PAGE 1
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Keystone State Tax Free Fund
Seeks generous tax-free income from high quality municipal bonds
Dear Shareholder:
We are pleased to report on the performance of Keystone State Tax Free Fund
for the six-month period which ended September 30, 1995. Following this
letter we have included a performance summary for each state fund and an
interview with Keystone's municipal bond department, discussing the market's
performance.
Municipal bond market rebounded
After an unsettled market in 1994, municipal bond investors were rewarded for
their patience over the past six months. Interest rates trended down during
the period and bond prices rose. Low inflation combined with slow but steady
economic growth to create a more positive investment environment. The Lehman
Municipal Bond Index(1) returned 5.36% for the six-month period and 11.19%
for the twelve-month period which ended September 30, 1995.
The Federal Reserve Board succeeded in engineering a soft landing for the
U.S. economy which created a favorable environment for municipal bonds.
Compared to taxable Treasury bonds, municipals were relatively cheap. In
fact, municipal bond yields averaged about 92% of the yield on comparable
long-term U.S. Treasury bonds, making them especially attractive on an
after-tax basis.
During the six months, we continued to emphasize bonds with maturities in
the 20-year range to pursue higher income with lower risk than longer term
bonds. We selected higher coupon issues to take advantage of greater
potential income and stability, and favored non-callable bonds for their
price appreciation potential and predictable income flow.
We expect the interest rate environment to remain stable over the coming
months as the economy adjusts to a slower pace of economic growth.
Shareholders should not be surprised to see modest declines in yields
consistent with lower interest rates, but tight municipal bond supply and
steady to rising demand should continue to be a positive factor for municipal
bond prices. Keystone State Tax Free Funds maintain their objective of
seeking valuable state and federal tax-free income from a portfolio of
quality municipal obligations.(1)
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 1995
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(1) For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
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PAGE 2
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Keystone Florida Tax Free Fund
Your Fund's Performance
Your Fund's objective is to earn generous income, exempt from federal income
tax, while preserving capital.(2) In addition, your Fund seeks to ensure that
its shares are exempt from the Florida intangibles tax. Your Fund is managed
by Betsy Blacher, senior vice president and head of Keystone's municipal bond
department.
Performance
Class A shares returned 5.21% for the six-month period and 10.89% for the
twelve-month period.
Class B shares returned 4.93% for the six-month period and 10.19% for the
twelve-month period.
Class C shares returned 4.82% for the six-month period and 10.13% for the
twelve-month period.
Portfolio Strategy
Your Fund's portfolio was well positioned to take advantage of the declining
interest rate environment during the six-month period. We continued to use a
"barbell" strategy, with a heavy weighting in AAA- rated bonds for stability
and in BBB-rated issues (the lowest investment grade category) for yield and
price appreciation potential. We also invested in some industrial revenue
bonds for attractive income. Your Fund's average maturity was 20.8 years on
September 30, 1995, up from 19.5 years on March 31, 1995. As of September 30,
1995, your Fund's average quality was AA, the second highest bond rating.
Economic Environment
Florida is now the fourth largest state in the nation due to rapid population
growth. Tourism has improved considerably after a slight decline last year,
and the
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[typeset description of Pie Chart]
Portfolio Quality Summary
as of September 30, 1995
S&P Rating(3)
AAA (32%) Cash (2%) Not Rated (13%) BBB (19%) A (9%) AA (25%)
Average portfolio quality: AA
(as a percentage of portfolio assets)
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employment situation compares favorably with the national average.
Offsetting this are slower income and household growth. Estimates project
this trend to continue which may affect other areas of growth, such as
construction activity. Tax revenues have been higher than expected, however,
and the state continues to experience a surplus in the general fund.
Outlook
We believe Florida's long-term outlook is stable, but it faces challenges in
funding for school construction, prison facilities and other infrastructure
needs. Floridians are reluctant to approve sales tax increases for these
purposes, so revenues will need to be generated in other ways. We will be
monitoring political and budgetary news as well as household and income
growth in the coming months.
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(2) For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
(3) Where Standard & Poor's ratings were not available, we have used ratings
from Moody's Investor Service, Inc., Fitch Investors' Service, Inc., or
ratings assigned by another nationally recognized statistical rating
organization.
<PAGE>
PAGE 3
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Keystone Florida Tax Free Fund
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[typeset description of Mountain Chart]
Growth of an investment in
Keystone Florida Tax Free Fund Class A
In Thousands
Initial Reinvested
Investment Distributions
12/90 9629 9637
9/91 9963 10503
9/92 10287 11614
9/93 10887 13139
9/94 9610 12461
9/95 10077 13819
Total Value: $13,819
A $10,000 investment in Keystone Florida Tax Free Fund Class A made on
December 28, 1990 with all distributions reinvested was worth $13,819 on
September 30, 1995. Past performance is no guarantee of future results.
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Tax-Equivalent Yields
Federal Tax Bracket(4)
- -------------------------------------
31% 36% 39.6%
- -------------------------------------
Yield Taxable Equivalent Yield
- -------------------------------------
4.5% 6.5% 7.0% 7.5%
5.0% 7.2% 7.8% 8.3%
5.5% 8.0% 8.6% 9.1%
- -------------------------------------
The yields shown are for illustrative purposes only. They are not intended to
represent actual performance of the Fund.
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(4) The table is based on federal tax brackets. The 31% bracket includes
single filers earning $53,501-115,000 and joint filers earning
$89,151-140,000; the 36% bracket includes single filers earnings
$115,001-250,000 and joint filers earning $140,001-250,000; the 39.6%
bracket includes single and joint filers earning over $250,000. Yields
are hypothetical and do not represent the returns of any particular
investment.
Six-Month Performance as of September 30, 1995
-----------------------------------------------------------------------------
Class A Class B Class C
Total returns* 5.21% 4.93% 4.82%
Net asset value 3/31/95 $10.33 $10.24 $10.26
9/30/95 $10.58 $10.48 $10.49
Dividends $ 0.28 $ 0.26 $ 0.26
Capital gains None None None
*Before deduction of front-end or contingent deferred sales charge (CDSC).
Historical Record as of September 30, 1995
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Cumulative total returns Class A Class B Class C
1-year w/o sales charge 10.89% 10.19% 10.13%
1-year 5.62% 6.19% 10.13%
3-year 13.33% -- --
Life of Class 38.19% 10.40% 13.17%
Average Annual Returns
1-year w/o sales charge 10.89% 10.19% 10.13%
1-year 5.62% 5.62% 10.13%
3-year 4.26% -- --
Life of Class 7.03% 3.78% 4.75%
Class A shares were introduced on December 28, 1990. Performance is
reported at the current maximum front-end sales charge of 4.75%.
Class B shares were introduced on February 1, 1993. Shares purchased after
June 1, 1995 are subject to a contingent deferred sales charge (CDSC) that
declines from 5% to 1% over six years from the month purchased. Performance
assumes that shares were redeemed after the end of a one-year holding period
and reflects the deduction of a 4% CDSC.
Class C shares were introduced on February 1, 1993. 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.
You may exchange your shares for another Keystone fund by phone or in
writing for a $10 fee. The exchange fee is waived for individual investors
who make an exchange using Keystone's Automated Response Line (KARL). The
Fund reserves the right to change or terminate the exchange offer.
<PAGE>
PAGE 4
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Keystone Massachusetts Tax Free Fund
Your Fund's Performance
Your Fund's objective is to earn generous income, exempt from federal and
state income tax, while preserving capital.(5) It is managed by Daniel A.
Rabasco, vice president in Keystone's municipal bond department.
Performance
Class A shares returned 4.20% for the six-month period and 9.66% for the
twelve-month period.
Class B shares returned 3.91% for the six-month period and 8.99% for the
twelve-month period.
Class C shares returned 3.91% for the six-month period and 8.96% for the
twelve-month period.
Portfolio Strategy
Your Fund's portfolio was well positioned to take advantage of the declining
interest rate environment during the six-month period. We maintained our
emphasis on high quality, higher coupon bonds and favored bonds with call
protection. We are also invested in several industrial revenue bonds for
attractive income. Your Fund's average maturity was 19.4 years on September
30, 1995, unchanged from March 31, 1995. As of September 30, 1995, your
Fund's average quality was A, the third highest bond rating.
Economic Environment
The Commonwealth's economy is fairly stable. Job losses due to declines in
defense spending and consolidation in the banking industry have been
generally offset by growth in the service sector. Improving eco-
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[Typeset representation of pie chart]
Portfolio Quality Summary
as of September 30, 1995
S&P rating6
AAA (26%) Not Rated (11%) A (48%) AA (15%)
Average portfolio quality: A
(as a percentage of portfolio assets)
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nomic conditions and more conservative fiscal management have resulted in
positive fund balances for the state treasury in each of the past five years,
a trend that is expected to continue. Medicaid expenditures are expected to
increase only marginally for fiscal year 1995.
Outlook
We don't expect to see significant growth in Massachusetts. However, we
continue to see economic opportunities for the Bay State from increases in
international trade and the ongoing public infrastructure projects. The
central artery and Boston Harbor cleanup projects should continue to be a
positive influence on the economy.
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(6) Where Standard & Poor's ratings were not available, we have used ratings
from Moody's Investor Service, Inc., Fitch Investors' Service, Inc., or
ratings assigned by another nationally recognized statistical rating
organization.
<PAGE>
PAGE 5
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Keystone Massachusetts Tax Free Fund
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[Typeset representation of mountain chart]
Growth of an investment in
Keystone Massachusetts Tax Free Fund Class A
In Thousands
Initial Reinvested
Investment Distributions
9372 9414
3/94 8734 8820
8696 8825
8772 8945
6/94 8639 8852
8772 9033
8734 9037
9/94 8563 8903
8315 8689
8096 8504
12/94 8296 8756
8525 9040
8725 9294
3/95 8753 9370
8715 9372
9001 9722
6/95 8791 9539
8763 9552
8848 9689
9/95 8877 9764
Total Value: $9,764
A $10,000 investment in Keystone Massachusetts Tax Free Fund Class A made on
February 4, 1994 with all distributions reinvested was worth $9,764 on
September 30, 1995. Past performance is no guarantee of future results.
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Tax-Equivalent Yields
Federal Tax Bracket(7)
- ---------------------------------------------------------
31% 36% 39.6%
(combined state
& federal) (39.28%) (43.68%) (46.85%)
- ---------------------------------------------------------
Yield Taxable Equivalent Yield
- ---------------------------------------------------------
4.5% 7.4% 8.0% 8.5%
5.0% 8.2% 8.9% 9.4%
5.5% 9.1% 9.8% 10.3%
- ---------------------------------------------------------
The yields shown are for illustrative purposes only. They are not intended to
represent actual performance of the Fund.
(7) The table is based on federal tax brackets. The 31% bracket includes
single filers earning $53,501-115,000 and joint filers earning
$89,151-140,000; the 36% bracket includes single filers earning
$115,001-250,000 and joint filers earning $140,001-250,000; the 39.6%
bracket includes single and joint filers earning over $250,000. Yields are
hypothetical and do not represent the returns of any particular investment.
Six-Month Performance as of September 30, 1995
-----------------------------------------------------------------------------
Class A Class B Class C
Total returns* 4.20% 3.91% 3.91%
Net asset value 3/31/95 $9.19 $9.15 $9.14
9/30/95 $9.32 $9.27 $9.26
Dividends $0.25 $0.23 $0.23
Capital gains None None None
*Before deduction of front-end or contingent deferred sales charge (CDSC).
Historical Record as of September 30, 1995
-----------------------------------------------------------------------------
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 9.66% 8.99% 8.96%
1-year 4.45% 4.99% 8.96%
Life of Class -2.36% -2.06% 1.43%
Average Annual Returns
1-year w/o sales charge 9.66% 8.99% 8.96%
1-year 4.45% 4.99% 8.96%
Life of Class -1.43% -1.25% 0.86%
Class A, Class B, and Class C shares were introduced on February 4, 1994.
Class A share performance is reported at the current maximum front-end
sales charge of 4.75%.
Class B shares purchased after June 1, 1995 are subject to a contingent
deferred sales charge (CDSC) that declines from 5% to 1% over six years from
the month purchased. Performance assumes that shares were redeemed after the
end of a one-year holding period and reflects the deduction of a 4% CDSC.
Class C shares were introduced on February 1, 1993. 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.
You may exchange your shares for another Keystone fund by phone or in
writing for a $10 fee. The exchange fee is waived for individual investors
who make an exchange using Keystone's Automated Response Line (KARL). The
Fund reserves the right to change or terminate the exchange offer.
<PAGE>
PAGE 6
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Keystone New York Insured Tax Free Fund
Your Fund's Performance
Your Fund's objective is to earn generous income, exempt from federal, state,
and New York City income tax, while preserving capital.(8) It is managed by
Daniel A. Rabasco, vice president in Keystone's municipal bond department.
Performance
Class A shares returned 4.67% for the six-month period and 10.41% for the
twelve-month period.
Class B shares returned 4.28% for the six-month period and 9.66% for the
twelve-month period.
Class C shares returned 4.39% for the six-month period and 9.62% for the
twelve-month period.
Portfolio Strategy
Your Fund's portfolio was well positioned to take advantage of the declining
interest rate environment during the six-month period. We maintained our
emphasis on high quality, higher coupon insured bonds and favored bonds with
call protection. Your Fund's average maturity was 20.1 years on September 30,
1995, up slightly from 19.6 years on March 31, 1995. As of September 30,
1995, your Fund's average quality was AA+, the second highest bond rating.
Economic Environment
New York's economy continued to lag that of the nation, affected in part by
contraction in the banking and manufacturing sectors. For August 1995, the
state's unemployment rate was 7.1% compared to the
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[Typeset representation of pie chart]
Portfolio Quality Summary
as of September 30, 1995
S&P rating(9)
AAA (90%) BBB (3%) AA (7%)
Average portfolio quality: AA+
(as a percentage of portfolio assets)
- -----------------------------------------------------------------------------
national average of 5.6%. A recent development is that New York ended fiscal
year 1995 with a positive fund balance and expects another positive balance
for 1996.
Outlook
Implementation of tax cuts that were part of the 1995 fiscal year budget may
strain the long term finances of the state. In addition, economic performance
is not expected to rebound appreciably, weighed down by significant social
service costs. With the challenging years that lie ahead for New York, we
believe that your Fund's emphasis on insured bonds should provide valuable
protection and stability.
- -------------
(8) For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
(9) Where Standard & Poor's ratings were not available, we have used ratings
from Moody's Investor Service, Inc., Fitch Investors' Service, Inc., or
ratings assigned by another nationally recognized statistical rating
organization.
<PAGE>
PAGE 7
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Keystone New York Insured Tax Free Fund
-----------------------------------------------------------------------------
[Plot points for mountain chart]
Growth of an investment in
Keystone New York Insured Tax Free Fund Class A
In Thousands
Initial Reinvested
Investment Distributions
9363 9404
3/94 8877 8962
8934 9062
9010 9182
6/94 8887 9098
9058 9316
8991 9290
9/94 8763 9097
8544 8912
8267 8666
12/94 8506 8957
8734 9239
8944 9502
3/95 8991 9596
8953 9597
9239 9946
6/95 9068 9803
9058 9835
9163 9991
9/95 9172 10044
Total Value: $10,044
A $10,000 investment in Keystone New York Insured Tax Free Fund Class A made
on February 4, 1994, with all distributions reinvested was worth $10,044 on
September 30, 1995. Past performance is no guarantee of future results.
- -----------------------------------------------------------------------------
Tax-Equivalent Yields
Federal Tax Bracket(10)
- -----------------------------------------------------------
31% 36% 39.6%
(combined city,
state & federal) (39.32%) (43.21%) (46.88%)
- -----------------------------------------------------------
Yield Taxable Equivalent Yield
- -----------------------------------------------------------
4.5% 7.4% 7.9% 8.5%
5.0% 8.2% 8.8% 9.4%
5.5% 9.1% 9.7% 10.4%
-----------------------------------------------------------
The yields shown are for illustrative purposes only. They are not intended to
represent actual performance of the Fund.
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(10) The table is based on federal tax brackets. The 31% bracket includes
single filers earning $53,501-115,000 and joint filers earning
$89,151-140,000; the 36% bracket includes single filers earning
$115,001-250,000 and joint filers earning $140,001-250,000; the 39.6%
bracket includes single and joint filers earning over $250,000. Yields
are hypothetical and do not represent the returns of any particular
investment.
Six-Month Performance as of September 30, 1995
-----------------------------------------------------------------------------
Class A Class B Class C
Total returns* 4.67% 4.28% 4.39%
Net asset value 3/31/95 $9.44 $9.38 $9.37
9/30/95 $9.63 $9.55 $9.55
Dividends $0.25 $0.23 $0.23
Capital gains None None None
*Before deduction of front-end or contingent deferred sales charge (CDSC).
Historical Record as of September 30, 1995
-----------------------------------------------------------------------------
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 10.41% 9.66% 9.62%
1-year 5.17% 5.66% 9.62%
Life of Class 0.44% 0.46% 4.18%
Average Annual Returns
1-year w/o sales charge 10.41% 9.66% 9.62%
1-year 5.17% 5.66% 9.62%
Life of Class 0.26% 0.28% 2.49%
Class A, Class B, and Class C shares were introduced on February 4, 1994.
Class A share performance is reported at the current maximum front-end
sales charge of 4.75%.
Class B shares purchased after June 1, 1995 are subject to a contingent
deferred sales charge (CDSC) that declines from 5% to 1% over six years from
the month purchased. Performance assumes that shares were redeemed after the
end of a one-year holding period and reflects the deduction of a 4% CDSC.
Class C share performance 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.
You may exchange your shares for another Keystone fund by phone or in
writing for a $10 fee. The exchange fee is waived for individual investors
who make an exchange using Keystone's Automated Response Line (KARL). The
Fund reserves the right to change or terminate the exchange offer.
<PAGE>
PAGE 8
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Keystone Pennsylvania Tax Free Fund
Your Fund's Performance
Your Fund's objective is to earn generous income, exempt from federal, state,
and city income tax, while preserving capital.(11) In addition, your Fund
seeks to ensure that its shares are exempt from Pennsylvania's personal
property tax. It is managed by Daniel A. Rabasco, vice president in
Keystone's municipal bond department.
Performance
Class A shares returned 4.76% for the six-month period and 8.80% for the
twelve-month period.
Class B shares returned 4.31% for the six-month period and 7.95% for the
twelve-month period.
Class C shares returned 4.40% for the six-month period and 7.99% for the
twelve-month period.
Portfolio Strategy
Your Fund's portfolio was well positioned to take advantage of the declining
interest rate environment during the six-month period. We continued to use a
"barbell" strategy, with a heavy weighting in AAA- rated bonds for price
appreciation potential and in BBB-rated issues (the lowest investment grade
category) for yield. We also invested in some industrial revenue bonds for
attractive income. Your Fund's average maturity was 20.6 years on September
30, 1995, basically unchanged from 20.8 years on March 31, 1995. As of
September 30, 1995, your Fund's average quality was AA+, the second highest
bond rating.
Economic Environment
Pennsylvania's well diversified economy includes strong financial, medical
and technology sectors as well as its historical agricultural base. Stronger
than expected
-----------------------------------------------------------------------------
[Typeset representation of pie chart]
Portfolio Quality Summary
as of September 30, 1995
S&P Rating(12)
AAA (52%) Not Rated (6%) BBB (26%) A (6%) AA (10%)
Average portfolio quality: AA+
(as a percentage of portfolio assets)
- -----------------------------------------------------------------------------
business taxes in fiscal year 1994 resulted in a $540 million general fund
surplus. Between $54 million and $111 million of the surplus will be
transferred to the budget stabilization fund, a positive indicator of
longer-term fiscal strength. Pennsylvania's unemployment rate of 5.5% as of
July, 1995 is roughly the same as the national rate.
Outlook
We expect Pennsylvania's conservative and consistent fiscal policies to
continue to be favorable to municipal bond investors. Even though job growth
has slowed recently, the new diversified Pennsylvania economy should track
the nation. Additionally, Pittsburgh and Philadelphia, which account for
about half of the Commonwealth's population may also experience a boost from
strength in the high technology and financial services sectors.
-----------------------------------------------------------------------------
(11) For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
(12) Where Standard & Poor's ratings were not available, we have used ratings
from Moody's Investor Service, Inc., Fitch Investors' Service, Inc., or
ratings assigned by another nationally recognized statistical rating
organization.
<PAGE>
PAGE 9
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Keystone Pennsylvania Tax Free Fund
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[Typeset representation of mountain chart]
Growth of an investment in
Keystone Pennsylvania Tax Free Fund
Class A
In Thousands
Initial Reinvested
Investment Distributions
12/90 9715 9723
9/91 10096 10652
9/92 10525 11849
9/93 11430 13646
9/94 10296 13078
9/95 10601 14230
Total Value: $14,230
A $10,000 investment in Keystone Pennsylvania tax Free Fund Class A made on
December 27, 1990 with all distributions reinvested was worth $14,230 on
September 30, 1995. Past performance is no guarantee of future results.
- -----------------------------------------------------------------------------
Tax-Equivalent Yields
Federal Tax Bracket(13)
-------------------------------------------------
31% 36% 39.6%
(combined state
& federal) (32.93%) (37.79%) (41.29%)
- --------------- ----- ----- -------
Yield Taxable Equivalent Yield
4.5% 6.7% 7.2% 7.7%
5.0% 7.5% 8.0% 8.5%
5.5% 8.2% 8.8% 9.4%
-------------------------------------------------
The yields shown are for illustrative purposes only. They are not intended to
represent actual performance of the Fund.
- -------------
(13) The table is based on federal tax brackets. The 31% bracket includes
single filers earning $53,501-115,000 and joint filers earning
$89,151-140,000; the 36% bracket includes single filers earning
$115,001-250,000 and joint filers earning $140,001-250,000; the 39.6%
bracket includes single and joint filers earning over $250,000. Yields
are hypothetical and do not represent the returns of any particular
investment.
Six-Month Performance as of September 30, 1995
-----------------------------------------------------------------------------
Class A Class B Class C
Total returns* 4.76% 4.31% 4.40%
Net asset value 3/31/95 $10.91 $10.81 $10.83
9/30/95 $11.13 $11.00 $11.03
Dividends $ 0.29 $ 0.27 $ 0.27
Capital gains None None None
*Before deduction of front-end or contingent deferred sales charge (CDSC).
Historical Record as of September 30, 1995
-----------------------------------------------------------------------------
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 8.80% 7.95% 7.99%
1-year 3.63% 3.87% 7.99%
3-year 14.38% -- --
Life of Class 42.30% 10.66% 13.67%
Average Annual Returns
1-year w/o sales charge 8.80% 7.95% 7.99%
1-year 3.63% 3.87% 7.99%
3-year 4.58% -- --
Life of Class 7.69% 3.87% 4.92%
Class A shares were introduced on December 27, 1990. Performance is reported
at the current maximum front-end sales charge of 4.75%.
Class B shares were introduced on February 1, 1993. Shares purchased after
June 1, 1995 are subject to a contingent deferred sales charge (CDSC) that
declines from 5% to 1% over six years from the month purchased. Performance
assumes that shares were redeemed after the end of a one-year holding period
and reflects the deduction of a 4% CDSC.
Class C shares were introduced on February 1, 1993. 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.
You may exchange your shares for another Keystone fund by phone or in
writing for a $10 fee. The exchange fee is waived for individual investors
who make an exchange using Keystone's Automated Response Line (KARL). The
Fund reserves the right to change or terminate the exchange offer.
<PAGE>
PAGE 10
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Keystone Texas Tax Free Fund
Your Fund's Performance
Your Fund's objective is to earn generous income, exempt from federal income
tax, while preserving capital.(14) Your Fund seeks to achieve its objective
by investing primarily in Texas municipal securities. It is managed by Daniel
A. Rabasco, vice president in Keystone's municipal bond department.
Performance
Class A shares returned 5.44% for the six-month period and 9.58% for the
twelve-month period.
Class B shares returned 5.05% for the six-month period and 8.82% for the
twelve-month period.
Class C shares returned 5.16% for the six-month period and 9.12% for the
twelve-month period.
Portfolio Strategy
Your Fund's portfolio was well positioned to take advantage of the declining
interest rate environment during the six-month period. We maintained our
emphasis on high quality, higher coupon bonds and favored bonds with call
protection. We also invested in some industrial revenue bonds for attractive
income. Your Fund's average maturity was 17.6 years on September 30, 1995,
down slightly from 18.1 years on March 31, 1995. As of September 30, 1995,
your Fund's average quality was AA, the second highest bond rating.
Economic Environment
Texas continues to experience strong employment growth. Between August 1994
and August 1995 the Lone Star state added almost 250,000 jobs and employment
increased 3.2%. Texas recently passed
-----------------------------------------------------------------------------
[Typeset representation of pie chart]
Portfolio Quality Summary
as of September 30, 1995
S&P rating(15)
AAA (41%) BBB (3%) A (26%) AA (30%)
Average portfolio quality: AA
(as a percentage of portfolio assets)
-----------------------------------------------------------------------------
New York as the second most populous state in the nation. Continued
improvement in the economy has produced strong revenue growth in the face of
rising expenditures. Texas finished fiscal year 1995 with a general fund
surplus of approximately $2.1 billion, and has ended each of the past seven
years with significant surpluses.
Outlook
We believe Texas should continue to enjoy strong employment growth. Its plan
to save on Medicaid costs through use of managed care is currently awaiting
federal waiver, and its program for education reform was finally upheld by
the State Supreme Court. We believe the state's large, growing and
increasingly diversified economy and its prudent and innovative fiscal
management should help it maintain its record of strong fiscal performance.
- -------------
(14) For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
(15) Where Standard & Poor's ratings were not available, we have used ratings
from Moody's Investor Service, Inc., Fitch Investors' Service, Inc., or
ratings assigned by another nationally recognized statistical rating
organization.
<PAGE>
PAGE 11
- ------------------------------------------------------------------
Keystone Texas Tax Free Fund
- -----------------------------------------------------------------------------
[Typeset representation of mountain chart]
Growth of an investment in
Keystone Texas Tax Free Fund Class A
In Thousands
Initial Reinvested
Investment Distributions
3/92 9553 9603
9/92 9906 10263
9/93 10601 11631
9/94 9563 11160
9/95 9925 12229
Total Value: $12,229
A $10,000 investment in Keystone Texas Tax Free Fund Class A made on March 1,
1992 with all distributions reinvested was worth $12,229 on September 30,
1995. Past performance is no guarantee of future results.
- -----------------------------------------------------------------------------
Tax-Equivalent Yields
Federal Tax Bracket(16)
- -------------------------------------
31% 36% 39.6%
- -------------------------------------
Yield Taxable Equivalent Yield
- -------------------------------------
4.5% 6.5% 7.0% 7.5%
5.0% 7.2% 7.8% 8.3%
5.5% 8.0% 8.6% 9.1%
- -------------------------------------
The yields shown are for illustrative purposes only. They are not intended to
represent actual performance of the Fund.
- -------------
(16) The table is based on federal tax brackets. The 31% bracket includes
single filers earning $53,501-115,000 and joint filers earning
$89,151-140,000; the 36% bracket includes single filers earning
$115,001-250,000 and joint filers earning $140,001-250,000; the 39.6%
bracket includes single and joint filers earning over $250,000. Yields
are hypothetical and do not represent the returns of any particular
investment.
Six-Month Performance as of September 30, 1995
- -----------------------------------------------------------------------------
Class A Class B Class C
Total returns* 5.44% 5.05% 5.16%
Net asset value 3/31/95 $10.15 $10.05 $10.03
9/30/95 $10.42 $10.30 $10.29
Dividends $ 0.28 $ 0.25 $ 0.25
Capital gains None None None
*Before deduction of front-end or contingent deferred sales charge (CDSC).
Historical Record as of September 30, 1995
- -----------------------------------------------------------------------------
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 9.58% 8.82% 9.12%
1-year 4.38% 4.82% 9.12%
3-year 13.50% -- --
Life of Class 22.29% 9.96% 12.58%
Average Annual Returns
1-year w/o sales charge 9.58% 8.82% 9.12%
1-year 4.38% 4.82% 9.12%
3-year 4.31% -- --
Life of Class 5.78% 3.63% 4.54%
Class A shares were introduced on March 2, 1992. Performance is reported at
the current maximum front-end sales charge of 4.75%.
Class B shares were introduced on February 1, 1993. Shares purchased after
June 1, 1995 are subject to a contingent deferred sales charge (CDSC) that
declines from 5% to 1% over six years from the month purchased. Performance
assumes that shares were redeemed after the end of a one-year holding period
and reflects the deduction of a 4% CDSC.
Class C shares were introduced on February 1, 1993. 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.
You may exchange your shares for another Keystone fund by phone or in
writing for a $10 fee. The exchange fee is waived for individual investors
who make an exchange using Keystone's Automated Response Line (KARL). The
Fund reserves the right to change or terminate the exchange offer.
<PAGE>
PAGE 12
- ------------------------------------------------------------------
Keystone State Tax Free Fund
A Discussion With
Your Fund's Management
Keystone State Tax Free Funds are managed by Keystone's
municipal bond team, headed by senior vice president
Betsy Blacher. The team is comprised of five investment
professionals who are dedicated to researching, analyzing and
evaluating municipal bonds for each fund. We asked them
several questions about the market's recent performance.
Their responses follow.
Q What do Keystone State Tax Free Funds offer investors?
A The Funds are designed for tax-sensitive investors. The Funds offer
professional management and diversification from a portfolio of quality
municipal bonds. We manage each state fund with careful attention to credit
quality and financial stability. Each portfolio seeks consistent, attractive
income that is exempt from federal income and state (and city) taxes as
applicable.(17) In states that tax intangible assets or personal property
(Florida and Pennsylvania), we also seek tax-exempt status.
Q How did economic conditions affect the municipal bond market over the past
six months?
A 1995 has been a much improved environment for municipal bonds. Lower
interest rates contributed to a nice rebound for municipal bond prices, in
sharp contrast to 1994. Combined with low inflation, real after-tax yields
for municipal bond investors were quite attractive.
Q How did the Funds perform?
A All five Keystone funds posted positive total returns for the six months
which ended September 30, 1995. Shares prices rose during the period and
paralleled the performance of the municipal bond market. The Funds continued
to provide shareholders with attractive tax-free income. Considering all the
talk about a flat tax in Congress, we were pleased with the Funds'
performance.
Q What effect would a flat tax have on municipal bond investments?
A Enactment of a flat tax would eliminate the tax advantage of municipal
bonds because the income they pay would no longer be tax-exempt. As a result,
states and local governments would lose an important source of inexpensive
financing.
Q Do you believe a flat tax will be enacted?
A No, we believe the enactment of a flat tax is highly unlikely. But,
discussions in Washington held back performance that would otherwise have
been even stronger for municipal bonds. We would not be surprised to see some
minor changes to the tax code, but we see significant hurdles to
implementation of a flat tax. On the national level, any decrease in tax
revenues would make it even more difficult to balance the federal budget. On
the local level, many state governments are already strained to pay for a
greater portion of federally mandated services, such as Medicaid. Eliminating
states' ability to issue tax-free bonds would make this problem even worse.
Because of this, we think passage of a flat tax is highly unlikely.
Q What were the key components of your investment strategy?
A Based on the yield curve (see chart), we concentrated on bonds with
20-year maturities because they provided yields close to those of 30-year
bonds but with less risk. We continued to focus on high quality bonds with
higher coupons to maximize tax-free income.We continued our emphasis on
"non-callable" bonds--bonds which cannot be called back by their issures and
repaid early--to increase the potential for price appreciation. We also
invested selectively in industrial development bonds to take advantage of
their higher yields.
- -------------
(17) For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
<PAGE>
PAGE 13
- ------------------------------------------------------------------
Keystone State Tax Free Fund
[typeset representation of line chart]
Municipals Treasuries
1 3.85 5.57
2 4.1 5.78
5 4.3 5.88
10 4.8 6.08
20 5.7 6.16 -- Best Value
30 5.9 6.43 Limited additional yield beyond 20 years,
but more risk.
Because the difference in yield between 20-year and 30-year bonds was small, we
emphasized 20 year bonds.
Source: Goldman Sachs
- --------------------------------------------------------------------
Q What types of bonds do you favor in today's environment?
A We are extremely selective about fund holdings and generally prefer bonds
rated A or better. We continue to emphasize high quality essential services
and general obligation bonds--bonds that we believe should do well in a slow
growth economy. We maintain core positions of relatively high coupon bonds to
generate strong income streams, and invest in a small percentage of lower
quality bonds for their high yields or price appreciation potential. We
always evaluate how a potential holding will fit with the existing
composition of each portfolio, and strive to build portfolios that are
diversified across credit sectors and maturities.
Q What is your outlook for the municipal bond market?
A We are cautiously positive on the market. The trend in rates is down,
inflation is low, the dollar is stronger against foreign currencies and the
economy seems to have adjusted to slower growth. While we will continue to
monitor Washington's discussions on a flat tax, we believe these are all
positive factors for municipal bond performance over the long term. We are
also watching other economic indicators performance over the long-term
direction of the economy which could have an impact on interest rates and
bond prices.
Q Is this a good time for investors to buy tax free funds?
A Yes, we believe it is. Municipal bond funds remain one of the few sources
of tax-free income for investors, and with inflation so low, real after-tax
returns are very attractive. Of course there is always risk associated with
investing, but our emphasis on high quality municipal bonds helps improve the
stability of the Funds' portfolios. We think the portfolios of Keystone State
Tax Free Fund will continue to offer investors a diversified, professionally
managed opportunity for income that is exempt from federal and state (and
city) taxes as applicable.(18)
[diamond]
This column is intended to answer questions about your Fund.
If you have a question you would like answered, please write to:
Keystone Investments, Inc.
Attn: Manager, Shareholder Communications
200 Berkeley Street, 22nd Floor,
Boston, Massachusetts 02116-5034.
- --------------------------
(18) For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
<PAGE>
PAGE 14
- ------------------------------------------------------------------
Keystone State Tax Free Fund
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 15
- ------------------------------------------------------------------
Keystone Florida Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- ------------------------------------------------------------- ----- --------- --------- -------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.6%)
Bay County, Florida, Hospital Systems Revenue Refunding, Bay
Medical Center Project 8.000% 10/01/2019 $2,500,000 $2,716,950
Brevard County, Florida, Health Facilities Authority Revenue
Refunding, Wuesthoff Memorial Hospital (MBIA) 7.200 04/01/2013 3,000,000 3,350,130
Broward County, Florida, Collateralized Home Mortgage 7.125 03/01/2017 195,000 203,434
Broward County, Florida, Resource Recovery, South Project 7.950 12/01/2008 2,210,000 2,450,691
Broward County, Florida, Unlimited Refunding Bonds 5.000 01/01/2010 3,000,000 2,820,000
Broward County, Florida, Water & Sewer Utility Revenue
(AMBAC) 5.000 10/01/2018 1,600,000 1,432,704
Charlotte County, Florida, Utility Revenue (FGIC) 6.750 10/01/2013 1,000,000 1,101,370
City of Miami, Florida, Health Facilities Authority,
Mercy Hospital (AMBAC) 6.750 08/01/2020 350,000 395,332
City of Tarpon Springs Health Facilities Authority, Florida,
Hospital Refunding, Helen Ellis Hospital 7.625 05/01/2021 1,000,000 1,037,840
City of Tarpon Springs Health Facilities Authority, Florida,
Hospital Refunding, Tarpon Springs Hospital Foundation,
Inc. 8.750 05/01/2012 500,000 531,170
Commonwealth of Puerto Rico, Highway Authority, Series Q 7.750 07/01/2010 125,000 145,059
Dade County, Florida, Aviation Revenue, Series C 5.750 10/01/2025 2,000,000 2,157,430
Dade County, Florida, Educational Facilities Authority
Revenue (St. Thomas University) 6.000 01/01/2010 2,000,000 2,009,980
Dade County, Florida, Housing Finance Agency, Single Family
Mortgage 7.000 03/01/2024 185,000 191,430
Dade County, Florida, School District, General Obligation 7.375 07/01/2008 40,000 44,888
Duval County, Florida, Single Family Mortgage Refunding
(FGIC) 7.300 07/01/2011 90,000 95,296
Escambia County, Florida, Pollution Control, Champion
International Corp. Project 6.900 08/01/2022 2,400,000 2,501,640
Florida Housing Finance Agency, Home Ownership Mortgage 7.500 09/01/2014 185,000 196,821
Florida Housing Finance Agency, Home Ownership Mortgage 8.000 12/01/2020 785,000 834,942
Florida State Board of Education Capital Outlay Refunding,
Public Education, Series D 5.000 06/01/2015 1,000,000 901,050
Florida State Department of Transportation, Turnpike Revenue
Bonds (FGIC) 5.000 07/01/2019 2,890,000 2,562,621
Florida State Department of Transportation, Turnpike Revenue
Bonds, Series 1991A (AMBAC) 7.125 07/01/2018 125,000 143,365
Florida State Transportation, Jacksonville Transportation 1,120,000
Authority 9.000 01/01/2000 1,000,000
Gainesville, Florida, Utilities System Revenue, Series B 7.500 10/01/2008 3,435,000 4,173,147
Gainesville, Florida, Utilities System Revenue, Series B 7.500 10/01/2009 3,695,000 4,506,533
Hollywood, Florida, Water and Sewer System Revenue (FGIC) 6.875 10/01/2021 535,000 609,274
Indian River County, Florida, Water and Sewer Systems Revenue
(FGIC) 6.500 05/01/2016 400,000 445,284
See Notes to Schedule of Investments. (Continued on next page)
<PAGE>
PAGE 16
- ------------------------------------------------------------------
Keystone State Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1995
(Unaudited)
Coupon Maturity Principal Market
Rate Date Amount Value
- -----------------------------------------------------------------------------------------------------------------
Municipal Bonds (continued)
Industrial Development Board of Mobile, Alabama, Solid Waste
Revenue, S95, Mobile Energy Services Co. Project 6.950% 01/01/2020 $ 500,000 $ 511,615
Jacksonville, Florida, Health Facilities Authority, St.
Luke's Hospital Association 7.125 11/15/2020 3,000,000 3,227,040
Jacksonville, Florida, Hospital Authority, Baptist Medical
Center Project, Series A (MBIA) 7.300 06/01/2019 350,000 379,722
Lee County, Florida, School Board, Certificates of
Participation, Series A (FSA) 7.750 08/01/2005 1,500,000 1,729,770
Lee County, Florida, Transportation Facilities Revenue
(AMBAC) 8.250 10/01/2017 45,000 46,125
Massachusetts State Health and Educational Facilities
Authority, Dana Farber Cancer Project, Series G-1 6.250 12/01/2022 2,500,000 2,474,100
Miami, Florida, Health Facilities Authority, Health
Facilities Revenue, Mercy Hospital, Series A (AMBAC) 5.125 08/15/2020 1,700,000 1,518,814
Miami, Florida, Special Obligation Revenue (FGIC) 6.000 02/01/2001 1,000,000 1,005,820
Miramar, Florida, Wastewater Improvement Assessment Revenue
(FGIC) 6.750 10/01/2016 1,000,000 1,097,350
New York State Housing Finance Agency, Service Contract 3,490,760
Obligation Revenue, Series D 5.375 03/15/2023 4,000,000
New York State Urban Development Corp., Correctional
Facilities, Series A 6.500 10/01/2009 1,900,000 1,998,762
North Springs Improvement District, Florida, Water and Sewer
Revenue, Series B (MBIA) 6.500 12/01/2016 1,335,000 1,442,975
Okaloosa County, Florida, Gas District, Refunding and
Improvement (MBIA) 6.850 10/01/2014 1,000,000 1,118,190
Orange County, Florida, Health Facilities Authority, Hospital
Revenue, Adventist Health (AMBAC) 5.250 11/15/2020 1,000,000 911,620
Orange County, Florida, Housing Finance Authority, GNMA
Collateralized Mortgage, Series B (AMT) 8.100 11/01/2021 2,380,000 2,496,311
Orlando, Florida, Utilities Commission, Water and Electric 6.000 10/01/2010 3,850,000 4,087,930
Orlando-Orange County, Florida, Expressway Authority (FGIC) 8.250 07/01/2015 40,000 51,775
Palm Beach County, Florida, General Obligation 6.500 07/01/2010 1,880,000 2,077,381
Palm Beach County, Florida, Solid Waste Authority Revenue,
Series 1984 8.750 07/01/2010 45,000 49,125
Palm Beach County, Florida, Solid Waste Industrial
Development, Okeelanta Power Project (AMT) 6.700 02/15/2015 5,000,000 4,870,550
Palm Beach County, Florida, Solid Waste Industrial
Development, Okeelanta Power Project (AMT) 6.850 02/15/2021 3,000,000 2,949,570
Palm Beach County, Florida, Solid Waste Industrial
Development, Osceda Power Project (AMT) 6.850 01/01/2014 3,500,000 3,465,560
Pittsylvania County, Virginia, Industrial Development
Authority Revenue, Series A 7.550 01/01/2019 3,100,000 3,227,813
Puerto Rico Electric Power Authority 6.000 07/01/2010 500,000 503,765
See Notes to Schedule of Investments.
<PAGE>
PAGE 17
- ------------------------------------------------------------------
Keystone State Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1995
(Unaudited)
Coupon Maturity Principal Market
Rate Date Amount Value
- -----------------------------------------------------------------------------------------------------------------
Municipal Bonds (continued)
Puerto Rico Electric Power Authority 7.000% 07/01/2011 $ 200,000 $ 228,130
Puerto Rico Industrial, Tourist, Educational, Medical,
Environmental Control Facilities Finance Authority,
Polytechnic University of Puerto Rico Project 5.500 08/01/2024 1,000,000 866,820
Reedy Creek, Florida, Improvement District, Florida Utilities
Revenue Refunding Series 1 (MBIA) 5.000 10/01/2019 5,500,000 4,900,390
Robbins, Illinois, Resource Recovery Bonds, Partners A 9.250 10/15/2014 1,000,000 1,072,570
Tallahassee, Florida, Health Facilities, Tallahassee Memorial
Regional Medical Project (MBIA) 6.625 12/01/2013 2,000,000 2,203,740
Tampa, Florida, Capital Improvement Program Revenue, Series B 8.375 10/01/2018 1,250,000 1,339,712
Tampa, Florida, Subordinate Guaranteed Entitlement Revenue
Series B (ETM) 8.500 10/01/2018 45,000 50,212
Tampa, Florida, Water and Sewer Authority Revenue (FGIC) 5.000 10/01/2014 2,000,000 1,810,120
Tomball, Texas, Hospital Authority Revenue, Series 1993 6.125 07/01/2023 6,500,000 5,790,850
University of Puerto Rico, University Revenues, Series M
(MBIA) 5.250 06/01/2025 2,000,000 1,831,920
West Melbourne, Florida, Water and Sewer Revenue (FGIC) 6.750 10/01/2014 1,000,000 1,107,150
- -----------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost--$99,817,396) 104,612,438
- -----------------------------------------------------------------------------------------------------------------
TEMPORARY TAX-EXEMPT INVESTMENTS (0.7%)
Dade County, Florida, Water and Sewer System Revenue Bond
Series 1994 (Cost $740,000)(a) 4.350 10/05/2022 740,000 740,000
- -----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost--$100,557,396) 105,352,438
OTHER ASSETS AND LIABILITIES--NET (1.7%) 1,750,076
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS (100.0%) $107,102,514
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Schedule of Investments:
(a) Variable or floating rate instruments with periodic demand features. The
Fund is entitled to full payment of principal and accrued interest upon
surrendering the security to the issuing agent according to the terms of
the demand features.
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--AMBAC Indemnity Corp.
AMT--Subject to Alternative Minimum Tax
ETM--Escrowed to Maturity
FGIC--Federal Guaranty Insurance Co.
FSA--Financial Security Assistance
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements.
<PAGE>
PAGE 18
- ------------------------------------------------------------------
Keystone Florida Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
December 27, 1990
Six Months (Commencement of
Ended Year Ended March 31, Operations) to
September 30, 1995 1995 1994 1993 1992 March 31, 1991
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
(Unaudited)
Net asset value beginning
of period $10.33 $10.29 $10.94 $10.43 $10.17 $10.00
- --------------------------- ----------------- ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income 0.28 0.56 0.58 0.61 0.72 0.18
Net gain (loss) on
investments and
closed futures contracts 0.25 0.07 (0.44) 0.64 0.30 0.17
- --------------------------- ----------------- ---- ---- ---- ---- -------------------
Total from investment
operations 0.53 0.63 0.14 1.25 1.02 0.35
- --------------------------- ----------------- ---- ---- ---- ---- -------------------
Less distributions from:
Net investment income (0.28) (0.56) (0.58) (0.61) (0.72) (0.18)
In excess of net investment
income 0 (0.03) (0.05) (0.03) 0 0
Net realized gain on
investments 0 0 (0.16) (0.10) (0.04) 0
- --------------------------- ----------------- ---- ---- ---- ---- -------------------
Total distributions (0.28) (0.59) (0.79) (0.74) (0.76) (0.18)
- --------------------------- ----------------- ---- ---- ---- ---- -------------------
Net asset value end of
period $10.58 $10.33 $10.29 $10.94 $10.43 $10.17
=========================== ================= ==== ==== ==== ==== ===================
Total return(c) 5.21% 6.42% 1.01% 12.32% 10.34% 3.52%
Ratios/supplemental data
Ratios to average net
assets:
Total expenses(b) 0.75%(a) 0.75% 0.75% 0.68% 0.65% 0.65%(a)
Net investment income 5.48%(a) 5.60% 5.16% 5.60% 6.82% 6.33%(a)
Portfolio turnover rate 32% 129% 113% 95% 63% 5%
- --------------------------- ----------------- ---- ---- ---- ---- -------------------
Net assets end of period
(thousands) $40,323 $42,239 $45,150 $42,997 $29,258 $6,922
=================================================================================================================
</TABLE>
(a) Annualized.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 0.91%,
0.95%, 1.00%, 1.13%, 1.21% and 2.06% (annualized) for the six months
ended September 30, 1995, the fiscal years ended March 31, 1995, 1994,
1993, 1992 and the period December 28, 1990 (Commencement of Operations)
to March 31, 1991, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 19
- ------------------------------------------------------------------
Keystone Florida Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
Six Months (Date of Initial
Ended Year Ended March 31, Public Offering) to
September 30, 1995 1995 1994 March 31, 1993
================================================================================================================
<S> <C> <C> <C> <C>
(Unaudited)
Net asset value beginning of period $10.24 $10.27 $10.94 $10.81
------------------------------------------ ----------------- ------ ------ ------------------
Income from investment operations:
Net investment income 0.25 0.53 0.52 0.08
Net gain (loss) on investments and closed
futures contracts 0.25 0.02 (0.47) 0.14
------------------------------------------ ----------------- ------ ------ ------------------
Total from investment operations 0.50 0.55 0.05 0.22
------------------------------------------ ----------------- ------ ------ ------------------
Less distributions from:
Net investment income (0.26) (0.49) (0.48) (0.08)
In excess of net investment income 0 (0.09) (0.08) (0.01)
Net realized gain on investments 0 0 (0.16) 0
------------------------------------------ ----------------- ------ ------ ------------------
Total distributions (0.26) (0.58) (0.72) (0.09)
------------------------------------------ ----------------- ------ ------ ------------------
Net asset value end of period $10.48 $10.24 $10.27 $10.94
========================================== ================= ====== ====== ==================
Total return(c) 4.93% 5.61% 0.19% 2.06%
Ratios/supplemental data
Ratios to average net assets:
Total expenses(b) 1.44%(a) 1.50% 1.50% 1.50%(a)
Net investment income 4.78%(a) 4.81% 4.21% 4.00%(a)
Portfolio turnover rate 32% 129% 113% 95%
------------------------------------------ ----------------- ------ ------ ------------------
Net assets end of period (thousands) $54,483 $51,083 $19,984 $1,704
================================================================================================================
</TABLE>
(a) Annualized.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 1.67%,
1.74% and 1.73% (annualized) for the six months ended September 30, 1995,
the fiscal years ended March 31, 1995, 1994 and for the period February
1, 1993 (Date of Initial Public Offering) to March 31, 1993,
respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 20
- ------------------------------------------------------------------
Keystone Florida Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
Six Months (Date of Initial
Ended Year Ended March 31, Public Offering) to
September 30, 1995 1995 1994 March 31, 1993
================================================================================================================
<S> <C> <C> <C> <C>
(Unaudited)
Net asset value beginning of period $10.26 $10.28 $10.93 $10.81
- --------------------------------------- ----------------- ------ ------ ----------------------
Income from investment operations:
Net investment income 0.24 0.47 0.51 0.07
Net gain (loss) on investments and
closed contracts 0.25 0.08 (0.45) 0.14
- --------------------------------------- ----------------- ------ ------ ----------------------
Total from investment operations 0.49 0.55 0.06 0.21
- --------------------------------------- ----------------- ------ ------ ----------------------
Less distributions from:
Net investment income (0.26) (0.49) (0.49) (0.07)
In excess of net investment income 0 (0.08) (0.06) (0.02)
Net realized gain on investments 0 0 (0.16) 0
- --------------------------------------- ----------------- ------ ------ ----------------------
Total distributions (0.26) (0.57) (0.71) (0.09)
- --------------------------------------- ----------------- ------ ------ ----------------------
Net asset value end of period $10.49 $10.26 $10.28 $10.93
======================================= ================= ====== ====== ======================
Total return(c) 4.82% 5.61% 0.27% 1.95%
Ratios/supplemental data
Ratios to average net assets:
Total expenses(b) 1.44%(a) 1.50% 1.50% 1.50%(a)
Net investment income 4.79%(a) 4.86% 4.26% 2.95%(a)
Portfolio turnover rate 32% 129% 113% 95%
- --------------------------------------- ----------------- ------ ------ ----------------------
Net assets end of period (thousands) $12,296 $12,831 $13,096 $1,987
================================================================================================================
</TABLE>
(a) Annualized.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 1.67%,
1.74%, 1.84% and 1.63% (annualized) for the six months ended September
30, 1995, the fiscal years ended March 31, 1995, 1994 and for the period
February 1, 1993 (Date of Initial Public Offering) to March 31, 1993,
respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 21
- ------------------------------------------------------------------
Keystone Florida Tax Free Fund
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995
(Unaudited)
<TABLE>
- ----------------------------------------------------------------------------------
<S> <C>
Assets (Notes 1 and 4):
Investments at market value (identified cost-- $100,557,396) $105,352,438
Cash 4,548
Receivable for:
Fund shares sold 57,895
Interest 2,302,290
Due from Investment Adviser 43,452
Unamortized organization expenses 1,211
Prepaid expenses 1,908
- ---------------------------------------------------------------- -----------
Total assets 107,763,742
- ---------------------------------------------------------------- -----------
Liabilities (Notes 2, 4 and 5):
Payable for:
Fund shares redeemed 191,947
Income distributions 451,977
Commissions payable to Principal Underwriter 1,545
Accrued expenses 15,759
- ---------------------------------------------------------------- -----------
Total liabilities 661,228
- ---------------------------------------------------------------- -----------
Net assets $107,102,514
- ---------------------------------------------------------------- -----------
Net assets represented by (Note 1):
Paid-in capital $107,478,884
Accumulated distributions in excess of net investment income (507,603)
Accumulated net realized gains (losses) on investments (4,663,809)
Net unrealized appreciation (depreciation) on investments 4,795,042
- ---------------------------------------------------------------- -----------
Total net assets $107,102,514
- ---------------------------------------------------------------- -----------
Net Asset Value (Note 2):
Class A Shares
Net asset value of $40,323,393/3,811,917 shares outstanding $10.58
Offering price per share ($10.58/0.9525) (based on a sales
charge of 4.75% of the offering price September 30, 1995) $11.11
Class B Shares
Net asset value of $54,482,960/5,201,144 shares outstanding $10.48
Class C Shares
Net asset value of $12,296,161/1,171,722 shares outstanding $10.49
- ---------------------------------------------------------------- -----------
</TABLE>
STATEMENT OF OPERATIONS
Six Months Ended September 30, 1995
(Unaudited)
<TABLE>
- -------------------------------------------------------------------------
<S> <C> <C>
Investment Income (Note 1):
Interest $3,316,857
Expenses (Notes 1, 2 and 4):
Management fee $ 277,231
Transfer agent fees 59,925
Custodian fees 29,186
Accounting 9,273
Auditing 5,378
Legal 2,406
Printing 6,378
Registration fees 10,931
Amortization of organization expenses 2,484
Distribution Plan expenses 324,162
Miscellaneous expenses 5,909
- --------------------------------------- ---------- -------------
Total expenses 733,263
Less: Reimbursement from Investment
Adviser (107,462)
- --------------------------------------- ---------- -------------
Net expenses 625,801
- --------------------------------------- ---------- -------------
Net investment income (Note 1) 2,691,056
- --------------------------------------- ---------- -------------
Net realized and unrealized gain
(loss) on investments and closed
futures contracts (Notes 1 and 3):
Net realized gain (loss) on:
Investments 824,990
Closed futures contracts (95,129)
- --------------------------------------- ---------- -------------
Net realized gain (loss) on investments
and closed futures contracts 729,861
- --------------------------------------- ---------- -------------
Net change in unrealized appreciation
(depreciation) on investments:
Beginning of period 2,984,404
End of period 4,795,042
- --------------------------------------- ---------- -------------
Net change in unrealized appreciation
(depreciation) on investments 1,810,638
- --------------------------------------- ---------- -------------
Net gain (loss) on investments and
futures contracts 2,540,499
- --------------------------------------- ---------- -------------
Net increase (decrease) in net assets
resulting from operations $5,231,555
- --------------------------------------- ---------- -------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 22
- ------------------------------------------------------------------
Keystone Florida Tax Free Fund
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
September 30, March 31,
1995 1995
- -------------------------------------------------------------------------- --------------- -------------
<S> <C> <C>
Operations (Notes 1 and 3): (Unaudited)
Net investment income $ 2,691,056 $ 5,108,143
Net realized gain (loss) on investments and closed futures contracs 729,861 (4,751,748)
Net change in unrealized appreciation (depreciation) 1,810,638 5,556,382
- -------------------------------------------------------------------------- ------------- -----------
Net increase (decrease) in net assets resulting from operations 5,231,555 5,912,777
- -------------------------------------------------------------------------- ------------- -----------
Distributions to shareholders from (Notes 1 and 5):
Net Investment income:
Class A Shares (1,114,219) (2,468,849)
Class B Shares (1,329,657) (1,881,744)
Class C Shares (309,688) (757,551)
In excess of net investment income:
Class A Shares 0 (119,609)
Class B Shares 0 (331,735)
Class C Shares 0 (127,027)
- -------------------------------------------------------------------------- ------------- -----------
Total distributions to shareholders (2,753,564) (5,686,515)
- -------------------------------------------------------------------------- ------------- -----------
Capital share transactions (Note 2):
Proceeds from shares sold--Class A Shares 1,356,094 6,022,911
Proceeds from shares sold--Class B Shares 4,840,248 35,365,150
Proceeds from shares sold--Class C Shares 552,020 6,570,695
Payment for shares redeemed--Class A Shares (4,574,035) (9,676,164)
Payment for shares redeemed--Class B Shares (3,155,089) (5,409,666)
Payment for shares redeemed--Class C Shares (1,510,632) (7,105,015)
Net asset value of shares issued in reinvestment of distributions from:
Net investment income and in excess of net investment income--Class A
Shares 292,300 712,811
Net investment income and in excess of net investment income--Class B
Shares 523,442 829,201
Net investment income and in excess of net investment income--Class C
Shares 147,969 385,988
- -------------------------------------------------------------------------- ------------- -----------
Net increase (decrease) in net assets resulting from capital share
transactions (1,527,683) 27,695,911
- -------------------------------------------------------------------------- ------------- -----------
Total increase (decrease) in net assets 950,308 27,922,173
Net assets:
Beginning of period 106,152,206 78,230,033
- -------------------------------------------------------------------------- ------------- -----------
End of period [Including accumulated distributions in excess of net
investment income as follows: September 1995--($507,603) and March
1995--($445,095)] (Note 1) $107,102,514 $106,152,206
- -------------------------------------------------------------------------- ------------- -----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 23
- ------------------------------------------------------------------
Keystone Massachusetts Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- -------------------------------------------------------------- ----- --------- -------- -----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (96.4%)
Boston, Massachusetts, Metropolitan District, General
Obligation 5.900% 12/01/2009 $ 500,000 $ 523,303
Chelsea, Massachusetts, School Project Loan Act 1948 (AMBAC) 6.000 06/15/2014 400,000 403,360
Massachusetts Bay Transportation Authority, General
Transportation, Series B 5.500 03/01/2011 100,000 95,016
Massachusetts Bay Transportation Authority, General
Transportation, Series A 7.000 03/01/2011 750,000 863,108
Massachusetts Bay Transportation Authority, General
Transportation, Series A 6.250 03/01/2012 400,000 426,196
Massachusetts Bay Transportation Authority, Series B 6.200 03/01/2016 625,000 660,025
Massachusetts Educational Financing Loan Authority (AMBAC) 6.000 01/01/2012 300,000 297,066
Massachusetts Municipal Wholesale Electric, Power Supply
Systems, Series B 6.750 07/01/2008 460,000 500,227
Massachusetts State Health and Educational Facilities
Authority, Dana Farber Cancer Project, Series G-1 5.500 12/01/2027 750,000 655,575
Massachusetts State Health and Educational Facilities
Authority, Boston College, Series K 5.250 06/01/2018 100,000 93,093
Massachusetts State Health and Educational Facilities
Authority, Massachusetts Institute of Technology, Series H 5.000 07/01/2023 340,000 308,785
Massachusetts State Health and Educational Facilities
Authority, McLean Hospital, Series C (FGIC) 6.500 07/01/2010 300,000 320,031
Massachusetts State Health and Educational Facilities
Authority, New England Deaconess Hospital 6.875 04/01/2022 550,000 561,198
Massachusetts State Health and Educational Facilities
Authority, Smith College, Series D 5.750 07/01/2016 350,000 346,157
Massachusetts State Health and Educational Facilities
Authority, Wellesley College 5.375 07/01/2019 600,000 562,116
Massachusetts State Housing Finance Agency, Series A (AMBAC) 6.600 07/01/2014 300,000 308,046
Massachusetts State Industrial Finance Agency, Harvard
Community Health Plan, Inc., Series B 8.125 10/01/2017 165,000 178,131
Massachusetts State Industrial Finance Agency, Milton Academy,
Series B (MBIA) 5.250 09/01/2013 500,000 469,930
Massachusetts State Industrial Finance Agency, Solid Waste
Disposal, Molten Metal Technology Project 8.250 08/01/2014 250,000 261,553
Massachusetts State Port Authority, Series B 5.000 07/01/2013 400,000 355,348
Massachusetts State Industrial Finance Agency, Solid Waste
Disposal, Senior Lien, Massachusetts Recycling Associates 9.000 08/01/2016 1,000,000 1,016,530
Massachusetts State Water Pollution, Series 2 6.125 02/01/2008 610,000 653,536
Massachusetts State Water Pollution, Series A 6.375 02/01/2015 300,000 310,824
Massachusetts State Water Resources Authority, General
Refunding, Series B 5.000 03/01/2022 200,000 172,440
Massachusetts State Water Resources Authority, Series C 6.000 12/01/2011 770,000 800,469
See Notes to Schedule of Investments. (Continued on next page)
<PAGE>
PAGE 24
------------------------------------------------------------------
Keystone Massachusetts Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1995
- ----------------------------------------------------------------------------------------------------------------
Municipal Bonds (continued)
University of Massachusetts, Building Authority, Series A
(MBIA) 5.500% 05/01/2015 $250,000 $ 241,790
- -------------------------------------------------------------- --- ------- ------ ---------
TOTAL MUNICIPAL BONDS (Cost--$11,031,487) 11,383,853
- -------------------------------------------------------------- --- ------- ------ ---------
TEMPORARY TAX-EXEMPT INVESTMENTS (2.6%)
Massachusetts State Health and Educational Facilities
Authority, (Capital Assets Program), Series D (MBIA)
(Cost--$305,000) (a) 4.200 01/01/2035 305,000 305,000
- -------------------------------------------------------------- --- ------- ------ ---------
TOTAL INVESTMENTS (Cost--$11,336,487) 11,688,853
OTHER ASSETS AND LIABILITIES--NET (1.0%) 117,121
- -------------------------------------------------------------- --- ------- ------ ---------
NET ASSETS (100.0%) $11,805,974
- -------------------------------------------------------------- --- ------- ------ ---------
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Variable or floating rate instruments with periodic demand features. The
Fund is entitled to full payment of principal and accrued interest upon
surrendering the security to the issuing agent according to the terms of
the demand features.
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--AMBAC Indemnity Corp.
FGIC--Federal Guaranty Insurance Co.
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements.
<PAGE>
PAGE 25
- -----------------------------------------------------------------------------
Keystone Massachusetts Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 4, 1994
Six Months Year Ended (Commencement
Ended March 31, of Operations) to
September 30, 1995 1995 March 31, 1994
=============================================== ================== =========== ==================
<S> <C> <C> <C>
(Unaudited)
Net asset value beginning of period $ 9.19 $ 9.17 $10.00
- ----------------------------------------------- ----------------- --------- -----------------
Income from investment operations:
Net investment income 0.24 0.53 0.08
Net gain (loss) on investments and closed
futures contracts 0.14 0.02 (0.82)
- ----------------------------------------------- ----------------- --------- -----------------
Total from investment operations 0.38 0.55 (0.74)
- ----------------------------------------------- ----------------- --------- -----------------
Less distributions from:
Net investment income (0.25) (0.53) (0.08)
In excess of net investment income 0 0 (0.01)
- ----------------------------------------------- ----------------- --------- -----------------
Total distributions (0.25) (0.53) (0.09)
- ----------------------------------------------- ----------------- --------- -----------------
Net asset value end of period $ 9.32 $ 9.19 $ 9.17
=============================================== ================= ========= =================
Total return(c) 4.20% 6.23% (7.40%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses(b) 0.73%(a) 0.46% 0.35%(a)
Net investment income 5.49%(a) 5.90% 5.07%(a)
Portfolio turnover rate 41% 77% 7%
- ----------------------------------------------- ----------------- --------- -----------------
Net assets end of period (thousands) $2,412 $1,974 $1,472
=============================================== ================= ========= =================
</TABLE>
(a) Annualized.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 1.70%,
1.93%, and 3.22% (annualized) for the six months ended September 30,
1995, the fiscal year ended March 31, 1995, and the period February 4,
1994 (Commencement of Operations) to March 31, 1994, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 26
- -----------------------------------------------------------------------------
Keystone Massachusetts Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 4, 1994
Six Months Year Ended (Commencement
Ended March 31, of Operations) to
September 30, 1995 1995 March 31, 1994
=============================================== ================== =========== ==================
<S> <C> <C> <C>
(Unaudited)
Net asset value beginning of period $ 9.15 $ 9.19 $10.00
- ----------------------------------------------- ----------------- --------- -----------------
Income from investment operations:
Net investment income--net 0.22 0.48 0.08
Net gain (loss) on investments and closed
futures contracts 0.13 (0.01) (0.80)
- ----------------------------------------------- ----------------- --------- -----------------
Total from investment operations 0.35 0.47 (0.72)
- ----------------------------------------------- ----------------- --------- -----------------
Less distributions from:
Net investment income (0.23) (0.47) (0.07)
In excess of net investment income 0 (0.04) (0.02)
- ----------------------------------------------- ----------------- --------- -----------------
Total distributions (0.23) (0.51) (0.09)
- ----------------------------------------------- ----------------- --------- -----------------
Net asset value end of period $ 9.27 $ 9.15 $ 9.19
=============================================== ================= ========= =================
Total return(c) 3.91% 5.41% (7.20%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses(b) 1.48%(a) 1.24% 1.10%(a)
Net investment income 4.73%(a) 5.15% 3.23%(a)
Portfolio turnover rate 41% 77% 7%
- ----------------------------------------------- ----------------- --------- -----------------
Net assets end of period (thousands) $7,343 $6,169 $1,817
=============================================== ================= ========= =================
</TABLE>
(a) Annualized.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 2.49%,
2.68%, and 4.60% (annualized) for the six months ended September 30,
1995, the fiscal year ended March 31, 1995, and the period February 4,
1994 (Commencement of Operations) to March 31, 1994, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 27
- -----------------------------------------------------------------------------
Keystone Massachusetts Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 4, 1994
Six Months Year Ended (Commencement
Ended March 31, of Operations) to
September 30, 1995 1995 March 31, 1994
=============================================== ================== =========== ==================
<S> <C> <C> <C>
(Unaudited)
Net asset value beginning of period $ 9.14 $ 9.19 $10.00
- ----------------------------------------------- ----------------- --------- -----------------
Income from investment operations:
Net investment income--net 0.22 0.48 0.08
Net gain (loss) on investments and closed
futures contracts 0.13 (0.02) (0.80)
- ----------------------------------------------- ----------------- --------- -----------------
Total from investment operations 0.35 0.46 (0.72)
- ----------------------------------------------- ----------------- --------- -----------------
Less distributions from:
Net investment income (0.23) (0.47) (0.07)
In excess of net investment income 0 (0.04) (0.02)
- ----------------------------------------------- ----------------- --------- -----------------
Total distributions (0.23) (0.51) (0.09)
- ----------------------------------------------- ----------------- --------- -----------------
Net asset value end of period $ 9.26 $ 9.14 $ 9.19
=============================================== ================= ========= =================
Total return (c) 3.91% 5.20% (7.21%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses (b) 1.48%(a) 1.23% 1.10%(a)
Net investment income 4.73%(a) 5.11% 4.28%(a)
Portfolio turnover rate 41% 77% 7%
- ----------------------------------------------- ----------------- --------- -----------------
Net assets end of period (thousands) $2,051 $1,971 $ 369
=============================================== ================= ========= =================
</TABLE>
(a) Annualized.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 2.51%,
2.68%, and 4.91% (annualized) for the six months ended September 30,
1995, the fiscal year ended March 31, 1995, and the period February 4,
1994 (Commencement of Operations) to March 31, 1994, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 28
- -----------------------------------------------------------------------------
Keystone Massachusetts Tax Free FundS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995
(Unaudited)
Assets (Notes 1 and 4):
Investments at market value (identified cost--
$11,336,487) $11,688,853
Cash 515
Interest receivable 167,531
Due from Investment Adviser 16,456
Unamortized organization expenses 7,898
Prepaid expenses 115
- ------------------------------------------------- ----------
Total assets 11,881,368
- ------------------------------------------------- ----------
Liabilities (Notes 2, 4 and 5):
Income distribution payable 49,484
Commissions payable to Principal Underwriter 101
Accrued reimbursable expenses 1,110
Other accured expenses 24,699
- ------------------------------------------------- ----------
Total liabilities 75,394
- ------------------------------------------------- ----------
Net assets $11,805,974
- ------------------------------------------------- ----------
Net assets represented by (Note 1):
Paid-in capital $11,826,254
Undistributed net investment income 5,892
Accumulated net realized gains (losses) on
investments (378,538)
Net unrealized appreciation (depreciation) on
investments 352,366
- ------------------------------------------------- ----------
Total net assets $11,805,974
- ------------------------------------------------- ----------
Net Asset Value (Note 2):
Class A Shares
Net asset value of $2,412,180/258,762 shares
outstanding $9.32
Offering price per share ($9.32/0.9525) (based
on a sales charge of 4.75% of the offering
price September 30, 1995) $9.78
Class B Shares
Net asset value of $7,342,545/792,330 shares
outstanding $9.27
Class C Shares
Net asset value of $2,051,249/221,525 shares
outstanding $9.26
- ------------------------------------------------- ----------
STATEMENT OF OPERATIONS
Year Ended September 30, 1995
(Unaudited)
Investment Income (Note 1):
Interest $338,395
Expenses (Notes 1, 2 and 4):
Management fee $ 29,992
Transfer agent fees 9,401
Custodian fees 12,502
Accounting 9,874
Auditing 5,092
Legal 2,700
Printing 10,847
Registration fees 4,698
Amortization of organization
expenses 1,147
Distribution Plan expenses 40,048
Miscellaneous expenses 654
- ----------------------------------- ----- -------
Total expenses 126,955
Less: Reimbursement from
Investment Adviser (54,933)
- ----------------------------------- ----- -------
Net expenses 72,022
- ----------------------------------- ----- -------
Net investment income (Note 1) 266,373
- ----------------------------------- ----- -------
Net realized and unrealized gain
(loss) on investments and closed
futures contracts (Notes 1 and 3):
Net realized gain (loss) on:
Investments 27,836
Closed futures contracts (37,945)
- ----------------------------------- ----- -------
Net realized gain (loss) on
investments and closed futures
contracts (10,109)
- ----------------------------------- ----- -------
Net change in unrealized
appreciation (depreciation) on
investments:
Beginning of period 181,078
End of period 352,366
- ----------------------------------- ----- -------
Net change in unrealized
appreciation (depreciation) on
investments 171,288
- ----------------------------------- ----- -------
Net gain (loss) on investments and
futures contracts 161,179
- ----------------------------------- ----- -------
Net increase (decrease) in net
assets resulting from operations $427,552
- ----------------------------------- ----- -------
See Notes to Financial Statements.
<PAGE>
PAGE 29
- -----------------------------------------------------------------------------
Keystone Massachusetts Tax Free Fund
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
September 30, March 31,
1995 1995
- -------------------------------------------------------------------------- --------------- -------------
<S> <C> <C>
(Unaudited)
Operations (Notes 1 and 3):
Net investment income $ 266,373 $ 421,104
Net realized gain (loss) on investments and closed futures contracts (10,109) (350,345)
Net change in unrealized appreciation (depreciation) 171,288 415,075
- -------------------------------------------------------------------------- ------------- -----------
Net increase (decrease) in net assets resulting from operations 427,552 485,834
- -------------------------------------------------------------------------- ------------- -----------
Distributions to shareholders from (Notes 1 and 5):
Net investment income:
Class A Shares (62,077) (103,346)
Class B Shares (167,692) (230,929)
Class C Shares (51,006) (85,245)
In excess of net investment income:
Class B Shares 0 (20,118)
Class C Shares 0 (6,857)
- -------------------------------------------------------------------------- ------------- -----------
Total distributions to shareholders (280,775) (446,495)
- -------------------------------------------------------------------------- ------------- -----------
Capital share transactions (Note 2):
Proceeds from shares sold--Class A Shares 442,675 1,279,775
Proceeds from shares sold--Class B Shares 1,226,668 4,802,858
Proceeds from shares sold--Class C Shares 83,303 1,731,526
Payment for shares redeemed--Class A Shares (67,244) (846,310)
Payment for shares redeemed--Class B Shares (244,048) (609,227)
Payment for shares redeemed--Class C Shares (57,661) (182,930)
Net asset value of shares issued in reinvestment of distributions from:
Net investment income and in excess of net investment income--Class A
Shares 36,378 60,782
Net investment income and in excess of net investment income--Class B
Shares 96,769 125,304
Net investment income and in excess of net investment income--Class C
Shares 28,497 55,445
- -------------------------------------------------------------------------- ------------- -----------
Net increase (decrease) in net assets resulting from capital share
transactions 1,545,337 6,417,223
- -------------------------------------------------------------------------- ------------- -----------
Total increase (decrease) in net assets 1,692,114 6,456,562
Net assets:
Beginning of period 10,113,860 3,657,298
- -------------------------------------------------------------------------- ------------- -----------
End of period (Including undistributed net investment income as follows:
September 1995--$5,892 and March 1995--$20,294) (Note 1) $11,805,974 $10,113,860
- -------------------------------------------------------------------------- ------------- -----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 30
- ----------------------------------------------------------------------------
Keystone New York Insured Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Rate Amount Value
- ----------------------------------------------------------- ----- --------- --------- ------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (94.9%)
Broome County, New York, Public Safety Facility (MBIA) 5.250% 04/01/2015 $1,000,000 $ 924,037
Buffalo, New York, Series E 6.500 12/01/2022 465,000 495,383
Buffalo, New York, Municipal Water Finance Authority, 5.000 07/01/2025 500,000 436,585
Erie County, New York, Water Authority, Fourth Resolution
(AMBAC) (effective yield 6.824%) (b) 0.000 12/01/2017 770,000 157,196
Metropolitan Transportation Authority, New York, Commuter
Facilities, Series A (MBIA) 6.125 07/01/2014 1,400,000 1,432,970
Nassau County, New York, 5.875 08/01/2015 250,000 250,925
Nassau County, New York, Combined Sewer District,
Series B 6.000 05/01/2014 695,000 713,696
New Rochelle, New York, General Obligation, Series B 6.150 08/15/2017 600,000 627,528
New York City, New York, General Obligation, Series A
(FGIC) 5.750 08/01/2010 90,000 91,323
New York City, New York, Municipal Water Finance
Authority, Water and Sewer System Series A (FGIC) 7.000 06/15/2015 1,400,000 1,535,058
New York, New York City, Educational Construction Fund,
Senior Subordinate, Series B 5.500 10/01/2011 200,000 197,612
New York Resources Recovery Agency, Series B 7.250 07/01/2011 100,000 115,704
New York State Dormitory Authority, City University
Systems (FGIC) 7.000 07/01/2009 1,200,000 1,385,256
New York State Dormitory Authority, City University, 3rd
General Resources, Series 2 (MBIA) 6.250 07/01/2019 450,000 458,177
New York State Dormitory Authority, Fordham University
(FGIC) 5.750 07/01/2015 500,000 491,215
New York State Dormitory Authority, Mount Sinai Medical
School, Series A (MBIA) 5.000 07/01/2021 125,000 108,989
New York State Dormitory Authority, State University
Educational Facilities, Series A (FSA) 5.250 05/15/2015 600,000 553,578
New York State Dormitory Authority, State University
Educational Facilities (AMBAC) 5.875 05/15/2011 250,000 257,505
New York State Dormitory Authority, University of
Rochester Strong Memorial (MBIA) 5.500 07/01/2021 400,000 375,892
New York State Energy, New York State Electric & Gas 5.700 12/01/2028 250,000 236,523
New York State Housing Finance Agency, Multi-family
Mortgage, Series B (AMBAC) 6.250 08/15/2014 875,000 881,659
New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities 6.375 08/15/2014 1,000,000 1,032,300
New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities 6.375 11/15/2019 250,000 253,468
New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities, Series A (FGIC) 5.500 08/15/2021 165,000 155,247
New York State Medical Care Facilities Finance Agency, St
Mary's Hospital, Series A (AMBAC) 6.200 11/01/2014 200,000 205,932
New York State Power Authority, Series CC (MBIA) 5.250 01/01/2018 500,000 462,265
See Notes to Schedule of Investments.
</TABLE>
<PAGE>
PAGE 31
- -----------------------------------------------------------------------------
Keystone New York Insured Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Rate Amount Value
- ----------------------------------------------------------- ----- --------- --------- ------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (continued)
New York State Urban Development Corp., Correctional
Capital Facilities, Series A 6.500% 01/01/2009 $ 600,000 $ 631,188
New York State Urban Development, Correctional
Facilities, Series A (AMBAC) 5.000 01/01/2017 500,000 439,730
Niagara Falls, New York, Public Improvement (MBIA) 7.500 03/01/2014 400,000 489,260
Niagara Falls, New York, Public Improvement (MBIA) 7.500 03/01/2016 750,000 922,193
Niagara Falls, New York, Public Improvement (MBIA) 7.500 03/01/2017 750,000 921,285
Niagara, New York, Frontier Transportation Authority,
Greater Buffalo International Airport (AMBAC) 6.125 04/01/2014 100,000 101,537
New York and New Jersey, Port Authority 6.125 06/01/2014 500,000 504,400
Puerto Rico, Electric Power Authority 6.500 07/01/2006 400,000 449,424
Rochester, New York, General Obligation, Series A (AMBAC) 5.000 08/15/2018 140,000 129,392
Suffolk County, New York, Industrial Development Agency,
Southwest Sewer Systems (FGIC) 6.000 02/01/2008 1,000,000 1,063,900
Triborough Bridge and Tunnel Authority, New York, General
Purpose, Series X 6.625 01/01/2012 555,000 610,017
Westchester County, New York, Industrial Development
Resource Recovery, Series A (AMBAC) 5.750 07/01/2009 100,000 103,224
- ----------------------------------------------------------- ----- --------- --------- ------------
TOTAL MUNICIPAL BONDS (Cost--$19,280,832) 20,201,573
- ----------------------------------------------------------- ----- --------- --------- ------------
TEMPORARY TAX-EXEMPT INVESTMENTS (5.4%)
New York City, New York, Sub Series A-5 (a) 4.600 08/01/2015 900,000 900,000
New York City, New York, Municipal Water Finance
Authority, Series C (FGIC) (a) 4.600 06/15/2023 150,000 150,000
New York City, New York, Municipal Water Finance
Authority, Series G (FGIC) (a) 4.400 08/15/2001 100,000 100,000
- ----------------------------------------------------------- ----- --------- --------- ------------
TOTAL TEMPORARY TAX-EXEMPT INVESTMENTS (Cost--$1,150,000) 1,150,000
- ----------------------------------------------------------- ----- --------- --------- ------------
TOTAL INVESTMENTS (Cost--$20,430,832) 21,351,573
OTHER ASSETS AND LIABILITIES--NET (-0.3%) (55,282)
- ----------------------------------------------------------- ----- --------- --------- ------------
NET ASSETS (100.0%) $21,296,291
- ----------------------------------------------------------- ----- --------- --------- ------------
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Variable or floating rate instruments with periodic demand features. The
Fund is entitled to full payment of principal and accrued interest upon
surrendering the security to the issuing agent according to the terms of
the demand features.
(b) Effective yield (calculated at the date of purchase) is the yield at
which the bond accretes on an accrual basis until maturity.
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--AMBAC Indemnity Corp.
FGIC--Federal Guaranty Insurance Co.
FSA--Financial Security Assistance
MBIA--Municipal Bond Investors Assurance Corp.
<PAGE>
PAGE 32
- -----------------------------------------------------------------------------
Keystone New York Insured Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 4, 1994
Six Months Year Ended (Commencement of
Ended March 31, Operations) to
September 30, 1995 1995 March 31, 1994
=============================================== ================== =========== ==================
(Unaudited)
<S> <C> <C> <C>
Net asset value beginning of period $ 9.44 $ 9.32 $10.00
- ----------------------------------------------- ----------------- --------- -----------------
Income from investment operations:
Net investment income 0.24 0.52 0.09
Net gain (loss) on investments and closed
futures contracts 0.20 0.12 (0.68)
- ----------------------------------------------- ----------------- --------- -----------------
Total from investment operations 0.44 0.64 (0.59)
- ----------------------------------------------- ----------------- --------- -----------------
Less distributions from:
Net investment income (0.25) (0.52) (0.08)
In excess of net investment income 0 0 (0.01)
- ----------------------------------------------- ----------------- --------- -----------------
Total distributions (0.25) (0.52) (0.09)
- ----------------------------------------------- ----------------- --------- -----------------
Net asset value end of period $ 9.63 $ 9.44 $ 9.32
=============================================== ================= ========= =================
Total return(c) 4.67% 7.08% (5.91%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses(b) 0.73%(a) 0.50% 0.35%(a)
Net investment income 5.09%(a) 5.48% 3.85%(a)
Portfolio turnover rate 9% 77% 14%
- ----------------------------------------------- ----------------- --------- -----------------
Net assets end of period (thousands) $3,724 $3,323 $ 680
=============================================== ================= ========= =================
</TABLE>
(a) Annualized.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 1.30%,
1.59% and 4.44% (annualized) for the six months ended September 30, 1995,
the fiscal year ended March 31, 1995 and the period from February 4, 1994
(Commencement of Operations) to March 31, 1994, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 33
- -----------------------------------------------------------------------------
Keystone New York Insured Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 4, 1994
Six Months Year Ended (Commencement of
Ended March 31, Operations) to
September 30, 1995 1995 March 31, 1994
=============================================== ================== =========== ==================
(Unaudited)
<S> <C> <C> <C>
Net asset value beginning of period $ 9.38 $ 9.32 $10.00
- ----------------------------------------------- ----------------- --------- -----------------
Income from investment operations:
Net investment income 0.21 0.47 0.08
Net gain (loss) on investments and closed
futures contracts 0.19 0.09 (0.67)
- ----------------------------------------------- ----------------- --------- -----------------
Total from investment operations 0.40 0.56 (0.59)
- ----------------------------------------------- ----------------- --------- -----------------
Less distributions from:
Net investment income (0.23) (0.45) (0.06)
In excess of net investment income 0 (0.05) (0.03)
- ----------------------------------------------- ----------------- --------- -----------------
Total distributions (0.23) (0.50) (0.09)
- ----------------------------------------------- ----------------- --------- -----------------
Net asset value end of period $ 9.55 $ 9.38 $ 9.32
=============================================== ================= ========= =================
Total return(c) 4.28% 6.28% (5.91%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses(b) 1.48%(a) 1.25% 1.10%(a)
Net investment income 4.33%(a) 4.78% 3.01%(a)
Portfolio turnover rate 9% 77% 14%
- ----------------------------------------------- ----------------- --------- -----------------
Net assets end of period (thousands) $15,613 $11,907 $2,276
=============================================== ================= ========= =================
</TABLE>
(a) Annualized.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 2.05%,
2.35% and 5.60% (annualized) for the six months ended September 30, 1995,
the fiscal year ended March 31, 1995 and the period February 4, 1994
(Commencement of Operations) to March 31, 1994, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 34
- -----------------------------------------------------------------------------
Keystone New York Insured Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 4, 1994
Six Months Year Ended (Commencement of
Ended March 31, Operations) to
September 30, 1995 1995 March 31, 1994
=============================================== ================== =========== ==================
(Unaudited)
<S> <C> <C> <C>
Net asset value beginning of period $ 9.37 $ 9.31 $10.00
- ----------------------------------------------- ----------------- --------- -----------------
Income from investment operations:
Net investment income 0.21 0.48 0.07
Net gain (loss) on investments and closed
futures contracts 0.20 0.07 (0.67)
- ----------------------------------------------- ----------------- --------- -----------------
Total from investment operations 0.41 0.55 (0.60)
- ----------------------------------------------- ----------------- --------- -----------------
Less distributions from:
Net investment income (0.23) (0.46) (0.07)
In excess of net investment income 0 (0.03) (0.02)
- ----------------------------------------------- ----------------- --------- -----------------
Total distributions (0.23) (0.49) (0.09)
- ----------------------------------------------- ----------------- --------- -----------------
Net asset value end of period $ 9.55 $ 9.37 $ 9.31
=============================================== ================= ========= =================
Total return(c) 4.39% 6.18% (6.02%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses(b) 1.48%(a) 1.26% 1.10%(a)
Net investment income 4.37%(a) 4.88% 3.71%(a)
Portfolio turnover rate 9% 77% 14%
- ----------------------------------------------- ----------------- --------- -----------------
Net assets end of period (thousands) $1,959 $2,890 $ 255
=============================================== ================= ========= =================
</TABLE>
(a) Annualized.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 2.06%,
2.32% and 5.13% (annualized) for the six months ended September 30, 1995,
the fiscal year ended March 31, 1995 and the period February 4, 1994
(Commencement of Operations) to March 31, 1994, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 35
- -----------------------------------------------------------------------------
Keystone New York Insured Tax Free Fund
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995
(Unaudited)
Assets (Notes 1 and 4):
Investments at market value (identified cost--
$20,430,832) $21,351,573
Cash 2,072
Receivable for:
Fund shares sold 69,118
Interest 401,806
Due from Investment Adviser 17,419
Unamortized organization expenses 2,082
Prepaid expenses 201
- ------------------------------------------------ ------------
Total assets 21,844,271
- ------------------------------------------------ ------------
Liabilities (Notes 2, 4, and 5):
Payable for:
Investments purchased 448,431
Income distributions 83,292
Commissions payable to Principal Underwriter 1,179
Accrued reimbursable expenses 1,000
Other accrued expenses 14,078
- ------------------------------------------------ ------------
Total liabilities 547,980
- ------------------------------------------------ ------------
Net assets $21,296,291
- ------------------------------------------------ ------------
Net assets represented by (Note 1):
Paid-in capital $20,744,587
Accumulated disributions in excess of net
investment income (12,274)
Accumulated net realized gains (losses) on
investments (356,763)
Net unrealized appreciation (depreciation) on
investments 920,741
- ------------------------------------------------ ------------
Total net assets $21,296,291
- ------------------------------------------------ ------------
Net asset value per share (Note 2):
Class A Shares
Net asset value of $3,724,348/386,654 shares
outstanding $ 9.63
Offering price per share ($9.63/0.9525)(based
on a sales charge of 4.75% of the offering
price September 30, 1995) $10.11
Class B Shares
Net asset value of $15,613,272/1,634,736
shares outstanding $ 9.55
Class C Shares
Net asset value of $1,958,671/205,115 shares
outstanding $ 9.55
- ------------------------------------------------ ------------
STATEMENT OF OPERATIONS
Six Months Ended September 30, 1995
(Unaudited)
Investment Income (Note 1):
Interest $584,348
Expenses (Notes 1, 2 and 4):
Management fee $ 55,234
Transfer agent fees 14,666
Custodian fees 14,591
Accounting 9,563
Auditing 5,004
Legal 2,754
Printing 10,035
Registration fees 2,405
Amortization of organization
expenses 308
Distribution Plan expenses 76,781
Miscellaneous expenses 784
- -------------------------------------- ------- ---------
Total expenses 192,125
Less: Reimbursement from Investment
Adviser (57,281)
- -------------------------------------- ------- ---------
Net expenses 134,844
- -------------------------------------- ------- ---------
Investment income--net (Note 1) 449,504
- -------------------------------------- ------- ---------
Net realized and unrealized gain
(loss) on investments and closed
futures contracts (Notes 1 and 3):
Net realized gain (loss) on:
Investments 68,781
Closed futures contracts (21,260)
- -------------------------------------- ------- ---------
Net realized gain (loss) on
investments and closed futures
contracts 47,521
- -------------------------------------- ------- ---------
Net change in unrealized
appreciation (depreciation) on
investments:
Beginning of period 557,402
End of period 920,741
- -------------------------------------- ------- ---------
Net change in unrealized
appreciation (depreciation) on
investments 363,339
- -------------------------------------- ------- ---------
Net gain (loss) on investments and
closed futures contracts 410,860
- -------------------------------------- ------- ---------
Net increase (decrease) in net assets
resulting from operations $860,364
- -------------------------------------- ------- ---------
See Notes to Financial Statements.
<PAGE>
PAGE 36
- -----------------------------------------------------------------------------
Keystone New York Insured Tax Free Fund
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
September 30, March 31,
1995 1995
- ------------------------------------------------------------------------------ --------------- -------------
<S> <C> <C>
Operations: (Unaudited)
Net investment income $ 449,504 $ 570,628
Net realized gain (loss) on investments and closed futures contracts 47,521 (393,232)
Net change in unrealized appreciation (depreciation) 363,339 698,999
- ------------------------------------------------------------------------------ ------------- -----------
Net increase (decrease) in net assets resulting from operations 860,364 876,395
- ------------------------------------------------------------------------------ ------------- -----------
Distributions to shareholders from (Notes 1 and 5):
Net investment income:
Class A Shares (93,191) (110,893)
Class B Shares (332,661) (372,207)
Class C Shares (61,776) (86,125)
In excess of net investment income:
Class B Shares 0 (39,019)
Class C Shares 0 (6,749)
- ------------------------------------------------------------------------------ ------------- -----------
Total distributions to shareholders (487,628) (614,993)
- ------------------------------------------------------------------------------ ------------- -----------
Capital share transactions (Note 2):
Proceeds from shares sold--Class A Shares 592,630 2,912,705
Proceeds from shares sold--Class B Shares 4,058,708 10,641,995
Proceeds from shares sold--Class C Shares 350,608 2,663,844
Payment for shares redeemed--Class A Shares (316,308) (389,013)
Payment for shares redeemed--Class B Shares (797,299) (1,379,298)
Payment for shares redeemed--Class C Shares (1,381,234) (128,154)
Net asset value of shares issued in reinvestment of distributions from:
Net investment income--Class A Shares 55,384 46,401
Net investment income and in excess of net investment income--Class B Shares 195,674 220,338
Net investment income and in excess of net investment income--Class C Shares 45,190 58,568
- ------------------------------------------------------------------------------ ------------- -----------
Net increase in net assets resulting from capital share transactions 2,803,353 14,647,386
- ------------------------------------------------------------------------------ ------------- -----------
Total increase (decrease) in net assets 3,176,089 14,908,788
Net assets:
Beginning of period 18,120,202 3,211,414
- ------------------------------------------------------------------------------ ------------- -----------
End of period (accumulated distributions in excess of net investment income)
and undistributed net investment income as follows: September
1995--($12,274) and March 1995--$25,850) (Note 1) $21,296,291 $18,120,202
- ------------------------------------------------------------------------------ ------------- -----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 37
- -----------------------------------------------------------------------------
Keystone Pennsylvania Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- -------------------------------------------------------------- ----- --------- --------- ------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (95.7%)
Allegheny County, Pennsylvania, Airport Revenue, Greater
Pittsburgh International Airport 6.625% 01/01/2022 $ 750,000 $ 775,153
Allegheny County, Pennsylvania, Finance Authority, Single
Family Mortgage 6.600 11/01/2014 1,000,000 1,031,570
Allegheny County, Pennsylvania, Industrial Development
Authority, USX Corp. 6.700 12/01/2020 2,000,000 2,034,420
Allentown, Pennsylvania Area Hospital Authority, Sacred
Heart Hospital of Allentown, Series A 6.750 11/15/2014 1,750,000 1,721,457
Beaver County, Pennsylvania, Industrial Development
Authority, Industrial Development Authority, Pollution
Control, Ohio Edison Co. Project, Series A 7.750 09/01/2024 1,170,000 1,231,671
Berks County, Pennsylvania, Capital Appreciation Second
Series (FGIC) (effective yield 5.55%)(b) 0.000 05/15/2015 3,400,000 1,078,480
Berks County, Pennsylvania, Capital Appreciation Second
Series (FGIC) (effective yield 5.60%)(b) 0.000 05/15/2016 3,460,000 1,035,059
Berks County, Pennsylvania, Capital Appreciation Second
Series (FGIC) (effective yield 5.60%)(b) 0.000 05/15/2018 2,800,000 714,392
Bucks County, Pennsylvania, Industrial Development
Authority, Personal Care 10.000 05/15/2019 5,600,000 8,646,120
Cambria County, Pennsylvania, Series A (FGIC) 6.625 08/15/2012 4,385,000 4,717,208
Central Bucks, Pennsylvania School District, Series A 6.900 11/15/2013 1,000,000 1,141,580
Delaware County, Pennsylvania, Hospital Authority, Delaware
County Memorial Hospital (MBIA) 5.500 08/15/2019 2,000,000 1,898,040
Delaware County, Pennsylvania, Industrial Development
Authority, Pollution Control, Philadelphia Electric Co.,
Series A 7.375 04/01/2021 850,000 908,786
Elizabeth Forward, Pennsylvania, School District, Capital
Appreciation, Series B (MBIA) (effective yield 6.30%) (b) 0.000 09/01/2018 2,170,000 548,771
Erie County, Pennsylvania, Industrial Development Authority,
Environmental Improvement, International Paper Co.
Project, Series A 7.625 11/01/2018 500,000 562,290
Hazleton, Pennsylvania, Area School District, Compound
Interest, Series B (effective yield 6.30%) (b) 0.000 03/01/2018 5,265,000 1,378,061
Lehigh County, Pennsylvania, General Purpose Authority, Good
Shepherd Rehabilitation Hospital 7.500 11/15/2021 1,000,000 1,021,730
Lehigh County, Pennsylvania, General Purpose Authority,
Lehigh Valley Hospital, Series A (MBIA) 7.000 07/01/2016 1,250,000 1,414,800
Mon Valley, Pennsylvania, Sewage Revenue (MBIA) 6.550 11/01/2019 1,305,000 1,388,651
Monroeville, Pennsylvania, Hospital Authority, Forbes Health
System 6.250 10/01/2015 1,000,000 970,820
Montgomery County, Pennsylvania, Higher Education And Health
Authority, Northwestern Corp. 7.000 06/01/2012 700,000 682,703
See Notes to Schedule of Investments. (Continued on next page)
</TABLE>
<PAGE>
PAGE 38
- -----------------------------------------------------------------------------
Keystone Pennsylvania Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- -------------------------------------------------------------- ----- --------- --------- ------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (continued)
Montgomery County, Pennsylvania, Industrial Development,
Pollution Control, Philadelphia Electric Co. 7.600% 04/01/2021 $ 950,000 $ 1,015,883
Norristown, Pennsylvania, Municipal Waste Authority, Sewer
Revenue (FGIC) 5.125 11/15/2023 1,000,000 892,940
Northumberland County, Pennsylvania, Commonwealth Lease
(effective yield 6.82%) (b) 0.000 10/15/2012 4,200,000 1,562,694
Pennsylvania Economic Development Financing Authority
Resources Recovery, Colver Project, Series D 7.150 12/01/2018 3,000,000 3,118,560
Pennsylvania Economic Development Financing Authority,
Resources Recovery, Colver Project, Series D 7.125 12/01/2015 1,200,000 1,254,744
Pennsylvania Economic Development Financing Authority,
Resources Recovery, Northhampton University Project 6.500 01/01/2013 4,500,000 4,361,130
Pennsylvania General Obligation 5.375 05/01/2013 1,000,000 956,310
Pennsylvania General Obligation (MBIA) 5.600 06/15/2013 1,000,000 992,960
Pennsylvania Housing Finance Agency, Single Family Mortgage,
Series 40 6.800 10/01/2015 750,000 774,263
Pennsylvania Housing Finance Agency, Single Family Mortgage,
Series 33 6.900 04/01/2017 1,000,000 1,034,490
Pennsylvania Housing Finance Agency, Single Family Mortgage,
Series 34 A (FHA/FNMA) 6.850 04/01/2016 1,500,000 1,546,860
Pennsylvania State Industrial Development Authority,
Economic Development (AMBAC) 7.000 01/01/2006 1,500,000 1,721,850
Pennsylvania State Industrial Development Authority,
Economic Revenue Bonds 7.000 06/07/2006 1,000,000 1,153,390
Pennsylvania Intragovernmental Cooperation Authority,
Special Tax, Philadelphia Funding Program (FGIC) 6.750 06/15/2021 1,000,000 1,069,870
Pennsylvania Intragovernmental Cooperation Authority,
Special Tax, City of Philadelphia Funding Program 6.800 06/15/2022 2,500,000 2,806,050
Pennsylvania State Higher Educational Facilities Authority,
Thomas Jefferson University, Series A 6.625 08/15/2009 1,450,000 1,547,933
Philadelphia, Pennsylvania, Hospital & Higher Education
Facilities, Albert Einstein Medical Center 7.625 04/01/2011 900,000 957,753
Philadelphia, Pennsylvania, Hospital and Higher Education
Facilities, Albert Einstein Medical Center 7.000 10/01/2021 945,000 989,708
Philadelphia, Pennsylvania, Hospital and Higher Education
Facilities, Graduate Health Systems Education Facilities,
Series A 7.250 07/01/2018 1,225,000 1,283,959
Philadelphia, Pennsylvania, Hospital and Higher Education
Facilities, Temple University, Series A 6.625 11/15/2023 2,300,000 2,275,183
Philadelphia, Pennsylvania, Water & Waste (MBIA) 6.250 08/01/2012 1,000,000 1,071,150
Puerto Rico Electric Power Authority, Series Z 5.250 07/01/2021 2,000,000 1,780,320
Puerto Rico Highway Authority, Series Q 7.750 07/01/2010 325,000 377,153
See Notes to Schedule of Investments.
</TABLE>
<PAGE>
PAGE 39
- -----------------------------------------------------------------------------
Keystone Pennsylvania Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- -------------------------------------------------------------- ----- --------- --------- ------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (continued)
Scranton-Lackawanna, Pennsylvania, Health And Welfare
Authority, Allied Services Rehabilitation Facility 7.600% 07/15/2026 $1,000,000 $ 1,014,310
Southeastern, Pennsylvania, Transportation Authority, Series
A (FGIC) 5.750 03/01/2020 1,000,000 976,880
Westmoreland County, Pennsylvania, Municipal Authority,
Capital Appreciation, Series A (effective yield
6.10%)(FGIC) (b) 0.000 08/15/2017 2,000,000 533,960
Westmoreland County, Pennsylvania, Municipal Authority,
Capital Appreciation, Series A (effective yield
6.15%)(FGIC) (b) 0.000 08/15/2019 2,000,000 467,640
- -------------------------------------------------------------- ----- --------- --------- ------------
TOTAL MUNICIPAL BONDS (Cost--$69,188,867) 72,439,705
- -------------------------------------------------------------- ----- --------- --------- ------------
TEMPORARY TAX-EXEMPT INVESTMENTS (2.3%)
Sayre County, Pennsylvania Health Care Facilities Authority,
Variable Rate (VHA Pennsylvania Capital Financing Project)
Series A (a) 4.200 12/01/2020 200,000 200,000
Sayre County, Pennsylvania Health Care Facilities Authority,
Variable Rate (VHA Pennsylvania Capital Financing Project)
Series F (a) 4.200 12/01/2020 500,000 500,000
Sayre County, Pennsylvania Health Care Facilities Authority,
Variable Rate (VHA Pennsylvania Capital Financing Project)
Series I (a) 4.200 10/01/2020 495,000 495,000
Sayre County, Pennsylvania Health Care Facilities Authority,
Variable Rate (VHA Pennsylvania Capital Financing Project)
Series K (a) 4.200 12/01/2020 480,000 480,000
Sayre County, Pennsylvania Health Care Facilities Authority,
Variable Rate (VHA Pennsylvania Capital Financing Project)
Series M (a) 4.200 12/01/2020 40,000 40,000
- -------------------------------------------------------------- ----- --------- --------- ------------
TOTAL TEMPORARY TAX-EXEMPT INVESTMENTS (Cost--$1,715,000) 1,715,000
- ----------------------------------------------------------------------- --------- --------- ------------
TOTAL INVESTMENTS (Cost--$70,903,867) 74,154,705
OTHER ASSETS AND LIABILITIES--NET (2.0%) 1,541,807
- -------------------------------------------------------------- ----- --------- --------- ------------
NET ASSETS (100.0%) $75,696,512
- -------------------------------------------------------------- ----- --------- --------- ------------
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Variable or floating rate instruments with periodic demand features. The
Fund is entitled to full payment of principal and accrued interest upon
surrendering the security to the issuing agent according to the terms of the
demand features. (b) Effective yield (calculated at date of purchase) is the
yield at which the bond accretes on an annual basis until maturity date.
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--AMBAC Indemnity Corp.
FGIC--Federal Guaranty Insurance Co.
FHA--Federal Housing Authority
FNMA--Federal National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements.
<PAGE>
PAGE 40
- -----------------------------------------------------------------------------
Keystone Pennsylvania Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Year Ended March 31,
December 27,
1990
Six Months (Commencement
Ended of
September 30, Operations) to
1995 1995 1994 1993 1992 March 31, 1991
================================= ============== ====== ====== ====== ====== ===============
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of
period $ 10.91 $ 11.01 $ 11.42 $ 10.71 $ 10.25 $10.00
- --------------------------------- ------------ ---- ---- ---- ---- -------------
Income from investment
operations:
Net investment income 0.30 0.61 0.62 0.63 0.74 0.18
Net gain (loss) on investments
and closed futures contracts 0.21 (0.09) (0.30) 0.75 0.46 0.25
- --------------------------------- ------------ ---- ---- ---- ---- -------------
Total from investment operations 0.51 0.52 0.32 1.38 1.20 0.43
- --------------------------------- ------------ ---- ---- ---- ---- -------------
Less distributions from:
Net investment income (0.29) (0.61) (0.62) (0.63) (0.74) (0.18)
In excess of net investment
income 0 (0.01) (0.04) (0.02) 0 0
Net realized gain on investments 0 0 (0.06) (0.02) 0 0
In excess of net realized gain on
investments 0 0 (0.01) 0 0 0
- --------------------------------- ------------ ---- ---- ---- ---- -------------
Total distributions (0.29) (0.62) (0.73) (0.67) (0.74) (0.18)
- --------------------------------- ------------ ---- ---- ---- ---- -------------
Net asset value end of period $ 11.13 $ 10.91 $ 11.01 $ 11.42 $ 10.71 $10.25
================================= ============ ==== ==== ==== ==== =============
Total return(c) 4.76% 4.91% 2.58% 13.30% 12.07% 4.37%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (b) 0.75%(a) 0.75% 0.75% 0.68% 0.65% 0.65%(a)
Net investment income 5.42%(a) 5.65% 5.27% 5.66% 6.92% 6.84%(a)
Portfolio turnover rate 15% 97% 37% 20% 13% 8%
- --------------------------------- ------------ ---- ---- ---- ---- -------------
Net assets end of period
(thousands) $30,459 $30,450 $30,560 $35,502 $12,914 $2,979
================================= ============ ==== ==== ==== ==== =============
</TABLE>
(a) Annualized.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 1.00%,
1.05%, 1.06%, 1.16%, 1.68%, and 3.19% (annualized) the for the six months
ended September 30, 1995, the fiscal years ended March 31, 1995, 1994,
1993, 1992, and the period December 27, 1990 (Commencement of Operations)
to March 31, 1991, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 41
- -----------------------------------------------------------------------------
Keystone Pennsylvania Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
Six Months (Date of Initial
Ended Public Offering)
September 30, Year Ended March 31 to
1995 1995 1994 March 31, 1993
=============================================== =============== ====== ====== ================
<S> <C> <C> <C> <C>
(Unaudited)
Net asset value beginning of period $ 10.81 $ 10.98 $ 11.42 $11.20
- ----------------------------------------------- ------------- ---- ---- --------------
Income from investment operations:
Net investment income 0.26 0.54 0.56 0.08
Net gain (loss) on investments and closed
futures contracts 0.19 (0.10) (0.34) 0.24
- ----------------------------------------------- ------------- ---- ---- --------------
Total from investment operations 0.45 0.44 0.22 0.32
- ----------------------------------------------- ------------- ---- ---- --------------
Less distributions from:
Net investment income (0.26) (0.53) (0.52) (0.08)
In excess of net investment income 0 (0.08) (0.07) (0.02)
Net realized gain on investments 0 0 (0.03) 0
In excess of net realized gain on investments 0 0 (0.04) 0
- ----------------------------------------------- ------------- ---- ---- --------------
Total distributions (0.26) (0.61) (0.66) (0.10)
- ----------------------------------------------- ------------- ---- ---- --------------
Net asset value end of period $ 11.00 $ 10.81 $ 10.98 $11.42
=============================================== ============= ==== ==== ==============
Total return(c) 4.31% 4.15% 1.70% 2.82%
Ratios/supplemental data
Ratios to average net assets:
Total expenses(b) 1.44%(a) 1.50% 1.50% 1.50%(a)
Net investment income 4.72%(a) 4.89% 4.32% 3.44%(a)
Portfolio turnover rate 15% 97% 37% 20%
- ----------------------------------------------- ------------- ---- ---- --------------
Net assets end of period (thousands) $35,694 $30,657 $21,958 $2,543
=============================================== ============= ==== ==== ==============
</TABLE>
(a) Annualized.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 1.75%,
1.80%, 1.81% and 1.69% (annualized) for the six months ended September
30, 1995, the fiscal years ended March 31, 1995, 1994 and the period
February 1, 1993 (Date of Initial Public Offering) to March 31, 1993,
respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 42
- -----------------------------------------------------------------------------
Keystone Pennsylvania Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
Six Months (Date of Initial
Ended Public Offering)
September 30, Year Ended March 31 to
1995 1995 1994 March 31, 1993
=============================================== =============== ===== ===== ================
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value beginning of period $10.83 $11.00 $11.42 $11.20
- ----------------------------------------------- ------------- --- --- --------------
Income from investment operations:
Net investment income 0.26 0.53 0.54 0.07
Net gain (loss) on investments and closed
futures contracts 0.21 (0.10) (0.32) 0.24
- ----------------------------------------------- ------------- --- --- --------------
Total from investment operations 0.47 0.43 0.22 0.31
- ----------------------------------------------- ------------- --- --- --------------
Less distributions from:
Net investment income (0.27) (0.53) (0.52) (0.07)
In excess of net investment income 0 (0.07) (0.05) (0.02)
Net realized gain on investments 0 0 (0.03) 0
In excess of net realized gain on investments 0 0 (0.04) 0
- ----------------------------------------------- ------------- --- --- --------------
Total distributions (0.27) (0.60) (0.64) (0.09)
- ----------------------------------------------- ------------- --- --- --------------
Net asset value end of period $11.03 $10.83 $11.00 $11.42
=============================================== ============= === === ==============
Total return (c) 4.40% 4.05% 1.78% 2.81%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (b) 1.45%(a) 1.50% 1.50% 1.50%(a)
Net investment income 4.73%(a) 4.90% 4.33% 2.50%(a)
Portfolio turnover rate 15% 97% 37% 20%
- ----------------------------------------------- ------------- --- --- --------------
Net assets end of period (thousands) $9,544 $9,559 $9,385 $ 952
=============================================== ============= === === ==============
</TABLE>
(a) Annualized.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 1.75%,
1.80%, 1.90% and 1.60% (annualized) for the six months ended September
30, 1995, the fiscal years ended March 31, 1995, 1994 and for the period
February 1, 1993 (Date of Initial Public Offering) to March 31, 1993,
respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 43
- -----------------------------------------------------------------------------
Keystone Pennsylvania Tax Free Fund
STATEMENT OF ASSETS AND LIABILITIES--
September 30, 1995
(Unaudited)
Assets (Notes 1 and 4):
Investments at market value (identified cost--
$70,903,867) $74,154,705
Cash 1,946
Receivable for:
Investments sold 1,477,629
Fund shares sold 38,146
Interest 1,298,202
Due from Investment Adviser 41,525
Unamortized organization expenses 1,670
Prepaid expenses 1,563
- ------------------------------------------------- ------------
Total assets 77,015,386
- ------------------------------------------------- ------------
Liabilities: (Notes 2, 4, and 5)
Payable for:
Investments purchased 969,426
Income distributions 319,653
Commissions payable to Principal Underwriter 1,900
Accrued reimbursable expenses 1,433
Other accrued expenses 26,462
- ------------------------------------------------- ------------
Total liabilities 1,318,874
- ------------------------------------------------- ------------
Net assets $75,696,512
- ------------------------------------------------- ------------
Net assets represented by (Note 1):
Paid-in capital $75,974,057
Accumulated distributions in excess of net
investment income (145,642 )
Accumulated net realized gain (loss) on
investments (3,382,741 )
Net unrealized appreciation (depreciation) on
investments 3,250,838
- ------------------------------------------------- ------------
Total net assets $75,696,512
- ------------------------------------------------- ------------
Net Asset Value (Note 2):
Class A Shares
Net asset value of $30,458,759/2,737,172
shares outstanding $ 11.13
Offering price per share ($11.13/0.9525)(based
on a sales charge of 4.75% of the offering
price September 30, 1995) $ 11.69
Class B Shares
Net asset value of $35,694,113/3,243,655
shares outstanding $ 11.00
Class C Shares
Net asset value of $9,543,640/865,027 shares
outstanding $ 11.03
- ------------------------------------------------- ------------
STATEMENT OF OPERATIONS--
Six Months Ended September 30, 1995
(Unaudited)
Investment Income:
Interest $2,275,113
Expenses (Notes 1, 2 and 4):
Management fee $ 196,952
Transfer agent fees 55,494
Custodian fees 26,949
Accounting 9,934
Auditing 5,444
Legal 3,288
Printing 6,521
Registration fees 4,421
Amortization of organization
expenses 3,043
Distribution Plan expenses 216,607
Miscellaneous expenses 2,471
- -------------------------------------- -------- -----------
Total expenses 531,124
Less: Reimbursement from Investment
Adviser (104,958)
- -------------------------------------- -------- -----------
Net expenses 426,166
- -------------------------------------- -------- -----------
Net investment income (Note 1) 1,848,947
- -------------------------------------- -------- -----------
Net realized and unrealized gain
(loss) on investments and closed
futures contracts (Notes 1 and 3):
Net realized gain (loss) on:
Investments 370,528
Closed futures contracts (205,349)
- -------------------------------------- -------- -----------
Net realized gain (loss) on
investments and closed futures
contracts 165,179
------------------------------------ -------- -----------
Net change unrealized appreciation
(depreciation) on investments:
Beginning of period 2,010,054
End of period 3,250,838
- -------------------------------------- -------- -----------
Net change in unrealized appreciation
(depreciation) on investments 1,240,784
- -------------------------------------------------- -----------
Net gain (loss) on investments and closed
futures contracts 1,405,963
- -------------------------------------------------- -----------
Net increase (decrease) in net assets resulting
from operations $3,254,910
- -------------------------------------------------- -----------
See Notes to Financial Statements.
<PAGE>
PAGE 44
- -----------------------------------------------------------------------------
Keystone Pennsylvania Tax Free Fund
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
September 30, March 31,
1995 1995
- ----------------------------------------------------------------------------- --------------- -------------
Operations: (Unaudited)
<S> <C> <C>
Net investment income $ 1,848,947 $ 3,489,024
Net realized gain (loss) on investments and closed futures contracts 165,179 (3,542,502)
Net change in unrealized appreciation (depreciation) 1,240,784 2,918,746
- ----------------------------------------------------------------------------- ------------- -----------
Net increase (decrease) in net assets resulting from operations 3,254,910 2,865,268
- ----------------------------------------------------------------------------- ------------- -----------
Distributions to shareholders from (Notes 1 and 5):
Net investment income:
Class A Shares (818,961) (1,714,136)
Class B Shares (827,894) (1,329,520)
Class C Shares (241,215) (445,368)
In excess of net investment income
Class A Shares 0 (23,117)
Class B Shares 0 (196,143)
Class C Shares 0 (58,900)
- ----------------------------------------------------------------------------- ------------- -----------
Total distributions to shareholders (1,888,070) (3,767,184)
- ----------------------------------------------------------------------------- ------------- -----------
Capital share transactions (Note 2):
Proceeds from shares sold--Class A Shares 1,131,776 4,586,195
Proceeds from shares sold--Class B Shares 5,455,715 11,181,757
Proceeds from shares sold--Class C Shares 649,772 3,274,301
Payment for shares redeemed--Class A Shares (2,181,136) (5,294,580)
Payment for shares redeemed--Class B Shares (1,486,684) (2,964,040)
Payment for shares redeemed--Class C Shares (1,021,361) (3,313,655)
Net asset value of shares issued in reinvestment of distributions from:
Net investment income and in excess of net investment income--Class A
Shares 446,771 942,252
Net investment income and in excess of net investment income--Class B
Shares 486,663 877,275
Net investment income and in excess of net investment income--Class C
Shares 181,929 375,859
- ----------------------------------------------------------------------------- ------------- -----------
Net increase (decrease) in net assets resulting from capital share
transactions 3,663,445 9,665,364
- ----------------------------------------------------------------------------- ------------- -----------
Total increase (decrease) in net assets 5,030,285 8,763,448
Net assets:
Beginning of period 70,666,227 61,902,779
- ----------------------------------------------------------------------------- ------------- -----------
End of year [Including accumulated distributions in excess of net investment
income as follows: September 1995--($145,642) and March 1995--($106,519)]
(Note 1) $75,696,512 $70,666,227
- ----------------------------------------------------------------------------- ------------- -----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 45
- -----------------------------------------------------------------------------
Keystone Texas Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
---------------------------------------------------------- ----- -------- ------- ----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.7%)
Bexar County, Texas, Health Facilities Development
Corp., Southwest Methodist Hospital (AMBAC) 6.750% 11/01/2021 $ 50,000 $ 56,398
Brazos County, Texas, Health Facilities Development
Corp., St. Joseph's Hospital 6.000 01/01/2013 200,000 189,794
Brazos County, Texas, Higher Education Authority
Incorporated--Student Loan Revenue, Series A (AMT) 6.500 06/01/2004 225,000 235,017
Brownsville, Texas, Utilities System Revenue (MBIA) 6.250 09/01/2014 160,000 169,510
Circle C Municipal Utility District #3, Texas (FGIC) 6.500 11/15/2009 50,000 52,263
Coppell, Texas, Independent School District (FGIC) 7.700 08/15/2004 40,000 47,971
Harris County, Texas, Toll Road (FGIC) 6.500 08/15/2011 50,000 55,291
Harris County, Texas, Toll Road, Sub Lien, Series A 7.000 08/15/2010 375,000 434,392
Harris County, Texas, Health Facilities, Memorial
Hospital System 7.125 06/01/2015 475,000 500,897
Houston, Texas, Airport Senior Lien (AMT) 8.200 07/01/2017 160,000 175,573
Houston, Texas, General Obligation, Series C 7.000 03/01/2008 200,000 231,902
Lake Worth, Texas, Independent School District, Tarrant
County, Series 9 (effective yield 6.67%)(b) 0.000 02/15/2024 340,000 59,245
Matagorda County, Texas, Navigation District 1, Central
Power and Light Project 6.000 07/01/2028 175,000 172,564
Midland County, Texas, Hospital District (effective
yield 7.95%) (b) 0.000 06/01/2007 160,000 76,216
Puerto Rico Electric Power Authority, Power Revenue 6.000 07/01/2016 50,000 49,522
Puerto Rico Electric Power Authority, Power Revenue
Refunding (MBIA) 6.500 07/01/2006 100,000 112,356
Puerto Rico, General Obligation 7.700 07/01/2020 40,000 46,334
San Antonio, Texas, Electric and Gas Revenue 6.000 02/01/2014 100,000 100,125
San Antonio, Texas, Electric and Gas Revenue, Series B 6.000 02/01/2014 50,000 50,045
Texas Housing Agency, Single Family Mortgage Revenue 8.200 03/01/2016 165,000 169,917
Texas Municipal Power Agency (AMBAC)(effective yield
7.35%)(b) 0.000 09/01/2008 625,000 451,141
Texas Municipal Power Agency (MBIA) 6.100 09/01/2009 130,000 138,649
Texas National Research Lab Commission Financing Corp.
Lease Revenue, Superconducting Super Collider 6.950 12/01/2012 100,000 111,676
Texas State Public Finance Authority, Technical College
(MBIA) 6.250 08/01/2009 310,000 335,649
Texas State Public Finance Authority Building Revenue,
Series A (AMBAC) 5.750 02/01/2015 500,000 494,725
Texas State Water Development, Series G and I 5.125 08/01/2015 300,000 278,220
Titus County, Texas, Water District #1, Fresh Water
Supply, Southwestern Electric Power 8.200 08/01/2011 45,000 51,915
University of Texas, Permanent University Fund 6.500 07/01/2011 25,000 26,478
University of Texas, University Revenue, Series B 6.750 08/15/2013 180,000 193,300
Westside Calhoun County, Texas, Navigation District,
Union Carbide Co. 6.500 12/01/2008 50,000 50,035
---------------------------------------------------------- ----- -------- ------- ----------
TOTAL MUNICIPAL BONDS (Cost--$4,948,949) 5,117,120
---------------------------------------------------------- ----- -------- ------- ----------
</TABLE>
See Notes to Schedule of Investments. (Continued on next page)
<PAGE>
PAGE 46
- -----------------------------------------------------------------------------
Keystone Texas Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
---------------------------------------------------------- ----- -------- ------- ----------
<S> <C> <C> <C> <C>
TEMPORARY TAX-EXEMPT INVESTMENT (1.5%)
Texas Hospital Equipment Finance Council, Insured Revenue
Bonds, Series 85A (Cost--$81,000)(a) 4.500% 04/07/2005 $81,000 $ 81,000
---------------------------------------------------------- --- ------- ----- --------
TOTAL INVESTMENTS (Cost--$5,029,949) 5,198,120
OTHER ASSETS AND LIABILITIES--NET (0.8%) 42,367
---------------------------------------------------------- ----- -------- ------- ----------
NET ASSETS (100.0%) $5,240,487
---------------------------------------------------------- ----- -------- ------- ----------
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Variable or floating rate instrument with periodic demand feature. The
Fund is entitled to full payment of principal and interest upon
surrendering the security to the issuing agent according to the terms of
the demand feature.
(b) Effective yield is the yield at which the bond accretes on an annual
basis until its maturity. All zero coupon bonds are non-callable.
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--AMBAC Indemnity Corp.
AMT--Subject to Alternative Minimum Tax
FGIC--Federal Guaranty Insurance Co.
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements.
<PAGE>
PAGE 47
- -----------------------------------------------------------------------------
Keystone Texas Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six Months March 2, 1992
Ended (Commencement of
September 30, Year Ended march 31 Operations) to
1995 1995 1994 1993 March 31, 1992
========================================= =============== ===== ===== ===== ================
<S> <C> <C> <C> <C> <C>
(Unaudited)
Net asset value beginning of period $10.15 $10.13 $10.64 $10.03 $10.00
- ----------------------------------------- ------------- --- --- --- ---------------
Income from investment operations:
Net investment income 0.29 0.56 0.60 0.62 0.05
Net realized gain (loss) on investments
and closed futures contracts 0.26 (0.01) (0.40) 0.60 0.03
- ----------------------------------------- ------------- --- --- --- ---------------
Total from investment operations 0.55 0.55 0.20 1.22 0.08
- ----------------------------------------- ------------- --- --- --- ---------------
Less distributions from:
Net investment income (0.28) (0.53) (0.60) (0.61) (0.05)
In excess of net realized gain on
investments 0 0 (0.11) 0 0
- ----------------------------------------- ------------- --- --- --- ---------------
Total distributions (0.28) (0.53) (0.71) (0.61) (0.05)
- ----------------------------------------- ------------- --- --- --- ---------------
Net asset value end of period $10.42 $10.15 $10.13 $10.64 $10.03
========================================= ============= === === === ===============
Total return (c) 5.44% 5.66% 1.60% 12.51% 0.82%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (b) 0.75%(a) 0.75% 0.29% 0.68% 0.65%(a)
Net investment income 5.22%(a) 5.56% 5.51% 5.79% 5.95%(a)
Portfolio turnover rate 19% 58% 56% 62% 19%
- ----------------------------------------- ------------- --- --- --- ---------------
Net assets end of period (thousands) $1,395 $1,635 $1,916 $2,194 $1,063
========================================= ============= === === === ===============
</TABLE>
(a) Annualized.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 2.54%,
2.57%, 3.48%, 3.84% and 1.93% (annualized) for the six months ended
September 30, 1995, the fiscal years ended March 31, 1995, 1994, 1993,
and the period March 2, 1992 (Commencement of Operations) to March 31,
1992, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 48
- -----------------------------------------------------------------------------
Keystone Texas Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
Six Months (Date of Initial
Ended Public Offering)
September 30, Year Ended March 31 to
1995 1995 1994 March 31, 1993
================================================ =============== ===== ===== ================
<S> <C> <C> <C> <C>
(Unaudited)
Net asset value beginning of period $10.05 $10.08 $10.66 $10.53
- ------------------------------------------------ ------------- --- --- --------------
Income from investment operations:
Net investment income 0.23 0.48 0.51 0.08
Net realized gain (loss) on investments and
closed futures contracts 0.27 0.01 (0.45) 0.14
- ------------------------------------------------ ------------- --- --- --------------
Total from investment operations 0.50 0.49 0.06 0.22
- ------------------------------------------------ ------------- --- --- --------------
Less distributions from:
Net investment income (0.25) (0.48) (0.48) (0.08)
In excess of net investment income 0 (0.04) (0.05) (0.01)
In excess of net realized gain on investments 0 0 (0.11) 0
- ------------------------------------------------ ------------- --- --- --------------
Total distributions (0.25) (0.52) (0.64) (0.09)
- ------------------------------------------------ ------------- --- --- --------------
Net asset value end of period $10.30 $10.05 $10.08 $10.66
================================================ ============= === === ==============
Total return (c) 5.05% 5.01% 0.29% 2.06%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (b) 1.50%(a) 1.50% 1.47% 1.50%(a)
Net investment income 4.39%(a) 4.80% 4.37% 4.26%(a)
Portfolio turnover rate 19% 58% 56% 62%
- ------------------------------------------------ ------------- --- --- --------------
Net assets end of period (thousands) $3,563 $2,163 $1,890 $ 235
================================================ ============= === === ==============
</TABLE>
(a) Annualized.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 3.21%, 3.28%,
4.39% and 4.15% (annualized) for the six months ended September 30, 1995, the
fiscal years ended March 31, 1995, 1994 and the period February 1, 1993 (Date
of Initial Public Offering) to March 31, 1993, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 49
- -----------------------------------------------------------------------------
Keystone Texas Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
Six Months (Date of Initial
Ended Public Offering)
September 30, Year Ended March 31 to
1995 1995 1994 March 31, 1993
=============================================== =============== ===== ====== ================
<S> <C> <C> <C> <C>
(Unaudited)
Net asset value beginning of period $10.03 $10.04 $10.64 $10.53
- ----------------------------------------------- ------------- --- ---- --------------
Income from investment operations:
Net investment income 0.24 0.47 0.47 0.09
Net gain (loss) on investments and closed
futures contracts 0.27 0.03 (0.44) 0.11
- ----------------------------------------------- ------------- --- ---- --------------
Total from investment operations 0.51 0.50 0.03 0.20
- ----------------------------------------------- ------------- --- ---- --------------
Less distributions from:
Net investment income (0.25) (0.47) (0.44) (0.09)
In excess of net investment income 0 (0.04) (0.08) 0
In excess of net realized gain on investments 0 0 (0.11) 0
- ----------------------------------------------- ------------- --- ---- --------------
Total distributions (0.25) (0.51) (0.63) (0.09)
- ----------------------------------------------- ------------- --- ---- --------------
Net asset value end of period $10.29 $10.03 $10.04 $10.64
=============================================== ============= === ==== ==============
Total return (c) 5.16% 5.14% (0.03%) 1.86%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (b) 1.50%(a) 1.50% 1.84% 1.50%(a)
Net investment income 4.48%(a) 4.88% 3.78% 5.03%(a)
Portfolio turnover rate 19% 58% 56% 62%
- ----------------------------------------------- ------------- --- ---- --------------
Net assets end of period (thousands) $ 282 $ 224 $ 813 $ 25
=============================================== ============= === ==== ==============
</TABLE>
(a) Annualized.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 3.29%,
3.28%, 4.39%, and 4.15% (annualized) for the six months ended September
30, 1995, the fiscal years ended March 31, 1995, 1994 and for the period
February 1, 1993 (Date of Initial Public Offering) to March 31, 1993,
respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 50
- -----------------------------------------------------------------------------
Keystone Texas Tax Free Fund
STATEMENT OF ASSETS AND LIABILITIES--
September 30, 1995 (Unaudited)
- ---------------------------------------------------------------
Assets (Notes 1 and 4):
Investments at market value (identified cost--
$5,029,949) $5,198,120
Cash 2,422
Interest receivable 57,093
Due from Investment Adviser 13,632
Unamortized organization expenses 3,017
Prepaid expenses and other assets 51
- -------------------------------------------------- -----------
Total assets 5,274,335
- -------------------------------------------------- -----------
Liabilities (Notes 4 and 5):
Income distribution payable 21,364
Accrued expenses 12,484
- -------------------------------------------------- -----------
Total liabilities 33,848
- -------------------------------------------------- -----------
Net assets $5,240,487
- -------------------------------------------------- -----------
Net assets represented by (Note 1):
Paid-in capital $5,398,018
Undistributed net investment income 13,029
Accumulated net realized gain (loss) on
investments and closed futures contracts (338,731 )
Net unrealized appreciation (depreciation) on
investments 168,171
- -------------------------------------------------- -----------
Total net assets $5,240,487
- -------------------------------------------------- -----------
Net Asset Value (Note 2):
Class A Shares
Net assets of $1,395,450/133,868 shares
outstanding $ 10.42
Offering price per share ($10.42/0.9525) (based
on a sales charge of 4.75% of the offering
price September 30, 1995) $ 10.94
Class B Shares
Net assets of $3,562,540/345,938 shares
outstanding $ 10.30
Class C Shares
Net assets of $282,497/27,461 shares
outstanding $ 10.29
- ------------------------------------------------------------------
STATEMENT OF OPERATIONS--
Six Months Ended September 30, 1995 (Unaudited)
Investment Income (Note 1):
Interest $134,542
Expenses (Notes 1, 2 and 4):
Management fee $ 12,483
Transfer agent fees 2,570
Custodian fees 9,580
Accounting 9,816
Auditing 4,655
Legal 2,500
Printing 6,403
Registration fees 2,868
Distribution Plan expenses 14,396
Amortization of organization
expenses 1,082
Miscellaneous expenses 1,295
- -------------------------------------- ------- ---------
Total expenses 67,648
Less: Reimbursement from Investment
Adviser (39,607)
- -------------------------------------- ------- ---------
Net expenses 28,041
- -------------------------------------- ------- ---------
Net investment income (Note 1) 106,501
- -------------------------------------- ------- ---------
Net realized and unrealized gain
(loss) on investments and closed
futures contracts (Notes 1 and 3):
Net realized gain (loss) on:
Investments (3,274)
Closed futures contracts (2,858)
- -------------------------------------- ------- ---------
Net realized gain (loss) on
investments and closed futures
contracts (6,132)
- -------------------------------------- ------- ---------
Net change in unrealized
appreciation (depreciation) on
investments:
Beginning of period 46,401
End of period 168,171
------------------------------------ ------- ---------
Net change in unrealized
appreciation (depreciation) on
investments 121,770
- -------------------------------------- ------- ---------
Net gain (loss) on investments and
futures contracts 115,638
- -------------------------------------- ------- ---------
Net increase (decrease) in net assets
resulting from operations $222,139
- -------------------------------------- ------- ---------
See Notes to Financial Statements.
<PAGE>
PAGE 51
- -----------------------------------------------------------------------------
Keystone Texas Tax Free Fund
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended
September 30, Year Ended
1995 March 31,1995
- ----------------------------------------------------------------------------- --------------- --------------
<S> <C> <C>
Operations (Notes 1 and 3): (Unaudited)
Net investment income $ 106,501 $ 237,103
Net realized gain (loss) on investments and closed futures contracts (6,132) (309,043)
Net change in unrealized apprecaition (depreciation) 121,770 211,046
- ----------------------------------------------------------------------------- ------------- ------------
Net increase (decrease) in net assets resulting from operations 222,139 139,106
- ----------------------------------------------------------------------------- ------------- ------------
Distributions to shareholders from (Notes 1 and 5):
Net investment income:
Class A Shares (43,234) (103,988)
Class B Shares (65,157) (99,393)
Class C Shares (6,899) (29,138)
In excess of net investment income:
Class B Shares 0 (8,132)
Class C Shares 0 (2,097)
- ----------------------------------------------------------------------------- ------------- ------------
Total distributions to shareholders (115,290) (242,748)
- ----------------------------------------------------------------------------- ------------- ------------
Capital share transactions (Note 2):
Proceeds from shares sold--Class A Shares 25,903 258,882
Proceeds from shares sold--Class B Shares 1,528,339 971,881
Proceeds from shares sold--Class C Shares 60,000 137,217
Payment for shares redeemed--Class A Shares (327,420) (577,484)
Payment for shares redeemed--Class B Shares (224,987) (744,621)
Payment for shares redeemed--Class C Shares (12,912) (687,214)
Net asset value of shares issued in reinvestment of distributions from:
Net investment income and in excess of net investment income--Class A Shares 24,724 64,701
Net investment income and in excess of net investment income--Class B Shares 33,836 67,669
Net investment income and in excess of net investment income--Class C Shares 4,553 15,761
- ----------------------------------------------------------------------------- ------------- ------------
Net increase (decrease) in net assets resulting from capital share
transactions 1,112,036 (493,208)
- ----------------------------------------------------------------------------- ------------- ------------
Total increase (decrease) in net assets 1,218,885 (596,850)
Net assets:
Beginning of period 4,021,602 4,618,452
- ----------------------------------------------------------------------------- ------------- ------------
End of period (Including undistributed net income as follows: September
1995--$13,029 and March 1995--$21,818) (Note 1) $ 5,240,487 $4,021,602
- ----------------------------------------------------------------------------- ------------- ------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 52
- -----------------------------------------------------------------------------
Keystone State Tax Free Fund
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Significant Accounting Policies
Keystone State Tax Free Fund (formerly Keystone America State Tax Free Fund)
("FUND") was formed as a Massachusetts business trust on September 13, 1990.
Keystone Investment Management Company (formerly Keystone Custodian Funds,
Inc.) ("Keystone") is the Investment Adviser and Manager. The FUND currently
offers shares of five separate series evidencing interests in different
portfolios of securities: the Keystone Florida Tax Free Fund (formerly
Keystone America Florida Tax Free Fund) ("Florida Fund"), which was
established on September 19, 1990 and had no operations prior to December 27,
1990; the Keystone Massachusetts Tax Free Fund (formerly Keystone America
Massachusetts Tax Free Fund) ("Massachusetts Fund"), and the Keystone New
York Insured Tax Free Fund (formerly Keystone America New York Insured Tax
Free Fund) ("New York Fund"), which were established February 21, 1992 and
had no operations prior to February 4, 1994; the Keystone Pennsylvania Tax
Free Fund (formerly Keystone America Pennsylvania Tax Free Fund)
("Pennsylvania Fund"), which was established September 19, 1990 and had no
operations prior to December 27, 1990; and the Keystone Texas Tax Free Fund
(formerly Keystone America Texas Tax Free Fund) ("Texas Fund"), which was
established on February 21, 1992 and had no operations prior to March 2, 1992
(together the "Funds" and each individually a "Fund"). The FUND is registered
under the Investment Company Act of 1940 ("1940 Act") as an open-end
investment company and each of the Funds is registered as a nondiversified
fund.
Each Fund currently offers three classes of shares. Class A shares are
sold subject to a maximum sales charge of 4.75% payable at the time of
purchase. Class B shares are sold subject to a contingent deferred sales
charge which varies depending on when shares were purchased and how long they
have been held. Class C shares are sold subject to a contingent deferred
sales charge payable upon redemption within one year of purchase, and
available only through dealers who have entered into special distribution
agreements with Keystone Investment Distributors Company ("KIDC") (formerly
Keystone Distributors, Inc.), the FUND's principal underwriter.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc.
("KII") (formerly Keystone Group, Inc.), a Delaware corporation. KII is
privately owned by an investor group consisting of members of current and
former management of Keystone and its affiliates. Keystone Investor Resource
Center, Inc. ("KIRC"), a wholly-owned subsidiary of Keystone, is the FUND's
transfer agent.
The following is a summary of significant accounting policies consistently
followed by the FUND, in conformity with generally accepted accounting
principles.
A. Tax-exempt bonds are stated on the basis of valuations provided by a
pricing service, approved by the Board of Trustees, that uses information
with respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Non-tax-exempt securities for which market
quotations are readily available are valued at the price quoted which, in the
opinion of the Board of Trustees or their representative, most nearly
represents their market value. Short-term investments which are purchased
with maturities of sixty days or less are valued at amortized cost (original
cost as adjusted for amortization of premium or accretion of discount) which
when combined with accrued interest approximates market. Short-term
investments maturing in more than sixty days for which market quotations are
readily available are valued at current market value. Short-term investments
maturing in more than sixty days when purchased which are held on the
sixtieth
<PAGE>
PAGE 53
- -----------------------------------------------------------------------------
day prior to maturity are valued at amortized cost (market value on the
sixtieth day adjusted for amortization of premium or accretion of discount)
which when combined with accrued interest approximates market. All other
securities and other assets are valued at fair value as determined in good
faith using methods prescribed by the Board of Trustees.
Each Fund enters into currency and other financial futures contracts as a
hedge against changes in interest or currency exchange rates. A futures
contract is an agreement between two parties to buy and sell a specific
amount of a commodity, security, financial instrument, or, in the case of a
stock index, cash at a set price on a future date. Upon entering into a
futures contract the Fund is required to deposit with a broker an amount
("initial margin") equal to a certain percentage of the purchase price
indicated in the futures contract. Subsequent payments ("variation margin")
are made or received by the Fund each day, as the value of the underlying
instrument or index fluctuates, and are recorded for book purposes as
unrealized gains or losses by the Fund. For federal tax purposes, any futures
contracts which remain open at fiscal year end are marked-to-market and the
resultant net gain or loss is included in the Fund's taxable income. In
addition to market risk, the Fund is subject to the credit risk that the
other party will not complete the obligations of the contract.
B. When-issued or delayed delivery transactions arise when securities or
currencies are purchased or sold by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. A separate account of liquid assets equal to the value of such
purchase commitments will be maintained until payment is made. When-issued
and delayed agreements are subject to risks from changes in value based upon
changes in the level of interest rates and other market factors, both before
and after delivery.
C. Securities transactions are accounted for no later than one business day
after the trade date. Realized gains and losses are recorded on the
identified cost basis. Interest income is recorded on the accrual basis.
D. Each Fund has qualified, and intends to qualify in the future, as a
regulated investment company under the Internal Revenue Code of 1986, as
amended ("Internal Revenue Code"). Thus, each Fund expects to be relieved of
any federal income tax liability by distributing all of its net taxable
investment income and net taxable capital gains, if any, to its shareholders.
The tax-exempt interest portion of each dividend is declared uniformly based
on the ratio of each Fund's tax-exempt and taxable income for the entire
year. Each Fund intends to avoid excise tax liability by making the required
distributions under the Internal Revenue Code.
E. Organization expenses are being amortized to operations over a five-year
period on a straight-line basis. In the event any of the initial shares are
redeemed by any holder thereof during the five-year amortization period,
redemption proceeds will be reduced by any unamortized organization expenses
in the same proportion as the number of initial shares being redeemed bears
to the number of initial shares outstanding at the time of redemption.
2. Capital Share Transactions
The Trust agreement authorizes the issuance of an unlimited number of shares
of beneficial interest without par value. Transactions in shares of the FUND
were as follows:
<PAGE>
PAGE 54
- -----------------------------------------------------------------------------
Keystone State Tax Free Fund
<TABLE>
<CAPTION>
Florida Fund
-------------------------------------
Class A Shares
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- ---------------------- ------------------ --------------
<S> <C> <C>
Shares sold 129,324 594,097
Shares redeemed (435,982) (961,330)
Shares issued in
reinvestment of
dividends and
distributions 28,012 70,513
- ---------------------- ----------------- -------------
Net increase
(decrease) (278,646) (296,720)
- ---------------------- ----------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- ---------------------- ------------------ --------------
<S> <C> <C>
Shares sold 466,379 3,504,376
Shares redeemed (303,863) (544,344)
Shares issued in
reinvestment of
dividends and
distributions 50,616 82,908
- ---------------------- ----------------- -------------
Net increase
(decrease) 213,132 3,042,940
- ---------------------- ----------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class C Shares
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- ---------------------- ------------------ --------------
<S> <C> <C>
Shares sold 52,456 643,062
Shares redeemed (145,654) (704,324)
Shares issued in
reinvestment of
dividends and
distributions 14,286 38,331
- ---------------------- ----------------- -------------
Net increase
(decrease) (78,912) (22,931)
- ---------------------- ----------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Massachusetts Fund
-------------------------------------
Class A Shares
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- ---------------------- ------------------ --------------
<S> <C> <C>
Shares sold 47,156 141,360
Shares redeemed (7,230) (93,803)
Shares issued in
reinvestment of
dividends and
distributions 3,933 6,770
- ---------------------- ----------------- -------------
Net increase
(decrease) 43,859 54,327
- ---------------------- ----------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- ---------------------- ------------------ --------------
<S> <C> <C>
Shares sold 133,928 532,363
Shares redeemed (26,404) (69,932)
Shares issued in
reinvestment of
dividends and
distributions 10,510 14,043
- ---------------------- ----------------- -------------
Net increase
(decrease) 118,034 476,474
- ---------------------- ----------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class C Shares
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- ---------------------- ------------------ --------------
<S> <C> <C>
Shares sold 9,049 189,623
Shares redeemed (6,258) (20,305)
Shares issued in
reinvestment of
dividends and
distributions 3,098 6,195
- ---------------------- ----------------- -------------
Net increase
(decrease) 5,889 175,513
- ---------------------- ----------------- -------------
</TABLE>
<PAGE>
PAGE 55
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
New York Fund
-------------------------------------
Class A Shares
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- ---------------------- ------------------ --------------
<S> <C> <C>
Shares sold 61,743 315,837
Shares redeemed (33,086) (41,667)
Shares issued in
reinvestment of
dividends and
distributions 5,811 5,049
- ---------------------- ----------------- -------------
Net increase
(decrease) 34,468 279,219
- ---------------------- ----------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- ---------------------- ------------------ --------------
<S> <C> <C>
Shares sold 428,032 1,155,373
Shares redeemed (83,942) (153,738)
Shares issued in
reinvestment of
dividends and
distributions 20,675 24,119
- ---------------------- ----------------- -------------
Net increase
(decrease) 364,765 1,025,754
- ---------------------- ----------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class C Shares
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- ---------------------- ------------------ --------------
<S> <C> <C>
Shares sold 36,964 288,523
Shares redeemed (144,990) (14,006)
Shares issued in
reinvestment of
dividends and
distributions 4,781 6,435
- ---------------------- ----------------- -------------
Net increase
(decrease) (103,245) 280,952
- ---------------------- ----------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania Fund
-------------------------------------
Class A Shares
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- ---------------------- ------------------ --------------
<S> <C> <C>
Shares sold 102,635 422,375
Shares redeemed (197,277) (494,154)
Shares issued in
reinvestment of
dividends and
distributions 40,542 87,463
- ---------------------- ----------------- -------------
Net increase
(decrease) (54,100) 15,684
- ---------------------- ----------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- ---------------------- ------------------ --------------
<S> <C> <C>
Shares sold 498,246 1,037,572
Shares redeemed (136,111) (282,691)
Shares issued in
reinvestment of
dividends and
distributions 44,617 82,087
- ---------------------- ----------------- -------------
Net increase
(decrease) 406,752 836,968
- ---------------------- ----------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class C Shares
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- ---------------------- ------------------ --------------
<S> <C> <C>
Shares sold 59,193 306,060
Shares redeemed (93,113) (312,198)
Shares issued in
reinvestment of
dividends and
distributions 16,640 34,993
- ---------------------- ----------------- -------------
Net increase
(decrease) (17,280) 28,885
- ---------------------- ----------------- -------------
</TABLE>
<PAGE>
PAGE 56
- -----------------------------------------------------------------------------
Keystone State Tax Free Fund
<TABLE>
<CAPTION>
Texas Fund
-------------------------------------
Class A Shares
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- ---------------------- ------------------ --------------
<S> <C> <C>
Shares sold 2,529 25,763
Shares redeemed (32,115) (60,316)
Shares issued in
reinvestment of
dividends and
distributions 2,409 6,476
- ---------------------- ----------------- -------------
Net increase
(decrease) (27,177) (28,077)
- ---------------------- ----------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- ---------------------- ------------------ --------------
<S> <C> <C>
Shares sold 149,213 96,577
Shares redeemed (21,921) (75,526)
Shares issued in
reinvestment of
dividends and
distributions 3,332 6,859
- ---------------------- ----------------- -------------
Net increase
(decrease) 130,624 27,910
- ---------------------- ----------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class C Shares
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- ---------------------- ------------------ --------------
<S> <C> <C>
Shares sold 5,964 14,015
Shares redeemed (1,268) (74,258)
Shares issued in
reinvestment of
dividends and
distributions 449 1,584
- ---------------------- ----------------- -------------
Net increase
(decrease) 5,145 (58,659)
- ---------------------- ----------------- -------------
</TABLE>
Each Fund bears some of the costs of selling its shares under a
Distribution Plan adopted with respect to its Class A, Class B, and Class C
shares pursuant to Rule 12b-1 under the 1940 Act.
Each Class A Distribution Plan provides for payments which are currently
limited to 0.15% annually of the average daily net asset value of Class A
shares to pay expenses of the distribution of Class A shares. Amounts paid by
each Fund to KIDC under the Class A Distribution Plan are currently used to
pay others such as dealers, service fees at an annual rate of 0.15% of the
average net asset value of Class A shares maintained by such others and
remaining outstanding on the books of the Funds for specified periods.
Each Class B Distribution Plan provides for payments at an annual rate of
0.90% of the average daily net asset value of Class B shares to pay expenses
of the distribution of Class B shares. Amounts paid by each Fund under the
Class B Distribution Plan are currently used to pay others (dealers) (i) a
commission at the time of purchase normally equal to 4.00% of the price paid
for each Class B share sold plus the first year's service fee in advance in
the amount of 0.15% of the price paid for each Class B share sold. Beginning
approximately 12 months after the purchase of a Class B share, the dealer or
other party will receive service fees at an annual rate of 0.15% of the
average daily net asset value of each Class B share maintained by such others
outstanding on the Fund's books for specified periods. A contingent deferred
sales charge will be imposed, if applicable, on Class B shares purchased
after June 1, 1995 at rates ranging from a maximum of 5.00% of amounts
redeemed during the first twelve months following the date of purchase to
1.00% of amounts redeemed during the sixth twelve-month period following the
date of purchase. Class B shares purchased on or after June 1, 1995 that have
been outstanding for eight years following the month of purchase will
automatically convert to Class A shares without a front end sales charge or
exchange fee. Class B shares purchased prior to June 1, 1995 will retain
their existing conversion rights.
Each Class C Distribution Plan provides for payments at an annual rate of
up to 0.90% of the average daily net asset value of Class C shares to pay
expenses
<PAGE>
PAGE 57
- -----------------------------------------------------------------------------
of the distribution of Class C shares. Amounts paid by each Fund under the
Class C Distribution Plan are currently used to pay others (dealers) a
commission at the time of purchase normally equal to 0.75% of the price paid
for each share sold plus the first year's service fee in advance in the
amount of 0.15% of the price paid for each Class C share. Beginning
approximately 15 months after purchase, the dealer or other party will
receive a commission at an annual rate of 0.75% (subject to applicable
limitations imposed by the rules of the National Association of Securities
Dealers, Inc. ("NASD rule") plus service fees at an annual rate of 0.15%,
respectively, of the average net asset value of each Class C share sold by
such others and remaining outstanding on the books of the Funds for specified
periods.
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 of the
Distribution Plans, at the discretion of the Board of Trustees, payments to
KIDC may continue as compensation for its services which had been earned
while the distribution Plan was in effect.
For the six months ended September 30, 1995, the Florida Fund paid KIDC
$30,113, $238,600 and $55,449, the Massachusetts Fund paid KIDC $1,244,
$29,762 and $9,042, the New York Fund paid KIDC $2,721, $62,533, and $11,527,
the Pennsylvania Fund paid KIDC $22,965, $149,952 and $43,690, and the Texas
Fund paid KIDC $1,202, $11,946 and $1,248, respectively, pursuant to each
Fund's Class A, Class B, and Class C Distribution Plans.
Under a Rule of the NASD, the maximum uncollected amounts for which KIDC
may seek payment from the FUND under its Class B Distribution Plans are
$3,119,763, $382,667, $788,515, $1,920,879, and $139,964 for shares purchased
prior to June 1, 1995 and $229,596, $47,184, $159,081, $265,961 and $93,126
for shares purchased after June 1, 1995, respectively, for the Florida Fund,
the Massachusetts Fund, the New York Fund, the Pennsylvania Fund and the
Texas Fund as of September 30, 1995. The maximum uncollected amounts for
which KIDC may seek payment from the FUND under its Class C Distribution
Plans are $1,254,939, $121,460, $187,290, $772,302, and $63,746,
respectively, for the Florida Fund, the Massachusetts Fund, the New York
Fund, the Pennsylvania Fund and the Texas Fund as of September 30, 1995.
3. Securities Transactions
As of March 31, 1995, the Florida Fund, the Massachusetts Fund, the New York
Fund, the Pennsylvania Fund and the Texas Fund had loss carryovers for
federal income tax purposes of approximately $2,981,000, $195,000, $1,000,
$1,503,000 and $110,000, respectively, which expire in 2003.
Purchases and sales of investment securities (including proceeds received
at maturity), during the six months ended September 30, 1995 were as follows:
<TABLE>
<CAPTION>
Florida Fund
--------------------------
Cost of Proceeds
Purchases From Sales
---------- ------------
<S> <C> <C>
Tax-exempt investments $33,973,942 $37,905,500
Short-term commercial
and tax-exempt notes 21,205,000 28,350,000
- ------------------------ -------- ----------
$55,178,942 $66,255,500
- ------------------------ -------- ----------
</TABLE>
<TABLE>
<CAPTION>
Massachusetts Fund
--------------------------
Cost of Proceeds
Purchases From Sales
--------- -------------
<S> <C> <C>
Tax-exempt investments $5,837,948 $ 4,311,746
Short-term commercial
and tax-exempt notes 3,210,000 3,000,000
- ------------------------ ------- -----------
$9,047,948 $7,311,746
- ------------------------ ------- -----------
</TABLE>
<PAGE>
PAGE 58
-----------------------------------------------------------------------------
Keystone State Tax Free Fund
<TABLE>
<CAPTION>
New York Fund
---------------------------
Cost of Proceeds
Purchases From Sales
---------- -------------
<S> <C> <C>
Tax-exempt investments $ 3,642,107 $ 1,646,175
Short-term commercial
and tax-exempt notes 7,155,000 6,050,000
- ------------------------ -------- -----------
$10,797,107 $7,696,175
- ------------------------ -------- -----------
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania Fund
--------------------------
Cost of Proceeds
Purchases From Sales
---------- ------------
<S> <C> <C>
Tax-exempt investments $14,149,040 $10,812,257
Short-term commercial
and tax-exempt notes 10,820,000 10,885,000
- ------------------------ -------- ----------
$24,969,040 $21,697,257
- ------------------------ -------- ----------
</TABLE>
<TABLE>
<CAPTION>
Texas Fund
------------------------
Cost of Proceeds
Purchases From Sales
--------- -----------
<S> <C> <C>
Tax-exempt investments $1,836,824 $ 826,245
Short-term commercial
and tax-exempt notes 806,000 730,000
- ------------------------ ------- ---------
$2,642,824 $1,556,245
- ------------------------ ------- ---------
</TABLE>
4. Investment Management and Transactions with Affiliates
Under the terms of the Investment Management Agreement between Keystone and
the FUND, dated November 29, 1990, Keystone provides investment management
and administrative services to the FUND and its Funds. In return, Keystone is
paid a management fee computed and paid daily. The management fee is
calculated by applying percentage rates, which start at 0.55% and decline, as
net assets increase, to 0.25% per annum, to the net asset value of each Fund.
During the six months ended September 30, 1995, the Florida Fund,
Massachusetts Fund, New York Fund, Pennsylvania Fund and Texas Fund paid or
accrued to Keystone investment management and administrative services fees of
$277,231, $29,992, $55,234, $196,952 and $12,483, respectively, which
represented 0.52%, 0.55%, 0.55%, 0.53%, and 0.55%, respectively, of the
average net assets of the Funds on an annualized basis.
During the six months ended September 30, 1995, the Florida Fund,
Massachusetts Fund, New York Fund, Pennsylvania Fund and Texas Fund paid or
accrued to KII $9,273, $9,874, $9,563, $9,934 and $9,816, respectively, for
certain accounting and to KIRC $59,925, $9,401, $14,666, $55,494, and $2,570,
respectively, for transfer agent fees.
Keystone has voluntarily agreed to limit all expenses incurred including
management fee of the Class A Shares of the Florida Fund, the Pennsylvania
Fund and the Texas Fund to 0.75% of average daily net assets and has limited
annual expenses of the Class B Shares and Class C Shares to 1.50% of average
daily net asset value.
Keystone voluntarily limited the expenses, including the management fee,
of the Class A Shares of the Massachusetts Fund and the New York Fund to
0.35% until August 15, 1994, after which the expense limitation was increased
by 0.10% every three months until May 15, 1995 since which date expenses were
limited to 0.75% until December 31, 1995. Expenses of Class B Shares and
Class C Shares of those Funds were limited to 1.10% until August 15, 1994,
after which the expense limitations were similarly increased until May 15,
1995 since which date expenses were limited to 1.50% until December 31, 1995.
Keystone will not be required to make such reimbursement to an extent which
would result in a Fund's inability to qualify as a regulated investment
company under the provisions of the Internal Revenue Code. In accordance with
this voluntary expense limitation, Keystone reimbursed the Florida Fund, the
Massachusetts Fund, the New York Fund, the Pennsylvania Fund and the Texas
Fund (i) $33,827, $11,143, $10,401, $38,806 and $14,391, respectively, with
respect to each Fund's
<PAGE>
PAGE 59
- -----------------------------------------------------------------------------
Class A Shares, (ii) $59,703, $33,524, $39,404, $51,176 and $22,732,
respectively, with respect to each Fund's Class B Shares; and (iii) $13,932,
$10,266, $7,476, $14,976 and $2,484, respectively, with respect to each
Fund's Class C Shares. Keystone does not intend to seek repayment of these
amounts.
Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the FUND. Officers of Keystone and affiliated Trustees receive no
compensation directly from the FUND. Currently, the Independent Trustees of
the FUND receive no compensation for their services.
5. Distributions to Shareholders
Each Fund intends to declare dividends from net investment income daily and
distribute to its shareholders such dividends monthly and to declare and
distribute all net realized long-term capital gains, if any, at least
annually. Distributions are determined in accordance with income tax
regulations. Distributions from tax basis net investment income and net
capital gains can exceed book basis net investment income and net capital
gains.
<PAGE>
[front cover]
KEYSTONE
[photo of American flag flying in front of
building]
STATE
TAX FREE FUND
FLORIDA TAX FREE FUND
MASSACHUSETTS TAX FREE FUND
NEW YORK INSURED TAX FREE FUND
PENNSYLVANIA TAX FREE FUND
TEXAS TAX FREE FUND
[Keystone logo]
SEMIANNUAL REPORT
SEPTEMBER 30, 1995
[back cover]
KEYSTONE AMERICA
FAMILY OF FUNDS
[diamond]
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Insured Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Pennsylvania Tax Free Fund
Texas Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Hartwell Growth Fund
Omega Fund
Fund of the Americas
Strategic Development Fund
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied by
the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you
invest or send money. For a free prospectus on other Keystone funds, contact
your financial adviser or call Keystone at 1-800-343-2898.
[Keystone logo] KEYSTONE
INVESTMENTS
P.O. Box 2121
Boston, Massachusetts 02106-2121
STF-AR-11/95
9M [recycle logo]
