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KEYSTONE AMERICA
FAMILY OF FUNDS
[diamond}
Balanced Fund II
California Insured Tax Free Fund
Capital Preservation and Income Fund
Florida Tax Free Fund
Fund for Total Return
Fund of the Americas
Global Opportunities Fund
Global Resources and Development Fund
Government Securities Fund
Hartwell Emerging Growth Fund, Inc.
Intermediate Term Bond Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Omega Fund
Pennsylvania Tax Free Fund
Small Company Growth Fund II
Strategic Income Fund
Tax Free Income Fund
World Bond Fund
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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 INVESTMENTS LOGO]
P.O. Box 2121
Boston, Massachusetts 02106-2121
FOA-R-12/96
13.4M
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KEYSTONE
[PHOTO OF MAP]
FUND OF THE
AMERICAS
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[KEYSTONE LOGO]
ANNUAL REPORT
OCTOBER 31, 1996
<PAGE>
PAGE 1
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Keystone Fund of the Americas
Seeks long-term growth of capital by investing in equity
and fixed-income securities of North America and Latin America.
Dear Shareholder:
We are pleased to report to you on activities of Keystone Fund of the
Americas for the fiscal year which ended October 31, 1996.
Performance
For the twelve-month period which ended October 31, 1996, your Fund
successfully met its objective of growth of capital with the following
investment returns:
Class A shares returned 16.74%.
Class B shares returned 15.82%.
Class C shares returned 15.80%.
The Funds' positive performance reflected the strong market conditions in
the Americas during the period. Your Fund outperformed the average return of
mutual funds in the Global category according to Lipper Analytical Services,
which was 14.93% for the period.(1) The Morgan Stanley Capital International
World Index (MSCIWI) returned 16.31% for the period. MSCI is an unmanaged
index and it is not necessarily comprised of the same securities in which
your Fund invests.
Throughout most of the fiscal year, your Fund employed a conservative
approach to investing in the Americas, seeking to protect the portfolio from
extreme price fluctuations.
Change of investment strategy
The Trustees of Keystone Fund of the Americas unanimously agreed to modify
the investment strategy of your Fund effective September 24, 1996. The
strategy was changed to emphasize the Fund's commitment to investing in Latin
American securities.
Under the new mandate your Fund will concentrate its investments primarily
in Latin American equity markets. As much as 80% and not less than 65% of
total assets will be invested in Latin American equities. In order to retain
its ability to reduce market risk through diversification, your Fund will
invest at least 20% of its assets in equity securities issued in the United
States. When appropriate, your Fund may invest a portion of assets in fixed-
income securities issued by Latin American or North American companies or
governments.
Reaching for new opportunities
We believe the revised strategy will give your Fund more flexibility to
participate in the strong potential for long-term growth that we see in
Latin America. Moreover, we think the new strategy will make it easier to
evaluate your Fund's performance against industry benchmarks.
Please remember that along with the high potential for long-term growth,
your Fund might experience greater short-term price fluctuations. We
encourage you to talk to your financial adviser to ensure that your overall
portfolio provides adequate protection from the inevitable downturns for
which every investor needs to be prepared.
- ------
(1) Source: Lipper Analytical Services, Inc., an independent mutual fund rating
service. The average return of the 177 funds in the Global Equity category
was 14.93% for the twelve months which ended 10/31/96. Keystone Fund of the
Americas has been operating since 1/1/93. Therefore, five- and ten-year
performance comparisons versus the Lipper averages are not applicable.
Performance is based on total return which includes reinvestment of
dividends, and does not include the effects of sales charges. Past
performance is no guarantee of future results.
(continued on next page)
<PAGE>
PAGE 2
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Keystone Fund of the Americas
Looking ahead
We think the markets in the United States and Latin America are well
positioned for another successful year. In Latin America, the countries
continue to demonstrate the resolve to become global players. We believe
their efforts to privatize and deregulate state-owned institutions, to tame
inflation and reduce budget deficits will continue to create economic growth
and enhance the long-term growth potential for their securities markets.
In the United States, the economy is in the sixth year of expansion and the
economic fundamentals continue to be favorable. The U.S. stock market set
record highs in 1995 and 1996. We expect that the market will return closer
to historic levels in 1997.
We think there is a great deal of momentum in global markets that's feeding
the upward trend in the equity markets. Emerging countries in Latin America,
Asia and Europe are creating unprecedented demand for new technology, modern
infrastructure, products and services. The United States has been gearing up
during the past decade to meet the demand competitively, by streamlining its
economic systems and corporations. Countries across the economic spectrum are
following that trend. We believe that your Fund is well positioned to benefit
from these positive developments.
Introducing the new portfolio managers
Antonio T. Docal, Vice President and Portfolio Manager, and Francis X. Claro,
Vice President and Portfolio Manager, assumed responsibilities as
co-portfolio managers of Keystone Fund of the Americas, on October 1, 1996.
The new portfolio managers are experienced members of the Keystone
international team. As analysts for the Latin American equity markets, they
are experts on the region and are thoroughly familiar with your Fund's
investments. They are uniquely equipped to maintain the continuity of
management that's important to your Fund's continued success.
Messrs. Docal and Claro will continue to work closely with Gilman Gunn,
Senior Vice President and head of Keystone's international investment team,
who managed the Fund until October 1. Maureen Cullinane will continue to
oversee the U.S. equity portion of the portfolio.
Keystone acquired by First Union Corporation
On another note, we are pleased to inform you that Keystone has been acquired
by First Union Corporation. First Union is a financial services firm based in
Charlotte, North Carolina. It is the nation's sixth largest bank holding
company with assets of approximately $130 billion. First Union, through its
wholly owned subsidiary Evergreen Asset Management Corp., together with
Keystone mutual funds, manages $30 billion in 70 mutual funds. Keystone will
remain a separate entity and will continue to provide investment advisory and
management services to the Fund. Other services will be provided under the
"Evergreen Keystone Funds" name. We believe First Union's acquisition of
Keystone strengthens the investment management services we provide you.
The past several months have been a time of dynamic change at Keystone
Investments. We appreciate the opportunity to share our news with you and
thank you for your continued support of Keystone funds. If you have any
questions or comments, please feel free to write to us.
<PAGE>
PAGE 3
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Sincerely,
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Chairman
Keystone Investment Management Company
/s/ George S. Bissell
George S. Bissell
Chairman of the Board
Keystone Funds
December 1996
[PHOTO OF [PHOTO OF
ALBERT H. ELFNER, III] GEORGE S. BISSELL]
Albert H. Elfner, III George S. Bissell
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Keystone Investment Insight Line for Shareholders
You can keep up-to-date on your fund's current strategy and outlook by calling
Keystone Investment Insight Line. You can hear Keystone portfolio managers
discuss their latest strategies. You can also listen to Keystone's overall
market outlook from James McCall, Chief Investment Officer. The service is
available 24 hours a day, seven days a week and updated at least monthly.
Keystone Investment Insight Line 1-800-346-3858, Press 2
[GRAPHIC OF TELEPHONE]
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<PAGE>
PAGE 4
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Keystone Fund of the Americas
A Discussion With
Your Fund Managers
[PHOTO OF MEETING]
Antonio Docal is Co-Portfolio Manager of Keystone Fund of the Americas.
An investment professional with a broad experience in international trade
and mergers and acquisitions for the Latin American region, Mr. Docal
has been a member of Keystone's international team since 1994. He
received a B.A. from Trinity College, and an MSM from the Sloan School
of Management, M.I.T. Spanish is his first language and he has lived in
Mexico and Colombia.
Francis Claro is Co-Portfolio Manager of Keystone Fund of the Americas.
His unique qualifications include senior-level responsibilities for private
equity and debt investments, as well as management consulting work in
Latin America, and acquisition work for major international corporations.
Mr. Claro has been a member of Keystone's international team since 1994.
He holds a Bachelor degree in Business from ESADE in Barcelona,
Spain, an M.Sc. from the London School of Economics, and an M.B.A.
from Harvard Business School. Spanish and Catalan are his primary
languages and he is also fluent in Portuguese and conversant in French.
Your Fund's investment team also includes Maureen Cullinane, who
oversees the U.S. equity portion of the portfolio.
Q What is your vision of the Fund's investments under the revised strategy?
A Our overall goal is to fully participate in the great potential for
long-term growth that we see in Latin America. To do that, we plan to focus
on Latin American equities and target companies that we think are well
positioned to grow along with the rest of their economies. These may be large
companies that are being privatized or restructured, or smaller companies
that we think can grow into industry leaders.
Q What was the overall investment climate for the equity markets in the
Americas during the past fiscal year?
A In general, the equity markets were stronger than expected, both in the
United States and Latin America during the twelve-month period which ended
October 31, 1996. In the U.S., stocks experienced significant volatility in
the first seven months of 1996 due to the fears that the economy was
overheating and inflation was rearing its head, but investors' confidence
returned in the second half and the stock market closed the period with a
record-breaking performance.
Latin America generated success stories of its own, led by Brazil, Mexico
and Venezuela. Brazil was a positive surprise, exceeding our already strong
expectations. Mexico made an impressive turnaround, managing to revive its
economy and restore stability to the peso in less than two years. The
successes of those Latin American countries clearly reflected the region's
potential to be a serious player in the global economy and a good place for
foreign investment.
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Fund Profile
Objective: Seeks long-term growth of capital by investing in equity and
fixed-income securities of North America and Latin America.
Commencement of investment operations: November 1, 1993
Number of countries: 7
Net assets: $98.8 million
Newspaper listing: "FndAm"
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<PAGE>
PAGE 5
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Geographic Diversification
as of October 31, 1996
Common and
Preferred Stocks
U.S. NORTH AMERICA
21.6% -------------------------------------------------------------- 21.6%
Mexico
20.9% ---------------------- [GRAPHIC
Colombia LATIN AMERICA
3.7% -------------------------- OF -------------------------- 77.8%
Peru Brazil
5.0% ------------------------- MAP] ------------------------- 39.5%
Chile Argentina
3.9% ------------------------- ------------------------- 4.8%
(percentage of net assets)
Other investments totaled 0.6% and included foreign currency,
foreign-denominated fixed-income and other assets and liabilities.
Q How would you describe the key factors behind the positive environment in
Latin America?
A The two most important contributors were improving economies and favorable
political and regulatory environments. Latin American countries have waged a
war on inflation and they have been winning. Low inflation translates to
higher purchasing power for consumers, more demand for durable goods, a
better standard of living and lower interest rates. These are, in our view,
very favorable investment conditions. We also saw major privatization
efforts, which were beneficial to the markets. The cooperation of the
International Monetary Fund and World Bank with local governments further
aided economic and investment stability.
Q How do you assess the Fund's performance?
A Overall, the Fund has performed well and met its objective of growth
through equity and fixed-income investments.
In October 1996 the Fund shifted its strategy to focus primarily on Latin
American equities. That change occurred in the last month of the fiscal year
and did not significantly affect the Fund's performance.
Q What was the portfolio's asset allocation during the past fiscal year?
A At the beginning of the 1996 fiscal year, the Fund had 39.7% of assets in
Latin American fixed-income securities and 60.3% of assets in equities, of
which North America represented 18.2%. During the last month of the fiscal
year, in preparation for the new investment strategy, we sold most of the
Fund's fixed- income and Canadian holdings. At the end of October 1996, the
Fund held 99.7% of total long-term holdings in equities led by Brazil, United
States and Mexico.
Q Brazil was the top-weighted country. Please explain why.
A We were able to capitalize on great opportunities in Brazil resulting from
privatizations. Typically, the Brazilian government restructures the
companies which are to be privatized and raises their tariffs to make these
companies more competitive and profitable before their sell-off. Since many
of those companies have portions of their equities in the stock exchange, we
can buy stock of a company that is to be privatized and benefit from the
<PAGE>
PAGE 6
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Keystone Fund of the Americas
Top 10 Holdings
as of October 31, 1996
Percentage of
Industry net assets
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Banco Bradesco (Brazil) Banking 4.7
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Companhia Cervejaria Brahma S.A.
(Brazil) Beverages & Tobacco 4.6
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Companhia Petroleo Brasiliero, S.A.
(Brazil) Oil Services 4.3
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Banco Itau (Brazil) Banking 4.0
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General Electric (U.S.) Electrical 4.0
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Telebras (Brazil) Telecommunications 4.0
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Vale de Rio Doce Navegacao S.A.
(CVRD) (Brazil) Conglomerate 3.9
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Cemig Cia Energ MG (Brazil) Utilities 2.9
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Banco de Bogota (Colombia) Banking 2.7
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Bank of Boston Corp. (U.S.) Banking 2.7
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fact that the government is going to increase rates, cut costs and shed
personnel. One such company was Telebras, a Brazilian telecommunications
company, which gained 86% during the Fund's past fiscal year.
Q What prompted the increase in Mexico's weighting from 1.8% of net total
assets at October 31, 1995 to 20.9% at October 31, 1996?
A In Mexico we liked the higher-than-expected economic growth combined with
declining inflation and interest rates. Companies there are restructuring and
modernizing to become internationally competitive. We feel that Mexico has
learned valuable lessons during the peso crisis in 1994 and has made
important changes. For example, the government has successfully restructured
its debt by issuing new obligations at longer maturities, on average 11
years. Part of the reason for the devaluation of the peso in 1994 was that
Mexico had most of its debt in maturities of less than one year, so it was
vulnerable to capital flight and lost its reserves in a matter of months.
Longer maturities would allow the country to better withstand an economic
crisis in the future.
Q Do you have concerns about economic and political stability in Mexico?
A We are always vigilant, as we are with all emerging economies. Overall, we
think Mexico has the resolve to stay the course of fiscal tightening and
economic growth. However, these are processes that can take years to take
root and we are well prepared to react to any challenge along the way.
Q What were your favorite industry sectors?
A They varied by country. For example, in Brazil we favored
telecommunications, utilities and oil services. These sectors benefitted from
high demand, privatization and increased tariffs. We also liked the banking
sector. In general, Latin America's banking sector is still underserved,
especially in the consumer area, so we see demand and growth increasing. A
Colombian bank was one of our top ten holdings at the close of the Fund's
fiscal year. We also owned a couple of Mexican banks that, we believed, had
large market shares and low funding costs. Another top holding was Bank of
Boston, which has a major presence in Latin America.
Q What type of companies do you select?
A We look for companies that have attractive valuations relative to their
cashflow and earnings growth. We need to be convinced that the companies we
buy have a clear dominance and/or competitive advantage in their business
segments. We also target those corporations that in our view are well
positioned to benefit from economic and political reforms in Latin America.
For example, we have had a sizable position in Apasco, a cement company in
Mexico. We invested in Apasco because of its attractive
valuation. Moreover, we believed the stock would benefit from election-driven
social programs, like new sidewalks and schools, as those projects require
cement. Another example is Telebras, which we have mentioned. Telebras
benefitted from increased tariffs in preparation for privatization of the
telecommunication sector in Brazil.
<PAGE>
PAGE 7
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Q What is your outlook for the international markets?
A We think this is going to be another good year for the Americas. The U.S.
stock market seems to have enough momentum to produce another positive year
and we see no immediate threat of inflation or higher interest rates.
In Latin America we expect that our stock-picking opportunities will
continue to be excellent thanks to political climates that are increasingly
pro-business and pro-democracy. Valuations in the U.S. by some measures look
stretched. We don't see that in Latin America. Companies there trade at very
attractive valuations; at the same time their earnings are increasing
tremendously. For example, Telebras' earnings increased over 200% through the
third quarter of 1996 and its price to earnings ratio, despite the stock
having more than doubled, came down from 14 in 1995 to 9 at the close of the
past fiscal year.
Q As the Fund's new portfolio managers, what is your closing message to the
shareholders?
A Above all, we want to convey our enthusiasm for what we believe are
uncommon investment opportunities in Latin America. Our confidence comes from
knowledge and experience. We know Latin America. We travel to the region
regularly. We visit companies. We talk to executives and government
officials. We speak their language. We analyze every potential company from
the bottom up, with the help of the experienced analysts in Keystone's
International Research Department. Short- term fluctuations are inherent in
international investing and we are always vigilant. We seek to reduce
investment risk by doing extensive research and maintaining a broad
diversification of countries, industries and individual companies.
[diamond]
This column is intended to answer
questions about your Fund. If you have a question,
please write to:
Evergreen Keystone Investment Services
Attn: Shareholder Communications, 22nd Floor
200 Berkeley Street, 22nd Floor,
Boston, Massachusetts 02116-5034.
<PAGE>
PAGE 8
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Keystone Fund of the Americas
Your Fund's Performance
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Growth of an investment in
Keystone Fund of the Americas Class A
In Thousands
Total Value: $11,401
11/93 9425 9425
10/94 9943 10105
10/95 9293 9766
10/96 10490 11401
A $10,000 investment in Keystone Fund of the Americas Class A made on November
1, 1993 with all distributions reinvested was worth $11,401 on October 31, 1996.
Past performance is no guarantee of future results.
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Twelve-Month Performance as of October 31, 1996
=============================================================
Class A Class B Class C
Total returns* 16.74% 15.82% 15.80%
Net asset value 10/31/95 $ 9.86 $ 9.76 $ 9.77
10/31/96 $11.13 $10.98 $10.99
Distributions $ 0.36 $ 0.31 $ 0.31
Capital gains None None None
* Before deducting sales charge.
Historical Record as of October 31, 1996
====================================================================
Cumulative Total Returns Class A Class B Class C
1-year w/o sales charge 16.74% 15.82% 15.80%
1-year 10.03% 11.82% 15.80%
Life of Class 14.01% 15.38% 18.49%
Average Annual Returns Class A Class B Class C
1-year w/o sales charge 16.74% 15.82% 15.80%
1-year 10.03% 11.82% 15.80%
Life of Class 4.47% 4.89% 5.82%
Class A, Class B, and Class C shares were introduced on November 1, 1993.
Class A performance is reported at the current maximum front-end sales
charge of 5.75%.
Class B shares purchased after June 1, 1995 are subject to a contingent
deferred sales charge (CDSC) that declines from 5% to 1% over six years from
the month purchased. Performance assumes that shares were redeemed after the
end of a one-year holding period and reflects the deduction of a 4% CDSC.
Class C share performance reflects the return you would have received after
holding shares for one year or more and redeeming after the end of that
period.
The investment return and principal value will fluctuate so that your
shares, when redeemed, may be worth more or less than their original cost.
Performance for each class will differ.
You may exchange your shares for another Keystone fund by calling or writing
to Keystone directly, or through Keystone's Automated Response Line (KARL).
The Fund reserves the right to change or terminate the exchange offer.
<PAGE>
PAGE 9
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Growth of an Investment
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Comparison of change in value of a $10,000 investment in Keystone Fund of the
Americas, the Standard & Poor's 500 Index and the Morgan Stanley Capital
International World Index.
In Thousands November 1, 1993 through October 1996
Average Annual Total Return
---------------------------
1 Year Life of Class
Class A 10.03% 4.47%
Class B 11.82% 4.89%
Class C 15.80% 5.82%
Class A Class B Class C S&P 500 MSCIWI
11/93 9425 10000 10000 10000 10000
10/94 10105 10648 10658 10387 10768
10/95 9766 10222 10232 13134 11789
10/96 11401 11538 11849 16297 13711
S&P 500 MSCIWI Class C Class A Class B
$16,297 $13,711 $11,849 $11,401 $11,538
Past performance is no guarantee of future results. The performance of each
Class may be greater or less than the line shown based on differences in loads
and fees paid by the shareholder investing in the different classes. The
Standard & Poor's 500 Index and the MSCIWI Index are from October 31, 1993.
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This chart graphically compares your Fund's total return performance to
certain investment indexes. It is the result of fund performance guidelines
issued by the Securities and Exchange Commission. The intent is to provide
investors with more information about their investment.
Components of the Chart
The chart is composed of several lines that represent the accumulated value
of an initial $10,000 investment for the period indicated. The lines
illustrate a hypothetical investment in:
1. Keystone Fund of the Americas
The Fund seeks long-term growth of capital by investing in equity and debt
securities in Latin America, the United States, and Canada. The return is
quoted after deducting sales charges (if applicable), fund expenses and
transaction costs and assumes reinvestment of all distributions.
2. Standard & Poor's 500 Index (S&P 500)
The S&P 500 is a broad-based unmanaged index of common stock prices. It is
comprised of stocks of the largest U.S. companies. These stocks are selected
and compiled by Standard & Poor's Corporation according to criteria that may
be unrelated to your Fund's investment objective.
3. Morgan Stanley Capital International
World Index (MSCIWI)
The MSCIWI measures performance for a diverse range of global stock markets.
The foundation of the Morgan Stanley Capital International Index (MSCI) is
the database of approximately 1,500 companies listed on the stock exchanges
of the 24 countries for which there are MSCI Indexes.
Understanding What the Chart Means
The chart demonstrates your Fund's total return performance in relation to
well known investment indexes over a long period.
Long-term performance is a more reliable and useful measure of performance
than measurements of short-term returns or temporary swings in the market.
Your financial adviser can help you evaluate fund performance in conjunction
with the other important financial considerations such as safety, stability
and consistency.
<PAGE>
PAGE 10
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Keystone Fund of the Americas
Performance Can Be Distorted
Funds which are more conservative in their orientation and which place an
emphasis on capital preservation will tend to compare less favorably when the
market is rising. In addition, funds which have income as one of their
objectives also will tend to compare less favorably to relevant indexes.
Indexes may also reflect the performance of some securities which a fund may
be prohibited from buying. A bond fund, for example, may be limited to
investments in only high quality bonds, or a stock fund may only be able to
buy stocks that have been traded on a stock exchange for a minimum number of
years or stocks that have a certain market capitalization. Indexes usually do
not have the same investment restrictions as your Fund.
Indexes Do Not Include Costs of Investing
The comparison is further limited in its utility because the indexes do not
take into account any deductions for sales charges, transaction costs or
other fund expenses. Your Fund's performance figures do reflect such
deductions. Sales charges--whether up-front or deferred--pay for the cost of
the investment advice of your financial adviser. Transaction costs pay for
the costs of buying and selling securities for your Fund's portfolio. Fund
expenses pay for the costs of investment management and various shareholder
services. None of these costs are reflected in index total returns. The
comparison is not completely realistic because an index cannot be duplicated
by an investor--even an unmanaged index--without incurring some charges and
expenses.
One of Several Measures
The chart is one of several tools you can use to understand your investment.
It should be read in conjunction with the Fund's prospectus, and annual and
semiannual reports. Also, your financial adviser, who understands your
personal financial situation, can best explain the features of your Keystone
fund and how it applies to your financial needs.
Future Returns May Be Different
Shareholders also should be mindful that the long-run performance of either
the Fund or the indexes is not representative of what shareholders should
expect to receive from their Fund investment in the future; it is presented
to illustrate only past performance and is not a guarantee of future returns.
<PAGE>
PAGE 11
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Glossary of
Mutual Fund Terms
MUTUAL FUND--A company which combines the investment money of many people
whose financial goals are similar, and invests that money in a variety of
securities. A mutual fund allows the smaller investor the benefits of
diversification, professional management and constant supervision usually
available only to large investors.
PORTFOLIO MANAGER--An investment professional who is responsible for
managing a portfolio's assets prudently and making appropriate investment
decisions, such as which securities to buy, hold and sell, based on the
investment objectives of the portfolio.
STOCK--Equity or ownership interest in a corporation, which represents a
claim on the corporation's assets and earnings.
BOND--Security issued by a government or corporation to those from whom it
has borrowed money. A bond usually promises to pay interest income to the
bondholder at regular intervals and to repay the entire amount borrowed at
maturity date.
CONVERTIBLE SECURITY--A corporate security (usually preferred stock or
bonds) that is exchangeable for a set number of another security type
(usually common stocks) at a pre-stated price.
MONEY MARKET FUND--A mutual fund whose assets are invested in a diversified
portfolio of short- term securities, including commercial paper, bankers'
acceptances, certificates of deposit and other short-term instruments. The
fund pays income which can fluctuate daily. Liquidity and safety of principal
are primary objectives.
NET ASSET VALUE (NAV) PER SHARE--The value of one share of a mutual fund.
The NAV per share is determined by subtracting a fund's total liabilities
from its total assets, and dividing that amount by the number of fund shares
outstanding.
DIVIDEND--A per share distribution of the income earned from the fund's
portfolio holdings. When a dividend distribution is made, the fund's net
asset value drops by the amount of the distribution because the distribution
is no longer considered part of the fund's assets.
CAPITAL GAIN--The profit from the sale of securities, less any losses.
Capital gains are paid to fund shareholders on a per share basis. When a
capital gain distribution is made, the fund's net asset value drops by the
amount of the distribution because the distribution is no longer considered
part of the fund's assets.
YIELD--The annualized rate of income as measured against the current net
asset value of fund shares.
TOTAL RETURN--The change in value of a fund investment over a specified
period of time, taking into account the change in a fund's market price and
the reinvestment of all fund distributions.
SHORT-TERM--An investment with a maturity of one year or less.
LONG-TERM--An investment with a maturity of greater than one year.
AVERAGE MATURITY--The average number of days until the notes, drafts,
acceptances, bonds or other debt instruments in a portfolio become due and
payable.
OFFERING PRICE--The offering price of a share of a mutual fund is the price
at which the share is sold to the public.
<PAGE>
PAGE 12
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Keystone Fund of the Americas
SCHEDULE OF INVESTMENTS--October 31, 1996
Market
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS (67.5%)
ARGENTINA (4.7%)
Automotive (0.9%)
CIADEA S.A. 191,400 $ 857,558
- --------------------------------------------------------------------------------
Beverages & Tobacco (0.9%)
Nobleza Piccardo 209,143 732,074
Quilmes Industrial, ADR 11,000 111,375
- --------------------------------------------------------------------------------
843,449
- --------------------------------------------------------------------------------
Energy Sources (2.3%)
Astra CIA 129,880 233,807
Perez Companc S.A. 188,650 1,198,047
Yacimientos Petroliferos Fiscales S.A. (YPF),
ADR 38,900 884,975
- --------------------------------------------------------------------------------
2,316,829
- --------------------------------------------------------------------------------
Finance (0.2%)
BCO Bradesco S.A., Class B 18,000 180,018
- --------------------------------------------------------------------------------
Utilities (0.4%)
Capex S.A. 18,100 131,238
Central Costarena, Class B 91,800 288,281
- --------------------------------------------------------------------------------
419,519
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TOTAL ARGENTINA 4,617,373
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BRAZIL (7.7%)
Metals & Mining (0.9%)
Cofap Cia Fab Peca 58,000 451,625
Companhia Sidurgica Nacional 19,800,000 491,435
- --------------------------------------------------------------------------------
943,060
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Telecommunications (4.5%)
Telesponsora Telefonos Sao Paulo 158,567 27,009
Telemig Telefonos Minas 41,865 5,012
Telebras, ADR 53,500 3,985,750
Telebras Communications 7,600,000 463,072
- --------------------------------------------------------------------------------
4,480,843
- --------------------------------------------------------------------------------
Utilities (2.3%)
Eletrobras 5,600,000 1,738,758
Light Serv Elet S.A. 1,500,000 496,399
- --------------------------------------------------------------------------------
2,235,157
- --------------------------------------------------------------------------------
TOTAL BRAZIL 7,659,060
- --------------------------------------------------------------------------------
CHILE (3.9%)
Business/Public Services (0.4%)
A.F.P. Habitat S.A. 1,900,000 $ 379,684
- --------------------------------------------------------------------------------
Construction & Housing (0.3%)
Maderas Y Sinteticos S.A., ADR 20,200 287,850
- --------------------------------------------------------------------------------
Financial Services (0.2%)
A.F.P. Provida S.A. 10,662 239,695
- --------------------------------------------------------------------------------
Forest Products (1.2%)
Compania Manufacturera de Papeles y Cartones
S.A. 91,254 1,146,238
- --------------------------------------------------------------------------------
Gold Mines (0.1%)
Antofagasta 245,750 116,693
- --------------------------------------------------------------------------------
Industrial Components (0.6%)
Madeco 159,968 369,523
Madeco S.A., ADR 7,600 182,400
- --------------------------------------------------------------------------------
551,923
- --------------------------------------------------------------------------------
Utilities (1.1%)
Enersis S.A., ADR 37,350 1,097,156
- --------------------------------------------------------------------------------
TOTAL CHILE 3,819,239
- --------------------------------------------------------------------------------
COLOMBIA (3.7%)
Banking (2.7%)
Banco de Bogota 443,040 2,702,544
- --------------------------------------------------------------------------------
Beverage & Tobacco (0.8%)
Bavaria 104,769 428,400
Coltobaco 129,000 387,000
- --------------------------------------------------------------------------------
815,400
- --------------------------------------------------------------------------------
Food/Household Products (0.2%)
Cia Nacional Chocolates 18,909 158,836
- --------------------------------------------------------------------------------
TOTAL COLOMBIA 3,676,780
- --------------------------------------------------------------------------------
MEXICO (20.9%)
Building Materials (3.9%)
Apasco 296,900 1,810,028
Grupo Cementos Chihuahua 860,000 962,986
Tubos de Acero S.A., ADR 93,500 1,040,188
- --------------------------------------------------------------------------------
3,813,202
- --------------------------------------------------------------------------------
<PAGE>
PAGE 13
- ---------------------------------
SCHEDULE OF INVESTMENTS--October 31, 1996
Market
Shares Value
- --------------------------------------------------------------------------------
Banking (2.6%)
Grupo Financiero Banamex 584,700 $ 1,236,691
Grupo Financiero Banorte 1,316,000 1,322,959
- --------------------------------------------------------------------------------
2,559,650
- --------------------------------------------------------------------------------
Beverages & Tobacco (2.4%)
Fomento Econ 522,600 1,586,493
Panamerican Beverages, Inc.,
Class A, ADR 17,000 741,625
- --------------------------------------------------------------------------------
2,328,118
- --------------------------------------------------------------------------------
Broadcasting & Media (1.2%)
Grupo Television S.A. de CV, ADR 46,200 1,212,750
- --------------------------------------------------------------------------------
Conglomerates (2.4%)
Desc S.A. de CV, Class C, ADR (a) 67,200 1,293,600
Grupo Carso 249,000 1,130,762
- --------------------------------------------------------------------------------
2,424,362
- --------------------------------------------------------------------------------
Construction (1.4%)
Bufete Industrial 119,300 642,699
GEO 157,800 706,787
- --------------------------------------------------------------------------------
1,349,486
- --------------------------------------------------------------------------------
Food/Household Products (1.8%)
Grupo Ind Maseca 423,300 515,070
Grupo Ind Bimbo 140,000 695,863
Tablex S.A. de C.V. 264,400 616,467
- --------------------------------------------------------------------------------
1,827,400
- --------------------------------------------------------------------------------
Metals & Mining (1.5%)
Industrias Penoles S.A. de C.V. 372,000 1,476,429
- --------------------------------------------------------------------------------
Forest Products/Paper (1.8%)
Empaques Ponderosa S.A. de C.V., Series B (a) 720,000 313,530
Kimberly Clark 79,000 1,523,484
- --------------------------------------------------------------------------------
1,837,014
- --------------------------------------------------------------------------------
Industrial Components (0.7%)
Hylsamex S.A. de CV, ADR (c) 31,500 683,811
- --------------------------------------------------------------------------------
Retail (0.7%)
Cifra S.A. de C.V. 550,000 703,453
- --------------------------------------------------------------------------------
Transportation (0.5%)
Transportacion Maritima, ADR 68,400 $ 478,800
- --------------------------------------------------------------------------------
TOTAL MEXICO 20,694,475
- --------------------------------------------------------------------------------
PERU (5.0%)
Beverages & Tobacco (2.5%)
Cerveceria Backus & Johnston Corp. 1,144,648 1,153,298
Credicorp, ADR 72,398 1,266,965
- --------------------------------------------------------------------------------
2,420,263
- --------------------------------------------------------------------------------
Gold Mining (1.8%)
Minas Buenaventura, Class A 184,342 1,430,874
Minas Buenaventura 45,610 387,080
- --------------------------------------------------------------------------------
1,817,954
- --------------------------------------------------------------------------------
Machinery & Engineering (0.2%)
Ferreyos S.A. 208,505 205,233
- --------------------------------------------------------------------------------
Real Estate (0.3%)
Inversiones Centen 419,686 258,594
- --------------------------------------------------------------------------------
Telecommunications (0.2%)
Compania Telefonica Del Peru 5,600 236,600
- --------------------------------------------------------------------------------
TOTAL PERU 4,938,644
- --------------------------------------------------------------------------------
UNITED STATES (21.6%)
Automotive (1.0%)
Goodyear Tire & Rubber 22,000 1,009,250
- --------------------------------------------------------------------------------
Banking (2.6%)
Bank of Boston Corp. 41,000 2,624,000
- --------------------------------------------------------------------------------
Beverages/Tobacco (1.0% )
Philip Morris Companies, Inc. 11,000 1,018,875
- --------------------------------------------------------------------------------
Business Services (1.9%)
CUC International, Inc. (a) 75,000 1,837,500
- --------------------------------------------------------------------------------
Chemicals (2.0%)
E.I DuPont DeNemours & Co. 21,000 1,947,750
- --------------------------------------------------------------------------------
Computer Software (2.3%)
Microsoft Corporation (a) 16,500 2,265,656
- --------------------------------------------------------------------------------
(continued on next page)
<PAGE>
PAGE 14
- ---------------------------------
Keystone Fund of the Americas
SCHEDULE OF INVESTMENTS--October 31, 1996
Market
Shares Value
- --------------------------------------------------------------------------------
Electrical (4.0%)
General Electric Co. 41,000 $ 3,966,750
- --------------------------------------------------------------------------------
Electronic Components (2.4%)
EMC Corp. (a) 90,000 2,362,500
- --------------------------------------------------------------------------------
Health & Personal Care (1.4%)
Johnson & Johnson 28,000 1,379,000
- --------------------------------------------------------------------------------
Machinery (1.4%)
Caterpillar, Inc. 20,000 1,372,500
- --------------------------------------------------------------------------------
Oil Services (1.6%)
BJ Services Co. (a) 35,000 1,570,625
- --------------------------------------------------------------------------------
TOTAL UNITED STATES 21,354,406
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost--$59,858,185) 66,759,977
- --------------------------------------------------------------------------------
PREFERRED STOCKS (31.9%)
ARGENTINA (0.1%)
Beverages & Tobacco (0.1%)
Quilmes Industrial, ADR 5,500 57,750
- --------------------------------------------------------------------------------
BRAZIL (31.8%)
Banking (10.1%)
Banco Bradesco 548,060,313 4,672,969
Banco Itau 9,122,100 3,951,075
Unibanco 48,620,000 1,348,715
- --------------------------------------------------------------------------------
9,972,759
- --------------------------------------------------------------------------------
Beverages & Tobacco (4.6%)
Companhia Cervejaria Brahma S.A. 7,371,235 4,555,902
- --------------------------------------------------------------------------------
Broadcasting (0.9%)
Telesponsora Television Sao Paolo 4,700,000 860,035
- --------------------------------------------------------------------------------
Conglomerate (3.9%)
Vale do Rio Doce Navegacao S.A. (CVRD) 187,800 3,893,459
- --------------------------------------------------------------------------------
Food/Household Products (0.5%)
Ceval Alimentos S.A. 55,600,000 522,231
- --------------------------------------------------------------------------------
Forest Products (0.7%)
Papeles Nacionales, GDR 99,500 $ 696,500
- --------------------------------------------------------------------------------
Industrial Components (0.7%)
Freios Varga S.A. 5,950,000 283,775
OSA Organization (a) 49,900,000 364,269
- --------------------------------------------------------------------------------
648,044
- --------------------------------------------------------------------------------
Oil Services (4.3%)
Companhia Petroleo Brasiliero S.A. 33,000,000 4,271,949
- --------------------------------------------------------------------------------
Metals & Mining (1.2%)
Caemi Min (a) 15,000,000 919,797
Usiminas 248,000,000 260,696
- --------------------------------------------------------------------------------
1,180,493
- --------------------------------------------------------------------------------
Retail (0.2%)
Casa Anglo Brasiliero S.A. 4,500,000 192,719
- --------------------------------------------------------------------------------
Telecommunications (1.1%)
Ericsson Telecommunications S.A. 14,000,000 208,487
Telemig S.A. 4,300,000 480,056
Telepar Tel Parana 759,000 346,478
- --------------------------------------------------------------------------------
1,035,021
- --------------------------------------------------------------------------------
Textiles & Apparel (0.6%)
Coteminas S.A. 1,802,000 605,110
- --------------------------------------------------------------------------------
Utilities (3.0%)
Cemig Cia Energ MG 90,500,000 2,880,426
Iven S.A. (a) 200,000 100,253
- --------------------------------------------------------------------------------
2,980,679
- --------------------------------------------------------------------------------
TOTAL BRAZIL 31,414,901
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (Cost--$27,135,217) 31,472,651
- --------------------------------------------------------------------------------
TOTAL EQUITIES
(Cost--$86,993,402) 98,232,628
- --------------------------------------------------------------------------------
<PAGE>
PAGE 15
- ---------------------------------
SCHEDULE OF INVESTMENTS--October 31, 1996
<TABLE>
<CAPTION>
Interest Maturity Par Market
Rate Date Value Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOREIGN DENOMINATED FIXED INCOME (0.3%)
BRAZIL
Merchandising (0.3%)
Mesbla S.A. (b) 13.250% 11/01/1996 200,000 $ 301,127
- --------------------------------------------------------------------------------------------
TOTAL FOREIGN DENOMINATED FIXED INCOME (Cost--$214,460) 301,127
- --------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $87,207,862) (D) 98,533,755
FOREIGN CURRENCY HOLDINGS (COST $8,631) (0.0%) (B) 8,459
OTHER ASSETS AND LIABILITIES--NET (0.3%) 296,947
- --------------------------------------------------------------------------------------------
NET ASSETS (100%) $98,839,161
- --------------------------------------------------------------------------------------------
</TABLE>
(a) Non-income-producing securities.
(b) Investments denominated in the local currency and/or foreign currency
holdings of certain countries are considered illiquid due to foreign
exchange restrictions of these markets.
(c) Securities that may be resold to "qualified institutional buyers" under
Rule 144A of the Federal Securities Act of 1933, as amended. These
securities have been determined to be liquid under guidelines established
by the Board of Trustees.
(d) The cost of investments for federal income tax purposes is $87,556,498.
Gross unrealized appreciation and depreciation of investments based on
identified tax cost, at October 31, 1996 are as follows:
Gross unrealized appreciation $ 13,912,726
Gross unrealized depreciation (2,935,469)
------------
Net unrealized appreciation $ 10,977,257
============
Legend of Portfolio Abbreviations:
ADR--American Depository Receipt
GDR--Global Depository Receipt
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
In U.S. Value at
Exchange Exchange October 31, Unrealized
Date for U.S. $ 1996 Depreciation
- --------------------------------------------------------------------------------------------
Forward Foreign Currency Exchange Contracts to Sell:
Contracts to Deliver
- ---------- ----------------------------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C>
11/01/96 130,590 Brazilian Real $127,008 $127,107 ($99)
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 16
- ---------------------------------
Keystone Fund of the Americas
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each year)
Year Ended October 31,
--------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Net asset value beginning of year $ 9.86 $ 10.55 $ 10.00
- --------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.39 0.44 0.21
Net realized and unrealized gain (loss) on
investments and foreign currency
related transactions 1.24 (0.81) 0.50
- --------------------------------------------------------------------------------
Total from investment operations 1.63 (0.37) 0.71
- --------------------------------------------------------------------------------
Less distributions from
Net investment income (0.31) (0.30) (0.10)
In excess of net investment income (0.05) 0.00 (0.01)
Net realized gain on investments 0.00 (0.02) (0.05)
- --------------------------------------------------------------------------------
Total distributions (0.36) (0.32) (0.16)
- --------------------------------------------------------------------------------
Net asset value end of year $ 11.13 $ 9.86 $ 10.55
- --------------------------------------------------------------------------------
Total return (a) 16.74% (3.35%) 7.21%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.83%(b) 1.86%(b) 1.79%
Net investment income 3.05% 4.02% 2.45%
Portfolio turnover rate 112% 57% 104%
Average commission rate paid $0.0005 N/A N/A
- --------------------------------------------------------------------------------
Net assets, end of year (thousands) $11,021 $14,333 $23,880
- --------------------------------------------------------------------------------
(a) Excluding applicable sales charges.
(b) The expense ratio includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratio would have been 1.81% and 1.84% for the
years ended October 31, 1996 and 1995, respectively.
See Notes to Financial Statements.
<PAGE>
PAGE 17
- ---------------------------------
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each year)
Year Ended October 31,
---------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Net asset value beginning of year $ 9.76 $ 10.49 $ 10.00
- --------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.23 0.32 0.14
Net realized and unrealized gain (loss) on
investments and foreign currency
related transactions 1.30 (0.75) 0.50
- --------------------------------------------------------------------------------
Total from investment operations 1.53 (0.43) 0.64
- --------------------------------------------------------------------------------
Less distributions from
Net investment income (0.27) (0.28) (0.09)
In excess of net investment income (0.04) 0.00 (0.01)
Net realized gain on investments 0.00 (0.02) (0.05)
- --------------------------------------------------------------------------------
Total distributions (0.31) (0.30) (0.15)
- --------------------------------------------------------------------------------
Net asset value end of year $ 10.98 $ 9.76 $ 10.49
- --------------------------------------------------------------------------------
Total return (a) 15.82% (4.00%) 6.48%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.59%(b) 2.61%(b) 2.54%
Net investment income 2.30% 3.27% 1.70%
Portfolio turnover rate 112% 57% 104%
Average commission rate paid $0.0005 N/A N/A
- --------------------------------------------------------------------------------
Net assets, end of year (thousands) $79,026 $97,165 $148,769
- --------------------------------------------------------------------------------
(a) Excluding applicable sales charges.
(b) The expense ratio includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratio would have been 2.58% and 2.59% for the
years ended October 31, 1996 and 1995, respectively.
<PAGE>
PAGE 18
- ---------------------------------
Keystone Fund of the Americas
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each year)
Year Ended October 31,
--------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Net asset value beginning of year $ 9.77 $ 10.50 $ 10.00
- --------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.23 0.32 0.14
Net realized and unrealized gain (loss) on
investments and foreign currency
related transactions 1.30 (0.75) 0.51
- --------------------------------------------------------------------------------
Total from investment operations 1.53 (0.43) 0.65
- --------------------------------------------------------------------------------
Less distributions from
Net investment income (0.27) (0.28) (0.09)
In excess of net investment income (0.04) 0.00 (0.01)
Net realized gain on investments 0.00 (0.02) (0.05)
- --------------------------------------------------------------------------------
Total distributions (0.31) (0.30) (0.15)
- --------------------------------------------------------------------------------
Net asset value end of year $ 10.99 $ 9.77 $ 10.50
- --------------------------------------------------------------------------------
Total return (a) 15.80% (4.00%) 6.58%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.59%(b) 2.61%(b) 2.54%
Net investment income 2.26% 3.27% 1.74%
Portfolio turnover rate 112% 57% 104%
Average commission rate paid $0.0005 N/A N/A
- --------------------------------------------------------------------------------
Net assets, end of year (thousands) $ 8,791 $11,242 $17,740
- --------------------------------------------------------------------------------
(a) Excluding applicable sales charges.
(b) The expense ratio includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratio would have been 2.58% and 2.59% for the
years ended October 31, 1996 and 1995, respectively.
<PAGE>
PAGE 19
- ---------------------------------
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
=========================================================================
Assets
Investments at market value (identified cost--
$87,207,862) $ 98,533,755
Foreign currency holdings (identified cost--$8,631) 8,459
Cash 318,898
Receivable for:
Fund shares sold 36,107
Investments sold 127,107
Dividends and interest 55,386
Prepaid expenses and other assets 23,297
- -------------------------------------------------------------------------
Total assets 99,103,009
- -------------------------------------------------------------------------
Liabilities
Payable for fund shares redeemed 153,581
Foreign taxes to be withheld 1,822
Unrealized depreciation on forward foreign currency
exchange contracts 99
Other accrued expenses 108,346
- -------------------------------------------------------------------------
Total liabilities 263,848
- -------------------------------------------------------------------------
Net assets $ 98,839,161
- -------------------------------------------------------------------------
Net assets represented by (Note 3)
Paid-in-capital $101,961,769
Undistributed net investment income 993,649
Accumulated realized loss on investment transactions (15,441,649)
Net unrealized appreciation (depreciation) on
investments and foreign currency related
transactions 11,325,392
- -------------------------------------------------------------------------
Total net assets $ 98,839,161
- -------------------------------------------------------------------------
Net asset value
Class A Shares
Net assets of $11,021,492 / 990,646 shares
outstanding $ 11.13
Offering price per share ($11.13 / 0.9425) based
on sales charge of 5.75% of the offering price at
October 31, 1996) $ 11.81
Class B Shares
Net assets of $79,026,458 / 7,194,502 shares
outstanding $ 10.98
Class C Shares
Net assets of $8,791,211 / 800,097 shares
outstanding $ 10.99
- -------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended October 31, 1996
=====================================================================
Investment income
Dividends (net of foreign withholding
tax of $314,909) $ 2,047,132
Interest 3,354,642
- ---------------------------------------------------------------------
Total income 5,401,774
- ---------------------------------------------------------------------
Expenses (Notes 4 and 5)
Management fee $ 831,618
Transfer agent fees 486,695
Accounting 26,012
Auditing and legal 37,741
Custodian fees 304,454
Printing 16,399
Trustees' fees and expenses 7,305
Amortization of organization expense 8,568
Distribution Plan expenses 1,010,670
Registration fees 36,888
Miscellaneous expenses 10,773
- ---------------------------------------------------------------------
Total expenses 2,777,123
Less: Expenses paid indirectly
(Note 6) (15,891)
- ---------------------------------------------------------------------
Net expenses 2,761,232
- ---------------------------------------------------------------------
Net investment income 2,640,542
- ---------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign
currency related transactions (Note 3)
Net realized gain on investments 9,467,805
Net realized loss on foreign currency
related transactions (3,512,696)
- ---------------------------------------------------------------------
Net realized gain on investments and
foreign currency related transactions 5,955,109
- ---------------------------------------------------------------------
Net change in unrealized appreciation
or depreciation on investments and
foreign currency related transactions 7,956,482
- ---------------------------------------------------------------------
Net realized and unrealized gain on
investments and foreign currency
related transactions 13,911,591
- ---------------------------------------------------------------------
Net increase in net assets resulting
from operations $16,552,133
- ---------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
PAGE 20
- ---------------------------------
Keystone Fund of the Americas
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------
1996 1995
=======================================================================================
<S> <C> <C>
Operations
Net investment income $ 2,640,542 $ 4,955,486
Net realized gain (loss) on investments and foreign (12,645,021)
currency related transactions 5,955,109
Net change in unrealized appreciation or depreciation
on investments and foreign currency related
transactions 7,956,482 (2,699,055)
- ---------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 16,552,133 (10,388,590)
- ---------------------------------------------------------------------------------------
Distributions to shareholders
Net investment income
Class A Shares (361,523) (539,452)
Class B Shares (2,175,018) (3,268,145)
Class C Shares (231,347) (389,267)
In excess of net investment income
Class A Shares (61,278) 0
Class B Shares (368,664) 0
Class C Shares (39,213) 0
Tax basis return of capital
Class A Shares 0 (36,708)
Class B Shares 0 (225,106)
lass C Shares 0 (26,989)
- ---------------------------------------------------------------------------------------
Total distributions to shareholders (3,237,043) (4,485,667)
- ---------------------------------------------------------------------------------------
Capital share transactions (Note 2)
Proceeds from shares sold
Class A Shares 1,884,412 2,223,085
Class B Shares 7,991,078 6,934,330
Class C Shares 709,458 1,057,154
Payments for shares redeemed
Class A Shares (7,167,407) (10,485,266)
Class B Shares (39,001,039) (49,897,788)
Class C Shares (4,499,957) (6,568,724)
Net asset value of shares issued in reinvestment of
distributions
Class A Shares 382,390 522,497
Class B Shares 2,248,867 3,066,527
Class C Shares 236,280 372,904
- ---------------------------------------------------------------------------------------
Net decrease in net assets resulting from capital
share transactions (37,215,918) (52,775,281)
- ---------------------------------------------------------------------------------------
Total decrease in net assets (23,900,828) (67,649,538)
- ---------------------------------------------------------------------------------------
Net Assets
Beginning of year 122,739,989 190,389,527
- ---------------------------------------------------------------------------------------
End of year [including undistributed net investment
income as follows:
1996--$993,649 and 1995--$127,346] $ 98,839,161 $122,739,989
- ---------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 21
- ---------------------------------
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone Fund of the Americas (the "Fund") is a Massachusetts business trust
for which Keystone Investment Management Company ("Keystone") is the
Investment Adviser. Keystone is a wholly-owned subsidiary of Keystone
Investments, Inc. ("KII"). The Fund is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a diversified, open-end
investment company. The Fund offers several classes of shares. The Fund's
primary investment objective is long term growth of capital through
investments in equity and fixed income securities of North America (the
United States and Canada) and Latin America (Mexico and countries in South
and Central America.) As a secondary objective, the Fund seeks current
income.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles,
which require management to make estimates and assumptions that affect
amounts reported herein. Although actual results could differ from these
estimates, any such differences are expected to be immaterial to the net
assets of the Fund.
A. Valuation of Securities
Investments are usually valued at the closing sales price, or in the absence
of sales and for over-the-counter securities, the mean of the bid and asked
prices. Securities for which valuations are not available from an independent
pricing service (including restricted securities) are valued at fair value as
determined in good faith according to procedures established by the Board of
Trustees.
Short-term investments with remaining maturities of 60 days or less are
carried at amortized cost, which approximates market value. Short-term
investments with greater than 60 days to maturity are valued at market value.
B. Repurchase Agreements
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other Keystone funds, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are fully collateralized
by U.S. Treasury and/or Federal Agency obligations.
Securities pledged as collateral for repurchase agreements are held by the
custodian on the Fund's behalf. The Fund monitors the adequacy of the
collateral daily and will require the seller to provide additional collateral
in the event the market value of the securities pledged falls below the
carrying value of the repurchase agreement.
C. Foreign Currency
The books and records of the Fund are maintained in United States (U.S.)
dollars. Foreign currency amounts are translated into U.S. dollars as
follows: market value of investments, assets and liabilities at the daily
rate of exchange; purchases and sales of investments, income and expenses at
the rate of exchange prevailing on the respective dates of such transactions.
Net unrealized foreign exchange gain (loss) resulting from changes in foreign
currency exchange rates is a component of net unrealized appreciation
(depreciation) on investments and foreign currency related transactions. Net
realized foreign currency gains and losses resulting from changes in exchange
rates include foreign currency gains and losses between trade date and
settlement date on investment securities transactions, foreign currency
transactions and the difference between the amounts of interest and dividends
recorded on the books of the Fund and the amount actually received. The
portion of foreign currency
<PAGE>
gains and losses related to fluctuations in exchange rates between the
initial purchase trade date and subsequent sale trade date is included in
realized gain (loss) on foreign currency related transactions.
D. Forward Foreign Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to settle portfolio purchases and sales of securities denominated
in a foreign currency and to hedge certain foreign currency assets or
liabilities. Forward contracts are recorded at the forward rate and
marked-to-market daily. Realized gains and losses arising from such
transactions are included in net realized gain (loss) on investments and
foreign currency related transactions. The Fund bears the risk of an
unfavorable change in the foreign currency exchange rate underlying the
forward contract and is subject to the credit risk that the other party will
not fulfill their obligations under the contract. Forward contracts involve
elements of market risk in excess of the amount reflected in the statement of
assets and liabilities.
E. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day
after the trade date. Realized gains and losses are computed on the
identified cost basis. Interest income is recorded on the accrual basis and
includes amortization of discounts and premiums. Dividend income is recorded
on the ex-dividend date.
F. Federal Income Taxes
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Fund is relieved of any federal income tax liability by
distributing all of its net taxable investment income and net taxable capital
gains, if any, to its shareholders. The Fund also intends to avoid excise tax
liability by making the required distributions under the Code. Accordingly,
no provision for federal income taxes is required.
G. Distributions
The Fund distributes net investment income quarterly and net capital gains,
if any, at least annually. Distributions to shareholders are recorded at the
close of business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatment of foreign currency gains and losses generated by the
Fund.
H. Class Allocations
Class A shares are offered at a public offering price which includes a
maximum sales charge of 5.75% payable at the time of purchase. Class B shares
are sold subject to a contingent deferred sales charge that is payable upon
redemption and decreases depending on how long the shares have been held.
Class B shares purchased on or after June 1, 1995 that have been outstanding
for eight years will automatically convert to Class A shares. Class B shares
purchased prior to June 1, 1995 that have been outstanding for seven years
will automatically convert to Class A shares. Class C shares are sold subject
to a contingent deferred sales charge payable on shares redeemed within one
year of purchase.
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the
relative net assets of each class. Currently, class specific expenses are
limited to expenses incurred under the Distribution Plans for each class.
<PAGE>
PAGE 23
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(2.) Capital Share Transactions
The Fund's Declaration of Trust authorizes the issuance of an unlimited
number of shares of beneficial interest with no par value. Shares of
beneficial interest of the Fund are currently divided into Class A, Class B
and Class C. Transactions in shares of the Fund were as follows:
Year ended October 31,
-------------------------
Class A 1996 1995
- ---------------------------------------------
Shares sold 176,782 228,352
Shares redeemed (676,261) (1,093,787)
Shares issued in
reinvestment of
distributions 36,036 55,264
- ---------------------------------------------
Net decrease (463,443) (810,171)
- ---------------------------------------------
Class B
- -----------------------------------------------
Shares sold 765,039 722,537
Shares redeemed (3,737,221) (5,283,163)
Shares issued in
reinvestment of
distributions 215,054 326,301
- -----------------------------------------------
Net decrease (2,757,128) (4,234,325)
- -----------------------------------------------
Class C
- ------------------------------------------
Shares sold 66,448 108,457
Shares redeemed (439,812) (687,611)
Shares issued in
reinvestment of
distributions 22,570 39,672
- ------------------------------------------
Net decrease (350,794) (539,482)
- ------------------------------------------
(3.) Securities Transactions
As of October 31, 1996 the Fund had a capital loss carryover for federal
income tax purposes of approximately $15,093,000 which expires as follows:
$1,651,000--2001 and $13,442,000--2002.
Cost of purchases and proceeds from sales of investment securities
(excluding short-term securities and foreign cash) for the year ended October
31, 1996, were $118,952,106 and $141,637,439, respectively.
(4.) Distribution Plans
The Fund bears some of the costs of selling its shares under Distribution
Plans adopted for its Class A, B and C shares pursuant to Rule 12b-1 under
the 1940 Act. Under the Distribution Plans, the Fund pays its principal
underwriter, Keystone Investment Distributors Company ("KIDC"), a
wholly-owned subsidiary of Keystone, amounts that are calculated and paid
daily.
The Class A Distribution Plan provides for expenditures, which are currently
limited to 0.25% annually of the average daily net assets of the Class A
shares, to pay expenses related to the distribution of Class A shares. During
the year ended October 31, 1996, the Fund paid $29,525 to KIDC under the
Class A Distribution Plan.
Pursuant to the Fund's Class B and Class C Distribution Plans, the Fund pays
a distribution fee which may not exceed 1.00% annually of the average daily
net assets of Class B and Class C shares, respectively. Of that amount, 0.75%
is used to pay distribution expenses and 0.25% is used to pay service fees.
During the year ended October 31, 1996, under the Class B Distribution
Plans, the Fund paid or accrued $864,140 for Class B shares purchased before
June 1, 1995 and $22,648 for Class B shares purchased on or after June 1,
1995. The Fund paid $94,357 under the Class C Distribution Plan.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting
shares of the respective class. However, after the termination of any
Distribution Plan, and subject to the discretion of
<PAGE>
the Independent Trustees, payments to KIDC may continue as compensation for
services that had been earned while the Distribution Plan was in effect.
KIDC intends, but is not obligated, to continue to pay distribution costs
that exceed the current annual payments from the Fund. KIDC intends to seek
full payment of such distribution costs from the Fund at such time in the
future as, and to the extent that, payment thereof by the Class B or Class C
shares would be within permitted limits.
At October 31, 1996, total unpaid distribution costs were $7,003,825 for
Class B shares purchased before June 1, 1995 and $171,095 for Class B shares
purchased on or after June 1, 1995. Unpaid distribution costs for Class C
were $1,178,844 at October 31, 1996.
Contingent deferred sales charges paid by redeeming shareholders are paid to
KIDC.
(5.) Investment Management Agreement and Other Affiliated Transactions
Under the terms of the Investment Advisory and Management Agreement between
Keystone and the Fund, Keystone provides investment management and
administrative services to the Fund. In return, Keystone is paid a management
fee that is computed and paid daily. The management fee is calculated by
applying percentage rates, which start at 0.75% and decline to 0.45% per
annum as net assets increase, to the average daily net asset value of the
Fund.
During the year ended October 31, 1996, the Fund paid or accrued $26,012 to
Keystone for certain accounting services. The Fund paid or accrued $486,695
to Keystone Investor Resource Center, Inc., a wholly-owned subsidiary of
Keystone, for services rendered as the Fund's transfer and dividend
disbursing agent.
Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the Fund. Officers of Keystone and affiliated Trustees receive no
compensation directly from the Fund.
(6.) Expense Offset Arrangement
The Fund has entered into an expense offset arrangement with its custodian.
For the year ended October 31, 1996, the Fund incurred total custody fees of
$304,454 and received a credit of $15,891 pursuant to this expense offset
arrangement, resulting in a net custody expense of $288,563. 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 the required regulatory and shareholder
approvals, the proposed merger is expected to take place in December 1996.
================================================================================
FEDERAL TAX STATUS--FISCAL 1996
DISTRIBUTIONS (Unaudited)
The per-share distributions paid to you for fiscal 1996, whether taken in
shares or cash, are as follows:
Class A Shares Class B Shares Class C Shares
- ---------------------------------------------------------
Income Income Income
Dividends Dividends Dividends
$0.36 $0.31 $0.31
In January of 1997, complete information on the calendar year 1996
distributions will be forwarded to you to assist you in completing your 1996
federal income tax return.
<PAGE>
PAGE 25
- ---------------------------------
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone Fund of the Americas
We have audited the accompanying statement of assets and liabilities of
Keystone Fund of the Americas, including the schedule of investments, as of
October 31, 1996, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the
years in the three-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone Fund of the Americas as of October 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the periods specified in the first paragraph above in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
November 29, 1996
<PAGE>
PAGE 26
- ---------------------------------
Keystone Fund of the Americas
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.
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