PAGE 1
Keystone State Tax Free Fund
Seeks generous tax-free income from high quality municipal bonds
Dear Shareholder:
We are writing to report on the performance of Keystone State Tax Free Fund
for the six-month period which ended September 30, 1996. Following this
letter we have included a performance summary for each state fund and an
interview with Keystone's municipal bond team.
Municipal bonds generally maintained their price levels, despite the
negative effects of higher interest rates on bond prices during the six-month
period. In this environment, many taxable investments experienced price
declines. Investors saw evidence of this in the total return performance of
the benchmark 30-year U.S. Treasury bond which returned -0.41% for the
six-month period which ended September 30, 1996. By comparison, the Lehman
Municipal Bond Index returned 3.08% for the same six-month period.
At the beginning of the period on April 1, reports of strong economic growth
and fears of higher inflation rates caused interest rates to rise. When rates
rise, bond prices typically decline, due to the inverse relationship of
interest rates to bond prices. However, strong demand for higher yields and
attractive valuations of municipal bonds spared tax-free investors from most
price declines. Some municipal bonds with longer maturities nevertheless
experienced price declines because they tend to be affected more by changes
in interest rates than shorter term bonds.
We are pleased to inform you that Keystone has agreed to be acquired by
First Union Corporation. The acquisition is subject to a number of
conditions, including approvals of investment advisory agreements with
Keystone by fund shareholders. First Union is a financial services firm based
in Charlotte, North Carolina. It is the nation's sixth largest bank holding
company with assets of approximately $140 billion. First Union, through its
wholly-owned subsidiary Evergreen Asset Management Corp., manages more than
$16 billion in 36 mutual funds. Keystone will remain a separate entity after
its acquisition and will continue to provide investment advisory and
management services to the Fund. We believe First Union's acquisition of
Keystone should strengthen the investment management services we provide to
you.
We appreciate your continued support of Keystone funds. If you have any
questions or comments, please feel free to write to us.
Sincerely,
/s/Albert H. Elfner III
Albert H. Elfner, III
Chairman and President
Keystone Investments, Inc.
/s/George S. Bissell
George S. Bissell
Chairman of the Board
Keystone Funds
November 1996
<PAGE>
PAGE 2
Keystone Florida Tax Free Fund
Your Fund's Performance
The objective of Keystone Florida Tax Free Fund 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 the Florida intangibles
tax. George Kimball, vice president, is your Fund's manager.
Performance
Your Fund provided the following total returns, including income and price
changes, for the periods which ended September 30, 1996.
Class A shares returned 1.76% for the six-month period and 4.64% for the
twelve-month period.
Class B shares returned 1.40% for the six-month period and 3.86% for the
twelve-month period.
Class C shares returned 1.40% for the six-month period and 3.96% for the
twelve-month period.
Portfolio strategy
We sought to build income and protect capital over the past six months. We
emphasized income by reducing the Fund's holdings in AAA-rated bonds and
increasing assets in BBB-rated securities. These bonds provided additional
yield and, we believe, good relative value. We also attempted to preserve
income by maintaining call protection.
We primarily invested in bonds with 15-20 year maturities. These bonds
provided an attractive level of income and good long-term value. However,
these bonds incurred greater price declines than shorter term bonds as
interest rates rose. This strategy held back performance over the short-term.
Over the long-term, however, we expect 15-20 year bonds to make a valuable
contribution to your Fund's returns. As of September 30, 1996, your Fund's
average maturity was 20.1 years, up slightly from 19.7 years on March 31.
Also as of September 30, 1996, the Fund had an average quality rating of AA,
unchanged from March. The AA-rating is the second highest available.
Economic environment
The state's economy continues to outperform that of the nation, although
employment growth has slowed. Weakness has stemmed from the business and
medical services industries. Tourism remains an important business for the
state. Florida officials expect the state to grow at a healthy pace for the
rest of the decade. Florida continues to exhibit good financial stability.
The general fund balance is projected to have a $502 million balance at the
end of fiscal year 1996 and debt levels are low-to-moderate.
Outlook
Our outlook for Florida municipal bonds is stable. The economy and state of
fiscal operations appear to be solid. We expect the supply of municipal bonds
to continue to be plentiful and to be met with good demand from the high
concentration of retirees living in the state.
Asset Allocation
as of September 30, 1996
[pie chart]
Power (22.4%)
General obligation (19.8%)
Hospital (18.8%)
Industrial development revenue/pollution control revenue (9.2%)
Housing (8.0%)
Solid waste (6.0%)
Water/sewer (4.2%)
Education (3.7%)
Pre-refunded (3.6%)
Other (4.3%)
(as a percent of portfolio assets)
- -------------------------
(1)For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
<PAGE>
PAGE 3
Keystone Florida Tax Free Fund
Growth of an investment in
Keystone Florida Tax Free Fund Class A
[mountain chart]
In Thousands
Initial Investment Reinvested Distributions
12/90 9629 9637
9963 10503
9/92 10287 11614
10887 13139
9/94 9610 12461
10077 13819
9/96 10001 14460
Total Value: $14,460
A $10,000 investment in Keystone Florida Tax Free Fund Class A made on
December 28, 1990 with all distributions reinvested was worth $14,460 on
September 30, 1996. Past performance is no guarantee of future results.
Tax-Equivalent Yields
Federal Tax Bracket(2)
- --------- ----------------------------
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.
- -------------------------
(2)The table is based on federal tax brackets. The 31% bracket includes
single filers earning $53,501-115,000 and joint filers earning
$89,151-140,000; the 36% bracket includes single filers earning
$115,001-250,000 and joint filers earning $140,001-250,000; the 39.6%
bracket includes single and joint filers earning over $250,000. Yields are
hypothetical and do not represent the returns of any particular
investment.
Six-Month Performance as of September 30, 1996
Class A Class B Class C
Total returns* 1.76% 1.40% 1.40%
Net asset value 3/31/96 $10.60 $10.48 $10.50
9/30/96 $10.50 $10.38 $10.40
Dividends $ 0.28 $ 0.24 $ 0.24
Capital gains None None None
*Before deducting sales charges.
Historical Record as of September 30, 1996
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 4.64% 3.86% 3.96%
1-year -0.33% -0.10% 3.96%
3-year 4.83% 5.02% 7.78%
5-year 31.13% -- --
Life of Class 44.60% 14.81% 17.65%
Average Annual Returns
1-year w/o sales charge 4.64% 3.86% 3.96%
1-year -0.33% -0.10% 3.96%
3-year 1.58% 1.65% 2.53%
5-year 5.57% -- --
Life of Class 6.61% 3.84% 4.53%
Commencement of operations 12/28/90 2/1/93 2/1/93
Class A share performance is reported at the current maximum front-end sales
charge of 4.75%.
Class B shares are sold without a front-end sales charge. Shares purchased
after June 1, 1995 are subject to a contingent deferred sales charge (CDSC)
that declines from 5% to 1% over six years from the month purchased.
Performance assumes that shares were redeemed after the end of a one-year
holding period and reflects the deduction of a 4% CDSC.
Class C shares are sold without a front-end sales charge. Performance
reflects the return you would have received after holding shares for one year
or more and redeeming after the end of that period.
The investment return and principal value will fluctuate so that your
shares, when redeemed, may be worth more or less than the original cost.
Performance for each class will differ.
Shareholders may exchange shares for another Keystone fund. The exchange fee
is waived for individual investors who request an exchange through Keystone's
Automated Response Line (KARL). Investors who exchange by calling or writing
to Keystone directly are subject to a $10 exchange fee. The Fund reserves the
right to change or terminate the exchange offer.
<PAGE>
PAGE 4
Keystone Massachusetts Tax Free Fund
Your Fund's Performance
The objective of Keystone Massachusetts Tax Free Fund is to earn generous
income, exempt from federal and state income tax, while preserving capital.3
Daniel A. Rabasco, vice president, is your Fund's manager.
Performance
Your Fund provided the following total returns, including income and price
changes, for the periods which ended September 30, 1996.
Class A shares returned 1.80% for the six-month period and 4.19% for the
twelve-month period.
Class B shares returned 1.41% for the six-month period and 3.22% for the
twelve-month period.
Class C shares returned 1.41% for the six-month period and 3.34% for the
twelve-month period.
Portfolio Strategy
Over the last six months, we focused on upgrading portfolio quality. Stronger
credits typically outperform weaker credits during periods of rising interest
rates and we believed this would help to protect the Fund against price
declines. As of September 30, 1996, the average rating of the Fund stood at
AA-, the second highest credit rating. This was an improvement from A+, which
was the Fund's average quality rating on March 31.
We primarily invested in bonds with approximately 20-year maturities and
sought to protect income by emphasizing bonds with call protection. These
bonds provided an attractive level of income and, we believe, good long-term
value. However, these bonds incurred greater price declines than shorter term
bonds as interest rates rose. As of September 30, 1996, the Fund's average
maturity was 18.0 years, virtually unchanged from 18.1 years at the end of
March.
Economic environment
The Commonwealth of Massachusetts has benefited from a strengthening labor
market and its financial position continues to improve. The state's
unemployment rate is lower than that of the nation. Employment growth has
been primarily in the service and trade sectors. Manufacturing employment was
essentially flat in 1995, after having declined for ten straight years.
The Commonwealth has demonstrated increasing financial stability. Fiscal
year 1996 ended with a total fund balance of $1,152.5 million with excess
money in the budget stabilization fund. By law, these excess stabilization
funds totaling $150 million are mandated to go toward a personal income tax
reduction. Another area of improvement has been in the area of Medicaid.
Medicaid costs, which grew at a 17% average annual rate from fiscal years
1987-1991, have grown more slowly at approximately a 2.5% annual rate in
Massachusetts over the past two years.
Outlook
Our outlook for Massachusetts is positive. In addition to the solid state of
the economy and fiscal operations, the supply and demand characteristics for
the Commonwealth's municipal bonds appears to be favorable. We expect new
debt issuance to be manageable. Further, a high per capita income and the
state's tax structure is anticipated to keep demand for the Commonwealth's
bonds steady.
Asset Allocation
as of September 30, 1996
[pie chart]
General obligation (27.7%)
Water/sewer (21.6%)
Hospital (19.1%)
Transportation (11.2%)
Education (7.1%)
Housing (5.4%)
Power (4.3%)
Industrial development revenue/pollution control revenue (2.3%)
Other (1.3%)
(as a percentage of portfolio assets)
- -------------------------
(3)For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
<PAGE>
PAGE 5
Keystone Massachusetts Tax Free Fund
Growth of an investment in
Keystone Massachusetts Tax Free Fund Class A
[mountain chart]
In Thousands
Initial Investment Reinvested Distributions
2/94 9372 9414
9/91 8563 8903
9/92 8877 9764
9/93 8763 10173
Total Value: $10,173
A $10,000 investment in Keystone Massachusetts Tax Free Fund Class A made on
February 4, 1994 with all distributions reinvested was worth $10,173 on
September 30, 1996. Past performance is no guarantee of future results.
Tax-Equivalent Yields
Federal Tax Bracket(4)
------------------------------- ----------------------------------------
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.
- --------------------
(4)The table is based on federal tax brackets. The 31% bracket includes
single filers earning $53,501-115,000 and joint filers earning
$89,151-140,000; the 36% bracket includes single filers earning
$115,001-250,000 and joint filers earning $140,001-250,000; the 39.6%
bracket includes single and joint filers earning over $250,000. Yields are
hypothetical and do not represent the returns of any particular
investment.
Six-Month Performance as of September 30, 1996
Class A Class B Class C
Total returns* 1.80% 1.41% 1.41%
Net asset value 3/31/96 $9.29 $9.22 $9.22
9/30/96 $9.20 $9.13 $9.13
Dividends $0.25 $0.22 $0.22
Capital gains None None None
*Before deduction of sales charges.
Historical Record as of September 30, 1996
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 4.19% 3.22% 3.34%
1-year -0.76% -0.72% 3.34%
Life of Class 1.73% 2.18% 4.82%
Average Annual Returns
1-year w/o sales charge 4.19% 3.22% 3.34%
1-year -0.76% -0.72% 3.34%
Life of Class 0.65% 0.81% 1.78%
Commencement of operations 2/4/94 2/4/94 2/4/94
Class A share performance is reported at the current maximum front-end sales
charge of 4.75%.
Class B shares are sold without a front-end sales charge. Shares purchased
after June 1, 1995 are subject to a contingent deferred sales charge (CDSC)
that declines from 5% to 1% over six years from the month purchased.
Performance assumes that shares were redeemed after the end of a one-year
holding period and reflects the deduction of a 4% CDSC.
Class C shares are sold without a front-end sales charge. Performance
reflects the return you would have received after holding shares for one year
or more and redeeming after the end of that period.
The investment return and principal value will fluctuate so that your
shares, when redeemed, may be worth more or less than the original cost.
Performance for each class will differ.
Shareholders may exchange shares for another Keystone fund. The exchange fee
is waived for individual investors who request an exchange through Keystone's
Automated Response Line (KARL). Investors who exchange by calling or writing
to Keystone directly are subject to a $10 exchange fee. The Fund reserves the
right to change or terminate the exchange offer.
<PAGE>
PAGE 6
Keystone New York Insured Tax Free Fund
Your Fund's Performance
The objective of Keystone New York Insured Tax Free Fund is to earn generous
income, exempt from federal, state, and New York City income tax, while
preserving capital.5 At least 80% of your Fund's investments will be insured
as to timely payment of both principal and interest. George Kimball, vice
president, is your Fund's manager.
Performance
Your Fund provided the following total returns, including income and price
changes, for the periods which ended September 30, 1996.
Class A shares returned 2.59% for the six-month period and 5.61% for the
twelve-month period.
Class B shares returned 2.23% for the six-month period and 4.91% for the
twelve-month period.
Class C shares returned 2.23% for the six-month period and 4.80% for the
twelve-month period.
Portfolio strategy
We sought to increase the portfolio's yield and protect the Fund's holdings
from price declines as interest rates rose over the past six months. We
increased the portfolio's yield by modestly reducing the Fund's holdings in
AAA-rated securities and investing in selected BBB- rated bonds. As of
September 30, 1996, approximately 85% of the Fund's portfolio was invested in
AAA-rated securities and 6% was in BBB-rated bonds. This represents a change
from 88% and 2.5%, respectively, in March. We also believed BBB-rated bonds
represented relatively attractive values. As of September 30, 1996, the
Fund's average portfolio quality was AAA and the portfolio's average maturity
was 16.9 years, down from 21.4 years at the end of March.
Economic environment
New York's economy has improved, but the state still faces some budget
challenges. Non-farm jobs grew by 1.5% for the twelve months which ended
August 1996 and the state's unemployment rate was 6.1%. From a fiscal
standpoint, the state has produced operating surpluses for three out of four
of the past fiscal years, but is still fighting an accumulated deficit.
Further, New York could be negatively impacted by recently passed federal
welfare reform, due to the state's constitutional requirement to provide for
the needy.
Outlook
We have a steady outlook for New York municipal bonds. We recognize that the
state has made improvements and we continue to monitor developments on the
fiscal front. Supply and demand factors appear to be similar to past trends.
Outstanding municipal debt levels continue to increase, but because of the
high tax rate paid by residents, demand is expected to hold firm. Under these
circumstances, we believe that your Fund's emphasis on insured bonds should
provide additional protection and stability.
Asset Allocation
as of September 30, 1996
[pie chart]
General obligation (31.5%)
Transportation (14.9%)
State appropriated (14.2%)
Education (14.1%)
Water/sewer (6.8%)
Housing (6.2%)
Industrial development revenue/pollution control revenue (4.2%)
Power (4.1%)
Hospital (1.1%)
Other (2.9%)
(as a percentage of portfolio assets)
- -----------------------
(5)For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
<PAGE>
PAGE 7
Keystone New York Insured Tax Free Fund
Growth of an investment in
Keystone New York Insured Tax Free Fund Class A
[mountain chart]
In Thousands
Initial Investment Reinvested Distributions
2/94 9363 9404
9/94 8763 9097
9/95 9172 10044
9/96 9210 10607
Total Value: $10,608
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 $10,608 on
September 30, 1996. Past performance is no guarantee of future results.
Tax-Equivalent Yields
Federal Tax Bracket(6)
--------------------------------- ---------------------------------
31% 36% 39.6%
(combined city, state & federal) (39.32%) (43.21%) (46.88%)
--------------------------------- -------- -------- ----------
Yield Taxable Equivalent Yield
--------------------------------- ---------------------------------
4.5% 7.4% 7.9% 8.5%
5.0% 8.2% 8.8% 9.4%
5.5% 9.1% 9.7% 10.4%
--------------------------------- -------- -------- ----------
The yields shown are for illustrative purposes only. They are not intended to
represent actual performance of the Fund.
- -----------------
(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.
Six-Month Performance as of September 30, 1996
Class A Class B Class C
Total returns* 2.59% 2.23% 2.23%
Net asset value 3/31/96 $9.67 $9.59 $9.58
9/30/96 $9.67 $9.59 $9.58
Dividends $0.25 $0.21 $0.21
Capital gains None None None
*Before deduction of sales charges.
Historical Record as of September 30, 1996
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 5.61% 4.91% 4.80%
1-year 0.59% 0.91% 4.80%
Life of Class 6.08% 6.53% 9.18%
Average Annual Returns
1-year w/o sales charge 5.61% 4.91% 4.80%
1-year 0.59% 0.91% 4.80%
Life of Class 2.24% 2.40% 3.36%
Commencement of operations 2/4/94 2/4/94 2/4/94
Class A share performance is reported at the current maximum front-end sales
charge of 4.75%.
Class B shares are sold without a front-end sales charge. Shares purchased
after June 1, 1995 are subject to a contingent deferred sales charge (CDSC)
that declines from 5% to 1% over six years from the month purchased.
Performance assumes that shares were redeemed after the end of a one-year
holding period and reflects the deduction of a 4% CDSC.
Class C shares are sold without a front-end sales charge. Performance
reflects the return you would have received after holding shares for one year
or more and redeeming after the end of that period.
The investment return and principal value will fluctuate so that your
shares, when redeemed, may be worth more or less than the original cost.
Performance for each class will differ.
Shareholders may exchange shares for another Keystone fund. The exchange fee
is waived for individual investors who request an exchange through Keystone's
Automated Response Line (KARL). Investors who exchange by calling or writing
to Keystone directly are subject to a $10 exchange fee. The Fund reserves the
right to change or terminate the exchange offer.
<PAGE>
PAGE 8
Keystone Pennsylvania Tax Free Fund
Your Fund's Performance
The objective of Keystone Pennsylvania Tax Free Fund is to earn generous
income, exempt from federal, state, and city income tax, while preserving
capital.7 In addition, your Fund seeks to ensure that its shares are exempt
from Pennsylvania's personal property tax. Daniel A. Rabasco, vice president,
is your Fund's manager.
Performance
Your Fund provided the following total returns, including income and price
changes, for the periods which ended September 30, 1996.
Class A shares returned 2.78% for the six-month period and 5.65% for the
twelve-month period.
Class B shares returned 2.50% for the six-month period and 4.98% for the
twelve-month period.
Class C shares returned 2.49% for the six-month period and 4.97% for the
twelve-month period.
Portfolio strategy
We emphasized credit quality over the last six months. On September 30, 1996,
the average quality rating in the portfolio was AA-, the second highest major
rating category. This was an improvement from A+ at the end of March. We
upgraded credit quality because we believed that the yields on the stronger
credits provided better relative value. Over the last six months, we invested
in bonds with approximately 20-year maturities. As of September 30, 1996,
your Fund's average maturity was 20.3 years, up slightly from 19.0 years at
the end of March.
Economic environment
The Commonwealth of Pennsylvania's unemployment rate has been marginally less
than that of the nation, but the number of new jobs has been growing slowly.
Financially, operations have been stable. The state ended fiscal year 1996
with an unreserved general fund balance of approximately $156 million and the
enacted fiscal year 1997 budget is balanced. General obligation debt levels
remain moderate and outstanding general obligation debt has remained
relatively constant over the past few years.
Outlook
We have a steady outlook for Pennsylvania municipal bonds. Economic and
fiscal operations appear to be solid. Further, we expect the state's
municipal bond investors to benefit from favorable supply and demand
characteristics. While there is typically steady demand for Pennsylvania
municipal bonds, an often limited supply can help to support price levels.
Asset Allocation
as of September 30, 1996
[pie chart]
Hospital (18.2%)
General obligation (17.8%)
Education (16.0%)
Industrial development revenue/pollution control revenue (13.2%)
Housing (11.0%)
Transportation (9.5%)
Power (6.2%)
Water/Sewer (6.0%)
Other (2.1%)
(as a percentage of portfolio assets)
- -------------------
(7)For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
<PAGE>
PAGE 9
Keystone Pennsylvania Tax Free Fund
Growth of an investment in
Keystone Pennsylvania Tax Free Fund Class A
[mountain chart]
In Thousands
Initial Investment Reinvested Distributions
12/90 9715 9723
10096 10652
9/92 10525 11849
11430 13646
9/94 10296 13078
10601 14230
9/96 10630 15034
Total Value: $15,034
A $10,000 investment in Keystone Pennsylvania Tax Free Fund Class A made on
December 27, 1990 with all distributions reinvested was worth $15,034 on
September 30, 1996. Past performance is no guarantee of future results.
Tax-Equivalent Yields
Federal Tax Bracket(8)
- --------------------------- ---------------------------------
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.
- ------------------
(8)The table is based on federal tax brackets. The 31% bracket includes
single filers earning $53,501-115,000 and joint filers earning
$89,151-140,000; the 36% bracket includes single filers earning
$115,001-250,000 and joint filers earning $140,001-250,000; the 39.6%
bracket includes single and joint filers earning over $250,000. Yields are
hypothetical and do not represent the returns of any particular
investment.
Six-Month Performance as of September 30, 1996
Class A Class B Class C
Total returns* 2.78% 2.50% 2.49%
Net asset value 3/31/96 $11.15 $11.00 $11.03
9/30/96 $11.16 $11.02 $11.05
Dividends $ 0.29 $ 0.25 $ 0.25
Capital gains None None None
*Before deduction of sales charges.
Historical Record as of September 30, 1996
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 5.65% 4.98% 4.97%
1-year 0.63% 0.98% 4.97%
3-year 4.93% 5.00% 7.78%
5-year 34.43% -- --
Life of Class 50.34% 16.31% 19.31%
Average Annual Returns
1-year w/o sales charge 5.65% 4.98% 4.97%
1-year 0.63% 0.98% 4.97%
3-year 1.62% 1.64% 2.53%
5-year 6.10% -- --
Life of Class 7.33% 4.21% 4.93%
Commencement of
operations 12/27/90 2/1/93 2/1/93
Class A share performance is reported at the current maximum front-end sales
charge of 4.75%.
Class B shares are sold without a front-end sales charge. Shares purchased
after June 1, 1995 are subject to a contingent deferred sales charge (CDSC)
that declines from 5% to 1% over six years from the month purchased.
Performance assumes that shares were redeemed after the end of a one-year
holding period and reflects the deduction of a 4% CDSC.
Class C shares are sold without a front-end sales charge. Performance
reflects the return you would have received after holding shares for one year
or more and redeeming after the end of that period.
The investment return and principal value will fluctuate so that your
shares, when redeemed, may be worth more or less than the original cost.
Performance for each class will differ.
Shareholders may exchange shares for another Keystone fund. The exchange fee
is waived for individual investors who request an exchange through Keystone's
Automated Response Line (KARL). Investors who exchange by calling or writing
to Keystone directly are subject to a $10 exchange fee. The Fund reserves the
right to change or terminate the exchange offer.
<PAGE>
PAGE 10
Keystone State Tax Free Fund
A Discussion With
Your Fund's Management
[photo of fund managers]
Keystone State Tax Free Funds are managed by Keystone's municipal bond team
headed by senior vice president Betsy (Blacher) Hutchings. They are (from
left to right) Daniel Rabasco, portfolio manager; Craig Kasap, trader; George
Kimball, portfolio manager; Betsy Hutchings, group leader; and David Moore,
analyst. The team evaluates credit quality and the economic environment in
selecting municipal bonds for Keystone state tax-free funds.
Q What do Keystone State Tax Free Funds offer investors?
A The Funds are designed for tax-sensitive investors in four specific
states. Each portfolio seeks consistent, attractive income that is exempt
from federal, state and city taxes as applicable. Of course, some investors
in certain tax situations may be subject to the federal alternative minimum
tax (AMT) on a portion of this income. In states that tax intangible assets
or personal property (Florida and Pennsylvania), we also seek tax- exempt
status. The Funds offer professional management and diversification from a
portfolio of quality municipal bonds. We manage each state fund with careful
attention to credit quality and financial stability.
Q What was the environment like for municipal bonds over the past six
months?
A Municipal bond investors experienced a varied interest rate climate. In
early 1996, investors became increasingly concerned that the national economy
was growing faster than expected due to strength in employment. Many believed
that this strength would trigger future inflation. These concerns, as well as
an increased supply of municipal bonds, drove yields higher and prices lower.
Through the beginning of the summer, the environment for municipal bonds was
characterized by rising interest rates and heavy supply.
Around mid-year, volatility started to subside and supply began to moderate.
Interest rates remained at higher levels than at the beginning of 1996, but
traded within a narrow range. Signs of slower growth in parts of the economy
off-set the stronger growth in employment, resulting in economic activity
that was moderate overall. Inflation continued to be well- contained.
Investor demand for municipal bonds was solid, although somewhat less than it
had been when interest rates were higher.
Q How did municipal bonds perform vs. the overall fixed-income market?
A Municipal bonds outperformed U.S. Treasuries, which serves as the
benchmark of the domestic fixed- income market. The benchmark 30-year U.S.
Treasury bond had a total return of -0.41% for the six-month period which
ended September 30, 1996. By comparison, the Lehman Municipal Bond Index
returned 3.08% for the same six-month period. Municipal bonds also
outperformed Treasuries for the twelve- month period: Treasuries returned
- -0.65% and the Lehman Municipal Bond Index returned 6.03%.
<PAGE>
PAGE 11
Keystone State Tax Free Fund
Yield Comparison Treasuries v. Municipals
As of September 30, 1996
[line chart]
A-Rated Municipal Bond Yield 30-Year Treasury Bond Yield
4/88 8.35 8.99
8.38 9.09
8.4 9.15
8.3 9.09
8.5 9.34
8.5 9.32
8.38 9.15
8.35 9.04
8.3 8.98
8.15 8.91
8.25 8.83
8.25 9.09
8.25 9.14
8.15 9.19
8.1 9.2
8.1 9.12
8.25 9.42
8.2 9.39
8.25 9.42
8.15 9.04
8.15 8.98
7.95 9
8.13 9.04
8 8.95
7.8 8.8
7.88 8.9
7.78 8.88
7.75 8.8
7.8 8.91
7.85 9
8 9.11
8 9.17
8.13 9.16
8.05 8.94
8 9.05
7.9 8.9
7.9 8.99
1/89 7.8 9.03
7.75 8.88
7.6 8.88
7.63 8.76
7.5 8.82
7.8 9.03
7.88 9.04
7.95 9.18
7.95 9.12
7.85 9.15
7.95 9.29
8.05 9.22
7.95 9.09
7.85 9.1
7.85 9.03
7.75 8.98
7.63 8.93
7.63 8.95
7.63 8.83
7.25 8.7
7.45 8.61
7.4 8.45
7.3 8.13
7.35 8.3
7.4 8.19
7.35 8.04
7.38 8.04
7.3 8.08
7.35 8.15
7.3 7.99
7.28 8.08
7.35 8.11
7.45 8.16
7.45 8.19
7.48 8.13
7.45 8.08
7.5 8.07
7.65 8.19
7.65 8.23
7.45 8.01
7.5 7.87
7.4 7.98
7.5 7.94
7.5 7.93
7.5 7.89
7.4 7.93
7.4 7.87
7.35 7.88
7.37 7.88
7.37 7.85
7.3 7.87
7.3 7.98
1/90 7.35 8.05
7.35 8.17
7.45 8.27
7.5 8.52
7.55 8.51
7.5 8.33
7.45 8.46
7.5 8.55
7.3 8.55
7.5 8.62
7.6 8.54
7.55 8.48
7.5 8.62
7.5 8.52
7.5 8.57
7.5 8.94
7.8 9.02
7.85 8.81
7.6 8.64
7.6 8.7
7.5 8.67
7.5 8.42
7.45 8.44
7.45 8.42
7.45 8.48
7.45 8.4
7.45 8.5
7.4 8.45
7.4 8.54
7.4 8.48
7.35 8.55
7.45 8.78
7.55 8.94
7.8 9.15
7.8 8.98
7.75 8.91
7.65 9.02
7.7 9.12
7.75 8.95
7.7 8.79
7.8 8.96
7.75 8.75
7.63 8.77
7.63 8.69
7.5 8.62
7.35 8.45
7.38 8.44
7.35 8.48
7.38 8.18
7.3 8.19
7.35 8.28
7.35 8.3
1/91 7.3 8.2
7.4 8.36
7.3 8.16
7.3 8.23
7.25 8.09
7.05 7.96
7.2 7.98
7.3 8.06
7.3 8.29
7.3 8.31
7.3 8.29
7.35 8.31
7.35 8.24
7.22 8.16
7.2 8.15
7.3 8.24
7.35 8.21
7.15 8.23
7.07 8.3
7.2 8.28
7.18 8.3
7.18 8.26
7.45 8.47
7.55 8.47
7.55 8.51
7.35 8.4
7.5 8.49
7.5 8.44
7.35 8.47
7.05 8.39
7.05 8.24
7.05 8.22
7.05 8.09
7.2 8.12
7.2 8.06
7.2 8.01
6.98 7.94
6.98 7.89
7 7.82
6.9 7.78
6.8 7.87
7 7.95
6.85 8.04
7 7.93
6.85 7.87
6.9 7.82
6.9 7.98
7.05 7.94
7.05 7.8
6.9 7.77
6.8 7.59
6.67 7.51
1/92 6.65 7.48
6.53 7.46
6.7 7.61
6.75 7.71
6.8 7.76
6.78 7.76
6.85 7.9
6.85 7.94
6.8 7.79
6.83 7.93
6.86 8.06
6.87 8.04
6.87 7.94
6.75 7.87
6.75 7.88
6.7 7.94
6.75 8.04
6.83 8.01
6.75 7.89
6.68 7.82
6.7 7.82
6.7 7.84
6.77 7.84
6.64 7.86
6.55 7.83
6.55 7.78
6.45 7.63
6.35 7.63
6.3 7.68
6.13 7.57
6.12 7.46
6.3 7.39
6.22 7.32
6.35 7.35
6.55 7.42
6.55 7.28
6.3 7.29
6.5 7.32
6.6 7.36
6.55 7.33
6.55 7.52
6.65 7.53
6.8 7.64
6.73 7.62
6.65 7.75
6.53 7.56
6.5 7.53
6.5 7.59
6.57 7.48
6.5 7.44
6.55 7.42
6.53 7.36
6.53 7.32
1/93 6.45 7.46
6.43 7.34
6.4 7.29
6.3 7.19
6.27 7.16
6.17 7.12
6.07 7
5.8 6.9
5.85 6.74
5.95 6.86
5.85 6.8
6.05 6.94
6.1 7.05
6.05 6.84
5.9 6.75
5.9 6.79
5.95 6.93
5.9 6.84
5.95 6.94
6.05 7.03
5.95 6.98
5.95 6.91
5.95 6.8
5.9 6.8
5.8 6.7
5.75 6.66
5.77 6.63
5.75 6.54
5.85 6.7
5.9 6.56
5.85 6.52
5.75 6.35
5.65 6.22
5.6 6.13
5.5 5.94
5.5 5.88
5.48 6.04
5.5 6.05
5.5 5.99
5.47 5.92
5.3 5.78
5.4 5.97
5.5 5.97
5.7 6.21
5.7 6.14
5.75 6.34
5.7 6.26
5.65 6.24
5.53 6.19
5.53 6.28
5.5 6.21
5.45 6.35
1/94 5.48 6.23
5.53 6.29
5.55 6.28
5.4 6.21
5.45 6.36
5.55 6.41
5.75 6.62
5.9 6.71
6.05 6.84
6.15 6.9
6.15 6.92
6.25 7.01
6.55 7.25
6.5 7.26
6.55 7.29
6.45 7.23
6.45 7.3
6.6 7.54
6.65 7.49
6.5 7.3
6.6 7.39
6.45 7.27
6.33 7.31
6.38 7.44
6.48 7.51
6.57 7.61
6.6 7.69
6.55 7.54
6.5 7.56
6.4 7.39
6.48 7.54
6.58 7.48
6.58 7.48
6.61 7.48
6.55 7.49
6.59 7.7
6.64 7.77
6.75 7.79
6.73 7.81
6.85 7.91
6.75 7.83
6.87 7.98
7.02 7.96
7.36 8.16
7.48 8.15
7.52 8.13
7.37 7.93
7.32 7.9
7.05 7.86
7 7.85
7.05 7.83
7.05 7.88
1/95 6.98 7.86
6.95 7.79
6.98 7.89
6.8 7.73
6.55 7.63
6.55 7.67
6.55 7.59
6.4 7.53
6.5 7.54
6.5 7.46
6.3 7.37
6.3 7.36
6.35 7.43
6.26 7.39
6.17 7.34
6.28 7.33
6.3 7.34
6.31 7.02
6.15 6.99
6.12 6.92
6.03 6.75
5.88 6.53
5.98 6.61
6.33 6.62
6.22 6.5
6.35 6.62
6.11 6.52
6.12 6.6
6.38 6.96
6.25 6.9
6.38 6.91
6.5 6.99
6.45 6.9
6.4 6.7
6.27 6.62
6.08 6.59
6.08 6.48
6.08 6.58
6.3 6.5
6.24 6.42
6.02 6.3
5.95 6.36
6.17 6.36
6.01 6.28
5.96 6.34
5.91 6.23
5.93 6.25
5.82 6.09
5.72 6.05
5.82 6.1
5.77 6.06
5.77 5.95
1/96 5.72 6.04
5.99 6.15
5.85 5.97
5.85 6.04
5.85 6.16
5.7 6.1
5.87 6.24
5.95 6.41
5.99 6.37
6 6.71
6.18 6.74
6.3 6.66
6.2 6.67
6.3 6.82
6.5 6.8
6.31 6.79
6.26 6.79
6.46 7.12
6.43 6.93
6.22 6.83
6.15 6.83
6.32 6.99
6.42 7.03
6.55 7.09
6.3 7.1
6.25 6.87
6.2 7.19
6.28 7.03
6.17 6.97
6.15 7.01
6.08 6.74
5.98 6.69
6.07 6.77
6.07 6.96
6.18 7.12
6.31 7.11
6.16 6.95
6.15 7.04
6.05 88% of Treasuries 6.91
Source: Merrill Lynch and Bloomberg
Another tool that investors use to gauge relative performance is to compare
the yields of municipals and U.S. Treasuries and then measure the change in
their relationship (see chart). At their "cheapest" point over the past six
months, A-rated municipals yielded 95% of U.S. Treasuries with comparable
maturities. That means that an investor could purchase an average A-rated
municipal bond with a yield that was 95% of a comparable Treasury bond. For
nearly the same yield as Treasuries, many investors flocked to municipal
bonds.
As a result of strong demand the ratio dropped to 88% as of September 30,
closer to the long-term average. The decline of seven percentage points
indicated better relative price performance from municipal bonds. Even at 88%
of Treasuries, we still think municipal bonds offer attractive income after
taxes and considering the current low level of inflation.
Q What strategies did you employ in managing the portfolios?
A We emphasized income and sought to guide the Funds through the bond
market's volatility. We primarily invested in bonds with 15-25 year
maturities. Throughout the period, we attempted to protect income by
maintaining call protection. Several other strategies were employed which
were tailored to meet the needs of the particular state funds. Those are
discussed on the pages detailing the individual portfolios.
Q What is your outlook for the municipal bond market over the next six
months?
A We believe that municipal bond prices will trade within a narrow range and
look for a large part of total return to be derived from income. We expect to
see slower economic growth and well-contained inflation through the end of
this year and into early 1997. We believe this type of environment should
provide a stable backdrop for the tax-exempt market. We are also watching
other market influences such as supply and demand. Supply and demand factors
seem to be favorable. The heavier supply that we saw in the first six months
of this calendar year has moderated and investor demand continues to be solid.
[diamond]
This column is intended to answer questions about your Fund.
If you have a question you would like answered, please write to:
Keystone Investment Distributors Company
Attn: Shareholder Communications, 22nd Floor
200 Berkeley Street, Boston, Massachusetts 02116-5034.
<PAGE>
PAGE 12
Keystone State Tax Free Fund
Glossary of
Mutual Fund Terms
MUTUAL FUND--A company which combines the investment money of many people
whose financial goals are similar, and invests that money in a variety of
securities. A mutual fund allows the smaller investor the benefits of
diversification, professional management and constant supervision usually
available only to large investors.
PORTFOLIO MANAGER--An investment professional who is responsible for
managing a portfolio's assets prudently and making appropriate investment
decisions, such as which securities to buy, hold and sell, based on the
investment objectives of the portfolio.
STOCK--Equity or ownership interest in a corporation, which represents a
claim on the corporation's assets and earnings.
BOND--Security issued by a government or corporation to those from whom it
has borrowed money. A bond usually promises to pay interest income to the
bondholder at regular intervals and to repay the entire amount borrowed at
maturity date.
CONVERTIBLE SECURITY--A corporate security (usually preferred stock or
bonds) that is exchangeable for a set number of another security type
(usually common stocks) at a pre-stated price.
MONEY MARKET FUND--A mutual fund whose assets are invested in a diversified
portfolio of short- term securities, including commercial paper, bankers'
acceptances, certificates of deposit and other short-term instruments. The
fund pays income which can fluctuate daily. Liquidity and safety of principal
are primary objectives.
NET ASSET VALUE (NAV) PER SHARE--The value of one share of a mutual fund.
The NAV per share is determined by subtracting a fund's total liabilities
from its total assets, and dividing that amount by the number of fund shares
outstanding.
DIVIDEND--A per share distribution of the income earned from the fund's
portfolio holdings. When a dividend distribution is made, the fund's net
asset value drops by the amount of the distribution because the distribution
is no longer considered part of the fund's assets.
CAPITAL GAIN--The profit from the sale of securities, less any losses.
Capital gains are paid to fund shareholders on a per share basis. When a
capital gain distribution is made, the fund's net asset value drops by the
amount of the distribution because the distribution is no longer considered
part of the fund's assets.
YIELD--The annualized rate of income as measured against the current net
asset value of fund shares.
TOTAL RETURN--The change in value of a fund investment over a specified
period of time, taking into account the change in a fund's market price and
the reinvestment of all fund distributions.
SHORT-TERM--An investment with a maturity of one year or less.
LONG-TERM--An investment with a maturity of greater than one year.
AVERAGE MATURITY--The average number of days until the notes, drafts,
acceptances, bonds or other debt instruments in a portfolio become due and
payable.
OFFERING PRICE--The offering price of a share of a mutual fund is the price
at which the share is sold to the public.
<PAGE>
PAGE 13
Keystone Florida Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
----------------------------------------------------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.7%)
Alliance Airport Authority, Texas, Federal Express
Project 6.375% 04/01/2021 $2,000,000 $ 1,974,200
Bay County, Florida, Hospital Systems Revenue
Refunding, Bay Medical Center Project 8.000 10/01/2019 2,500,000 2,777,900
Brevard County, Florida, Health Facilities Authority
Revenue Refunding, Devereux Foundation (MBIA) 5.125 11/01/2019 2,320,000 2,146,812
Brevard County, Florida, Health Facilities Authority
Revenue Refunding, Wuesthoff Memorial Hospital
(MBIA) 7.200 04/01/2013 2,000,000 2,275,840
Broward County, Florida, Collateralized Home
Mortgage 7.125 03/01/2017 195,000 204,025
Broward County, Florida, Resource Recovery, South
Project 7.950 12/01/2008 2,500,000 2,749,925
Charlotte County, Florida, Utility Revenue (FGIC) 6.750 10/01/2013 1,000,000 1,132,240
City of Tarpon Springs Health Facilities Authority,
Florida, Hospital Refunding, Helen Ellis Hospital 7.625 05/01/2021 1,000,000 1,041,120
Commonwealth of Puerto Rico, Aqueduct and Sewer
Authority Revenue 6.250 07/01/2012 2,000,000 2,151,740
Commonwealth of Puerto Rico, Highway Authority &
Transportation Authority, Series Y 5.000 07/01/2036 2,000,000 1,744,340
Commonwealth of Puerto Rico, Highway Authority &
Transportation Authority, Series Y 5.500 07/01/2036 2,000,000 1,898,580
Dade County, Florida, Educational Facilities
Authority Revenue (St. Thomas University) 6.000 01/01/2010 2,000,000 2,031,680
Dade County, Florida, General Obligation Unlimited
Revenue Bonds (MBIA) 5.125 10/01/2026 1,250,000 1,147,488
Dade County, Florida, Housing Finance Agency, Single
Family Mortgage 7.000 03/01/2024 185,000 191,662
Dade County, Florida, School District, General
Obligation 7.375 07/01/2008 40,000 43,805
Duval County, Florida, Single Family Mortgage
Refunding (FGIC) 7.300 07/01/2011 80,000 84,194
Escambia County, Florida, Pollution Control,
Champion International Corp. Project 6.900 08/01/2022 3,000,000 3,142,710
Escambia County, Florida, Pollution Control,
Champion International Corp. Project 6.400 09/01/2030 1,000,000 1,003,220
Florida Housing Finance Agency, Home Ownership
Mortgage 7.500 09/01/2014 160,000 169,862
Florida Housing Finance Agency, Home Ownership
Mortgage 6.050 07/01/2016 2,630,000 2,673,264
Florida Housing Finance Agency, Multi-Family
Housing, Series C 6.200 08/01/2016 2,000,000 2,021,560
Florida State Board of Education Capital Outlay
Refunding, Public Education, Series D 4.750 06/01/2016 1,000,000 882,710
Florida State Transportation, Jacksonville
Transportation Authority 9.000 01/01/2000 1,000,000 1,077,760
Gainesville, Florida, Utilities System Revenue,
Series B 7.500 10/01/2008 3,435,000 4,135,190
Gainesville, Florida, Utilities System Revenue,
Series B 7.500 10/01/2009 3,695,000 4,453,916
Halifax Hospital Medical Center, Florida, Hospital
Revenue, Series A (MBIA) 5.200 10/01/2013 2,000,000 1,908,000
Hillsborough County, Florida, Capital Improvement
Program Revenue, County Center Project, Series B
(MBIA) 5.000 07/01/2017 2,000,000 1,855,620
(Continued on next page)
<PAGE>
PAGE 14
Keystone Florida Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1996
(Unaudited)
Coupon Maturity Principal Market
Rate Date Amount Value
----------------------------------------------------- ------ ---------- ---------- -------------
MUNICIPAL BONDS (continued)
Jacksonville, Florida, Health Facilities Authority,
St. Luke's Hospital Association 7.125% 11/15/2020 $3,000,000 $ 3,253,950
Miami Beach, Florida, Resort Tax Revenue (AMBAC) 6.250 10/01/2022 1,470,000 1,568,990
Miramar, Florida, Wastewater Improvement Assessment
Revenue (FGIC) 6.750 10/01/2016 1,000,000 1,094,830
New York, New York, General Obligation 5.875 03/15/2013 5,500,000 5,304,695
New York State Dormitory Authority, State University
Educational Facilities Revenue, Series A 5.875 05/15/2017 1,565,000 1,548,959
North Springs Improvement District, Florida, Water
and Sewer Revenue, Series B (MBIA) 6.500 12/01/2016 1,335,000 1,463,547
Okaloosa County, Florida, Gas District, Refunding
and Improvement (MBIA) 6.850 10/01/2014 2,550,000 2,882,112
Orange County, Florida, Health Facilities Authority,
Hospital Revenue, Adventist Health (AMBAC) 5.250 11/15/2020 4,000,000 3,750,360
Orange County, Florida, Housing Finance Authority,
GNMA Collateralized Mortgage, Series B (AMT) 8.100 11/01/2021 2,170,000 2,319,057
Orlando, Florida, Utilities Commission, Water and
Electric 6.000 10/01/2010 4,000,000 4,223,560
Orlando-Orange County, Florida, Expressway Authority
(FGIC) 8.250 07/01/2015 40,000 52,492
Palm Beach County, Florida, General Obligation 6.500 07/01/2010 1,880,000 2,058,562
Palm Beach County, Florida, Solid Waste Industrial
Development, Okeelanta Power Project (AMT) (c) 6.700 02/15/2015 2,000,000 1,764,140
Palm Beach County, Florida, Solid Waste Industrial
Development, Okeelanta Power Project (AMT) (c) 6.850 02/15/2021 2,000,000 1,769,160
Palm Beach County, Florida, Solid Waste Industrial
Development, Osceola Power Project (AMT) (c) 6.850 01/01/2014 2,500,000 2,248,400
Puerto Rico Electric Power Authority, Power Revenue,
Series X 6.000 07/01/2015 3,450,000 3,491,642
Puerto Rico Electric Power Authority, Power Revenue,
Series Z 5.500 07/01/2012 1,000,000 971,970
Sacramento, California, Power Authority Cogeneration
Project 5.875 07/01/2015 1,500,000 1,447,575
Sunrise, Florida, Utility System Revenue, Capital
Appreciation, Series A (AMBAC) (effective yield
5.65%) (b) 0.000 10/01/2009 1,000,000 487,860
Sunrise, Florida, Utility System Revenue, Capital
Appreciation, Series A (AMBAC) (effective yield
5.75%) (b) 0.000 10/01/2010 1,000,000 455,410
Sunrise, Florida, Utility System Revenue, Capital
Appreciation, Series A 5.750 10/01/2026 1,000,000 991,830
Tallahassee, Florida, Health Facilities, Tallahassee
Memorial Regional Medical Project (MBIA) 6.625 12/01/2013 2,000,000 2,207,300
Tampa, Florida, Capital Improvement Program Revenue,
Series B 8.375 10/01/2018 1,250,000 1,319,900
Tampa, Florida, Subordinate Guaranteed Entitlement
Revenue, Series B (ETM) 8.500 10/01/2018 45,000 48,620
Tampa, Florida, Utilities Tax, Capital Appreciation
(effective yield 6.15%) (b) 0.000 04/01/2016 1,500,000 479,130
<PAGE>
PAGE 15
Keystone Florida Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1996
(Unaudited)
Coupon Maturity Principal Market
Rate Date Amount Value
----------------------------------------------------- ------ ---------- ---------- -------------
MUNICIPAL BONDS (continued)
Venice, Florida Health Care Revenue, Bon Secours
Health System Project (MBIA) 5.625% 08/15/2026 $1,000,000 $ 976,880
West Melbourne, Florida, Water and Sewer Revenue
(FGIC) 6.750 10/01/2014 1,000,000 1,121,210
----------------------------------------------------- ------ ---------- ---------- -------------
TOTAL MUNICIPAL BONDS (Cost--$93,070,859) 96,221,504
----------------------------------------------------- ------ ---------- ---------- -------------
TEMPORARY TAX-EXEMPT INVESTMENTS (0.7%)
Dade County, Florida, Water and Sewer System Revenue
Bond, Series 1994 (Cost--$655,000) (a) 3.800 10/05/2022 655,000 655,000
----------------------------------------------------- ------ ---------- ---------- -------------
TOTAL INVESTMENTS (Cost--$93,725,859) 96,876,504
OTHER ASSETS AND LIABILITIES--NET (1.6%) 1,566,117
----------------------------------------------------- ------ ---------- ---------- -------------
NET ASSETS (100.0%) $98,442,621
----------------------------------------------------- ------ ---------- ---------- -------------
</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) 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.
AMBAC--AMBAC Indemnity Corporation
AMT--Subject to Alternative Minimum Tax
ETM--Escrowed to Maturity
FGIC--Federal Guaranty Insurance Company
MBIA--Municipal Bond Investors Assurance
See Notes to Financial Statements.
<PAGE>
PAGE 16
Keystone Massachusetts Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
----------------------------------------------------- ------ ---------- --------- ------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.9%)
Attleboro, Massachusetts, General Obligation (AMBAC) 5.125% 12/01/2015 $ 625,000 $ 581,813
Commonwealth of Puerto Rico, Linked Bond Payment
Obligation (MBIA) 7.000 07/01/2010 100,000 115,296
Franklin, Massachusetts, School Improvements (MBIA) 5.250 11/15/2013 500,000 476,955
Massachusetts Bay Transportation Authority, General
Transportation, Series A 7.000 03/01/2011 750,000 856,605
Massachusetts Bay Transportation Authority, General
Transportation, Series A 6.250 03/01/2012 400,000 429,880
Massachusetts Educational Financing Loan Authority
(AMBAC) 6.000 01/01/2012 300,000 300,534
Massachusetts Municipal Wholesale Electric, Power
Supply Systems, Series B 6.750 07/01/2008 460,000 487,204
Massachusetts State Consolidated Loan, Series C
(MBIA) 5.375 09/01/2013 500,000 486,525
Massachusetts State Health and Educational
Facilities Authority, Cape Islands Rehabilitation
Hospital, Series A 7.875 08/15/2024 1,100,000 1,132,450
Massachusetts State Health and Educational
Facilities Authority, McLean Hospital, Series C
(FGIC) 6.500 07/01/2010 500,000 535,225
Massachusetts State Health and Educational
Facilities Authority, New England Deaconess
Hospital 6.875 04/01/2022 500,000 523,310
Massachusetts State Health and Educational
Facilities Authority, North Adams Regional
Hospital, Series C 6.750 07/01/2009 500,000 501,900
Massachusetts State Housing Finance Agency, Series A
(AMBAC) 6.600 07/01/2014 300,000 313,701
Massachusetts State Housing Finance Agency, Single
Family Housing, Series 52 (MBIA) 6.000 06/01/2014 300,000 301,221
Massachusetts State Industrial Finance Agency, Solid
Waste Disposal, Molten Metal Technology Project 8.250 08/01/2014 250,000 263,810
Massachusetts State Water Pollution, Series 2 6.125 02/01/2008 525,000 565,010
Massachusetts State Water Pollution Abatement Trust,
New Bedford Loan Program, Series A 5.700 02/01/2012 900,000 913,059
Massachusetts State Water Resources Authority,
Series B (MBIA) 5.000 12/01/2016 250,000 229,383
Massachusetts State Water Resources Authority,
Series B (MBIA) 4.000 12/01/2018 1,000,000 757,050
Methuen, Massachusetts, General Obligation (FSA) 5.625 11/15/2015 1,000,000 996,840
Springfield, Massachusetts, General Obligation
(AMBAC) 5.300 08/01/2014 250,000 240,145
Worcester, Massachusetts, Municipal Purpose Loan,
Series A (AMBAC) 5.250 08/01/2012 300,000 287,385
----------------------------------------------------- ------ ---------- --------- ------------
TOTAL MUNICIPAL BONDS (Cost--$11,056,968) 11,295,301
----------------------------------------------------- ------ ---------- --------- ------------
<PAGE>
PAGE 17
Keystone Massachusetts Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1996
(Unaudited)
Coupon Maturity Principal Market
Rate Date Amount Value
----------------------------------------------------- ------ ---------- --------- ------------
TEMPORARY TAX-EXEMPT INVESTMENTS (3.8%)
Massachusetts State Health and Educational
Facilities Authority, (Capital Assets Program),
Series D (MBIA) (Cost--$435,000) (a) 3.750% 01/01/2035 $435,000 $ 435,000
----------------------------------------------------- ------ ---------- --------- ------------
TOTAL INVESTMENTS (Cost--$11,491,968) 11,730,301
OTHER ASSETS AND LIABILITIES--NET (-1.7%) (197,661)
----------------------------------------------------- ------ ---------- --------- ------------
NET ASSETS (100.0%) $11,532,640
----------------------------------------------------- ------ ---------- --------- ------------
</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.
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--AMBAC Indemnity Corporation
FGIC--Federal Guaranty Insurance Company
MBIA--Municipal Bond Investors Assurance
FSA--Financial Security Assistance
See Notes to Financial Statements.
<PAGE>
PAGE 18
Keystone New York Insured Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
----------------------------------------------------- ------ ---------- --------- ------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.0%)
Albany County, New York, Public Improvements,
Series B (FGIC) 5.600% 03/15/2014 $ 590,000 $ 585,256
Buffalo, New York, General Obligation, Series E
(AMBAC) 6.500 12/01/2022 465,000 503,214
Commonwealth of Puerto Rico, General Obligation
(MBIA) 7.000 07/01/2010 1,000,000 1,152,960
Commonwealth of Puerto Rico, Highway &
Transportation Authority, Series Y (FSA) 5.250 07/01/2015 500,000 479,735
Erie County, New York, Water Authority, Fourth
Resolution (AMBAC) (effective yield 7.30%) (b) 0.000 12/01/2017 770,000 168,846
Hempstead Town, New York, General Obligation,
Series B (FGIC) 5.625 02/01/2015 550,000 540,238
Islip, New York Resources Recovery Agency, Electric
Light and Power Improvements, Series B (AMBAC) 7.250 07/01/2011 100,000 117,482
Metropolitan Transportation Authority, New York,
Commuter Facilities, Series A (MBIA) 6.125 07/01/2014 1,400,000 1,453,788
Nassau County, New York, Combined Sewer District,
Series B (FGIC) 6.000 05/01/2014 695,000 718,533
New Rochelle, New York, General Obligation,
Series B (MBIA) 6.150 08/15/2017 600,000 622,746
New York City, New York, General Obligation,
Series A 7.750 08/15/2015 250,000 275,597
New York City, New York, General Obligation,
Series H 5.750 03/15/2010 500,000 483,005
New York City, New York, Municipal Water Finance
Authority, Water and Sewer System, Series A (FGIC) 7.000 06/15/2015 695,000 761,435
New York State Dormitory Authority, City University
Systems (FGIC) 7.000 07/01/2009 1,200,000 1,385,352
New York State Dormitory Authority, City University,
2nd General Resources, Series A (FGIC) 5.375 07/01/2014 1,000,000 969,180
New York State Dormitory Authority, City University,
3rd General Resources, Series 2 (MBIA) 6.250 07/01/2019 450,000 465,849
New York State Dormitory Authority, State University
Dormitory Facilities, Series A (AMBAC) 5.300 07/01/2024 150,000 141,484
New York State Dormitory Authority, State University
Educational Facilities (AMBAC) 5.875 05/15/2011 250,000 258,690
New York State Dormitory Authority, State University
Educational Facilities, Series A (FSA) 5.250 05/15/2015 600,000 574,452
New York State Housing Finance Agency, Housing
Project Mortgage, Series A (FSA) 6.100 11/01/2015 750,000 750,548
New York State Housing Finance Agency, Multi-family
Mortgage, Series B (AMBAC) 6.250 08/15/2014 875,000 884,940
New York State Medical Care Facilities Finance
Agency, Health Center Projects 6.375 11/15/2019 250,000 258,935
New York State Medical Care Facilities Finance
Agency, Mental Health Services Facilities (FGIC) 6.375 08/15/2014 1,000,000 1,049,840
New York State Thruway Authority, Highway & Bridge
Trust Fund, Series B (MBIA) 5.125 04/01/2015 500,000 470,585
<PAGE>
PAGE 19
Keystone New York Insured Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1996
(Unaudited)
Coupon Maturity Principal Market
Rate Date Amount Value
----------------------------------------------------- ------ ---------- --------- ------------
MUNICIPAL BONDS (continued)
New York State Thruway Authority, Service Contract,
Local Highway and Bridge 5.750% 04/01/2009 $ 250,000 $ 245,753
New York State Urban Development Corp., Correctional
Capital Facilities (AMBAC) (effective yield 5.63%)
(b) 0.000 01/01/2010 500,000 237,500
New York State Urban Development Corp., Correctional
Capital Facilities, Series A 6.500 01/01/2009 600,000 640,326
New York State Urban Development Corp., Correctional
Capital Facilities, Series A (FSA) 6.500 01/01/2010 1,000,000 1,101,510
New York State Urban Development Corp., Higher
Education Technology Grants (MBIA) 6.000 04/01/2010 500,000 516,460
Niagara Falls, New York, Public Improvement (MBIA) 7.500 03/01/2014 700,000 851,991
Niagara Falls, New York, Public Improvement (MBIA) 7.500 03/01/2016 750,000 913,402
Niagara Falls, New York, Public Improvement (MBIA) 7.500 03/01/2017 750,000 912,802
Niagara, New York, Frontier Transportation
Authority, Greater Buffalo International Airport
(AMBAC) 6.125 04/01/2014 100,000 103,179
Port Authority of New York and New Jersey, Special
Obligation, Special Project KIAC-4 (c) 6.750 10/01/2011 1,000,000 1,009,390
Rochester, New York, General Obligation, Series A
(AMBAC) 5.000 08/15/2018 140,000 130,630
St. Lawrence County, New York Industrial Development
Civic Facilities, St. Lawrence University
Project-A (MBIA) 5.625 07/01/2013 250,000 250,162
Suffolk County, New York, Industrial Development
Agency, Southwest Sewer Systems (FGIC) 6.000 02/01/2008 1,000,000 1,061,720
Triborough Bridge and Tunnel Authority, New York,
General Purpose, Series X 6.625 01/01/2012 805,000 906,358
----------------------------------------------------- ------ ---------- --------- ------------
TOTAL MUNICIPAL BONDS (Cost--$23,010,957) 23,953,873
----------------------------------------------------- ------ ---------- --------- ------------
TEMPORARY TAX-EXEMPT INVESTMENTS (2.1%)
New York City, New York, Municipal Water Finance
Authority, Water and Sewer System, Series C (FGIC)
(a) 3.950 06/15/2022 20,000 20,000
New York City, New York, Municipal Water Finance
Authority, Water and Sewer System, Series C (FGIC)
(a) 3.950 06/15/2023 100,000 100,000
New York City, New York, Sub Series B-2 (a) 3.950 08/15/2003 275,000 275,000
New York City, New York, Sub Series A-5 (a) 3.950 08/01/2015 125,000 125,000
----------------------------------------------------- ------ ---------- --------- ------------
TOTAL TEMPORARY TAX-EXEMPT INVESTMENTS
(Cost--$520,000) 520,000
----------------------------------------------------- ------ ---------- --------- ------------
TOTAL INVESTMENTS (Cost--$23,530,957) 24,473,873
OTHER ASSETS AND LIABILITIES--NET (0.9%) 231,764
----------------------------------------------------- ------ ---------- --------- ------------
NET ASSETS (100.0%) $24,705,637
----------------------------------------------------- ------ ---------- --------- ------------
</TABLE>
(Continued on next page)
<PAGE>
PAGE 20
Keystone New York Insured Tax Free Fund
(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) 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.
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--AMBAC Indemnity Corporation
FGIC--Federal Guaranty Insurance Company
FHA--Federal Housing Authority
FSA--Financial Security Assistance
MBIA--Municipal Bond Investors Assurance
See Notes to Financial Statements.
<PAGE>
PAGE 21
Keystone Pennsylvania Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
----------------------------------------------------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (98.2%)
Allegheny County, Pennsylvania, Airport Revenue,
Greater Pittsburgh International Airport 6.625% 01/01/2022 $1,750,000 $ 1,859,288
Allegheny County, Pennsylvania, Finance Authority,
Single Family Mortgage 6.600 11/01/2014 975,000 1,014,760
Allegheny County, Pennsylvania, Higher Education
Building Authority, Duquesne University Project
(AMBAC) 5.000 03/01/2016 2,000,000 1,827,700
Allegheny County, Pennsylvania, Hospital Development
Authority, Ohio Valley General Hospital 5.875 04/01/2011 1,500,000 1,426,650
Allegheny County, Pennsylvania, Hospital Development
Authority, Pittsburgh Mercy Health System (AMBAC) 5.625 08/15/2026 3,235,000 3,132,936
Allegheny County, Pennsylvania, Industrial
Development Authority, USX Corp. 6.700 12/01/2019 2,000,000 2,059,300
Allentown, Pennsylvania Area Hospital Authority,
Sacred Heart Hospital of Allentown, Series A 6.750 11/15/2014 1,750,000 1,769,180
Beaver County, Pennsylvania, Industrial Development
Authority, Pollution Control, Ohio Edison Co.
Project, Series A 7.750 09/01/2024 1,170,000 1,224,054
Berks County, Pennsylvania, Capital Appreciation
Second Series (FGIC) (effective yield 5.55%) (b) 0.000 05/15/2015 3,400,000 1,160,046
Cambria County, Pennsylvania, General Obligation,
Series A (FGIC) 6.625 08/15/2012 4,485,000 4,832,363
Central Bucks, Pennsylvania School District,
Series A 6.900 11/15/2013 1,000,000 1,121,870
Chester County, Pennsylvania, Health and Education,
The Chester County Hospital (MBIA) 5.875 07/01/2016 2,000,000 2,008,240
Commonwealth of Puerto Rico, Highway and
Transportation Authority, Series Q 7.750 07/01/2010 325,000 367,699
Commonwealth of Puerto Rico, Highway and
Transportation Authority, Series Y 5.000 07/01/2036 3,150,000 2,747,335
Commonwealth of Puerto Rico, Highway and
Transportation Authority, Series Y 5.500 07/01/2036 1,000,000 949,290
Commonwealth of Puerto Rico, Linked Bond Payment
Obligation (MBIA) 7.000 07/01/2010 3,500,000 4,035,360
Delaware County, Pennsylvania, Industrial
Development Authority, Pollution Control,
Philadelphia Electric Co., Series A 7.375 04/01/2021 850,000 907,741
Delaware River Port Authority, Pennsylvania and New
Jersey Revenue (FGIC) 5.400 01/01/2015 1,500,000 1,468,995
Erie County, Pennsylvania, Industrial Development
Authority, Environmental Improvement,
International Paper Co. Project, Series A 7.625 11/01/2018 500,000 559,410
Erie, Pennsylvania, City School District Capital
Appreciation, Series A (effective yield 6.05%) (b) 0.000 05/01/2014 4,625,000 1,684,240
Erie, Pennsylvania, City School District Capital
Appreciation, Series A (effective yield 6.15%) (b) 0.000 05/01/2015 3,365,000 1,173,847
(Continued on next page)
<PAGE>
PAGE 22
Keystone Pennsylvania Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1996
(Unaudited)
Coupon Maturity Principal Market
Rate Date Amount Value
----------------------------------------------------- ------ ---------- ---------- -------------
MUNICIPAL BONDS (continued)
Horizon Hospital System Authority, Pennsylvania,
Horizon Hospital System, Inc. 6.350% 05/15/2026 $2,000,000 $ 1,935,180
Lehigh County, Pennsylvania, General Purpose
Authority, Good Shepherd Rehabilitation Hospital 7.500 11/15/2021 1,000,000 1,036,930
Lehigh County, Pennsylvania, General Purpose
Authority, Lehigh Valley Hospital, Series A (MBIA) 7.000 07/01/2016 1,250,000 1,436,138
McKeesport, Pennsylvania, Area School District
Capital Appreciation, Series B (effective yield
6.25%) (b) 0.000 10/01/2015 2,000,000 649,360
McKeesport, Pennsylvania, Hospital Authority
Revenue, McKeesport Hospital Project 6.500 07/01/2008 1,500,000 1,487,550
Mon Valley, Pennsylvania, Sewage Revenue (MBIA) 6.550 11/01/2019 1,305,000 1,404,036
Montgomery County, Pennsylvania, Industrial
Development, Pollution Control, Philadelphia
Electric Co. 7.600 04/01/2021 950,000 1,014,695
Northumberland County, Pennsylvania, Commonwealth
Lease (effective yield 6.82%) (b) 0.000 10/15/2012 4,200,000 1,681,890
Pennsylvania Economic Development Financing
Authority, Northhampton Generator Project,
Series A (c) 6.600 01/01/2019 2,450,000 2,385,001
Pennsylvania Economic Development Financing
Authority, Resources Recovery, Northhampton
University Project (c) 6.500 01/01/2013 2,200,000 2,148,916
Pennsylvania Housing Finance Agency, Single Family
Mortgage, Series 33 6.900 04/01/2017 1,000,000 1,040,160
Pennsylvania Housing Finance Agency, Single Family
Mortgage, Series 34 A (FHA/FNMA) 6.850 04/01/2016 1,500,000 1,555,800
Pennsylvania Housing Finance Agency, Single Family
Mortgage, Series 40 6.800 10/01/2015 750,000 784,433
Pennsylvania Housing Finance Agency, Single Family
Mortgage, Series 50A 6.000 10/01/2013 1,840,000 1,849,053
Pennsylvania Housing Finance Agency, Single Family
Mortgage, Series 52B 6.250 10/01/2024 2,000,000 2,003,120
Pennsylvania Intragovernmental Cooperation
Authority, Special Tax, Philadelphia Funding
Program (FGIC) 6.750 06/15/2021 1,000,000 1,122,140
Pennsylvania State Industrial Development Authority,
Economic Revenue Bonds (AMBAC) 7.000 01/01/2006 1,500,000 1,698,855
Pennsylvania State Industrial Development Authority,
Economic Revenue Bonds (AMBAC) 7.000 07/01/2006 1,000,000 1,138,170
Pennsylvania State Higher Educational Facilities
Authority, Health Services Revenue, Allegheny
Delaware Valley Obligation (MBIA) 5.600 11/15/2010 2,000,000 2,024,660
Pennsylvania State Higher Educational Facilities
Authority, Thomas Jefferson University, Series A 6.625 08/15/2009 1,450,000 1,563,375
Philadelphia, Pennsylvania, Hospital & Higher
Education Facilities, Albert Einstein Medical
Center 7.625 04/01/2011 1,150,000 1,219,126
Philadelphia, Pennsylvania, Water & Waste Water
(MBIA) 6.250 08/01/2012 1,000,000 1,069,560
<PAGE>
PAGE 23
Keystone Pennsylvania Tax Free Fund
SCHEDULE OF INVESTMENTS--September 30, 1996
(Unaudited)
Coupon Maturity Principal Market
Rate Date Amount Value
----------------------------------------------------- ------ ---------- ---------- -------------
MUNICIPAL BONDS (continued)
Philadelphia, Pennsylvania, Water & Waste Water
(MBIA) 5.600% 08/01/2018 $2,000,000 $ 1,945,720
Pittsburgh, Pennsylvania, School District, Series A
(AMBAC) 5.500 09/01/2016 1,000,000 969,180
----------------------------------------------------- ------ ---------- ---------- -------------
TOTAL MUNICIPAL BONDS (Cost--$69,984,831) 72,493,352
----------------------------------------------------- ------ ---------- ---------- -------------
TEMPORARY TAX-EXEMPT INVESTMENTS (2.5%)
Sayre County, Pennsylvania Health Care Facilities
Authority, Variable Rate (VHA Pennsylvania Capital
Financing Project) Series F (a) 3.800 12/01/2020 110,000 110,000
Sayre County, Pennsylvania Health Care Facilities
Authority, Variable Rate (VHA Pennsylvania Capital
Financing Project) Series K (a) 3.800 12/01/2020 1,760,000 1,760,000
----------------------------------------------------- ------ ---------- ---------- -------------
TOTAL TEMPORARY TAX-EXEMPT INVESTMENTS
(Cost--$1,870,000) 1,870,000
----------------------------------------------------- ------ ---------- ---------- -------------
TOTAL INVESTMENTS (Cost--$71,854,831) 74,363,352
OTHER ASSETS AND LIABILITIES--NET (-0.7%) (543,498)
----------------------------------------------------- ------ ---------- ---------- -------------
NET ASSETS (100.0%) $73,819,854
----------------------------------------------------- ------ ---------- ---------- -------------
</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) 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.See
Notes to Financial Statements.
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--AMBAC Indemnity 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 24
Keystone Florida Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended March 31,
September 30, 1996 1996 1995 1994 1993 1992
-------------------------------------------- ------------------ ------ ----- ----- ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of period $ 10.60 $ 10.33 $ 10.29 $ 10.94 $ 10.43 $ 10.17
-------------------------------------------- ------------------ ------ ----- ----- ----- -----
Income from investment operations:
Net investment income 0.28 0.56 0.56 0.58 0.61 0.72
Net realized and unrealized gain (loss) on
investments and closed futures contracts (0.1) 0.27 0.07 (0.44) 0.64 0.30
-------------------------------------------- ------------------ ------ ----- ----- ----- -----
Total from investment operations 0.18 0.83 0.63 0.14 1.25 1.02
-------------------------------------------- ------------------ ------ ----- ----- ----- -----
Less distributions from:
Net investment income (0.28) (0.54) (0.56) (0.58) (0.61) (0.72)
In excess of net investment income 0 (0.02) (0.03) (0.05) (0.03) 0
Net realized gain on investments 0 0 0 (0.16) (0.10) (0.04)
-------------------------------------------- ------------------ ------ ----- ----- ----- -----
Total distributions (0.28) (0.56) (0.59) (0.79) (0.74) (0.76)
-------------------------------------------- ------------------ ------ ----- ----- ----- -----
Net asset value end of period $ 10.50 $ 10.60 $ 10.33 $ 10.29 $ 10.94 $ 10.43
-------------------------------------------- ------------------ ------ ----- ----- ----- -----
Total return (c) 1.76% 8.16% 6.42% 1.01% 12.32% 10.34%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.76%(a)(b) 0.76%(b) 0.75% 0.75% 0.68% 0.65%
Total expenses excluding reimbursement 0.92%(a) 0.92% 0.95% 1.00% 1.13% 1.21%
Net investment income 5.33%(a) 5.32% 5.60% 5.16% 5.60% 6.82%
Portfolio turnover rate 57% 89% 129% 113% 95% 63%
-------------------------------------------- ------------------ ------ ----- ----- ----- -----
Net assets end of period (thousands) $34,271 $37,286 $42,239 $45,150 $42,997 $29,258
-------------------------------------------- ------------------ ------ ----- ----- ----- -----
</TABLE>
(a) Annualized.
(b) Ratio of total expenses to average net assets for the six months ended
September 30, 1996 and the year ended March 31, 1996 includes indirectly
paid expenses; excluding indirectly paid expenses, the expense ratio
would have been 0.75% and 0.75%, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 25
Keystone Florida Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
February 1, 1993
(Date of Initial
Six Months Public Offering)
Ended Year Ended March 31, to
September 30, 1996 1996 1995 1994 March 31, 1993
- ----------------------------------- ------------------ -------- ------- ------- -----------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net asset value beginning of period $ 10.48 $ 10.24 $ 10.27 $ 10.94 $10.81
- ----------------------------------- ----------------- ------ ----- ----- ---------------
Income from investment operations:
Net investment income 0.24 0.48 0.53 0.52 0.08
Net realized and unrealized gain
(loss) on investments and closed
futures contracts (0.10) 0.28 0.02 (0.47) 0.14
- ----------------------------------- ----------------- ------ ----- ----- ---------------
Total from investment operations 0.14 0.76 0.55 0.05 0.22
- ----------------------------------- ----------------- ------ ----- ----- ---------------
Less distributions from:
Net investment income (0.24) (0.50) (0.49) (0.48) (0.08)
In excess of net investment income 0 (0.02) (0.09) (0.08) (0.01)
Net realized gain on investments 0 0 0 (0.16) 0
- ----------------------------------- ----------------- ------ ----- ----- ---------------
Total distributions (0.24) (0.52) (0.58) (0.72) (0.09)
- ----------------------------------- ----------------- ------ ----- ----- ---------------
Net asset value end of period $ 10.38 $ 10.48 $ 10.24 $ 10.27 $10.94
- ----------------------------------- ----------------- ------ ----- ----- ---------------
Total return (c) 1.40% 7.48% 5.61% 0.19% 2.06%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.50%(a)(b) 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses excluding
reimbursement 1.68%(a) 1.68% 1.68% 1.74% 1.73%(a)
Net investment income 4.58%(a) 4.58% 4.81% 4.21% 4.00%(a)
Portfolio turnover rate 57% 89% 129% 113% 95%
- ----------------------------------- ----------------- ------ ----- ----- ---------------
Net assets end of period
(thousands) $52,961 $54,433 $51,083 $19,984 $1,704
- ----------------------------------- ----------------- ------ ----- ----- ---------------
</TABLE>
(a) Annualized.
(b) Ratio of total expenses to average net assets for the six months ended
September 30, 1996 and the year ended March 31, 1996 includes indirectly
paid expenses; excluding indirectly paid expenses, the expense ratio
would have been 1.50% and 1.47%, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 26
Keystone Florida Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
February 1, 1993
(Date of Initial
Six Months Public Offering)
Ended Year Ended March 31, to
September 30,
1996 1996 1995 1994 March 31, 1993
- ----------------------------------- ----------------- -------- ------- ------- -----------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net asset value beginning of period $ 10.50 $ 10.26 $ 10.28 $ 10.93 $10.81
- ----------------------------------- --------------- ------ ----- ----- ---------------
Income from investment operations:
Net investment income 0.23 0.48 0.47 0.51 0.07
Net realized and unrealized gain
(loss) on investments and closed
futures contracts (0.09) 0.28 0.08 (0.45) 0.14
- ----------------------------------- --------------- ------ ----- ----- ---------------
Total from investment operations 0.14 0.76 0.55 0.06 0.21
- ----------------------------------- --------------- ------ ----- ----- ---------------
Less distributions from:
Net investment income (0.24) (0.50) (0.49) (0.49) (0.07)
In excess of net investment income 0 (0.02) (0.08) (0.06) (0.02)
Net realized gain on investments 0 0 0 (0.16) 0
- ----------------------------------- --------------- ------ ----- ----- ---------------
Total distributions (0.24) (0.52) (0.57) (0.71) (0.09)
- ----------------------------------- --------------- ------ ----- ----- ---------------
Net asset value end of period $ 10.40 $ 10.50 $ 10.26 $ 10.28 $10.93
- ----------------------------------- --------------- ------ ----- ----- ---------------
Total return (c) 1.40% 7.47% 5.61% 0.27% 1.95%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.50%(a)(b) 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses excluding
reimbursement 1.68%(a) 1.68% 1.70% 1.84% 1.63%(a)
Net investment income 4.58%(a) 4.60% 4.86% 4.26% 2.95%(a)
Portfolio turnover rate 57% 89% 129% 113% 95%
- ----------------------------------- --------------- ------ ----- ----- ---------------
Net assets end of period
(thousands) $11,211 $11,795 $12,831 $13,096 $1,987
- ----------------------------------- --------------- ------ ----- ----- ---------------
</TABLE>
(a) Annualized.
(b) Ratio of total expenses to average net assets for the six months ended
September 30, 1996 and the year ended March 31, 1996 includes indirectly
paid expenses; excluding indirectly paid expenses, the expense ratio
would have been 1.50% and 1.47%, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 27
Keystone Massachusetts Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 4, 1994
Ended (Commencement of
September 30, Year Ended March 31, Operations) to
1996 1996 1995 March 31, 1994
-------------------------------------------- ----------------- -------- -------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value beginning of period $ 9.29 $ 9.19 $ 9.17 $10.00
-------------------------------------------- --------------- ------ ------ ---------------
Income from investment operations:
Net investment income 0.24 0.51 0.53 0.08
Net realized and unrealized gain (loss) on
investments and closed futures contracts (0.08) 0.09 0.02 (0.82)
-------------------------------------------- --------------- ------ ------ ---------------
Total from investment operations 0.16 0.60 0.55 (0.74)
-------------------------------------------- --------------- ------ ------ ---------------
Less distributions from:
Net investment income (0.25) (0.48) (0.53) (0.08)
In excess of net investment income 0 (0.02) 0 (0.01)
-------------------------------------------- --------------- ------ ------ ---------------
Total distributions (0.25) (0.50) (0.53) (0.09)
-------------------------------------------- --------------- ------ ------ ---------------
Net asset value end of period $ 9.20 $ 9.29 $ 9.19 $ 9.17
-------------------------------------------- --------------- ------ ------ ---------------
Total return (c) 1.80% 6.64% 6.23% (7.40%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.76%(a)(b) 0.75%(b) 0.46% 0.35%(a)
Total expenses excluding reimbursement 1.73%(a) 1.59% 1.93% 3.22%(a)
Net investment income 5.26%(a) 5.36% 5.90% 5.07%(a)
Portfolio turnover rate 74% 165% 77% 7%
-------------------------------------------- --------------- ------ ------ ---------------
Net assets end of period (thousands) $1,909 $1,786 $1,974 $1,472
-------------------------------------------- --------------- ------ ------ ---------------
</TABLE>
(a) Annualized.
(b) Ratio of total expenses to average net assets for the six months ended
September 30, 1996 and the year ended March 31, 1996 includes indirectly
paid expenses; excluding indirectly paid expenses, the expense ratio
would have been 0.75% and 0.74%, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 28
Keystone Massachusetts Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 4, 1994
Ended (Commencement of
September 30, Year Ended March 31, Operations) to
1996 1996 1995 March 31, 1994
-------------------------------------------- ----------------- -------- -------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value beginning of period $ 9.22 $ 9.15 $ 9.19 $10.00
-------------------------------------------- ----------------- -------- -------- -----------------
Income from investment operations:
Net investment income 0.21 0.43 0.48 0.08
Net realized and unrealized gain (loss) on
investments and closed futures contracts (0.08) 0.09 (0.01) (0.80)
-------------------------------------------- ----------------- -------- -------- -----------------
Total from investment operations 0.13 0.52 0.47 (0.72)
-------------------------------------------- ----------------- -------- -------- -----------------
Less distributions from:
Net investment income (0.22) (0.43) (0.47) (0.07)
In excess of net investment income 0 (0.02) (0.04) (0.02)
-------------------------------------------- ----------------- -------- -------- -----------------
Total distributions (0.22) (0.45) (0.51) (0.09)
-------------------------------------------- ----------------- -------- -------- -----------------
Net asset value end of period $ 9.13 $ 9.22 $ 9.15 $ 9.19
-------------------------------------------- ----------------- -------- -------- -----------------
Total return (c) 1.41% 5.77% 5.41% (7.20%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.50%(a)(b) 1.49%(b) 1.24% 1.10%(a)
Total expenses excluding reimbursement 2.50%(a) 2.38% 2.68% 4.60%(a)
Net investment income 4.52%(a) 4.60% 5.15% 3.23%(a)
Portfolio turnover rate 74% 165% 77% 7%
-------------------------------------------- ----------------- -------- -------- -----------------
Net assets end of period (thousands) $7,429 $7,274 $6,169 $1,817
-------------------------------------------- ----------------- -------- -------- -----------------
</TABLE>
(a) Annualized.
(b) Ratio of total expenses to average net assets for the six months ended
September 30, 1996 and the year ended March 31, 1996 includes indirectly
paid expenses; excluding indirectly paid expenses, the expense ratio
would have been 1.50% and 1.48%, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 29
Keystone Massachusetts Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 4, 1994
Ended (Commencement of
September 30, Year Ended March 31, Operations) to
1996 1996 1995 March 31, 1994
-------------------------------------------- ----------------- -------- -------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value beginning of period $ 9.22 $ 9.14 $ 9.19 $10.00
-------------------------------------------- ----------------- -------- -------- -----------------
Income from investment operations:
Net investment income 0.20 0.43 0.48 0.08
Net realized and unrealized gain (loss) on
investments and closed futures contracts (0.07) 0.10 (0.02) (0.80)
-------------------------------------------- ----------------- -------- -------- -----------------
Total from investment operations 0.13 0.53 0.46 (0.72)
-------------------------------------------- ----------------- -------- -------- -----------------
Less distributions from:
Net investment income (0.22) (0.43) (0.47) (0.07)
In excess of net investment income 0 (0.02) (0.04) (0.02)
-------------------------------------------- ----------------- -------- -------- -----------------
Total distributions (0.22) (0.45) (0.51) (0.09)
-------------------------------------------- ----------------- -------- -------- -----------------
Net asset value end of period $ 9.13 $ 9.22 $ 9.14 $ 9.19
-------------------------------------------- ----------------- -------- -------- -----------------
Total return (c) 1.41% 5.89% 5.20% (7.21%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.51%(a)(b) 1.49%(b) 1.23% 1.10%(a)
Total expenses excluding reimbursement 2.50%(a) 2.39% 2.68% 4.91%(a)
Net investment income 4.52%(a) 4.60% 5.11% 4.28%(a)
Portfolio turnover rate 74% 165% 77% 7%
-------------------------------------------- ----------------- -------- -------- -----------------
Net assets end of period (thousands) $2,195 $2,303 $1,971 $ 369
-------------------------------------------- ----------------- -------- -------- -----------------
</TABLE>
(a) Annualized.
(b) Ratio of total expenses to average net assets for the six months ended
September 30, 1996 and the year ended March 31, 1996 includes indirectly
paid expenses; excluding indirectly paid expenses, the expense ratio
would have been 1.50% and 1.48%, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 30
Keystone New York Insured Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 4, 1994
Ended (Commencement of
September 30, Year Ended March 31, Operations) to
1996 1996 1995 March 31, 1994
-------------------------------------------- ----------------- -------- -------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value beginning of period $ 9.67 $ 9.44 $ 9.32 $10.00
-------------------------------------------- ----------------- -------- -------- -----------------
Income from investment operations:
Net investment income 0.25 0.48 0.52 0.09
Net realized and unrealized gain (loss) on
investments and closed futures contracts 0 0.24 0.12 (0.68)
-------------------------------------------- ----------------- -------- -------- -----------------
Total from investment operations 0.25 0.72 0.64 (0.59)
-------------------------------------------- ----------------- -------- -------- -----------------
Less distributions from:
Net investment income (0.25) (0.47) (0.52) (0.08)
In excess of net investment income 0 (0.02) 0 (0.01)
-------------------------------------------- ----------------- -------- -------- -----------------
Total distributions (0.25) (0.49) (0.52) (0.09)
-------------------------------------------- ----------------- -------- -------- -----------------
Net asset value end of period $ 9.67 $ 9.67 $ 9.44 $ 9.32
-------------------------------------------- ----------------- -------- -------- -----------------
Total return (c) 2.59% 7.73% 7.08% (5.91%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.76%(a)(b) 0.75%(b) 0.50% 0.35%(a)
Total expenses excluding reimbursement 1.29%(a) 1.31% 1.59% 4.44%(a)
Net investment income 5.03%(a) 4.95% 5.48% 3.85%(a)
Portfolio turnover rate 40% 53% 77% 14%
-------------------------------------------- ----------------- -------- -------- -----------------
Net assets end of period (thousands) $4,085 $3,947 $3,323 $ 680
-------------------------------------------- ----------------- -------- -------- -----------------
</TABLE>
(a) Annualized.
(b) Ratio of total expenses to average net assets for the six months ended
September 30, 1996 and the year ended March 31, 1996 includes indirectly
paid expenses; excluding indirectly paid expenses, the expense ratio
would have been 0.75% and 0.74%, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 31
Keystone New York Insured Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 4, 1994
Ended (Commencement of
September 30, Year Ended March 31, Operations) to
1996 1996 1995 March 31, 1994
-------------------------------------------- ----------------- -------- -------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value beginning of period $ 9.59 $ 9.38 $ 9.32 $10.00
-------------------------------------------- ----------------- -------- -------- -----------------
Income from investment operations:
Net investment income 0.21 0.41 0.47 0.08
Net realized and unrealized gain (loss) on
investments and closed futures contracts 0 0.24 0.09 (0.67)
-------------------------------------------- ----------------- -------- -------- -----------------
Total from investment operations 0.21 0.65 0.56 (0.59)
-------------------------------------------- ----------------- -------- -------- -----------------
Less distributions from:
Net investment income (0.21) (0.42) (0.45) (0.06)
In excess of net investment income 0 (0.02) (0.05) (0.03)
-------------------------------------------- ----------------- -------- -------- -----------------
Total distributions (0.21) (0.44) (0.50) (0.09)
-------------------------------------------- ----------------- -------- -------- -----------------
Net asset value end of period $ 9.59 $ 9.59 $ 9.38 $ 9.32
-------------------------------------------- ----------------- -------- -------- -----------------
Total return (c) 2.23% 7.02% 6.28% (5.91%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.51%(a)(b) 1.50%(b) 1.25% 1.10%(a)
Total expenses excluding reimbursement 2.04%(a) 2.05% 2.35% 5.60%(a)
Net investment income 4.28%(a) 4.19% 4.78% 3.01%(a)
Portfolio turnover rate 40% 53% 77% 14%
-------------------------------------------- ----------------- -------- -------- -----------------
Net assets end of period (thousands) $18,412 $17,151 $11,907 $2,276
-------------------------------------------- ----------------- -------- -------- -----------------
</TABLE>
(a) Annualized.
(b) Ratio of total expenses to average net assets for the six months ended
September 30, 1996 and the year ended March 31, 1996 includes indirectly
paid expenses; excluding indirectly paid expenses, the expense ratio
would have been 1.50% and 1.48%, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 32
Keystone New York Insured Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 4, 1994
Ended (Commencement of
September 30, Year Ended March 31, Operations) to
1996 1996 1995 March 31, 1994
-------------------------------------------- ----------------- -------- -------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value beginning of period $ 9.58 $ 9.37 $ 9.31 $10.00
-------------------------------------------- ----------------- -------- -------- -----------------
Income from investment operations:
Net investment income 0.20 0.41 0.48 0.07
Net realized and unrealized gain (loss) on
investments and closed futures contracts 0.01 0.24 0.07 (0.67)
-------------------------------------------- ----------------- -------- -------- -----------------
Total from investment operations 0.21 0.65 0.55 (0.60)
-------------------------------------------- ----------------- -------- -------- -----------------
Less distributions from:
Net investment income (0.21) (0.42) (0.46) (0.07)
In excess of net investment income 0 (0.02) (0.03) (0.02)
-------------------------------------------- ----------------- -------- -------- -----------------
Total distributions (0.21) (0.44) (0.49) (0.09)
-------------------------------------------- ----------------- -------- -------- -----------------
Net asset value end of period $ 9.58 $ 9.58 $ 9.37 $ 9.31
-------------------------------------------- ----------------- -------- -------- -----------------
Total return (c) 2.23% 7.02% 6.18% (6.02%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.51%(a)(b) 1.50%(b) 1.26% 1.10%(a)
Total expenses excluding reimbursement 2.01%(a) 2.07% 2.32% 5.13%(a)
Net investment income 4.28%(a) 4.24% 4.88% 3.71%(a)
Portfolio turnover rate 40% 53% 77% 14%
-------------------------------------------- ----------------- -------- -------- -----------------
Net assets end of period (thousands) $2,208 $2,296 $2,890 $ 255
-------------------------------------------- ----------------- -------- -------- -----------------
</TABLE>
(a) Annualized.
(b) Ratio of total expenses to average net assets for the six months ended
September 30, 1996 and the year ended March 31, 1996 includes indirectly
paid expenses; excluding indirectly paid expenses, the expense ratio
would have been 1.50% and 1.48%, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 33
Keystone Pennsylvania Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended
September 30, Year Ended March 31,
1996 1996 1995 1994 1993 1992
- ----------------------------------- ----------------- -------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of period $ 11.15 $ 10.91 $ 11.01 $ 11.42 $ 10.71 $ 10.25
- ----------------------------------- --------------- ------ ----- ----- ----- ------
Income from investment operations:
Net investment income 0.30 0.60 0.61 0.62 0.63 0.74
Net realized and unrealized gain
(loss) on investments and closed
futures contracts 0 0.23 (0.09) (0.30) 0.75 0.46
- ----------------------------------- --------------- ------ ----- ----- ----- ------
Total from investment operations 0.30 0.83 0.52 0.32 1.38 1.20
- ----------------------------------- --------------- ------ ----- ----- ----- ------
Less distributions from:
Net investment income (0.29) (0.57) (0.61) (0.62) (0.63) (0.74)
In excess of net investment income 0 (0.02) (0.01) (0.04) (0.02) 0
Net realized gain on investments 0 0 0 (0.06) (0.02) 0
In excess of net realized gain on
investments 0 0 0 (0.01) 0 0
- ----------------------------------- --------------- ------ ----- ----- ----- ------
Total distributions (0.29) (0.59) (0.62) (0.73) (0.67) (0.74)
- ----------------------------------- --------------- ------ ----- ----- ----- ------
Net asset value, end of period $ 11.16 $ 11.15 $ 10.91 $ 11.01 $ 11.42 $ 10.71
- ----------------------------------- --------------- ------ ----- ----- ----- ------
Total return (c) 2.78% 7.66% 4.91% 2.58% 13.30% 12.07%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.76%(a)(b) 0.76%(b) 0.75% 0.75% 0.68% 0.65%
Total expenses excluding
reimbursement 1.02%(a) 0.99% 1.05% 1.06% 1.16% 1.68%
Net investment income 5.35%(a) 5.29% 5.65% 5.27% 5.66% 6.92%
Portfolio turnover rate 50% 55% 97% 37% 20% 13%
- ----------------------------------- --------------- ------ ----- ----- ----- ------
Net assets end of period
(thousands) $27,002 $28,710 $30,450 $30,560 $35,502 $12,914
- ----------------------------------- --------------- ------ ----- ----- ----- ------
</TABLE>
(a) Annualized.
(b) Ratio of total expenses to average net assets for the six months ended
September 30, 1996 and the year ended March 31, 1996 includes indirectly
paid expenses; excluding indirectly paid expenses, the expense ratio
would have been 0.75% and 0.75%, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 34
Keystone Pennsylvania Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 1, 1993
Ended (Date of Initial
September 30, Year Ended March 31, Public Offering) to
1996 1996 1995 1994 March 31, 1993
- ----------------------------------- ----------------- -------- ------- ------- -------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net asset value beginning of period $ 11.00 $ 10.81 $ 10.98 $ 11.42 $11.20
- ----------------------------------- --------------- ------ ----- ----- -----------------
Income from investment operations:
Net investment income 0.25 0.51 0.54 0.56 0.08
Net realized and unrealized gain
(loss) on investments and closed
futures contracts 0.02 0.22 (0.10) (0.34) 0.24
- ----------------------------------- --------------- ------ ----- ----- -----------------
Total from investment operations 0.27 0.73 0.44 0.22 0.32
- ----------------------------------- --------------- ------ ----- ----- -----------------
Less distributions from:
Net investment income (0.25) (0.52) (0.53) (0.52) (0.08)
In excess of net investment income 0 (0.02) (0.08) (0.07) (0.02)
Net realized gain on investments 0 0 0 (0.03) 0
In excess of net realized gain on
investments 0 0 0 (0.04) 0
- ----------------------------------- --------------- ------ ----- ----- -----------------
Total distributions (0.25) (0.54) (0.61) (0.66) (0.10)
- ----------------------------------- --------------- ------ ----- ----- -----------------
Net asset value, end of period $ 11.02 $ 11.00 $ 10.81 $ 10.98 $11.42
- ----------------------------------- --------------- ------ ----- ----- -----------------
Total return (c) 2.50% 6.84% 4.15% 1.70% 2.82%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.51%(a)(b) 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses excluding
reimbursement 1.77%(a) 1.74% 1.80% 1.81% 1.69%(a)
Net investment income 4.60%(a) 4.55% 4.89% 4.32% 3.44%(a)
Portfolio turnover rate 50% 55% 97% 37% 20%
- ----------------------------------- --------------- ------ ----- ----- -----------------
Net assets end of period
(thousands) $38,648 $37,719 $30,657 $21,958 $2,543
- ----------------------------------- --------------- ------ ----- ----- -----------------
</TABLE>
(a) Annualized.
(b) Ratio of total expenses to average net assets for the six months ended
September 30, 1996 and the year ended March 31, 1996 includes indirectly
paid expenses; excluding indirectly paid expenses, the expense ratios
would have been 1.50% and 1.47%, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 35
Keystone Pennsylvania Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 1, 1993
Ended (Date of Initial
September 30, Year Ended March 31, Public Offering) to
1996 1996 1995 1994 March 31, 1993
- ----------------------------------- ----------------- -------- ------ ------ -------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net asset value beginning of period $11.03 $10.83 $11.00 $11.42 $11.20
- ----------------------------------- --------------- ------ ---- ---- -----------------
Income from investment operations:
Net investment income 0.24 0.51 0.53 0.54 0.07
Net realized and unrealized gain
(loss) on investments and closed
futures contracts 0.03 0.23 (0.10) (0.32) 0.24
- ----------------------------------- --------------- ------ ---- ---- -----------------
Total from investment operations 0.27 0.74 0.43 0.22 0.31
- ----------------------------------- --------------- ------ ---- ---- -----------------
Less distributions from:
Net investment income (0.25) (0.52) (0.53) (0.52) (0.07)
In excess of net investment income 0 (0.02) (0.07) (0.05) (0.02)
Net realized gain on investments 0 0 0 (0.03) 0
In excess of net realized gain on
investments 0 0 0 (0.04) 0
- ----------------------------------- --------------- ------ ---- ---- -----------------
Total distributions (0.25) (0.54) (0.60) (0.64) (0.09)
- ----------------------------------- --------------- ------ ---- ---- -----------------
Net asset value, end of period $11.05 $11.03 $10.83 $11.00 $11.42
- ----------------------------------- --------------- ------ ---- ---- -----------------
Total return (c) 2.49% 6.92% 4.05% 1.78% 2.81%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.51%(a)(b) 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses excluding
reimbursement 1.77%(a) 1.74% 1.80% 1.90% 1.60%(a)
Net investment income 4.61%(a) 4.57% 4.90% 4.33% 2.50%(a)
Portfolio turnover rate 50% 55% 97% 37% 20%
- ----------------------------------- --------------- ------ ---- ---- -----------------
Net assets end of period
(thousands) $8,169 $9,675 $9,559 $9,385 $ 952
- ----------------------------------- --------------- ------ ---- ---- -----------------
</TABLE>
(a) Annualized.
(b) Ratio of total expenses to average net assets for the six months ended
September 30, 1996 and the year ended March 31, 1996 includes indirectly
paid expenses; excluding indirectly paid expenses, the expense ratio
would have been 1.50% and 1.47%, respectively.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 36
Keystone State Tax Free Fund
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
New York
Florida Massachusetts Insured Pennsylvania
Tax Free Fund Tax Free Fund Tax Free Fund Tax Free Fund
- ----------------------------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Assets
Investments at market value
(identified cost--$93,725,859,
$11,491,968, $23,530,957 and
$71,854,831, respectively) $96,876,504 $11,730,301 $24,473,873 $74,363,352
Cash 1,987 4,049 10 4,100
Receivable for:
Investments sold 1,019,317 0 0 1,110,798
Fund shares sold 10,000 0 8,448 0
Interest 2,019,839 148,141 331,129 1,141,092
Due from Investment Adviser 14,888 8,690 9,167 14,291
Unamortized organization expenses 0 5,595 1,475 0
Prepaid expenses and other assets 2,262 150 270 1,604
--------------------------------- ---------- ---------- ---------- -----------
Total assets 99,944,797 11,896,926 24,824,372 76,635,237
--------------------------------- ---------- ---------- ---------- -----------
Liabilities
Payable for:
Investments purchased 1,004,951 305,250 0 2,472,223
Fund shares redeemed 74,501 0 4,946 21,235
Distributions to shareholders 401,133 45,705 92,132 291,469
Distribution fee payable 5,824 149 1,439 2,048
Due to related parties 2,242 1,317 2,507 6,624
Other accrued expenses 13,525 11,865 17,711 21,784
--------------------------------- ---------- ---------- ---------- -----------
Total liabilities 1,502,176 364,286 118,735 2,815,383
--------------------------------- ---------- ---------- ---------- -----------
Net assets $98,442,621 $11,532,640 $24,705,637 $73,819,854
--------------------------------- ---------- ---------- ---------- -----------
Net assets represented by
Paid-in capital $99,545,698 $11,712,105 $24,109,623 $74,040,673
Accumulated distributions in
excess of net investment
income (482,928) (15,962) (51,931) (214,167)
Accumulated net realized loss on
investments (3,770,794) (401,836) (294,971) (2,515,173)
Net unrealized appreciation on
investments 3,150,645 238,333 942,916 2,508,521
--------------------------------- ---------- ---------- ---------- -----------
Total net assets $98,442,621 $11,532,640 $24,705,637 $73,819,854
--------------------------------- ---------- ---------- ---------- -----------
Net assets consists of
Class A $34,271,322 $ 1,908,558 $ 4,085,325 $27,002,343
Class B 52,960,563 7,429,124 18,412,361 38,648,318
Class C 11,210,736 2,194,958 2,207,951 8,169,193
--------------------------------- ---------- ---------- ---------- -----------
$98,442,621 $11,532,640 $24,705,637 $73,819,854
--------------------------------- ---------- ---------- ---------- -----------
Shares outstanding (Note 2)
Class A 3,262,649 207,514 422,303 2,418,762
Class B 5,100,921 813,305 1,920,654 3,508,440
Class C 1,077,851 240,495 230,375 739,505
--------------------------------- ---------- ---------- ---------- -----------
Net asset value per share
Class A $10.50 $9.20 $9.67 $11.16
--------------------------------- ---------- ---------- ---------- -----------
Class A--Offering price (based
on sales charge of 4.75%) $11.02 $9.66 $10.15 $11.72
--------------------------------- ---------- ---------- ---------- -----------
Class B $10.38 $9.13 $9.59 $11.02
--------------------------------- ---------- ---------- ---------- -----------
Class C $10.40 $9.13 $9.58 $11.05
--------------------------------- ---------- ---------- ---------- -----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 37
Keystone State Tax Free Fund
STATEMENTS OF OPERATIONS
Six months ended September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
New York
Florida Massachusetts Insured Pennsylvania
Tax Free Fund Tax Free Fund Tax Free Fund Tax Free Fund
- ----------------------------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Investment income
Interest $ 3,053,130 $ 339,961 $ 692,346 $2,274,816
Expenses (Notes 4, 5 and 6)
Management fee 262,960 30,996 65,742 198,586
Transfer agent fees 54,308 7,532 16,160 55,616
Custodian fees 34,422 14,056 18,133 32,037
Accounting 12,009 11,460 11,263 11,316
Auditing 5,270 6,342 6,036 6,140
Legal 4,345 4,561 5,651 8,766
Printing 5,895 6,575 6,564 5,737
Registration fees 8,461 6,165 4,983 3,740
Amortization of organization
expenses 0 1,154 304 0
Distribution Plan expenses 317,377 43,859 92,754 230,012
Other expenses 3,694 1,499 1,456 3,994
Reimbursement from Investment
Adviser (85,511) (55,953) (63,085) (98,662)
--------------------------------- ---------- ---------- ---------- -----------
Total expenses 623,230 78,246 165,961 457,282
Less: Indirectly paid expenses (4,137) (465) (1,421) (3,602)
--------------------------------- ---------- ---------- ---------- -----------
Net expenses 619,093 77,781 164,540 453,680
--------------------------------- ---------- ---------- ---------- -----------
Net investment income 2,434,037 262,180 527,806 1,821,136
--------------------------------- ---------- ---------- ---------- -----------
Net realized and unrealized gain
(loss) on investments and closed
futures contracts (Note 3)
Realized gain (loss) on:
Investments (1,432,050) (243,460) (108,925) 221,572
Closed futures contracts (118,494) (41,328) (94,601) (442,656)
--------------------------------- ---------- ---------- ---------- -----------
Net realized loss on investments
and closed
futures contracts (1,550,544) (284,788) (203,526) (221,084)
Net change in unrealized
appreciation on investments 645,888 191,409 230,249 281,809
--------------------------------- ---------- ---------- ---------- -----------
Net realized and unrealized gain
(loss) on investments and
closed futures contracts (904,656) (93,379) 26,723 60,725
--------------------------------- ---------- ---------- ---------- -----------
Net increase in net assets
resulting from operations $ 1,529,381 $ 168,801 $ 554,529 $1,881,861
--------------------------------- ---------- ---------- ---------- -----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 38
Keystone State Tax Free Fund
STATEMENTS OF CHANGES IN NET ASSETS
Six months ended September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
New York
Florida Massachusetts Insured Pennsylvania
Tax Free Fund Tax Free Fund Tax Free Fund Tax Free Fund
- ----------------------------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Operations
Net investment income $ 2,434,037 $ 262,180 $ 527,806 $ 1,821,136
Net realized loss on investments
and closed futures contracts (1,550,544) (284,788) (203,526) (221,084)
Net change in unrealized
appreciation on investments 645,888 191,409 230,249 281,809
--------------------------------- ---------- ---------- ---------- -----------
Net increase in net assets
resulting from operations 1,529,381 168,801 554,529 1,881,861
--------------------------------- ---------- ---------- ---------- -----------
Distributions to shareholders from (Note 1)
Net investment income:
Class A (955,728) (49,856) (100,912) (741,534)
Class B (1,259,758) (172,392) (392,622) (869,905)
Class C (265,349) (53,022) (48,300) (196,653)
--------------------------------- ---------- ---------- ---------- -----------
Total distributions to
shareholders (2,480,835) (275,270) (541,834) (1,808,092)
--------------------------------- ---------- ---------- ---------- -----------
Capital share transactions (Note 2)
Proceeds from shares sold:
Class A 887,480 252,475 480,395 802,095
Class B 2,374,430 346,649 2,411,997 3,201,490
Class C 295,216 2,844 69,498 782,350
Payment for shares redeemed:
Class A (3,808,572) (139,671) (398,270) (2,915,239)
Class B (3,812,452) (229,142) (1,407,355) (2,836,004)
Class C (873,563) (118,942) (192,516) (2,435,946)
Net asset value of shares issued
in reinvestment
of distributions:
Class A 259,416 24,616 56,035 388,044
Class B 458,071 105,448 241,729 508,477
Class C 100,065 31,511 36,909 146,748
--------------------------------- ---------- ---------- ---------- -----------
Net increase (decrease) in net
assets resulting from capital
share transactions (4,119,909) 275,788 1,298,422 (2,357,985)
--------------------------------- ---------- ---------- ---------- -----------
Total increase (decrease) in
net assets (5,071,363) 169,319 1,311,117 (2,284,216)
Net assets
Beginning of period 103,513,984 11,363,321 23,394,520 76,104,070
--------------------------------- ---------- ---------- ---------- -----------
End of period $ 98,442,621 $11,532,640 $24,705,637 $73,819,854
--------------------------------- ---------- ---------- ---------- -----------
Accumulated distributions in excess
of net investment income ($482,928) ($15,962) ($51,931) ($214,167)
--------------------------------- ---------- ---------- ---------- -----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 39
Keystone State Tax Free Fund
STATEMENTS OF CHANGES IN NET ASSETS
Year ended March 31, 1996
<TABLE>
<CAPTION>
New York
Florida Massachusetts Insured Pennsylvania
Tax Free Fund Tax Free Fund Tax Free 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 40
Keystone State Tax Free Fund
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1.) Significant Accounting Policies
Keystone State Tax Free Fund (the "FUND") is a Massachusetts business trust
for which Keystone Investment Management Company ("Keystone") is the
Investment Adviser and Manager. Keystone is a wholly-owned subsidiary of
Keystone Investments, Inc. ("KII"). The Fund is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a
non-diversified, open-end investment company. The FUND currently offers
shares of four separate series evidencing interests in different portfolios
of securities (individually a "Fund", collectively the "Funds"). These
financial statements include 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"). Each Fund currently offers
several classes of shares. The Funds seek the highest possible current income
exempt from federal income taxes, while preserving capital.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles,
which require management to make estimates and assumptions that affect
amounts reported herein. Although actual results could differ from these
estimates, any such differences are expected to be immaterial to the net
assets of the Funds.
A. Valuation of Securities
Securities held by the Funds are valued by an independent pricing service. In
determining value for normal institutional-size transactions, the pricing
service uses methods based on market transactions for comparable securities
and various relationships between securities which are generally recognized
by institutional traders. Securities for which valuations are not available
from an independent pricing service (including restricted securities) are
valued at fair value as determined in good faith according to procedures
established by the Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are
carried at amortized cost, which approximates market value. Short-term
securities with greater than 60 days to maturity are valued at
market value.
B. Futures Contracts
In order to gain exposure to or protect against changes in security values,
the Funds may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures
transaction is subsequently adjusted by daily payments or receipts as the
value of the contract changes. Such changes are recorded as unrealized gains
or losses. Realized gains or losses are recognized on closing the contract.
Risks of entering into futures contracts include (i) the possibility of an
illiquid market for the contract, (ii) the possibility that a change in the
value of the contract may not correlate with changes in the value of the
underlying instrument or index, and (iii) the credit risk that the other
party will not fulfill their obligations under the contract. Futures
contracts also involve elements of market risk in excess of the amount
reflected in the statement of assets and liabilities.
C. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day
after the trade date. Realized gains and losses are computed on the
identified cost basis. Interest income is recorded on the accrual basis and
includes amortization of discounts and premiums.
<PAGE>
PAGE 41
D. Organization Expenses
For the Massachusetts Fund and the New York Fund, organization expenses are
amortized to operations over a five-year period on a straight-line basis. In
the event any of the initial shares of the Funds are redeemed by Keystone
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.
E. Federal Income Taxes
Each Fund has qualified and intend to qualify in the future as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"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 also intends to avoid excise
tax liability by making the required distributions under the Code.
Accordingly, no provision for federal income taxes is required.
F. Distributions
Each Fund declares dividends from net investment income daily and distributes
such dividends monthly and declares net capital gains, if any, at least
annually. Distributions to shareholders are recorded at the close of business
on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. These differences are primarily due to the
deferral of losses for income tax purposes that have been recognized for
financial statement purposes.
G. Class Allocations
Class A shares are offered at a public offering price which includes 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 that is payable upon
redemption and decreases depending on how long the shares have been held.
Class B shares purchased on or after June 1, 1995 that have been outstanding
for eight years will automatically convert to Class A shares. Class B shares
purchased prior to June 1, 1995 that have been outstanding for seven years
will automatically convert to Class A shares. Class C shares are sold subject
to a contingent deferred sales charge payable on shares redeemed within one
year of purchase.
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the
relative net assets of each class. Currently, class specific expenses are
limited to expenses incurred under the Distribution Plans for each class.
(2.) Capital Share Transactions
The Fund's Declaration of Trust authorizes the issuance of an unlimited
number of shares of beneficial interest with no par value. Shares of
beneficial interest of each Fund are currently divided into Class A, Class B
and Class C. Transactions in shares of each Fund were as follows:
<PAGE>
PAGE 42
Keystone State Tax Free Fund
Six Months Year
Ended Ended
Florida Fund September 30, March 31,
Class A 1996 1996
- ------------------------ ------------- -----------
Shares sold 84,537 247,533
Shares redeemed (364,773) (873,200)
Shares issued in
reinvestment of
dividends and
distributions 24,791 53,198
- ------------------------ ----------- ---------
Net decrease (255,445) (572,469)
- ------------------------ ----------- ---------
Class B
Shares sold 230,434 1,027,017
Shares redeemed (368,835) (918,380)
Shares issued in
reinvestment of
dividends and
distribution 44,281 98,392
- ------------------------ ----------- ---------
Net increase (decrease) (94,120) 207,029
- ------------------------ ----------- ---------
Class C
Shares sold 28,762 92,047
Shares redeemed (84,265) (244,752)
Shares issued in
reinvestment of
dividends and
distributions 9,652 25,773
- ------------------------ ----------- ---------
Net decrease (45,851) (126,932)
- ------------------------ ----------- ---------
Six Months Year
Ended Ended
Massachusetts Fund September 30, March 31,
Class A 1996 1996
- ------------------------ ------------- -----------
Shares sold 27,720 77,233
Shares redeemed (15,237) (106,698)
Shares issued in
reinvestment of
dividends and
distributions 2,693 6,900
- ------------------------ ----------- ---------
Net increase (decrease) 15,176 (22,565)
- ------------------------ ----------- ---------
Class B
Shares sold 38,305 170,546
Shares redeemed (25,337) (78,313)
Shares issued in
reinvestment of
dividends and
distributions 11,613 22,195
- ------------------------ ----------- ---------
Net increase 24,581 114,428
- ------------------------ ----------- ---------
Class C
Shares sold 315 48,902
Shares redeemed (13,196) (21,034)
Shares issued in
reinvestment of
dividends and
distributions 3,471 6,401
- ------------------------ ----------- ---------
Net increase (decrease) (9,410) 34,269
- ------------------------ ----------- ---------
<PAGE>
PAGE 43
Six Months Year
Ended Ended
New York Fund September 30, March 31,
Class A 1996 1996
- ------------------------ ------------- -----------
Shares sold 49,986 107,459
Shares redeemed (41,611) (63,070)
Shares issued in
reinvestment of
dividends and
distributions 5,838 11,515
- ------------------------ ----------- ---------
Net increase 14,213 55,904
- ------------------------ ----------- ---------
Class B
Shares sold 254,270 658,066
Shares redeemed (148,151) (182,936)
Shares issued in
reinvestment of
dividends and
distributions 25,411 44,023
- ------------------------ ----------- ---------
Net increase 131,530 519,153
- ------------------------ ----------- ---------
Class C
Shares sold 7,329 77,987
Shares redeemed (20,384) (155,157)
Shares issued in
reinvestment of
dividends and
distributions 3,881 8,359
- ------------------------ ----------- ---------
Net decrease (9,174) (68,811)
- ------------------------ ----------- ---------
Six Months Year
Ended Ended
Pennsylvania Fund September 30, March 31,
Class A 1996 1996
- ------------------------ ------------- -----------
Shares sold 72,768 162,995
Shares redeemed (264,266) (455,676)
Shares issued in
reinvestment of
dividends and
distributions 35,085 76,584
- ------------------------ ----------- ---------
Net decrease (156,413) (216,097)
- ------------------------ ----------- ---------
Class B
Shares sold 293,521 844,393
Shares redeemed (260,022) (343,491)
Shares issued in
reinvestment of
dividends and
distributions 46,604 90,532
- ------------------------ ----------- ---------
Net increase 80,103 591,434
- ------------------------ ----------- ---------
Class C
Shares sold 71,692 136,525
Shares redeemed (222,597) (173,811)
Shares issued in
reinvestment of
dividends and
distributions 13,409 31,980
- ------------------------ ----------- ---------
Net decrease (137,496) (5,306)
- ------------------------ ----------- ---------
<PAGE>
PAGE 44
Keystone State Tax Free Fund
(3.) Securities Transactions
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) for the six months ended September 30, 1996 were
as follows:
Cost of Proceeds
Purchases from Sales
----------- -------------
Florida Fund $56,055,099 $60,262,054
Massachusetts Fund 8,551,005 8,236,896
New York Fund 10,509,052 9,290,690
Pennsylvania Fund 36,876,280 39,521,884
As of March 31, 1996 the Funds had approximate capital loss carryovers for
federal tax purposes as follows:
Florida Fund
---------------------
Capital Loss Carryover $1,845,000
Expires 2002 1,845,000
Massachusetts Fund
---------------------
Capital Loss Carryover $117,000
Expires 2002 117,000
New York Fund
---------------------
Capital Loss Carryover $72,000
Expires 2002 1,000
Expires 2003 71,000
Pennsylvania Fund
---------------------
Capital Loss Carryover $2,294,000
Expires 2002 1,503,000
Expires 2003 791,000
(4.) Distribution Plans
Each Fund bears some of the costs of selling its shares under Distribution
Plans adopted for its Class A, B and C pursuant to Rule 12b-1 under the 1940
Act. Under the Distribution Plans, the Fund pays its principal underwriter,
Keystone Investment Distributors Company ("KIDC"), a wholly-owned subsidiary
of Keystone, amounts which are calculated and paid daily.
The Class A Distribution Plan provides for expenditures, which are currently
limited to 0.15% annually of the average daily net assets of the Class A
shares, to pay expenses related to the distribution of Class A shares.
Pursuant to each Fund's Class B and Class C Distribution Plans, the Funds
pay a distribution fee which currently may not exceed 0.90% of the average
daily net assets of Class B and Class C shares, respectively. Of that amount,
0.75% is used to pay distribution expenses and 0.15% is used to pay service
fees.
During the six months ended September 30, 1996 amounts paid to KIDC pursuant
to each Fund's Class A, Class B, and Class C Distribution Plans were as
follows:
Florida Fund
---------------------
Class A $25,577
Class B prior to June 1, 1995 198,368
Class B on or after June l, 1995 42,556
Class C 50,876
Massachusetts Fund
---------------------
Class A $1,278
Class B prior to June 1, 1995 25,878
Class B on or after June l, 1995 6,693
Class C 10,010
New York Fund
---------------------
Class A $2,885
Class B prior to June 1, 1995 54,038
Class B on or after June l, 1995 25,990
Class C 9,841
Pennsylvania Fund
---------------------
Class A $20,560
Class B prior to June 1, 1995 128,744
Class B on or after June l, 1995 42,087
Class C 38,621
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting
shares of the respective class. However, after the termination of any
Distribution Plan, and subject to the discretion of the Independent Trustees,
payments to KIDC may continue as compensation for services which had been
earned while the Distribution Plan was in effect.
<PAGE>
PAGE 45
KIDC intends, but is not obligated, to continue to pay distribution costs
that exceed the current annual payments from the Fund. KIDC intends to seek
full payment of such distribution costs from the Fund at such time in the
future as, and to the extent that, payment thereof by the Class B or Class C
shares would be within permitted limits.
At September 30, 1996, total unpaid distribution costs for Class B shares
were as follows:
Florida Fund
---------------------
Shares purchased prior to June 1, 1995 $2,840,323
Shares purchased on or after June 1, 1995 623,890
Massachusetts Fund
---------------------
Shares purchased prior to June 1, 1995 $353,232
Shares purchased on or after June 1, 1995 75,803
New York Fund
---------------------
Shares purchased prior to June 1, 1995 $709,537
Shares purchased on or after June 1, 1995 395,332
Pennsylvania Fund
---------------------
Shares purchased prior to June 1, 1995 $1,776,445
Shares purchased on or after June 1, 1995 658,617
At September 30, 1996, total unpaid distribution cost for Class C shares
were as follows:
Florida Fund $1,325,162
Massachusetts Fund 139,910
New York Fund 219,317
Pennsylvania Fund 826,032
Contingent deferred sales charges paid by redeeming shareholders are paid to
KIDC.
(5.) Investment Management Agreement and Other Affiliated Transactions
Under the terms of the Investment Advisory and Management Agreement between
Keystone and the FUND, Keystone provides investment management and
administrative services to the Funds. In return, Keystone is paid a
management fee that is computed and paid daily. The management fee is
calculated by applying percentage rates, which start at 0.55% and decline to
0.25% per annum as net assets increase, to the average daily net asset value
of each Fund.
Keystone has voluntarily limited the expenses of Class A shares to 0.75% of
its average daily net assets and has limited the expenses of Class B and C to
1.50% of the average daily net assets of each respective class. For the six
months ended September 30, 1996 Keystone reimbursed the Funds as follows:
Florida Fund $85,511
Massachusetts Fund 55,953
New York Fund 63,085
Pennsylvania Fund 98,662
During the six months ended September 30, 1996, each Fund paid or accrued to
Keystone for certain accounting services as follows:
Florida Fund $12,009
Massachusetts Fund 11,460
New York Fund 11,263
Pennsylvania Fund 11,316
During the six months ended September 30, 1996, each Fund paid or accrued to
Keystone Investor Resource Center, Inc., a wholly-owned subsidiary of
Keystone, for services rendered as the Fund's transfer and dividend
disbursing agent as follows:
Florida Fund $54,308
Massachusetts Fund 7,532
New York Fund 16,160
Pennsylvania Fund 55,616
Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the Fund. Officers of Keystone and affiliated Trustees receive no
compensation directly from the Fund. Currently the Independent Trustees of
the Fund receive no compensation for their services.
<PAGE>
PAGE 46
Keystone State Tax Free Fund
(6.) Expense Offset Arrangement
The Funds have entered into an expense offset arrangement with its custodian.
For the six months ended September 30, 1996, the Florida Fund, the
Massachusetts Fund, the New York Fund and the Pennsylvania Fund incurred
total custody fees in the amount of $34,422, $14,056, $18,133 and $32,037,
respectively, and received a credit of $4,137, $465, $1,421 and $3,602,
respectively, pursuant to this expense offset arrangement, resulting in a net
custody expense of $30,285, $13,591, $16,712 and $28,435, respectively. The
assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
(7.) Agreement and Plan of Acquisition
On September 6, 1996, KII entered into an Agreement and Plan of Acquisition
and Merger with First Union Corporation ("First Union") and First Union
National Bank of North Carolina ("FUNB-NC") and certain other parties
pursuant to which KII will be merged with and into a wholly-owned subsidiary
of FUNB-NC. Subject to the receipt of required regulatory and shareholder
approvals, the proposed merger is expected to take place in December 1996.
<PAGE>
PAGE 47
Keystone's Services
for Shareholders
KEYSTONE AUTOMATED RESPONSE LINE (KARL)--Receive up-to-date account
information on your balance, last transaction and recent Fund distribution.
You may also process transactions such as investments, redemptions and
exchanges using a touch-tone telephone as well as receive quotes on price,
yield, and total return of your Keystone Fund. Call toll-free,
1-800-346-3858.
EASY ACCESS TO INFORMATION ON YOUR ACCOUNT--Information about your Keystone
account is available 24 hours a day through KARL. To speak with a Shareholder
Services representative about your account, call toll-free 1-800-343-2898
between 8:00 A.M. and 6:00 P.M. Eastern time. Retirement Plan investors
should call 1-800-247-4075.
ADDITIONS TO YOUR ACCOUNT--You can buy additional shares for your account at
any time, with no minimum additional investment.
REINVESTMENT OF DISTRIBUTIONS--You can compound the return on your
investment by automatically reinvesting your Fund's distributions at net
asset value with no sales charge.
EXCHANGE PRIVILEGE--You may move your money among funds in the same Keystone
family quickly and easily for a nominal service fee. KARL gives you the added
ability to move your money any time of day, any day of the week. Keystone
offers a variety of funds with different investment objectives for your
changing investment needs.
ELECTRONIC FUNDS TRANSFER (EFT)-- Referred to as the "paper-less
transaction," EFT allows you to take advantage of a variety of preauthorized
account transactions, including automatic monthly investments and systematic
monthly or quarterly withdrawals. EFT is a quick, safe and accurate way to
move money between your bank account and your Keystone account.
CHECK WRITING--Shareholders of Keystone Liquid Trust may exercise the check
writing privilege to draw from their accounts.
EASY REDEMPTION--KARL makes redemption services available to you 24 hours a
day, every day of the year. The amount you receive may be more or less than
your original account value depending on the value of fund shares at time of
redemption.
RETIREMENT PLANS--Keystone offers a full range of retirement plans,
including IRA, SEP-IRA, profit sharing, money purchase, and defined
contribution plans. For more information, please call Retirement Plan
Services, toll-free at 1-800-247-4075.
Keystone is committed to providing you with quality, responsive account
service. We will do our best to assist you and your financial adviser in
carrying out your investment plans.
<PAGE>
[wraparound cover]
KEYSTONE AMERICA
FAMILY OF FUNDS
[DIAMOND]
Balanced Fund II
California Insured Tax Free Fund
Capital Preservation and Income Fund
Florida Tax Free Fund
Fund for Total Return
Fund of the Americas
Global Opportunities Fund
Global Resources & Development Fund
Government Securities Fund
Hartwell Emerging Growth Fund, Inc.
Intermediate Term Bond Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Omega Fund
Pennsylvania Tax Free Fund
Small Company Growth Fund II
Strategic Income Fund
Tax Free Income Fund
World Bond Fund
-------------------------------
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied by
the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you invest
or send money. For a free prospectus on other Keystone funds, contact your
financial adviser or call Keystone.
[KEYSTONE LOGO] KEYSTONE
INVESTMENTS
P.O. Box 2121
Boston, Massachusetts 02106-2121
STFF-R-11/96
9M [RECYCLE LOGO]
-------------------------------
K E Y S T O N E
[GRAPHIC
OF
U.S. FLAG AND 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]
SEMIANNUAL REPORT
SEPTEMBER 30, 1996
