[FRONT COVER]
KEYSTONE
[picture of chessboard]
GLOBAL
OPPORTUNITIES
FUND
[Keystone logo]
ANNUAL REPORT
SEPTEMBER 30, 1996
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Keystone Global Opportunities Fund
Seeks capital growth by investing in small- to medium-sized
companies around the world.
Dear Shareholder:
We are writing to report to you on activities of Keystone Global
Opportunities Fund for the fiscal period which ended September 30, 1996.
Following our letter to you we have included a discussion with your Fund
manager and complete financial information.
Performance
For the twelve-month period which ended September 30, 1996, your Fund
produced the following total returns.
Class A shares returned 4.82%.
Class B shares returned 4.00%.
Class C shares returned 4.04%.
The Salomon Brothers Extended Market Index (EMI), representing over 5,500
small company (small-cap) stocks in 22 countries including the U.S., returned
12.15% for the same period. The Morgan Stanley Capital International World
Index, an index of predominately large company stocks, returned 13.67% for
the same period.
Your Fund's performance was influenced by increased price volatility for
small-cap stocks during this twelve-month period. Short-term price changes
are a characteristic of investing in global small-cap stocks, requiring a
long-term investment strategy. In managing your Fund we make investment
decisions with a long-term strategy in mind. We believe your Fund's strong
five-year total return is evidence of the success of this strategy.
Keystone Global Opportunities Fund's short-term returns did not live up to
our expectations. In the fourth quarter of 1995 we made a decision to
gradually decrease the Fund's U.S. holdings and increase the Fund's foreign
holdings. This change was based on our forecast for an improving environment
abroad and better returns from non-U.S. small-cap stocks. We decreased the
Fund's U.S. holdings from 58.4% to 45.4% of net assets from September 30,
1995 to September 30, 1996.
Fund shareholders have historically benefitted from a significant weighting
in U.S. small-cap stocks. Over the past twelve months the Fund's holdings in
this area made a smaller contribution to performance because of a reduced
weighting and slight underperformance of some holdings. The U.S. portion of
the portfolio returned 11.95% and the Russell 2000 Growth index, an index of
U.S. small-cap stocks, returned 12.61% for the twelve-month period.
This was a volatile period for U.S. small-cap stocks. Technology stocks,
which had provided outstanding returns to investors in 1995, led a correction
in January 1996. Small-cap stocks rebounded in the months that followed, with
valuations reaching new highs in May. However, evidence of
stronger-than-expected growth and higher interest rates triggered a sharp
correction in June and July. Many stocks recovered, but U.S. small-cap stocks
trailed the performance of large-cap stocks for the twelve-month period.
Many world markets with close ties to the U.S. followed a similar pattern to
U.S. small-cap stocks during the year, although performance was not as
strong. In the U.K., the economy showed dramatic improvements. We increased
our weighting there, but we did not anticipate the full extent of the
economy's strength going into 1996. In the rest of Europe, growth remained
slow. In Japan, enactment of an economic stimulus package helped selected
small company stocks toward the end of the period, but gains were muted by
weak performance of some Fund holdings and by a weak yen versus the U.S.
dollar.
--continued--
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Keystone Global Opportunities Fund
The case for global small-cap investing
We believe the case for investing in small-cap stocks from around the world
is very compelling. Small-cap stocks provide diversification because they
behave differently than large-cap stocks. The performance of non-U.S.
small-cap stocks have also improved significantly in many markets over the
last several years. Valuations also are often low for small-cap stocks
compared to large-caps in many world markets. Small-cap stocks also offer
greater diversification benefits to investors than large-cap stocks of
developed and emerging market countries.
Investing in small-cap and foreign stocks carries special risks. We attempt
to control these risks through careful analysis of the global economic
environment, portfolio diversification, and in-depth company research. Our
analysis focuses on identifying small companies with accelerating earnings
growth rates that we believe have excellent prospects. We believe this Fund
should continue to provide attractive returns for long-term investors who are
willing to accept greater short-term price fluctuations. Your Fund's strong
long-term performance is evidence of the rewards and future potential of a
global small company stock investment strategy.
Outlook
We think the prospects for global small-cap stocks is positive, especially
for the foreign markets. We expect the slow economic growth environment in
Europe to eventually accelerate as many countries prepare for the European
Monetary Union in 1999. Many small companies are providing solutions to help
European countries achieve this goal. In Japan we continue to believe that
valuations remain attractive for many small company stocks in the small-cap
'second section.' While there is some political uncertainty in the
short-term, we believe the long-term prospects for selected Japanese stocks
and certain Asia/Pacific countries with ties to Japan are positive.
New portfolio manager
With this report we are pleased to introduce Margery C. Parker as your Fund's
new portfolio manager. In addition to overall portfolio management, Ms.
Parker will be responsible for the Fund's North and South American
investments. She will work closely with the manager of your Fund's foreign
holdings, Credit Lyonnais International Asset Management, N.A. in Paris. Ms.
Parker has 15 years of investment experience and currently manages several
other small- and mid-cap stock portfolios at Keystone.
Keystone to be acquired by First Union Corporation
On another note, we are pleased to inform you that Keystone has agreed to be
acquired by First Union Corporation. The acquisition is subject to a number
of conditions, including approvals of investment advisory agreements with
Keystone by fund shareholders. First Union is a financial services firm based
in Charlotte, North Carolina. Keystone will remain a separate entity after
its acquisition and will continue to provide investment advisory and
management services to Keystone funds. We believe First Union's acquisition
of Keystone should strengthen the investment management services we provide
to you.
--continued--
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PAGE 3
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We appreciate your continued support of Keystone funds. If you have any
questions or comments, please feel free to write to us.
Sincerely,
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Chairman and President
Keystone Investments, Inc.
/s/ George S. Bissell
George S. Bissell
Chairman of the Board
Keystone Funds
November 1996
[Picture of Albert H. Elfner, III]
Albert H. Elfner, III
[Picture of George S. Bissell]
George S. Bissell
[Dalbar Key Honors 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.
[artwork of Phone handset and cord]
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
[artwork of phone base and cord]
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Keystone Global Opportunities Fund
A Discussion With
Your Fund Manager
The following interview was conducted jointly with Margery C. Parker of
Keystone and Eric Mookherjee, chief investment officer of Credit Lyonnais
International Asset Management, N.A. Ms. Parker has overall responsibility
for the Fund and its investments in North and South America; Mr. Mookherjee's
team at Credit Lyonnais manages the Fund's investments in Europe and the Far
East.
Q How would you characterize the U.S. market environment during the
twelve-month period?
A The fundamentals of the U.S. stock market remained strong, with controlled
inflation, moderate interest rates and moderate growth. The greatest
beneficiaries of these conditions were large-cap U.S. stocks, while small-cap
stocks lagged throughout the year. Concerns that the economy may have been
growing too fast and fears of rising interest rates had a negative impact on
smaller companies. Throughout the year small-caps were generally hit harder
by market corrections of January, June and July.
Q What about the foreign market environment?
A The performance of the foreign markets generally did not live up to
investor's expectations. At the beginning of the Fund's fiscal year, many
investors were expecting the foreign markets to revive after several years of
marking time. Investors also believed that U.S. small-cap stocks would not
repeat their outstanding 1995 performance.
In Japan, the government's economic stimulus package renewed the possibility
of an improving economic environment. However, growth remained slow and the
yen moved down versus the dollar. The weaker yen helped Japanese export
companies which tend to benefit from a strong U.S. dollar. However, gains on
Japanese stocks were largely offset by the weak yen after conversion into
U.S. dollars. Small-cap stocks as represented by the Salomon Japanese
Extended Market Index returned 15.54% in local terms and 2.54% in U.S.
dollars.
Fund Profile
Objective: Seeks capital growth by investing in small- to medium-sized
companies around the world.
Commencement of investment operations: March 16, 1988
Countries: 25
Net assets: $761 million
Newspaper listing: "GloOp"
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Regional Diversification
as of September 30, 1996
[Graphic of map of North America, Latin America, Europe, Africa, Asia and
Austrailia]
In Europe, smaller companies continued to struggle with a generally weak
economic environment, and high labor and production costs throughout most of
the year. Growth was lower than had been anticipated, with the exception of
the U.K., where the fundamentals became increasingly positive during the
year. We increased the Fund's U.K. holdings, but the timing of some our
investments could have been better in retrospect.
Q What changes did you make in geographic allocation?
A We decreased exposure to U.S. stocks during the year and doubled our
positions in Japan, the U.K. and France. Between September 30, 1995 and
September 30, 1996 we increased our position in Japan from 11% to 20%, in the
U.K. from 7% to 13% and in France from 2% to 4%.
- ---------
(1)Includes short-term investments, foreign currency holdings, and other assets
and liabilities.
Q Japan was the largest foreign country weighting after the U.S. What types
of companies did you invest in there?
A We liked export-oriented and finance companies in Japan. We expected
Japanese export companies to benefit from the stronger U.S. dollar and good
trading liquidity. Because Japanese export companies earn much of their
revenues in U.S. dollars, a stronger dollar means that revenues are worth
more when dollars are converted into yen.
One Japanese holding that capitalizes on exporting is Aderans, a wig
manufacturer with a nationwide sales network and overseas bases in Thailand,
the Philippines and the U.S. We first acquired the stock in April and added
to our position in May and June. We took some profits in July when the price
had appreciated about 20%, but maintained a good position as of the end of
the period. Long-term sales and profit growth look attractive and the
valuation is relatively low.
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Keystone Global Opportunities Fund
One of our long-term holdings has been Daiwa Industries, which manufactures
refrigerators for hotels and convenience stores. New government regulations
concerning food testing and sanitation standards are expected to provide a
strong market for their products both in Japan and throughout the Far East.
In the finance area, the Fund continued to benefit from our holding of Shokoh
Fund, a financing company which deals primarily with small- and medium-sized
firms seeking capital. We held about $5.5 million of the stock at the start of
the period, and added to our position in mid-March when the company revised
its earnings expectations upward. The price went up 40% after this news and
we sold 15% of our position. Shokoh Fund was one of the Fund's largest
holdings at 1.7% of net assets.
Performance of World Markets
as of September 30, 1996
Twelve-month returns in U.S. dollars
[Data for Bar Chart]
North America 14.57%
Europe 13.03%
Asia/Pacific 6.10%
World (ex. U.S.) 9.97%
Source: Salomon Brothers, Inc.
Q You mentioned that the U.K. led the
European economy. What companies have
you focused on there?
A We held shares of Brammer, a British company with extensive catalog sales
of bearings, power transmissions and motion control equipment both
domestically and in Europe. It also rents specialized test equipment and
computer software and hardware. The company has very strong management and a
commitment to customer service unmatched by its competitors. We believe it is
well positioned to benefit from an economic recovery in the United Kingdom,
productivity improvements in Europe, and the booming telecommunication and
software markets.
We also held Capita, which we believed would benefit from the growing
outsourcing trend in Europe. Initially this trend was seen in the public
sector in the U.K., but is now expanding to non-core activities in the
private sector as well. Capita provides long-term contract labor in a broad
range of white collar services, and we see plenty of room for growth as a
recovering economy increases demand.
Q What about other holdings in Europe?
A We owned the French company Zodiac, a highly diversified business with
three core activities: marine leisure, cabin fittings for civil aircraft, and
aerospace equipment. The upturn in the airline manufacturing industry and
improved economic conditions in the U.S.--which accounts for half of the
company's marine leisure sales--should provide a favorable environment for
Zodiac in the coming year.
Q Turning to the Fund's U.S. holdings, this was a period of increased price
volatility for U.S. small-cap stocks. Why?
A Investors became concerned about the possibility of a deceleration of
earnings growth. The primary
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PAGE 7
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Top 5 Industries
as of September 30, 1996
<TABLE>
<CAPTION>
Percentage of
Industry net assets
<S> <C>
Retail 9.7
Software services 8.7
Finance 7.5
Electronics products 6.0
Drugs 5.5
</TABLE>
threat here was higher interest rates prompted by robust economic growth. In
addition, small-cap stocks had delivered excellent returns to investors in
1995, and many wondered how long earnings and returns could be sustained.
Q The U.S. stock portion of the portfolio was reduced to 45% of net assets.
Please describe some top U.S. holdings.
A Our U.S. small-cap holdings were a diverse group. The Fund's number one
holding at the end of the period was BDM International. This company is a
computer software consultant to corporations. They integrate a company's
computer systems to help improve productivity. BDM will come in to evaluate
and implement a system that makes better use of a company's information
systems. Their product is in demand as companies continue to struggle with
managing multiple and rapidly changing computer platforms. Earnings have
recently been growing at 20% annually. Although BDM has been a good, solid
company in our view, we reduced our holdings slightly after the close of the
period.
One of our long-term U.S. holdings continued to be Cascade Communications.
The company sells a product that makes better use of the existing band-width
of phone lines. This helps to accommodate higher traffic levels. Regular
phone lines were originally designed for relatively short voice
conversations. The explosion of growth in the Internet, fax machines and
other telecommunications services has resulted in increasingly heavy traffic
over phone lines. Cascade makes a product that increases the efficiency of
switching of calls. Regional Bell and other telecommunications companies buy
their product to improve communications.
We bought Cascade when it was initially offered to the public in 1994.
Cascade has been very successful and we believe its stock price performance
has reflected it. The company's earnings have been growing at 40% annually.
After the close of the period, we reduced our position slightly to take some
profits and keep our holding from becoming too significant in the portfolio.
Q Retail comprised the Fund's largest industry weighting. What has been
your strategy here?
A Performance has been uneven in the retail area. As a result, we have been
very selective, preferring to focus on specialty retailers that we believe have
had solid financial results and good growth rates. PETsMART, our second largest
U.S. holding, is a national chain of pet supply superstores. It has been
expanding its business to include veterinary services and equine products and
services. We believe PETsMART has the potential to continue its rapid growth
rate.
We also held shares of Corporate Express. This U.S. retailer supplies
office equipment and materials to large companies. They sell exclusively through
catalogue orders. The company has differentiated itself from its competitors
through exceptional cost controls. With the high volume orders from their large
company clients, Corporate Express is able to negotiate volume discounts from
suppliers. They provide one stop shopping for corporations through an extensive
selection of supplies. Large companies find this service very attractive because
Corporate Express agrees up front to specified savings for its clients.
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Keystone Global Opportunities Fund
Top 10 Holdings
as of September 30, 1996
<TABLE>
<CAPTION>
Percentage of
Foreign stocks (Country) Industry net assets
<S> <C> <C>
Shokoh Fund (Japan) Finance 1.7
Riso Kagaku (Japan) Office and business 1.2
Nitto Kohki (Japan) Building 1.0
Zodiac (France) Capital goods 0.9
Amway Japan (Japan) Consumer goods 0.9
US stocks
BDM International Software services 1.2
PETsMART Retail 1.1
Cascade Communications Telecommunications 1.1
Corporate Express Retail 1.0
Parametric Technology Software services 1.0
</TABLE>
Q What about the drug and health care area. Did you find any promising growth
companies there?
A We invested in Norland Medical, a classic small company with a recent
market capitalization (stock price multiplied by total shares outstanding) of
$104 million. Norland offers an innovative product that we believe has
tremendous potential. The company has developed a simple device that can aid
in the diagnosis of bone disorders such as osteoporosis. Until recently,
testing for these conditions has required the use of expensive equipment.
With Norland's product a simple, less expensive test can accurately measure
bone density. Early detection is important to diagnosing bone disorders and
Norland Medical's device should help improve diagnosis and treatment.
Earnings have been relatively small, but we expect them to accelerate
rapidly.
We also continue to see good opportunities in biotechnology stocks. We own
Agouron Pharmaceuticals and Gilead Sciences which are in the forefront of
developing treatments for cancer, AIDS and other major diseases.
Q Were there any new additions to the U.S. portion of the Fund?
A Despite reductions in the U.S. portion of the portfolio, we did add a few
new names. United Meridian was one. The company is in the oil and gas
exploration and production business with properties in the U.S., Canada, West
Africa's Ivory Coast and Equatorial Guinea. Recently, they have had some
exciting finds in West Africa. We believe United Meridian is well managed and
has had an excellent success rate finding reserves. This is important, since
it is costly to drill without striking oil or gas. The company has also
benefitted from higher oil and natural gas prices.
Q U.S. technology stocks both rewarded and disappointed investors during the
period. What contributed to this environment?
A Technology stocks were one of the best performing sectors for the calendar
year 1995. However, overcapacity among semiconductor companies and earnings
disappointments at selected companies in 1996 held back technology stocks,
which heavily influence the small-cap indexes. This was a volatile and
challenging area for investors. We attempted to avoid some of these trouble
spots and stayed with tech stocks that we believed would provide consistent
performance such as selected software stocks.
One of our top U.S. holdings in the software area was Parametric Technology.
This company develops software products to automate the industrial design
process. Parametric's CAD/CAM system allows automotive or aeronautical
engineers to design new cars or planes on the computer rather than building
expensive mockups of new product designs. This enables companies to design
products more quickly and cost-effectively.
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Q What is your outlook?
A We expect a continuation of the generally positive investment environment
in the U.S., and we believe that small company stocks will gain favor. When
large company stocks become overvalued, investors traditionally turn to
smaller company stocks. We also believe that the widespread improvements in
the world economy should continue, which should benefit your Fund's
international holdings.
Q What criteria do you use in selecting stocks for the Fund?
A We seek to invest in small companies around the world that we believe have
superior growth rates and accelerating earnings. We look for companies with
projected earnings growth rates of 20% or more each year. U.S. holdings
generally have market capitalizations of about $1 billion or less when we
purchase them. We focus on companies with a high level of profitability and
an attractive stock price. These companies typically have distinctive
products or services that will set them apart in today's increasingly
competitive global economy.
Q What advantages does the Fund offer investors?
A Keystone Global Opportunities Fund gives investors access to some of the
fastest growing companies around the world. It is a good choice for investors
seeking to diversify their U.S. holdings with an international component. The
Fund's ability to allocate its assets geographically helps increase its
potential for higher returns and its broad diversification helps reduce the
impact of varying market conditions in a particular country or region.
[diamond]
This column is intended to answer
questions about your Fund. If you have a question
you would like answered, please write to:
Keystone Investment Distributors Company,
Attn: Shareholder Communications, 22nd floor,
200 Berkeley Street,
Boston, Massachusetts 02116-5034.
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Keystone Global Opportunities Fund
Your Fund's Performance
Growth of an investment in
Keystone Global Opportunities Fund Class A
In Thousands
[data for mountain chart]
Initial Investment Reinvested Distributions
9425 9425
9/88 9312 9312
10537 10889
9/90 9378 9839
12177 13057
9/92 11018 13293
16984 20492
9/94 18303 22282
22083 26883
9/96 23148 28179
Total Value: $28,179
A $10,000 investment in Keystone Global Opportunities Fund Class A made on
March 16, 1988 with all distributions reinvested was worth $28,179 on September
30, 1996. Past performance is no guarantee of future results.
Twelve-Month Performance as of September 30, 1996
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Total returns* 4.82% 4.00% 4.04%
Net asset value 9/30/95 $23.43 $23.00 $23.04
9/30/96 $24.56 $23.92 $23.97
Dividends None None None
Capital gains None None None
</TABLE>
* Before deducting sales charges.
Historical Record as of September 30, 1996
<TABLE>
<CAPTION>
Cumulative total returns Class A Class B Class C
<S> <C> <C> <C>
1-year w/o sales charge 4.82% 4.00% 4.04%
1-year -1.20% 0.00% 4.04%
5-year 103.41% -- --
Life of Class 181.79% 68.91% 72.26%
Average annual returns
1-year w/o sales charge 4.82% 4.00% 4.04%
1-year -1.20% 0.00% 4.04%
5-year 15.26% -- --
Life of Class 12.89% 15.37% 15.99%
Commencement of
operations 3/16/88 2/1/93 2/1/93
</TABLE>
Class A share performance is reported at the current maximum front-end sales
charge of 5.75%.
Class B shares are sold without a front-end sales charge. Shares purchased
after June 1, 1995 are subject to a contingent deferred sales charge (CDSC)
that declines from 5% to 1% over six years from the month purchased.
Performance assumes that shares were redeemed after the end of a one-year
holding period and reflects the deduction of a 4% CDSC.
Class C shares are sold without a front-end sales charge. Performance
reflects the return you would have received after holding shares for one year
or more and redeeming after the end of that 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. Past performance is no guarantee of
future results.
Shareholders may exchange shares for another Keystone fund. The exchange fee
is waived for individual investors who request an exchange through Keystone's
Automated Response Line (KARL). Investors who exchange by calling or writing
to Keystone directly are subject to a $10 exchange fee. The Fund reserves the
right to change or terminate the exchange offer.
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PAGE 11
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Growth of an Investment
Comparison of change in value of a $10,000 investment in Keystone Global
Opportunities Fund Class A, the Morgan Stanley Capital International World
Index and the Consumer Price Index.
In Thousands March 16, 1988 through September 30, 1996
Average Annual Total Returns
- -----------------------------------------------
1 Year 5 Year Life of Class
Class A -1.20% 15.26% 12.89%
Class B 0.00% - 15.37%
Class C 4.04% - 15.99%
[data for 3 line chart]
Class A (MSCIWI) (CPI)
3/88 9425 10000 10000
9/88 9312 10264.77 10328
9/89 10889 12922.81 10776
9/90 9839 10165.25 11440
9/91 13057 12674.48 11828
9/92 13293 12619.57 12181
9/93 20492 15184.04 12509
9/94 22282 16334.75 12879
9/95 26883 18687.55 13207
9/96 28179 21241 13560
Past performance is no guarantee of future results. The perforamnce of Class B
or Class C shares will be greater or less than the line shown based on
differences in loads and fees paid by the shareholder investing in the
different classes. Class B and Class C shares were introduced February 1, 1993.
The Consumer Price Index and Morgan Stanley Capital International World Index
are from February 28, 1988. The Consumer Price Index is through August 31, 1996.
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 several 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 Global Opportunities Fund Class A
The Fund seeks capital growth by investing in small- to medium-sized
companies around the world. The return is quoted after deducting sales
charges (if applicable), fund expenses, and transaction costs and assumes
reinvestment of all distributions.
2. Morgan Stanley Capital International World Index (MSCIWI)
CIWI is a broad-based securities market index of about 1500 securities from
major developed markets around the world. The index is unmanaged and includes
North America, Europe and the Pacific Rim.
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
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PAGE 12
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Keystone Global Opportunities Fund
reliable and useful measure of performance than measurements of short-term
returns or temporary swings in the market. Your financial adviser can help
you evaluate fund performance in conjunction with the other important
financial considerations such as safety, stability and consistency.
Keystone Global Opportunities Fund Limitations of the chart
The chart, however, limits the evaluation of Fund performance in several
ways. Because the measurement is based on total returns over an extended
period of time, the comparison often favors those funds which emphasize
capital appreciation when the market is rising. Likewise, when the market is
declining, the comparison usually favors those funds which take less risk.
Performance can be distorted
Funds which are more conservative in their orientation and which place an
emphasis on capital preservation will tend to compare less favorably when the
market is rising. In addition, funds which have income as one of their
objectives also will tend to compare less favorably to relevant indexes.
Indexes may also reflect the performance of some securities which a fund may
be prohibited from buying. A bond fund, for example, may be limited to
investments in only high quality bonds, or a stock fund may only be able to
buy stocks that have been traded on a stock exchange for a minimum number of
years or stocks that have a certain market capitalization. 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 indexes do 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 13
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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.
<PAGE>
PAGE 14
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Keystone Global Opportunities Fund
SCHEDULE OF INVESTMENTS--September 30, 1996
<TABLE>
<CAPTION>
Market
Shares Value
- ---------------------------------------- ----------- --------------
<S> <C> <C>
COMMON STOCKS (93.2%)
UNITED STATES (45.4%)
ADVERTISING & PUBLISHING (1.4%)
Clear Channel Communications (a) 70,000 $ 6,195,000
Outdoor System, Inc. 100,000 4,675,000
- ---------------------------------------- ----------- --------------
10,870,000
- ---------------------------------------- ----------- --------------
AMUSEMENTS (0.3%)
Hollywood Casino Corp., Class A (a) 35,300 167,675
La Quinta Inns, Inc. 112,500 2,193,750
- ---------------------------------------- ----------- --------------
2,361,425
- ---------------------------------------- ----------- --------------
AUTOMOTIVE (0.4%)
Gentex Corp. (a) 150,000 3,403,125
- ---------------------------------------- ----------- --------------
BUILDING MATERIALS (0.8%)
Rental Services Corp. (a) 14,900 324,075
Oakwood Homes Corp. 80,000 2,200,000
Southern Energy Homes, Inc. (a) 225,000 3,628,125
- ---------------------------------------- ----------- --------------
6,152,200
- ---------------------------------------- ----------- --------------
BUSINESS SERVICES (3.1%)
Alternative Resources, Inc. (a) 100,000 2,812,500
Equity Corp., International (a) 200,000 6,312,500
G & K Services, Inc., Class A 160,000 4,720,000
Thermedics, Inc. (a) 163,600 4,314,950
U. S. Filter Corp. (a) 150,000 5,118,750
- ---------------------------------------- ----------- --------------
23,278,700
- ---------------------------------------- ----------- --------------
CAPITAL GOODS (0.3%)
Airgas, Inc. (a) 100,000 2,537,500
- ---------------------------------------- ----------- --------------
CHEMICALS (0.5%)
OM Group, Inc. 100,000 3,850,000
- ---------------------------------------- ----------- --------------
CONSUMER GOODS (1.0%)
Blyth Industries, Inc. (a) 71,700 3,477,450
USA Detergents, Inc. (a) 103,800 4,074,150
- ---------------------------------------- ----------- --------------
7,551,600
- ---------------------------------------- ----------- --------------
DIVERSIFIED COMPANIES (0.5%)
RMI Titanium Co. (a) 150,000 3,787,500
- ---------------------------------------- ----------- --------------
DRUGS (4.5%)
Advanced Tissue Sciences (a) 200,000 $ 3,550,000
Agouron Pharmaceuticals, Inc. (a) 100,000 4,387,500
Amylin Pharmaceutical (a) 100,000 1,125,000
Autoimmune, Inc. (a) 150,000 1,434,375
Chad Therapeutics, Inc. (a) 139,050 2,763,619
Gilead Sciences, Inc. (a) 150,000 4,246,875
Health Management Associates, Inc. (a) 224,437 5,582,870
Lifecore Biomedical, Inc. (a) 67,900 1,328,294
Magainin Pharmaceutical (a) 225,000 2,643,750
Neurogen Corp. (a) 125,000 3,148,438
Nitinol Medical Technologies, Inc. (a) 100,000 1,112,500
SEQUUS Pharmaceuticals, Inc. (a) 200,000 3,137,500
- ---------------------------------------- ----------- --------------
34,460,721
- ---------------------------------------- ----------- --------------
ELECTRONICS PRODUCTS (1.8%)
Memtec Ltd. 145,600 4,104,100
Microchip Technology, Inc. (a) 125,000 4,703,125
Sawtek, Inc. (a) 100,000 2,575,000
Xilinx, Inc. (a) 62,600 2,124,488
- ---------------------------------------- ----------- --------------
13,506,713
- ---------------------------------------- ----------- --------------
FINANCE (3.1%)
Investors Financial Services Corp. 200,000 5,175,000
First Alliance Co. (a) 238,600 5,368,500
IMC Mortgage Co. (a) 132,100 4,177,663
RAC Financial Group, Inc. (a) 120,000 5,445,000
TCF Financial Corp. 87,300 3,284,663
- ---------------------------------------- ----------- --------------
23,450,826
- ---------------------------------------- ----------- --------------
FOOD, BEVERAGE & TOBACCO (0.8%)
Panamerican Beverages, Inc., Class A,
ADR 65,000 2,673,125
Richfoods Holdings, Inc. 100,000 3,743,750
- ---------------------------------------- ----------- --------------
6,416,875
- ---------------------------------------- ----------- --------------
HEALTH CARE SERVICES (3.3%)
Emeritus Corp. (a) 175,600 2,765,700
IDEXX Labs, Inc. (a) 40,800 1,851,300
Norland Medical Systems, Inc. (a) 300,000 6,225,000
Orthologic Corp. (a) 300,000 3,225,000
Pediatrix Medical Group (a) 26,600 1,333,325
(continued on next page)
<PAGE>
PAGE 15
- -------------------------------------------
SCHEDULE OF INVESTMENTS-September 30, 1996
Market
Shares Value
- ---------------------------------------- ----------- --------------
HEALTH CARE SERVICES (continued)
Perclose, Inc. (a) 130,100 $ 2,878,463
Phymatrix Corp. (a) 150,000 2,868,750
Total Renal Care Holdings, Inc. (a) 100,000 3,975,000
- ---------------------------------------- ----------- --------------
25,122,538
- ---------------------------------------- ----------- --------------
INSURANCE (1.5%)
CMAC Investment Corp. 40,000 2,540,000
Capital Re Corp. 100,000 3,800,000
HCC Insurance Holdings, Inc. 181,000 5,226,375
- ---------------------------------------- ----------- --------------
11,566,375
- ---------------------------------------- ----------- --------------
NATURAL GAS (0.9%)
United Meridan Corp. (a) 145,000 6,597,500
- ---------------------------------------- ----------- --------------
OFFICE & BUSINESS EQUIPMENT (0.6%)
Security Dynamics Technology, Inc. (a) 19,400 1,390,738
EMC Corp. (a) 15,000 3,393,750
- ---------------------------------------- ----------- --------------
4,784,488
- ---------------------------------------- ----------- --------------
OIL SERVICES (3.0%)
BJ Services Co. (a) 160,000 5,800,000
ENSCO International, Inc. (a) 125,000 4,062,500
Falcon Drilling, Inc. (a) 191,200 4,947,300
Global Industries, Inc. (a) 250,000 4,000,000
Seacor Holdings, Inc. (a) 72,000 3,649,500
- ---------------------------------------- ----------- --------------
22,459,300
- ---------------------------------------- ----------- --------------
RESTAURANTS (1.2%)
Applebee's International, Inc. 153,600 4,108,800
Quality Dining, Inc. (a) 172,200 4,864,650
- ---------------------------------------- ----------- --------------
8,973,450
- ---------------------------------------- ----------- --------------
RETAIL (4.0%)
Abercrombie & Finch Co., Class A (a) 200,000 4,900,000
Black Box Corp. (a) 33,600 1,113,000
Corporate Express, Inc. (a) 200,000 7,750,000
Mossimo, Inc. (a) 64,200 2,046,375
Tiffany & Co. (a) 120,000 4,800,000
PETsMART, Inc. (a) 332,200 8,616,438
West Marine, Inc. 33,000 1,093,125
- ---------------------------------------- ----------- --------------
30,318,938
- ---------------------------------------- ----------- --------------
SOFTWARE SERVICES (6.8%)
America Online, Inc. (a) 67,400 $ 2,401,125
BDM International, Inc. (a) 150,000 8,962,500
Cognex Corp. (a) 90,000 1,473,750
Desktop Data, Inc. (a) 100,000 2,850,000
Factset Research System, Inc. (a) 125,000 2,390,625
Geoworks (a) 200,000 5,200,000
INSO Corp. (a) 62,700 3,346,613
Parametric Technology Corp. (a) 150,000 7,415,625
Project Software & Development, Inc. (a) 150,000 6,318,750
SQA, Inc. (a) 247,600 6,716,150
Synopsys, Inc. (a) 100,000 4,612,500
- ---------------------------------------- ----------- --------------
51,687,638
- ---------------------------------------- ----------- --------------
TELECOMMUNICATIONS (4.3%)
ACC Corp. (a) 100,000 4,687,500
Brooks Fiber Properties, Inc. (a) 120,000 3,420,000
Cascade Communications Corp. (a) 100,000 8,143,750
Natural Microsystems Corp. (a) 64,400 3,075,100
TSX Corp. (a) 150,000 2,100,000
Tel Save Holdings, Inc. (a) 125,000 3,546,875
Winstar Communications, Inc. (a) 200,000 3,337,500
Wireless One, Inc. (a) 300,000 4,500,000
- ---------------------------------------- ----------- --------------
32,810,725
- ---------------------------------------- ----------- --------------
TEXTILES (0.4%)
Nautica Enterprises, Inc. (a) 100,000 3,237,500
- ---------------------------------------- ----------- --------------
TRANSPORTATION (0.9%)
Landstar Systems, Inc. (a) 81,300 2,154,450
Swift Transportation, Inc. (a) 200,000 4,362,500
- ---------------------------------------- ----------- --------------
6,516,950
- ---------------------------------------- ----------- --------------
TOTAL UNITED STATES
(Cost--$267,042,687) 345,702,587
- ------------------------------------------------------- --------------
FOREIGN (47.8%)
AUSTRALIA (2.3%)
ADVERTISING & PUBLISHING (0.2%)
West Australia Newspaper Holdings Ltd. 400,000 1,567,448
- ---------------------------------------- ----------- --------------
<PAGE>
PAGE 16
- -----------------------------------
Keystone Global Opportunities Fund
SCHEDULE OF INVESTMENTS-September 30, 1996
Market
Shares Value
- ---------------------------------------- ----------- --------------
BUILDING MATERIALS (0.3%)
Leighton Holdings 400,000 $ 1,773,274
- ---------------------------------------- ----------- --------------
FINANCE (0.4%)
Gio Australian Holdings 1,260,499 3,163,222
- ---------------------------------------- ----------- --------------
METALS & MINING (0.5%)
Delta Gold NL (a) 450,000 997,467
QNI Ltd. 1,400,000 2,936,985
- ---------------------------------------- ----------- --------------
3,934,452
- ---------------------------------------- ----------- --------------
OIL (0.3%)
Oil Search Ltd. 1,500,000 1,864,313
- ---------------------------------------- ----------- --------------
PAPER & PACKAGING (0.4%)
Amcor Ltd. 500,000 3,016,150
- ---------------------------------------- ----------- --------------
RETAIL (0.2%)
David Jones Ltd. (a) 1,306,000 1,633,534
- ---------------------------------------- ----------- --------------
TOTAL AUSTRALIA 16,952,393
- ------------------------------------------------------- --------------
AUSTRIA (0.5%)
METALS & MINING (0.5%)
Bohler Uddeholm 42,000 3,354,995
- ---------------------------------------- ----------- --------------
TEXTILES (0.0%)
Wolford AG 1,200 306,117
- ---------------------------------------- ----------- --------------
TOTAL AUSTRIA 3,661,112
- ------------------------------------------------------- --------------
BERMUDA (0.3%)
CONSUMER GOODS (0.1%)
Pokphand (CP) Co. 2,200,000 697,013
- ---------------------------------------- ----------- --------------
INSURANCE (0.2%)
National Mutual Asia 1,904,000 1,674,279
- ---------------------------------------- ----------- --------------
TOTAL BERMUDA 2,371,292
- ------------------------------------------------------- --------------
BRAZIL (0.0%)
TELECOMMUNICATIONS (0.0%)
Telesponsora Telefonos Sao Paulo (a) 582,843 98,748
- ---------------------------------------- ----------- --------------
CANADA (0.4%)
CONSUMER GOODS (0.4%)
Scott Paper Ltd. 124,000 2,426,107
- ---------------------------------------- ----------- --------------
CHILE (0.3%)
BUSINESS SERVICES (0.3%)
A.F.P. Provida S.A., ADR 100,000 $ 2,300,000
A.F.P. Provida S.A. 10,582 234,316
- ---------------------------------------- ----------- --------------
2,534,316
- ---------------------------------------- ----------- --------------
FINANCE (0.0%)
Banco de Credito 38,393 319,322
- ---------------------------------------- ----------- --------------
PAPER & PACKAGING (0.0%)
Companhia de Manufactuers de Papeles Y
Cartones 17,201 216,991
- ---------------------------------------- ----------- --------------
TOTAL CHILE 3,070,629
- ------------------------------------------------------- --------------
DENMARK (0.1%)
AUTOMOTIVE (0.1%)
Scandinavian Mobility (a) 40,000 689,573
- ---------------------------------------- ----------- --------------
FINLAND (0.3%)
CAPITAL GOODS (0.1%)
Benefon Oyvappa S.I. (a) 54,300 914,661
- ---------------------------------------- ----------- --------------
CONSUMER GOODS (0.2%)
Olvi 60,000 1,732,587
- ---------------------------------------- ----------- --------------
TOTAL FINLAND 2,647,248
- ------------------------------------------------------- --------------
FRANCE (4.4%)
ADVERTISING & PUBLISHING (0.1%)
High Co. (a) 27,000 1,097,667
- ---------------------------------------- ----------- --------------
AMUSEMENTS (0.2%)
Infogrames Entertainment (a) 12,209 1,751,402
- ---------------------------------------- ----------- --------------
AUTOMOTIVE (0.5%)
Sylea 37,023 3,985,052
- ---------------------------------------- ----------- --------------
CAPITAL GOODS (1.8%)
GFI Industries 17,000 2,102,991
Norbert Destressangle 24,260 3,306,367
Technip 11,000 1,004,917
Zodiac (a) 27,655 6,922,450
- ---------------------------------------- ----------- --------------
13,336,725
- ---------------------------------------- ----------- --------------
(continued on next page)
<PAGE>
PAGE 17
- ------------------------------------------
SCHEDULE OF INVESTMENTS-September 30, 1996
Market
Shares Value
- ---------------------------------------- ----------- --------------
ELECTRONICS PRODUCTS (0.4%)
Dassault Systems (a) 15,000 $ 628,400
Faiveley 37,000 2,320,782
- ---------------------------------------- ----------- --------------
2,949,182
- ---------------------------------------- ----------- --------------
HEALTH CARE SERVICES (0.1%)
Bioblock Scientific 17,100 1,092,440
- ---------------------------------------- ----------- --------------
RETAIL (0.5%)
Grandoptical Photo 25,479 3,368,920
- ---------------------------------------- ----------- --------------
SOFTWARE SERVICES (0.8%)
Axime (a) 42,100 4,205,517
Unilog 18,000 1,672,636
- ---------------------------------------- ----------- --------------
5,878,153
- ---------------------------------------- ----------- --------------
TEXTILES & APPAREL (0.0%)
ICBT Groupe 7,691 284,383
- ---------------------------------------- ----------- --------------
TOTAL FRANCE 33,743,924
- ------------------------------------------------------- --------------
GERMANY (0.1%)
RETAIL (0.1%)
Puma AG (a) 25,500 804,964
- ---------------------------------------- ----------- --------------
MISCELLANEOUS (0.0%)
Andreae Noris Zahn 600 204,336
- ---------------------------------------- ----------- --------------
TOTAL GERMANY 1,009,300
- ------------------------------------------------------- --------------
HONG KONG (0.4%)
AMUSEMENTS (0.2%)
Cdl Hotels International (a) 2,500,000 1,357,817
- ---------------------------------------- ----------- --------------
ELECTRONICS PRODUCTS (0.1%)
HKR International Ltd. 625,680 728,193
- ---------------------------------------- ----------- --------------
FINANCE (0.1%)
Wing Hang Bank Ltd. 100,000 375,016
- ---------------------------------------- ----------- --------------
RETAIL (0.0%)
Dickson Concepts International Ltd. 80,000 257,080
- ---------------------------------------- ----------- --------------
TOTAL HONG KONG 2,718,106
- ------------------------------------------------------- --------------
INDONESIA (0.0%)
MISCELLANEOUS (0.0%)
Lippo Karaci (a) 195,500 227,228
- ---------------------------------------- ----------- --------------
ITALY (0.9%)
AUTOMOTIVE (0.2%)
De Rigo SPA, ADR (a) 160,100 $ 1,801,125
- ---------------------------------------- ----------- --------------
CONSUMER GOODS (0.2%)
Safilo (a) 72,000 1,602,363
- ---------------------------------------- ----------- --------------
CONSUMER PRODUCTS (0.1%)
Brembo SPA 86,000 958,379
- ---------------------------------------- ----------- --------------
INSURANCE (0.2%)
Mediolanum (a) 110,000 1,190,448
- ---------------------------------------- ----------- --------------
MISCELLANEOUS (0.2%)
C.A.L.P. 265,000 1,026,424
- ---------------------------------------- ----------- --------------
TOTAL ITALY 6,578,739
- ------------------------------------------------------- --------------
JAPAN (19.9%)
AUTOMOTIVE (0.9%)
Royal Ltd. 260,000 6,872,760
- ---------------------------------------- ----------- --------------
BUILDING MATERIALS (2.3%)
Aronkasei Co. 50,000 622,760
Hibiya Engineering, Ltd. 200,000 2,240,143
Nitto Kohki 190,000 7,661,290
THK Co. 130,000 2,294,803
Tadano 500,000 4,569,892
- ---------------------------------------- ----------- --------------
17,388,888
- ---------------------------------------- ----------- --------------
CAPITAL GOODS (1.3%)
Disco Corp. 120,000 2,731,183
Kanamoto Co., Ltd. 200,000 3,100,358
Max Co. 220,000 4,297,491
- ---------------------------------------- ----------- --------------
10,129,032
- ---------------------------------------- ----------- --------------
CONSUMER GOODS (3.8%)
Amway Japan Ltd. 160,000 6,939,068
Daiwa Industries Ltd. 640,000 6,537,634
Itariyard Co. 108,000 3,300,000
Mandom Corp. 110,000 1,774,194
Maruko Co. 102,060 6,675,968
Matsumotokiyoshi 100,000 3,351,254
- ---------------------------------------- ----------- --------------
28,578,118
- ---------------------------------------- ----------- --------------
<PAGE>
PAGE 18
- ----------------------------------
Keystone Global Opportunities Fund
SCHEDULE OF INVESTMENTS--September 30, 1996
Market
Shares Value
- ---------------------------------------- ----------- --------------
ELECTRONICS PRODUCTS (1.5%)
Aucnet, Inc. 110,000 $ 3,725,806
Daiichi Co. 200,000 5,197,133
Daiichi Kosho Co. 26,000 2,446,237
- ---------------------------------------- ----------- --------------
11,369,176
- ---------------------------------------- ----------- --------------
FINANCE (3.0%)
Nichiei Co., Ltd. 100,000 6,577,061
Promise Co. 65,000 3,028,674
Shokoh Fund 57,000 12,819,893
- ---------------------------------------- ----------- --------------
22,425,628
- ---------------------------------------- ----------- --------------
FOODS (1.0%)
Albis Co. 200,000 2,741,935
Izumi Co. 250,000 4,435,484
- ---------------------------------------- ----------- --------------
7,177,419
- ---------------------------------------- ----------- --------------
HEALTH CARE SERVICES (0.8%)
Nichii Gakkan Co. 120,000 6,064,516
- ---------------------------------------- ----------- --------------
MACHINERY (0.4%)
Fuji Machine Manufacturing 130,000 3,319,892
- ---------------------------------------- ----------- --------------
MISCELLANEOUS (0.5%)
Misumi Corp. 130,000 3,704,301
- ---------------------------------------- ----------- --------------
OFFICE & BUSINESS EQUIPMENT (1.2%)
Riso Kagaku Corp. 120,000 8,870,968
- ---------------------------------------- ----------- --------------
RESTAURANTS (0.1%)
Ohsho Food Service Corp. 59,000 1,073,208
- ---------------------------------------- ----------- --------------
RETAIL (2.8%)
Aderans Co. 233,000 5,908,513
Circle K Japan Co. 70,000 3,104,839
Fast Retailing Co. 66,000 1,833,333
Ministop Co., Ltd. 180,000 5,000,000
Nissen Co. 62,100 495,242
Tsutsumi Jewelry 124,400 4,848,925
- ---------------------------------------- ----------- --------------
21,190,852
- ---------------------------------------- ----------- --------------
TELEPHONE UTILITIES (0.3%)
Nippon Denwa 230,000 2,576,165
- ---------------------------------------- ----------- --------------
TOTAL JAPAN 150,740,923
- ------------------------------------------------------- --------------
MALAYSIA (1.0%)
AIR TRANSPORTATION (0.0%)
Malaysian Helicopter Services Bhd 96,000 $ 137,887
- ---------------------------------------- ----------- --------------
BUILDING MATERIALS (0.3%)
Ho Hup Construction Co. Bhd 140,000 410,549
Hume Industries (Malaysia) Bhd 208,000 1,103,734
IJM Corp. Bhd 100,000 194,702
Leader Universal Holdings Bhd 229,333 494,094
Road Builder (M) Holdings Bhd 60,000 308,809
- ---------------------------------------- ----------- --------------
2,511,888
- ---------------------------------------- ----------- --------------
FINANCE (0.2%)
MBF Capital Bhd 1,000,000 1,420,364
- ---------------------------------------- ----------- --------------
MISCELLANEOUS (0.5%)
Affin Holdings Bhd 800,000 1,851,261
Nylex (Malaysia) SDN Bhd 870,000 1,787,624
- ---------------------------------------- ----------- --------------
3,638,885
- ---------------------------------------- ----------- --------------
TOTAL MALAYSIA 7,709,024
- ------------------------------------------------------- --------------
MEXICO (0.0%)
DRUGS (0.0%)
Far Beneficial S.A. de C.V. 141,000 285,659
- ---------------------------------------- ----------- --------------
NETHERLANDS (0.9%)
DIVERSIFIED COMPANIES (0.4%)
Toolex Alpha N.V. (a) 147,500 3,358,732
- ---------------------------------------- ----------- --------------
ELECTRONICS PRODUCTS (0.2%)
Eriks Holdings 13,500 1,083,815
- ---------------------------------------- ----------- --------------
RETAIL (0.3%)
Ceteco Holding N.V. (a) 41,962 2,263,846
- ---------------------------------------- ----------- --------------
TOTAL NETHERLANDS 6,706,393
- ------------------------------------------------------- --------------
PERU (0.5%)
FINANCE (0.2%)
Credicorp, Ltd., ADR 90,594 1,721,280
- ---------------------------------------- ----------- --------------
FOODS (0.2%)
La Fabril S.A. (a) 1,024,457 1,510,156
- ---------------------------------------- ----------- --------------
TELEPHONE UTILITIES (0.1%)
Tele 2000 (a) 498,192 809,810
- ---------------------------------------- ----------- --------------
TOTAL PERU 4,041,246
- ------------------------------------------------------- --------------
(continued on next page)
<PAGE>
PAGE 19
- --------------------------------------------
SCHEDULE OF INVESTMENTS--September 30, 1996
Market
Shares Value
- ---------------------------------------- ----------- --------------
SINGAPORE (0.0%)
DIVERSIFIED COMPANIES (0.0%)
Natsteel Ltd. 100,000 $ 176,821
- ---------------------------------------- ----------- --------------
SPAIN (0.0%)
BUILDING MATERIALS (0.0%)
Tableros de Fibras S.A. 35,312 311,948
- ---------------------------------------- ----------- --------------
SWEDEN (1.3%)
CAPITAL GOODS (0.6%)
Esselte AB 97,300 2,129,039
Hoganas AB 72,000 2,238,218
- ---------------------------------------- ----------- --------------
4,367,257
- ---------------------------------------- ----------- --------------
HEALTH CARE SERVICES (0.4%)
Gettinge 160,800 3,081,715
- ---------------------------------------- ----------- --------------
RETAIL (0.3%)
Lindex AB 148,000 2,434,394
- ---------------------------------------- ----------- --------------
TOTAL SWEDEN 9,883,366
- ------------------------------------------------------- --------------
SWITZERLAND (1.3%)
ADVERTISING & PUBLISHING (0.3%)
Affichage (SocieGen) 5,075 2,227,792
- ---------------------------------------- ----------- --------------
CONSUMER GOODS (0.3%)
Phoenix Meccano AG 4,225 2,036,428
- ---------------------------------------- ----------- --------------
FOOD, BEVERAGE & TOBACCO (0.5%)
Lindt & Spruengli 2,150 3,562,779
- ---------------------------------------- ----------- --------------
HEALTH CARE SERVICES (0.1%)
Phonak 900 846,080
- ---------------------------------------- ----------- --------------
MISCELLANEOUS (0.1%)
Danzas Holding 900 939,293
- ---------------------------------------- ----------- --------------
TOTAL SWITZERLAND 9,612,372
- ------------------------------------------------------- --------------
TAIWAN, REPUBLIC OF CHINA (0.1%)
FINANCE (0.1%)
Chronicle 2001 Mutual Fund (a) 1,653,374 743,056
- ---------------------------------------- ----------- --------------
UNITED KINGDOM (12.8%)
ADVERTISING & PUBLISHING (1.3)
Aegis Group (a) 3,130,000 3,196,627
Dorling Kindersley 487,500 3,723,587
HTV Group 580,000 3,190,953
- ---------------------------------------- ----------- --------------
10,111,167
- ---------------------------------------- ----------- --------------
AMUSEMENTS (0.9%)
Jarvis Hotels 1,310,000 $ 3,239,631
Millenenium & Copthorne Hotels (a) 388,000 1,894,757
Vardon (a) 1,128,001 1,588,982
- ---------------------------------------- ----------- --------------
6,723,370
- ---------------------------------------- ----------- --------------
AUTOMOTIVE (0.8%)
Brammer 638,451 6,170,660
- ---------------------------------------- ----------- --------------
BUILDING MATERIALS (0.7%)
Berkeley Group (The) PLC 305,555 2,881,466
Halma PLC 928,776 2,783,857
- ---------------------------------------- ----------- --------------
5,665,323
- ---------------------------------------- ----------- --------------
BUSINESS SERVICES (1.3%)
Capita Group 691,000 4,564,126
Compass Group PLC 647,368 5,664,090
- ---------------------------------------- ----------- --------------
10,228,216
- ---------------------------------------- ----------- --------------
CAPITAL GOODS (0.5%)
Critchley Group PLC 265,500 3,615,355
- ---------------------------------------- ----------- --------------
DRUGS (0.6%)
Oxford Molecular (a) 700,000 3,484,113
Shire Pharma Group (a) 340,000 1,016,435
- ---------------------------------------- ----------- --------------
4,500,548
- ---------------------------------------- ----------- --------------
ELECTRONICS PRODUCTS (2.0%)
Astec (BSR) (a) 1,540,000 3,519,174
Pressac Holdings (a) 750,000 2,312,568
Renishaw 575,000 4,454,923
Vitec Group 422,500 4,595,985
- ---------------------------------------- ----------- --------------
14,882,650
- ---------------------------------------- ----------- --------------
HEALTH CARE SERVICES (0.5%)
Seton Healthcare 227,000 1,865,315
Westminster Healthcare Hldgs. PLC 360,000 1,650,963
- ---------------------------------------- ----------- --------------
3,516,278
- ---------------------------------------- ----------- --------------
MISCELLANEOUS (0.3%)
Corporate Services Group 500,000 1,361,715
Zotefoams 350,000 1,259,978
- ---------------------------------------- ----------- --------------
2,621,693
- ---------------------------------------- ----------- --------------
<PAGE>
PAGE 20
- ----------------------------------
Keystone Global Opportunities Fund
SCHEDULE OF INVESTMENTS--September 30, 1996
Market
Shares Value
- ---------------------------------------- ----------- --------------
PAPER & PACKAGING (0.3%)
Jarvis Porter Group PLC 630,000 $ 1,903,115
- ---------------------------------------- ----------- --------------
RESTAURANTS (0.3%)
My Kinda Town, Inc. 880,000 1,997,183
- ---------------------------------------- ----------- --------------
RETAIL (1.5%)
Games Workshop Group 402,200 2,996,513
Harvey Nichols (a) 290,000 1,584,129
Harvey Nichols PLC (a) 90,000 491,626
Watson & Philip 865,000 6,539,286
- ---------------------------------------- ----------- --------------
11,611,554
- ---------------------------------------- ----------- --------------
SOFTWARE SERVICES (1.1%)
Parity PLC 930,000 4,548,834
Sage Group (a) 520,000 3,784,630
- ---------------------------------------- ----------- --------------
8,333,464
- ---------------------------------------- ----------- --------------
TELECOMMUNICATIONS (0.7%)
Capital Radio 547,000 5,128,393
- ---------------------------------------- ----------- --------------
TOTAL UNITED KINGDOM 97,008,969
- ------------------------------------------------------- --------------
TOTAL FOREIGN
(Cost $354,264,386) 363,414,176
- ------------------------------------------------------- --------------
TOTAL COMMON STOCKS
(Cost $621,307,073) 709,116,763
- ------------------------------------------------------- --------------
PREFERRED STOCKS (2.0%)
BRAZIL (1.3%)
TELECOMMUNICATIONS (0.3%)
Telesponsora Telefonos Sao Paulo 13,600,000 2,610,515
- ---------------------------------------- ----------- --------------
FINANCE (0.4%)
Banco Itau 6,974,900 2,892,831
- ---------------------------------------- ----------- --------------
UTILITIES (0.6%)
Cemig CIA Energy MG 142,800,000 4,265,400
- ---------------------------------------- ----------- --------------
TOTAL BRAZIL 9,768,746
- ------------------------------------------------------- --------------
GERMANY (0.7%)
DRUGS (0.4%)
Biotest AG 120,000 3,222,215
- ---------------------------------------- ----------- --------------
MISCELLANEOUS (0.3%)
Fielmann AG 60,000 2,495,252
- ---------------------------------------- ----------- --------------
TOTAL GERMANY $ 5,717,467
- ------------------------------------------------------- --------------
TOTAL PREFERRED STOCK
(Cost--$12,622,904) 15,486,213
- ------------------------------------------------------- --------------
Maturity
Value
- ---------------------------------------- ----------- --------------
SHORT-TERM INVESTMENTS (5.4%)
REPURCHASE AGREEMENTS (5.4%)
Investments in repurchase agreements, in
a joint trading account, purchased
9/30/96, 5.728%, maturing 10/01/96
(Cost--$40,705,000) (b) $ 40,711,477 40,705,000
- ---------------------------------------- ----------- --------------
TOTAL INVESTMENTS
(Cost--$674,634,977) (100.6%) 765,307,976
- ------------------------------------------------------- --------------
FOREIGN CURRENCY HOLDINGS
(Cost--$183,328) (0.0%) 182,312
- ------------------------------------------------------- --------------
OTHER ASSETS AND LIABILITIES--
NET (-0.6%) (4,675,591)
- ------------------------------------------------------- --------------
NET ASSETS (100%) $760,814,697
- ------------------------------------------------------- --------------
(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 September 30,
1996.
(c) The cost of investments for federal income tax purposes amounted to
$674,666,766. Gross unrealized appreciation and depreciation of
investments, based on identified tax cost, at September 30, 1996 are
as follows:
Gross unrealized appreciation $128,479,118
Gross unrealized depreciation (37,837,908)
--------------
Net unrealized appreciation $ 90,641,210
==============
</TABLE>
Legend of Portfolio Abbreviations:
ADR--American Depository Receipt
<PAGE>
PAGE 21
- ------------------------------------------
SCHEDULE OF INVESTMENTS--September 30, 1996
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
U.S. Value at
Exchange September 30, In Exchange Unrealized
Date 1996 for U.S. $ Appreciation
- ------------------------------------------------------------------------------------------------------
Forward Foreign Currency Exchange Contracts to Buy:
Contracts to
Receive
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10/01/96 5,754,228 Swedish Krona $ 868,340 $ 865,753 $2,587
10/04/96 355,326 Pound Sterling 556,152 555,370 782
-------------
3,369
Forward Foreign Currency Exchange Contracts to Sell:
Contracts to
Deliver
- ---------------------------------------------------------------
10/01/96 85,324 Swiss Franc $ 67,976 $ 68,101 125
10/02/96 8,374,167 Danish Krone 1,429,356 1,430,381 1,025
10/02/96 48,877,636 Japanese Yen 437,971 440,418 2,447
-------------
3,597
-------------
Unrealized appreciation on forward foreign currency exchange contracts $6,966
=============
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 22
- -----------------------------------
Keystone Global Opportunities Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value beginning of year $ 23.43 $ 19.42 $ 18.02 $ 11.69 $ 12.89
-------------------------------- -------- -------- ------- ------- --------
Income from investment
operations
Net investment income (loss) (0.06) (0.16) (0.04) (0.14) (0.08)
Net realized and unrealized gain
(loss) on investments and
foreign currency related
transactions 1.19 4.17 1.60 6.47 0.23
-------------------------------- -------- -------- ------- ------- --------
Total from investment operations 1.13 4.01 1.56 6.33 0.15
-------------------------------- -------- -------- ------- ------- --------
Less distributions from
Net investment income 0.00 0.00 0.00 0.00 0.00
Net realized gain on investments 0.00 0.00 (0.16) 0.00 (1.35)
-------------------------------- -------- -------- ------- ------- --------
Total distributions 0.00 0.00 (0.16) 0.00 (1.35)
-------------------------------- -------- -------- ------- ------- --------
Net asset value end of year $ 24.56 $ 23.43 $ 19.42 $ 18.02 $ 11.69
-------------------------------- -------- -------- ------- ------- --------
Total return (b) 4.82% 20.65% 8.74% 54.15% 1.81%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.62%(c) 1.83%(c) 2.01% 2.84% 2.50%(a)
Net investment income (loss) (0.53%) (0.83%) (0.86%) (1.72%) (0.69%)
Portfolio turnover rate 67% 35% 32% 64% 75%
Average commissions rate paid $ 0.0079 N/A N/A N/A N/A
-------------------------------- -------- -------- ------- ------- --------
Net assets end of year
(thousands) $250,427 $94,679 $71,122 $29,942 $10,859
-------------------------------- -------- -------- ------- ------- --------
</TABLE>
<TABLE>
<CAPTION>
March 16, 1988
Year Ended September 30, (Commencement of
------------------------ Operations) to
1991 1990 1989 September 30, 1988
-------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value beginning of year $ 9.89 $11.17 $ 9.77 $10.00
-------------------------------- ----------- ----------- ----------- -----------
Income from investment
operations
Net investment income (loss) 0.17 0.19 0.09 0.05
Net realized and unrealized gain
(loss) on investments and
foreign currency related
transactions 3.06 (1.27) 1.66 (0.28)
-------------------------------- ----------- ----------- ----------- -----------
Total from investment operations 3.23 (1.08) 1.75 (0.23)
-------------------------------- ----------- ----------- ----------- -----------
Less distributions from
Net investment income (0.23) (0.12) (0.09) 0.00
Net realized gain on investments 0.00 (0.08) (0.26) 0.00
-------------------------------- ----------- ----------- ----------- -----------
Total distributions (0.23) (0.20) (0.35) 0.00
-------------------------------- ----------- ----------- ----------- -----------
Net asset value end of year $12.89 $ 9.89 $11.17 $ 9.77
-------------------------------- ----------- ----------- ----------- -----------
Total return (b) 32.71% (9.65%) 16.94% (1.20%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.03%(a) 2.00%(a) 2.00%(a) 1.50%(a)(d)
Net investment income (loss) 1.49% 1.80% 0.86% 1.42%(d)
Portfolio turnover rate 134% 51% 13% 19%
Average commissions rate paid N/A N/A N/A N/A
-------------------------------- ----------- ----------- ----------- -----------
Net assets end of year
(thousands) $2,159 $1,519 $1,378 $1,082
-------------------------------- ----------- ----------- ----------- -----------
</TABLE>
(a) Figures are net of expense reimburement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the
Ratio of total expenses to average net assets would have been 3.67%,
7.77%, 10.39%, 13.06%, and 5.54% for the years ended September 30, 1992,
1991, 1990, 1989 and the period March 16, 1988 (Commencement of
Operations) to September 30, 1988, respectively.
(b) Excluding applicable sales charges.
(c) Ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would
have been 1.60% and 1.81% for the years ended September 30, 1996 and
1995, respectively.
(d) Annualized.
See Notes to Financial Statements.
<PAGE>
PAGE 23
- -----------------------------
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 1, 1993
Year Ended September 30, (Date of Initial
---------------------------------------------------- Public Offering) to
1996 1995 1994 September 30, 1993
- ----------------------------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net asset value beginning of year $ 23.00 $ 19.20 $ 17.95 $ 14.04
- ----------------------------------- --------------- --------------- --------------- ----------------
Income from investment operations
Net investment loss (0.21) (0.25) (0.15) (0.04)
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions 1.13 4.05 1.56 3.95
- ----------------------------------- --------------- --------------- --------------- ----------------
Total from investment operations 0.92 3.80 1.41 3.91
- ----------------------------------- --------------- --------------- --------------- ----------------
Less distributions from
Net realized gain on investments 0.00 0.00 (0.16) 0.00
- ----------------------------------- --------------- --------------- --------------- ----------------
Total distributions 0.00 0.00 (0.16) 0.00
- ----------------------------------- --------------- --------------- --------------- ----------------
Net asset value end of year $ 23.92 $ 23.00 $ 19.20 $ 17.95
- ----------------------------------- --------------- --------------- --------------- ----------------
Total return(a) 4.00% 19.79% 7.93% 27.85%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.40%(b) 2.58%(b) 2.83% 3.35%(c)
Net investment loss (1.37%) (1.59%) (1.61%) (1.86%)(c)
Portfolio turnover rate 67% 35% 32% 64%
Average commissions rate paid $ 0.0079 N/A N/A N/A
- ----------------------------------- --------------- --------------- --------------- ----------------
Net assets end of year (thousands) $385,839 $238,320 $131,695 $15,534
- ----------------------------------- --------------- --------------- --------------- ----------------
</TABLE>
(a) Excluding applicable sales charges.
(b) Ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would
have been 2.38% and 2.56% for the years ended September 30, 1996 and
1995, respectively.
(c) Annualized.
See Notes to Financial Statements.
<PAGE>
PAGE 24
- ----------------------------------
Keystone Global Opportunities Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 1, 1993
Year Ended September 30, (Date of Initial
-------------------------------------- Public Offering) to
1996 1995 1994 September 30, 1993
-------------------------------------- ------------------
<S> <C> <C> <C> <C>
Net asset value beginning of
year $ 23.04 $ 19.26 $ 17.99 $14.04
------------------------------ ---------- ---------- ---------- ------------
Income from investment
operations
Net investment loss (0.24) (0.27) (0.15) (0.04)
Net realized and unrealized
gain (loss) on investments and
foreign currency related
transactions 1.17 4.05 1.58 3.99
------------------------------ ---------- ---------- ---------- ------------
Total from investment
operations 0.93 3.78 1.43 3.95
------------------------------ ---------- ---------- ---------- ------------
Less distributions from
Net realized gain on
investments 0.00 0.00 (0.16) 0.00
------------------------------ ---------- ---------- ---------- ------------
Total distributions 0.00 0.00 (0.16) 0.00
------------------------------ ---------- ---------- ---------- ------------
Net asset value end of year $ 23.97 $ 23.04 $ 19.26 $17.99
------------------------------ ---------- ---------- ---------- ------------
Total return(a) 4.04% 19.63% 8.02% 28.13%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.40%(b) 2.58%(b) 2.85% 3.04%(c)
Net investment loss (1.38%) (1.59%) (1.62%) (1.55%)(c)
Portfolio turnover rate 67% 35% 32% 64%
Average commissions rate paid $ 0.0079 N/A N/A N/A
------------------------------ ---------- ---------- ---------- ------------
Net assets end of year
(thousands) $124,549 $86,339 $50,535 $6,217
------------------------------ ---------- ---------- ---------- ------------
</TABLE>
(a) Excluding applicable sales charges.
(b) Ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would
have been 2.38% and 2.56% for the years ended September 30, 1996 and
1995, respectively.
(c) Annualized.
See Notes to Financial Statements.
<PAGE>
PAGE 25
- -------------------------------
STATEMENT OF ASSETS AND LIABILITIES--
September 30, 1996
Assets
Investments at market value
(identified cost--$674,634,977) $765,307,976
Foreign currency holdings
(identified cost--$183,328) 182,312
Receivable for:
Unrealized appreciation on forward foreign currency
exchange contracts 6,966
Fund shares sold 2,547,507
Investments sold 4,062,823
Dividends and interest 757,297
Foreign tax reclaims 129,249
Prepaid expenses and other assets 7,116
- -------------------------------------------------------- --------------
Total assets 773,001,246
- -------------------------------------------------------- --------------
Liabilities
Payable for:
Fund shares redeemed 1,740,037
Investments purchased 10,071,551
Foreign taxes to be withheld 97,716
Other accrued expenses 277,245
- -------------------------------------------------------- --------------
Total liabilities 12,186,549
- -------------------------------------------------------- --------------
Net assets $760,814,697
- -------------------------------------------------------- --------------
Net assets represented by (Note 3)
Paid-in-capital $642,426,295
Accumulated distributions in excess of net investment
income (836,743)
Accumulated net realized gain on investment transactions 28,559,771
Net unrealized appreciation (depreciation) on:
Investments 90,671,983
Foreign currency related transactions (6,609)
- -------------------------------------------------------- --------------
Total net assets $760,814,697
- -------------------------------------------------------- --------------
Net asset value
Class A Shares
Net assets of $250,427,006 / 10,196,063 shares
outstanding $ 24.56
Offering price per share ($24.56 / 0.9425) (based
on sales charge of 5.75% of the offering price
September 30, 1996) $ 26.06
Class B Shares
Net assets of $385,838,852 / 16,127,819 shares
outstanding $ 23.92
Class C Shares
Net assets of $124,548,839 / 5,196,956 shares
outstanding $ 23.97
- -------------------------------------------------------- --------------
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
Year Ended September 30, 1996
Investment income
Dividends (net of foreign withholding
tax of $695,796) $ 4,572,182
Interest 1,771,807
- --------------------------------------- ---------- -------------
Total income 6,343,989
- --------------------------------------- ---------- -------------
Expenses (Notes 4 and 5)
Management fee $ 5,668,408
Transfer agent fees 2,013,849
Accounting 26,856
Auditing and legal 83,274
Custodian fees 592,472
Printing 62,364
Trustees' fees and expenses 30,601
Distribution Plan expenses 4,753,418
Registration fees 133,752
Miscellaneous expenses 21,497
- --------------------------------------- ---------- -------------
Total expenses 13,386,491
Less: Expenses paid indirectly
(Note 6) (119,666)
- --------------------------------------- ---------- -------------
Net expenses 13,266,825
- --------------------------------------- ---------- -------------
Net investment loss (6,922,836)
- --------------------------------------- ---------- -------------
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions
(Note 3)
Net realized gain on investments 41,465,849
Net realized loss on foreign currency
related transactions (842,726)
- --------------------------------------- ---------- -------------
Net realized gain on investments and
foreign currency related transactions 40,623,123
- --------------------------------------- ---------- -------------
Net change in unrealized appreciation
or depreciation on investments and
foreign currency related transactions (8,332,501)
- --------------------------------------- ---------- -------------
Net realized and unrealized gain on
investments and foreign currency
related transactions 32,290,622
- --------------------------------------- ---------- -------------
Net increase in net assets resulting
from operations $25,367,786
- --------------------------------------- ---------- -------------
<PAGE>
PAGE 26
- -----------------------------------
Keystone Global Opportunities Fund
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------
1996 1995
=========================================================================== ============= ==============
<S> <C> <C>
Operations
Net investment loss $ (6,922,836) $ (4,286,288)
Net realized gain (loss) on investments and foreign currency related
transactions 40,623,123 (7,000,011)
Net change in unrealized appreciation or depreciation on investments and
foreign currency related transactions (8,332,501) 73,894,167
--------------------------------------------------------------------------- ------------- --------------
Net increase in net assets resulting from operations 25,367,786 62,607,868
--------------------------------------------------------------------------- ------------- --------------
Capital share transactions (Note 2)
Proceeds from shares sold
Class A Shares 279,189,973 35,039,374
Class B Shares 192,961,888 105,034,904
Class C Shares 57,016,932 38,024,895
Payments for shares redeemed
Class A Shares (132,731,601) (26,560,885)
Class B Shares (57,472,755) (33,012,757)
Class C Shares (22,855,656) (15,147,033)
--------------------------------------------------------------------------- ------------- --------------
Net increase in net assets resulting from capital share transactions 316,108,781 103,378,498
--------------------------------------------------------------------------- ------------- --------------
Total increase in net assets 341,476,567 165,986,366
Net assets
Beginning of year 419,338,130 253,351,764
--------------------------------------------------------------------------- ------------- --------------
End of year [including accumulated distributions in excess of net
investment income as follows:
1996--($836,743) and 1995--($2,960,939)] $ 760,814,697 $419,338,130
=========================================================================== ============= ==============
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 27
- -----------------------------------
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone Global Opportunities Fund (the "Fund") is a Massachusetts business
trust for which Keystone Investment Management Company ("Keystone") is the
Investment Adviser. Keystone is a wholly-owned subsidiary of Keystone
Investments, Inc. ("KII"). Keystone has retained Credit Lyonnais
International Asset Management, North America, an international portfolio
management firm, to provide the Fund with Sub-advisory services, subject to
the supervision of the Fund's Board of Trustees and Keystone. 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 investment objective is capital growth.
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
securities 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 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
the difference between the amounts of interest and dividends recorded on the
books of the Fund and the amount actually received. The portion of
<PAGE>
PAGE 28
- ----------------------------------
Keystone Global Opportunities Fund
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 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 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 net operating 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 lim-
<PAGE>
PAGE 29
- --------------------------------
ited 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:
Year ended September 30,
----------------------------
Class A 1996 1995
--------------- ----------- -------------
Shares sold 11,443,628 1,705,057
Shares redeemed (5,288,523) (1,325,373)
--------------- ----------- -------------
Net increase 6,155,105 379,684
--------------- ----------- -------------
Class B
Shares sold 8,250,300 5,208,875
Shares redeemed (2,485,770) (1,702,740)
--------------- ----------- -------------
Net increase 5,764,530 3,506,135
--------------- ----------- -------------
Class C
Shares sold 2,429,734 1,900,476
Shares redeemed (980,684) (775,826)
--------------- ----------- -------------
Net increase 1,449,050 1,124,650
--------------- ----------- -------------
(3.) Securities Transactions
Cost of purchases and proceeds from sales of investment securities
(excluding short-term securities and foreign cash) for the year ended
September 30, 1996, were $679,550,529 and $393,841,595, 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 September 30, 1996, the Fund paid $454,608 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 September 30, 1996, under the Class B Distribution
Plans, the Fund paid or accrued $1,870,932 for Class B shares purchased on or
before June 1, 1995 and $1,340,049 for Class B shares purchased on or after
June 1, 1995. The Fund paid $1,087,829 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 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
<PAGE>
PAGE 30
- ----------------------------------
Keystone Global Opportunities Fund
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 September 30, 1996, total unpaid distribution costs were $8,808,488 for
Class B shares purchased before June 1, 1995 and $12,279,880 for Class B
shares purchased on or after June 1, 1995. Unpaid distribution costs for
Class C were $8,207,020 at September 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. The management fee is calculated by
applying percentage rates, which start at 1.00% and decline to 0.75% per
annum as net assets increase, to the average daily net asset value of the
Fund.
During the year ended September 30, 1996, the Fund paid or accrued $26,856
to Keystone for certain accounting services. The Fund paid or accrued
$2,013,849 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 September 30, 1996, the Fund incurred total custody fees
of $592,472 and received a credit of $119,666 pursuant to this expense offset
arrangement, resulting in a net custody expense of $472,806. The assets
deposited with the custodian under this expense offset arrangement could have
been invested in income-producing assets.
(7.) Agreement and Plan of Acquisition
On September 6, 1996, Keystone Investments, Inc. entered into an Agreement
and plan of Acquisition and Merger (the "Acquisition") with First Union
Corporation and First Union National Bank of North Carolina ("First Union")
whereby First Union would acquire all the assets and liabilities of Keystone
Investments, Inc. in exchange for shares of First Union. Subject to the
receipt of the required regulatory and shareholder approvals, the Acquisition
is expected to take place in late December 1996.
<PAGE>
PAGE 31
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INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone Global Opportunities Fund
We have audited the accompanying statement of assets and liabilities of
Keystone Global Opportunities Fund, including the schedule of investments, as
of September 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 eight-year period then ended and the period from March 16, 1988
(Commencement of Operations) to September 30, 1988 for Class A shares, and
for each of the years in the three-year period ended September 30, 1996 and
for the period from February 1, 1993 (Date of Initial Public Offering) to
September 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 September 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 Global Opportunities Fund as of September 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 periods specified in the first paragraph above in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
November 1, 1996
<PAGE>
[back cover]
KEYSTONE AMERICA
FAMILY OF FUNDS
[DIAMOND]
Balanced Fund II
California Insured Tax Free Fund
Capital Preservation and Income Fund
Florida Tax Free Fund
Fund for Total Return
Fund of the Americas
Global Opportunities Fund
Global Resources and Development Fund
Government Securities Fund
Hartwell Emerging Growth Fund, Inc.
Intermediate Term Bond Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Omega Fund
Pennsylvania Tax Free Fund
Small Company Growth Fund II
Strategic Income Fund
Tax Free Income Fund
World Bond 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
GOF-R-10/96
62M
