[front cover]
KEYSTONE
[Picture of the American flag flying in front of a building]
STATE
TAX FREE FUND
FLORIDA TAX FREE FUND
MASSACHUSETTS TAX FREE FUND
NEW YORK INSURED TAX FREE FUND
PENNSYLVANIA TAX FREE FUND
[Keystone Logo]
ANNUAL REPORT
MARCH 31, 1996
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Keystone State Tax Free Fund
Seeks generous tax-free income from high quality municipal bonds
Dear Shareholder:
We are writing to report on the activities of Keystone State Tax Free Fund
for the twelve-month period which ended March 31, 1996.
Following this letter we have included a performance summary for each state
fund and an interview with Keystone's municipal bond fund managers,
discussing the market's performance.
The Year In Review
Investors enjoyed a strong municipal bond market throughout most of 1995. The
Federal Reserve Board accomplished a "soft landing" for the economy. Slow
economic growth and low inflation set the stage for falling interest rates,
and municipal bond prices climbed. By year end, however, the climate began to
change. Investors shifted their focus to uncertainties about the upcoming
election year and the budget gridlock in Washington. The "flat tax" loomed as
a threat to tax-advantaged investments.
As we entered 1996, many municipal bond investors thought that the economy
would slip into a recession later in the year and that further interest rate
cuts were a likely result. When data appeared suggesting a healthier economy
than many expected, investors reassessed their outlook. Many investors sold
bonds, which pushed prices lower and yields higher.
Nevertheless, municipal bonds reported positive total returns for the
twelve-month period which ended March 31, 1996. For that period, the Lehman
Municipal Bond Index provided a total return of 8.38%, including income and
price changes.
We continue to believe that municipal bonds are providing investors with
relatively attractive yields compared to taxable investments. As of March 31,
1996, the average yield of a selection of 30-year AA-rated municipal bonds
was approximately 91% of the yield of comparable long term U.S. Treasuries.
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
May 1996
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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.(1) In addition, your Fund seeks to ensure that
its shares are exempt from Florida intangibles tax. The Fund is managed by
Keystone Vice President George Kimball.
Performance
For the twelve-month period which ended March 31, 1996, your Fund provided
the following total returns, including income and price changes:
Class A shares returned 8.16%.
Class B shares returned 7.48%.
Class C shares returned 7.47%.
Portfolio Strategy
Keystone Florida Tax Free Fund was positioned to capitalize on the declining
interest rate environment of last year, as well as to maximize and protect
income. We lengthened the portfolio's average maturity and extended call
protection, investing 16.7% of assets in non-callable bonds. As interest
rates rose, we shortened the portfolio's average maturity and invested in
fifteen- to twenty-year bonds. These bonds offered much of the yield of
longer maturities, but their prices declined less than longer term bonds.
Also, we utilized the Fund's flexibility to focus on bonds that appeared to
be undervalued in the market, including industrial revenue bonds as well as
some non-Florida securities. These bonds provided the portfolio with a stream
of income that was especially attractive. As of March 31, 1996, your Fund's
average maturity was 19.7 years, down slightly from 20.8 years on September
30, 1995. Also, as of March 31, 1996, the average portfolio quality rating
was AA, with approximately two thirds of the portfolio rated either AAA or
AA, the two highest rating categories.
Porfolio Quality Summary
as of March 31, 1996
S&P Rating(2)
[PIE CHART]
Not rated (10.3%)
AAA (40.7%)
AA (23.5%)
A (10.0%)
BBB (15.5%)
Average portfolio quality: AA
(as a percentage of portfolio assets)
Economic Environment
Florida's economy continues to outperform the national economy due to the
state's strong population growth and low cost business environment. While
tourism is still the primary component of Florida's economy, international
business is becoming increasingly important. The state's fiscal position
remains strong and overall debt levels are moderate.
Outlook
We believe Florida's long-term outlook is stable. Florida's high
concentration of retirees living on fixed incomes has cushioned the state
somewhat from the ups and downs of previous cycles, and has provided a good
source of demand for the state's municipal bonds. We think the supply of
Florida bonds should remain plentiful because the state is one of the
nation's top issuers of municipal debt.
1 For investors in certain tax situations, a portion of income may be subject
to the federal alternative minimum tax (AMT).
2 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.
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Keystone Florida Tax Free Fund
[Data for Florida Tax Free Fund Mountain Chart]
Growth of an investment in
Keystone Florida Tax Free Fund Class A
In Thousands
Initial Reinvested
Investments Distributions
12/90 9629 9637
9687 9860
3/92 9934 10879
10420 12220
3/94 9801 12343
9839 13135
3/96 10096 14208
A $10,000 investment in Keystone Florida Tax Free Fund Class A made on December
28, 1990 with all distributions reinvested was worth $14,208 on March 31, 1996.
Past performance is no guarantee of future results.
Tax-Equivalent Yields
Federal Tax Bracket(3)
- -------- ----------------------------
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.
3 The table is based on federal tax brackets. The 31% bracket includes single
filers earning $53,501-115,000 and joint filers earnings $89,151-140,000;
the 36% bracket includes single filers $115,001-250,000 and joint filers
earning $140,000-250,000; 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.
Twelve-Month Performance as of March 31, 1996
Class A Class B Class C
Total returns* 8.16% 7.48% 7.47%
Net asset value 3/31/95 $10.33 $10.24 $10.26
3/31/96 $10.60 $10.48 $10.50
Dividends $ 0.56 $ 0.52 $ 0.52
Capital gains None None None
*Before deduction of front-end or contingent deferred sales charge
(CDSC), if applicable.
Historical Record as of March 31, 1996
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 8.16% 7.48% 7.47%
1-year 3.03% 3.48% 7.47%
5-year 37.25% -- --
Life of Class 42.08% 13.16% 16.03%
Average Annual Returns
1-year w/o sales charge 8.16% 7.48% 7.47%
1-year 3.03% 3.48% 7.47%
5-year 6.54% -- --
Life of Class 6.91% 3.98% 4.81%
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.
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Keystone Florida Tax Free Fund
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.
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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.(4) The Fund is managed by Keystone Vice
President Daniel A. Rabasco.
Performance
For the twelve-month period which ended March 31, 1996, your Fund provided
the following total returns, including income and price changes:
Class A shares returned 6.64%.
Class B shares returned 5.77%.
Class C shares returned 5.89%.
Portfolio Strategy
Keystone Massachusetts Tax Free Fund was positioned to build and maintain
income during last year's declining interest rate environment. We lengthened
the Fund's average maturity, extended call protection and stayed fully
invested. As the bond market environment began to change, we sold some of the
longer maturities as favorable situations occurred. This helped to shorten
the Fund's average maturity in anticipation of higher interest rates and
potential buying opportunities. As of March 31, 1996, the Fund's average
maturity was 18.1 years, slightly shorter than 19.4 years on September 30,
1995. The average portfolio quality was A+, the third highest rating
category.
Economic Environment
The Massachusetts economy continues to grow at a slow rate. Non-farm employment
grew a modest 1% for the twelve-month period which ended November 1995 after a
2.2% increase for calendar year 1994. Job losses stemming from declines in
defense spending and bank consolidation were offset by growth in the service
sector. The Commonwealth's treasury has generated a positive fund balance in
each of the past six years, which we attribute to improving economic conditions
and more conservative fiscal management.
Portfolio Quality Summary
as of March 31, 1996
S&P Rating(5)
[PIE CHART]
Not Rated (15.9%)
AAA (42.8%)
AA (11.0%)
A (30.3%)
Average portfolio quality: A+
(as a percentage of portfolio assets)
Outlook
While we do not expect to see significant economic growth in Massachusetts in
the near future, we do continue to see opportunities resulting from increases
in international trade and ongoing public infrastructure projects. Further,
we think that the Commonwealth's nationally recognized institutions of higher
education will continue to foster small business development in the state,
particularly in high technology related sectors. These factors should provide
an attractive backdrop for Massachusetts municipal bonds.
- -------------------
4 For investors in certain tax situations, a portfolio of income may be
subject to the federal alternative minimum tax (AMT).
5 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.
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Keystone Massachusetts Tax Free Fund
[Data for Keystone Massachusetts Tax Free Fund Mountain Chart]
Growth of an investment in
Keystone Massachusetts Tax Free Fund Class A
In Thousands
Initial Reinvested
Investments Distributions
2/94 9372 9414
3/94 8734 8820
3/95 8753 9370
3/96 8848 9992
A $10,000 investment in Keystone Massachusetts Tax Free Fund Class A made on
February 4, 1994 with all distributions reinvested was worth $9,992 on March 31,
1996. Past performance is no guarantee of future results.
Tax-Equivalent Yields
Federal Tax Bracket(6)
- -------- -----------------------------------
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.
6 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.
Twelve-Month Performance as of March 31, 1996
Class A Class B Class C
Total returns* 6.64% 5.77% 5.89%
Net asset value 3/31/95 $ 9.19 $ 9.15 $ 9.14
3/31/96 $ 9.29 $ 9.22 $ 9.22
Dividends $ 0.50 $ 0.45 $ 0.45
Capital gains None None None
*Before deduction of front-end or contingent deferred sales
charge (CDSC), if applicable.
Historical Record as of March 31, 1996
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 6.64% 5.77% 5.89%
1-year 1.57% 1.77% 5.89%
Life of Class -0.08% 0.70% 3.36%
Average Annual Returns
1-year w/o sales charge 6.64% 5.77% 5.89%
1-year 1.57% 1.77% 5.89%
Life of Class -0.04% 0.32% 1.54%
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.
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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.(7) At least 80% of your
Fund's investments will be insured as to timely payment of both principal and
interest. The Fund is managed by Keystone Vice President George Kimball.
Performance
For the twelve-month period which ended March 31, 1996, your Fund provided
the following total returns, including income and price changes:
Class A shares returned 7.73%.
Class B shares returned 7.02%.
Class C shares returned 7.02%.
Portfolio Strategy
Keystone New York Insured Tax Free Fund was positioned to take advantage of
the declining interest rate environment in 1995. We lengthened the
portfolio's average maturity for much of the year by investing in twenty to
twenty-five year bonds. The longer maturities provided attractive yields and
price appreciation when interest rates fell. When interest rates began to
rise, we invested in bonds with fifteen- to twenty-year maturities, which
shortened the Fund's average maturity. The shorter maturities provided much
of the yield and greater price stability at that time. We extended call
protection throughout the period, to maximize and maintain income. As of
March 31, 1996, 36.5% of the portfolio was invested in non-callable bonds.
While about 90% of the Fund was invested in insured bonds, we utilized the
portfolio's flexibility to invest approximately 10% of net assets in some
uninsured obligations, which we believe offered especially good value.
Portfolio Quality Summary
as of March 31, 1996
S&P Rating(8)
[PIE CHART]
AAA (88.0%)
AA (9.5%)
BBB (2.5%)
Average portfolio quality: AAA
(as a percentage of portfolio assets)
As of March 31, 1996, your Fund's average maturity was 21.4 years, up slightly
from 20.1 years on September 30, 1995. Also, on March 31, 1996, the Fund's
average portfolio quality was AAA, the highest quality rating.
Economic Environment
New York's economy continues to lag that of the nation, with slow job growth
and an unemployment rate that is higher than the national average. The state
took realistic actions to close its budget gap for fiscal year 1996, but
continues to face significant budget challenges in the year ahead.
Outlook
Given the outlook for below average economic growth in New York, as well as
the expectation of reduced revenues and rising expenditures in fiscal year
1997, we believe that the state's budget will continue to be stressed. Under
these circumstances, we believe that your Fund's emphasis on insured bonds
should provide additional protection and stability.
7 For investors in certain tax situations, a portfolio of income may be
subject to the federal alternative minimum tax (AMT).
8 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.
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Page 8
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Keystone New York Insured Tax Free Fund
[Keystone New York Insured Tax Free Fund Mountain Chart]
Growth of an investment in
Keystone New York Insured Tax Free Fund Class A
In Thousands
Initial Reinvested
Investments Distributions
2/94 9363 9404
3/94 8877 8962
3/95 8991 9596
3/96 9210 10340
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 $10,338 on March
31, 1996. Past performance is no guarantee of future results.
Tax-Equivalent Yields
Federal Tax Bracket(9)
- ------------- -----------------------------------
31% 36% 39.6%
- ------------- ------- ------- ---------
(combined
city, state
& federal) (39.51%) (43.89%) (47.05%)
- ------------- ------- ------- ---------
Yield Taxable Equivalent Yield
- ------------- -----------------------------------
4.5% 7.4% 8.0% 8.5%
5.0% 8.3% 8.9% 9.4%
5.5% 9.1% 9.8% 10.4%
- ------------- ------- ------- ---------
The yields shown are for illustrative purposes only. They are not intended to
represent actual performance of the Fund.
9 The table is based on federal tax brackets.The 31% bracket includes single
filers earning $43,501-115,000 and joint filers earning $89,151-140,000;
the 36% bracket includes single filersearning $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.
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%.
Twelve-Month Performance as of March 31, 1996
Class A Class B Class C
Total returns* 7.73% 7.02% 7.02%
Net asset value
3/31/95 $9.44 $9.38 $9.37
3/31/96 $9.67 $9.59 $9.58
Dividends $0.49 $0.44 $0.44
Capital gains None None None
*Before deduction of front-end or contingent deferred sales charge (CDSC), if
applicable.
Historical Record as of March 31, 1996
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 7.73% 7.02% 7.02%
1-year 2.61% 3.02% 7.02%
Life of Class 3.38% 4.14% 6.80%
Average Annual Returns
1-year w/o sales charge 7.73% 7.02% 7.02%
1-year 2.61% 3.02% 7.02%
Life of Class 1.55% 1.90% 3.09%
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.
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Page 9
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Keystone Pennsylvania Tax Free Fund
Your Fund's Performance
Keystone Pennsylvania Tax Free FundYour Fund's objective is to earn generous
income, exempt from federal, state, and city income tax, while preserving
capital.(10) In addition, your Fund seeks to ensure that its shares are exempt
from Pennsylvania's personal property tax. The Fund is managed by Keystone
Vice President Daniel A. Rabasco.
Performance
For the twelve-month period which ended March 31, 1996, your Fund provided
the following total returns, including income and price changes:
Class A shares returned 7.66%.
Class B shares returned 6.84%.
Class C shares returned 6.92%.
Portfolio Strategy
Keystone Pennsylvania Tax Free Fund continued to employ a "barbelled"
strategy to build total return and income over the past year. We invested in
bonds with relatively high coupons to generate current income, and balanced
the strategy with zero coupon bonds for greater price appreciation during the
declining interest rate environment. We shortened the Fund's average maturity
as interest rates began to rise, primarily investing in bonds with fifteen to
twenty year maturities. As of March 31, 1996, your Fund's average maturity
was 19.0 years, down slightly from 19.3 years on September 30, 1995. The
average portfolio quality was AA-, the second highest rating category.
Economic Environment
While growth has been slow, Pennsylvania continues to diversify its economy
away from its historical reliance on manufacturing. Employment gains in
service industries have nearly offset job losses in manufacturing. The
Commonwealth continues to project a balanced budget at the end of the current
fiscal year.
Portfolio Quality Summary
as of March 31, 1996
S&P Rating(11)
[PIE CHART]
AAA (53.8%)
BBB (26.5%)
Not rated (6.0%)
AA (10.0%)
A (3.7%)
Average portfolio quality: AA-
(as a percentage of portfolio assets)
Outlook
We continue to have a favorable outlook for the Commonwealth of Pennsylvania. We
expect to see the state's economy become increasingly diverse; and longer term,
to track national economic performance. Pennsylvania's sound fiscal practices
continue to be reflected in balanced budgets and low debt burdens. All these
factors should bode well for the state's bonds in the foreseeable future.
- ---------------
10 For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
11 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
organizations.
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Page 10
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Keystone Pennsylvania Tax Free Fund
[Keystone Pennsylvania Tax Free Fund Mountain Chart]
Growth of an investment in
Keystone Pennsylvania Tax Free Fund
Class A
In Thousands
Initial Reinvested
Investment Distributions
12/90 9715 9723
9763 9941
3/92 10201 11141
10877 12622
3/94 10487 12948
10391 13583
3/96 10620 14627
A $10,000 investment in Keystone Pennsylvania Tax Free Fund Class A made on
December 27, 1990 with all distributions reinvested was worth $14,625 on March
31, 1996. Past performance is no guarantee of future results.
Tax-Equivalent Yields
Federal Tax Bracket(12)
- ------------------------ -----------------------------
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.
12 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.
Class A shares were introduced on December 27, 1990. Performance is reported
at the current maximum front-end sales charge of 4.75%.
Twelve-Month Performance as of March 31, 1996
Class A Class B Class C
Total returns* 7.66% 6.84% 6.92%
Net asset value
3/31/95 $10.91 $10.81 $10.83
3/31/96 $11.15 $11.00 $11.03
Dividends $ 0.59 $ 0.54 $ 0.54
Capital gains None None None
*Before deduction of front-end or contingent deferred sales charge (CDSC), if
applicable.
Historical Record as of March 31, 1996
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 7.66% 6.84% 6.92%
1-year 2.55% 2.84% 6.92%
5-year 40.12% -- --
Life of Class 46.25% 13.41% 16.41%
Average Annual Returns
1-year w/o sales charge 7.66% 6.84% 6.92%
1-year 2.55% 2.84% 6.92%
5-year 6.98% -- --
Life of Class 7.49% 4.05% 4.92%
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 11
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Keystone State Tax Free Fund
A Discussion With
Your Fund's Management
The Keystone State Tax Free Funds are managed by Keystone's municipal bond
team, headed by senior portfolio manager Betsy Blacher. The team is comprised
of six 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 was the tone of the municipal bond market over the past year?
A We experienced a strong municipal bond market for most of the year. Slow
economic growth and well contained inflation drove interest rates close to
historic lows. At the end of the year, though, investors shifted their focus
to the uncertainties about the upcoming election year and the budget gridlock
in Washington. The prospect of tax reform caused a lot of concern--
particularly talk of the "flat tax". Investors dealt with "the unknown" by
exercising caution, which changed the market's tone from strength to
uneasiness. The market goes through many cycles, and this change of tone is
typical of a transitional period.
Q What about the economy?
A Early in 1996, many people thought that the economy might slip into a
recession later in the year, and that further interest rate cuts were a
foregone conclusion. By March, however, data began to appear that indicated a
healthier economy and investors reassessed their growth and inflation
outlook. Many investors sold bonds, resulting in rising interest rates.
Q What is the current tone of the municipal bond market?
A Municipal bonds have entered into a period of relative stability, now that
many of "the unknowns" have become more familiar and been reviewed. There is
less political uncertainty as we move toward the national election in
November, and the possibility of a flat tax now appears to be highly
unlikely. Investors are still trying to determine economic strength, although
a clearer picture is beginning to emerge. We believe that the economy is
growing moderately with little to no inflation pressures. Until investors are
confident of this, however, bonds may experience some price volatility.
Q What investment strategies did you employ in the last year?
A We employed two strategies during the declining interest rate environment,
which encompassed most of the Funds' twelve-month period. Our primary focus
was to extend call protection, which maximized and maintained income in the
Funds. As part of this strategy, we invested a substantial portion of net
assets in non-callable bonds. We also lengthened average maturity and stayed
fully invested. As interest rates appeared likely to rise, we began to
shorten up the portfolios' average maturities, to limit exposure to price
declines. Primarily, we invested in fifteen- to twenty-year maturities, which
provided much of the yield but greater price stability than those bonds with
longer maturities.
Q What is your outlook for the municipal bond market?
A We expect interest rates to rise modestly over the near term, as investors
monitor developments in the economy. This transitional period could cause
municipal bond prices to be somewhat volatile; but we expect it to be
limited. Longer term, we expect moderate economic growth with little
inflation, which should be positive for the market. There continues to be
relatively little supply; and we think there could be greater demand, now
that there are fewer political uncertainties and tax reform is less of an
issue. At this point, municipal bonds offer good value, in our opinion.
<PAGE>
Page 12
- ----------------------------------
Keystone State Tax Free Fund
As of March 31, 1996, they averaged 91% of the yield of comparable long term
Treasuries, a relatively attractive level.(13)
Q What do Keystone State Tax Free Funds offer investors?
A The Funds are designed to meet the needs of tax- sensitive investors. The
Funds offer daily liquidity and professional management. We select bonds for
the portfolios after careful credit analysis and an assessment of current and
anticipated market conditions. Each portfolio seeks consistent, attractive
income that is exempt from federal income and state (and city) taxes as
applicable.(14) In states that tax intangible assets or personal property
(Florida and Pennsylvania), we also seek tax-exempt status.
- ------------------
13 Source: Keystone Investments, Inc. Based on the average yield of a
selection of 30-year AA-rated municipal bonds compared to the yield on a
30-year U.S. Treasury bond on March 31, 1996.
14 For investors in certain tax situations, a portion of income may be
subject to the federal altnerative minimum tax (AMT).
<PAGE>
Page 13
- ----------------------------------
Keystone State Tax Free Fund
Growth of an Investment
[Keystone Florida Tax Free Fund Line Chart]
Comparison of change in value of a $10,000 investment in Keystone Florida Tax
Free Fund Class A, the Lehman Municipal Bond Index and the Consumer Price Index.
In Thousands
December 28, 1990 through March 31, 1996
Class A LMBI CPI
12/90 9637 10000 10000
9860 10271 10090
3/92 10879 11298 10411
12220 12712 10732
3/94 12343 13006 11001
13135 13977 11315
3/96 14208 15149 11577
Average Annual Total Return
----------------------------------
1 Year 5 Year Life of Class
Class A 3.03% 6.54% 6.91%
Class B 3.48% -- 3.98%
Class C 7.47% -- 4.81%
Past performance is no guarantee of future results. The performance of Class B
or Class C shares may be greater or less than the line shown based on
differences in loads and fees paid by the shareholder investing in the different
classes. The Consumer Price Index is through February 29, 1996.
[Keystone Massachusetts Tax Free Fund Line Chart]
Comparison of change in value of a $10,000 investment in Keystone Massachusetts
Tax Free Fund and the Lehman Municipal Bond Index.
In Thousands
February 4, 1994 through March 31, 1996
Class A Class B Class C LMBI
2/94 9414 9884 9883 10000
3/94 8820 9280 9279 9345
3/95 9370 9782 9761 10042
3/96 9992 10070 10336 10884
Average Annual Total Return
-----------------------------
1 Year Life of Class
Class A 1.57% -0.04%
Class B 1.77% 0.32%
Class C 5.89% 1.54%
Past performance is no guarantee of future results. The performance of each
Class may vary based on differences in loads and fees paid by the shareholder
investing in the different classes. The Lehman Municipal Bond Index is from
January 31, 1994.
These charts graphically compare your Fund's total return performance to
certain investment indexes. It is the result of fund performance guidelines
issued by the Securities and Exchange Commission. The intent is to provide
investors with more information about their investment.
Components of the Charts
These charts are composed of several lines that represent the accumulated
value of an initial $10,000 investment for the period indicated. The lines
illustrate a hypothetical investment in:
1. Your Keystone State Tax Free Fund
Your Fund seeks high current income, exempt from federal income taxes, while
preserving capital by investing in high quality municipal bonds. In addition,
each Fund also seeks to provide a maximum level of income that is exempt from
state and local income
or intangibles/personal property taxes, as applicable. Returns are quoted
after deducting front-end or contingent deferred sales charges (if
applicable), fund expenses, and transaction costs. The return also includes
reinvestment of all distributions.
2. Lehman Municipal Bond Index (LMBI)
The LMBI is a broad-based, unmanaged market index of securities issued by
state and local governments. It represents the price change and coupon income
of several thousand securities with various maturities and qualities.
Securities are selected and compiled by Lehman Brothers, Inc. according to
criteria that may be unrelated to your Fund's investment objective. The index
does not include transaction costs associated with buying and selling
securities, and does not hold cash to meet redemptions. It would be difficult
for most individual investors to duplicate this index.
<PAGE>
Page 14
- ----------------------------------
Keystone State Tax Free Fund
[Keystone New York Insured Tax Free Fund Line Chart]
Comparison of change in value of a $10,000 investment in Keystone New York
Insured Tax Free Fund and the Lehman Municipal Bond Index.
In Thousands
February 4, 1994 through March 31, 1996
Class A Class B Class C LMBI
2/94 9404 9873 9873 10000
3/94 8962 9409 9398 9345
3/95 9596 10000 9979 10042
3/96 10338 10414 10680 10884
Average Annual Total Return
-----------------------------
1 Year Life of Class
Class A 2.61% 1.55%
Class B 3.02% 1.90%
Class C 7.02% 3.09%
Past performance is no guarantee of future results. The performance of each
Class may vary based on differences in loads and fees paid by the shareholder
investing in the different classes. The Lehman Municipal Bond Index is from
January 31, 1994.
[Keystone Pennsylvania Tax Free Fund Line Chart
Comparison of change in value of a $10,000 investment in Keystone Pennsylvania
Tax Free Fund Class A, the Lehman Municipal Bond Index and the Consumer Price
Index.
In Thousands
December 27, 1990 through March 31, 1996
Class A LMBI CPI
12/90 9723 10000 10000
9941 10271 10090
3/92 11141 11298 10411
12622 12712 10732
3/94 12948 13006 11001
13583 13977 11315
3/96 14627 15149 11577
Average Annual Total Return
----------------------------------
1 Year 5 Year Life of Class
Class A 2.55% 6.98% 7.49%
Class B 2.84% -- 4.05%
Class C 6.92% -- 4.92%
Past performance is no guarantee of future results. The performance of Class B
or Class C shares may be greater or less than the line shown based on
differences in loads and fees paid by the shareholder investing in the different
classes. The Consumer Price Index is through February 29, 1996.
3. Consumer Price Index (CPI)
This index is a widely recognized measure of the cost of goods and services
produced in the U.S. The index contains factors such as prices of services,
housing, food, transportation and electricity which are compiled by the U.S.
Bureau of Labor Statistics. The CPI is generally considered a valuable
benchmark for investors who seek to outperform increases in the cost of
living.
This index does not include transaction costs associated with buying and
selling securities, and does not hold cash to meet redemptions. It would be
difficult for most individual investors to duplicate this index.
Understanding What the Charts Mean
The charts demonstrate your Fund's total return performance in relation to a
well known investment index and to increases in the cost of living. It is
important to understand what the charts show and do not show.
This illustration is useful because it charts Fund and index performance
over the same time frame and over a long period. Long-term performance is a
more reliable and useful measure of performance than measurements of
short-term returns or temporary swings in the market. Your financial adviser
can help you evaluate fund performance in conjunction with the other
important financial considerations such as safety, stability and consistency.
Limitations of the Charts
The charts, however, limit the evaluation of Fund performance in several
ways. Because the measurement is based on total returns over an extended
period of time, the comparison often favors those funds which emphasize
capital appreciation when the market is rising. Likewise, when the market is
declining, the comparison usually favors those funds which take less risk.
<PAGE>
Page 15
- ----------------------------------
Keystone State Tax Free Fund
Performance Can Be Distorted
Funds which are more conservative in their orientation and which place an
emphasis on capital preservation will tend to compare less favorably when the
market is rising. In addition, funds which have income as one of their
objectives also will tend to compare less favorably to relevant indexes.
Indexes may also reflect the performance of some securities which a fund may
be prohibited from buying. A bond fund, for example, may be limited to
investments in only high quality bonds, or a stock fund may only be able to
buy stocks that have been traded on a stock exchange for a minimum number of
years or of a certain company size. Indexes usually do not have the same
investment restrictions as your Fund.
Indexes Do Not Include Costs of Investing
The comparison is further limited in its utility because the indexes do not
take into account any deductions for sales charges, transaction costs or
other fund expenses. Your Fund's performance figures do reflect such
deductions. Sales charges--whether up-front or deferred--pay for the cost of
the investment advice of your financial adviser. Transaction costs pay for
the costs of buying and selling securities for your Fund's portfolio. Fund
expenses pay for the costs of investment management and various shareholder
services. None of these costs are reflected in index total returns. The
comparison is not completely realistic because an index cannot be duplicated
by an investor--even an unmanaged index--without incurring some charges and
expenses.
One of Several Measures
The charts are one of several tools you can use to understand your
investment. It should be read in conjunction with the Fund's prospectus, and
annual and semiannual reports. Also, your financial adviser, who understands
your personal financial situation, can best explain the features of your
Keystone fund and how it applies to your financial needs.
Future Returns May Be Different
Shareholders also should be mindful that the long-run performance of either
the Fund or the indexes is not representative of what shareholders should
expect to receive from their Fund investment in the future; it is presented
to illustrate only past performance and is not a guarantee of future returns.
<PAGE>
Page 16
- ----------------------------------
Keystone Florida Tax Free Fund
SCHEDULE OF INVESTMENTS--March 31, 1996
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- ----------------------------------------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.8%)
Bay County, Florida, Hospital Systems Revenue Refunding,
Bay Medical Center Project 8.000% 10/01/2019 $2,500,000 $ 2,778,525
Brevard County, Florida, Health Facilities Authority
Revenue Refunding, Devereux Foundation (MBIA) 5.125 11/01/2019 2,320,000 2,097,628
Brevard County, Florida, Health Facilities Authority
Revenue Refunding, Wuesthoff Memorial Hospital (MBIA) 7.200 04/01/2013 3,000,000 3,353,760
Broward County, Florida, Collateralized Home Mortgage 7.125 03/01/2017 195,000 203,621
Broward County, Florida, Resource Recovery, South Project 7.950 12/01/2008 2,500,000 2,767,975
Charlotte County, Florida, Utility Revenue (FGIC) 6.750 10/01/2013 1,000,000 1,104,320
City of Tarpon Springs Health Facilities Authority,
Florida, Hospital Refunding, Helen Ellis Hospital 7.625 05/01/2021 1,000,000 1,036,910
City of Tarpon Springs Health Facilities Authority,
Florida, Hospital Refunding, Tarpon Springs Hospital
Foundation, Inc. 8.750 05/01/2012 500,000 526,955
Commonwealth of Puerto Rico, Aqueduct and Sewer Authority
Revenue 5.000 07/01/2015 4,000,000 3,592,240
Commonwealth of Puerto Rico, Aqueduct and Sewer Authority
Revenue 5.000 07/01/2019 1,640,000 1,446,710
Commonwealth of Puerto Rico, Aqueduct and Sewer Authority
Revenue 6.250 07/01/2012 2,000,000 2,110,620
Commonwealth of Puerto Rico, Highway Authority, Series Q 7.750 07/01/2010 125,000 143,380
Dade County, Florida, Aviation Revenue, Series C (MBIA) 5.750 10/01/2025 2,200,000 2,172,896
Dade County, Florida, Educational Facilities Authority
Revenue (St. Thomas University) 6.000 01/01/2010 2,000,000 2,022,740
Dade County, Florida, Housing Finance Agency, Single Family
Mortgage 7.000 03/01/2024 185,000 191,166
Dade County, Florida, School District, General Obligation 7.375 07/01/2008 40,000 44,445
Dade County, Florida, Seaport Refunding (MBIA) 5.125 10/01/2016 2,000,000 1,843,360
Dade County, Florida, Seaport Refunding (MBIA) 5.125 10/01/2021 2,500,000 2,264,350
Duval County, Florida, Single Family Mortgage Refunding
(FGIC) 7.300 07/01/2011 80,000 84,032
Escambia County, Florida, Pollution Control, Champion
International Corp. Project 6.900 08/01/2022 2,400,000 2,499,960
Florida Housing Finance Agency, Home Ownership Mortgage 7.500 09/01/2014 180,000 191,196
Florida State Board of Education Capital Outlay Refunding,
Public Education, Series D 4.750 06/01/2016 2,000,000 1,751,420
Florida State Board of Education Capital Outlay Refunding,
Public Education, Series E 5.000 06/01/2020 2,000,000 1,781,120
Florida State Department of Transportation, Turnpike
Revenue Bonds, Series 1991A (AMBAC) 7.125 07/01/2018 125,000 141,830
Florida State Transportation, Jacksonville Transportation
Authority 9.000 01/01/2000 1,000,000 1,101,100
Gainesville, Florida, Utilities System Revenue, Series B 7.500 10/01/2008 3,435,000 4,131,584
Gainesville, Florida, Utilities System Revenue, Series B 7.500 10/01/2009 3,695,000 4,446,378
Hillsborough County, Florida, Capital Improvement Program
Revenue, County Center Project, Series B (MBIA) 5.000 07/01/2017 2,000,000 1,823,620
<PAGE>
Page 17
- ----------------------------------
Keystone Florida Tax Free Fund
Hollywood, Florida, Water and Sewer System Revenue (FGIC) 6.875% 10/01/2021 $ 535,000 $ 603,223
Huron Valley, Michigan, School District Capital
Appreciation (effective yield 6.651%) (MBIA)(b) 0.000 05/01/2019 2,925,000 724,025
Indian River County, Florida, Water and Sewer Systems
Revenue (FGIC) 6.500 05/01/2016 400,000 441,356
Jacksonville, Florida, Health Facilities Authority, St.
Luke's Hospital Association 7.125 11/15/2020 3,000,000 3,209,040
Jacksonville, Florida, Hospital Authority, Baptist Medical
Center Project, Series A (MBIA) 7.300 06/01/2019 350,000 378,367
Lee County, Florida, School Board, Certificates of
Participation, Series A (FSA) 7.750 08/01/2004 1,000,000 1,168,120
Lee County, Florida, School Board, Certificates of
Participation, Series A (FSA) 7.750 08/01/2005 1,500,000 1,752,180
Miami, Florida, Health Facilities Authority, Health
Facilities Revenue, Mercy Hospital, Series A (AMBAC) 6.750 08/01/2020 350,000 391,545
Miami, Florida, Special Obligation Revenue (FGIC) 6.000 02/01/2016 1,000,000 1,020,510
Miramar, Florida, Wastewater Improvement Assessment Revenue
(FGIC) 6.750 10/01/2016 1,000,000 1,087,720
New York, New York, General Obligation, Series F 5.750 02/01/2015 3,000,000 2,796,720
New York State Urban Development Corp. Revenue, State
Facilities 5.700 04/01/2020 5,000,000 4,737,150
North Springs Improvement District, Florida, Water and
Sewer Revenue, Series B (MBIA) 6.500 12/01/2016 1,335,000 1,453,361
Okaloosa County, Florida, Gas District, Refunding and
Improvement (MBIA) 6.850 10/01/2014 2,550,000 2,866,302
Orange County, Florida, Health Facilities Authority,
Hospital Revenue, Adventist Health (AMBAC) 5.250 11/15/2020 2,000,000 1,834,460
Orange County, Florida, Housing Finance Authority, GNMA
Collateralized Mortgage, Series B (AMT) 8.100 11/01/2021 2,260,000 2,352,841
Orlando, Florida, Utilities Commission, Water and Electric 6.000 10/01/2010 4,000,000 4,212,600
Orlando-Orange County, Florida, Expressway Authority (FGIC) 8.250 07/01/2015 40,000 52,058
Palm Beach County, Florida, General Obligation 6.500 07/01/2010 1,880,000 2,074,824
Palm Beach County, Florida, Solid Waste Industrial
Development, Okeelanta Power Project (AMT) 6.700 02/15/2015 2,000,000 2,007,680
Palm Beach County, Florida, Solid Waste Industrial
Development, Okeelanta Power Project (AMT) 6.850 02/15/2021 3,000,000 3,011,370
Palm Beach County, Florida, Solid Waste Industrial
Development, Osceola Power Project (AMT) 6.850 01/01/2014 3,500,000 3,554,635
Palm Beach County, Florida, Solid Waste Industrial
Development, Osceola Power Project (AMT) 6.950 01/01/2022 2,000,000 2,023,400
Puerto Rico Electric Power Authority 7.000 07/01/2011 200,000 226,778
San Antonio, Texas, Electric & Gas Revenue, Capital
Appreciation, Series B (FGIC) (effective yield 7.098%)
(b) 0.000 02/01/2009 2,500,000 1,220,175
(Continued on next page)
<PAGE>
Page 18
- ----------------------------------
Keystone Florida Tax Free Fund
MUNICIPAL BONDS (continued)
Tallahassee, Florida, Health Facilities, Tallahassee
Memorial Regional Medical Project (MBIA) 6.625% 12/01/2013 $2,000,000 $ 2,192,120
Tampa, Florida, Capital Improvement Program Revenue, Series B 8.375 10/01/2018 1,250,000 1,325,238
Tampa, Florida, Subordinate Guaranteed Entitlement Revenue,
Series B (ETM) 8.500 10/01/2018 45,000 49,481
Tampa, Florida, Sports Authority Revenue, Tampa Bay Arena
(MBIA) 5.750 10/01/2020 1,000,000 1,008,010
Texas Municipal Power Agency Revenue, Capital Appreciation
(MBIA) (effective yield 6.149%) (b) 0.000 09/01/2017 3,000,000 835,290
University of Puerto Rico, University Revenues, Series M
(MBIA) 5.250 06/01/2025 2,000,000 1,848,740
West Melbourne, Florida, Water and Sewer Revenue (FGIC) 6.750 10/01/2014 1,000,000 1,115,150
- ----------------------------------------------------------- ------- ------- ------- --------
TOTAL MUNICIPAL BONDS (Cost--$98,723,553) 101,228,310
=========================================================== ======= ======= ======= ========
TEMPORARY TAX-EXEMPT INVESTMENTS (0.5%)
Dade County, Florida, Water and Sewer System Revenue Bond,
Series 1994 (Cost--$490,000) (a) 3.300 10/05/2022 490,000 490,000
- ----------------------------------------------------------- ------- ------- ------- --------
TOTAL INVESTMENTS (Cost--$99,213,553) (c) 101,718,310
OTHER ASSETS AND LIABILITIES--NET (1.7%) 1,795,674
- ----------------------------------------------------------- ------- ------- ------- --------
NET ASSETS (100.0%) $103,513,984
=========================================================== ======= ======= ======= ========
</TABLE>
(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 annual basis until maturity.
(c) The cost of investments for federal income tax purposes amounted to
$99,588,715. Gross unrealized appreciation and unrealized depreciation of
investments, based on identified tax cost, at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation $ 3,654,683
Gross unrealized depreciation (1,525,088)
------------------------------- ------------
Net unrealized appreciation $ 2,129,595
================================ ============
</TABLE>
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--AMBAC Indemnity Corporation
AMT--Subject to Alternative Minimum Tax
ETM -- Escrowed to Maturity
FGIC--Federal Guaranty Insurance Company
FSA--Financial Security Assistance
MBIA--Municipal Bond Investors Assurance
See Notes to Financial Statements.
<PAGE>
Page 19
- ----------------------------------
Keystone Massachusetts Tax Free Fund
SCHEDULE OF INVESTMENTS--March 31, 1996
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
----------------------------------------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.1%)
Franklin, Massachusetts, School Improvements (MBIA) 5.250% 11/15/2013 $ 500,000 $ 481,445
Lawrence, Massachusetts, School Improvements (AMBAC) 6.250 02/15/2009 450,000 477,090
Massachusetts Bay Transportation Authority, General
Transportation, Series A 7.000 03/01/2011 750,000 857,393
Massachusetts Bay Transportation Authority, General
Transportation, Series A 6.250 03/01/2012 400,000 425,248
Massachusetts Educational Financing Loan Authority (AMBAC) 6.000 01/01/2012 300,000 296,805
Massachusetts Municipal Wholesale Electric, Power Supply
Systems, Series B 6.750 07/01/2008 460,000 493,189
Massachusetts State Health and Educational Facilities
Authority, Capital Asset Project, Series F (MBIA) 7.300 10/01/2018 475,000 519,740
Massachusetts State Health and Educational Facilities
Authority, Cape Islands Rehabilitation Hospital, Series A 7.875 08/15/2024 500,000 506,630
Massachusetts State Health and Educational Facilities
Authority, Children's Hospital, Series E 6.200 10/01/2016 240,000 243,194
Massachusetts State Health and Educational Facilities
Authority, Dana Farber Cancer Project, Series G-1 6.250 12/01/2022 500,000 500,335
Massachusetts State Health and Educational Facilities
Authority, McLean Hospital, Series C (FGIC) 6.500 07/01/2010 550,000 594,259
Massachusetts State Health and Educational Facilities
Authority, New England Deaconess Hospital 6.875 04/01/2022 500,000 515,005
Massachusetts State Housing Finance Agency, Series A
(AMBAC) 6.600 07/01/2014 300,000 310,977
Massachusetts State Industrial Finance Agency, Harvard
Community Health Plan, Inc., Series B 8.125 10/01/2017 525,000 562,832
Massachusetts State Industrial Finance Agency, Solid Waste
Disposal, Molten Metal Technology Project 8.250 08/01/2014 250,000 260,815
Massachusetts State Industrial Finance Agency, Solid Waste
Disposal, Senior Lien, Massachusetts Recycling Associates 9.000 08/01/2016 1,000,000 983,530
Massachusetts State Water Pollution, Series 2 6.125 02/01/2008 525,000 568,076
Massachusetts State Water Pollution, Massachusetts Water
Resources Authority Loan, Series A 5.300 08/01/2010 1,000,000 971,000
Massachusetts State Water Resources Authority, Series B
(MBIA) 6.250 12/01/2013 600,000 635,568
North Adams, Massachusetts, School Improvement (AMBAC) 5.700 03/01/2013 600,000 593,328
University of Massachusetts, Building Authority, Series A
(MBIA) 5.500 05/01/2015 250,000 239,104
- ----------------------------------------------------------- ------- ------- ------- --------
TOTAL MUNICIPAL BONDS (Cost--$10,988,639) 11,035,563
============================================================ ======= ======= ======= ========
TEMPORARY TAX-EXEMPT INVESTMENTS (1.6%)
Massachusetts State Health and Educational Facilities
Authority, (Capital Assets Program), Series D (MBIA)
(Cost--$180,000) (a) 3.750 01/01/2035 180,000 180,000
- ----------------------------------------------------------- ------- ------- ------- --------
</TABLE>
(continued on next page)
<PAGE>
Page 20
- ----------------------------------
Keystone Massachusetts Tax Free Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS--March 31, 1996
Market
Value
- --------------------------------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
TOTAL INVESTMENTS (Cost--$11,168,639) b) $11,215,563
OTHER ASSETS AND LIABILITIES--NET (1.3%) 147,758
- --------------------------------------- -------- -------- -------- ----------
NET ASSETS (100.0%) $11,363,321
======================================= ======== ======== ======== ============
</TABLE>
(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) The cost of investments for federal income tax purposes amounted to
$11,168,639. Gross unrealized appreciation and unrealized depreciation of
investments, based on identified tax cost, at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation $ 165,408
Gross unrealized depreciation (118,484)
- ------------------------------- ---------
Net unrealized appreciation $ 46,924
=============================== =========
</TABLE>
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--AMBAC Indemnity Corporation
FGIC--Federal Guaranty Insurance Company
MBIA--Municipal Bond Investors Assurance
See Notes to Financial Statements.
<PAGE>
Page 21
- ----------------------------------
Keystone New York Insured Tax Free Fund
SCHEDULE OF INVESTMENTS--March 31, 1996
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- ----------------------------------------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (96.7%)
Buffalo, New York, Series E (AMBAC) 6.500% 12/01/2022 $ 465,000 $ 502,879
Erie County, New York, Water Authority, Fourth Resolution
(AMBAC) (effective yield 6.824%) (b) 0.000 12/01/2017 770,000 162,901
Hempstead Town, New York, General Obligation, Series B
(FGIC) 5.625 02/01/2015 550,000 540,727
Metropolitan Transportation Authority, New York, Commuter
Facilities, Series A (MBIA) 6.125 07/01/2014 1,400,000 1,439,410
Nassau County, New York, Combined Sewer District, Series B
(FGIC) 6.000 05/01/2014 695,000 711,805
New Rochelle, New York, General Obligation, Series B (MBIA) 6.150 08/15/2017 600,000 625,098
New York City, New York, General Obligation, Series D
(MBIA) 6.000 08/01/2006 285,000 292,034
New York City, New York, Municipal Water Finance Authority,
Water and Sewer System, Series A (FGIC) 7.000 06/15/2015 705,000 767,683
New York City, New York, Municipal Water Finance Authority,
Water and Sewer System, Series A (FGIC) 7.000 06/15/2015 695,000 757,724
New York Resources Recovery Agency, Electric Light and
Power Improvements, Series B (AMBAC) 7.250 07/01/2011 100,000 117,985
New York State Dormitory Authority, City University Systems
(FGIC) 7.000 07/01/2009 1,200,000 1,398,012
New York State Dormitory Authority, City University, 3rd
General Resources, Series 2 (MBIA) 6.250 07/01/2019 450,000 460,733
New York State Dormitory Authority, Fordham University
(FGIC) 5.750 07/01/2015 500,000 497,020
New York State Dormitory Authority, Mount Sinai Medical
School, Series A (MBIA) 5.000 07/01/2021 125,000 112,425
New York State Dormitory Authority, State University
Educational Facilities (AMBAC) 5.875 05/15/2011 250,000 259,418
New York State Dormitory Authority, State University
Educational Facilities, Series A (FSA) 5.250 05/15/2015 600,000 567,348
New York State Dormitory Authority, University of Rochester
Strong Memorial (MBIA) 5.500 07/01/2021 200,000 190,554
New York State Energy Research and Development, Brooklyn
Union Gas Co Project, Series A (MBIA) 5.500 01/01/2021 500,000 478,480
New York State Energy Research and Development,
Consolidated Edison (AMBAC) 6.100 08/15/2020 500,000 505,830
New York State Housing Finance Agency, Multi-family
Mortgage, Series B (AMBAC) 6.250 08/15/2014 875,000 882,035
New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities 6.375 11/15/2019 250,000 251,085
New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities (FGIC) 6.375 08/15/2014 1,000,000 1,035,890
New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities, Series C (MBIA) 6.000 08/15/2015 500,000 507,310
New York State Urban Development Corp., Correctional
Capital Facilities, Series A 6.500 01/01/2009 600,000 621,090
New York State Urban Development Corp., Correctional
Capital Facilities, Series A (FSA) 6.500 01/01/2010 1,000,000 1,098,040
(Continued on next page)
<PAGE>
Page 22
- ----------------------------------
Keystone New York Insured Tax Free Fund
SCHEDULE OF INVESTMENTS--March 31, 1996
Municipal Bonds (continued)
New York State Urban Development Corp., Correctional
Capital Facilities, Series 5 (MBIA) 5.500% 01/01/2025 $1,000,000 $ 947,560
New York State Urban Development, Series A (MBIA) 5.500 04/01/2016 500,000 482,325
Niagara Falls, New York, Public Improvement (MBIA) 7.500 03/01/2014 700,000 855,512
Niagara Falls, New York, Public Improvement (MBIA) 7.500 03/01/2016 750,000 916,770
Niagara Falls, New York, Public Improvement (MBIA) 7.500 03/01/2017 750,000 915,990
Niagara, New York, Frontier Transportation Authority,
Greater Buffalo International Airport (AMBAC) 6.125 04/01/2014 100,000 101,782
Port Authority of New York and New Jersey 6.125 06/01/2014 500,000 513,290
Puerto Rico, Electric Power Authority 6.500 07/01/2006 900,000 1,014,111
Rochester, New York, General Obligation, Series A (AMBAC) 5.000 08/15/2018 140,000 129,002
Suffolk County, New York, Industrial Development Agency,
Southwest Sewer Systems (FGIC) 6.000 02/01/2008 1,000,000 1,069,260
Triborough Bridge and Tunnel Authority, New York, General
Purpose, Series X 6.625 01/01/2012 805,000 891,270
- ----------------------------------------------------------- ------- ------- ------- --------
TOTAL MUNICIPAL BONDS (Cost--$21,907,721) 22,620,388
=========================================================== ======= ======= ======= ========
TEMPORARY TAX-EXEMPT INVESTMENTS (2.3%)
New York City, New York, Municipal Water Finance Authority,
Series C (FGIC) (a) 3.800 06/15/2022 200,000 200,000
New York City, New York, Sub Series A-5 (a) 3.800 08/01/2015 335,000 335,000
- ----------------------------------------------------------- ------- ------- ------- --------
TOTAL TEMPORARY TAX-EXEMPT INVESTMENTS
(Cost--$535,000) 535,000
=========================================================== ======= ======= ======= ========
TOTAL INVESTMENTS (Cost--$22,442,721) (c) 23,155,388
OTHER ASSETS AND LIABILITIES--NET (1.0%) 239,132
- ----------------------------------------------------------- ------- ------- ------- --------
NET ASSETS (100.0%) $23,394,520
=========================================================== ======= ======= ======= ========
</TABLE>
(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.
(c) The cost of investments for federal income tax purposes amounted to
$22,462,470. Gross unrealized appreciation and unrealized depreciation of
investments, based on identified tax cost, at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized
appreciation $ 824,037
Gross unrealized
depreciation (131,119)
- ---------------------------- --------
Net unrealized appreciation $ 692,918
============================ ========
</TABLE>
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--AMBAC Indemnity Corporation
FGIC--Federal Guaranty Insurance Company
FSA--Financial Security Assistance
MBIA--Municipal Bond Investors Assurance
See Notes to Financial Statements.
<PAGE>
Page 23
- ----------------------------------
Keystone Pennsylvania Tax Free Fund
SCHEDULE OF INVESTMENTS--March 31, 1996
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- ----------------------------------------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.7%)
Allegheny County, Pennsylvania, Airport Revenue, Greater
Pittsburgh International Airport 6.625% 01/01/2022 $ 750,000 $ 778,133
Allegheny County, Pennsylvania, Finance Authority, Single
Family Mortgage 6.600 11/01/2014 1,000,000 1,031,260
Allegheny County, Pennsylvania, Higher Education Building
Authority, Duquesne University Project (AMBAC) 5.000 03/01/2016 2,000,000 1,820,900
Allegheny County, Pennsylvania, Hospital Development,
University of Pittsburgh Medical Center (MBIA) 5.350 12/01/2015 2,000,000 1,879,180
Allegheny County, Pennsylvania, Industrial Development
Authority, USX Corp. 6.700 12/01/2020 2,000,000 2,040,580
Allentown, Pennsylvania Area Hospital Authority, Sacred
Heart Hospital of Allentown, Series A 6.750 11/15/2014 1,750,000 1,727,180
Beaver County, Pennsylvania, Industrial Development
Authority, Pollution Control, Ohio Edison Co. Project,
Series A 7.750 09/01/2024 1,170,000 1,238,702
Berks County, Pennsylvania, Capital Appreciation Second
Series (FGIC) (effective yield 5.550%) (b) 0.000 05/15/2015 3,400,000 1,104,150
Berks County, Pennsylvania, Capital Appreciation Second
Series (FGIC) (effective yield 5.600%) (b) 0.000 05/15/2016 3,460,000 1,049,037
Berks County, Pennsylvania, Capital Appreciation Second
Series (FGIC) (effective yield 5.600%) (b) 0.000 05/15/2018 2,800,000 745,808
Cambria County, Pennsylvania, General Obligation, Series A
(FGIC) 6.625 08/15/2012 4,485,000 4,802,000
Central Bucks, Pennsylvania School District, Series A 6.900 11/15/2013 1,000,000 1,127,890
Delaware County, Pennsylvania, Industrial Development
Authority, Pollution Control, Philadelphia Electric Co.,
Series A 7.375 04/01/2021 850,000 906,899
Erie County, Pennsylvania, Industrial Development
Authority, Environmental Improvement, International Paper
Co. Project, Series A 7.625 11/01/2018 500,000 556,810
Greencastle Antrim, Pennsylvania, School District, Capital
Appreciation, Series B (MBIA) (effective yield 5.848%)
(b) 0.000 01/01/2014 1,025,000 354,681
Greencastle Antrim, Pennsylvania, School District, Capital
Appreciation, Series B (MBIA) (effective yield 5.898%)
(b) 0.000 01/01/2015 1,000,000 325,930
Greencastle Antrim, Pennsylvania, School District, Capital
Appreciation, Series B (MBIA) (effective yield 5.898%)
(b) 0.000 01/01/2016 1,955,000 600,185
Hazleton, Pennsylvania, Area School District, Compound
Interest, Series B (effective yield 6.300%) (b) 0.000 03/01/2018 5,265,000 1,410,651
Lehigh County, Pennsylvania, General Purpose Authority,
Good Shepherd Rehabilitation Hospital 7.500 11/15/2021 1,000,000 1,041,480
Lehigh County, Pennsylvania, General Purpose Authority,
Lehigh Valley Hospital, Series A (MBIA) 7.000 07/01/2016 1,250,000 1,422,375
Mon Valley, Pennsylvania, Sewage Revenue (MBIA) 6.550 11/01/2019 1,305,000 1,390,478
Monroeville, Pennsylvania, Hospital Authority, Forbes
Health System 6.250 10/01/2015 1,000,000 966,860
(Continued on next page)
<PAGE>
Page 24
- ----------------------------------
Keystone Pennsylvania Tax Free Fund
SCHEDULE OF INVESTMENTS--March 31, 1996
MUNICIPAL BONDS (CONTINUED)
Montgomery County, Pennsylvania, Higher Education and
Health Authority, Northwestern Corp. 7.000% 06/01/2012 $ 700,000 $ 694,806
Montgomery County, Pennsylvania, Higher Education and
Health Authority, Waverly Heights Project 6.250 01/01/2018 1,000,000 946,230
Montgomery County, Pennsylvania, Industrial Development,
Pollution Control, Philadelphia Electric Co. 7.600 04/01/2021 950,000 1,013,774
Northumberland County, Pennsylvania, Commonwealth Lease
(effective yield 6.820%) (b) 0.000 10/15/2012 4,200,000 1,647,828
Pennsylvania Economic Development Financing Authority,
Northhampton Generator Project, Series A (c) 6.600 01/01/2019 2,450,000 2,348,913
Pennsylvania Economic Development Financing Authority,
Resources Recovery, Colver Project, Series D (c) 7.125 12/01/2015 1,200,000 1,256,712
Pennsylvania Economic Development Financing Authority,
Resources Recovery, Colver Project, Series D (c) 7.150 12/01/2018 3,000,000 3,135,720
Pennsylvania Economic Development Financing Authority,
Resources Recovery, Northhampton University Project (c) 6.500 01/01/2013 2,200,000 2,120,294
Pennsylvania Housing Finance Agency, Single Family
Mortgage, Series 33 6.900 04/01/2017 1,000,000 1,033,460
Pennsylvania Housing Finance Agency, Single Family
Mortgage, Series 34 A (FHA/FNMA) 6.850 04/01/2016 1,500,000 1,545,525
Pennsylvania Housing Finance Agency, Single Family
Mortgage, Series 40 6.800 10/01/2015 750,000 773,933
Pennsylvania Housing Finance Agency, Single Family
Mortgage, Series 47 5.700 10/01/2016 1,500,000 1,445,280
Pennsylvania State Industrial Development Authority,
Economic Development (AMBAC) 7.000 01/01/2006 1,500,000 1,699,875
Pennsylvania Intragovernmental Cooperation Authority,
Special Tax, City of Philadelphia Funding Program 6.800 06/15/2022 2,500,000 2,772,200
Pennsylvania Intragovernmental Cooperation Authority,
Special Tax, Philadelphia Funding Program (FGIC) 6.750 06/15/2021 1,000,000 1,091,720
Pennsylvania State Industrial Development Authority,
Economic Revenue Bonds 7.000 07/01/2006 1,000,000 1,138,490
Pennsylvania State Higher Educational Facilities Authority,
Thomas Jefferson University, Series A 6.625 08/15/2009 1,450,000 1,587,054
Philadelphia, Pennsylvania, Hospital & Higher Education
Facilities, Albert Einstein Medical Center 7.625 04/01/2011 1,150,000 1,223,370
Philadelphia, Pennsylvania, Hospital and Higher Education
Facilities, Albert Einstein Medical Center 7.000 10/01/2021 945,000 985,106
Philadelphia, Pennsylvania, Hospital and Higher Education
Facilities, Graduate Health Systems Education Facilities,
Series A 7.250 07/01/2018 1,225,000 1,256,875
Philadelphia, Pennsylvania, Hospital and Higher Education
Facilities, Temple University, Series A 6.625 11/15/2023 2,300,000 2,354,004
(Continued on next page)
<PAGE>
Page 25
- ----------------------------------
Keystone Pennsylvania Tax Free Fund
MUNICIPAL BONDS (CONTINUED)
Philadelphia, Pennsylvania, Water & Waste Water (MBIA) 6.250% 08/01/2012 $1,000,000 $ 1,065,400
Philadelphia, Pennsylvania, Water & Waste Water (MBIA) 5.500 08/01/2014 1,500,000 1,436,175
Puerto Rico Highway Authority, Series Q 7.750 07/01/2010 325,000 372,788
Puerto Rico Commonwealth, Linked Bond Payment Obligation
(MBIA) 7.000 07/01/2010 5,500,000 6,301,130
Robinson, Pennsylvania, Municipal Water & Sewer, Capital
Appreciation, Series A (FGIC) (effective yield 5.800%) (b) 0.000 05/15/2012 1,880,000 738,765
Robinson, Pennsylvania, Municipal Water & Sewer, Capital
Appreciation, Series A (FGIC) (effective yield 5.850%) (b) 0.000 05/15/2013 1,880,000 691,370
Robinson, Pennsylvania, Municipal Water & Sewer, Capital
Appreciation, Series A (FGIC) (effective yield 5.930%) (b) 0.000 05/15/2016 1,710,000 522,542
Scranton-Lackawanna, Pennsylvania, Health and Welfare
Authority, Allied Services Rehabilitation Facility 7.600 07/15/2020 1,000,000 1,008,760
Westmoreland County, Pennsylvania, Municipal Authority
Capital Appreciation, Series A (FGIC) (effective yield
6.150%) (b) 0.000 08/15/2019 2,000,000 494,280
Westmoreland County, Pennsylvania, Series G (FGIC)
(effective yield 5.599%) (b) 0.000 06/01/2013 3,715,000 1,360,393
- ----------------------------------------------------------- ------- ------- ------- --------
TOTAL MUNICIPAL BONDS (Cost--$72,157,229) 74,383,941
=========================================================== ======= ======= ======= ========
TEMPORARY TAX-EXEMPT INVESTMENTS (1.1%)
Sayre County, Pennsylvania Health Care Facilities
Authority, Variable Rate (VHA Pennsylvania Capital
Financing Project) Series F (a) 3.250 12/01/2020 10,000 10,000
Sayre County, Pennsylvania Health Care Facilities
Authority, Variable Rate (VHA Pennsylvania Capital
Financing Project) Series I (a) 3.250 12/01/2020 700,000 700,000
Sayre County, Pennsylvania Health Care Facilities
Authority, Variable Rate (VHA Pennsylvania Capital
Financing Project) Series K (a) 3.250 12/01/2020 110,000 110,000
- ----------------------------------------------------------- ------- ------- ------- --------
TOTAL TEMPORARY TAX-EXEMPT INVESTMENTS (Cost--$820,000) 820,000
=========================================================== ======= ======= ======= ========
TOTAL INVESTMENTS (Cost--$72,977,229) (d) 75,203,941
OTHER ASSETS AND LIABILITIES--NET (1.2%) 900,129
- ----------------------------------------------------------- ------- ------- ------- --------
NET ASSETS (100.0%) $76,104,070
=========================================================== ======= ======= ======= ========
</TABLE>
(Continued on next page)
<PAGE>
Page 26
- ----------------------------------
Keystone Pennsylvania Tax Free Fund
SCHEDULE OF INVESTMENTS--March 31, 1996
(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.
(c) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Trustees.
(d) The cost of investments for federal income tax purposes amount to
$72,977,229. Gross unrealized appreciation and unrealized depreciation of
investments, based on identified tax cost, at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation $2,800,897
Gross unrealized depreciation (574,185)
- ------------------------------- ----------
Net unrealized appreciation $2,226,712
=============================== ==========
</TABLE>
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--AMBAC Idemnity Corporation
FGIC--Federal Guaranty Insurance Company
FHA--Federal Housing Authority
FNMA--Federal National Mortgage Association
MBIA-- Municipal Bond Investors Assurance
See Notes to Financial Statements.
<PAGE>
Page 27
- ----------------------------------
Keystone Florida Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
December 28, 1990
(Commencement of
Year Ended March 31, Operations) to
March 31,
1996 1995 1994 1993 1992 1991
- ----------------------------------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of year $ 10.33 $ 10.29 $ 10.94 $ 10.43 $ 10.17 $10.00
- ----------------------------------- ------- ------- ------- ------- ------- --------
Income from investment operations:
Net investment income 0.56 0.56 0.58 0.61 0.72 0.18
Net realized and unrealized gain
(loss) on investments and closed
futures contracts 0.27 0.07 (0.44) 0.64 0.30 0.17
- ----------------------------------- ------- ------- ------- ------- ------- --------
Total from investment operations 0.83 0.63 0.14 1.25 1.02 0.35
- ----------------------------------- ------- ------- ------- ------- ------- --------
Less distributions from:
Net investment income (0.54) (0.56) (0.58) (0.61) (0.72) (0.18)
In excess of net investment income (0.02) (0.03) (0.05) (0.03) 0 0
Net realized gain on investments 0 0 (0.16) (0.10) (0.04) 0
- ----------------------------------- ------- ------- ------- ------- ------- --------
Total distributions (0.56) (0.59) (0.79) (0.74) (0.76) (0.18)
- ----------------------------------- ------- ------- ------- ------- ------- --------
Net asset value end of year $ 10.60 $ 10.33 $ 10.29 $ 10.94 $ 10.43 $10.17
================================== ====== ======= ======= ======= ======= ========
Total return (c) 8.16% 6.42% 1.01% 12.32% 10.34% 3.52%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.76%(b) 0.75% 0.75% 0.68% 0.65% 0.65%(a)
Total expenses excluding
reimbursement 0.92% 0.95% 1.00% 1.13% 1.21% 2.06%(a)
Net investment income 5.32% 5.60% 5.16% 5.60% 6.82% 6.33%(a)
Portfolio turnover rate 89% 129% 113% 95% 63% 5%
- ----------------------------------- ------- ------- ------- ------- ------- --------
Net assets end of year (thousands) $37,286 $42,239 $45,150 $42,997 $29,258 $6,922
================================== ====== ======= ======= ======= ======= ========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 0.75%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 28
- ----------------------------------
Keystone Florida Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 1,
1993
(Date of
Year Ended March 31, Initial
Public
Offering) to
March 31,
1996 1995 1994 1993
- -------------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value beginning of year $ 10.24 $ 10.27 $ 10.94 $10.81
- -------------------------------------------- --------- --------- --------- -----------
Income from investment operations:
Net investment income 0.48 0.53 0.52 0.08
Net realized and unrealized gain (loss) on
investments and closed futures contracts 0.28 0.02 (0.47) 0.14
- -------------------------------------------- --------- --------- --------- -----------
Total from investment operations 0.76 0.55 0.05 0.22
- -------------------------------------------- --------- --------- --------- -----------
Less distributions from:
Net investment income (0.50) (0.49) (0.48) (0.08)
In excess of net investment income (0.02) (0.09) (0.08) (0.01)
Net realized gain on investments 0 0 (0.16) 0
- -------------------------------------------- --------- --------- --------- -----------
Total distributions (0.52) (0.58) (0.72) (0.09)
- -------------------------------------------- --------- --------- --------- -----------
Net asset value end of year $ 10.48 $ 10.24 $ 10.27 $10.94
============================================ ========= ========= ========= ===========
Total return (c) 7.48% 5.61% 0.19% 2.06%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses excluding reimbursement 1.68% 1.68% 1.74% 1.73%(a)
Net investment income 4.58% 4.81% 4.21% 4.00%(a)
Portfolio turnover rate 89% 129% 113% 95%
- -------------------------------------------- --------- --------- --------- -----------
Net assets end of year (thousands) $54,433 $51,083 $19,984 $1,704
============================================ ========= ========= ========= ===========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.47%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 29
- ----------------------------------
Keystone Florida Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 1, 1993
(Date of Initial
Year Ended March 31, Public Offering)
to
1996 1995 1994 March 31, 1993
- -------------------------------------------------------- ------- ------ ------ ----------------
<S> <C> <C> <C> <C>
Net asset value beginning of year $ 10.26 $ 10.28 $ 10.93 $10.81
- -------------------------------------------------------- ----- ---- ---- --------------
Income from investment operations:
Net investment income 0.48 0.47 0.51 0.07
Net realized and unrealized gain (loss) on investments
and closed futures contracts 0.28 0.08 (0.45) 0.14
- -------------------------------------------------------- ----- ---- ---- --------------
Total from investment operations 0.76 0.55 0.06 0.21
- -------------------------------------------------------- ----- ---- ---- --------------
Less distributions from:
Net investment income (0.50) (0.49) (0.49) (0.07)
In excess of net investment income (0.02) (0.08) (0.06) (0.02)
Net realized gain on investments 0 0 (0.16) 0
- -------------------------------------------------------- ----- ---- ---- --------------
Total distributions (0.52) (0.57) (0.71) (0.09)
- -------------------------------------------------------- ----- ---- ---- --------------
Net asset value end of year $ 10.50 $ 10.26 $ 10.28 $10.93
======================================================== ===== ===== ===== ==============
Total return (c) 7.47% 5.61% 0.27% 1.95%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses excluding reimbursement 1.68% 1.70% 1.84% 1.63%(a)
Net investment income 4.60% 4.86% 4.26% 2.95%(a)
Portfolio turnover rate 89% 129% 113% 95%
- -------------------------------------------------------- ----- ---- ---- --------------
Net assets end of year (thousands) $11,795 $12,831 $13,096 $1,987
======================================================== ===== ===== ===== ==============
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.47%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 30
- ----------------------------------
Keystone Massachusetts Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 4,
1994
(Commencement
Year Ended March 31, of
Operations)
to
March 31,
1996 1995 1994
- -------------------------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Net asset value beginning of year $ 9.19 $ 9.17 $10.00
- -------------------------------------------------------- --------- --------- -----------
Income from investment operations:
Net investment income 0.51 0.53 0.08
Net realized and unrealized gain (loss) on investments
and closed futures contracts 0.09 0.02 (0.82)
- -------------------------------------------------------- --------- --------- -----------
Total from investment operations 0.60 0.55 (0.74)
- -------------------------------------------------------- --------- --------- -----------
Less distributions from:
Net investment income (0.48) (0.53) (0.08)
In excess of net investment income (0.02) 0 (0.01)
- -------------------------------------------------------- --------- --------- -----------
Total distributions (0.50) (0.53) (0.09)
- -------------------------------------------------------- --------- --------- -----------
Net asset value end of year $ 9.29 $ 9.19 $ 9.17
======================================================== ========= ========= ===========
Total return (c) 6.64% 6.23% (7.40%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.75%(b) 0.46% 0.35%(a)
Total expenses excluding reimbursement 1.59% 1.93% 3.22%(a)
Net investment income 5.36% 5.90% 5.07%(a)
Portfolio turnover rate 165% 77% 7%
- -------------------------------------------------------- --------- --------- -----------
Net assets end of year (thousands) $1,786 $1,974 $1,472
======================================================== ========= ========= ===========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 0.74%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 31
- ----------------------------------
Keystone Massachusetts Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 4, 1994
(Commencement of
Year Ended March 31, Operations)
to
March 31,
1996 1995 1994
- -------------------------------------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
Net asset value beginning of year $ 9.15 $ 9.19 $10.00
- -------------------------------------------------------- -------- -------- ----------
Income from investment operations:
Net investment income 0.43 0.48 0.08
Net realized and unrealized gain (loss) on investments
and closed futures contracts 0.09 (0.01) (0.80)
- -------------------------------------------------------- -------- -------- ----------
Total from investment operations 0.52 0.47 (0.72)
- -------------------------------------------------------- -------- -------- ----------
Less distributions from:
Net investment income (0.43) (0.47) (0.07)
In excess of net investment income (0.02) (0.04) (0.02)
- -------------------------------------------------------- -------- -------- ----------
Total distributions (0.45) (0.51) (0.09)
- -------------------------------------------------------- -------- -------- ----------
Net asset value end of year $ 9.22 $ 9.15 $ 9.19
======================================================== ======== ======== ==========
Total return (c) 5.77% 5.41% (7.20%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.49%(b) 1.24% 1.10%(a)
Total expenses excluding reimbursement 2.38% 2.68% 4.60%(a)
Net investment income 4.60% 5.15% 3.23%(a)
Portfolio turnover rate 165% 77% 7%
- -------------------------------------------------------- -------- -------- ----------
Net assets end of year (thousands) $7,274 $6,169 $1,817
======================================================== ======== ======== ==========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.48%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 32
- ----------------------------------
Keystone Massachusetts Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 4, 1994
(Commencement of
Year Ended March 31, Operations)
to
March 31,
1996 1995 1994
- -------------------------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Net asset value beginning of year $ 9.14 $ 9.19 $10.00
- -------------------------------------------------------- --------- --------- -----------
Income from investment operations:
Net investment income 0.43 0.48 0.08
Net realized and unrealized gain (loss) on investments
and closed futures contracts 0.10 (0.02) (0.80)
- -------------------------------------------------------- --------- --------- -----------
Total from investment operations 0.53 0.46 (0.72)
- -------------------------------------------------------- --------- --------- -----------
Less distributions from:
Net investment income (0.43) (0.47) (0.07)
In excess of net investment income (0.02) (0.04) (0.02)
- -------------------------------------------------------- --------- --------- -----------
Total distributions (0.45) (0.51) (0.09)
- -------------------------------------------------------- --------- --------- -----------
Net asset value end of year $ 9.22 $ 9.14 $ 9.19
======================================================== ========= ========= ===========
Total return (c) 5.89% 5.20% (7.21%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.49%(b) 1.23% 1.10% (a)
Total expenses excluding reimbursement 2.39% 2.68% 4.91% (a)
Net investment income 4.60% 5.11% 4.28% (a)
Portfolio turnover rate 165% 77% 7%
- -------------------------------------------------------- --------- --------- -----------
Net assets end of year (thousands) $2,303 $1,971 $ 369
======================================================== ========= ========= ===========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.48%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 33
- ----------------------------------
Keystone New York Insured Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 4, 1994
(Commencement of
Year Ended March 31, Operations) to
March 31,
1996 1995 1994
- -------------------------------------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
Net asset value beginning of year $ 9.44 $ 9.32 $10.00
- -------------------------------------------------------- -------- -------- ----------
Income from investment operations:
Net investment income 0.48 0.52 0.09
Net realized and unrealized gain (loss) on investments
and closed futures contracts 0.24 0.12 (0.68)
- -------------------------------------------------------- -------- -------- ----------
Total from investment operations 0.72 0.64 (0.59)
- -------------------------------------------------------- -------- -------- ----------
Less distributions from:
Net investment income (0.47) (0.52) (0.08)
In excess of net investment income (0.02) 0 (0.01)
- -------------------------------------------------------- -------- -------- ----------
Total distributions (0.49) (0.52) (0.09)
- -------------------------------------------------------- -------- -------- ----------
Net asset value end of year $ 9.67 $ 9.44 $ 9.32
======================================================== ======== ======== ==========
Total return (c) 7.73% 7.08% (5.91%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.75%(b) 0.50% 0.35%(a)
Total expenses excluding reimbursement 1.31% 1.59% 4.44%(a)
Net investment income 4.95% 5.48% 3.85%(a)
Portfolio turnover rate 53% 77% 14%
- -------------------------------------------------------- -------- -------- ----------
Net assets end of year (thousands) $3,947 $3,323 $ 680
======================================================== ======== ======== ==========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 0.74%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 34
- ----------------------------------
Keystone New York Insured Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 4, 1994
(Commencement of
Operations)
Year Ended March 31, to
March 31,
1996 1995 1994
- -------------------------------------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
Net asset value beginning of year $ 9.38 $ 9.32 $10.00
- -------------------------------------------------------- -------- -------- ----------
Income from investment operations:
Net investment income 0.41 0.47 0.08
Net realized and unrealized gain (loss) on investments
and closed futures contracts 0.24 0.09 (0.67)
- -------------------------------------------------------- -------- -------- ----------
Total from investment operations 0.65 0.56 (0.59)
- -------------------------------------------------------- -------- -------- ----------
Less distributions from:
Net investment income (0.42) (0.45) (0.06)
In excess of net investment income (0.02) (0.05) (0.03)
- -------------------------------------------------------- -------- -------- ----------
Total distributions (0.44) (0.50) (0.09)
- -------------------------------------------------------- -------- -------- ----------
Net asset value end of year $ 9.59 $ 9.38 $ 9.32
======================================================== ======== ======== ==========
Total return (c) 7.02% 6.28% (5.91%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.50%(b) 1.25% 1.10%(a)
Total expenses excluding reimbursement 2.05% 2.35% 5.60%(a)
Net investment income 4.19% 4.78% 3.01%(a)
Portfolio turnover rate 53% 77% 14%
- -------------------------------------------------------- -------- -------- ----------
Net assets end of year (thousands) $17,151 $11,907 $2,276
======================================================== ======== ======== ==========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.49%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 35
- ----------------------------------
Keystone New York Insured Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 4, 1994
(Commencement of
Year Ended March 31, Operations) to
March 31,
1996 1995 1994
- -------------------------------------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
Net asset value beginning of year $ 9.37 $ 9.31 $10.00
- -------------------------------------------------------- -------- -------- ----------
Income from investment operations:
Net investment income 0.41 0.48 0.07
Net realized and unrealized gain (loss) on investments
and closed futures contracts 0.24 0.07 (0.67)
- -------------------------------------------------------- -------- -------- ----------
Total from investment operations 0.65 0.55 (0.60)
- -------------------------------------------------------- -------- -------- ----------
Less distributions from:
Net investment income (0.42) (0.46) (0.07)
In excess of net investment income (0.02) (0.03) (0.02)
- -------------------------------------------------------- -------- -------- ----------
Total distributions (0.44) (0.49) (0.09)
- -------------------------------------------------------- -------- -------- ----------
Net asset value end of year $ 9.58 $ 9.37 $ 9.31
======================================================== ======== ======== ==========
Total return (c) 7.02% 6.18% (6.02%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.50%(b) 1.26% 1.10%(a)
Total expenses excluding reimbursement 2.07% 2.32% 5.13%(a)
Net investment income 4.24% 4.88% 3.71%(a)
Portfolio turnover rate 53% 77% 14%
- -------------------------------------------------------- -------- -------- ----------
Net assets end of year (thousands) $2,296 $2,890 $ 255
======================================================== ======== ======== ==========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.48%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 36
- ----------------------------------
Keystone Pennsylvania Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
December
27, 1990
(Commencement
Year Ended March 31, of Operations)
to
March 31,
1996 1995 1994 1993 1992 1991
- ------------------------------------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of year $ 10.91 $ 11.01 $ 11.42 $ 10.71 $ 10.25 $10.00
- ------------------------------------- ------ ------ ------ ------ ------ -------
Income from investment operations:
Net investment income 0.60 0.61 0.62 0.63 0.74 0.18
Net realized and unrealized gain
(loss) on investments and closed
futures contracts 0.23 (0.09) (0.30) 0.75 0.46 0.25
- ------------------------------------- ------ ------ ------ ------ ------ -------
Total from investment operations 0.83 0.52 0.32 1.38 1.20 0.43
- ------------------------------------- ------ ------ ------ ------ ------ -------
Less distributions from:
Net investment income (0.57) (0.61) (0.62) (0.63) (0.74) (0.18)
In excess of net investment income (0.02) (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 (0.59) (0.62) (0.73) (0.67) (0.74) (0.18)
- ------------------------------------- ------ ------ ------ ------ ------ -------
Net asset value end of year $ 11.15 $ 10.91 $ 11.01 $ 11.42 $ 10.71 $10.25
===================================== ====== ====== ====== ====== ====== =======
Total return (c) 7.66% 4.91% 2.58% 13.30% 12.07% 4.37%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.76%(b) 0.75% 0.75% 0.68% 0.65% 0.65%(a)
Total expenses excluding
reimbursement 0.99% 1.05% 1.06% 1.16% 1.68% 3.19%(a)
Net investment income 5.29% 5.65% 5.27% 5.66% 6.92% 6.84%(a)
Portfolio turnover rate 55% 97% 37% 20% 13% 8%
- ------------------------------------- ------ ------ ------ ------ ------ -------
Net assets end of year (thousands) $28,710 $30,450 $30,560 $35,502 $12,914 $2,979
===================================== ====== ====== ====== ====== ====== =======
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 0.75%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 37
- ----------------------------------
Keystone Pennsylvania Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 1,
1993
(Date of
Year Ended March 31, Initial
Public
Offering) to
March 31,
1996 1995 1994 1993
- -------------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value beginning of year $ 10.81 $ 10.98 $ 11.42 $11.20
- -------------------------------------------- --------- --------- --------- -----------
Income from investment operations:
Net investment income 0.51 0.54 0.56 0.08
Net realized and unrealized gain (loss) on
investments and closed futures contracts 0.22 (0.10) (0.34) 0.24
- -------------------------------------------- --------- --------- --------- -----------
Total from investment operations 0.73 0.44 0.22 0.32
- -------------------------------------------- --------- --------- --------- -----------
Less distributions from:
Net investment income (0.52) (0.53) (0.52) (0.08)
In excess of net investment income (0.02) (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 (0.54) (0.61) (0.66) (0.10)
- -------------------------------------------- --------- --------- --------- -----------
Net asset value end of year $ 11.00 $ 10.81 $ 10.98 $11.42
============================================= ========= ========= ========= ===========
Total return (c) 6.84% 4.15% 1.70% 2.82%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses excluding reimbursement 1.74% 1.80% 1.81% 1.69%(a)
Net investment income 4.55% 4.89% 4.32% 3.44%(a)
Portfolio turnover rate 55% 97% 37% 20%
- -------------------------------------------- --------- --------- --------- -----------
Net assets end of year (thousands) $37,719 $30,657 $21,958 $2,543
============================================= ========= ========= ========= ===========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.47%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 38
- ----------------------------------
Keystone Pennsylvania Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 1,
1993
(Date of
Year Ended March 31, Initial
Public
Offering) to
March 31,
1996 1995 1994 1993
-------------------------------------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net asset value beginning of year $10.83 $11.00 $11.42 $11.20
-------------------------------------------- -------- -------- -------- ----------
Income from investment operations:
Net investment income 0.51 0.53 0.54 0.07
Net realized and unrealized gain (loss) on
investments and closed futures contracts 0.23 (0.10) (0.32) 0.24
-------------------------------------------- -------- -------- -------- ----------
Total from investment operations 0.74 0.43 0.22 0.31
-------------------------------------------- -------- -------- -------- ----------
Less distributions from:
Net investment income (0.52) (0.53) (0.52) (0.07)
In excess of net investment income (0.02) (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 (0.54) (0.60) (0.64) (0.09)
-------------------------------------------- -------- -------- -------- ----------
Net asset value end of year $11.03 $10.83 $11.00 $11.42
============================================= ======== ======== ======== ==========
Total return (c) 6.92% 4.05% 1.78% 2.81%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses excluding reimbursement 1.74% 1.80% 1.90% 1.60%(a)
Net investment income 4.57% 4.90% 4.33% 2.50%(a)
Portfolio turnover rate 55% 97% 37% 20%
-------------------------------------------- -------- -------- -------- ----------
Net assets end of year (thousands) $9,675 $9,559 $9,385 $ 952
============================================= ======== ======== ======== ==========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.47%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 39
- ----------------------------------
Keystone State Tax Free Fund
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES New York
March 31, 1996 Florida Massachusetts Insured
Tax Free Tax Free Tax Free Pennsylvania
Fund Fund Fund Tax Free Fund
-------------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Assets (Notes 1 and 4)
Investments at market value (identified
cost--$99,213,553, $11,168,639,
$22,442,721 and $72,977,229, respectively) $101,718,310 $11,215,563 $23,155,388 $75,203,941
Cash 827 3,361 4,743 3,633
Receivable for:
Fund shares sold 79,237 15,000 38,300 101,032
Interest 2,194,071 179,073 293,085 1,218,902
Due from Investment Adviser 21,206 10,711 14,729 17,286
Unamortized organization expenses 0 6,749 1,779 0
Prepaid expenses and other assets 3,790 330 635 2,740
-------------------------------------------- --------- --------- --------- -----------
Total assets 104,017,441 11,430,787 23,508,659 76,547,534
-------------------------------------------- --------- --------- --------- -----------
Liabilities (Notes 2 and 4)
Payable for:
Fund shares redeemed 29,500 0 0 94,216
Distributions to shareholders 436,130 44,308 86,023 316,693
Distribution fee payable 6,476 133 1,713 2,057
Accrued reimbursable expenses 1,963 1,962 3,163 3,108
Other accrued expenses 29,388 21,063 23,240 27,390
-------------------------------------------- --------- --------- --------- -----------
Total liabilities 503,457 67,466 114,139 443,464
-------------------------------------------- --------- --------- --------- -----------
Net assets $103,513,984 $11,363,321 $23,394,520 $76,104,070
============================================ ========= ========= ========= ===========
Net assets represented by (Note 1)
Paid-in capital $103,665,607 $11,436,317 $22,811,201 $76,398,658
Accumulated distributions in excess of net
investment income (436,130) (2,872) (37,903) (227,211)
Accumulated net realized loss on
investments (2,220,250) (117,048) (91,445) (2,294,089)
Net unrealized appreciation on investments 2,504,757 46,924 712,667 2,226,712
-------------------------------------------- --------- --------- --------- -----------
Total net assets $103,513,984 $11,363,321 $23,394,520 $76,104,070
============================================ ========= ========= ========= ===========
Net assets consists of
Class A $ 37,285,975 $ 1,785,923 $ 3,947,213 $28,710,303
Class B 54,433,294 7,274,378 17,151,468 37,718,609
Class C 11,794,715 2,303,020 2,295,839 9,675,158
-------------------------------------------- --------- --------- --------- -----------
$103,513,984 $11,363,321 $23,394,520 $76,104,070
============================================ ========= ========= ========= ===========
Shares outstanding (Note 2)
Class A 3,518,094 192,338 408,090 2,575,175
Class B 5,195,041 788,724 1,789,124 3,428,337
Class C 1,123,702 249,905 239,549 877,001
-------------------------------------------- --------- --------- --------- -----------
Net asset value per share
Class A $10.60 $9.29 $9.67 $11.15
============================================ ========= ========= ========= ===========
Class A--Offering price (based on sales
charge of 4.75%) $11.13 $9.75 $10.15 $11.71
============================================ ========= ========= ========= ===========
Class B $10.48 $9.22 $9.59 $11.00
============================================ ========= ========= ========= ===========
Class C $10.50 $9.22 $9.58 $11.03
============================================ ========= ========= ========= ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
Page 40
- ----------------------------------
Keystone State Tax Free Fund
STATEMENTS OF OPERATIONS
Year ended March 31, 1996
<TABLE>
<CAPTION>
New York
Florida Massachusetts Insured
Tax Free Tax Free Tax Free Pennsylvania
Fund Fund Fund Tax Free Fund
- ---------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Investment income (Note 1)
Interest $6,522,711 $ 696,692 $1,230,032 $4,569,649
Expenses (Notes 1, 2 and 4)
Management fee 557,537 62,760 118,589 402,467
Transfer agent fees 115,014 15,192 27,801 106,088
Custodian fees 77,642 25,312 33,260 57,898
Accounting 24,275 22,081 23,082 22,964
Auditing 9,884 10,133 10,198 12,609
Legal 13,039 10,039 10,104 11,416
Printing 8,502 9,886 14,364 8,544
Registration fees 20,613 9,522 9,311 7,341
Amortization of organization expenses 3,695 2,296 611 4,713
Distribution Plan expenses 658,186 85,172 166,003 451,284
Other expenses 10,395 2,910 3,524 7,065
Reimbursement from Investment Adviser (196,232) (100,729) (119,608) (190,132)
- ---------------------------------------- --------- --------- --------- -----------
Total expenses 1,302,550 154,574 297,239 902,257
Less: Indirectly paid expenses (Note 4) (15,121) (1,100) (4,075) (8,886)
- ---------------------------------------- --------- --------- --------- -----------
Net expenses 1,287,429 153,474 293,164 893,371
- ---------------------------------------- --------- --------- --------- -----------
Net investment income 5,235,282 543,218 936,868 3,676,278
- ---------------------------------------- --------- --------- --------- -----------
Net realized and unrealized gain (loss)
on investments
and closed futures contracts (Note 3)
Realized gain (loss) on:
Investments 3,430,076 293,370 346,747 1,496,403
Closed futures contracts (95,129) (37,945) (21,260) (205,349)
- ---------------------------------------- --------- --------- --------- -----------
Net realized gain on investments and
closed futures contracts 3,334,947 255,425 325,487 1,291,054
Net change in unrealized appreciation
(depreciation) on investments (479,647) (134,154) 155,265 216,658
- ---------------------------------------- --------- --------- --------- -----------
Net realized and unrealized gain on
investments and closed futures
contracts 2,855,300 121,271 480,752 1,507,712
- ---------------------------------------- --------- --------- --------- -----------
Net increase in net assets resulting
from operations $8,090,582 $ 664,489 $1,417,620 $5,183,990
======================================== ========= ========= ========= ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
Page 41
- ----------------------------------
Keystone State Tax Free Fund
STATEMENTS OF CHANGES IN NET ASSETS
Year ended March 31, 1996
<TABLE>
<CAPTION>
New York
Florida Massachusetts Insured
Tax Free Tax Free Tax Free Pennsylvania
Fund Fund Fund Tax Free Fund
-------------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 5,235,282 $ 543,218 $ 936,868 $ 3,676,278
Net realized gain on investments and closed
futures contracts 3,334,947 255,425 325,487 1,291,054
Net change in unrealized appreciation
(depreciation) on investments (479,647) (134,154) 155,265 216,658
-------------------------------------------- --------- --------- --------- -----------
Net increase in net assets resulting from
operations 8,090,582 664,489 1,417,620 5,183,990
-------------------------------------------- --------- --------- --------- -----------
Distributions to shareholders from (Note 1)
Net investment income:
Class A (2,068,359) (117,886) (181,786) (1,540,624)
Class B (2,582,018) (342,321) (676,349) (1,676,905)
Class C (584,905) (103,305) (104,583) (458,750)
In excess of net investment income:
Class A (81,365) (435) (7,630) (51,793)
Class B (101,572) (1,262) (28,387) (56,375)
Class C (23,009) (380) (4,389) (15,423)
-------------------------------------------- --------- --------- --------- -----------
Total distributions to shareholders (5,441,228) (565,589) (1,003,124) (3,799,870)
-------------------------------------------- --------- --------- --------- -----------
Capital share transactions (Note 2)
Proceeds from shares sold:
Class A 2,637,449 728,640 1,043,090 1,823,609
Class B 10,874,867 1,573,350 6,303,488 9,365,368
Class C 980,649 458,371 749,393 1,526,571
Payment for shares redeemed:
Class A (9,315,509) (1,015,238) (613,550) (5,114,776)
Class B (9,762,560) (727,777) (1,757,331) (3,838,463)
Class C (2,573,632) (198,311) (1,480,195) (1,930,722)
Net asset value of shares issued in
reinvestment of distributions:
Class A 564,333 65,247 111,251 862,452
Class B 1,035,196 206,616 423,530 1,004,041
Class C 271,631 59,663 80,146 355,643
-------------------------------------------- --------- --------- --------- -----------
Net increase (decrease) in net assets
resulting from capital share transactions (5,287,576) 1,150,561 4,859,822 4,053,723
-------------------------------------------- --------- --------- --------- -----------
Total increase (decrease) in net assets (2,638,222) 1,249,461 5,274,318 5,437,843
Net assets
Beginning of year 106,152,206 10,113,860 18,120,202 70,666,227
-------------------------------------------- --------- --------- --------- -----------
End of year $103,513,984 $11,363,321 $23,394,520 $76,104,070
============================================ ========= ========= ========= ===========
Accumulated distributions in excess of net
investment income ($436,130) ($2,872) ($37,903) ($227,211)
============================================ ========= ========= ========= ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
Page 42
- ----------------------------------
Keystone State Tax Free Fund
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
Year ended March 31, 1995
New York
Florida Massachusetts Insured
Tax Free Tax Free Tax Free Pennsylvania
Fund Fund Fund Tax Free Fund
- ------------------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 5,108,143 $ 421,104 $ 570,628 $ 3,489,024
Net realized loss on investments and closed
futures contracts (4,751,748) (350,345) (393,232) (3,542,502)
Net change in unrealized appreciation on
investments 5,556,382 415,075 698,999 2,918,746
- ------------------------------------------------- --------- --------- --------- -----------
Net increase in net assets resulting from
operations 5,912,777 485,834 876,395 2,865,268
- ------------------------------------------------- --------- --------- --------- -----------
Distributions to shareholders from (Note 1)
Net investment income:
Class A (2,468,849) (103,346) (110,893) (1,714,136)
Class B (1,881,744) (230,929) (372,207) (1,329,520)
Class C (757,551) (85,245) (86,125) (445,368)
In excess of net investment income:
Class A (119,609) 0 0 (23,117)
Class B (331,735) (20,118) (39,019) (196,143)
Class C (127,027) (6,857) (6,749) (58,900)
Total distributions to shareholders (5,686,515) (446,495) (614,993) (3,767,184)
- ------------------------------------------------- --------- --------- --------- -----------
Capital share transactions (Note 2)
Proceeds from shares sold:
Class A 6,022,911 1,279,775 2,912,705 4,586,195
Class B 35,365,150 4,802,858 10,641,995 11,181,757
Class C 6,570,695 1,731,526 2,663,844 3,274,301
Payment for shares redeemed:
Class A (9,676,164) (846,310) (389,013) (5,294,580)
Class B (5,409,666) (609,227) (1,379,298) (2,964,040)
Class C (7,105,015) (182,930) (128,154) (3,313,655)
Net asset value of shares issued in reinvestment
of distributions:
Class A 712,811 60,782 46,401 942,252
Class B 829,201 125,304 220,338 877,275
Class C 385,988 55,445 58,568 375,859
- ------------------------------------------------- --------- --------- --------- -----------
Net increase in net assets resulting from
capital share transactions 27,695,911 6,417,223 14,647,386 9,665,364
- ------------------------------------------------- --------- --------- --------- -----------
Total increase in net assets 27,922,173 6,456,562 14,908,788 8,763,448
Net assets
Beginning of year 78,230,033 3,657,298 3,211,414 61,902,779
- ------------------------------------------------- --------- --------- --------- -----------
End of year $106,152,206 $10,113,860 $18,120,202 $70,666,227
- ------------------------------------------------- --------- --------- --------- -----------
Undistributed net investment income (Accumulated
distributions in excess of net investment
income) --
End of year ($445,095) $20,294 $25,850 ($106,519)
================================================ ========= ========= ========= ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
Page 43
- ----------------------------------
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone State Tax Free Fund ("FUND") was formed as a Massachusetts business
trust on September 13, 1990 and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company. Keystone Investment Management Company ("Keystone") is
the Investment Adviser and Manager. The FUND currently offers shares of five
separate non-diversified series evidencing interests in different portfolios
of securities (individually a "Fund", collectively the "Funds"). These
financial statements include four series of the FUND: the Keystone Florida
Tax Free Fund ("Florida Fund"), the Keystone Massachusetts Tax Free Fund
("Massachusetts Fund"), the Keystone New York Insured Tax Free Fund ("New
York Fund") and the Keystone Pennsylvania Tax Free Fund ("Pennsylvania
Fund"). The Funds seek the highest possible current income exempt from
federal income taxes, while preserving capital.
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 are available only
through dealers who have entered into special distribution agreements with
Keystone Investment Distributors Company ("KIDC"), the FUND's principal
underwriter.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc. ("KII"),
a Delaware corporation. KII is privately owned by an investor group
consisting predominantly of members of current and former management of
Keystone and its affiliates.
The following is a summary of significant accounting policies consistently
followed by the Funds in preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles,
which requires management to make estimates and assumptions that affect
amounts reported herein. Although actual results could differ from these
estimates, any such differences are expected to be immaterial to the net
assets of the Funds.
A. Tax-exempt bonds are valued 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
purchase 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 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.
B. Each Fund may enter into financial futures contracts as a hedge against
changes in interest 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
<PAGE>
Page 44
- ----------------------------------
Keystone State Tax Free Fund
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.
C. 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.
D. 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. All
premiums and original issue discounts are amortized/accreted for both
financial reporting and federal income tax purposes.
E. 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 (the "Internal Revenue Code"). Thus, each Fund is relieved of any
federal income tax liability by distributing all of its net taxable
investment income and net taxable capital gains, if any, to its shareholders.
Each Fund intends to avoid excise tax liability by making the required
distributions under the Internal Revenue Code.
F. 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. As of
March 31, 1996 all such costs have been fully amortized for the Florida Fund
and the Pennsylvania Fund.
G. 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. The significant differences between financial statement amounts
available for distribution and distributions made in accordance with income
tax regulation are primarily due to the deferral of losses for income tax
purposes that have been recognized for financial statement purposes.
(2.) Capital Share Transactions
The FUND's Declaration of Trust authorizes the issuance of an unlimited
number of shares of beneficial interest, without par value. Transactions in
shares of the Funds were as follows:
<PAGE>
Page 45
- ----------------------------------
<TABLE>
<CAPTION>
Florida Fund
----------------
Year Ended March 31,
----------------------
Class A 1996 1995
- ---------------- -------- ----------
<S> <C> <C>
Shares sold 247,533 594,097
Shares redeemed (873,200) (961,330)
Shares issued in
reinvestment of
dividends and
distributions 53,198 70,513
---------------- ------- --------
Net decrease (572,469) (296,720)
================ ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Class B
Shares sold 1,027,017 3,504,376
Shares redeemed (918,380) (544,344)
Shares issued in
reinvestment of
dividends and
distributions 98,392 82,908
---------------- ------- --------
Net increase 207,029 3,042,940
================ ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Class C
Shares sold 92,047 643,062
Shares redeemed (244,752) (704,324)
Shares issued in
reinvestment of
dividends and
distributions 25,773 38,331
---------------- ------- --------
Net decrease (126,932) (22,931)
================ ======= ========
</TABLE>
<TABLE>
<CAPTION>
Massachusetts Fund
- ----------------------
Year Ended March 31,
----------------------
Class A 1996 1995
- ---------------------- -------- ----------
<S> <C> <C>
Shares sold 77,233 141,360
Shares redeemed (106,698) (93,803)
Shares issued in
reinvestment of
dividends and
distributions 6,900 6,770
- ---------------------- ------- --------
Net increase
(decrease) (22,565) 54,327
====================== ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Class B
Shares sold 170,546 532,363
Shares redeemed (78,313) (69,932)
Shares issued in
reinvestment of
dividends and
distributions 22,195 14,043
---------------- ------- --------
Net increase 114,428 476,474
================ ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Class C
Shares sold 48,902 189,623
Shares redeemed (21,034) (20,305)
Shares issued in
reinvestment of
dividends and
distributions 6,401 6,195
---------------- ------- --------
Net increase 34,269 175,513
================ ======= ========
</TABLE>
<PAGE>
Page 46
- ----------------------------------
Keystone State Tax Free Fund
<TABLE>
<CAPTION>
New York Fund
----------------
Year Ended March 31,
----------------------
Class A 1996 1995
---------------- -------- ----------
<S> <C> <C>
Shares sold 107,459 315,837
Shares redeemed (63,070) (41,667)
Shares issued in
reinvestment of
dividends and
distributions 11,515 5,049
---------------- ------- --------
Net increase 55,904 279,219
================ ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Class B
Shares sold 658,066 1,155,373
Shares redeemed (182,936) (153,738)
Shares issued in
reinvestment of
dividends and
distributions 44,023 24,119
---------------- ------- --------
Net increase 519,153 1,025,754
================ ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Class C
Shares sold 77,987 288,523
Shares redeemed (155,157) (14,006)
Shares issued in
reinvestment of
dividends and
distributions 8,359 6,435
---------------- ------- --------
Net increase
(decrease) (68,811) 280,952
================ ======= ========
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania Fund
- ----------------------
Year Ended March 31,
----------------------
Class A 1996 1995
- ---------------------- -------- ----------
<S> <C> <C>
Shares sold 162,995 422,375
Shares redeemed (455,676) (494,154)
Shares issued in
reinvestment of
dividends and
distributions 76,584 87,463
- ---------------------- ------- --------
Net increase
(decrease) (216,097) 15,684
====================== ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Class B
Shares sold 844,393 1,037,572
Shares redeemed (343,491) (282,691)
Shares issued in
reinvestment of
dividends and
distributions 90,532 82,087
---------------- ------- --------
Net increase 591,434 836,968
================ ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Class C
Shares sold 136,525 306,060
Shares redeemed (173,811) (312,198)
Shares issued in
reinvestment of
dividends and
distributions 31,980 34,993
---------------- ------- --------
Net increase
(decrease) (5,306) 28,855
================ ======= ========
</TABLE>
<PAGE>
Page 47
- ----------------------------------
Each Fund bears some of the costs of selling its shares under Distribution
Plans adopted with respect to its Class A, Class B, and Class C shares
pursuant to Rule 12b-1 under the 1940 Act.
Each Class A Distribution Plan provides for expenditures, which are limited
to an annual rate of up to 0.25% (currently limited to 0.15%) of the average
daily net asset value of Class A shares, to pay expenses related to 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 daily net asset value
of Class A shares maintained by such others on the books of the Fund for
specified periods.
Each Class B Distribution Plan provides for expenditures, which are limited
to an annual rate of up to 1.00% (currently limited to 0.90%) of the average
daily net asset value of Class B shares to pay expenses related to the
distribution of Class B shares. For Class B shares sold on or after June 1,
1995, amounts paid by each Fund under such shares' Class B Distribution Plan
are currently used to pay others (such as dealers) a commission at the time
of purchase normally equal to 4.00% of the price paid for each Class B share
sold plus the first year's service fee in advance in the amount of 0.15% of
the price paid for each Class B share sold. Beginning approximately 12 months
after the purchase of such Class B shares, 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 such Class B shares maintained by such others and
remaining on the Fund's books for specified periods. A contingent deferred
sales charge will be imposed, if applicable, on Class B shares purchased on
or after June 1, 1995 at rates ranging from a maximum of 5.00% of amounts
redeemed during the first twelve month period from and including the date of
purchase to 1.00% of amounts redeemed during the sixth twelve month period
from and including the date of purchase. Class B shares purchased on or after
June 1, 1995 that have been outstanding for eight years from and including
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 retain their existing conversion rights.
Each Class C Distribution Plan provides for expenditures, which are limited
to an annual rate of up to 1.00% (currently limited to 0.90%) of the average
daily net asset value of Class C shares, to pay expenses related to the
distribution of Class C shares. Amounts paid by each Fund under the Class C
Distribution Plan are currently used to pay others (such as dealers) a
commission at the time of purchase 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
0.25% of the price paid for each Class C share. Beginning approximately 15
months after purchase, the dealer or other party will receive a commission at
an annual rate of 0.75% (subject to applicable limitations imposed by the
National Association of Securities Dealers, Inc. ("NASD")) plus service fees
at an annual rate of 0.25%, respectively, of the average net asset value of
each Class C share sold by such others and maintained on the Fund's books 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
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 year ended March 31, 1996, amounts paid to KIDC pursuant to each
Fund's Class A, Class B, and Class C Distribution Plans were as follows:
<PAGE>
Page 48
- ----------------------------------
Keystone State Tax Free Fund
<TABLE>
<CAPTION>
Florida Fund
-------------
<S> <C>
Class A $ 56,304
Class B prior to June 1, 1995 456,390
Class B on or after June 1, 1995 34,480
Class C 111,012
</TABLE>
<TABLE>
<CAPTION>
Massachusetts
Fund
-----------------
<S> <C>
Class A $ 2,256
Class B prior to June 1, 1995 56,056
Class B on or after June 1, 1995 7,645
Class C 19,215
</TABLE>
<TABLE>
<CAPTION>
New York Fund
--------------
<S> <C>
Class A $ 5,591
Class B prior to June 1, 1995 116,859
Class B on or after June 1, 1995 22,305
Class C 21,248
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania
Fund
----------------
<S> <C>
Class A $ 44,529
Class B prior to June 1, 1995 282,940
Class B on or after June 1, 1995 36,440
Class C 87,375
</TABLE>
Under applicable NASD rules, the maximum uncollected amounts for which KIDC
may seek payment from the Funds under its Class B Distribution Plans as of
March 31, 1996 are as follows:
<TABLE>
<CAPTION>
Florida Fund
-------------
<S> <C>
Shares purchased prior to June 1, 1995 $2,946,854
Shares purchased on or after June 1, 1995 510,361
</TABLE>
<TABLE>
<CAPTION>
Massachusetts
Fund
--------------
<S> <C>
Shares purchased prior to June 1, 1995 $366,916
Shares purchased on or after June 1, 1995 55,979
</TABLE>
<TABLE>
<CAPTION>
New York Fund
--------------
<S> <C>
Shares purchased prior to June 1, 1995 $741,567
Shares purchased on or after June 1, 1995 290,287
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania
Fund
--------------
<S> <C>
Shares purchased prior to June 1, 1995 $1,849,989
Shares purchased on or after June 1, 1995 491,259
</TABLE>
As of March 31, 1996 the maximum uncollected amounts for which KIDC may seek
payment from the Funds under its Class C Distribution Plans are $1,295,524,
$142,771, $213,519 and $823,047, for the Florida Fund, the Massachusetts
Fund, the New York Fund and the Pennsylvania Fund, respectively.
Presently, each Fund's class-specific expenses are limited to Distribution
Plan expenses incurred by a class of shares pursuant to its Distribution
Plan.
(3.) Securities Transactions
As of March 31, 1996, the Funds had approximate capital loss carryovers for
federal income tax purposes as follows:
<TABLE>
<CAPTION>
Florida Fund
-------------
<S> <C>
Capital Loss Carryover $1,845,000
Expires 2002 1,845,000
</TABLE>
<TABLE>
<CAPTION>
Massachusetts
Fund
--------------
<S> <C>
Capital Loss Carryover $117,000
Expires 2002 117,000
</TABLE>
<TABLE>
<CAPTION>
New York Fund
--------------
<S> <C>
Capital Loss Carryover $72,000
Expires 2002 1,000
Expires 2003 71,000
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania
Fund
--------------
<S> <C>
Capital Loss Carryover $2,294,000
Expires 2002 1,503,000
Expires 2003 791,000
</TABLE>
Purchases and sales of investment securities, excluding short-term
securities, for the year ended March 31, 1996 were as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
---------- ------------
<S> <C> <C>
FLORIDA FUND $93,445,604 $101,076,090
MASSACHUSETTS FUND 19,566,916 18,349,095
NEW YORK FUND 15,459,323 11,114,467
PENNSYLVANIA FUND 45,460,964 40,281,694
</TABLE>
<PAGE>
Page 49
- ----------------------------------
(4.) Investment Management Agreement and other Transactions
Under the terms of the Investment Advisory and Management Agreement between
Keystone and the FUND, Keystone provides investment management and
administrative services to each Fund. 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 to 0.25% per
annum as net assets increase, to the net asset value of each Fund.
Keystone Investor Resource Center, Inc. ("KIRC"), a wholly-owned subsidiary
of Keystone, serves as each Fund's transfer and dividend disbursing agent.
During the year ended March 31, 1996, the Florida Fund, the Massachusetts
Fund, the New York Fund and the Pennsylvania Fund paid or accrued to KIRC
$115,014, $15,192, $27,801 and $106,088, respectively, for transfer agent
fees.
During the year ended March 31, 1996, the Florida Fund, the Massachusetts
Fund, the New York Fund and the Pennsylvania Fund paid or accrued to KII
$24,275, $22,081, $23,082 and $22,964, respectively, for certain accounting
services.
Keystone has voluntarily agreed to limit all expenses incurred for Class A
shares of the Florida Fund and the Pennsylvania 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 assets.
Keystone voluntarily limited the expenses of the Class A shares of the
Massachusetts Fund and the New York Fund to 0.65% until May 15, 1995 when
expenses were limited to 0.75%; expenses for Class B and Class C shares were
limited to 1.40% until May 15, 1995 when expenses were limited to 1.50%.
Keystone will not be required to reimburse a Fund to an extent that 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 expense
limitations then in effect, Keystone reimbursed the Florida Fund, the
Massachusetts Fund, the New York Fund, and the Pennsylvania Fund $196,232,
$100,729, $119,608 and $190,132, respectively, for the year ended March 31,
1996. Keystone does not intend to seek repayment of these amounts.
The Funds have entered into an expense offset arrangement with their
custodian. For the year ended March 31, 1996, the Florida Fund, the
Massachusetts Fund, the New York Fund and the Pennsylvania Fund paid custody
fees in the amount of $62,521, $24,212, $29,185 and $49,012, respectively,
and received a credit of $15,121, $1,100, $4,075 and $8,886, respectively,
pursuant to the expense offset arrangement, resulting in a total expense of
$77,642, $25,312, $33,260 and $57,898, respectively. The assets deposited
with the custodian under this expense offset arrangement could have been
invested in income-producing assets.
Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the FUND. Officers of Keystone and affiliated Trustees receive no
compensation directly from the FUND. Currently, the Independent Trustees of
the Funds receive no compensation for their services.
<PAGE>
Page 50
- ----------------------------------
Keystone State Tax Free Fund
Independent Auditors' Report
The Trustees and Shareholders of
Keystone State Tax Free Fund
We have audited the accompanying statements of assets and liabilities of
Keystone Florida Tax Free Fund, Keystone Massachusetts Tax Free Fund,
Keystone New York Insured Tax Free Fund and Keystone Pennsylvania Tax Free
Fund, portfolios of Keystone State Tax Free Fund, including the schedules of
investments as of March 31, 1996, and the related statements of operations
for the year then ended, the statements of changes in net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period ended March 31, 1996 and for the
period from December 28, 1990 (commencement of operations) to March 31, 1991
for Keystone Florida Tax Free Fund, for each of the years in the two-year
period ended March 31, 1996 and for the period from February 4, 1994
(commencement of operations) to March 31, 1994 for Keystone Massachusetts Tax
Free Fund and Keystone New York Insured Tax Free Fund, and for each of the
years in the five-year period ended March 31, 1996 and for the period from
December 27, 1990 (commencement of operations) to March 31, 1991 for Keystone
Pennsylvania Tax Free Fund. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 1996 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone Florida Tax Free Fund, Keystone Massachusetts Tax Free Fund,
Keystone New York Insured Tax Free Fund and Keystone Pennsylvania Tax Free
Fund, portfolios of Keystone State Tax Free Fund as of March 31, 1996, the
results of their operations for the year then ended, the changes in their net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years or periods specified in the first
paragraph above in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
April 26, 1996
<PAGE>
Page 51
- ----------------------------------
FEDERAL TAX STATUS--1996 Fiscal year distributions
(Unaudited)
The per share distributions paid to you for fiscal 1996, whether taken in
shares or cash, are as follows:
<TABLE>
<CAPTION>
Tax-Exempt Income Dividends
-------------------------------
Class A Class B Class C
------- ------- ---------
<S> <C> <C> <C>
Florida Tax Free Fund $0.56 $0.52 $0.52
Massachusetts Tax Free Fund 0.50 0.45 0.45
New York Insured Tax Free Fund 0.49 0.44 0.44
Pennsylvania Tax Free Fund 0.59 0.54 0.54
</TABLE>
In January 1997, complete information on calendar year 1996 distributions
will be forwarded to you to assist you in completing your 1996 federal income
tax return.
<PAGE>
[back cover]
KEYSTONE AMERICA
FAMILY OF FUNDS
[Diamond]
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Insured Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Pennsylvania Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Omega Fund
Fund of the Americas
Small Company Growth Fund II
Strategic Development Fund
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied by
the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you invest
or send money. For a free prospectus on other Keystone funds, contact your
financial adviser or call Keystone.
[Keystone Logo] KEYSTONE INVESTMENTS
P.O. Box 2121
Boston, Massachusetts 02106-2121
STFF-AR-5/96
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