[Front Cover]
KEYSTONE
[Photo of Large, Medium, and Small Globes in a cluster]
GLOBAL RESOURCES &
DEVELOPMENT FUND
[Keystone Logo]
SEMIANNUAL REPORT
SEPTEMBER 30, 1996
<PAGE>
PAGE 1
Keystone Global Resources and Development Fund
(formerly Keystone Strategic Development Fund)
Seeks long-term capital growth by investing in companies involved
in natural resources, energy, and infrastructure development.
Dear Shareholder:
We are writing to report to you on the performance of Keystone Global
Resources and Development Fund (formerly Keystone Strategic Development Fund)
for the six-month period which ended September 30, 1996.
Your Fund's name changed on September 25, 1996, to better reflect its primary
emphasis on investments in the natural resources and energy industries. The
Fund will continue to invest in companies benefiting from infrastructure
development, but this will become a secondary focus of its investment
strategy. We believe these changes will provide your Fund with expanded
investment opportunities and increased diversification.
Performance
For the periods which ended September 30, 1996, your Fund produced the
following total returns.
Class A shares returned 5.49% for the six-month period and 12.29% for the
twelve-month period.
Class B shares returned 5.08% for the six-month period and 11.38% for the
twelve-month period.
Class C shares returned 5.08% for the six-month period and 11.38% for the
twelve-month period.
The Standard & Poor's 500 Index--a widely recognized benchmark of U.S. stock
price performance--returned 7.71% for the six-month period and 20.32% for the
twelve-month period. The Morgan Stanley Capital International World Index,
representing the performance of stocks from more than 20 countries including
the U.S., returned 4.28% and 13.67% respectively for the six- and
twelve-month periods.
We believe your Fund's performance was satisfactory, given that these
benchmarks typically do not invest in the same securities as your Fund. Your
Fund's returns reflect what we believe is an increasingly positive
environment for natural resource and energy stocks and our careful stock
selection.
An improved environment
Market conditions for your Fund were generally positive during the six
months, although somewhat volatile. In the U.S., stocks rose modestly in
April and May, corrected during the early summer months, then rose to new
highs through the end of the period. Many foreign markets in which the Fund
invests, notably Hong Kong, Mexico and Canada, followed a similar pattern.
Generally strong gains in oil and energy stocks helped offset more difficult
conditions in metals stocks.
A continuing emphasis on natural resources and energy stocks
We believe the natural resources area offers excellent opportunities for
broad diversification by industry, as well as by company size and by country.
Natural resources comprised 69% of portfolio assets and infrastructure stocks
comprised 31% as of September 30, 1996. We believe the complementary nature
of these two sectors continues to provide balance to the portfolio.
Opportunities from worldwide growth
Energy and resources companies provide the raw materials needed for economic
growth and development all over the world. Their stocks offer investors an
unparalleled opportunity to benefit from growth and industrialization in
developing countries. However, they also tend to experience greater price
fluctuations than domestic blue chip stocks due to their dependence on these
less stable economies. We seek to limit these risks by emphasizing well-
established companies. To enhance potential returns we monitor your Fund's
holdings closely, reallocating assets to take advantage of new opportunities
as world market conditions change.
--continued--
<PAGE>
PAGE 2
Keystone Global Resources and Development Fund
(formerly Keystone Strategic Development Fund)
Outlook
We expect modest growth in the U.S. and visible, widespread improvement in
foreign economies. In addition, we think that economic growth, especially in
developing regions of the world, will be a significant and positive influence
on stock prices over the next decade. We believe these improving world growth
patterns should provide abundant opportunities for the types of stocks in
which your Fund invests.
Keystone to be acquired by First Union Corporation
On another note, we are pleased to inform you that Keystone has agreed to be
acquired by First Union Corporation. The acquisition is subject to a number
of conditions, including approvals of investment advisory agreements with
Keystone by fund shareholders. First Union is a financial services firm based
in Charlotte, North Carolina. It is the nation's sixth largest bank holding
company with assets of approximately $140 billion. First Union, through its
wholly-owned subsidiary Evergreen Asset Management Corp., manages more than
$16 billion in 36 mutual funds. Keystone will remain a separate entity after
its acquisition and will continue to provide investment advisory and
management services to Keystone Global Resources and Development Fund. We
believe First Union's acquisition of Keystone should strengthen the
investment management services we provide to you.
We appreciate your continued support of Keystone funds. If you have any
questions or comments, please feel free to write to us.
Sincerely,
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Chairman and President
Keystone Investments, Inc.
/s/ George S. Bissell
George S. Bissell
Chairman of the Board
Keystone Funds
November 1996
[Photo of Albert H. Elfner, III] [Photo of George S. Bissell]
Albert H. Elfner, III George S. Bissell
<PAGE>
PAGE 3
A Discussion With
Your Fund Manager
[Photo of John C. Madden, Jr.]
John C. Madden, Jr. is a vice president and senior portfolio manager of your
Fund and of Keystone Precious Metals Holdings, Inc. A Chartered Financial
Analyst, Mr. Madden has over 30 years of investment experience with both
domestic and foreign securities. He holds a BA from Yale University.
Q Please discuss the changes in the Fund's investment policy.
A The Fund's revised policy is to seek capital growth by investing in
companies in the natural resources and energy industries, with secondary
emphasis on companies related to infrastructure development. Both types of
investments benefit from growth occurring in world markets, but we believe
the name and investment changes will help improve the Fund's identity.
The change is essentially a reordering of priorities rather than a departure
from the original objective. The Fund has invested in natural resources and
energy company stocks since its inception, but these stocks now comprise a
greater percentage of the portfolio. They include companies in the metals,
mining, oil and gas industries. We will continue to employ a relatively
conservative strategy, seeking out companies that we believe are the best in
the world at what they do. We think this approach offers Fund investors good
upside potential with lower downside risk.
Q How did the markets perform during the six-month period?
A It was a positive period for stocks in general, and an upsurge of interest
in international investing helped many of the Fund's foreign holdings.
Selected emerging markets had excellent performance. In Brazil, the market
was up 30% benefiting your Fund's holding of Telebras, the Brazilian
telephone company which rose 63% during the six-month period. Many other
international markets followed the pattern of the U.S. stock market and
rallied to new highs over the summer.
The oil producing and oil services sectors were particularly robust. Between
September 30, 1995 and September 30, 1996 oil prices rose from $17.63 to
$24.38 a barrel. Higher oil prices and lower worldwide inventory levels
contributed to strong performance in these stocks, which accounted for 14.3%
of net assets as of September 30, 1996. In contrast, however, there was a
negative price impact on metals resulting from the Sumitomo trading crisis in
Japan and generally strong inventory levels. Stocks of base metals producing
companies, at 20.8% of net assets, declined during the period.
Infrastructure-related stocks fared better, responding to improved prospects
for growth in many overseas markets.
Fund Profile
Objective: Seeks capital growth by investing in companies
involved in natural resources, energy, and infrastructure
development.
Commencement of investment operations: November 1, 1994
Countries: 15
Net assets: $24 million
<PAGE>
PAGE 4
Keystone Global Resources and Development Fund
(formerly Keystone Strategic Development Fund)
Diversification by Region
as of September 31, 1996
[Map of World]
NORTH AMERICA 41%
LATIN AMERICA 23%
EUROPE 13%
ASIA/PACIFIC 22%
CASH 1%
(as a percentage of net assets]
Q What are some examples of the Fund's energy holdings?
A We have increased and diversified our holdings of energy stocks. Two of
the Fund's largest holdings are Schlumberger, the world's dominant oil
service company and FX Energy, a small U.S.-based production company with
exploration acreage onshore in Poland. New holdings include Diamond
Offshore--an international drilling company headquartered in Houston--and BJ
Services which specializes in cementing and pressure pumping services.
Improved economic conditions worldwide meant we had a broader universe of
stocks from which to choose.
Q Did the geographic mix of the Fund's holdings change during the period?
A Yes, we made some modifications. Between March 31, 1996 and September 30,
1996 we increased Latin American stocks from 20% to 23% of net assets and
European stocks from 8% to 13% in an effort to capitalize on stronger growth
in those regions. Investment in North American stocks declined slightly to
41% of net assets at the end of the period from 43% in March. Asia/Pacific
stocks accounted for 22% of holdings on September 30 compared to 23% on March
31.
Q How did the portfolio change during the period?
A We made a number of changes in the Fund's holdings. The general movement
in the portfolio has been to gradually increase the percentage devoted to the
natural resource area. We sold or reduced our position in several
infrastructure stocks. Some, like Bolivian Power and the Argentinean company
Central Costanera, had performed well, while others, Hong Kong Telecom for
example, were disappointing. We also made some purchases in the
infrastructure area, Nokia for example, the Finnish telecommunications
company.
<PAGE>
PAGE 5
We reduced our holdings in other areas we thought were vulnerable, including
copper stocks and several gold companies. We took advantage of opportunities
to add to existing holdings in a wide range of mining and metals stocks, such
as Minas Buenaventura, a precious metals producer in Peru.
Q Have you pursued any new investment themes?
A Yes, we have begun to invest in the steel business. In a sense, steel is a
hybrid, neither a resource nor an infrastructure industry, but with elements
of both. We have for some time had an investment in Companhia Vale do Rio
Doce (CVRD), the Brazilian company that is the world's largest producer and
exporter of iron ore, among its other activities.
We also have a position in Nucor, a growing U.S. steel producer that
pioneered the concept of the mini-mill, producing steel from scrap using
electric furnaces. And we invested in UCAR, an American company that is the
world leader in production of the graphite electrodes that are used in these
same furnaces. While steel cannot be considered a growth industry, especially
in the developed countries, we believe these segments of the industry have
considerable potential.
Q What role do EquitiLink and Harbor Capital Management play in the
management of the Fund?
A EquitiLink Investment Management is Australia's leading independent mutual
fund manager. They provide investment research and analysis for many of the
Fund's foreign investments, particularly in natural resources companies in
the Pacific Rim region. Harbor Capital Management Company, located in Boston,
is well known for its expertise in precious metals andmining investments.
Keystone enjoys good long-standing relationships with both of these firms
and takes advantage of their knowledge and experience in selecting holdings
for the Fund.
Top 5 Industries
as of September 30, 1996
Percentage of
Industry net assets
Metals and mining 20.8
Oil 14.3
Iron and steel 12.6
Utilities 12.0
Capital goods 9.4
Top 10 Holdings
as of September 30, 1996
Percentage
Stock (Country) Industry of net assets
Western Mining (Australia) Metals and mining 3.5
Enersis (Chile) Utility 3.4
AGCO (U.S.) Capital goods 3.3
Potash (Canada) Metals and mining 3.2
Schlumberger (U.S.) Oil services 3.2
FX Energy (U.S.) Oil 3.1
Alcan Aluminum (Canada) Metals and mining 2.8
Caterpillar (U.S.) Capital goods 2.7
RTZ (U.K.) Metals and mining 2.6
Savage Resources (Australia) Metals and mining 2.6
Q What is your outlook?
A We are fairly optimistic about the world economic outlook. We are
encouraged by prospects for continuing growth in the U.S. and have seen
evidence of its positive effect on the world markets. We believe improvements
in Europe and Japan, and strong growth in Latin America and Asia should be
positive for commodity demand, which would favor the types of companies in
which the Fund invests.
<PAGE>
PAGE 6
Keystone Global Resources and Development Fund
(formerly Keystone Strategic Development Fund)
Your Fund's Performance
================================================================================
Growth of an investment in
Keystone Global Resources and Development Fund
Class A
In Thousands
Total Value: $10,679
10/94 9453 9453
09/95 9510 9510
09/96 10679 10679
A $10,000 investment in Keystone Global Resources and Development Fund Class A
made on October 17, 1994 with all distributions reinvested was worth $10,679 on
September 30, 1996. Past performance is no guarantee of future results.
================================================================================
Six-Month Performance as of September 30, 1996
Class A Class B Class C
Total returns* 5.49% 5.08% 5.08%
Net asset value 3/31/95 $10.74 $10.62 $10.62
9/30/96 $11.33 $11.16 $11.16
Dividends None None None
Capital gains None None None
*Before deducting sales charges.
Historical Record as of September 30, 1996
Cumulative total returns Class A Class B Class C
1-year w/o sales charge 12.29% 11.38% 11.38%
1-year 5.83% 7.38% 11.38%
Life of Class 6.79% 7.60% 11.60%
Average annual returns
1-year w/o sales charge 12.29% 11.38% 11.38%
1-year 5.83% 7.38% 11.38%
Life of Class 3.41% 3.82% 5.77%
Commencement of
operations 10/17/94 10/17/94 10/17/94
Class A share performance is reported at the current maximum front-end sales
charge of 5.75%.
Class B shares are sold without a front-end sales charge. Shares purchased
after June 1, 1995 are subject to a contingent deferred sales charge (CDSC)
that declines from 5% to 1% over six years from the month purchased.
Performance assumes that shares were redeemed after the end of a one-year
holding period and reflects the deduction of a 4% CDSC.
Class C shares are sold without a front-end sales charge. Performance
reflects the return you would have received after holding shares for one year
or more and redeeming after the end of that period.
The investment return and principal value will fluctuate so that your
shares, when redeemed, may be worth more or less than the original cost.
Performance for each class will differ.
Shareholders may exchange shares for another Keystone fund. The exchange fee
is waived for individual investors who request an exchange through Keystone's
Automated Response Line (KARL). Investors who exchange by calling or writing
to Keystone directly are subject to a $10 exchange fee. The Fund reserves the
right to change or terminate the exchange offer.
<PAGE>
PAGE 7
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 8
Keystone Global Resources and Development Fund
(formerly Keystone Strategic Development Fund)
SCHEDULE OF INVESTMENTS--September 30, 1996
Number Market
of Shares Value
------------------------------- ----------------- -------------------
COMMON STOCKS (90.4%)
ARGENTINA (1.0%)
Oil (1.0%)
YPF SA 10,100 $ 230,831
------------------------------- ----------------- -------------------
AUSTRALIA (17.6%)
Oil (4.1%)
Santos Ltd 88,000 374,098
Woodside Petroleum 86,800 575,826
------------------------------- ----------------- -------------------
949,924
------------------------------- ----------------- -------------------
Capital Goods (1.7%)
MEMTEC Limited 13,823 404,885
------------------------------- ----------------- -------------------
Iron and Steel (4.4%)
Broken Hill Proprietary Co. Ltd. 36,787 471,778
CRA Limited 38,055 572,392
------------------------------- ----------------- -------------------
1,044,170
------------------------------- ----------------- -------------------
Metals and Mining (7.4%)
QNI Limited (b) 150,000 314,677
Savage Resources (b) 664,000 620,266
WMC Ltd. 128,150 824,778
------------------------------- ----------------- -------------------
1,759,721
------------------------------- ----------------- -------------------
TOTAL AUSTRALIA 4,158,700
------------------------------- ----------------- -------------------
BOLIVIA (1.1%)
Utilities (1.1%)
Compania Boliviana De Energia 5,600 249,900
------------------------------- ----------------- -------------------
BRAZIL (1.8%)
Telecommunications (1.8%)
Telebras S.A. ADR 5,500 431,750
------------------------------- ----------------- -------------------
CANADA (13.8%)
Agriculture (3.2%)
Potash Corp. of Saskatchewan,
Inc. 10,500 766,243
------------------------------- ----------------- -------------------
CANADA continued
Oil (1.9%)
Arakis Energy Corporation (b) 44,600 $ 124,044
Canadian Occidental Petroleum
Ltd. 20,100 323,908
------------------------------- ----------------- -------------------
447,952
------------------------------- ----------------- -------------------
Metals and Mining (7.6%)
Alcan Aluminum Ltd. 22,200 663,343
Inco Ltd. 19,300 592,277
TECK Corp. 26,200 533,771
------------------------------- ----------------- -------------------
1,789,391
------------------------------- ----------------- -------------------
Precious Metals (1.1%)
TVX Gold, Inc. (b) 38,200 262,220
------------------------------- ----------------- -------------------
TOTAL CANADA 3,265,806
------------------------------- ----------------- -------------------
CHILE (4.2%)
Forest Products (0.8%)
Maderas y Sinteticas S.A. 14,200 200,575
------------------------------- ----------------- -------------------
Utilities (3.4%)
Enersis S.A. 24,500 790,125
------------------------------- ----------------- -------------------
TOTAL CHILE 990,700
------------------------------- ----------------- -------------------
FINLAND (2.2%)
Telecommunications (2.2%)
Nokia Corp. 12,000 531,000
------------------------------- ----------------- -------------------
FRANCE (3.3%)
Oil (2.0%)
Total S.A. 5,944 467,764
------------------------------- ----------------- -------------------
Construction (1.3%)
LaFarge 5,400 318,323
------------------------------- ----------------- -------------------
TOTAL FRANCE 786,087
------------------------------- ----------------- -------------------
HONG KONG (1.0%)
Construction (1.0%)
Kumagai Gumi HK 260,000 242,079
------------------------------- ----------------- -------------------
See Notes to Schedule of Investments. (continued on next page)
<PAGE>
PAGE 9
SCHEDULE OF INVESTMENTS--September 30, 1996
Number Market
of Shares Value
------------------------------- ----------------- -------------------
KOREA (1.8%)
Utilities (1.8%)
Korea Electric Power Corp. 23,100 $ 436,013
------------------------------- ----------------- -------------------
MEXICO (6.4%)
Construction (2.4%)
Apasco S.A. 84,000 576,165
------------------------------- ----------------- -------------------
Precious Metals (2.3%)
Industrias Penoles S.A. de C.V. 130,000 549,987
------------------------------- ----------------- -------------------
1,126,152
------------------------------- ----------------- -------------------
Transportation (1.7%)
Transportacion Maritima Mexica 49,800 392,175
------------------------------- ----------------- -------------------
TOTAL MEXICO 1,518,327
------------------------------- ----------------- -------------------
PERU (1.8%)
Precious Metals (1.8%)
Minas Buenaventura 47,370 426,519
------------------------------- ----------------- -------------------
SWEDEN (2.5%)
Construction (2.5%)
ABB 5,521 583,200
------------------------------- ----------------- -------------------
UNITED KINGDOM (4.8%)
Iron and Steel (2.2%)
British Steel PLC 167,000 517,546
------------------------------- ----------------- -------------------
Metals and Mining (2.6%)
RTZ Corp. 41,539 636,186
------------------------------- ----------------- -------------------
TOTAL UNITED KINGDOM 1,153,732
------------------------------- ----------------- -------------------
UNITED STATES (27.1%)
Agriculture (3.3%)
AGCO Corp. 30,600 780,300
------------------------------- ----------------- -------------------
Construction (1.7%)
Fluor Corp. 6,700 412,050
------------------------------- ----------------- -------------------
UNITED STATES continued
Electrical Components (1.8%)
Ucar International Inc. 10,800 $ 437,400
------------------------------- ----------------- -------------------
Iron & Steel (1.8%)
Nucor Corp 8,000 406,000
------------------------------- ----------------- -------------------
Machinery (2.7%)
Caterpillar Inc. 8,400 633,150
------------------------------- ----------------- -------------------
Precious Metals (1.6%)
Homestake Mining Co. 10,000 146,250
Newmont Mining Corp. 5,000 236,250
------------------------------- ----------------- -------------------
382,500
------------------------------- ----------------- -------------------
Utility (2.3%)
Enron Global Power & Pipelines 22,100 549,737
------------------------------- ----------------- -------------------
Oil (4.1%)
FX Energy Inc. 75,000 726,563
Triton Energy Corp. (b) 5,500 246,125
------------------------------- ----------------- -------------------
972,688
------------------------------- ----------------- -------------------
Oil Services (6.6%)
BJ Services Inc. 9,000 326,250
Diamond Offshore Drilling Inc. 9,000 495,000
Schlumberger, Ltd. 8,900 752,050
------------------------------- ----------------- -------------------
1,573,300
------------------------------- ----------------- -------------------
Forest Products (1.2%)
Weyerhaeuser Co. 5,600 258,300
------------------------------- ----------------- -------------------
TOTAL UNITED STATES 6,405,425
------------------------------- ----------------- -------------------
TOTAL COMMON STOCKS
(Cost--$17,358,349) 21,410,069
---------------------------------------------------- -------------------
PREFERRED STOCKS (7.0%)
BRAZIL (7.0%)
Iron and Steel (2.4%)
Vale Rio Doce S.A. (CVRD) 18,588 368,629
Caemi Min E Metal 3,700,000 208,354
------------------------------- ----------------- -------------------
576,983
------------------------------- ----------------- -------------------
(continued on next page)
<PAGE>
PAGE 10
Keystone Global Resources and Development Fund
(formerly Keystone Strategic Development Fund)
SCHEDULE OF INVESTMENTS--September 30, 1996
Number Market
of Shares Value
------------------------------- ----------------- -------------------
BRAZIL continued
Oil (1.2%)
Petrobras 2,330,000 $ 273,800
------------------------------- ----------------- -------------------
Utilities (3.4%)
Cemig CIA Energia 13,800,000 412,203
Electrobras 1,390,000 387,964
------------------------------- ----------------- -------------------
800,167
------------------------------- ----------------- -------------------
TOTAL PREFERRED STOCKS
(Cost--$1,583,297) 1,650,950
---------------------------------------------------- -------------------
Maturity
Value
------------------------------- ----------------- -------------------
REPURCHASE AGREEMENTS (0.8%)
Investments in repurchase
agreements, in a joint trading
account, purchased 9/30/96,
5.728%, maturing 10/1/96 (a) $ 184,029 184,000
------------------------------- ----------------- -------------------
TOTAL REPURCHASE AGREEMENTS (Cost--$184,000) 184,000
---------------------------------------------------- -------------------
INVESTMENT COMPANY (1.4%)
Australia (1.4%)
First Resources Development
Fund (b) 600,000 $ 327,739
------------------------------- ----------------- -------------------
TOTAL REGULATED INVESTMENT COMPANY (Cost--$464,864) 327,739
---------------------------------------------------- -------------------
WARRANTS/RIGHTS (0.2%)
AUSTRALIA (0.2%)
Savage Resources, options 66,400 16,295
First Resources Development
Fund, options (b) 600,000 19,474
------------------------------- ----------------- -------------------
TOTAL WARRANTS/RIGHTS
(Cost--$12,905) 35,769
---------------------------------------------------- -------------------
TOTAL INVESTMENTS
(Cost--$19,603,415) (c) 23,608,527
---------------------------------------------------- -------------------
FOREIGN CURRENCY HOLDINGS (0.1%) (Cost--$18,488) 18,047
---------------------------------------------------- -------------------
OTHER ASSETS AND LIABILITIES--
NET (0.1%) 48,807
---------------------------------------------------- -------------------
NET ASSETS (100.0%) $23,675,381
------------------------------- ----------------- -------------------
(a) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at September 30, 1996.
(b) Non-income-producing security.
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. Value at In Net Unrealized
Exchange September 30, Exchange Appreciation/
Date 1996 for U.S. $ (Depreciation)
- ---------- --------- --------------- ----------------- ---------- ---------------
Forward Foreign Contracts to Sell:
Currency Exchange Contracts to Deliver
-------------------------------------------------------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
09/30/96 683,986 French Francs $ 137,000 $ 132,687 $ 4,313
09/30/96 2,936,715 Australian Dollar $2,304,000 $2,323,961 ($19,961)
---------------
Net Unrealized Appreciation/Depreciation on Forward Foreign Currency
Exchange Contracts ($15,648)
---------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 11
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Period from October 7, 1994
Six Months Ended Year Ended (commencement of
September 30, March 31, operations)
1996 1996 to March 31, 1995
- ------------------------------------------ ----------------- ------------ ---------------------------
(Unaudited)
<S> <C> <C> <C>
Net asset value beginning of period $ 10.74 $ 9.02 $ 10.00
- ------------------------------------------ ----------------- ------------ ---------------------------
Income from investment operations:
Net investment income (loss) (0.010) (0.040) (0.002)
Net gain (loss) on investment and foreign
currency related transactions 0.600 1.760 (0.978)
- ------------------------------------------ ----------------- ------------ ---------------------------
Total from investment operations 0.590 1.720 (0.980)
- ------------------------------------------ ----------------- ------------ ---------------------------
Net asset value end of period $ 11.33 $ 10.74 $ 9.02
- ------------------------------------------ ----------------- ------------ ---------------------------
Total return(a) 5.49% 19.07% (9.80%)
Ratios/supplemental data
Ratios to average net assets:
Operating and management expenses 2.54%(b)(c) 2.38%(c) 2.77%(b)
Net investment income (loss) (0.15%)(b) (0.41%) (0.07%)(b)
Portfolio turnover rate 35% 40% 13%
Average commission rate paid $0.0031 $0.0025 N/A
- ------------------------------------------ ----------------- ------------ ---------------------------
Net assets, end of period (thousands) $ 4,932 $ 4,574 $ 4,890
- ------------------------------------------ ----------------- ------------ ---------------------------
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) "Ratio of total expenses to average net assets" for the period ended
September 30, 1996 and the year ended March 31, 1996 includes indirectly
paid expenses. Excluding indirectly paid expenses for the six months
ended September 30, 1996, the expense ratio would have been 2.53% and
2.37%, respectively.
See Notes to Financial Statements.
<PAGE>
PAGE 12
Keystone Global Resources and Development Fund
(formerly Keystone Strategic Development Fund)
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Period from October 7, 1994
Six Months Ended Year Ended (commencement of
September 30, March 31, operations)
1996 1996 to March 31, 1995
- ------------------------------------------ ----------------- ------------ ---------------------------
(Unaudited)
<S> <C> <C> <C>
Net asset value beginning of period $ 10.62 $ 8.99 $ 10.00
- ------------------------------------------ ----------------- ------------ ---------------------------
Income from investment operations:
Net investment income (loss) (0.051) (0.130) (0.026)
Net gain (loss) on investment and foreign
currency related transactions 0.591 1.760 (0.984)
- ------------------------------------------ ----------------- ------------ ---------------------------
Total from investment operations 0.540 1.630 (1.010)
- ------------------------------------------ ----------------- ------------ ---------------------------
Net asset value end of period $ 11.16 $ 10.62 $ 8.99
- ------------------------------------------ ----------------- ------------ ---------------------------
Total return(a) 5.08% 18.13% (10.10%)
Ratios/supplemental data
Ratios to average net assets:
Operating and management expenses 3.29%(b)(c) 3.13%(c) 3.55%(b)
Net investment income (loss) (.90%)(b) 1.16% (.80%)(b)
Portfolio turnover rate 35% 40% 13%
Average commission rate paid $0.0031 $0.0025 N/A
- ------------------------------------------ ----------------- ------------ ---------------------------
Net assets, end of period (thousands) $15,833 $15,161 $14,688
- ------------------------------------------ ----------------- ------------ ---------------------------
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) "Ratio of total expenses to average net assets" for the period ended
September 30, 1996 and the year ended March 31, 1996 includes indirectly
paid expenses. Excluding indirectly paid expenses for the period ended
September 30, 1996, the expense ratio would have been 3.28% and 3.12%,
respectively.
See Notes to Financial Statements.
<PAGE>
PAGE 13
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Period from October 7, 1994
Six Months Ended Year Ended (commencement of
September 30, March 31, operations)
1996 1996 to March 31, 1995
- ------------------------------------------ ----------------- ------------ ---------------------------
(Unaudited)
<S> <C> <C> <C>
Net asset value beginning of period $ 10.62 $ 8.99 $ 10.00
- ------------------------------------------ ----------------- ------------ ---------------------------
Income from investment operations:
Net investment income (loss) (0.043) (0.100) (0.034)
Net gain (loss) on investment and foreign
currency related transactions 0.583 1.730 (0.976)
- ------------------------------------------ ----------------- ------------ ---------------------------
Total from investment operations 0.540 1.630 (1.010)
- ------------------------------------------ ----------------- ------------ ---------------------------
Net asset value end of period $ 11.16 $ 10.62 $ 8.99
- ------------------------------------------ ----------------- ------------ ---------------------------
Total return(a) 5.08% 18.13% (10.10%)
Ratios/supplemental data
Ratios to average net assets:
Operating and management expenses 3.29%(b)(c) 3.13%(c) 3.51%(b)
Net investment income (loss) (.96%)(b) 1.16% (.93%)(b)
Portfolio turnover rate 35% 40% 13%
Average commission rate paid $0.0031 $0.0025 N/A
- ------------------------------------------ ----------------- ------------ ---------------------------
Net assets, end of period (thousands) $ 2,911 $ 2,023 $ 1,393
- ------------------------------------------ ----------------- ------------ ---------------------------
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
(c) "Ratio of total expenses to average net assets" for the period ended
September 30, 1996 and the year ended March 31, 1996 includes indirectly
paid expenses. Excluding indirectly paid expenses for the period ended
September 30, 1996, the expense ratio would have been 3.28% and 3.12%,
respectively.
See Notes to Financial Statements.
<PAGE>
PAGE 14
Keystone Global Resources and Development Fund
(formerly Keystone Strategic Development Fund)
STATEMENT OF ASSETS AND LIABILITIES--
September 30, 1996 (Unaudited)
- --------------------------------------------------------------------
Assets:
Investments at market value
(identified cost--$19,603,415) (Note 1) $23,608,527
Foreign currency holdings
(identified cost--$18,488) (Note 1) 18,047
- ---------------------------------------------------- -------------
Total Investments (identified cost--$19,621,903) 23,626,574
- ---------------------------------------------------- -------------
Cash 344
Receivable for:
Dividends and interest 65,271
Fund shares sold 3,497
Deferred organization expense (Note 1) 27,974
Prepaid Expenses 611
Foreign Tax Receivable 1,667
- ---------------------------------------------------- -------------
Total assets 23,725,938
- ---------------------------------------------------- -------------
Liabilities:
Payable for:
Net unrealized depreciation on forward foreign
currency exchange contracts 15,648
Fund shares redeemed 8,531
Foreign taxes withheld 1,236
Other accrued expenses 25,142
- ---------------------------------------------------- -------------
Total liabilities 50,557
- ---------------------------------------------------- -------------
Net assets $23,675,381
- ---------------------------------------------------- -------------
Net assets represented by:
Paid-in-capital (Note 1) $20,097,131
Accumulated net investment loss (84,110)
Accumulated net realized losses on investment and
foreign currency related transactions (326,043)
Net unrealized appreciation on investments and
foreign currency related transactions 4,004,051
Net unrealized depreciation on forward foreign
currency exchange contracts (15,648)
- ---------------------------------------------------- -------------
Total net assets $23,675,381
- ---------------------------------------------------- -------------
Net asset value per share: (Note 2)
Class A Shares
($11.33 435,307 shares outstanding) $4,932,158
Class B Shares
($11.16 1,418,206 shares outstanding) 15,832,564
Class C Shares
($11.16 260,717 shares outstanding) 2,910,659
- ---------------------------------------------------- -------------
$23,675,381
- ---------------------------------------------------- -------------
Offering price per share:
Class A Shares (including sales charge of 5.75%)
(Note 1) $12.02
- ---------------------------------------------------- -------------
Class B Shares $11.16
- ---------------------------------------------------- -------------
Class C Shares $11.16
- ---------------------------------------------------- -------------
- --------------------------------------------------------------------
STATEMENT OF OPERATIONS--
Six Months Ended September 30, 1996
(Unaudited)
Investment income: (Note 1)
Dividends (net of withholding
taxes of $18,672) $ 253,987
Interest 26,257
- -------------------------------------------------------- -----------
Total income 280,244
- -------------------------------------------------------- -----------
Expenses: (Notes 1, 2 and 4)
Management fee 117,112
Transfer agent fees 41,869
Accounting, Auditing and Legal 27,847
Custodian fees 30,350
Printing 12,960
Distribution Plan expenses 98,403
Registration fees 31,432
Amortization of organization expense 6,102
Miscellaneous expenses 3,537
- -------------------------------------------------------- -----------
Total expenses 369,612
- -------------------------------------------------------- -----------
Less: Expenses paid indirectly (Note 5) (1,540)
- -------------------------------------------------------- -----------
Net expenses 368,072
- -------------------------------------------------------- -----------
Net Investment loss (87,828)
- -------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions: (Note 3)
Realized gain (loss) on:
Investment transactions 620,713
Foreign currency related transactions (114,095)
- -------------------------------------------------------- -----------
Net realized gain on investments and foreign currency
related transactions 506,618
- -------------------------------------------------------- -----------
Net unrealized appreciation (depreciation) on
investments and foreign currency related
transactions:
Beginning of period 3,311,766
End of period 4,004,051
- -------------------------------------------------------- -----------
692,285
- -------------------------------------------------------- -----------
Net unrealized appreciation (depreciation) on forward
foreign currency exchange contracts:
Beginning of period (72,592)
End of period (15,648)
- -------------------------------------------------------- -----------
56,944
- -------------------------------------------------------- -----------
Net change in unrealized appreciation on investments,
foreign currency related transactions and forward
foreign currency exchange contracts 749,229
------------------------------------------------------- ----------
Net gain on investments, foreign currency related
transactions and forward foreign currency exchange
contracts 1,255,847
------------------------------------------------------ ---------
Net increase in net assets resulting from operations $1,168,019
------------------------------------------------------ ---------
<PAGE>
PAGE 15
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
September 30, Year Ended
1996 March 31, 1996
- --------------------------------------------------------- ----------------- --------------
(Unaudited)
<S> <C> <C>
Operations:
Net investment loss ($ 87,828) ($ 217,769)
Net realized gain on investment and foreign currency
related transactions 506,618 131,912
Net change in unrealized appreciation (depreciation) on
investments, foreign currency related transactions and
foreign currency exchange contracts 749,229 3,775,333
- --------------------------------------------------------- ----------------- --------------
Net increase in net assets resulting from operations 1,168,019 3,689,476
- --------------------------------------------------------- ----------------- --------------
Capital share transactions (Note 2):
Proceeds from shares sold--Class A Shares 692,911 1,145,130
Proceeds from shares sold--Class B Shares 1,916,007 2,628,135
Proceeds from shares sold--Class C Shares 1,517,206 672,747
Payments for shares redeemed--Class A Shares (588,548) (2,328,932)
Payments for shares redeemed--Class B Shares (2,022,908) (4,711,542)
Payments for shares redeemed--Class C Shares (764,761) (308,032)
- --------------------------------------------------------- ----------------- --------------
Net increase (decrease) in net assets resulting from
capital share transactions 749,907 (2,902,494)
- --------------------------------------------------------- ----------------- --------------
Total increase in net assets 1,917,926 786,982
- --------------------------------------------------------- ----------------- --------------
Net assets:
Beginning of period 21,757,455 20,970,473
- --------------------------------------------------------- ----------------- --------------
End of period (Including net investment loss as follows:
September 1996--($84,110) and March, 1996--($3,718))
(Note 1) $23,675,381 $21,757,455
- --------------------------------------------------------- ----------------- --------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 16
Keystone Global Resources and Development Fund
(formerly Keystone Strategic Development Fund)
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone Global Resource and Development Fund (formerly named Keystone
Strategic Development Fund), (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
investment objective is long term capital growth.
Equitilink International Management Limited ("EIML"), acts as sub-adviser to
the Fund. Subject to the supervision of the Fund's Board of Trustees and
Keystone, EIML provides investment supervision and furnishes an investment
program for certain assets of the Fund, as well as providing research and
advice concerning the purchase and sale of securities by the Fund.
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
securities 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 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
<PAGE>
PAGE 17
recorded on the books of the Fund and the amount actually received. The
portion of foreign currency 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
transactions.
D. Futures Contracts
In order to gain exposure to or protect against changes in security values,
the Fund may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures
transaction is subsequently adjusted by daily payments or receipts as the
value of the contract changes. Such changes are recorded as unrealized gains
or losses. Realized gains or losses are recognized on closing the contract.
Risks of entering into futures contracts include (i) the possibility of an
illiquid market for the contract, (ii) the possibility that a change in the
value of the contract may not correlate with changes in the value of the
underlying instrument or index, and (iii) the credit risk that the other
party will not fulfill its obligations under the contract. Futures contracts
also involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
E. Forward Foreign Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to settle purchases and sales of portfolio 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 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 its obligations
under the contract. Forward contracts involve elements of market risk in
excess of the amount reflected in the statement of assets and liabilities.
F. 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.
G. Organization Expenses
The Fund's organization expenses are amortized to operations over a five-year
period on a straight-line basis. In the event any of the initial shares of
the Fund are redeemed by Keystone during the five-year amortization period,
redemption proceeds will be reduced by any unamortized organization expenses
in the same proportion as the number of initial shares being redeemed bears
to the number of initial shares outstanding at the time of redemption.
H. 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.
I. Distributions
The Fund distributes net investment income and net capital gains, if any,
annually. Distributions to shareholders are recorded at the close of business
on the ex-dividend date.
<PAGE>
PAGE 18
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles.
J. 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.
(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:
Class A Shares
----------------------------------
Six Months Ended
September 30, Year Ended
1996 March 31, 1996
- ------------------------ ----------------- --------------
Shares sold 61,688 114,080
Shares redeemed (52,296) (230,445)
- ------------------------ ----------------- --------------
Net increase (decrease) 9,392 (116,365)
- ------------------------ ----------------- --------------
Class B Shares
----------------------------------
Six Months Ended
September 30, Year Ended,
1996 March 31, 1996
- ------------------------ ----------------- --------------
Shares sold 172,872 263,001
Shares redeemed (182,185) (469,950)
- ------------------------ ----------------- --------------
Net decrease (9,313) (206,949)
- ------------------------ ----------------- --------------
Class C Shares
----------------------------------
Six Months Ended
September 30, Year Ended,
1996 March 31, 1996
- ------------------------ ----------------- --------------
Shares sold 138,037 65,799
Shares redeemed (67,748) (30,391)
- ------------------------ ----------------- --------------
Net increase 70,289 35,408
- ------------------------ ----------------- --------------
(3.) Securities Transactions
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities and U.S. government securities) for the period ended
September 30, 1996 were $5,155,060 and $4,271,464, 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 period
ended September 30, 1996, the Fund paid $5,913 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.
<PAGE>
PAGE 19
Of that amount, 0.75% is used to pay distribution expenses and 0.25% is used
to pay service fees.
During the period ended September 30, 1996, under the Class B Distribution
Plans, the Fund paid or accrued $19,481 for Class B shares purchased before
June 1, 1995 and $59,799 for Class B shares purchased on or after June 1,
1995. The Fund paid $13,210 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 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 September 30, 1996, total unpaid distribution costs were $854,107 for
Class B shares purchased before June 1, 1995 and $157,983 for Class B shares
purchased on or after June 1, 1995. Unpaid distribution costs for Class C
were $184,783 at September 30, 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 at the annual rate of 1.00% of the aggregate net asset value of the Fund.
Keystone has entered into a Sub-Investment Advisory Agreement with EIML,
dated September 21, 1994, under which EIML provides investment research and
advice to the Fund in both a non-discretionary and a discretionary capacity.
For its services, EIML receives from Keystone a monthly fee equal to (1) 20%
of Keystone's net fee for such month for services rendered in a
non-discretionary capacity, plus (2) 10% of Keystone's net fee for such month
for services rendered in a discretionary capacity.
During the period ended September 30, 1996, the Fund paid or accrued $14,415
to Keystone for certain accounting services. The Fund paid or accrued $41,869
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 period ended September 30, 1996, the Fund incurred total custody fees
of $30,350 and received a credit of $1,540 pursuant to this expense offset
arrangement, resulting in a net custody expense of $28,810. The assets
deposited with the custodian under this expense offset arrangement could have
been invested in income-producing assets.
(7.) Agreement and Plan of Acquisition
On September 6, 1996, KII entered into an Agreement and Plan of Acquisition
and Merger with First Union Corporation ("First Union") and First Union
National Bank of North Carolina ("FUNB-NC") and certain other parties
pursuant to which KII will be merged with and into a wholly-owned subsidiary
of FUNB-NC. Subject to the receipt of required regulatory and shareholder
approval, the proposed merger is expected to take place in December 1996.
<PAGE>
[Back Cover]
KEYSTONE AMERICA
FAMILY OF FUNDS
[Filled-in Diamond]
Balanced Fund II
California Insured Tax Free Fund
Capital Preservation and Income Fund
Florida Tax Free Fund
Fund for Total Return
Fund of the Americas
Global Opportunities Fund
Global Resources & Development Fund
Government Securities Fund
Hartwell Emerging Growth Fund, Inc.
Intermediate Term Bond Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Omega fund
Pennsylvania Tax Free Fund
Small Company Growth Fund II
Strategic Income Fund
Tax Free Income Fund
World Bond Fund
This report was prepared primarily for the information
of the Fund's shareholders. It is authorized for
distribution if preceded or accompanied by the Fund's
current prospectus. The prospectus contains important
information about the Fund including fees and expenses.
Read it carefully before you invest or send money. For
a free prospectus on other Keystone funds, contact your
financial adviser or call Keystone.
[Keystone Logo]
KEYSTONE
INVESTMENTS
P.O. Box 2121
Boston, Massachusetts 02106-2121
GRDF-R-11/96
3.8M
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