[FRONT COVER]
KEYSTONE
FUND FOR
TOTAL RETURN
[KEYSTONE LOGO]
SEMIANNUAL REPORT
MAY 31, 1996
Page 1
- ------------------------------------------------------
Keystone Fund for Total Return
Seeks income and growth from income-producing stocks
and bonds in the U.S. and abroad.
Dear Shareholder:
We would like to take this opportunity to report on the performance of
Keystone Fund for Total Return for the six-month period which ended May 31,
1996. Following this letter, we have included a discussion with your Fund's
manager discussing portfolio strategy.
Performance
For the period which ended May 31, 1996, your Fund produced the following
returns:
Class A shares returned 12.61% for the six-month period and 27.57% for the
twelve-month period.
Class B shares returned 12.01% for the six-month period and 26.38% for the
twelve-month period.
Class C shares returned 12.00% for the six-month period and 26.46% for the
twelve-month period.
The Standard & Poor's 500 Index (S&P 500), returned 11.78% for the six-month
period and 28.43% for the twelve-month period.
Fund for Total Return had particularly strong performance for both the six-
and twelve-month periods--periods when many professional money managers
underperformed the market averages. We were pleased with these results and
believe that they reflect, in part, the early success of your Fund's
broadened investment strategy implemented almost two years ago.
Your Fund continued to invest primarily in dividend-paying stocks of
established companies. However, the Fund's flexible approach of investing in
several asset classes allowed us to take advantage of opportunities to invest
in convertible securities, small company stocks, foreign stocks, and domestic
and foreign bonds. We attribute your Fund's recent performance to this
flexibility and to our careful security selection.
Looking Ahead
Our long-term outlook for the market is favorable. We think there are several
positive signs supporting this view: economic strength has accelerated during
the first half of 1996; inflation has remained under control; and the
prospects for many companies continue to be attractive. However, periodic
corrections are not unusual for stocks. After the excellent gains experienced
over the past twelve months, we would tend to view any correction as an
opportunity for your Fund.
As you evaluate your investment and market conditions, we encourage you to
remember a few investment principles that have withstood the test of time in
all types of markets. Diversify your investments. By putting your money in
different types of investments, you can minimize your risk. Take a long-term
perspective. The longer you keep your money invested, the more time you have
to weather the market's fluctuations. Invest regularly. By making periodic
investments over time, you can lower your average cost per share.(1)
Your investment adviser can help you with these strategies and developing a
plan to meet your particular needs. He or she is a professional with
resources and the expertise to help you achieve your investment goals. We
encourage you to take advantage of the services your adviser can provide.
(1)Investing systematically, or dollar cost averaging, can lower your average
cost of share purchases over time. However, your investment will fluctuate
with market conditions, and there is no assurance that your shares will be
worth more when you sell shares.
--continued--
<PAGE>
Page 2
- ------------------------------------------------------
Keystone Fund for Total Return
We appreciate your continued support of Keystone Fund for Total Return. If
you have any questions or comments about your investment, please feel free to
write to us.
Sincerely,
Albert H. Elfner, III
Chairman and President
Keystone Investments, Inc.
[/s/ George S. Bissell]
George S. Bissell
Chairman of the Board
Keystone Funds
[Photo of Albert H. Elfner, III]
Albert H. Elfner, III
[Photo of George S. Bissell]
George S. Bissell
July 1996
[Dalbar Honors Commitment LOGO]
Dalbar Key Honors
Honoring Commitment to Excellence
Keystone was recently recognized by Dalbar, an independent mutual fund rating
organization, for demonstrating a commitment to serving the needs of
customers. The award is intended to distinguish companies who are committed
to investors and have a proven ability to provide good service.
Keystone Introduces Investment Insight Line for Shareholders
Now you can keep up-to-date on your fund's current strategy and outlook by
calling Keystone Investment Insight Line. You can hear Keystone portfolio
managers discuss their latest strategies, or listen to Keystone's overall
market outlook from James McCall, chief investment officer. Of course, your
financial adviser can provide you with more complete information on Keystone
Funds. This 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 after the greeting
<PAGE>
Page 3
- ------------------------------------------------------
A Discussion With
Your Fund Manager
[Photo of Walter McCormick]
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 selecting income-producing stocks for your Fund.
Q What is your approach to managing the Fund?
A The Fund's objective is to seek income and growth from income-producing
stocks and bonds in the U.S. and abroad. This can include investments from
several areas including: stocks of established U.S. and foreign companies,
small company stocks, high yield bonds, and foreign bonds. The Fund's ability
to invest in each of these areas provides valuable flexibility and
diversification--characteristics that we believe are important to generating
consistent long-term performance.
Q What types of companies do you look for in selecting investments for the
Fund?
A We look for established companies in the U.S. or abroad with demonstrated
earnings growth and long- term track records. We can also invest in smaller,
financially sound companies that have strong earnings growth rates. In
addition, we tend to emphasize securities that provide income in an effort to
cushion returns through varying market conditions.
Q What was the economic environment like during the six-month period?
A At the end of 1995, economic growth was moderate. Long-term interest rates
had declined for most of 1995. Many analysts believed that at least the first
half of 1996 would be characterized by modest growth, declining interest
rates and deceleration of corporate profits. In January, because of the
perception of slower economic growth, the Federal Reserve Board trimmed
short-term interest rates by a quarter of a percent. As we moved further into
1996, however, higher employment figures and increases in selected commodity
prices signaled the possibility of stronger growth. This raised concerns
about growing inflation and long-term interest rates rose.
Fund Profile
Objective: Seeks income and growth from income-producing stocks and bonds in
the U.S. and abroad.
Commencement of investment operations: April 14, 1987
Number of stocks: 73
Net assets: $68 million
<PAGE>
Page 4
- ------------------------------------------------------
Your Fund Invests In . . .
(bullet) income-producing stocks of established companies
(bullet) small company stocks
(bullet) stocks of established foreign companies
(bullet) convertible bonds and fixed income securities
Q How did stocks perform in this environment?
A While stock prices fluctuated broadly, the general trend was up during the
six-month period. Stocks of large, established companies, which had been
leaders in 1995, took a back seat to smaller company stocks towards the end
of the fiscal period on May 31, 1996. In addition, cyclical stocks--those
that tend to move with the economy--gained favor.
Q How did you manage the Fund in this environment?
A The Fund's flexible approach allowed us to invest in several areas. We
maintained our focus on large, established companies. These included
Gillette, Johnson & Johnson, Merck, and GE, which performed well during the
period. We also added selected cyclical stocks to the portfolio. Chemical,
railroad, technology and construction companies were among our cyclical
choices. In addition, we increased the Fund's exposure to smaller companies
and to overseas stocks.
Q Technology companies comprised about 15% of net assets as of May 31,
1996. Why were these stocks attractive?
A Prices on most technology stocks reached their peak in the Fall of 1995
and then declined. When we added technology stocks to the portfolio, we
believed their prices and their prospects for growth were very attractive. We
invested in several different areas of technology, including electronics
products businesses, office and business equipment companies, software firms,
and telecommunications companies.
Q What were some of the technology companies in which you invested?
A In the office and business equipment sector, we added Digital Equipment
Corporation. Together with IBM, a long-time portfolio holding, office and
business equipment stocks composed 2.8% of net assets on May 31, 1996. In the
telecommunications area, we took advantage of the initial public offering of
Lucent Technology Company, a spinoff of AT&T. In the electronics sector, we
invested in Intel, a semiconductor business, and Solectron, a contract
manufacturer. Solectron produces equipment for large technology companies,
such as Hewlett Packard and IBM. As a contractor, Solectron can often produce
equipment more efficiently and less expensively than the larger companies who
are its clients. By using Solectron's services, larger companies can spend
more time and resources on research and development.
Q The Fund also had holdings overseas, at 7.4% of net assets on May 31,
1996. Where did you invest?
A Our largest foreign commitment was to Japan, where we invested in
medium-sized companies in several different industries. Because the Japanese
economy had been in recession over the last couple of years, stock prices
were attractively valued. We believe that the Japanese economy has been on an
upward course, and that many of the companies in which we invested should
benefit from a stronger economy.
Q At 10.9% of net assets, the finance and insurance portion of the portfolio
continued to be the Fund's largest industry weighting. What opportunities did
you find there?
A The finance portion of the portfolio included Real Estate Investment
Trusts (REITs), banks, and mortgage businesses. We added most of the finance
stocks to the portfolio toward the end of the period, because
<PAGE>
Page 5
- ------------------------------------------------------
[PIE CHART]
Asset Allocation
as of May 31, 1996
Common stocks (79.3%)
Preferred stocks (5.1%)
Foreign stocks (7.4%)
Fixed income (4.1%)
Other(2) (4.1%)
(as a percentage of net assets)
we believed that long-term interest rates would decline. We selected stocks
that we believed would benefit from the decline in rates. We added Associates
First Capital, a well capitalized mortgage company, 80% of which is owned by
Ford. In the new issue market, we took advantage of the initial public
offering for Travelers Aetna Property Casualty Corp.
Q Income-producing securities were a significant component of the
portfolio. Why?
A Preferred stocks and convertible securities historically have paid
attractive income that helps to provide a cushion to returns in changing
market conditions. They have been long-term holdings in the portfolio, and we
think they offer 'all weather' characteristics that make sense considering
the Fund's income and growth strategy.
At the end of the period, preferred stocks accounted for 5.1% of the
portfolio's net assets. Two of the portfolio's long-standing holdings, Alco
Standard, a marketer of paper products, and AGCO, a farm equipment supplier,
were converted to common stock. In the past, these two securities contributed
significantly to your Fund's performance.
- -----------
2Includes short-term obligations and other assets and liabilities.
Q What is your outlook?
A Our long-term outlook is favorable for stocks. However, we do not rule out
the possibility of a short- term pullback in prices. Stocks have produced
strong gains over the past year and a half, and some stock prices are
relatively high. In addition, some companies have lowered their earnings
forecasts. These conditions could generate a short-term decline in stock
prices. Yet, we think the fundamentals for many individual companies remain
positive. We believe shareholders should keep short-term movements of the
market in perspective. While past performance provides no assurance of future
results, investors tend to be rewarded for sticking with a long-term
investment program. We think this approach makes more sense than trying to
time the market.
Top 10 Stock Holdings
as of May 31, 1996 Percentage of
Stock Industry net assets
- -------------------------------------------------------------------------------
General Electric Capital goods 3.3
- -------------------------------------------------------------------------------
Philip Morris Foods 2.9
- -------------------------------------------------------------------------------
Alco Standard Diversified companies 2.6
- -------------------------------------------------------------------------------
Boeing Aerospace 2.5
- -------------------------------------------------------------------------------
Computer Associates Int'l. Software services 2.1
- -------------------------------------------------------------------------------
GCR Holdings Ltd. (Bermuda) Insurance 1.9
- -------------------------------------------------------------------------------
BMC Software Software services 1.9
- -------------------------------------------------------------------------------
Dow Chemical Chemicals 1.8
- -------------------------------------------------------------------------------
DuPont Chemicals 1.8
- -------------------------------------------------------------------------------
Conseco Insurance 1.7
- -------------------------------------------------------------------------------
[DIAMOND LOGO]
This column is intended to answer
questions about your Fund. If you have a question
you would like answered, please write to:
Keystone Investment Distributors Company
Attn: Shareholder Communications, 22nd Floor
200 Berkeley Street, Boston, Massachusetts 02116-5034.
<PAGE>
Page 6
- ------------------------------------------------------
Keystone Fund for Total Return
Your Fund's Performance
Growth of an investment in
Keystone Fund for Total Return Class A
[MOUNTAIN CHART]
In Thousands
4/87 9500 9500
9529 9529
5/88 8690 9073
10151 11152
5/90 10405 12430
11423 14165
5/92 11876 15434
12328 17141
5/94 11480 17625
12215 19187
5/96 14543 24476
Total Value: $24,476
[box] Reinvested Distributions
[box] Initial Investment
A $10,000 investment in Keystone Fund for Total Return Class A made on April
14, 1987 with all distributions reinvested was worth $24,476 on May 31, 1996.
Past performance is no guarantee of future results.
Six-Month Performance as of May 31, 1996
- ----------------------------------------------------------------------
Class A Class B Class C
Total returns* 12.61% 12.01% 12.00%
Net asset value 11/30/95 $13.83 $13.84 $13.85
5/31/96 $15.43 $15.41 $15.42
Dividends $ 0.14 $ 0.09 $ 0.09
Capital gains None None None
*Before deduction of front-end or contingent deferred sales charge (CDSC).
Historical Record as of May 31, 1996
- ---------------------------------------------------------------------
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 27.57% 26.38% 26.46%
1-year 20.23% 22.38% 26.46%
5-year 62.86% -- --
Life of Class 144.76% 42.03% 45.11%
Average annual returns
1-year w/o sales charge 27.57% 26.38% 26.46%
1-year 20.23% 22.38% 26.46%
5-year 10.25% -- --
Life of Class 10.30% 11.10% 11.82%
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. 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 7
- ------------------------------------------------------
Glossary of
Mutual Fund Terms
MUTUAL FUND--A company which combines the investment money of many people
whose financial goals are similar, and invests that money in a variety of
securities. A mutual fund allows the smaller investor the benefits of
diversification, professional management and constant supervision usually
available only to large investors.
PORTFOLIO MANAGER--An investment professional who is responsible for
managing a portfolio's assets prudently and making appropriate investment
decisions, such as which securities to buy, hold and sell, based on the
investment objectives of the portfolio.
STOCK--Equity or ownership interest in a corporation, which represents a
claim on the corporation's assets and earnings.
BOND--Security issued by a government or corporation to those from whom it
has borrowed money. A bond usually promises to pay interest income to the
bondholder at regular intervals and to repay the entire amount borrowed at
maturity date.
CONVERTIBLE SECURITY--A corporate security (usually preferred stock or
bonds) that is exchangeable for a set number of another security type
(usually common stocks) at a pre-stated price.
MONEY MARKET FUND--A mutual fund whose assets are invested in a diversified
portfolio of short- term securities, including commercial paper, bankers'
acceptances, certificates of deposit and other short-term instruments. The
fund pays income which can fluctuate daily. Liquidity and safety of principal
are primary objectives.
NET ASSET VALUE (NAV) PER SHARE--The value of one share of a mutual fund.
The NAV per share is determined by subtracting a fund's total liabilities
from its total assets, and dividing that amount by the number of fund shares
outstanding.
DIVIDEND--A per share distribution of the income earned from the fund's
portfolio holdings. When a dividend distribution is made, the fund's net
asset value drops by the amount of the distribution because the distribution
is no longer considered part of the fund's assets.
CAPITAL GAIN--The profit from the sale of securities, less any losses.
Capital gains are paid to fund shareholders on a per share basis. When a
capital gain distribution is made, the fund's net asset value drops by the
amount of the distribution because the distribution is no longer considered
part of the fund's assets.
YIELD--The annualized rate of income as measured against the current net
asset value of fund shares.
TOTAL RETURN--The change in value of a fund investment over a specified
period of time, taking into account the change in a fund's market price and
the reinvestment of all fund distributions.
SHORT-TERM--An investment with a maturity of one year or less.
LONG-TERM--An investment with a maturity of greater than one year.
AVERAGE MATURITY--The average number of days until the notes, drafts,
acceptances, bonds or other debt instruments in a portfolio become due and
payable.
OFFERING PRICE--The offering price of a share of a mutual fund is the price
at which the share is sold to the public.
7
<PAGE>
Page 8
- ------------------------------------------------------
Keystone Fund for Total Return
SCHEDULE OF INVESTMENTS--May 31, 1996
(Unaudited)
Number Market
of Shares Value
- --------------------------------- ---------- -----------
COMMON STOCKS (86.7%)
AEROSPACE (2.5%)
Boeing Co. (The) 20,000 $1,705,000
- --------------------------------- -------- ---------
AUTOMOTIVE (3.7%)
Chrysler Corp. 15,000 999,375
General Motors Corp. 10,000 551,250
Lear Seating Corp. (a) 25,000 965,625
- --------------------------------- -------- ---------
2,516,250
- --------------------------------- -------- ---------
BUSINESS SERVICES (1.4%)
Thermo Electron Corp. 15,000 956,250
- --------------------------------- -------- ---------
CAPITAL GOODS (5.4%)
AGCO Corp. 19,716 593,947
General Electric Co. 25,000 2,068,750
Regal Beloit Corp. 50,000 1,037,500
- --------------------------------- -------- ---------
3,700,197
- --------------------------------- -------- ---------
CHEMICALS (5.3%)
Dow Chemical Co. 15,000 1,254,375
DuPont (E.I) DeNemours & Co. 15,000 1,196,250
Monsanto Co. 7,500 1,139,063
- --------------------------------- -------- ---------
3,589,688
- --------------------------------- -------- ---------
CONSUMER GOODS (3.8%)
Eastman Kodak Co. 10,000 743,750
Gillette Co. 15,000 886,875
International Flavors &
Fragrances, Inc., Common Rts. 20,000 972,500
- --------------------------------- -------- ---------
2,603,125
- --------------------------------- -------- ---------
DIVERSIFIED COMPANIES (2.6%)
Alco Standard Corp. 28,001 1,750,062
- --------------------------------- -------- ---------
DRUGS (4.1%)
Bristol Meyers Squibb Co. 10,000 853,750
Johnson & Johnson 10,000 973,750
Merck & Co., Inc. 14,700 949,987
- --------------------------------- -------- ---------
2,777,487
- --------------------------------- -------- ---------
ELECTRONICS PRODUCTS (2.1%)
Intel Corp. 10,000 754,375
Solectron Corp. (a) 15,000 650,625
- --------------------------------- -------- ---------
1,405,000
- --------------------------------- -------- ---------
ENGINEERING & CONSTRUCTION (0.9%)
Foster Wheeler Corp., Common Rts. 15,000 $ 667,500
- --------------------------------- -------- ---------
FINANCE (6.8%)
Associates First Capital Corp. 30,000 1,110,000
BankAmerica Corp. 15,000 1,128,750
Donaldson Lufkin & Jenrette, Inc. (a) 20,000 637,500
PMI Group, Inc. 25,000 1,081,250
Salomon, Inc. 25,000 700,000
- --------------------------------- -------- ---------
4,657,500
- --------------------------------- -------- ---------
FOODS (2.9%)
Philip Morris Cos., Inc. 20,000 1,987,500
- --------------------------------- -------- ---------
FOREIGN (7.4%)
Canadian National RY Co. 50,300 930,550
Fuji Heavy Industries 136,000 623,333
GCR Holdings Ltd. 50,000 1,287,500
Mori Seiki Co. 21,000 392,778
Shangri La Asia Ltd. 380,000 525,506
Sodick Co. (a) 58,000 676,667
Taisho Pharmaceuticals Co. 28,000 624,815
- --------------------------------- -------- ---------
5,061,149
- --------------------------------- -------- ---------
INSURANCE (4.1%)
Conseco, Inc. 16,500 1,188,000
Providian Corp. 15,000 654,375
Travelers Aetna Property Casualty
Corp. 35,000 953,750
- --------------------------------- -------- ---------
2,796,125
- --------------------------------- -------- ---------
NATURAL GAS (3.3%)
Burlington Resources, Inc., Rts. 15,000 570,000
Enron Corp. 20,000 800,000
Sonat, Inc. 20,000 847,500
- --------------------------------- -------- ---------
2,217,500
- --------------------------------- -------- ---------
OFFICE & BUSINESS EQUIPMENT (2.8%)
Digital Equipment Corp. (a) 15,000 781,875
IBM Corp. 10,800 1,152,900
- --------------------------------- -------- ---------
1,934,775
- --------------------------------- -------- ---------
<PAGE>
Page 9
- ------------------------------------------------------
SCHEDULE OF INVESTMENTS--May 31, 1996
(Unaudited)
Number Market
of Shares Value
- --------------------------------- -------- ---------
OIL (5.4%)
Amoco Corp. 6,000 $ 435,000
Atlantic Richfield Co. 3,500 418,688
Chevron Corp., Common Rts. 12,000 717,000
Mobil Corp., Common Rts. 6,000 677,250
Occidental Petroleum Corp. 30,000 776,250
Unocal Corp. 20,000 650,000
- --------------------------------- -------- ---------
3,674,188
- --------------------------------- -------- ---------
OIL SERVICES (1.7%)
Halliburton Co. 10,000 556,250
Schlumberger Ltd. 7,500 625,313
- --------------------------------- -------- ---------
1,181,563
- --------------------------------- -------- ---------
PAPER & PACKAGING (0.7%)
Weyerhaeuser Co. 10,000 453,750
- --------------------------------- -------- ---------
REAL ESTATE INVESTMENT TRUST (8.9%)
Avalon Properties, Inc. 27,500 587,812
Bay Apartment Community, Inc. 30,000 768,750
Beacon Properties Corp. 35,000 883,750
Camden Property Trust 25,000 578,125
Equity Residential Property Trust 20,000 620,000
Liberty Property Trust 25,000 509,375
Patriot American Hospitality,
Inc. 30,000 851,250
Spieker Properties, Inc. 25,000 687,500
Storage USA, Inc. 18,000 605,250
- --------------------------------- -------- ---------
6,091,812
- --------------------------------- -------- ---------
RETAIL (2.1%)
General Nutrition Cos., Inc. (a) 25,000 384,375
Nabisco Holdings Corp. 30,000 1,016,250
- --------------------------------- -------- ---------
1,400,625
- --------------------------------- -------- ---------
SOFTWARE SERVICES (4.0%)
BMC Software, Inc. (a) 20,000 1,262,500
Computer Associates
International, Inc. 20,000 1,455,000
- --------------------------------- -------- ---------
2,717,500
- --------------------------------- -------- ---------
TELECOMMUNICATIONS (3.6%)
Bell South Corp. 14,000 568,750
GTE Corp. 18,000 769,500
Lucent Technologies, Inc. (a) 30,000 1,140,000
- --------------------------------- -------- ---------
2,478,250
- --------------------------------- -------- ---------
UTILITIES (1.2%)
Central & South West Corp. 20,000 $ 552,500
Florida Progress Corp., Rts. 9,000 297,000
- --------------------------------- -------- ---------
849,500
- --------------------------------- -------- ---------
TOTAL COMMON STOCKS
(COST--$42,897,818) 59,172,296
- ----------------------------------------------- ---------
PREFERRED STOCKS (5.1%)
CHEMICALS (0.9%)
Atlantic Richfield Co. 25,000 631,250
- --------------------------------- -------- ---------
INSURANCE (0.9%)
Allstate Corp. 15,000 592,500
- --------------------------------- -------- ---------
SOFTWARE SERVICES (1.7%)
Houghton Mifflin Co., Conv. 11,000 1,144,000
- --------------------------------- -------- ---------
TRANSPORTATION (1.6%)
Burlington Northern, Santa Fe,
Inc., 6.250%, Cum. Conv., Pfd.,
Series A 13,297 1,126,921
- --------------------------------- -------- ---------
TOTAL PREFERRED STOCKS
(COST--$2,176,038) 3,494,671
- ----------------------------------------------- ---------
Par
Value
- --------------------------------- ------- ----------
FIXED INCOME/CONVERTIBLE BONDS (4.1%)
CAPITAL GOODS (1.7%)
Imax Corp., Conv. Notes, 5.750%,
2003 (c) $500,000 502,500
U.S. Filter Corp., Conv. Notes,
6.000%, 2005 (c) 500,000 690,000
- --------------------------------- ----- --------
1,192,500
- --------------------------------- ----- --------
OFFICE EQUIPMENT (1.2%)
Staples, Inc., Conv. Deb.,
4.500%, 2000 (c) 750,000 824,062
- --------------------------------- ----- --------
TELECOMMUNICATIONS (1.2%)
Telecommunications International,
Inc., Sub. Deb., 4.500%, 2006 900,000 805,500
- --------------------------------- ----- --------
TOTAL FIXED INCOME
(COST--$2,650,000) 2,822,062
- -------------------------------------------- --------
(continued on next page)
<PAGE>
Page 10
- ------------------------------------------------------
Keystone Fund for Total Return
SCHEDULE OF INVESTMENTS--May 31, 1996
(Unaudited)
Maturity Market
Value Value
--------------------------------------------------------
SHORT-TERM INVESTMENTS (3.6%)
REPURCHASE AGREEMENTS (3.6%)
Investments in repurchase
agreements, in a joint
trading account purchased
5/31/96, 5.335%, maturing
6/3/96 (Cost $2,425,000)(b) $2,426,078 $ 2,425,000
--------------------------------------------------------
TOTAL INVESTMENTS
(COST--$50,148,856) 67,914,029
OTHER ASSETS AND LIABILITIES (0.5%) 321,515
--------------------------------------------------------
NET ASSETS (100.0%) $68,235,544
--------------------------------------------------------
(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 May 31, 1996.
(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.
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Exchange U.S. Value at In Exchange Appreciation/
Date May 31, 1996 for U.S. $ (Depreciation)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Forward Foreign Currency Exchange Contracts to Sell:
Contract to Deliver
-------------------------------------------------------------------------------------------------
07/30/96 212,341,500 Japanese Yen $1,982,724 $2,025,000 $42,276
</TABLE>
See Notes to Financial Statements.
<PAGE>
Page 11
- --------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended November 30,
May 31, 1996 1995 1994 1993 1992 1991
=========== ======= ====== ====== ====== =======
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of period $ 13.83 $ 11.75 $ 12.31 $ 12.06 $ 11.45 $ 10.29
- ----------------------------------- --------- ----- ---- ---- ---- -----
Income from investment operations:
Net investment income 0.12 0.25 0.24 0.21 0.23 0.34
Net gains (losses) on securities 1.62 2.80 (0.56) 1.31 1.19 1.38
- ----------------------------------- --------- ----- ---- ---- ---- -----
Total from investment operations 1.74 3.05 (0.32) 1.52 1.42 1.72
- ----------------------------------- --------- ----- ---- ---- ---- -----
Less distributions from:
Net investment income (0.14) (0.25) (0.24) (0.21) (0.23) (0.35)
In excess of net investment income 0.00 (0.07) 0.00 (0.03) (0.05) (0.05)
Capital gains 0.00 (0.65) 0.00 (1.03) (0.53) (0.16)
- ----------------------------------- --------- ----- ---- ---- ---- -----
Total distributions (0.14) (0.97) (0.24) (1.27) (0.81) (0.56)
- ----------------------------------- --------- ----- ---- ---- ---- -----
Net asset value end of period $ 15.43 $ 13.83 $ 11.75 $ 12.31 $ 12.06 $ 11.45
=================================== ========= ===== ==== ==== ==== =====
Total return (a) 12.61% 26.57% (2.65%) 12.67% 12.56% 16.70%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.45%(b)(c) 1.69%(b) 1.59% 1.85% 1.85% 1.88%
Net investment income 1.69%(c) 1.94% 1.93% 1.63% 1.87% 2.98%
Portfolio turnover rate 21% 77% 57% 92% 66% 43%
Average commissions rate paid $0.0371 N/A N/A N/A N/A N/A
- ----------------------------------- --------- ----- ---- ---- ---- -----
Net assets end of period
(thousands) $31,967 $27,037 $23,162 $26,367 $23,607 $22,974
=================================== ========= ===== ==== ==== ==== =====
</TABLE>
(a) Excluding applicable sales charges.
(b) "Ratio of total expenses to average net assets" for the six months ended
May 31, 1996 and the year ended November 30, 1995 includes indirectly
paid expenses. Excluding indirectly paid expenses, the expense ratio
would have been 1.44% and 1.67%, respectively.
(c) Annualized.
See Notes to Financial Statements.
11
<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
Six Months (Date of Initial
Ended Year Ended November 30, Public Offering) to
May 31, 1996 1995 1994 November 30, 1993
============= ========= ========== ===================
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value beginning of period $ 13.84 $ 11.77 $12.32 $12.65
- ------------------------------------ ----------- ------- -------- -----------------
Income from investment operations:
Net investment income 0.07 0.15 0.15 0.10
Net gains (losses) on securities 1.59 2.82 (0.56) 0.74
- ------------------------------------ ----------- ------- -------- -----------------
Total from investment operations 1.66 2.97 (0.41) 0.84
- ------------------------------------ ----------- ------- -------- -----------------
Less distributions from:
Net investment income (0.09) (0.15) (0.14) (0.10)
In excess of net investment income 0.00 (0.10) 0.00 (0.04)
Capital gains 0.00 (0.65) 0.00 (1.03)
- ------------------------------------ ----------- ------- -------- -----------------
Total distributions (0.09) (0.90) (0.14) (1.17)
- ------------------------------------ ----------- ------- -------- -----------------
Net asset value end of period $ 15.41 $ 13.84 $11.77 $12.32
==================================== =========== ======= ======== =================
Total return (a) 12.01% 25.59% (3.36%) 6.68%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.20%(b)(d) 2.47%(b) 2.31% 2.64%(c)
Net investment income 0.95%(d) 1.06% 1.27% 0.84%(c)
Portfolio turnover rate 21% 77% 57% 92%
Average commissions rate paid $0.0371 N/A N/A N/A
- ------------------------------------ ----------- ------- -------- -----------------
Net assets end of period (thousands) $24,711 $20,605 $7,314 $4,283
==================================== =========== ======= ======== =================
</TABLE>
(a) Excluding applicable sales charges.
(b) "Ratio of total expenses to average net assets" for the six months ended
May 31, 1996 and the year ended November 30, 1995 includes indirectly
paid expenses. Excluding indirectly paid expenses, the expense ratio
would have been 2.19% and 2.46%, respectively
(c) Annualized for the period February 1, 1993 (Date of Initial Public
Offering) to November 30, 1993.
(d) Annualized.
See Notes to Financial Statements.
12
<PAGE>
Page 13
- -------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
Six Months (Date of Initial
Ended Year Ended November 30, Public Offering) to
May 31, 1996 1995 1994 November 30, 1993
============= ======= ========= ===================
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value beginning of period $ 13.85 $11.78 $12.33 $12.65
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07 0.16 0.15 0.10
Net gains (losses) on securities 1.59 2.81 (0.56) 0.75
- ------------------------------------ ----------- ------- -------- -----------------
Total from investment operations 1.66 2.97 (0.41) 0.85
- ------------------------------------ ----------- ------- -------- -----------------
Less distributions from:
Net investment income (0.09) (0.16) (0.14) (0.10)
In excess of net investment income 0.00 (0.09) 0.00 (0.04)
Capital gains 0.00 (0.65) 0.00 (1.03)
- ------------------------------------ ----------- ------- -------- -----------------
Total distributions (0.09) (0.90) (0.14) (1.17)
- ------------------------------------ ----------- ------- -------- -----------------
Net asset value end of period $ 15.42 $13.85 $11.78 $12.33
==================================== =========== ======= ======== =================
Total return (a) 12.00% 25.57% (3.36%) 6.76%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.20%(b)(d) 2.47%(b) 2.34% 2.64%(c)
Net investment income 0.95%(d) 1.16% 1.21% 0.83%(c)
Portfolio turnover rate 21% 77% 57% 92%
Average commissions rate paid $0.0371 N/A N/A N/A
- ------------------------------------ ----------- ------- -------- -----------------
Net assets, end of period
(thousands) $11,558 $9,503 $5,968 $5,030
==================================== =========== ======= ======== =================
</TABLE>
(a) Excluding applicable sales charges.
(b) "Ratio of total expenses to average net assets" for the six months ended
May 31, 1996 and the year ended November 30, 1995 includes indirectly
paid expenses. Excluding indirectly paid expenses, the expense ratio
would have been 2.19% and 2.47%, respectively
(c) Annualized for the period February 1, 1993 (Date of Initial Public
Offering) to November 30, 1993.
(d) Annualized.
See Notes to Financial Statements.
<PAGE>
Page 14
- -----------------------------------------------------
Keystone Fund for Total Return
STATEMENT OF ASSETS AND LIABILITIES--
May 31, 1996
(Unaudited)
- ---------------------------------------------------------------------
Assets
Investments at market value (identified
cost--$50,148,856) (Note 1) $67,914,029
Cash 452
Receivable for:
Unrealized appreciation on open foreign currency
contracts (Notes 1 and 5) 42,276
Fund shares sold 180,490
Investments sold 310,038
Dividends and interest 167,625
Prepaid expenses and other assets 4,668
-------------------------------------------------------------------
Total assets 68,619,578
-------------------------------------------------------------------
Liabilities
Payable for:
Fund shares redeemed 8,292
Investments purchased 305,975
Income distribution 20,533
Other accrued expenses 49,234
-------------------------------------------------------------------
Total liabilities 384,034
-------------------------------------------------------------------
Net assets $68,235,544
====================================================================
Net assets represented by (Notes 1 and 3)
Paid-in-capital $50,265,589
Accumulated distributions in excess of net
investment income (109,250)
Accumulated net realized gain (loss) on investment
transactions 271,921
Net unrealized appreciation (depreciation) on:
Investments and other assets and liabilities 17,765,008
Foreign currency exchange contracts 42,276
-------------------------------------------------------------------
Total net assets $68,235,544
===================================================================
Net asset value (Notes 1 and 2)
Class A Shares
Net assets of $31,966,542 / 2,072,186 shares
outstanding $15.43
Offering price per share ($15.43 / 0.9425) (based
on sales charge of 5.75% of the offering price
May 31, 1996) $16.37
Class B Shares
Net assets of $24,710,821 / 1,603,239 shares
outstanding $15.41
Class C Shares
Net assets of $11,558,181 / 749,649 shares
outstanding $15.42
===================================================================
See Notes to Financial Statements.
STATEMENT OF OPERATIONS--
Six Months Ended May 31, 1996
(Unaudited)
- ---------------------------------------------------------------
Investment income (Note 1)
Dividends (net of foreign
withholding tax of $3,419) $ 851,737
Interest 131,114
-------------------------------------------------------------
Total income 982,851
-------------------------------------------------------------
Expenses (Notes 2, 4, and 5)
Management fee $202,650
Shareholder services 77,881
Accounting 11,600
Auditing and legal 15,565
Custodian fees 27,403
Printing 12,053
Distribution Plan expenses 201,348
Registration fees 26,409
Miscellaneous expenses 5,036
-------------------------------------------------------------
Total expenses 579,945
Less: Expenses paid indirectly
(Note 4) (4,213)
-------------------------------------------------------------
Net expenses 575,732
-------------------------------------------------------------
Net investment income 407,119
-------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions
(Notes 1 and 3)
Net realized gain (loss) on
investment transactions 345,260
Net realized gain (loss) on foreign
currency related transactions 10,363
-------------------------------------------------------------
Net realized gain on investments and
foreign currency related
transactions 355,623
-------------------------------------------------------------
Net change in unrealized
appreciation (depreciation) on
investments and foreign currency
holdings 6,403,131
-------------------------------------------------------------
Net gain on investments 6,758,754
-------------------------------------------------------------
Net increase in net assets resulting
from operations $7,165,873
=============================================================
<PAGE>
Page 15
- ------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
May 31, 1996 November 30, 1995
======================================================================== ============ =================
(Unaudited)
<S> <C> <C>
Operations
Net investment income $ 407,119 $ 708,899
Net realized gain on investments and foreign currency related
transactions 355,623 2,737,174
Net change in unrealized appreciation (depreciation) on investments and
foreign currency holdings 6,403,131 7,477,718
- ------------------------------------------------------------------------ ---------- ----------------
Net increase in net assets resulting from operations 7,165,873 10,923,791
- ------------------------------------------------------------------------ ---------- ----------------
Distributions to shareholders from (Notes 1 and 5)
Net investment income:
Class A Shares (277,592) (466,226)
Class B Shares (139,945) (149,198)
Class C Shares (63,150) (93,475)
In excess of net investment income:
Class A Shares 0 (138,497)
Class B Shares 0 (110,954)
Class C Shares 0 (54,085)
Net realized gain on investment transactions:
Class A Shares 0 (1,220,537)
Class B Shares 0 (868,298)
Class C Shares 0 (423,790)
- ------------------------------------------------------------------------ ---------- ----------------
Total distributions to shareholders (480,687) (3,525,060)
- ------------------------------------------------------------------------ ---------- ----------------
Capital share transactions (Note 2)
Proceeds from shares sold
Class A Shares 4,776,126 3,618,417
Class B Shares 5,810,123 13,668,348
Class C Shares 2,878,593 3,797,262
Payments for shares redeemed
Class A Shares (3,240,163) (5,386,215)
Class B Shares (4,232,476) (3,483,004)
Class C Shares (2,012,225) (2,107,107)
Net asset value of shares issued in reinvestment of distributions
Class A Shares 246,012 1,664,588
Class B Shares 121,422 1,002,721
Class C Shares 58,326 527,153
- ------------------------------------------------------------------------ ---------- ----------------
Net increase in net assets resulting from capital share transactions 4,405,738 13,302,163
- ------------------------------------------------------------------------ ---------- ----------------
Total increase in net assets 11,090,924 20,700,894
Net assets:
Beginning of period 57,144,620 36,443,726
- ------------------------------------------------------------------------ ---------- ----------------
End of period [including accumulated distributions in excess of net
investment income as follows:
1996 ($109,250) and 1995--($35,682)] $68,235,544 $57,144,620
======================================================================== ========== ================
</TABLE>
See Notes to Financial Statements.
<PAGE>
Page 16
- ------------------------------------------------------------
Keystone Fund for Total Return
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1.) Significant Accounting Policies
Keystone Fund for Total Return (formerly Keystone America Fund for Total
Return) (the "Fund") is a diversified open-end management company. The Fund
was organized as a Massachusetts business trust on October 24, 1986 and began
operations on February 13, 1987. Keystone Investment Management Company
(formerly Keystone Custodian Funds, Inc.) ("Keystone") is its Investment
Adviser. The Fund seeks total return from a combination of capital growth and
income.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc.
(formerly Keystone Group, Inc.) ("KII"), a Delaware corporation. KII is a
private corporation predominately 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 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.) ("KIDCO"), the Fund's principal
underwriter. KIDCO is a wholly-owned subsidiary of Keystone.
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 for the Fund.
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, by or under the direction of the Board of Trustees: (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. Foreign currency amounts are translated into United
Sates dollars as follows: market value of investments, assets and liabilities
at the daily rate of exchange; purchases and sales of investments, income and
expenses at the rate of exchange prevailing on the dates of such
transactions. Net unrealized foreign exchange gains/losses are a component of
unrealized appreciation/depreciation on investment holdings and other assets
and liabilities.
Short-term investments, if 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 invest-
<PAGE>
Page 17
- ------------------------------------------------
ments maturing in more than sixty days, which are held on the sixtieth day
prior to maturity, are valued at amortized cost (market value on the sixtieth
day adjusted for amortization of premium or accretion of discount) which,
when combined with accrued interest, approximates market.
Investments denominated in foreign currencies are adjusted daily to reflect
changes in exchange rates. Market quotations are not considered to be readily
available for long-term corporate bonds and notes; such investments are
stated at fair value on the basis of valuations furnished by a pricing
service, approved by the Board of Trustees, which determines valuations for
normal, institutional-size trading units of such securities using methods
based on market transactions for comparable securities 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 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.
B. Securities transactions are accounted for on the day after the trade date.
Realized gains and losses are computed on the identified cost basis. Gains
and losses on foreign currency related transactions are treated as ordinary
income for federal income tax purposes. Interest income is recorded on the
accrual basis and dividend income is recorded on the ex-dividend date.
Distributions to the shareholders are recorded by the Fund at the close of
business on the ex-dividend date.
C. The Fund has qualified, and intends to qualify in the future, as a
regulated investment company under the Internal Revenue Code of 1986, as
amended ("Internal Revenue Code"). Thus, the Fund will be relieved of any
federal income or excise tax liability by distributing all of its net taxable
investment income and net taxable capital gains, if any, to its shareholders.
The Fund intends to avoid any excise tax liability by making the required
distributions under the Internal Revenue Code.
D. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed
upon date and price) the repurchase price of the securities will generally
equal the amount paid by the Fund plus a negotiated interest amount. The
seller under the repurchase agreement will be required to provide securities
("collateral") to the Fund whose value will be maintained at an amount not
less than the repurchase price, and which generally will be maintained at
101% of the repurchase price. The Fund monitors the value of the 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 dis-
<PAGE>
Page 18
- -----------------------------------------------------------
Keystone Fund for Total Return
posing of such securities. If bankruptcy proceedings are commenced against
the seller under the repurchase agreement, the realization on the collateral
may be delayed or limited. Repurchase agreements entered into by the Fund
will be limited to transactions with dealers or domestic banks believed to
present minimal credit risks, and the Fund will take constructive receipt of
all securities underlying repurchase agreements until such agreements expire.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other Keystone funds, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are fully collateralized
by U.S. Treasury and/or Federal Agency obligations.
E. In connection with portfolio purchases and sales of securities denominated
in foreign currency, the Fund may from time to time enter into forward
foreign currency exchange contracts ("contracts"). Contracts are recorded at
market value. 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.
F. 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 Fund's Declaration of Trust authorizes the issuance of an unlimited
number of shares of beneficial interest without par value. Transactions in
shares of the Fund were as follows:
Class A Shares
------------------------------------------------------------
Six Months
Ended Year Ended
May 31, 1996 November 30, 1995
- ---------------------- ------------- ------------------
Shares sold 322,257 280,062
Shares redeemed (220,716) (422,494)
Shares issued in
reinvestment of
distributions 16,303 126,167
- ---------------------- ----------- ----------------
Net increase
(decrease) 117,844 (16,265)
====================== =========== ================
Class B Shares
------------------------------------------------------------
Six Months
Ended Year Ended
May 31, 1996 November 30, 1995
- ---------------------- ------------- ------------------
Shares sold 393,995 1,057,718
Shares redeemed (287,205) (266,010)
Shares issued in
reinvestment of
distributions 8,085 75,397
- ---------------------- ----------- ----------------
Net increase 114,875 867,105
====================== =========== ================
<PAGE>
Page 19
- -----------------------------------------
Class C Shares
- -------------------------------------------------------------
Six Months
Ended Year Ended
May 31, 1996 November 30, 1995
- ---------------------- ------------- ------------------
Shares sold 196,436 303,795
Shares redeemed (136,925) (164,102)
Shares issued in
reinvestment of
distributions 3,877 39,802
- ---------------------- ----------- ----------------
Net increase 63,388 179,495
====================== =========== ================
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, as amended
(the "1940 Act"). Under its Distribution Plans, the Fund pays KIDCO, amounts
which in total may not exceed each Distribution Plan's maximum.
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 KIDCO under the Class A Distribution Plan are currently used to
pay others, such as broker dealers, service fees at an annual rate of up to
0.25% of the average daily net asset value of Class A maintained by such
recipients and outstanding on the books for specified periods.
The Class B Distribution Plans provides for payments at an annual rate of up
to 1.00% of the average daily net asset value of Class B shares to pay
expenses of the distribution of Class B shares. Amounts paid by the Fund
under the Class B Distribution Plans are currently used to pay others
(brokers-dealers); a commission at the time of purchase normally equal to
4.00% of the price paid for each Class B share sold plus the first year's
service fee in advance in the amount of 0.25% of the price paid for each
Class B share sold. Beginning approximately 12 months after the purchase of a
Class B share, the broker-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 outstanding on the 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 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
(broker-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 broker-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") and service fees at the annual rate of
0.25%, respectively, of the average net asset value of each Class C share main-
<PAGE>
Page 20
- -----------------------------------------------
Keystone Fund for Total Return
tained by such others and outstanding on the books for specified periods.
Each of the Distribution Plans may be terminated at any time by a vote of
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 payments to KIDCO may, at the discretion of the Board of
Trustees, continue as compensation for its services which had been earned at
any time the Distribution Plan was in effect.
KIDCO intends, but is not obligated, to continue to pay or accrue
distribution costs and service fees which exceed annual maximum payments
permitted to be received by KIDCO from the Fund. KIDCO intends to seek full
payment of such amounts from the Fund (together with annual interest thereon
at the prime rate plus 1.0%) at such time in the future as, and to the extent
that, payment thereof by the Fund would be within permitted limits. KIDCO
currently intends to seek payment of interest only on such amounts paid or
accrued by KIDCO.
During the six-month period ended May 31, 1996, the Fund paid KIDCO $36,020
pursuant to its Class A Distribution Plan; $60,898 for Class B shares sold
prior to June 1, 1995, and $51,663 for Class B shares sold on or after June
1, 1995 under its Class B Distribution Plans; and $52,767 under its Class C
Distribution Plan.
Under the NASD Rule, as of May 31, 1996 the maximum uncollected amounts for
which KIDCO may seek payment from the Fund under its Class B Distribution
Plans were $787,242 for Class B shares purchased prior to June 1, 1995 and
$478,154 for Class B shares purchased on or after June 1, 1995; and $718,358
under its Class C Distribution Plan.
Presently, the Fund's class-specific expenses are limited to Distribution
Plan expenses incurred by a class of shares.
(3.) Securities Transactions
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities), during the six month period ended May 31, 1996 were
$17,887,451 and $13,031,852, respectively.
(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 was 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. For its services, Keystone recieves an annual fee
representing 85% of the management fee received by KMI. For the six month
period ended May 31, 1996 the Fund paid or accrued to KMI investment
management and administrative service fees of $202,650, which represent 0.65%
of the Fund's average net assets on an annualized basis. Of such amounts paid
to KMI $172,253 was paid to Keystone for its services to the Fund.
For the six month period ended May 31, 1996, the Fund paid or accrued to KII
$23,653 as reimbursement for certain accounting and printing services; and
$77,881 to KIRC for shareholder services.
<PAGE>
Page 21
- ----------------------------------------------
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 agree 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 six month period ended May 31, 1996, the Fund paid custody fees in
the amount of $27,403 and received a credit of $4,213 pursuant to the expense
offset arrangement, resulting in a net custody expense of $23,190. 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.
(5.) Foreign Currency Exchange Contracts
At May 31, 1996, the Fund had entered into currency exchange contracts that
obligate the Fund to deliver currencies at specified future dates. The
unrealized appreciation of $42,276 on these contracts is included in the
accompanying financial statements.
(6.) Distributions to Shareholders
Any taxable distribution which is declared in December and paid in the
following fiscal year will be taxable to shareholders in the year declared.
<PAGE>
Page 22
- ----------------------------------------------------
Keystone Fund for Total Return
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>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
[BACK COVER]
KEYSTONE AMERICA
FAMILY OF FUNDS
Balanced Fund II
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Insured Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Pennsylvania Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Omega Fund
Fund of the Americas
Small Company Growth Fund II
Strategic Development Fund
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied by
the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you
invest or send money. For a free prospectus on other Keystone funds, contact
your financial adviser or call Keystone.
[KEYSTONE LOGO]
KEYSTONE
INVESTMENTS
P.O. Box 2121
Boston, Massachusetts 02106-2121
FFTR-R-7/96
5.7M [Recycle Logo]
