PAGE 1
- --------------------------------------
Keystone Fund for Total Return
Seeks total return from a combination of capital growth and income 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 twelve-month period which ended November 30, 1996.
Following this letter, we have included an interview with your Fund's manager
discussing portfolio strategy.
Performance
For the twelve-month period which ended November 30, 1996, your Fund produced
the following returns:
Class A shares returned 29.83%.
Class B shares returned 28.73%.
Class C shares returned 28.71%.
The Standard & Poor's 500 Index (S&P 500), returned 27.8% for the same
period.
We believe your Fund performed well during the period. We think the Fund's
strong performance was due to several stock selection decisions in which the
well-known, established companies that your Fund emphasized were rewarded in the
markets.
Taking advantage of market leaders
Strong corporate earnings and a favorable economic environment sent stocks to
new highs during the twelve-month period. In October, the Dow Jones Industrial
Average set another record, crossing the 6000 mark. While your Fund maintained
its flexibility to invest in several asset classes, portfolio investments
primarily focused on large U.S. companies. The stocks of these types of
companies were market leaders throughout the twelve-month period.
Our outlook
We expect the favorable economic fundamentals of 1996 to continue into 1997. We
believe that the economy should grow at a moderate rate, inflation should remain
under control and interest rates should remain relatively stable.
For investors with long-term goals, we continue to believe that stocks
offer the best potential returns. While we have a favorable outlook for 1997, we
are now in the sixth year of a stock market rally, the longest since the end of
World War II. History has shown that strong performance does not persist
indefinitely, and stocks periodically experience price declines. We experienced
this type of correction in June and July, followed by a recovery. Investors
should not expect the Fund's very strong performance during the past year to be
normal. While we continue to see opportunities in the stock market, we caution
investors to be prepared for less generous returns in the future and to not be
surprised by corrections. We believe, however, that investors should maintain a
long-term perspective and not be swayed by short-term performance issues,
whether they be positive or negative.
Keystone acquired by First Union Corporation
On another note, we are pleased to inform you that Keystone has been acquired by
First Union Corporation. First Union, based in Charlotte, North Carolina, is the
nation's sixth largest bank holding company with assets of approximately $130
billion. Keystone Investment Management Company will continue to be the
investment adviser, responsible for managing your Fund's portfolio. Your Fund
will continue to be managed with the same
--continued--
<PAGE>
PAGE 2
- --------------------------------------
Keystone Fund for Total Return
style and philosophy as in the past. First Union is also the parent company of
the investment advisers to another mutual fund family, the Evergreen Family of
Funds. Together, the investment advisers to the Evergreen and Keystone Fund
families manage approximately $30 billion in assets. Some services will now be
conducted under the "Evergreen Keystone Funds" umbrella. We believe the
partnership between Evergreen and Keystone will strengthen our ability to offer
you outstanding investment management services.
Thank you for your continued support of Keystone Fund for Total Return. If
you have any questions or comments about your investments, we encourage you to
write to us.
Sincerely,
[Picture of Albert H. Elfner, III]
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Chairman
[Picture of George S. Bissel]
/s/ George S. Bissell
George S. Bissell
Chairman of the Board
Keystone Funds
January 1997
Keystone Investment Insight Line for Shareholders
You can keep up-to-date on your fund's current strategy and outlook by calling
Keystone Investment Insight Line. You can hear Keystone portfolio managers
discuss their latest strategies. You can also listen to Key stone's overall
market outlook from James McCall, Chief Investment Officer. The service is
available 24 hours a day, seven days a week and updated at least monthly.
Keystone Investment Insight Line 1-800-346-3858, Press 2
[GRAPHIC OF TELEPHONE]
<PAGE>
PAGE 3
- --------------------------------------------------------------------
A Discussion With
Your Fund Manager
[PICTURE 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
income-producing stocks of established companies that are attractively valued.
Q What was the economic environment like during the twelve-month period?
A At the end of 1995 and early in 1996, economic growth was moderate, inflation
was contained, and interest rates had declined. As we moved further into
1996, however, the environment changed. While stock prices rose, they fluctuated
broadly as virtually every new economic statistic triggered a debate over growth
and inflation and whether or not the Federal Reserve Board would raise interest
rates. In July, stocks prices declined sharply, and the S&P 500 dropped more
than 4%. We believe this short-term correction helped wring out the excesses in
the market and brought stock prices to more reasonable levels. From August
through November, economic growth moderated to a slower, sustainable pace, and
interest rates declined. This proved to be an excellent environment for stocks.
Q How did you manage the Fund in this environment?
A Stock selection was key to the Fund's perfor mance. On November 30, 1996,
about 80% of the Fund's assets were invested in large, established companies. We
selected companies with proven records of consistent earnings growth and market
leadership. We diversified the Fund's investments among a variety of economic
sectors and industries. Many of the companies in which we invested such as
Gillette, IBM, Johnson & Johnson, BankAmerica, are household names.
Large-company stocks were market leaders during the twelve months.
Q What contributed to the strong performance of large-company stocks?
A Most of the large companies in which we invested are multinationals. Over the
past several years, many of these companies have undertaken massive
restructuring programs, which have paid off. Strict cost-control programs and
downsizing have led to greater efficiency and productivity. In many instances,
U.S.-based companies have become the low-cost producers of goods and services in
the global economy. Established U.S. companies also reaped the rewards of large
capital inflows into the stock market. A significant portion of the money
invested in the stock market has come from retirement investors.
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: 92
Net assets: $99 million
Newspaper symbol: TotRt
<PAGE>
PAGE 4
- --------------------------------------
These investors tend to be more conservative and often favor the stocks of high
quality companies that usually perform well in rising markets and that tend to
hold their own during market downturns.
Q On November 30, 1996, small and medium-sized companies accounted for about 15%
of the Fund's net assets. How did these types of companies perform?
A Both small and medium-sized companies made significant contributions to your
Fund's performance. One particular success story in the small-cap area is the
Fund's exposure to Real Estate Investment Trusts (REITs). At 10.3% of net
assets, REITs were your Fund's largest sector weighting. We began investing in
REITs about 18 months ago, when we believed they were undervalued and offered
solid total return potential. We were very selective in choosing REITs for the
portfolio. Focusing primarily on commercial properties, we were also careful
about the property markets in which we invested. For example, we took advantage
of the upturn in the electronics industry by investing in an apartment REIT in
Silicon Valley.
Q Financial stocks were a prominent part of the portfolio during the
twelve-month period. Why were these stocks attractive?
A On November 30, 1996, finance common stocks accounted for 5.5% of the
portfolio's net assets. We believe the stocks of finance companies benefitted
from relatively low interest rates and from consolidation in the industry. A
strong performer in this area was BankAmerica, a large bank that has expanded
its business by acquiring smaller banks.
Q Initial public offerings and privatizations and were also a theme in the
portfolio. Where did you find opportunity in these areas?
Top 10 Stock Holdings
as of November 30, 1996
<TABLE>
<CAPTION>
Percentage of
Stock Industry net assets
<S> <C> <C>
General Electric Capital Goods 2.6
BMC Software Software Services 2.2
Canadian National Transportation 2.1
Conseco, Inc. Insurance 2.1
Boeing Aerospace 2.0
IBM Business Equipment 1.7
BankAmerica Finance 1.6
Lucent Technologies Telecommunications 1.6
Associates First Capital Corp. Finance 1.5
PMI Group Finance 1.5
</TABLE>
A We took advantage of new issues in a variety of industry sectors. We invested
in Lucent Technologies, a spinoff of AT&T; Associates First Capital, a
consumer/commercial finance company which is partially owned by Ford; and PMI, a
mortgage insurance company which was spun out of Allstate Insurance. Among
companies that have been privatized, we invested in Canadian National Railway, a
company that has restructured its operations, and which was a very strong
contributor to your Fund's performance.
Q Were technology stocks an important part of the portfolio?
A When we define technology stocks, we include a broad range of companies. We
include electronics products businesses, office and business equipment
Top 5 Industries
as of November 30, 1996
Percentage of
Industry net assets
Real Estate Investment Trusts (REITs) 10.3
Finance 7.7
Insurance 7.6
Telecommunications 7.2
Drugs 5.2
<PAGE>
PAGE 5
- --------------------------------------
companies, and software and telecommunications firms. As a group, companies in
these various business sectors accounted for nearly 19.3% of portfolio net
assets on November 30, 1996. After the market correction in July, technology
stocks were relatively inexpensive. We used the market downturn as an
opportunity to add new technology stocks to the portfolio. Between July and
September we invested in Cisco Systems, a computer networking company; Analog
Devices, a firm that produces semiconductors for specialty markets; and Hewlett
Packard, an office equipment supplier.
Q Did you invest in foreign securities?
A The Fund's foreign exposure included selected companies in Japan, Germany, and
Canada. While the Japanese stock market as a whole generated lackluster returns,
certain companies did quite well. Your Fund benefitted from investments in Fuji
Heavy Industries, which we believe was undervalued when we bought it; and
Taisho, a pharmaceutical company. In Germany, we took advantage of the
privatization of the German telephone company, Deutsche Telekom. In Canada,
Northern Telecom, a telecommunications company, and Laidlaw, a transportation
firm, were solid performers.
Q What is your outlook?
A We expect the environment for stocks to remain healthy. We anticipate moderate
economic growth and believe inflation and interest rates will remain at
relatively low levels. We believe these factors, along with our expectations for
positive earnings, should favor stocks. However, we believe that returns in 1997
may be less than those of 1996. We would not be surprised to see some short-term
pullback in stock prices in the months ahead. Should a "correction" in the stock
market occur, we would view it as a normal part of the investing cycle, and
attempt to use such a downturn to our advantage.
[DIAMOND]
This column is intended to answer
questions about your Fund.
If you have a question you would like answered,
please write to:
Evergreen Keystone Investment Services
Attn: Shareholder Communications, 22nd Floor
200 Berkeley Street, Boston, Massachusetts 02116-5034.
<PAGE>
PAGE 6
- --------------------------------------
Keystone Fund for Total Return
Your Fund's Performance
[MOUNTAIN CHART DATA]
Growth of an investment in
Keystone Fund for Total Return Class A
In Thousands
Initial Investment Reinvested Investment
4/87 9425 9425
8209 8299
11/88 8982 9626
10857 12145
11/90 9792 11920
11036 13911
11/92 11800 15658
11602 17641
11/94 11074 17173
13034 21735
1111/96 16361 28269
A $10,000 investment in Keystone Fund for Total Return Class A made on April 14,
1987 with all distributions reinvested was worth $28,221 on November 30, 1996.
Past performance is no guarantee of future results.
Class A share performance is reported from the commencement of investment
operations on April 14, 1987. Performance is reported at the 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.
Twelve-Month Performance as of November 30, 1996
- --------------------------------------
Class A Class B Class C
Total returns* 29.83% 28.73% 28.71%
Net asset value 11/30/95 $ 13.83 $ 13.84 $ 13.85
11/30/96 $ 17.33 $ 17.31 $ 17.32
Dividends $ 0.26 $ 0.15 $ 0.15
Capital Gains $ 0.33 $ 0.33 $ 0.33
* Before deducting any sales charges.
Historical Record as of November 30, 1996
- --------------------------------------
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 29.83% 28.73% 28.71%
1-year 22.37% 24.73% 28.71%
5-year 91.19% -- --
Life of Class 182.21% 63.68% 66.76%
Average annual returns
1-year w/o sales charge 29.83% 28.73% 28.71%
1-year 22.37% 24.73% 28.71%
5-year 13.84% -- --
Life of Class 11.37% 13.72% 14.27%
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
Evergreen Keystone directly, or through Keystone's Automated Response Line
(KARL). The Fund reserves the right to change or terminate the exchange offer.
<PAGE>
PAGE 7
- --------------------------------------
Growth of an Investment
[LINE CHART DATA]
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, 1996
Average Annual Total Return
1 Year 5 Year Life of Class
Class A 22.37% 13.84% 11.37%
Class B 24.73% -- 13.72%
Class C 24.73% -- 14.27%
Class A S&P CPI
4/87 9425 10000 10000
8300 8071 10294
11/88 9626 9919 10731
12146 12940 11231
11/90 11921 12469 11936
13912 15003 12293
11/92 15658 17779 12667
17641 19575 13006
11/94 17174 19781 13354
21736 27096 13702
11/96 28270 34643 14148
Past performance is no guarantee of future results. The performance of Class B
or Class C shares may 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.
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
<PAGE>
PAGE 8
- --------------------------------------
Keystone Fund for Total Return
evaluate fund performance in conjunction with the other important financial
considerations such as safety, stability and consistency.
Limitations of the Chart
The chart, however, limits the evaluation of Fund performance in several ways.
Because the measurement is based on total returns over a limited 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 9
- --------------------------------------
SCHEDULE OF INVESTMENTS--November 30, 1996
<TABLE>
<CAPTION>
Market
Shares Value
<S> <C> <C>
COMMON STOCKS (81.5%)
AEROSPACE (2.0%)
Boeing Co. (The) 20,000 $1,987,500
AMUSEMENTS (1.1%)
Carnival Corp., Class A 35,000 1,106,875
AUTOMOTIVE (1.7%)
Chrysler Corp. 30,000 1,065,000
General Motors Corp. 10,000 576,250
1,641,250
BUSINESS SERVICES (2.0%)
Thermo Electron Corp. 22,500 815,625
USA Waste Services, Inc. (a) 35,000 1,128,750
1,944,375
-----------
CAPITAL GOODS (3.6%)
General Electric Co. 25,000 2,600,000
Regal Beloit Corp. 50,000 968,750
3,568,750
CHEMICALS (3.5%)
Dow Chemical Co. 15,000 1,256,250
DuPont (E.I.) DeNemours & Co. 15,000 1,413,750
Monsanto Co. 20,500 814,875
3,484,875
CONSUMER GOODS (3.1%)
Eastman Kodak Co. 10,000 810,000
Gillette Co. 15,000 1,106,250
Proctor & Gamble Co. 10,000 1,087,500
-------- -----------
3,003,750
-----------
DIVERSIFIED COMPANIES (2.3%)
Alco Standard Corp. 25,001 1,293,802
Brown & Sharpe Manufacturing
Co. (a) 70,000 1,006,250
2,300,052
-----------
DRUGS (5.2%)
Bristol Myers Squibb Co. 10,000 1,137,500
Market
Shares Value
--------- ------------
DRUGS (cont'd)
Guidant Corp. 20,000 $1,057,500
Johnson & Johnson 20,000 1,062,500
- ------------------------------------- -------- -----------
Merck & Co., Inc. 14,700 1,220,100
Pharmacia & Upjohn, Inc. 16,000 618,000
- ------------------------------------- -------- -----------
5,095,600
-----------
ELECTRONICS PRODUCTS (4.0%)
Analog Devices, Inc. (a) 25,000 803,125
- ------------------------------------- -------- -----------
Emerson Electric Co. 10,000 981,250
- ------------------------------------- -------- -----------
Intel Corp. 10,000 1,268,125
Solectron Corp. (a) 15,000 877,500
- ------------------------------------- -------- -----------
3,930,000
-----------
FINANCE (5.5%)
- -------------------------------------
Associates First Capital Corp. 30,000 1,451,250
BankAmerica Corp. 15,000 1,545,000
PMI Group, Inc. 25,000 1,450,000
- ------------------------------------- -------- -----------
Student Loan Marketing Assn. 10,000 961,250
- ------------------------------------- -------- -----------
5,407,500
-----------
FOODS (4.4%)
Anheuser Busch Cos., Inc. 24,000 1,017,000
Nabisco Holdings Corp., Class A 30,000 1,162,500
- ------------------------------------- -------- -----------
Philip Morris Cos., Inc. 10,000 1,031,250
- ------------------------------------- -------- -----------
Pioneer Hi-Bred International, Inc. 16,000 1,116,000
- ------------------------------------- -------- -----------
4,326,750
-----------
FOREIGN (8.0%)
CANADA (3.9%)
- -------------------------------------
BUSINESS SERVICES (0.8%)
- -------------------------------------
Laidlaw, Inc., Class B 65,000 796,250
- ------------------------------------- -------- -----------
TELECOMMUNICATIONS (1.0%)
Northern Telecom Ltd. 15,000 986,250
- ------------------------------------- -------- -----------
TRANSPORTATION (2.1%)
- -------------------------------------
Canadian National RY Co. 50,300 2,068,588
- ------------------------------------- -------- -----------
3,851,088
-----------
GERMANY (1.1%)
TELECOMMUNICATIONS (1.1%)
Deutche Telekom AG, ADR 50,000 1,068,750
- ------------------------------------- -------- -----------
</TABLE>
<PAGE>
PAGE 10
- --------------------------------------
Keystone Fund for Total Return
SCHEDULE OF INVESTMENTS--November 30, 1996
<TABLE>
<CAPTION>
Market
Shares Value
<S> <C> <C>
COMMON STOCKS (cont'd)
FOREIGN (cont'd)
HONG KONG (0.6%)
TRAVEL & LEISURE (0.6%)
Shangri La Asia Ltd. 380,000 $ 599,586
JAPAN (2.4%)
AUTOMOTIVE (0.6%)
Fuji Heavy Industries 136,000 626,866
--------- -----------
DRUGS (0.6%)
Taisho Pharmaceuticals Co. 28,000 624,407
INSURANCE (1.2%)
GCR Holdings Ltd. 50,000 1,128,125
2,379,398
TOTAL FOREIGN 7,898,822
INSURANCE (2.0%)
Providian Corp. 15,000 802,500
Travelers Aetna Property Casualty
Corp. 35,000 1,207,500
2,010,000
NATURAL GAS (3.2%)
Burlington Resources, Inc. 15,000 795,000
Enron Corp. 20,000 915,000
K N Energy, Inc. 10,400 422,500
Sonat, Inc. 20,000 1,035,000
3,167,500
-----------
OFFICE & BUSINESS EQUIPMENT (2.6%)
Hewlett Packard Co. 15,000 808,125
IBM Corp. 10,800 1,721,250
2,529,375
OIL (4.1%)
Amoco Corp. 6,000 465,750
Atlantic Richfield Co. 3,500 486,938
Chevron Corp. 12,000 804,000
Mobil Corp. 6,000 726,000
Occidental Petroleum Corp. 30,000 720,000
Unocal Corp. 20,000 815,000
- ------------------------------------- --------- -----------
4,017,688
-----------
Market
Shares Value
---------- ------------
OIL SERVICES (2.2%)
Halliburton Co. 10,000 $ 602,500
Schlumberger Ltd. 7,500 780,000
Tidewater, Inc. 17,500 765,625
- ------------------------------------- --------- -----------
2,148,125
-----------
PAPER & PACKAGING (0.5%)
Weyerhaeuser Co. 10,000 460,000
- ------------------------------------- --------- -----------
REAL ESTATE INVESTMENT TRUST (10.3%)
- -------------------------------------
American General Hospitality
Corp. 25,000 506,250
Arden Realty, Inc. (a) 35,000 844,375
- ------------------------------------- --------- -----------
Avalon Properties, Inc. 27,500 704,688
Bay Apartment Community, Inc. 30,000 975,000
- ------------------------------------- --------- -----------
Beacon Properties Corp. 35,000 1,106,875
- ------------------------------------- --------- -----------
Camden Property Trust 25,000 690,625
- ------------------------------------- --------- -----------
Equity Residential Property Trust 20,000 802,500
First Industrial Realty Trust, Inc. 30,000 858,750
Patriot American Hospitality, Inc. 30,000 1,136,250
- ------------------------------------- --------- -----------
Prentiss Properties Trust (a) 49,000 1,096,375
- ------------------------------------- --------- -----------
Spieker Properties, Inc. 25,000 765,625
Storage USA, Inc. 18,000 679,500
- ------------------------------------- --------- -----------
10,166,813
-----------
RETAIL (0.6%)
Price Costco, Inc. (a) 25,000 582,813
- ------------------------------------- --------- -----------
SOFTWARE SERVICES (3.8%)
- -------------------------------------
BMC Software, Inc. (a) 50,000 2,187,500
Electronic Data Systems Corp. 25,200 1,219,050
Sabre Group Holdings, Inc.,
Class A (a) 12,500 365,625
- ------------------------------------- --------- -----------
3,772,175
-----------
TELECOMMUNICATIONS (3.8%)
Bell South Corp. 14,000 565,250
Cisco Systems, Inc. (a) 12,500 849,219
GTE Corp. 18,000 807,750
Lucent Technologies, Inc. 30,000 1,537,500
- ------------------------------------- --------- -----------
3,759,719
-----------
</TABLE>
<PAGE>
PAGE 11
- --------------------------------------
SCHEDULE OF INVESTMENTS--November 30, 1996
<TABLE>
<CAPTION>
Market
Shares Value
--------- ------------
<S> <C> <C>
COMMON STOCKS (cont'd)
TRANSPORTATION (1.2%)
Burlington Northern, Santa Fe,
Inc. 13,297 $1,195,068
- ---------------------------------- -------- -----------
UTILITIES (0.8%)
Central & South West Corp. 20,000 535,000
Florida Progress Corp., Rts. 9,000 291,375
- ---------------------------------- -------- -----------
826,375
-----------
TOTAL COMMON STOCKS
(Cost--$54,753,026) 80,331,750
- ---------------------------------- -----------
PREFERRED STOCKS (9.9%)
CHEMICALS (0.6%)
Atlantic Richfield Co. 25,000 562,500
- ---------------------------------- -------- -----------
FINANCE (1.6%)
Money Store, Inc. 27,000 793,125
Salomon, Inc. 25,000 750,000
- ---------------------------------- -------- -----------
1,543,125
-----------
INSURANCE (3.9%)
Allstate Corp. 15,000 745,313
Conseco, Inc. 20,000 2,025,000
SunAmerica, Inc. (a) 27,500 1,127,500
- ---------------------------------- -------- -----------
3,897,813
-----------
MISCELLANEOUS (0.8%)
Timet Cap Trust (a)(c) 1,500 798,750
- ---------------------------------- -------- -----------
RETAIL (1.3%)
Kmart Fing I 25,000 1,259,375
- ---------------------------------- -------- -----------
SOFTWARE SERVICES (0.9%)
Houghton Mifflin Co., Conv. 11,000 858,000
- ---------------------------------- -------- -----------
TELECOMMUNICATIONS (0.8%)
Loral Space & Communications (c) 15,000 840,000
- ---------------------------------- -------- -----------
TOTAL PREFERRED STOCKS
(Cost--$8,412,033) 9,759,563
- ---------------------------------- -----------
</TABLE>
<TABLE>
<CAPTION>
Par Market
Value Value
------------- --------------
<S> <C> <C>
FIXED INCOME/CONVERTIBLE BONDS (3.8%)
CAPITAL GOODS (1.4%) Robbins & Myers,
Inc., Conv. Notes, 6.500%, 2001 (c) $ 400,000 $ 416,000
U.S. Filter Corp., Conv. Notes,
6.000%, 2005 (c) 500,000 947,500
- ------------------------------------ ---------- ----------
1,363,500
----------
FINANCE (0.6%)
Sumitomo Bk. International
Finance, ADR, Conv. Notes,
.750%, 2001 (c) 600,000 570,750
- ------------------------------------ ---------- ----------
INSURANCE (0.5%)
Berkshire Hathaway, Inc., Sr. Nt.,
1.000%, 2003 600,000 544,668
- ------------------------------------ ---------- ----------
OFFICE EQUIPMENT (0.8%)
Staples, Inc., Conv. Deb., 4.500%,
2000 (c) 750,000 803,435
- ------------------------------------ ---------- ----------
TELECOMMUNICATIONS (0.5%)
Saks Holdings, Inc., Sub. Nt.,
5.500%, 2015 500,000 512,500
- ------------------------------------ ---------- ----------
TOTAL FIXED INCOME
(Cost--$3,245,481) 3,794,853
- ------------------------------------ ----------
Maturity
Value
- ------------------------------------ -------
REPURCHASE AGREEMENTS (5.3%) Investments
in repurchase agreements, in a joint
trading account purchased 11/29/96,
5.674%, maturing 12/02/96
(Cost--$5,203,000) (b) $5,205,460 5,203,000
- ------------------------------------ ---------- ----------
TOTAL INVESTMENTS
(Cost--$71,613,540)(d) 99,089,166
- ------------------------------------ ----------
OTHER ASSETS AND LIABILITIES (-0.5%) (513,957)
- --------------------------------------------------- ----------
NET ASSETS (100.0%) $98,575,209
- ------------------------------------ ----------
</TABLE>
<PAGE>
PAGE 12
- --------------------------------------
Keystone Fund for Total Return
SCHEDULE OF INVESTMENTS--November 30, 1996
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, 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.
(d) The cost of investments for federal income tax purposes is $71,613,540.
Gross unrealized appreciation and depreciation of investments based on
identified tax cost, at November 30, 1996 are as follows:
Gross unrealized appreciation $27,625,572
Gross unrealized depreciation (149,946)
-----------
Net unrealized appreciation $27,475,626
===========
FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Exchange U.S. $ Value at In Exchange Unrealized
Date November 30, 1996 for U.S. $ Appreciation
- --------- -------------------- -------------- --------------
Forward Foreign Currency Exchange Contracts to Sell:
Contract to Deliver
---------------------
<S> <C> <C> <C> <C> <C>
1/27/97 111,465,000 Japanese Yen $986,948 $1,000,000 $13,052
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 13
- --------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended November 30,
------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------- --------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value beginning of year $ 13.83 $ 11.75 $ 12.31 $12.06 $11.45
- ----------------------------------- -------- -------- -------- ------ ------
Income from investment
operations
Net investment income 0.26 0.25 0.24 0.21 0.23
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions 3.83 2.80 (0.56) 1.31 1.19
- ----------------------------------- -------- -------- -------- ------ ------
Total from investment operations 4.09 3.05 (0.32) 1.52 1.42
- ----------------------------------- -------- -------- -------- ------ ------
Less distributions from
Net investment income (0.26) (0.25) (0.24) (0.21) (0.23)
In excess of net investment income 0.00 (0.07) 0.00 (0.03) (0.05)
Net realized gain on investments (0.33) (0.65) 0.00 (1.03) (0.53)
- ----------------------------------- -------- -------- -------- ------ ------
Total distributions (0.59) (0.97) (0.24) (1.27) (0.81)
- ----------------------------------- -------- -------- -------- ------ ------
Net asset value end of year $ 17.33 $ 13.83 $ 11.75 $12.31 $12.06
- ----------------------------------- -------- -------- -------- ------ ------
Total return (a) 29.83% 26.57% (2.65%) 12.67% 12.56%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.41%(b) 1.69%(b) 1.59% 1.85% 1.85%
Net investment income 1.66% 1.94% 1.93% 1.63% 1.87%
Portfolio turnover rate 41% 77% 57% 92% 66%
Average commissions rate paid $ 0.0037 N/A N/A N/A N/A
- ----------------------------------- -------- -------- -------- -------- --------
Net assets end of year (thousands) $ 40,487 $ 27,037 $23,162 $26,367 $23,607
- ----------------------------------- -------- -------- -------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
February 13, 1987
Year Ended November 30, (Commencement of
---------------------------------------------------------- Operations) to
1991 1990 1989 1988 November 30, 1987
---------- --------------- --------------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
Net asset value beginning of year $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 realized and unrealized gain
(loss) on investments and foreign
currency related transactions 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 from
Net investment income (0.35) (0.40) (0.42) (0.53) (0.24)
In excess of net investment income (0.05) 0.00 0.00 0.00 0.00
Net realized gain on investments (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 year $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%(c) 2.00%(c) 1.47%(c) 1.00%(c)(d)
Net investment income 2.98% 3.85% 3.94% 4.87% 4.94%(d)
Portfolio turnover rate 43% 51% 50% 64% 16%
Average commissions rate paid N/A N/A N/A N/A N/A
- ----------------------------------- ------ -------- -------- -------- -------
Net assets end of year (thousands) $22,974 $ 22,080 $ 22,764 $ 20,735 $ 7,672
- ----------------------------------- ------ -------- -------- -------- -------
</TABLE>
(a) Excluding applicable sales charges.
(b) The expense ratios include indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratios would have been 1.39% and 1.67% for the
years ended November 30, 1996 and 1995, respectively.
(c) 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.
(d) Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to November 30, 1987.
See Notes to Financial Statements.
<PAGE>
PAGE 14
- --------------------------------------
Keystone Fund for Total Return
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended November 30,
---------------------------------------------
1996 1995 1994
--------------- --------------- ------------
<S> <C> <C> <C>
Net asset value beginning of year $ 13.84 $ 11.77 $ 12.32
- ------------------------------------------------------------------- -------- -------- ---------
Income from investment operations
Net investment income 0.15 0.15 0.15
Net realized and unrealized gain (loss) on investments and foreign
currency related transactions 3.80 2.82 (0.56)
- ------------------------------------------------------------------- -------- -------- ---------
Total from investment operations 3.95 2.97 (0.41)
- ------------------------------------------------------------------- -------- -------- ---------
Less distributions from
Net investment income (0.15) (0.15) (0.14)
In excess of net investment income 0.00 (0.10) 0.00
Net realized gain on investments (0.33) (0.65) 0.00
- ------------------------------------------------------------------- -------- -------- ---------
Total distributions (0.48) (0.90) (0.14)
- ------------------------------------------------------------------- -------- -------- ---------
Net asset value end of year $ 17.31 $ 13.84 $ 11.77
- ------------------------------------------------------------------- -------- -------- ---------
Total return (a) 28.73% 25.59% (3.36%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.18%(b) 2.47%(b) 2.31%
Net investment income 0.88% 1.06% 1.27%
Portfolio turnover rate 41% 77% 57%
Average commissions rate paid $ 0.0037 N/A N/A
- ------------------------------------------------------------------- -------- -------- ---------
Net assets end of year (thousands) $ 43,526 $ 20,605 $ 7,314
- ------------------------------------------------------------------- -------- -------- ---------
</TABLE>
<TABLE>
<CAPTION>
February 1, 1993
(Date of Initial
Public Offering) to
November 30, 1993
---------------------
<S> <C>
Net asset value beginning of year $ 12.65
- ------------------------------------------------------------------- --------
Income from investment operations
Net investment income 0.10
Net realized and unrealized gain (loss) on investments and foreign
currency related transactions 0.74
- ------------------------------------------------------------------- --------
Total from investment operations 0.84
- ------------------------------------------------------------------- --------
Less distributions from
Net investment income (0.10)
In excess of net investment income (0.04)
Net realized gain on investments (1.03)
- ------------------------------------------------------------------- --------
Total distributions (1.17)
- ------------------------------------------------------------------- --------
Net asset value end of year $ 12.32
- ------------------------------------------------------------------- --------
Total return (a) 6.68%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.64%(c)
Net investment income 0.84%(c)
Portfolio turnover rate 92%
Average commissions rate paid N/A
- ------------------------------------------------------------------- --------
Net assets end of year (thousands) $ 4,283
- ------------------------------------------------------------------- --------
</TABLE>
(a) Excluding applicable sales charges.
(b) The expense ratios include indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratios would have been 2.16% and 2.46% for the
years ended November 30, 1996 and 1995, respectively.
(c) Annualized for the period February 1, 1993 (Date of Initial Public Offering)
to November 30, 1993.
See Notes to Financial Statements.
<PAGE>
PAGE 15
- --------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended November 30,
---------------------------------------------
1996 1995 1994
--------------- --------------- ------------
<S> <C> <C> <C>
Net asset value beginning of year $ 13.85 $ 11.78 $ 12.33
- ------------------------------------------------------------------- -------- -------- ---------
Income from investment operations
Net investment income 0.14 0.16 0.15
Net realized and unrealized gain (loss) on investments and foreign
currency related transactions 3.81 2.81 (0.56)
- ------------------------------------------------------------------- -------- -------- ---------
Total from investment operations 3.95 2.97 (0.41)
- ------------------------------------------------------------------- -------- -------- ---------
Less distributions from
Net investment income (0.15) (0.16) (0.14)
In excess of net investment income 0.00 (0.09) 0.00
Net realized gain on investments (0.33) (0.65) 0.00
- ------------------------------------------------------------------- -------- -------- ---------
Total distributions (0.48) (0.90) (0.14)
- ------------------------------------------------------------------- -------- -------- ---------
Net asset value end of year $ 17.32 $ 13.85 $ 11.78
- ------------------------------------------------------------------- -------- -------- ---------
Total return (a) 28.71% 25.57% (3.36%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.17%(b) 2.47%(b) 2.34%
Net investment income 0.89% 1.16% 1.21%
Portfolio turnover rate 41% 77% 57%
Average commissions rate paid $ 0.0037 N/A N/A
- ------------------------------------------------------------------- -------- -------- ---------
Net assets, end of year (thousands) $ 14,562 $ 9,503 $ 5,968
- ------------------------------------------------------------------- -------- -------- ---------
</TABLE>
<TABLE>
<CAPTION>
February 1, 1993
(Date of Initial
Public Offering) to
November 30, 1993
---------------------
<S> <C>
Net asset value beginning of year $ 12.65
- ------------------------------------------------------------------- --------
Income from investment operations
Net investment income 0.10
Net realized and unrealized gain (loss) on investments and foreign
currency related transactions 0.75
- ------------------------------------------------------------------- --------
Total from investment operations 0.85
- ------------------------------------------------------------------- --------
Less distributions from
Net investment income (0.10)
In excess of net investment income (0.04)
Net realized gain on investments (1.03)
- ------------------------------------------------------------------- --------
Total distributions (1.17)
- ------------------------------------------------------------------- --------
Net asset value end of year $ 12.33
- ------------------------------------------------------------------- --------
Total return (a) 6.76%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.64%(c)
Net investment income 0.83%(c)
Portfolio turnover rate 92%
Average commissions rate paid N/A
- ------------------------------------------------------------------- --------
Net assets, end of year (thousands) $ 5,030
- ------------------------------------------------------------------- --------
</TABLE>
(a) Excluding applicable sales charges.
(b) The expense ratios include indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratios would have been 2.15% and 2.44% for the
years ended November 30, 1996 and 1995, respectively.
(c) Annualized for the period February 1, 1993 (Date of Initial Public Offering)
to November 30, 1993.
See Notes to Financial Statements.
<PAGE>
PAGE 16
- --------------------------------------------------------------------
Keystone Fund for Total Return
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1996
<TABLE>
<S> <C>
Assets
Investments at market value (identified cost--
$71,613,540) $99,089,166
Cash 948
Receivable for:
Unrealized appreciation on forward foreign currency
exchange contracts 13,052
Fund shares sold 550,691
Dividends and interest 173,883
Prepaid expenses and other assets 2,560
- -------------------------------------------------------------- -----------
Total assets 99,830,300
- -------------------------------------------------------------- -----------
Liabilities
Payable for:
Fund shares redeemed 199,836
Investments purchased 969,792
Distribution to shareholders 26,998
Other accrued expenses 58,465
- -------------------------------------------------------------- -----------
Total liabilities 1,255,091
- -------------------------------------------------------------- -----------
Net assets $98,575,209
- -------------------------------------------------------------- -----------
Net assets represented by (Note 2)
Paid-in-capital $71,319,631
Accumulated distributions in excess of net investment
income (233,100)
Net unrealized appreciation on investments and
foreign currency exchange contracts 27,488,678
- -------------------------------------------------------------- -----------
Total net assets $98,575,209
- -------------------------------------------------------------- -----------
Net asset value
Class A Shares
Net assets of $40,487,287 [dividedby] 2,336,578 shares outstanding $17.33
Offering price per share ($17.33 [dividedby] 0.9425) (based on sales charge of
5.75% of the offering price
November 30, 1996) $18.39
Class B Shares
Net assets of $43,526,157 [dividedby] 2,514,299 shares
outstanding $17.31
Class C Shares
Net assets of $14,561,765 [dividedby] 840,991 shares
outstanding $17.32
- -------------------------------------------------------------- ------------
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended November 30, 1996
<S> <C> <C>
Investment income (Note 1)
Dividends (net of foreign
withholding tax of $5,991) $1,807,120
Interest 289,654
- --------------------------------------- -----------
Total income 2,096,774
- --------------------------------------- -----------
Expenses (Notes 4 and 5)
Management fee $ 448,266
Shareholder services 165,963
Accounting 27,066
Auditing and legal 28,295
Custodian fees 62,950
Printing 21,283
Distribution Plan expenses 448,502
Registration fees 43,415
Miscellaneous expenses 9,069
- --------------------------------------- ---------
Total expenses 1,254,809
Less: Expenses paid indirectly
(Note 6) (11,473)
- --------------------------------------- ---------
Net expenses 1,243,336
- --------------------------------------- -----------
Net investment income 853,438
- --------------------------------------- -----------
Net realized and unrealized gain
on investments and foreign
currency related transactions
(Notes 1 and 3)
Net realized gain on investments 1,756,488
Net realized gain on foreign currency
related transactions 156,942
- --------------------------------------- ---------
Net realized gain on investments and
foreign currency related
transactions 1,913,430
- --------------------------------------- -----------
Net change in unrealized
appreciation on investments and
foreign currency related
transactions 16,084,525
- --------------------------------------- -----------
Net realized and unrealized gain on
investments and foreign currency
related transactions 17,997,955
- --------------------------------------- -----------
Net increase in net assets resulting
from operations $18,851,393
- --------------------------------------- -----------
</TABLE>
<PAGE>
PAGE 17
- --------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended November 30,
-----------------------------
<S> <C> <C>
1996 1995
----- ----
Operations
Net investment income $ 853,438 $ 708,899
Net realized gain on investments and foreign currency related transactions 1,913,430 2,737,174
Net change in unrealized appreciation on investments and foreign currency
related transactions 16,084,525 7,477,718
- ---------------------------------------------------------------------------- ----------- -----------
Net increase in net assets resulting from operations 18,851,393 10,923,791
- ---------------------------------------------------------------------------- ----------- -----------
Distributions to shareholders from Net investment income:
Class A Shares (539,949) (466,226)
Class B Shares (273,356) (149,198)
Class C Shares (112,998) (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 (754,551) (1,220,537)
Class B Shares (808,105) (868,298)
Class C Shares (270,058) (423,790)
- ---------------------------------------------------------------------------- ----------- -----------
Total distributions to shareholders (2,759,017) (3,525,060)
- ---------------------------------------------------------------------------- ----------- -----------
Capital share transactions
Proceeds from shares sold
Class A Shares 11,818,891 3,618,417
Class B Shares 23,867,265 13,668,348
Class C Shares 6,185,359 3,797,262
Payments for shares redeemed
Class A Shares (6,837,747) (5,386,215)
Class B Shares (8,156,600) (3,483,004)
Class C Shares (4,069,150) (2,107,107)
Net asset value of shares issued in reinvestment of distributions
Class A Shares 1,193,118 1,664,588
Class B Shares 974,432 1,002,721
Class C Shares 362,645 527,153
- ---------------------------------------------------------------------------- ----------- -----------
Net increase in net assets resulting from capital share transactions 25,338,213 13,302,163
- ---------------------------------------------------------------------------- ----------- -----------
Total increase in net assets 41,430,589 20,700,894
Net assets
Beginning of year 57,144,620 36,443,726
- ---------------------------------------------------------------------------- ----------- -----------
End of year [including accumulated distributions in excess of net investment
income as follows:
1996 ($233,100) and 1995 ($35,682)] $98,575,209 $57,144,620
- ---------------------------------------------------------------------------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 18
- --------------------------------------
Keystone Fund for Total Return
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone 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 ("Keystone") is the Investment Adviser.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc. ("KII") and
KMI is a wholly-owned subsidiary of Keystone. On December 11, 1996, KII, and
indirectly each of its subsidiaries, were acquired by First Union National Bank
of North Carolina (Note 7). The Fund is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as a diversified, open-end investment
company. The Fund offers several classes of shares. The Fund's primary
investment objective seeks total return from a combination of capital growth and
income.
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
require management to make estimates and assumptions that affect amounts
reported herein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the Fund.
A. Valuation of Securities
Investments are usually valued at the closing sales price, or in the absence of
sales and for over-the-counter securities, the mean of the bid and asked prices.
Securities for which valuations are not available from an independent pricing
service (including restricted securities) are valued at fair value as determined
in good faith according to procedures established by the Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are
carried at amortized cost, which approximates market value. Short-term
investments with greater than 60 days to maturity are valued at market value.
B. Repurchase Agreements
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.
Securities pledged as collateral for repurchase agreements are held by the
custodian on the Fund's behalf. The Fund monitors the adequacy of the collateral
daily and will require the seller to provide additional collateral in the event
the market value of the securities pledged falls below the carrying value of the
repurchase agreement.
C. Foreign Currency
The books and records of the Fund are maintained in United States (U.S.)
dollars. Foreign currency amounts are translated into U.S. 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 respective dates of such transactions. Net unrealized
foreign exchange gain (loss) resulting from changes in foreign currency exchange
rates is a component of net unrealized appreciation (depreciation) on
investments and foreign currency related transactions. Net realized foreign
currency gains and losses resulting from changes in exchange rates include
foreign currency gains and losses between trade date and settlement date on
investment securities transactions, foreign currency transactions and
<PAGE>
PAGE 19
- --------------------------------------
the difference between the amounts of interest and dividends recorded on the
books of the Fund and the amount actually received. The portion of foreign
currency gains and losses related to fluctuations in exchange rates between the
initial purchase trade date and subsequent sale trade date is included in
realized gain (loss) on foreign currency related transactions
D. Forward Foreign Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to settle portfolio purchases and sales of securities denominated in
a foreign currency and to hedge certain foreign currency assets or liabilities.
Forward contracts are recorded at the forward rate and marked-to-market daily.
Realized gains and losses arising from such transactions are included in net
realized gain (loss) on foreign currency related transactions. The Fund bears
the risk of an unfavorable change in the foreign currency exchange rate
underlying the forward contract and is subject to the credit risk that the other
party will not fulfill their obligations under the contract. Forward contracts
involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
E. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business 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 includes
amortization of discounts and premiums. Dividend income is recorded on the
ex-dividend date.
F. Federal Income Taxes
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 (the
"Code"). Thus, the Fund is relieved of any federal income tax liability by
distributing all of its net taxable investment income and net taxable capital
gains, if any, to its shareholders. The Fund also intends to avoid excise tax
liability by making the required distributions under the Code. Accordingly, no
provision for federal income taxes is required.
G. Distributions
The Fund distributes net investment income quarterly and net capital gains, if
any, at least annually. Distributions to shareholders are recorded at the close
of business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatment of foreign currency gains and losses generated by the Fund.
H. Class Allocations
Class A shares are offered at a public offering price, which includes 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 that is payable upon redemption
and decreases depending on how long the shares have been held. Class B shares
purchased on or after June 1, 1995 that have been outstanding for eight years
will automatically convert to Class A shares. Class B shares purchased prior to
June 1, 1995 that have been outstanding for seven years will automatically
convert to Class A shares. Class C shares are sold subject to a contingent
deferred sales charge payable on shares redeemed within one year of purchase.
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the relative
net assets of each class. Currently, class specific expenses are limited
<PAGE>
PAGE 20
- --------------------------------------
Keystone Fund for Total Return
to expenses incurred under the Distribution Plans for each class.
(2.) Capital Share Transactions
The Fund's Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest with no par value. Shares of beneficial
interest of the Fund are currently divided into Class A, Class B and Class C.
Transactions in shares of the Fund were as follows:
Class A Shares
- ------------------------------------------------------------
Year ended November 30,
---------------------------
1996 1995
- ----------------------- ------ ------
Shares sold 756,854 280,062
Shares redeemed (446,563) (422,494)
Shares issued in
reinvestment of
distributions 71,945 126,167
- ------------------------ --------- ---------
Net increase (decrease) 382,236 (16,265)
- ------------------------ --------- ---------
Class B Shares
- ------------------------------------------------------------
Year ended November 30,
---------------------------
1996 1995
--------- ---------
Shares sold 1,503,008 1,057,718
Shares redeemed (534,970) (266,010)
Shares issued in
reinvestment of
distributions 57,897 75,397
- ------------------------ --------- ---------
Net increase 1,025,935 867,105
- ------------------------ --------- ---------
Class C Shares
- ------------------------------------------------------------
Year ended November 30,
---------------------------
1996 1995
------ ------
Shares sold 398,635 303,795
Shares redeemed (265,577) (164,102)
Shares issued in
reinvestment of
distributions 21,672 39,802
- ------------------------ --------- ---------
Net increase 154,730 179,495
- ------------------------ --------- ---------
(3.) Securities Transactions
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities and foreign cash) for the year ended November 30, 1996,
were $49,291,647 and $27,160,592, respectively.
(4.) Distribution Plans
The Fund bears some of the costs of selling its shares under Distribution Plans
adopted for its Class A, B and C shares pursuant to Rule 12b-1 under the 1940
Act. Under the Distribution Plans, the Fund pays its principal underwriter,
Keystone Investment Distributors Company ("KIDC"), a wholly-owned subsidiary of
Keystone, amounts that are calculated and paid daily.
The Class A Distribution Plan provides for expenditures, which are
currently limited to 0.25% annually of the average daily net assets of the Class
A shares, to pay expenses related to the distribution of Class A shares. During
the year ended November 30, 1996, the Fund paid $75,270 to KIDC under the Class
A Distribution Plan.
Pursuant to the Fund's Class B and Class C Distribution Plans, the Fund
pays a distribution fee which may not exceed 1.00% annually of the average daily
net assets of Class B and Class C shares, respectively. Of that amount, 0.75% is
used to pay distribution expenses and 0.25% is used to pay service fees.
During the year ended November 30, 1996, under the Class B Distribution
Plans, the Fund paid or accrued $158,409 for Class B shares purchased before
June 1, 1995 and $101,828 for Class B shares purchased on or after June 1, 1995.
The Fund paid $112,995 under the Class C Distribution Plan.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of
<PAGE>
PAGE 21
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the respective class. However, after the termination of any Distribution Plan,
and subject to the discretion of the Independent Trustees, payments to KIDC may
continue as compensation for services that had been earned while the
Distribution Plan was in effect.
KIDC intends, but is not obligated, to continue to pay distribution costs
that exceed the current annual payments from the Fund. KIDC intends to seek full
payment of such distribution costs from the Fund at such time in the future as,
and to the extent that, payment thereof by the Class B or Class C shares would
be within permitted limits.
At November 30, 1996, total unpaid distribution costs were $993,554 for
Class B shares purchased before June 1, 1995 and $1,213,423 for Class B shares
purchased on or after June 1, 1995. Unpaid distribution costs for Class C were
$837,002 at November 30, 1996.
Contingent deferred sales charges paid by redeeming shareholders are paid
to KIDC.
(5.) Investment Management Agreement and Other Affiliated Transactions
Under the terms of the Investment Advisory and Management Agreement between
Keystone and the Fund, Keystone provides investment management and
administrative services to the Fund. In return, Keystone is paid a management
fee that is 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 to 0.30% per annum as net assets increase, to
the average daily net asset value of the Fund.
During the year ended November 30, 1996, the Fund paid or accrued $27,066
to Keystone for certain accounting services. The Fund paid or accrued $165,963
to Keystone Investor Resource Center, Inc., a wholly-owned subsidiary of
Keystone, for services rendered as the Fund's transfer and dividend disbursing
agent.
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.
(6.) Expense Offset Arrangement
The Fund has entered into an expense offset arrangement with its custodian. For
the year ended November 30, 1996, the Fund incurred total custody fees of
$62,950 and received a credit of $11,473 pursuant to this expense offset
arrangement, resulting in a net custody expense of $51,477. The assets deposited
with the custodian under this expense offset arrangement could have been
invested in income-producing assets.
(7.) Subsequent Event
On December 11, 1996, KII and indirectly each of its subsidiaries, including
Keystone, the Fund's investment adviser, were acquired (the "Acquisition") by
First Union National Bank of North Carolina ("FUNB"), a wholly-owned subsidiary
of First Union Corporation ("First Union").
Consequently, the Fund entered into a new Investment Advisory and
Management Agreement (the "New Advisory Agreement") with Keystone. Under the New
Advisory Agreement, Keystone will provide the Fund with all the services that
previously may have been provided by KMI. As a result of the Acquisition, KMI no
longer acts as investment manager to the Fund. The annual fee paid by the Fund
remains unchanged.
In addition, the Fund has entered into a principal underwriting agreement
with Evergreen Keystone Dis
<PAGE>
PAGE 22
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Keystone Fund for Total Return
tributors, Inc. (formerly, Evergreen Funds Distributor, Inc.) ("EKD"), a
wholly-owned subsidiary of BISYS Group, Inc. EKD replaces Evergreen Keystone
Investment Services, Inc. (formerly, Keystone Investment Distributors Company
("KIDC")) as the Fund's principal underwriter.
Also, in connection with the Acquisition, KIRC changed its name to
Evergreen Keystone Service Company.
It is expected that the Acquisition will not affect services provided to
the Fund.
- --------------------------------------------------------------------
FEDERAL TAX STATUS--FISCAL 1996 DISTRIBUTIONS (Unaudited)
The per-share distributions paid to you for fiscal 1996, whether taken in shares
or cash, are as follows:
Class A Shares Class B Shares Class C Shares
- ----------------- ----------------- ------------------
Income Income Income
Dividends Dividends Dividends
$0.26 $0.15 $0.15
During the fiscal year ended November 30, 1996, a distribution of taxable
long-term capital gains of $0.33 per share was paid in shares or cash. Of the
ordinary income distributions, 77% is eligible for the corporate dividend
received deduction.
In January of 1997, complete information on the calendar year 1996
distributions will be forwarded to you to assist you in completing your 1996
federal income tax return.
<PAGE>
PAGE 23
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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, including the schedule of investments, as of November 30,
1996, 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 nine-year
period ended November 30, 1996 and 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 three-year period ended November 30, 1996 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, 1996 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, 1996, 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
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
December 27, 1996
<PAGE>
KEYSTONE AMERICA
FAMILY OF FUNDS
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Balanced Fund II
California Tax Free Fund
Capital Preservation and Income Fund
Florida Tax Free Fund
Fund for Total Return
Fund of the Americas
Global Opportunities Fund
Government Securities Fund
Hartwell Emerging Growth Fund, Inc.
Intermediate Term Bond Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Tax Free Fund
Omega Fund
Pennsylvania Tax Free Fund
Small Company Growth Fund II
Strategic Development Fund
Strategic Income Fund
Tax Free Income Fund
World Bond Fund
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P.O Box 2121
Boston, Massachusetts 02106-2121
FFTR-R-1/97
8M [RECYCLE LOGO]
KEYSTONE
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FUND FOR
TOTAL RETURN
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ANNUAL REPORT
NOVEMBER 30, 1996
