KEYSTONE
STATE
TAX FREE FUND
SERIES II
CALIFORNIA INSURED TAX FREE FUND
MISSOURI TAX FREE FUND
SEMIANNUAL REPORT
MAY 31, 1996
<PAGE>
PAGE 1
- --------------------------------------
Keystone State Tax Free Fund--Series II
Seeks generous tax-free income from high quality municipal bonds
Dear Shareholder:
We are pleased to report to you on activities of Keystone State Tax Free
Fund--Series II for the six-month period which ended May 31, 1996. Following
this letter we have included a performance summary of the California Insured
and Missouri Tax Free funds and an interview with Keystone's municipal bond
department.
Interest rates rose during the six-month period resulting in price declines
for most municipal bonds. The Lehman Municipal Bond Index--a widely
recognized benchmark of municipal bond performance--returned -0.58% for the
six-month and 4.57% for the twelve-month periods. Despite negative total
returns, we think the California Insured and Missouri Funds performed
satisfactorily during a volatile and challenging period for municipal bond
investors.
The unsettled period was triggered by a changed environment of significantly
higher interest rates. This was not expected by many professional investment
managers who had anticipated a continuation of moderate economic growth and
relatively low interest rates. The rate increases resulted in price declines
for nearly every bond investor. As a result, we believe higher rates have
added to the attractiveness of municipal bonds, increasing the potential for
greater tax-free income.
A period of adjustment
The past six months can be characterized as a time of adjustment for
municipal bonds. In December 1995 investors were still enjoying the final
phase of last year's powerful bond market rally. However, by February 1996, a
series of economic reports indicated that the economy was stronger than many
had expected. These reports created uncertainty and raised concerns about
higher inflation. As a result, interest rates rose and bond prices declined.
Caution still influences the bond market's tone; however, it appears that
most of the increase in long-term rates has already occurred.
Outlook
In the coming months, we expect municipal bonds to trade in a narrow range,
with yields somewhat higher than 1995. During the second half of 1996, we
expect moderate economic strength and well contained inflation, which should
help to support prices close to current levels.
We appreciate your continued support of Keystone funds. If you have any
questions or comments about your investment, please feel free to write to us.
Sincerely,
[Signature of Albert H. Elfner, III]
Albert H. Elfner, III
Chairman and President
Keystone Investments, Inc.
[Signature of George S. Bissell]
George S. Bissell
Chairman of the Board
Keystone Funds
July 1996
<PAGE>
PAGE 2
- --------------------------------------
Keystone California Insured Tax Free Fund
Your Fund's Performance
Your Fund's objective is to earn generous income, exempt from federal and
state income tax, while preserving capital.(2) At least 80% of your Fund's
investments are insured as to timely payment of both principal and interest.
The Fund is managed by George Kimball, vice president in Keystone's municipal
bond department.
Performance
For the six- and twelve-month periods respectively:
Class A shares returned -2.36% and 2.74%,
Class B shares returned -2.73% and 2.06% and
Class C shares returned -2.64% and 1.96%.
Portfolio Strategy
We adjusted the average maturity of the Fund to guide it through changing
market environments. At the end of 1995, the bond market had just begun to
undergo the shift from exuberance to caution. For much of 1995, we had
invested in 20-25 year maturities to maximize price appreciation when prices
were rising. We began to shorten the Fund's average maturity in January in an
effort to enhance price stability and give the Fund greater flexibility. We
accomplished this by investing in bonds with 15-20 year maturities. The
Fund's average maturity fell from 22 years on November 30, 1995 to 20 years
on May 31, 1996.
We also utilized this period of rising rates to add higher yielding
securities to the Fund. We sold lower yielding bonds and swapped into higher
yielding bonds that we considered to be undervalued by investors. Throughout
the entire six-month reporting period, we invested in bonds with good call
protection to maintain the Fund's income.
Economic Environment
California's economy has begun to recover from the most severe downturn it
has encountered since the Great Depression. Employment growth, stemming from
international trade, business services, high technology and entertainment and
tourism, has enabled the state to recapture all the jobs lost during that
recent recession. Budget problems persist, however. Though California's
budget has been aided by a stronger than expected economy, the state
continues to have an accumulated budget deficit.
Our outlook for the state is cautious. We recognize the improvement in
California's economy, and are encouraged by investors' positive response to
Orange County's most recent debt offering. We are concerned about the state's
continuing budget pressures, however. Job cuts in defense and aerospace are
expected to cause employment growth to moderate over the next few years at a
time when we look for the state's budget to endure additional pressure for
education, social services and correctional facilities. Further, the Governor
has proposed a 15% reduction in both the personal and corporate income tax.
If fully enacted, the tax cut could cost the state approximately $4.7 billion
in revenues. The move would benefit taxpayers; however, it also could be
viewed as imprudent by bondholders, since revenues are needed to meet other
fiscal obligations.
Portfolio Quality Summary
as of May 31, 1996
S&P Rating (3)
(as a percentage of portfolio assets)
AAA (84%)
AA (1%)
BBB (14%)
Not Rated (1%)
Average Quality: AAA
- ----------
(2) For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
(3) When a Standard & Poor's rating was not available, we used ratings
assigned by another nationally recognized statistical rating organization
such as Fitch Investor's Service, Inc. or Moody's Investor's Service, Inc.
<PAGE>
PAGE 3
- --------------------------------------
Keystone California Insured Tax Free Fund
Growth of an investment in
Keystone California Insured Tax Free Fund
Class A
In Thousands
2/94 5/94 5/95 5/96
Reinvested Distributions 9,404 9,114 9,876 10,147
Initial Investment 9,363 8,944 9,163 8,934
A $10,000 investment in Keystone California Insured Tax Free Fund Class A
made on February 1, 1994 with all distributions reinvested was worth $10,147
on May 31, 1996. Past performance is no guarantee of future results.
Taxable Equivalent Yields(4)
<TABLE>
<CAPTION>
Federal Tax Bracket
- ----------------------------------- -----------------------------
31% 36% 39.6%
- ----------------------------------- ----- ----- -------
<S> <C> <C> <C>
(combined state & federal) (38.59%) (43.04%) (46.24%)
- ----------------------------------- ----- ----- -------
Yield Taxable Equivalent Yield
- ----------------------------------- -----------------------------
5.0% 8.1% 8.8% 9.3%
5.5% 9.0% 9.7% 10.2%
6.0% 9.8% 10.5% 11.2%
- ----------------------------------- ----- ----- -------
</TABLE>
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.
Six-Month Performance as of May 31, 1996
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C> <C>
Total returns* -2.36% -2.73% -2.64%
Net asset value 11/30/95 $ 9.86 $ 9.82 $ 9.80
5/31/96 $ 9.38 $ 9.34 $ 9.33
Dividends $ 0.25 $ 0.22 $ 0.22
Capital gains None None None
</TABLE>
* Before deduction of front-end or contingent deferred sales
charge (CDSC).
Historical Record as of May 31, 1996
<TABLE>
<CAPTION>
Average annual returns Class A Class B Class C
<S> <C> <C> <C>
1-year w/o sales charge 2.74% 2.06% 1.96%
1-year -2.14% -1.83% 1.96%
Life of Class 0.63% 1.06% 2.14%
</TABLE>
Class A, Class B and Class C share performance is reported from the
commencement of investment operations on February 1, 1994.
Class A share performance is reported at the current maximum front-end sales
charge of 4.75%.
Class B shares purchased after June 1, 1995 are subject to a contingent
deferred sales charge (CDSC) that declines from 5% to 1% over six years from
the month purchased. Performance assumes that shares were redeemed after the
end of a one-year holding period and reflects the deduction of a 4% CDSC.
Class C share performance reflects the return you would have received after
holding shares for one year and redeeming at the end of the 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.
You may exchange your shares for another Keystone fund by phone or in
writing for a $10 fee. The exchange fee is waived for individual investors
who make an exchange using Keystone's Automated Response Line (KARL). The
Fund reserves the right to change or terminate the exchange offer.
<PAGE>
PAGE 4
- --------------------------------------
Keystone Missouri Tax Free Fund
Your Fund's Performance
Your Fund's objective is to earn generous income, exempt from federal and
state income tax, while preserving capital.(5) The Fund is managed by Daniel
A. Rabasco, vice president in Keystone's municipal bond department.
Performance
For the six- and twelve-month periods respectively:
Class A shares returned -1.80% and 3.16%,
Class B shares returned -2.29% and 2.29% and
Class C shares returned -2.19% and 2.40%.
Portfolio Strategy
We employed several strategies in managing your Fund. A limited supply of
Missouri bonds, as well as the changing interest rate environment created a
climate that was especially challenging for Missouri investors.
Throughout the period, we sought insured, non-callable bonds with high
coupons. These bonds provided attractive income and relative stability in an
environment of changing interest rates. We also invested in some BBB-rated
securities--primarily hospitals, which provided additional yield. We believed
that these bonds represented good investment opportunity that was sometimes
undervalued in the market.
We adjusted the Fund's average maturity to guide it through the two
different interest rate environments. When prices rose and yields fell, we
invested in bonds with 30-year maturities and non-callable zero coupon bonds,
to capture price appreciation. When yields rose and prices declined, we
shortened the Fund's average maturity by investing in bonds with 20-year
maturities. As of the end of May 1996, your Fund's average maturity was 20
years and its average quality was AA.
Economic Environment
Missouri's economy continues to outperform the national economy. As of April
1996, the state's unemployment rate stood at 4.1%, which was well below the
national rate of 5.4%. Employment growth has been steady, stemming from
increases in the service sector and particularly, health and computer
services. In 1995, jobs in Missouri grew at a 3.0% rate.
Missouri's strong economy and prudent fiscal management continues to result
in large budget surpluses. The state ended fiscal 1995 with a $750 million
general fund balance, which was equal to approximately 10% of general fund
expenditures.
Outlook
We expect many of the positive trends we have seen in the state to continue.
We think Missouri should experience above average economic growth due to the
state's relatively low cost of living and its role as a distribution hub in
the central U.S. Job growth in the service sector is expected to offset
potential losses in manufacturing. Finally, we believe that Missouri's
extremely low debt levels and prudent fiscal management will continue to
support its strong reputation among investors.
Portfolio Quality Summary
as of May 31, 1996
S&P Rating(6)
AAA (50%)
BBB (9%)
A (15%)
AA (26%)
(as a percentage of portfolio assets) Average Quality: AA
- ----------
(5) For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
(6) When a Standard & Poor's rating was not available, we used ratings
assigned by another nationally recognized statistical rating organization
such as Fitch Investor's Service, Inc. or Moody's Investor's Service, Inc.
<PAGE>
PAGE 5
- --------------------------------------
Keystone Missouri Tax Free Fund
Growth of an investment in
Keystone Missouri Tax Free Fund
Class A
In Thousands
2/94 5/94 5/95 5/96
Reinvested Distributions 9,462 9,173 9,937 10,251
Initial Investment 9,420 9,001 9,220 9,039
A $10,000 investment in Keystone Missouri Tax Free Fund Class A
made on February 1, 1994 with all distributions reinvested was worth $10,251
on May 31, 1996. Past performance is no guarantee of future results.
Taxable Equivalent Yields(7)
<TABLE>
<CAPTION>
Federal Tax Bracket
- ----------------------------------- -----------------------------
31% 36% 39.6%
- ----------------------------------- ----- ----- -------
<S> <C> <C> <C>
(combined state & federal) (33.86%) (38.46%) (41.79%)
- ----------------------------------- ----- ----- -------
Yield Taxable Equivalent Yield
- ----------------------------------- -----------------------------
5.0% 7.6% 8.1% 8.6%
5.5% 8.3% 8.9% 9.4%
6.0% 9.1% 9.7% 10.3%
- ----------------------------------- ----- ----- -------
</TABLE>
The yields shown are for illustrative purposes only. They are not intended to
represent actual performance of the Fund.
- ----------
(7) The table is based on federal tax brackets. The 31% bracket includes
single filers earning $53,501-115,000 and joint filers earning
$89,151-140,000; the 36% bracket includes single filers earning
$115,001-250,000 and joint filers earning $140,001-250,000; the 39.6% bracket
includes single and joint filers earning over $250,000.
Six-Month Performance as of May 31, 1996
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C> <C>
Total returns* -1.80% -2.29% -2.19%
Net asset
value 11/30/95 $ 9.91 $ 9.80 $ 9.79
5/31/96 $ 9.49 $ 9.37 $ 9.37
Dividends $ 0.25 $ 0.21 $ 0.21
Capital gains None None None
</TABLE>
* Before deduction of front-end or contingent deferred sales
charge (CDSC).
Historical Record as of May 31, 1996
<TABLE>
<CAPTION>
Average annual returns Class A Class B Class C
<S> <C> <C> <C>
1-year w/o sales charge 3.16% 2.29% 2.40%
1-year -1.74% -1.62% 2.40%
Life of Class 1.07% 1.17% 2.30%
</TABLE>
Class A, Class B and Class C share performance is reported from the
commencement of investment operations on February 1, 1994.
Class A share performance is reported at the current maximum front-end sales
charge of 4.75%.
Class B shares purchased after June 1, 1995 are subject to a contingent
deferred sales charge (CDSC) that declines from 5% to 1% over six years from
the month purchased. Performance assumes that shares were redeemed after the
end of a one-year holding period and reflects the deduction of a 4% CDSC.
Class C share performance reflects the return you would have received after
holding shares for one year and redeeming at the end of the 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.
You may exchange your shares for another Keystone fund by phone or in
writing for a $10 fee. The exchange fee is waived for individual investors
who make an exchange using Keystone's Automated Response Line (KARL). The
Fund reserves the right to change or terminate the exchange offer.
<PAGE>
PAGE 6
- --------------------------------------
Keystone State Tax Free Fund--Series II
A Discussion With
Your Fund's Management
The Keystone State Tax Free Funds are managed by Keystone's municipal bond
team, headed by senior portfolio manager Betsy Blacher. The team includes
portfolio managers George Kimball, Daniel A. Rabasco, analyst David Moore and
trader Craig Kasap. The team is dedicated to researching, analyzing and
evaluating municipal bonds for Keystone funds.
Q What do the Funds offer investors?
A The Funds are designed for tax-sensitive investors who seek a high level
of current income exempt from federal income tax, while preserving
capital.(8) The Funds offer professional management and diversification by
investing in a portfolio of quality municipal bonds.
Q How do you select securities?
A Our management team employs an intensive research process, paying careful
attention to credit quality and financial stability. We structure the
portfolio with bonds that meet our high credit standards. Our holdings
typically have the characteristics that we believe are necessary for good
performance in the current and anticipated interest rate environment. We
emphasize diversification and focus on maximizing the Fund's income.
Q What was the tone of the municipal bond market over the past six months?
A As we began the reporting period in December 1995, investors were still
enjoying the final phase of last year's strong bond market rally. By February
1996, expectations of a slowing economy and further interest rate declines
gave way to stronger economic growth. Higher than expected employment numbers
in February raised concerns about higher inflation. This caused interest
rates to rise and bond prices to decline. At the end of May, investors
continued to be cautious, but seemed to have a greater comfort level with the
outlook for the economy and inflation.
Q How did you manage the portfolios in these different environments?
A The sudden and dramatic shift in sentiment surprised many professional
managers. Our forecast for 1996 was for a continuation of the slow growth,
low interest rate and controlled inflation environment. Based on this
forecast, we generally had a slightly longer average maturity in our
portfolios than our peers. Longer term bonds tend to be more sensitive to
changes in interest rates and provide higher income than shorter term bonds.
With interest rates expected to remain stable or decline slightly, we thought
a longer average maturity made sense. When interest rates rose and bond
prices declined in February, our longer maturity caused some of the
portfolios to slightly lag the performance of municipal bond indexes. As
yields rose, we concentrated on building income. We swapped out of the lower
yielding issues into higher yielding bonds that we considered undervalued.
Q How does the municipal bond market look going forward?
A We continue to believe that the economy is growing at a healthy pace and
inflation poses no immediate threat. Near term price volatility may persist
because of mixed economic indicators. Once signs of moderate growth and tame
inflation emerge, interest rates should stabilize or decline. The supply of
municipal bonds should continue to decline as more bond calls are expected
than new issues over the next twelve months.
We believe the environment continues to be attractive for investors.
Municipal bonds have recently outperformed their taxable counterparts -- U.S.
Treasury securities. In addition, we think that this higher interest rate
environment should be positive for investors seeking tax-free income.
- ----------
(8) For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
<PAGE>
PAGE 7
- --------------------------------------
Keystone State Tax Free Fund--Series II
Q What is your outlook?
A In the coming months, we expect municipal bonds to trade in a narrow
range, with yields somewhat higher than 1995. The market has endured some
price declines. However, we believe that this environment of higher interest
rates should hold new opportunity for income-oriented investors. We expect
that news of moderate economic strength and well contained inflation should
support prices that are close to current levels.
Q Municipal bonds have seen a lot of price volatility over the last few
years. Are they still a good investment?
A It is true that municipal bonds have fluctuated more than you would expect
in comparison to long-term historical price changes. However, we have also
witnessed some of the most dramatic and abrupt changes in interest rates in
more than 20 years. Because changes in interest rates are an important
influence on municipal bonds, the dramatic changes in recent years have
resulted in greater bond price fluctuations than usual. While predicting the
short-term movements of interest rates can be difficult, we expect an
improved environment over the long-term. In fact, we think that municipal
bonds have become more attractive as opportunities to shelter income have
dwindled and the supply of municipals has declined.
We know that the markets and interest rates are influenced by changes in the
economic and business cycle over the short term. However, over the long term,
we believe tax-free bonds should provide attractive returns and income.
Today, we think municipal bonds offer significant opportunities for
investors. Inflation is still relatively low by historical standards and,
real yields--after factoring in the effects of taxes and inflation--are
historically high, in our opinion. For example, a 10-year AA-rated bond was
yielding 5.15% on May 31, 1996. For an investor in the 36% tax bracket, the
taxable equivalent yield is 8.05%.(9) We think this yield is very attractive
especially when you consider that inflation has been relatively low.
<TABLE>
<CAPTION>
<S> <C>
10-year AA-rated bond yield 5.15%
Tax equivalent yield for investor
in the 36% federal tax bracket 8.05%
Less 3% inflation -3.00%
-----
Net taxable equivalent yield
(after-tax, net of inflation) 5.05%
=====
</TABLE>
Of course, the most compelling reason to own municipals is for their
relatively attractive tax-free yields.(10) As of May 31, 1996, a selection of
20-year A-rated municipal bonds were yielding approximately 89% of comparable
U.S. Treasuries.(11) With inflation relatively low, the after-tax and after
inflation yields to investors is very attractive.
[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.
- ----------
(9) Yields are presented for illustrative purposes only and do not reflect
your Fund's yield. Your yield and return is dependent on the Fund's yield and
your individual tax situation.
(10) For investors in certain tax situations, a portion of income may be
subject to the federal alternative minimum tax (AMT).
(11) Source: Keystone Investments, Inc. Based on a selection of 30-year
A-rated municipal bonds versus the yield on the 30-year U.S. Treasury bond on
May 31, 1996.
<PAGE>
PAGE 8
- --------------------------------------
Keystone California Insured Tax Free Fund
SCHEDULE OF INVESTMENTS--May 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
----------------------------------------------------- ----- --------- ------- ---------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (98.1%)
California Housing Finance Agency, Home Mortgage,
Series B (MBIA) 5.650% 02/01/2016 $ 605,000 $ 572,499
California Housing Finance Agency, Home Mortgage,
Series B 8.600 08/01/2019 240,000 250,925
California Housing Finance Agency, Home Mortgage,
Series E 6.050 08/01/2015 1,000,000 987,340
California Housing Finance Agency, Home Mortgage,
Series L (MBIA) 5.900 08/01/2017 1,000,000 973,810
California State Public Works Board, Series A,
Department of Corrections (AMBAC) 5.700 01/01/2011 550,000 545,523
California State Public Works Board, Series A,
Department of Justice Building (FSA) 5.625 05/01/2020 1,000,000 942,920
Corona, California, Redevelopment Agency, Tax
Allocation, Refunding Redevelopment Project, Area A,
Series A (FGIC) 6.250 09/01/2016 500,000 508,010
Elk Grove, California Unified School District,
Special Tax, Community Facilities, District No. 1
(AMBAC) 6.500 12/01/2024 500,000 539,060
Foothill/Eastern Transportation Corridor Agency,
California, Toll Road Revenue, Senior Lien, Series A 6.000 01/01/2034 1,000,000 922,220
La Canada, California, Unified School District,
Capital Appreciation (effective yield 6.35%)
(FGIC)(b) 0.000 08/01/2011 500,000 204,385
Los Angeles, California, Community Redevelopment
Agency Refunding, Tax Allocation (FSA) 6.500 12/01/2016 750,000 777,533
Los Angeles, California, Convention and Exhibition
Center Authority, Lease Refunding, Series A (MBIA) 6.000 08/15/2010 1,000,000 1,018,450
Los Angeles, California, Convention and Exhibition
Center Authority, Lease Refunding, Series A (MBIA) 5.375 08/15/2018 240,000 219,485
Los Angeles, California, Department of Airports,
Series A (FGIC) 5.500 05/15/2010 120,000 117,896
MSR Public Power Agency, California, San Juan
Project, Series B (MBIA) 6.750 07/01/2011 400,000 430,744
Madera County, California, Certificates of
Participation, Valley Children's Hospital (MBIA) 6.250 03/15/2007 250,000 264,337
Oakland, California, Redevelopment Agency, Tax
Allocation, Central District Redevelopment (MBIA) 5.000 09/01/2021 1,000,000 872,990
Oakland, California, Revenue Refunding, Series A
(FGIC) 7.600 08/01/2021 3,750,000 4,040,363
Rio Linda, California, Unified School District,
Series A (AMBAC) 7.400 08/01/2010 1,185,000 1,338,517
Riverside County, California, Transportation
Commission, Sales Tax Revenue, Series A (FGIC) 6.000 06/01/2009 1,000,000 1,042,820
Sacramento, California, City Financing Authority,
Capital Appreciation, Combined Project B (MBIA)
(effective yield 7.30%)(b) 0.000 11/01/2017 1,055,000 285,979
Sacramento, California, Power Authority, Cogeneration
Project 5.875 07/01/2015 3,000,000 2,802,090
San Bernardino, California, Joint Powers Financing
Authority, Tax Allocation Revenue, Series A (FSA) 5.750 10/01/2015 2,000,000 1,947,240
<PAGE>
PAGE 9
- --------------------------------------
Keystone California Insured Tax Free Fund
San Diego County, California, Water Authority, Water
Revenue, Certificates of Participation (FGIC) 5.681% 04/23/2008 $2,000,000 $ 2,025,140
San Joaquin Hills, California, Transportation
Corridor Agency, Toll Road Revenue 7.000 01/01/2030 400,000 412,224
San Jose, California, Redevelopment Tax Allocation,
Merged Area Redevelopment Project (MBIA) 6.000 08/01/2015 1,230,000 1,260,885
San Mateo, Foster City, California, School District
Capital Appreciation, Series C (FGIC) (effective
yield 5.60%)(b) 0.000 09/01/2003 100,000 68,739
Santa Ana, California, Financing Authority Lease,
Police Administration and Holding Facility, Series A
(MBIA) 6.250 07/01/2015 300,000 316,131
Santa Ana, California, Financing Authority Lease,
Police Administration and Holding Facility, Series A
(MBIA) 6.250 07/01/2024 2,000,000 2,101,340
Southern California Public Power Authority,
Transmission Project Revenue (FSA) (effective yield
7.30%)(b) 0.000 07/01/2014 1,500,000 508,965
----------------------------------------------------- ---- ------- ----- -------
TOTAL MUNICIPAL BONDS (Cost--$28,561,325) 28,298,560
----------------------------------------------------- ---- ------- ----- -------
TEMPORARY TAX-EXEMPT INVESTMENT (0.5%)
Anaheim, California, Certificates of Participation
(Cost $155,000)(a) 3.300 08/01/2019 155,000 155,000
----------------------------------------------------- ---- ------- ----- -------
TOTAL INVESTMENTS (Cost $28,716,325) 28,453,560
OTHER ASSETS AND LIABILITIES--NET (1.4%) 387,788
----------------------------------------------------- ---- ------- ----- -------
NET ASSETS (100.0%) $28,841,348
----------------------------------------------------- ---- ------- ----- -------
</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 annual yield
at which the bond accretes until its maturity date.
Legend of Portfolio Abbreviations
AMBAC--American Municipal Bond Assurance Corporation
FGIC--Financial Guaranty Insurance Corporation
FSA--Financial Security Assurance
MBIA--Municipal Bond Insurance Association
See Notes to Financial Statements.
<PAGE>
PAGE 10
- --------------------------------------
Keystone California Insured Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
February 1, 1994
Six Months (Commencement of
Ended Year Ended Operations) to
May 31, November 30, November 30,
1996 1995 1994
- --------------------------------------------------- ----------- -------------- ----------------
(Unaudited)
<S> <C> <C> <C>
Net asset value beginning of period $9.86 $8.70 $10.00
- --------------------------------------------------- --------- ------------ --------------
Income from investment operations:
Net investment income 0.24 0.49 0.44
Net realized and unrealized gain (loss) on
investments and closed futures contracts (0.47) 1.17 (1.30)
- --------------------------------------------------- --------- ------------ --------------
Total from investment operations (0.23) 1.66 (0.86)
- --------------------------------------------------- --------- ------------ --------------
Less distributions from:
Net investment income (0.25) (0.47) (0.44)
In excess of net investment income 0 (0.03) 0
- --------------------------------------------------- --------- ------------ --------------
Total distributions (0.25) (0.50) (0.44)
- --------------------------------------------------- --------- ------------ --------------
Net asset value end of period $9.38 $9.86 $8.70
- --------------------------------------------------- --------- ------------ --------------
Total return (d) (2.36%) 19.63% (8.78%)(c)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.76%(a)(b) 0.72%(b) 0.41%(a)
Total expenses excluding reimbursement 1.12%(a) 1.31% 1.66%(a)
Net investment income 5.01%(a) 5.37% 5.53%(a)
Portfolio turnover rate 58% 119% 104%
- --------------------------------------------------- --------- ------------ --------------
Net assets end of period (thousands) $4,525 $4,555 $3,006
- --------------------------------------------------- --------- ------------ --------------
</TABLE>
(a) Annualized
(b) "Ratio of total expenses to average net assets" for the six months ended
May 31, 1996 and year ended November 30, 1995 includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would have
been 0.75% and 0.69%, respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 11
- --------------------------------------
Keystone California Insured Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
February 1, 1994
(Commencement of
Six Months Year Ended Operations) to
Ended November 30, November 30,
May 31, 1996 1995 1994
- ------------------------------------------------ --------------- -------------- ----------------
(Unaudited)
<S> <C> <C> <C>
Net asset value beginning of period $9.82 $8.68 $10.00
- ------------------------------------------------ ------------- ------------ --------------
Income from investment operations:
Net investment income 0.21 0.44 0.40
Net realized and unrealized gain (loss) on
investments and closed futures contracts (0.47) 1.17 (1.28)
- ------------------------------------------------ ------------- ------------ --------------
Total from investment operations (0.26) 1.61 (0.88)
- ------------------------------------------------ ------------- ------------ --------------
Less distributions from:
Net investment income (0.22) (0.44) (0.40)
In excess of net investment income 0 (0.03) (0.04)
- ------------------------------------------------ ------------- ------------ --------------
Total distributions (0.22) (0.47) (0.44)
- ------------------------------------------------ ------------- ------------ --------------
Net asset value end of period $9.34 $9.82 $8.68
- ------------------------------------------------ ------------- ------------ --------------
Total return (d) (2.73%) 18.95% (9.00%)(c)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.51%(a)(b) 1.48%(b) 1.16%(a)
Total expenses excluding reimbursement 1.88%(a) 2.07% 2.36%(a)
Net investment income 4.26%(a) 4.57% 4.83%(a)
Portfolio turnover rate 58% 119% 104%
- ------------------------------------------------ ------------- ------------ --------------
Net assets end of period (thousands) $22,791 $22,743 $11,415
- ------------------------------------------------ ------------- ------------ --------------
</TABLE>
(a) Annualized
(b) "Ratio of total expenses to average net assets" for the six months ended
May 31, 1996 and year ended November 30, 1995 includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would have
been 1.50% and 1.45%, respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 12
- --------------------------------------
Keystone California Insured Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
February 1, 1994
Six Months (Commencement of
Ended Year Ended Operations) to
May 31, November November 30,
1996 30, 1995 1994
--------------------------------------------------------- ---------- ---------- ----------------
(Unaudited)
<S> <C> <C> <C>
Net asset value beginning of period $9.80 $8.68 $10.00
--------------------------------------------------------- -------- -------- --------------
Income from investment operations:
Net investment income 0.21 0.43 0.39
Net realized and unrealized gain (loss) on investments
and closed futures contracts (0.46) 1.15 (1.29)
--------------------------------------------------------- -------- -------- --------------
Total from investment operations (0.25) 1.58 (0.90)
--------------------------------------------------------- -------- -------- --------------
Less distributions from:
Net investment income (0.22) (0.43) (0.39)
In excess of net investment income 0 (0.03) (0.03)
--------------------------------------------------------- -------- -------- --------------
Total distributions (0.22) (0.46) (0.42)
--------------------------------------------------------- -------- -------- --------------
Net asset value end of period $9.33 $9.80 $8.68
--------------------------------------------------------- -------- -------- --------------
Total return (d) (2.64%) 18.69% (9.08%)(c)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.51%(a)(b) 1.49%(b) 1.16%(a)
Total expenses excluding reimbursement 1.87%(a) 2.07% 2.38%(a)
Net investment income 4.27%(a) 4.51% 4.96%(a)
Portfolio turnover rate 58% 119% 104%
--------------------------------------------------------- -------- -------- --------------
Net assets end of period (thousands) $1,525 $1,535 $624
--------------------------------------------------------- -------- -------- --------------
</TABLE>
(a) Annualized
(b) "Ratio of total expenses to average net assets" for the six months ended
May 31, 1996 and year ended November 30, 1995 includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would have
been 1.50% and 1.46%, respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 13
- --------------------------------------
Keystone California Insured Tax Free Fund
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1996
(Unaudited)
- -----------------------------------------------------------------------
Assets (Notes 1 and 4)
Investments at market value (identified cost--
$28,716,325) $28,453,560
Cash 2,995
Receivable for:
Investments sold 932,038
Fund shares sold 2,997
Interest 580,584
Due from Investment Adviser 21,362
Unamortized organization expenses 3,605
Prepaid expenses 1,001
----------------------------------------------------- ----------
Total assets 29,998,142
----------------------------------------------------- ----------
Liabilities (Notes 1, 2 and 4)
Payable for:
Investments purchased 1,032,255
Distribution to shareholders 113,200
Distribution fees 2,297
Accrued reimbursable expenses 970
Other accrued expenses 8,072
----------------------------------------------------- ----------
Total liabilities 1,156,794
----------------------------------------------------- ----------
Net assets $28,841,348
----------------------------------------------------- ----------
Net assets represented by (Note 1)
Paid-in capital $29,229,473
Accumulated distributions in excess of net
investment income (50,305)
Accumulated net realized loss on investments and
closed futures contracts (75,055)
Net unrealized depreciation on investments (262,765)
----------------------------------------------------- ----------
Total net assets $28,841,348
----------------------------------------------------- ----------
Net asset value per share (Note 2)
Class A Shares
Net asset value of $4,525,155 / 482,253 shares
outstanding $9.38
Offering price per share ($9.38 / 0.9525) (based
on a sales charge of 4.75% of the offering price
on May 31, 1996) $9.85
Class B Shares
Net asset value of $22,790,722 / 2,439,795
shares outstanding $9.34
Class C Shares
Net asset value of $1,525,471 / 163,548 shares
outstanding $9.33
----------------------------------------------------- ----------
STATEMENT OF OPERATIONS
Six Months Ended May 31, 1996
(Unaudited)
- -----------------------------------------------------------------------
Investment income (Note 1)
Interest $ 869,947
Expenses (Notes 1, 2 and 4)
Management fee $ 83,065
Transfer agent fee 15,567
Custodian fees 17,966
Accounting 10,383
Auditing 5,440
Legal 2,581
Printing 5,445
Registration fees 5,299
Organization expenses 686
Distribution Plan expenses 118,103
Miscellaneous expenses 843
Reimbursement from Investment
Adviser (54,531)
- -------------------------------------- -------- ----------
Total expenses 210,847
Less: Indirectly paid expenses
(Note 4) (2,327)
- -------------------------------------- -------- ----------
Net expenses 208,520
- -------------------------------------- -------- ----------
Net investment income 661,427
- -------------------------------------- -------- ----------
Net realized and unrealized
gain (loss) on investments
(Notes 1 and 3)
Net realized gain on investments 325,426
Net change in unrealized
depreciation on investments (1,799,324)
- -------------------------------------- -------- ----------
Net realized and unrealized loss on
investments (1,473,898)
- -------------------------------------- -------- ----------
Net decrease in net assets
resulting from operations ($ 812,471)
====================================== ======== ==========
See Notes to Financial Statements.
<PAGE>
PAGE 14
- --------------------------------------
Keystone California Insured Tax Free Fund
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended November 30,
May 31, 1996 1995
- ------------------------------------------------------------------------ ------------- ----------------
(Unaudited)
<S> <C> <C>
Operations (Notes 1 and 3)
Net investment income $ 661,427 $ 970,169
Net realized gain on investments and closed futures contracts 325,426 671,239
Net change in unrealized appreciation (depreciation) on investments (1,799,324) 1,882,439
- ------------------------------------------------------------------------ ----------- --------------
Net increase (decrease) in net assets resulting from operations (812,471) 3,523,847
- ------------------------------------------------------------------------ ----------- --------------
Distributions to shareholders from (Note 1)
Net investment income:
Class A Shares (121,894) (180,675)
Class B Shares (526,552) (746,674)
Class C Shares (36,249) (47,288)
In excess of net investment income:
Class A Shares 0 (12,433)
Class B Shares 0 (51,381)
Class C Shares 0 (3,254)
- ------------------------------------------------------------------------ ----------- --------------
Total distributions to shareholders (684,695) (1,041,705)
- ------------------------------------------------------------------------ ----------- --------------
Capital share transactions (Note 2)
Proceeds from shares sold:
Class A Shares 734,503 1,987,577
Class B Shares 3,657,482 11,405,882
Class C Shares 232,265 1,005,793
Payment for shares redeemed:
Class A Shares (566,506) (918,227)
Class B Shares (2,635,291) (2,323,287)
Class C Shares (176,850) (229,742)
Net asset value of shares issued in reinvestment of dividends and
distributions:
Class A Shares 40,135 45,806
Class B Shares 200,765 307,457
Class C Shares 19,432 24,916
- ------------------------------------------------------------------------ ----------- --------------
Net increase in net assets resulting from capital share transactions 1,505,935 11,306,175
- ------------------------------------------------------------------------ ----------- --------------
Total increase in net assets 8,769 13,788,317
Net assets:
Beginning of period 28,832,579 15,044,262
- ------------------------------------------------------------------------ ----------- --------------
End of period [Including accumulated distributions in excess of net
investment income as follows: 1996--($50,305) and 1995--($27,037)]
(Note 1) $28,841,348 $28,832,579
======================================================================== =========== ==============
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 15
- --------------------------------------
Keystone Missouri Tax Free Fund
SCHEDULE OF INVESTMENTS--May 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
--------------------------------------------------------- ----- --------- --------- -----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.4%)
Butler County, Missouri, Public Facilities Authority,
Butler County Jail Project (FGIC) 6.500% 12/01/2014 $1,105,000 $1,154,128
Cape Girardeau County, Missouri, Health Care Facilities,
Southeast Missouri Hospital Association (MBIA) 5.250 06/01/2016 1,750,000 1,611,435
Chesterfield, Missouri, General Obligation 6.300 02/15/2013 830,000 863,341
Clay County, Missouri, Public Building Authority (FGIC) 7.000 05/15/2014 1,000,000 1,095,550
Commonwealth of Puerto Rico, General Obligation 6.450 07/01/2017 500,000 518,850
Commonwealth of Puerto Rico, Highway and Transportation
Authority Revenue, Series Y 6.250 07/01/2014 1,000,000 1,041,810
Jackson County, Missouri, Single Family Mortgage Revenue
(effective yield 11.25%)(b) 0.000 03/01/2015 3,750,000 1,189,613
Kansas City, Missouri, Municipal Assistance, Roe
Bartle--A (MBIA) 5.125 04/15/2015 1,100,000 1,004,641
Kansas City, Missouri, Municipal Assistance, Roe
Bartle--B (AMBAC) 6.000 04/15/2020 1,000,000 1,058,060
Missouri Higher Education, Loan Authority, Student
Loan, Series B 6.750 02/15/2009 1,500,000 1,535,730
Missouri State Environmental Improvement and Energy
Resource Authority, Water Pollution Control, Capital
Appreciation, State Revolving Fund--D (effective yield
6.25%)(b) 0.000 01/01/2016 985,000 296,909
Missouri State Environmental Improvement and Energy
Resource Authority, Water Pollution Control, Capital
Appreciation, State Revolving Fund--D (effective yield
6.25%)(b) 0.000 01/01/2017 975,000 276,422
Missouri State Environmental Improvement and Energy
Resource Authority, Water Pollution Control, State
Revolving Fund, Kansas City--A 5.750 01/01/2016 1,000,000 987,030
Missouri State Environmental Improvement and Energy
Resource Authority, Water Pollution Control, State
Revolving Fund, Series A 5.800 01/01/2015 500,000 491,465
Missouri State Environmental Improvement and Energy
Resource Authority, Water Pollution Control, State
Revolving Fund, Series A 6.050 07/01/2015 350,000 351,992
Missouri State Environmental Improvement and Energy
Resource Authority, Water Pollution Control, State
Revolving Fund, Series B 7.200 07/01/2016 600,000 676,602
Missouri State Fourth Building, Series A 5.500 04/01/2020 1,000,000 950,300
Missouri State Health and Educational Facilities
Authority, BJC Health Systems, Series A 6.500 05/15/2020 500,000 533,080
Missouri State Health and Educational Facilities
Authority, Bethesda Health Group, Project A 7.500 08/15/2012 1,000,000 1,007,960
<PAGE>
PAGE 16
- --------------------------------------
Keystone Missouri Tax Free Fund
SCHEDULE OF INVESTMENTS--May 31, 1996
(Unaudited)
Missouri State Health and Educational Facilities
Authority, Jefferson Memorial Hospital Obligation
Group 6.800% 05/15/2025 $1,000,000 $ 954,890
Missouri State Health and Educational Facilities
Authority, SSM Health Care, Series AA (MBIA) 6.250 06/01/2016 1,500,000 1,546,575
Missouri State Housing Development Commission, Single
Family, GNMA, Series A 7.125 12/01/2014 270,000 287,728
Puerto Rico Electric Power Authority, Series T 6.000 07/01/2016 300,000 298,566
Puerto Rico Electric Power Authority, Series U 6.000 07/01/2014 320,000 318,531
Puerto Rico, Educational, Medical and Environmental
Control Facilities, Polytechnic University of Puerto
Rico Project, Series A 5.700 08/01/2013 400,000 362,816
St. Louis County, Missouri, Industrial Development
Authority, Health Facilities Revenue, GNMA, Mother of
Perpetual Help 6.400 08/01/2035 500,000 504,460
St. Louis, Missouri, Industrial Development Authority,
Sewer and Solid Waste Disposal Facilities,
Anheuser-Busch Project 5.875 11/01/2026 1,000,000 945,360
St. Louis County, Missouri, Mortgage Revenue
Certificates, Series D 5.650 02/01/2015 250,000 238,573
Sikeston, Missouri, Electric Revenue (MBIA) 6.000 06/01/2013 1,250,000 1,290,262
Sikeston, Missouri, Electric Revenue (MBIA) 6.000 06/01/2014 500,000 513,835
Springfield, Missouri, Waterworks Revenue, Series A 5.600 05/01/2023 750,000 714,997
University of Missouri, University Revenues Refunding
and Improvement 5.375 11/01/2013 500,000 473,000
--------------------------------------------------------- --- ------- ------- ---------
TOTAL MUNICIPAL BONDS (Cost--$24,777,899) 25,094,511
--------------------------------------------------------- --- ------- ------- ---------
TEMPORARY TAX-EXEMPT INVESTMENTS (1.8%)
Kansas City, Missouri, Industrial Development Authority,
Hospital Revenue, Resh Health Services System
(MBIA)(a) 3.850 10/15/2014 200,000 200,000
Kansas City, Missouri, Industrial Development Authority,
Hospital Revenue, Resh Health Services System
(MBIA)(a) 3.850 04/15/2015 200,000 200,000
Missouri State Health and Educational Facilities
Authority, Christian Health Services (a) 3.700 12/01/2019 50,000 50,000
--------------------------------------------------------- --- ------- ------- ---------
TOTAL TEMPORARY TAX-EXEMPT INVESTMENTS (Cost--$450,000) 450,000
------------------------------------------------------------------------------- ------- ---------
TOTAL INVESTMENTS (Cost--$25,227,899) 25,544,511
OTHER ASSETS AND LIABILITIES--NET ( 0.8%) 209,786
--------------------------------------------------------- --- ------- ------- ---------
NET ASSETS (100.0%) $25,754,297
--------------------------------------------------------- --- ------- ------- ---------
</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 date.
Legend of Portfolio Abbreviations
AMBAC--American Municipal Bond Assurance Corporation
FGIC--Financial Guaranty Insurance Corporation
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance
See Notes to Financial Statements.
<PAGE>
PAGE 17
- --------------------------------------
Keystone Missouri Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
February 1, 1994
Six Months (Commencement of
Ended Year Ended Operations) to
May 31, November 30, November 30,
1996 1995 1994
- ------------------------------------------------------- ----------- -------------- ----------------
(Unaudited)
<S> <C> <C> <C>
Net asset value beginning of period $9.91 $8.72 $10.00
- ------------------------------------------------------- --------- ------------ --------------
Income from investment operations:
Net investment income 0.25 0.50 0.44
Net realized and unrealized gain (loss) on investments
and closed futures contracts (0.42) 1.19 (1.28)
- ------------------------------------------------------- --------- ------------ --------------
Total from investment operations (0.17) 1.69 (0.84)
- ------------------------------------------------------- --------- ------------ --------------
Less distributions from:
Net investment income (0.25) (0.47) (0.44)
In excess of net investment income 0 (0.03) 0(e)
- ------------------------------------------------------- --------- ------------ --------------
Total distributions (0.25) (0.50) (0.44)
- ------------------------------------------------------- --------- ------------ --------------
Net asset value end of period $9.49 $9.91 $8.72
- ------------------------------------------------------- --------- ------------ --------------
Total return (d) (1.80%) 19.86% (8.55%)(c)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.77%(a)(b) 0.72%(b) 0.43%(a)
Total expenses excluding reimbursement 1.16%(a) 1.32% 1.54%(a)
Net investment income 4.81%(a) 5.26% 5.38%(a)
Portfolio turnover rate 70% 74% 25%
- ------------------------------------------------------- --------- ------------ --------------
Net assets end of period (thousands) $3,220 $4,848 $3,581
- ------------------------------------------------------- --------- ------------ --------------
</TABLE>
(a) Annualized
(b) "Ratio of total expenses to average net assets" for the six months ended
May 31, 1996 and year ended November 30, 1995 includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would have
been 0.75% and 0.69%, respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Excluding applicable sales charges.
(e) Amount represents less than $0.01 per share.
See Notes to Financial Statements.
<PAGE>
PAGE 18
- --------------------------------------
Keystone Missouri Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
February 1, 1994
(Commencement of
Six Months Year Ended Operations) to
Ended November 30, November 30,
May 31, 1996 1995 1994
- -------------------------------------------------- --------------- -------------- ----------------
(Unaudited)
<S> <C> <C> <C>
Net asset value beginning of period $9.80 $8.67 $10.00
- -------------------------------------------------- ------------- ------------ --------------
Income from investment operations:
Net investment income 0.20 0.44 0.40
Net realized and unrealized gain (loss) on
investments and closed futures contracts (0.42) 1.15 (1.29)
- -------------------------------------------------- ------------- ------------ --------------
Total from investment operations (0.22) 1.59 (0.89)
- -------------------------------------------------- ------------- ------------ --------------
Less distributions from:
Net investment income (0.21) (0.43) (0.40)
In excess of net investment income 0 (0.03) (0.04)
- -------------------------------------------------- ------------- ------------ --------------
Total distributions (0.21) (0.46) (0.44)
- -------------------------------------------------- ------------- ------------ --------------
Net asset value end of period $9.37 $9.80 $8.67
- -------------------------------------------------- ------------- ------------ --------------
Total return (d) (2.29%) 18.79% (9.06%)(c)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.52%(a)(b) 1.47%(b) 1.16%(a)
Total expenses excluding reimbursement 1.92%(a) 2.08% 2.49%(a)
Net investment income 4.07%(a) 4.56% 4.70%(a)
Portfolio turnover rate 70% 74% 25%
- -------------------------------------------------- ------------- ------------ --------------
Net assets end of period (thousands) $21,092 $21,231 $12,906
- -------------------------------------------------- ------------- ------------ --------------
</TABLE>
(a) Annualized
(b) "Ratio of total expenses to average net assets" for the six months ended
May 31, 1996 and year ended November 30, 1995 includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would have
been 1.50% and 1.44%, respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 19
- --------------------------------------
Keystone Missouri Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
February 1, 1994
(Commencement of
Six Months Year Ended Operations) to
Ended November 30, November 30,
May 31, 1996 1995 1994
- ------------------------------------------------------- ----------- -------------- ----------------
(Unaudited)
<S> <C> <C> <C>
Net asset value beginning of period $9.79 $8.66 $10.00
- ------------------------------------------------------- --------- ------------ --------------
Income from investment operations:
Net investment income 0.19 0.43 0.39
Net realized and unrealized gain (loss) on investments
and closed futures contracts (0.40) 1.16 (1.29)
- ------------------------------------------------------- --------- ------------ --------------
Total from investment operations (0.21) 1.59 (0.90)
- ------------------------------------------------------- --------- ------------ --------------
Less distributions from:
Net investment income (0.21) (0.43) (0.39)
In excess of net investment income 0 (0.03) (0.05)
- ------------------------------------------------------- --------- ------------ --------------
Total distributions (0.21) (0.46) (0.44)
- ------------------------------------------------------- --------- ------------ --------------
Net asset value end of period $9.37 $9.79 $8.66
- ------------------------------------------------------- --------- ------------ --------------
Total return (d) (2.19%) 18.78% (9.25%)(c)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.52%(a)(b) 1.46%(b) 1.15%(a)
Total expenses excluding reimbursement 1.91%(a) 2.07% 2.60%(a)
Net investment income 4.07%(a) 4.56% 4.72%(a)
Portfolio turnover rate 70% 74% 25%
- ------------------------------------------------------- --------- ------------ --------------
Net assets end of period (thousands) $1,443 $1,788 $1,045
- ------------------------------------------------------- --------- ------------ --------------
</TABLE>
(a) Annualized
(b) "Ratio of total expenses to average net assets" for the six months ended
May 31, 1996 and year ended November 30, 1995 includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would have
been 1.50% and 1.44%, respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 20
- --------------------------------------
Keystone Missouri Tax Free Fund
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
<S> <C>
Assets (Notes 1 and 4)
Investments at market value (identified cost--
$25,227,899) $25,544,511
Cash 3,202
Receivable for:
Investments sold 930,527
Fund shares sold 24,073
Interest 417,168
Due from Investment Adviser 19,708
Unamortized organization expenses 1,982
Prepaid expenses 1,033
- ---------------------------------------------------- ----------
Total assets 26,942,204
- ---------------------------------------------------- ----------
Liabilities (Notes 1, 2 and 4)
Payable for:
Investments purchased 1,065,892
Fund shares redeemed 10,434
Distributions to shareholders 98,377
Distribution fees 2,667
Accrued reimbursable expenses 970
Other accrued expenses 9,567
- ---------------------------------------------------- ----------
Total liabilities 1,187,907
- ---------------------------------------------------- ----------
Net assets $25,754,297
- ---------------------------------------------------- ----------
Net assets represented by (Note 1)
Paid-in capital $25,799,338
Accumulated distributions in excess of net
investment income (70,147)
Accumulated net realized loss on investments and
closed futures contracts (291,506)
Net unrealized appreciation on investments 316,612
- ---------------------------------------------------- ----------
Total net assets $25,754,297
- ---------------------------------------------------- ----------
Net asset value per share (Note 2)
Class A Shares
Net asset value of $3,219,651 / 339,385 shares
outstanding $9.49
Offering price per share ($9.49 / 0.9525) (based
on a sales charge of 4.75% of the offering
price on May 31, 1996) $9.96
Class B Shares
Net asset value of $21,091,682 / 2,249,867
shares outstanding $9.37
Class C Shares
Net asset value of $1,442,964 / 154,033 shares
outstanding $9.37
- ---------------------------------------------------- ----------
</TABLE>
STATEMENT OF OPERATIONS
Six Months Ended May 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
==========================================================================
<S> <C> <C>
Investment income (Note 1)
Interest $ 769,007
Expenses (Notes 1, 2 and 4)
Management fee $ 75,965
Transfer agent fees 16,441
Custodian fees 18,008
Accounting 10,383
Auditing 5,415
Legal 2,679
Printing 5,402
Registration fees 4,521
Organization expenses 378
Distribution Plan expenses 107,357
Miscellaneous expenses 710
Reimbursement from Investment Adviser (54,779)
- --------------------------------------------- -------- ----------
Total expenses 192,480
Less: Indirectly paid expenses (Note 4) (2,226)
- --------------------------------------------- -------- ----------
Net expenses 190,254
- --------------------------------------------- -------- ----------
Net investment income 578,753
- --------------------------------------------- -------- ----------
Net realized and unrealized
gain (loss) on investments
(Notes 1 and 3)
Net realized gain on investments 378,300
Net change in unrealized depreciation on
investments (1,527,944)
- --------------------------------------------- -------- ----------
Net realized and unrealized loss on
investments (1,149,644)
- --------------------------------------------- -------- ----------
Net decrease in net assets
resulting from operations ($ 570,891)
- --------------------------------------------- -------- ----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 21
- --------------------------------------
Keystone Missouri Tax Free Fund
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended November 30,
May 31, 1996 1995
- ------------------------------------------------------------------------ --------------- ----------------
(Unaudited)
<S> <C> <C>
Operations (Notes 1 and 3)
Net investment income $ 578,753 $ 1,018,144
Net realized gain (loss) on investments and closed futures contracts 378,300 (405,181)
Net change in unrealized appreciation (depreciation) on investments (1,527,944) 3,088,294
- ------------------------------------------------------------------------ ------------- --------------
Net increase (decrease) in net assets resulting from operations (570,891) 3,701,257
- ------------------------------------------------------------------------ ------------- --------------
Distributions to shareholders from (Note 1)
Net investment income:
Class A Shares (112,493) (153,289)
Class B Shares (461,118) (791,351)
Class C Shares (35,290) (73,504)
In excess of net investment income:
Class A Shares 0 (11,167)
Class B Shares 0 (57,652)
Class C Shares 0 (5,355)
- ------------------------------------------------------------------------ ------------- --------------
Total distributions to shareholders (608,901) (1,092,318)
- ------------------------------------------------------------------------ ------------- --------------
Capital share transactions (Note 2)
Proceeds from shares sold:
Class A Shares 1,225,042 4,076,405
Class B Shares 1,918,722 7,170,581
Class C Shares 96,341 931,369
Payment for shares redeemed:
Class A Shares (2,761,760) (3,330,599)
Class B Shares (1,338,658) (1,245,399)
Class C Shares (393,915) (414,529)
Net asset value of shares issued in reinvestment of dividends and
distributions:
Class A Shares 77,468 103,984
Class B Shares 219,767 392,566
Class C Shares 23,362 42,017
- ------------------------------------------------------------------------ ------------- --------------
Net increase (decrease) in net assets resulting from capital share
transactions (933,631) 7,726,395
- ------------------------------------------------------------------------ ------------- --------------
Total increase (decrease) in net assets (2,113,423) 10,335,334
Net assets:
Beginning of period 27,867,720 17,532,386
- ------------------------------------------------------------------------ ------------- --------------
End of period [Including accumulated distributions in excess of net
investment income as follows: 1996--($70,147) and 1995--($39,999)]
(Note 1) $25,754,297 $27,867,720
- ------------------------------------------------------------------------ ------------- --------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 22
- --------------------------------------
Keystone State Tax Free Fund--Series II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1.) Significant Accounting Policies
Keystone State Tax Free Fund-Series II ("FUND") was formed as a Massachusetts
business trust on December 15, 1993 and is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company. Keystone Investment Management Company ("Keystone") is
the Investment Adviser and Manager. The FUND currently offers shares of two
separate non-diversified series evidencing interests in different portfolios
of securities (individually the "Fund", collectively, the "Funds"): Keystone
California Insured Tax Free Fund ("California Fund") and Keystone Missouri
Tax Free Fund ("Missouri Fund"). The Funds seek the highest possible current
income exempt from federal income taxes, while preserving capital.
Each Fund currently offers three classes of shares. Class A shares are sold
subject to a maximum sales charge of 4.75% payable at the time of purchase.
Class B shares are sold subject to a contingent deferred sales charge that
varies depending on when shares were purchased and how long they are held.
Class C shares are sold subject to a contingent deferred sales charge payable
upon redemption within one year of purchase and are available only through
dealers who have entered into special distribution agreements with Keystone
Investment Distributors Company ("KIDC"), the FUND's principal underwriter.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc. ("KII"),
a Delaware corporation. KII is privately owned by an investor group
consisting predominantly of current and former members of management of
Keystone and its affiliates.
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, such differences are expected to be immaterial to the net assets
of the Funds.
A. Tax-exempt bonds are valued on the basis of valuations provided by a
pricing service, approved by the Board of Trustees, that uses information
with respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Non-tax-exempt securities for which market
quotations are readily available are valued at the price quoted that, in the
opinion of the Board of Trustees or their representative, most nearly
represents their market value. Short-term investments that are purchased with
maturities of sixty days or less are valued at amortized cost (original
purchase cost as adjusted for amortization of premium or accretion of
discount), which, when combined with accrued interest, approximates market.
Short-term investments maturing in more than sixty days for which market
quotations are readily available are valued at current market value.
Short-term investments maturing in more than sixty days when purchased that
are held on the sixtieth day prior to maturity are valued at amortized cost
(market value on the sixtieth day adjusted for amortization of premium or
accretion of discount), which, when combined with accrued interest
approximates market. All other securities and other assets are valued at fair
value as determined in good faith using methods prescribed by the Board of
Trustees.
B. Each Fund may enter into financial futures contracts as a hedge against
changes in interest rates. A futures contract is an agreement between two
parties to buy and sell a specific amount of a commodity, security, financial
instrument, or, in the case of a stock index, cash at a set price on a future
date. Upon enter-
<PAGE>
PAGE 23
- --------------------------------------
Keystone State Tax Free Fund--Series II
ing into a futures contract the Fund is required to deposit with a broker an
amount ("initial margin") equal to a certain percentage of the purchase price
indicated in the futures contract. Subsequent payments ("variation margin")
are made or received by the Fund each day, as the value of the underlying
instrument or index fluctuates, and are recorded for book purposes as
unrealized gains or losses by the Fund. For federal tax purposes, any futures
contracts that remain open at fiscal year-end are marked-to-market and the
resultant net gain or loss is included in a Fund's federal taxable income. In
addition to market risk, the Fund is subject to the credit risk that the
other party will not complete the obligations of the contract.
C. When-issued or delayed delivery transactions arise when securities or
currencies are purchased or sold by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. A separate account of liquid assets equal to the value of such
purchase commitments will be maintained until payment is made. When-issued
and delayed agreements are subject to risks from changes in value based upon
changes in the level of interest rates and other market factors, both before
and after delivery.
D. Securities transactions are accounted for no later than one business day
after the trade date. Realized gains and losses are recorded on the
identified cost basis. Interest income is recorded on the accrual basis. All
premiums and original issue discounts are amortized/accreted for both
financial reporting and federal income tax purposes.
E. Each Fund has qualified, and intends to qualify in the future, as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"). Thus, each Fund is relieved of any
federal income tax liability by distributing all of its net taxable
investment income and net taxable capital gains, if any, to its shareholders.
Each Fund intends to avoid excise tax liability by making the required
distributions under the Internal Revenue Code.
F. Organization expenses are being amortized to operations over a five-year
period on a straight-line basis. In the event any of the initial shares are
redeemed by any holder thereof during the five-year amortization period,
redemption proceeds will be reduced by any unamortized organization expenses
in the same proportion as the number of initial shares being redeemed bears
to the number of initial shares outstanding at the time of redemption.
G. Each Fund intends to declare dividends from net investment income daily
and distribute to its shareholders such dividends monthly and to declare and
distribute all net realized long-term capital gains, if any, at least
annually. Distributions are determined in accordance with income tax
regulations. The significant differences between financial statement amounts
available for distribution and distributions made in accordance with income
tax regulations are primarily due to differences in the treatment of Rule
12b-1 Distribution Plan charges and market discount of investment securities.
(2.) Capital Share Transactions
The FUND's Declaration of Trust authorizes the issuance of an unlimited
number of shares of beneficial interest without par value. Transactions in
shares of the Funds were as follows:
<PAGE>
PAGE 24
- --------------------------------------
Keystone State Tax Free Fund--Series II
<TABLE>
<CAPTION>
California Fund
- ---------------------------------------------------------
Six Months Year Ended
Ended November 30,
May 31, 1996 1995
- --------------------- ------------ ----------------
<S> <C> <C>
Class A Shares
Shares sold 74,776 210,863
Shares redeemed (58,698) (99,402)
Shares issued in
reinvestment of
dividends and
distributions 4,117 4,943
- --------------------- ---------- --------------
Net increase 20,195 116,404
===================== ========== ==============
Class B Shares
Shares sold 376,216 1,223,780
Shares redeemed (274,300) (254,280)
Shares issued in
reinvestment of
dividends and
distributions 20,697 33,291
- --------------------- ---------- --------------
Net increase 122,613 1,002,791
===================== ========== ==============
Class C Shares
Shares sold 23,616 107,136
Shares redeemed (18,612) (25,172)
Shares issued in
reinvestment of
dividends and
distributions 2,009 2,687
- --------------------- ---------- --------------
Net increase 7,013 84,651
===================== ========== ==============
</TABLE>
<TABLE>
<CAPTION>
Missouri Fund
---------------------------------------------------------
Six Months Year Ended
Ended November 30,
May 31, 1996 1995
- ---------------------- ------------ ----------------
<S> <C> <C>
Class A Shares
Shares sold 123,469 429,776
Shares redeemed (280,951) (362,420)
Shares issued in
reinvestment of
dividends and
distributions 7,844 11,139
- ---------------------- ---------- --------------
Net increase
(decrease) (149,638) 78,495
====================== ========== ==============
Class B Shares
Shares sold 199,117 769,123
Shares redeemed (138,217) (134,192)
Shares issued in
reinvestment of
dividends and
distributions 22,628 42,162
- ---------------------- ---------- --------------
Net increase 83,528 677,093
====================== ========== ==============
Class C Shares
Shares sold 10,007 101,419
Shares redeemed (40,993) (44,088)
Shares issued in
reinvestment of
dividends and
distributions 2,404 4,503
- ---------------------- ---------- --------------
Net increase
(decrease) (28,582) 61,834
====================== ========== ==============
</TABLE>
<PAGE>
PAGE 25
- --------------------------------------
Keystone State Tax Free Fund--Series II
Each Fund bears some of the cost of selling its shares under Distribution
Plans adopted with respect to its Class A, Class B and Class C shares
pursuant to Rule 12b-1 under the 1940 Act.
Each Class A Distribution Plan provides for expenditures, which are limited
to at an annual rate of up to 0.25% (currently limited to 0.15%) of the
average daily net asset value of Class A shares, to pay expenses related to
the distribution of Class A shares. Amounts paid by each Fund to KIDC under
the Class A Distribution Plan are currently used to pay others (such as
dealers) service fees at an annual rate of up to 0.15% of the average daily
net asset value of Class A shares maintained by such others on the books of
the Fund for specified periods.
Each Class B Distribution Plan provides for expenditures, which are limited
to an annual rate of 1.00% (currently limited to 0.90%) of the average daily
net asset value of Class B shares, to pay expenses related to the
distribution of Class B shares. For Class B shares sold on or after June 1,
1995, amounts paid by each Fund under such shares' Class B Distribution Plan
are currently used to pay others (such as dealers) a commission at the time
of purchase normally equal to 4.00% of the price paid for each Class B share
sold plus the first year's service fee in advance in the amount of 0.15% of
the price paid for each Class B share sold. Beginning approximately 12 months
after the purchase of such Class B shares, the dealer or other party will
receive service fees at an annual rate of 0.15% of the average daily net
asset value of such Class B shares maintained by such others on the Fund's
books for specified periods. A contingent deferred sales charge will be
imposed, if applicable, on Class B shares purchased on or after June 1, 1995
at rates ranging from a maximum of 5.00% of amounts redeemed during the first
twelve month period from and including the month of purchase to 1.00% of
amounts redeemed during the sixth twelve month period. Class B shares
purchased on or after June 1, 1995 that have been outstanding for eight years
from and including the month of purchase will automatically convert to Class
A shares without a front-end sales charge or exchange fee. Class B shares
purchased prior to June 1, 1995 retain their existing conversion rights.
Each Class C Distribution Plan provides for expenditures, which are limited
to an annual rate of up to 1.00% (currently limited to 0.90%) of the average
daily net asset value of Class C shares, to pay expenses related to the
distribution of Class C shares. Amounts paid by each Fund under the Class C
Distribution Plan are currently used to pay others (such as dealers) a
commission at the time of purchase equal to 0.75% of the price paid for each
share sold plus the first year's service fee in advance in the amount of
0.25% of the price paid for each Class C share. Beginning approximately 15
months after purchase, the dealer or other party will receive a commission at
an annual rate of 0.75% (subject to applicable limitations imposed by the
National Association of Security Dealers, Inc. ("NASD")) plus service fees at
the annual rate of 0.25%, respectively, of the average daily net asset value
of each Class C share sold by such others and maintained on the Fund's books
for specified periods.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by a majority of the outstanding voting shares of the
respective class. However, after the termination of any Distribution Plans,
at the discretion of the Board of Trustees, payments to KIDC may continue as
compensation for its services which had been earned while the Distribution
Plans were in effect.
For the six months ended May 31, 1996, amounts paid to KIDC pursuant to each
Fund's Class A, Class B and C Class Distribution Plans were as follows:
<PAGE>
PAGE 26
- --------------------------------------
Keystone State Tax Free Fund--Series II
<TABLE>
<CAPTION>
California Missouri
Fund Fund
- -------------------------- -------- --------
<S> <C> <C>
Class A $3,541 $3,362
Class B prior to June 1,
1995 $60,189 $76,719
Class B on or after June
1, 1995 $46,999 $19,891
Class C $7,374 $7,385
</TABLE>
Under applicable NASD rules, the maximum uncollected amounts for which KIDC
may see payment from the Funds under its Class B Distribution Plans as of May
31, 1996 are as follows:
<TABLE>
<CAPTION>
California Missouri
Fund Fund
- ------------------------ -------- ---------
<S> <C> <C>
Shares purchased prior
to June 1, 1995 $827,865 $959,808
Shares purchased on or
after June 1, 1995 $708,510 $312,300
</TABLE>
As of May 31, 1996 the maximum uncollected amounts for which KIDC may seek
payment from the Funds under its Class C Distribution Plans are $98,852 and
$128,836 for the California Fund and the Missouri Fund, respectively.
Presently, each Fund's class-specific expenses are limited to Distribution
Plans expenses incurred by a class of shares pursuant to its Distribution
Plan.
(3.) Securities Transactions
As of November 30, 1995, the approximate capital loss carryover for federal
income purposes for the California Fund was $387,000 which expires in 2002;
and the approximate capital loss carryover for the Missouri Fund was
$657,000, which expires as follows: 2002--$152,000 and 2003--$505,000.
Purchases and sales of investment securities, excluding short-term
securities, for the six months ended May 31, 1996 were as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases From Sales
---------------- ---------- ------------
<S> <C> <C>
California Fund $17,648,102 $16,882,442
Missouri Fund $18,566,285 $19,175,913
</TABLE>
(4.) Investment Management Agreement and Other Transactions
Under the terms of the Investment Advisory and Management Agreement between
Keystone and the FUND, Keystone provides investment management and
administative services to each Fund. In return, Keystone is paid a management
fee computed and paid daily. The management fee is calculated by applying
percentage rates, which start at 0.55% and decline to 0.25% per annum as net
assets increase, to the net asset value of each Fund.
Keystone Investor Resource Center, Inc. ("KIRC"), a wholly-owned subsidiary
of Keystone, serves as each Fund's transfer and dividend disbursing agent.
During the six months ended May 31, 1996, the California Fund and the
Missouri Fund paid or accrued to KII $10,383, and $10,383, respectively, for
certain accounting services.
Keystone has voluntarily agreed to limit expenses of Class A Shares of each
Fund to 0.75% of average daily net assets and limit expenses of Class B
shares and Class C shares to 1.50% of the average daily net assets of the
respective class. Keystone will not be required to reimburse a Fund to an
extent it would result in a Fund's inability to qualify as a regulated
investment company under the provisions of the Internal Revenue Code. In
accordance with these expense limitations, Keystone reimbursed the California
Fund and the Missouri Fund $54,531 and $54,779, respectively, for the six
months ended May 31, 1996. Keystone does not intend to seek repayment for
these amounts.
The Funds have entered into an expense offset arrangement with their
custodian. For the six months
<PAGE>
PAGE 27
- --------------------------------------
Keystone State Tax Free Fund--Series II
ended May 31, 1996, the California Fund and the Missouri Fund paid custody
fees in the amount of $15,639 and $15,782, respectively, and received a
credit of $2,327 and $2,226, respectively, pursuant to the expense offset
arrangement, resulting in a total expense of $17,966 and $18,008,
respectively. The assets deposited with the custodian under this expense
offset arrangement could have been invested in an income-producing asset.
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>
Keystone America
Family of Funds
[diamond]
Balanced Fund II
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Find
Tax Free Income Fund
California Insured Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Pennsylvania Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Omega Fund
Fund of the Americas
Small Company Growth Fund II
Strategic Development Fund
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied by
the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you invest
or send mony. 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
CAMO-R-7/96
3.5M [Recycle Logo]
