- ----- --------------
Less distributions:
Dividends from net investment
income (0.35) (0.40) (0.42) (0.53) (0.24)
Distributions in excess of net
investment income (0.05) 0.00 0.00 0.00 0.00
Distributions from capital
gains (0.16) 0.00 (0.53) 0.00 0.00
- ------------------------------- ------- --------- ----- ----- --------------
Total distributions (0.56) (0.40) (0.95) (0.53) (0.24)
- ------------------------------- ------- --------- ----- ----- --------------
Net asset value end of period $ 11.45 $ 10.29 $ 10.89 $ 9.41 $ 8.59
=============================== ======= ========= ===== ===== ==============
Total return (a) 16.70% (1.85%) 26.17% 15.98% (11.94%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.88% 2.00% (b) 2.00%(b) 1.47%(b) 1.00%(b)(c)
Net investment income 2.98% 3.85% 3.94% 4.87% 4.94%(c)
Portfolio turnover rate 43% 51% 50% 64% 16%
- ------------------------------- ------- --------- ----- ----- --------------
Net assets end of period
(thousands) $22,974 $22,080 $22,764 $20,735 $ 7,672
=============================== ======= ========= ===== ===== ==============
</TABLE>
(a) Excluding applicable sales charges.
(b) Figure is 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 2.41%,
2.48%, 2.92%, and 4.77% (on an annualized basis), respectively, for the
years ended 1990, 1989, 1988 and the period from February 13, 1987
(Commencement of Operations) to November 30, 1987.
(c) Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to November 30, 1987.
(d) The expense ratio includes indirectly paid expenses for the year ended
November 30, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 1.67%.
See Notes to Financial Statements.
<PAGE>
Page 12
Keystone Fund for Total Return
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
Year Ended November 30, (Date of Initial
------------------------------ Public Offering) to
1995 1994 November 30, 1993
=============================================== ============= ============== ===================
<S> <C> <C> <C>
Net asset value beginning of period $ 11.77 $12.32 $12.65
- ----------------------------------------------- ----------- ------------ -----------------
Income from investment operations:
Net investment income 0.15 0.15 0.10
Net gains (losses) on securities 2.82 (0.56) 0.74
- ----------------------------------------------- ----------- ------------ -----------------
Total from investment operations 2.97 (0.41) 0.84
- ----------------------------------------------- ----------- ------------ -----------------
Less distributions:
Dividends from net investment income (0.15) (0.14) (0.10)
Distributions in excess of net investment
income (0.10) 0.00 (0.04)
Distributions from capital gains (0.65) 0.00 (1.03)
- ----------------------------------------------- ----------- ------------ -----------------
Total distributions (0.90) (0.14) (1.17)
- ----------------------------------------------- ----------- ------------ -----------------
Net asset value end of period $ 13.84 $11.77 $12.32
=============================================== =========== ============ =================
Total return(a) 25.59% (3.36%) 6.68%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.47%(c) 2.31% 2.64%(b)
Net investment income 1.06% 1.27% 0.84%(b)
Portfolio turnover rate 77% 57% 92%
- ----------------------------------------------- ----------- ------------ -----------------
Net assets end of period (thousands) $20,605 $7,314 $4,283
=============================================== =========== ============ =================
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized for the period February 1, 1993 (Date of Initial Public
Offering) to November 30, 1993.
(c) The expense ratio includes indirectly paid expenses for the year ended
November 30, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 2.46%.
See Notes to Financial Statements.
<PAGE>
Page 13
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
Year Ended November 30, (Date of Initial
------------------------- Public Offering) to
1995 1994 November 30, 1993
=================================================== =========== ========== ===================
<S> <C> <C> <C>
Net asset value beginning of period $11.78 $12.33 $12.65
- --------------------------------------------------- --------- -------- -----------------
Income from investment operations:
Net investment income 0.16 0.15 0.10
Net gains (losses) on securities 2.81 (0.56) 0.75
- --------------------------------------------------- --------- -------- -----------------
Total from investment operations 2.97 (0.41) 0.85
- --------------------------------------------------- --------- -------- -----------------
Less distributions:
Dividends from net investment income (0.16) (0.14) (0.10)
Distributions in excess of net investment income (0.09) 0.00 (0.04)
Distributions from capital gains (0.65) 0.00 (1.03)
- --------------------------------------------------- --------- -------- -----------------
Total distributions (0.90) (0.14) (1.17)
- --------------------------------------------------- --------- -------- -----------------
Net asset value end of period $13.85 $11.78 $12.33
=================================================== ========= ======== =================
Total return(a) 25.57% (3.36%) 6.76%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.47%(c) 2.34% 2.64%(b)
Net investment income 1.16% 1.21% 0.83%(b)
Portfolio turnover rate 77% 57% 92%
- --------------------------------------------------- --------- -------- -----------------
Net assets, end of period (thousands) $9,503 $5,968 $5,030
=================================================== ========= ======== =================
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized for the period February 1, 1993 (Date of Initial Public
Offering) to November 30, 1993.
(c) The expense ratio includes indirectly paid expenses for the year ended
November 30, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 2.44%.
See Notes to Financial Statements.
<PAGE>
Page 14
Keystone Fund for Total Return
STATEMENT OF ASSETS AND LIABILITIES--
November 30, 1995
<TABLE>
<S> <C>
Assets:
Investments at market value (identified
cost--$45,465,997) (Note 1) $56,870,150
Receivable for:
Fund shares sold 49,824
Investments sold 340,652
Dividends and interest 122,371
Prepaid expenses and other assets 2,537
- ---------------------------------------------------- ----------
Total assets 57,385,534
- ---------------------------------------------------- ----------
Liabilities:
Payable for:
Fund shares redeemed 13,239
Income distribution 35,682
Distribution to shareholders 83,702
Other liabilities 49,166
Other accrued expenses 59,125
- ---------------------------------------------------- ----------
Total liabilities 240,914
- ---------------------------------------------------- ----------
Net assets $57,144,620
==================================================== ==========
Net assets represented by (Notes 1 and 3):
Paid-in-capital $45,859,851
Accumulated distributions in excess of net
investment income (35,682)
Accumulated net realized gain (loss) on investment
transactions (83,702)
Net unrealized appreciation (depreciation) on
investments and other assets and liabilities 11,404,153
- ---------------------------------------------------- ----------
Total net assets $57,144,620
==================================================== ==========
Net asset value per share (Notes 1 and 2):
Class A Shares
Net assets of $27,036,606/1,954,342 shares
outstanding $ 13.83
Offering price per share ($13.83/0.9425) (based on
sales charge of 5.75% of the offering price at
November 30, 1995) $ 14.67
Class B Shares
Net assets of $20,605,384/1,488,364 shares
outstanding $ 13.84
Class C Shares
Net assets of $9,502,630/686,261 shares
outstanding $ 13.85
==================================================== ==========
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS--
Year Ended November 30, 1995
<TABLE>
<S> <C> <C>
Investment income (Note 1):
Dividends (net of foreign withholding
tax of $6,993) $ 1,266,227
Interest 377,307
- ----------------------------------------- -------- -----------
Total income 1,643,534
- ----------------------------------------- -------- -----------
Expenses (Notes 2, 4, 5 and 6):
Management fee $ 300,290
Shareholder services 150,009
Accounting 19,380
Auditing and legal 40,970
Custodian fees 59,263
Printing 30,304
Distribution Plan expenses 274,340
Registration fees 57,564
Miscellaneous expenses 9,382
- ----------------------------------------- -------- -----------
Total expenses 941,502
Less: Expenses paid indirectly
(Note 4) (6,867)
- ----------------------------------------- -------- -----------
Net expenses 934,635
- ----------------------------------------- -------- -----------
Net investment income 708,899
- ----------------------------------------- -------- -----------
Net Realized and unrealized gain
(loss) on investments and foreign
currency related transactions
(Notes 1 and 3):
Net realized gain (loss) on
investment transactions 2,758,581
Net realized gain (loss) on foreign
currency related transactions (21,407)
- ----------------------------------------- -------- -----------
Net realized gain on investments and
foreign currency related transactions 2,737,174
- ----------------------------------------- -------- -----------
Net change in unrealized
appreciation (depreciation) on
investments and foreign currency
holdings 7,477,718
- ----------------------------------------- -------- -----------
Net gain on investments 10,214,892
- ----------------------------------------- -------- -----------
Net increase in net assets resulting
from operations $10,923,791
========================================= ======== ===========
</TABLE>
<PAGE>
Page 15
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended November 30,
1995 1994
============================================================================== ========== ============
<S> <C> <C>
Operations:
Net investment income $ 708,899 $ 637,824
Net realized gain on investments and foreign currency related transactions 2,737,174 (41,777)
Net change in unrealized appreciation (depreciation) on investments and
foreign currency holdings 7,477,718 (1,707,863)
- ------------------------------------------------------------------------------ -------- ----------
Net increase (decrease) in net assets resulting from operations 10,923,791 (1,111,816)
- ------------------------------------------------------------------------------ -------- ----------
Distributions to shareholders from (Notes 1 and 5):
Net investment income:
Class A Shares (466,226) (490,921)
Class B Shares (149,198) (71,686)
Class C Shares (93,475) (68,622)
In excess of net investment income:
Class A Shares (138,497) 0
Class B Shares (110,954) 0
Class C Shares (54,085) 0
Net realized gain on investment transactions:
Class A Shares (1,220,537) 0
Class B Shares (868,298) 0
Class C Shares (423,790) 0
- ------------------------------------------------------------------------------ -------- ----------
Total distributions to shareholders (3,525,060) (631,229)
- ------------------------------------------------------------------------------ -------- ----------
Capital share transactions (Note 2):
Proceeds from shares sold
Class A Shares 3,618,417 2,393,728
Class B Shares 13,668,348 4,728,142
Class C Shares 3,797,262 2,716,402
Payments for shares redeemed
Class A Shares (5,386,215) (4,913,128)
Class B Shares (3,483,004) (1,410,354)
Class C Shares (2,107,107) (1,547,569)
Net asset value of shares issued in reinvestment of dividends and
distributions:
Class A Shares 1,664,588 423,378
Class B Shares 1,002,721 56,510
Class C Shares 527,153 59,476
- ------------------------------------------------------------------------------ -------- ----------
Net increase in net assets resulting from capital share transactions 13,302,163 2,506,585
- ------------------------------------------------------------------------------ -------- ----------
Total increase (decrease) in net assets 20,700,894 763,540
- ------------------------------------------------------------------------------ -------- ----------
Net assets:
Beginning of year 36,443,726 35,680,186
- ------------------------------------------------------------------------------ -------- ----------
End of year [including accumulated distributions in excess of net
investment income as follows:
November 1995 ($35,682) and November 1994--($20,169)] $57,144,620 $36,443,726
============================================================================== ======== ==========
</TABLE>
See Notes to Financial Statements.
<PAGE>
Page 16
Keystone Fund for Total Return
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone Fund for Total Return (formerly Keystone America Fund for Total
Return) (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 a diversified open-end investment company.
The Fund currently issues three classes of shares. Class A shares are sold
subject to a maximum sales charge of 5.75% payable at the time of purchase.
Class B shares are sold subject to a contingent deferred sales charge which
varies depending on when the shares were purchased and how long the shares
have been held. Class C shares are sold subject to a contingent deferred
sales charge payable upon redemption within one year after purchase. Class C
shares are available only through dealers who have entered into special
distribution agreements with Keystone Investment Distributors Company
(formerly Keystone Distributors, Inc.) ("KIDC"), the Fund's principal
underwriter.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc.
(formerly Keystone Group, Inc.) ("KII"), a Delaware corporation. KII is
privately owned by an investor group consisting of current and former members
of management of Keystone. Keystone Management, Inc. ("KMI") is a
wholly-owned subsidiary of Keystone. Keystone Investor Resource Center, Inc.
("KIRC"), a wholly-owned subsidiary of Keystone, is the Fund's transfer
agent.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Investments, including American Depository Receipts ("ADRs"), are usually
valued at the closing sales price, or in the absence of sales and for
over-the-counter securities, the mean of bid and asked quotations. Management
values the following securities at prices it deems in good faith to be fair:
(a) securities (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. ADRs, which are certificates representing shares of
foreign securities deposited in domestic and foreign banks, are traded and
valued in United States dollars.
Short-term investments, which are purchased with maturities of sixty days
or less, are valued at amortized cost (original purchase costs as adjusted
for amortization of premium or accretion of discount) which, when combined
with accrued interest, approximates market. Short-term investments maturing
in more than sixty days for which market quotations are readily available are
valued at current market value. Short-term investments maturing in more than
sixty days when purchased 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.
Short-term 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 17
for normal, institutional-size trading units of such securities using methods
based on market transactions for comparable securities that are generally
recognized by institutional traders.
The Fund enters into currency and other financial futures contracts as a
hedge against changes in interest or currency exchange rates. A futures
contract is an agreement between two parties to buy and sell a specific
amount of a commodity, security, financial instrument, or in the case of a
stock index, cash at a set price on a future date. Upon entering into a
futures contract, the Fund is required to deposit with a broker an amount
("initial margin") equal to a certain percentage of the purchase price
indicated in the futures contract. Subsequent payments ("variation margin")
are made or received by the Fund each day, as the value of the underlying
instrument or index fluctuated, 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.
B. Securities transactions are accounted for on the day after the trade date.
Realized gains and losses are computed on the identified cost basis. Interest
income is recorded on the accrual basis and dividend income is recorded on
the ex-dividend date. Distributions to the shareholders are recorded by the
Fund at the close of business on the record date.
C. The Fund has qualified, and intends to qualify in the future, as a
regulated investment company under the Internal Revenue Code of 1986, as
amended ("Internal Revenue Code"). Thus, the Fund expects to be relieved of
any federal income or excise tax liability by distributing all of its net
taxable investment income and net taxable capital gains, if any, to its
shareholders. The Fund intends to avoid any excise tax liability by making
the required distributions under the Internal Revenue Code.
D. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed
upon date and price) the repurchase price of the securities will generally
equal the amount paid by the Fund plus a negotiated interest amount. The
seller under the repurchase agreement will be required to provide securities
("collateral") to the Fund whose value will be maintained at an amount not
less than the repurchase price, 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.
<PAGE>
Page 18
E. The Fund distributes net investment income to shareholders quarterly, and
net 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 differ from 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 differing treatment of net operating losses,
unrealized appreciation on foreign currency exchange contracts and short-term
capital gains for financial statement and federal income tax purposes.
(2.) Capital Share Transactions
The Trust Agreement authorizes the issuance of an unlimited number of shares
of beneficial interest without par value. Transactions in shares of the Fund
were as follows:
Class A Shares
- ----------------- --------------------------
Year Ended November 30,
1995 1994
- ----------------- ---------- ------------
Shares sold 280,062 194,554
Shares redeemed (422,494) (400,894)
Shares issued in
reinvestment of
dividends and
distributions 126,167 34,783
Net realized
gains 0 0
- ----------------- -------- ----------
Net decrease (16,265) (171,557)
================= ======== ==========
Class B Shares
- ----------------- --------------------------
Year Ended November 30,
1995 1994
- ----------------- ---------- ------------
Shares sold 1,057,718 384,290
Shares redeemed (266,010) (115,399)
Shares issued in
reinvestment of
dividends and
distributions 75,397 4,656
Net realized
gains 0 0
- ----------------- -------- ----------
Net increase 867,105 273,547
================= ======== ==========
Class C Shares
- ----------------- --------------------------
Year Ended November 30,
1995 1994
- ----------------- ---------- ------------
Shares sold 303,795 220,445
Shares redeemed (164,102) (126,563)
Shares issued in
reinvestment of
dividends and
distributions 39,802 4,885
Net realized
gains 0 0
- ----------------- -------- ----------
Net increase 179,495 98,767
================= ======== ==========
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").
The Class A Distribution Plan provides for payments which are currently
limited to 0.25% annually of the average daily net asset value of Class A
shares to pay expenses of the distribution of Class A shares. Amounts paid by
the Fund to KIDC under the Class A Distribution Plan are currently used to
pay others, such as dealers, service fees at an annual rate of 0.25% of the
average net asset value of the shares sold by
<PAGE>
Page 19
such others and remaining outstanding on the books of the Fund for specified
periods.
The Class B Distribution Plan provides for payments at an annual rate of
1.00% of the average daily net asset value of Class B shares to pay expenses
of the distribution of Class B shares. Amounts paid by the Fund under the
Class B Distribution Plan are currently used to pay others (dealers) a
commission at the time of purchase normally equal to 4.00% of the price paid
for each share sold plus the first year's service fee in advance in the
amount of 0.25% of the price paid for each Class B share sold. Beginning
approximately 12 months after the purchase of a Class B share, the dealer or
other party will receive service fees at an annual rate of 0.25% of the
average daily net asset value of such Class B shares maintained by such
others and remaining outstanding on the Fund's books for specified periods. A
contingent deferred sales charge will be imposed, if applicable, on Class B
shares purchased on or after June 1, 1995 at rates ranging from a maximum of
5.00% of amounts redeemed during the first twelve months following the date
of purchase to 1.00% of amounts redeemed during the sixth twelve month period
following the date of purchase. Class B shares purchased on or after June 1,
1995 that have been outstanding for eight years following the month of
purchase will automatically convert to Class A shares without a front end
sales charge or exchange fee. Class B shares purchased prior to June 1, 1995
will retain their existing conversion rights.
The Class C Distribution Plan provides for payments at an annual rate of
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 Rule") plus service fees at the annual rate of 0.25%,
respectively, of the average net asset value of each Class C share maintained
by such others and remaining outstanding on the Fund's books for specified
periods.
Each of the Distribution Plans may be terminated at any time by a vote of
Independent Trustees or by a 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 year ended November 30, 1995, the Fund paid KIDC $60,006 under
its Class A Distribution Plan. The Fund paid KIDC $119,006 for Class B shares
sold prior to June 1, 1995, and $15,321 for Class B shares sold on or after
June 1, 1995. The Fund paid KIDC $80,007 under its Class C Distribution Plan.
Under the NASD Rule, the maximum uncollected amounts for which KIDC may
seek payment from the Fund under its Class B Distribution Plans were $724,076
for Class B shares purchased prior to June 1, 1995, and $319,397 for Class B
shares purchased on or after June 1, 1995. The maximum uncollected amount for
which KIDC may seek payment from the Fund under its Class C Distribution Plan
was $596,982 as of November 30, 1995.
<PAGE>
Page 20
(3.) Securities Transactions
Purchases and sales of investment securities (including proceeds received at
maturity) for the year ended November 30, 1995, were as follows:
Cost of Proceeds
Purchases From Sales
- ------------------------- ----------- ------------
Portfolio securities $ 48,976,453 $ 33,253,300
Short-term investments 871,162,359 875,350,359
- ------------------------- --------- ----------
$920,138,812 $908,603,659
========================= ========= ==========
(4.) Investment Management and Transactions with Affiliates
Under the terms of the Investment Management Agreement between KMI and the Fund,
KMI provided 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 1.5% of the Fund's gross investment income plus an amount determined by
applying percentage rates, which start at 0.60% and decline, as net assets
increase, to 0.30% 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 year ended November 30, 1995 the Fund paid or
accrued to KMI investment management and administrative service fees of
$300,290, which represent 0.65% of the Fund's average net assets. Of such
amounts paid to KMI, $255,247 was paid to Keystone for its services to the Fund.
During the year ended November 30, 1995, the Fund paid or accrued to KII
$49,684 as reimbursement for the cost of accounting and printing expenses
provided to the Fund. During the year ended November 30, 1995, $150,009 was
paid or accrued 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 the fund
average net assets; 2.0% of the next $70 million of fund 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.
The Fund has entered into an expense offset arrangement with its
custodian. For the year ended November 30, 1995, the Fund paid custody fees
in the amount of $52,396 and received a credit of $6,867 pursuant to the
expense offset arrangement, resulting in a total expense of $59,263. The
assets deposited with the custodian under the expense offset arrangement
could have been invested in income-producing assets.
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
receive no compensation for their services.
<PAGE>
Page 21
(5.) Distributions to Shareholders
The Fund intends to distribute to its shareholders dividends from net
investment income, if any, quarterly and all net taxable realized long-term
capital gains, if any, at least annually. Any distribution which is declared
in December and paid before February 1 of the following year will be taxable
to shareholders in the year declared.
(6.) Class Level Expenses
Presently, the Fund's class-specific expenses are limited to expenses
incurred by a class of shares pursuant to its respective Distribution Plan.
For the year ended November 30, 1995, the total amount of expenses incurred
by each class' Distribution Plan is set forth in Note (2.) "Capital Share
Transactions."
Federal Tax Status--Fiscal 1995 Distributions (Unaudited)
The per-share distributions paid to you for fiscal 1995, whether taken in
shares or cash, are as follows:
Income Short-term Long-term
Dividends Gains Gains Totals
- ----------------- ----------- ----------- ----------- -----------
Class A shares $0.32 $0.10 $0.55 $0.97
- ----------------- --------- --------- --------- ---------
Class B shares $0.25 $0.10 $0.55 $0.90
- ----------------- --------- --------- --------- ---------
Class C shares $0.25 $0.10 $0.55 $0.90
- ----------------- --------- --------- --------- ---------
In January 1996, we will send you information on the distributions paid
during the calendar year to help you in completing your federal income tax
return.
<PAGE>
Page 22
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone Fund for Total Return
We have audited the accompanying statement of assets and liabilities of
Keystone Fund for Total Return (formerly Keystone America Fund for Total
Return), including the schedule of investments, as of November 30, 1995, and
the related statement of operations for the year then ended, the statements
of changes in net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years in the eight-year
period ended November 30, 1995 and for the period from February 13, 1987
(Commencement of Operations) to November 30, 1987 for Class A shares and for
each of the years in the two-year period ended November 30, 1995 and the
period from February 1, 1993 (Date of Initial Public Offering) to November
30, 1993 for Class B and Class C shares. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of November 30, 1995, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Keystone Fund for Total Return as of November 30, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years or periods specified in the first paragraph above in
conform-
ity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 5, 1996
<PAGE>
Page 23
Keystone's Services
for Shareholders
KEYSTONE AUTOMATED RESPONSE LINE (KARL)--Receive up-to-date account
information on your balance, last transaction and recent Fund distribution.
You may also process transactions such as investments, redemptions and
exchanges using a touch-tone telephone as well as receive quotes on price,
yield, and total return of your Keystone Fund. Call toll-free,
1-800-346-3858.
EASY ACCESS TO INFORMATION ON YOUR ACCOUNT--Information about your Keystone
account is available 24 hours a day through KARL. To speak with a Shareholder
Services representative about your account, call toll-free 1-800-343-2898
between 8:00 A.M. and 6:00 P.M. Eastern time. Retirement Plan investors
should call 1-800-247-4075.
ADDITIONS TO YOUR ACCOUNT--You can buy additional shares for your account at
any time, with no minimum additional investment.
REINVESTMENT OF DISTRIBUTIONS--You can compound the return on your
investment by automatically reinvesting your Fund's distributions at net
asset value with no sales charge.
EXCHANGE PRIVILEGE--You may move your money among funds in the same Keystone
family quickly and easily for a nominal service fee. KARL gives you the added
ability to move your money any time of day, any day of the week. Keystone
offers a
variety of funds with different investment objectives for your changing
investment needs.
ELECTRONIC FUNDS TRANSFER (EFT)-- Referred to as the "paper-less
transaction," EFT allows you to take advantage of a variety of preauthorized
account transactions, including automatic monthly investments and systematic
monthly or quarterly withdrawals. EFT is a quick, safe and accurate way to
move money between your bank account and your Keystone account.
CHECK WRITING--Shareholders of Keystone Liquid Trust may exercise the check
writing privilege to draw from their accounts.
EASY REDEMPTION--KARL makes redemption services available to you 24 hours a
day, every day of the year. The amount you receive may be more or less than
your original account value depending on the value of fund shares at time of
redemption.
RETIREMENT PLANS--Keystone offers a full range of retirement plans,
including IRA, SEP-IRA, profit sharing, money purchase, and defined
contribution plans. For more information, please call Retirement Plan
Services, toll-free at 1-800-247-4075.
Keystone is committed to providing you with quality, responsive account
service. We will do our best to assist you and your financial adviser in
carrying out your investment plans.
<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
Texas Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Hartwell Growth Fund
Omega Fund
Fund of the Americas
Strategic Development Fund
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied
by the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you invest
or send money. For a free prospectus on other Keystone funds, contact your
financial adviser or call Keystone at 1-800-343-2898.
[Keystone logo] K E Y S T O N E
I N V E S T M E N T S
P.O. Box 2121
Boston, Massachusetts 02106-2121
ftf-AR-1/96
18M ["Recycle" symbol]
