KEYSTONE AMERICA OMEGA FUND INC /MA/, 497, 1995-04-28

KEYSTONE AMERICA OMEGA FUND INC /MA/
497, 1995-04-28

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<PAGE>

KEYSTONE OMEGA FUND

PROSPECTUS APRIL 28, 1995

Keystone Omega Fund (the "Fund") (formerly named Keystone America Omega Fund,
Inc.) is a diversified, open-end management investment company that seeks
maximum capital growth by investing in a varied portfolio consisting primarily
of common stocks and securities convertible into common stocks.

The Fund offers three classes of shares. Information on share classes and
their fee and sales charge structures may be found in the Fund's fee table,
"Alternative Sales Options," "Contingent Deferred Sales Charge and Waiver of
Sales Charges," "Distribution Plans," and "Fund Shares."

This prospectus concisely states information about the Fund that you should
know before investing. Please read it and retain it for future reference.

Additional information about the Fund is contained in a statement of
additional information and accompanying appendix dated April 28, 1995, which has
been filed with the Securities and Exchange Commission and is incorporated by
reference into this prospectus. For a free copy, or for other information about
the Fund, write to the address or call the telephone number provided on this
page.

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.

KEYSTONE OMEGA FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898

TABLE OF CONTENTS
PAGE
Fee Table 2
Financial Highlights 3
The Fund 6
Investment Objective and Policies 6
Investment Restrictions 7
Risk Factors 7
Pricing Shares 9
Dividends and Taxes 9
Fund Management and Expenses 10
How to Buy Shares 12
Alternative Sales Options 13
Calculation of Contingent Deferred Sales Charge
and Waiver of Sales Charges 16
Distribution Plans 17
How to Redeem Shares 18
Shareholder Services 20
Performance Data 22
Fund Shares 22
Additional Information 23
Additional Investment Information (i)
Exhibit A A-1

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FEE TABLE
KEYSTONE OMEGA FUND

The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in each class will bear directly or
indirectly. For more complete descriptions of the various costs and expenses,
see the following sections of this prospectus: "Fund Management and Expenses";
"How to Buy Shares"; "Distribution Plans"; and "Shareholder Services."
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
FRONT END BACK END LEVEL LOAD
SHAREHOLDER TRANSACTION EXPENSES LOAD OPTION LOAD OPTION<F1> OPTION<F2>
--------- ------------ ---------
<S> <C> <C> <C>
Sales Charge ...................................... 5.75%<F3> None None
(as a percentage of offering price)
Contingent Deferred Sales Charge .................. 0.00%<F4> 3.00% in the first year 1.00% in the first
(as a percentage of the lesser of cost or market declining to 1.00% in year and 0.00%
value of shares redeemed) the fourth year and thereafter
0.00% thereafter
Exchange Fee (per exchange)<F5>.................... $10.00 $10.00 $10.00
ANNUAL FUND OPERATING EXPENSES<F6>
(as a percentage of average net assets)
Management Fees ................................... 0.75% 0.75% 0.75%
12b-1 Fees ........................................ 0.11% 1.00%<F7> 1.00%<F7>
Other Expenses .................................... 0.55% 0.55% 0.55%
---- ---- ----
Total Fund Operating Expenses ..................... 1.41% 2.30% 2.30%
==== ==== ====
<CAPTION>
EXAMPLES<F8> 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each period:

Class A ............................................................... $ 71.00 $100.00 $130.00 $217.00
Class B ............................................................... $ 53.00 $ 92.00 $123.00 N/A
Class C ............................................................... $ 33.00 $ 72.00 $123.00 $264.00

You would pay the following expenses on a $1,000 investment,
assuming no redemption at the end of each period:

Class A ............................................................... $ 71.00 $100.00 $130.00 $217.00
Class B ............................................................... $ 23.00 $ 72.00 $123.00 N/A
Class C ............................................................... $ 23.00 $ 72.00 $123.00 $264.00

AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
- ---------
<FN>
<F1>Class B Shares convert tax free to Class A shares after seven calendar years.

<F2>Class C shares are available only through dealers who have entered into special distribution agreements with Keystone
Investment Distributors Company, the Fund's principal underwriter.
<F3>The sales charge applied to purchases of Class A shares declines as the amount invested increases. See "Sales Charges."
<F4>Purchases of Class A shares in the amount of $1,000,000 or more and/or purchases made by certain qualifying retirement or other
plans are not subject to a sales charge, but may be subject to a contingent deferred sales charge. See the "Calculation of
Contingent Deferred Sales Charge and Waiver of Sales Charges" section of this prospectus for an explanation of the charge.

<F5>There is no fee for exchange orders received by the Fund directly from a shareholder over the Keystone Automated Response Line
("KARL"). (For a description of KARL, see "Shareholder Services.")
<F6>Expense ratios are for the Fund's fiscal year ended December 31, 1994.
<F7>Long term shareholders may pay more than the equivalent of the maximum front end sales charges permitted by the National
Association of Securities Dealers, Inc. ("NASD").
<F8>The Securities and Exchange Commission requires use of a 5% annual return figure for purposes of this example. Actual return
for the Fund may be greater or less than 5%.
</TABLE>
<PAGE>

FINANCIAL HIGHLIGHTS -- CLASS A SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)

The following table contains significant financial information with respect
to the Fund and the information in years 1989 to 1994 has been audited by KPMG
Peat Marwick LLP, the Fund's independent auditors. The financial highlights for
the years ended December 31, 1985 to 1988 were audited by other auditors. The
table appears in the Fund's Annual Report and should be read in conjunction with
the Fund's financial statements and related notes, which also appear, together
with the auditors' report, in the Fund's Annual Report. The Fund's financial
statements, related notes, and auditors' report are included in the statement of
additional information. Additional information about the Fund's performance is
contained in its Annual Report, which will be made available upon request and
without charge.
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------

1994 1993 1992<F3> 1991 1990 1989 1988 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ---- ---- ----

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR ........................... $17.11 $15.84 $17.68 $13.37 $16.03 $13.66 $12.08 $13.44 $14.12 $10.78
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations
Investment income (loss)--net ...... 0.04 (0.07) 0.00 (0.04) 0.11 0.17 0.30<F4> 0.02 0.23 0.28
Net gains (losses) on investments .. (1.00) 3.07 0.39 6.92 (0.39) 4.30 1.40 1.11 1.49 3.18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ..................... (0.96) 3.00 0.39 6.88 (0.28) 4.47 1.70 1.13 1.72 3.46
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
Dividends from investment
income--net ....................... 0.00 0.00 0.00 (0.02) (0.25) (0.20) (0.12) (0.24) (0.28) (0.12)
Distribution in excess of investment
income--net<F1> .................. 0.00 0.00 0.00 (0.05) (0.04) 0.00 0.00 0.00 0.00 0.00
Distribution from capital gains .... (0.61) (1.73) (2.23) (2.50) (2.09) (1.90) 0.00 (2.25) (2.12) 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions .............. (0.61) (1.73) (2.23) (2.57) (2.38) (2.10) (0.12) (2.49) (2.40) (0.12)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

NET ASSET VALUE, END OF YEAR........ $15.54 $17.11 $15.84 $17.68 13.37 $16.03 $13.66 $12.08 $13.44 $14.12
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN<F2> ................... (5.66%) 19.33% 4.00% 54.49% (2.38%) 33.05% 14.05% 8.27% 12.07% 33.29%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Operating and management expenses. 1.41% 1.51% 1.52% 1.57% 1.73% 1.84% 1.78% 1.99% 1.47% 1.65%
Investment income (loss) -- net .. 0.27% (0.48%) (0.01%) (0.31%) 0.70% 1.03% 2.22% 0.13% 1.60% 2.26%
Portfolio turnover rate ............ 137% 162% 176% 115% 108% 77% 84% 106% 178% 188%
Net assets, end of year
(thousands) ....................... $99,569 $90,404 $73,144 $58,671 $38,531 $39,682 $33,951<F3> $30,246<F3> $31,812<F3> $31,036<F3>
- ---------.

<FN>
<F1>Effective January 1, 1993, the Fund adopted Statement of Position 93-2: "Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain and Return of Capital Distributions by Investment Companies". As a result, distribution
amounts exceeding book basis net investment income (or tax basis net income on a temporary basis) are presented as
distributions in excess of investment income -- net. Similarly, capital gain distributions in excess of book basis capital
gains (or tax basis capital gains on a temporary basis) are presented as "Distributions in excess of capital gains". For the
fiscal years ended December 31, 1992, 1991, and 1990, distributions, if any, in excess of book basis net income were charged
to paid-in capital.
<F2>Excluding applicable sales charges.
<F3>Calculated on average shares outstanding.
<F4>Includes $0.17 per share relating to a special non-recurring distribution from INCO Limited.
</TABLE>

<PAGE>
FINANCIAL HIGHLIGHTS -- CLASS B SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)

The following table contains significant financial information with respect
to the Fund and has been audited by KPMG Peat Marwick LLP, the Fund's
independent auditors. The table appears in the Fund's Annual Report and should
be read in conjunction with the Fund's financial statements and related notes,
which also appear, together with the auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes and auditors' report are
included in the statement of additional information. Additional information
about the Fund's performance is contained in its Annual Report which will be
made available upon request and without charge.

<TABLE>
<CAPTION>
AUGUST 2, 1993
YEAR (DATE OF INITIAL
ENDED PUBLIC OFFERING) TO
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ....... $17.06 $17.29
------ ------
Income from investment operations
Investment income (loss)--net .............. (0.06) (0.05)
Net gains (losses) on investments .......... (1.05) 1.55
------ ------
Total from investment operations ......... (1.11) 1.50
------ ------
Less distributions
Distributions from capital gains ........... (0.61) (1.73)
------ ------
Total distributions ...................... (0.61) (1.73)
------ ------
NET ASSET VALUE, END OF PERIOD ............. $15.34 $17.06
====== ======
TOTAL RETURN<F2> ........................... (6.57%) 9.02%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Operating and management expenses ........ 2.30% 2.57%<F1>
Investment income (loss)--net ............ (0.58%) (1.73%)<F1>
Portfolio turnover rate .................... 137% 162%
Net assets, end of period (thousands) ...... $32,266 $7,423

<FN>
<F1>Annualized.
<F2>Excluding applicable sales charges.
</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS -- CLASS C SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)

AUGUST 2, 1993
YEAR (DATE OF INITIAL
ENDED PUBLIC OFFERING) TO
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........ $17.09 $17.29
------ ------
Income from investment operations
Investment income (loss)--net ............... (0.07) (0.06)
Net gains (losses) on investments ........... (1.04) 1.59
------ ------
Total from investment operations .......... (1.11) 1.53
------ ------
Less distributions
Distributions from capital gains ............ (0.61) (1.73)
------ ------
Total distributions ....................... (0.61) (1.73)
------ ------
NET ASSET VALUE, END OF PERIOD .............. $15.37 $17.09
====== ======

TOTAL RETURN<F2> ............................ (6.56%) 9.20%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Operating and management expenses ......... 2.30% 2.48%<F1>
Investment income (loss)--net ............. (0.63%) (1.64%)<F1>
Portfolio turnover rate ..................... 137% 162%
Net assets, end of period (thousands) ....... $9,900 $3,620

<FN>
<F1>Annualized.
<F2>Excluding applicable sales charges.
</TABLE>

<PAGE>

THE FUND
The Fund is an open-end, diversified management investment company commonly
known as a mutual fund. The Fund is a Massachusetts business trust. Originally
the Fund had been incorporated in Massachusetts on February 8, 1968. The Fund is
one of twenty funds managed by Keystone Management, Inc. ("Keystone
Management"), the Fund's investment manager, and one of thirty funds advised by
Keystone Investment Management Company ("Keystone") (formerly named Keystone
Custodian Funds, Inc.), the Fund's investment adviser. Keystone and Keystone
Management are, from time to time, collectively referred to as "Keystone."

INVESTMENT OBJECTIVE AND POLICIES
PRINCIPAL INVESTMENTS
The Fund's investment objective is to seek maximum capital growth by investing
in a varied portfolio consisting primarily of common stocks and securities
convertible into common stocks.

The Fund pursues its objective by employing the techniques of the
fully-managed investment concept, meaning that Keystone will continuously review
both individual securities and relevant general conditions. Whenever, in the
opinion of Keystone, a security no longer seems to have the required
characteristics, an anticipated level of performance has been achieved, or other
securities present relatively greater opportunities for realizing the Fund's
objective, appropriate changes will be made in the Fund's portfolio. The Fund's
equity position will be changed as Keystone changes its evaluation of trends in
general securities price levels. Portfolio turnover rate will not be considered
a limiting factor in the execution of investment decisions.

In pursuing its objective, the Fund may also invest, consistent with its
investment objective, in equity and debt foreign securities issued by issuers
located in developed countries as well as emerging markets countries, including
certain formerly communist countries. For this purpose, countries with emerging
markets are generally those where the per capita income is in the low to middle
ranges, as determined by the International Bank for Reconstruction and
Development ("World Bank").

OTHER ELIGIBLE SECURITIES
When Keystone deems it advisable, the Fund may, for temporary defensive
purposes, invest without limit in investment grade bonds or debentures rated by
Moody's Investors Service, Inc. ("Moody's") as Baa or better or by Standard &
Poor's Corporation ("S&P") as BBB or better or those having at least similar
quality in Keystone's judgment. Bonds that are rated Baa by Moody's are
considered to be medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present, but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and have speculative characteristics as
well. Debt rated BBB by S&P is regarded as having an adequate capacity to pay
interest and repay principal. While it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories. Under circumstances where
the Fund is investing for defensive purposes, it will not be pursuing its
investment objective.

The Fund also may invest in non-convertible preferred stocks of companies
considered credit-worthy and able to sustain dividend payments; and short-term
money market instruments maturing in one year or less. Such money market
instruments may be United States ("U.S.") government securities; certificates of
deposit in banks considered credit-worthy; or commercial paper of companies, the
bonds or debentures of which are investment grade. While these securities are
not without risk of price fluctuation or default, they are generally less
volatile than common stock.

The Fund may enter into repurchase and reverse repurchase agreements, invest
in master demand notes, lend portfolio securities, purchase and sell securities
and currencies on a when issued and delayed delivery basis and purchase or sell
securities on a forward commitment basis, write covered call and put options and
purchase call and put options to close out existing positions and may employ new
investment techniques with respect to such options. The Fund may also enter into
currency and other financial futures contracts and related options transactions
for hedging purposes and not for speculation, and may employ new investment
techniques with respect to such futures contracts and related options.

The Fund intends to follow policies of the Securities and Exchange Commission
as they are adopted from time to time with respect to illiquid securities,
including, at this time, (1) treating as illiquid securities that may not be
sold or disposed of in the ordinary course of business within seven days at
approximately the value at which the Fund has valued such securities on its
books and (2) limiting its holdings of such securities to 15% of net assets.

The Fund may invest in restricted securities, including securities eligible
for resale pursuant to Rule 144A under the 1933 Act. Generally, Rule 144A
establishes a safe harbor from the registration requirements of the 1933 Act for
resales by large institutional investors of securities not publicly traded in
the U.S. The Fund may purchase Rule 144A securities when such securities present
an attractive investment opportunity and otherwise meet the Fund's selection
criteria. Keystone determines the liquidity of the Fund's Rule 144A securities
in accordance with guidelines adopted by the Board of Trustees.

At the present time, the Fund cannot accurately predict exactly how the market
for Rule 144A securities will develop. A Rule 144A security that was readily
marketable upon purchase may subsequently become illiquid. In such an event, the
Board of Trustees will consider what action, if any, is appropriate.

For further information about the types of investments and investment
techniques available to the Fund, including the risks associated therewith see
the section of this prospectus entitled "Additional Investment Information" and
the statement of additional information.

There can, of course, be noassurance that the Fund willachieve its investment
objective.

NONFUNDAMENTAL NATURE OF INVESTMENT OBJECTIVE
The Fund's investment objective is nonfundamental and may be changed without
the vote of a majority of the shareholders. If the investment objective is
changed and a shareholder determines that the Fund is no longer an appropriate
investment, the shareholder may redeem his or her shares, but may be subject to
a contingent deferred sales charge upon redemption.

INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental investment restrictions set forth below,
which may not be changed without the vote of a majority of the Fund's
outstanding shares, meaning the lesser of (1) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented or (2)
more than 50% of the outstanding shares. Unless otherwise stated, all references
to the Fund's assets are in terms of current market value.

The Fund may not do the following: (1) invest more than 10% of its total
assets in the securities of any one issuer, (2) borrow, unless, immediately
after any such borrowing, such borrowing and all other such borrowings and other
liabilities do not exceed one-third of the value of the Fund's total assets; and
(3) concentrate its investments in any particular industry.

RISK FACTORS
Investing in the Fund involves the risk common to investing in any security,
i.e., net asset value will fluctuate in response to changes in economic
conditions, interest rates and the market's perception of the underlying
portfolio securities of the Fund.

Investment in common stocks, particularly those having growth characteristics,
frequently involves greater risks (and possibly greater rewards) than investment
in other types of securities. Common stock prices tend to be more volatile and
companies having growth characteristics may sometimes be unproven.

By itself, the Fund does not constitute a balanced investment plan. The Fund
stresses providing growth of capital by investing in common stocks, debt
securities and rights and warrants. The yield of the Fund's portfolio securities
will fluctuate with changing market conditions. The Fund makes most sense for
those investors who can afford to ride out changes in the stock market because
it invests a substantial portion of its assets in common stocks.

Investments in foreign securities may involve more risk than investments in
securities of domestic issuers for the following reasons: (1) there may be less
public information available about foreign companies than is available about
U.S. companies; (2) foreign companies are not generally subject to the uniform
accounting, auditing and financial reporting standards and practices applicable
to U.S. companies; (3) foreign stock markets have less volume than the U.S.
market, and the securities of some foreign companies are much less liquid and
much more volatile than the securities of comparable U.S. companies; (4) foreign
securities transactions may involve higher brokerage commissions; (5) there may
be less government regulation of stock markets, brokers, listed companies and
banks in foreign countries than in the U.S.; (6) the Fund may incur fees on
currency exchanges when it changes investments from one country to another; (7)
the Fund's foreign investments could be affected by expropriation, confiscatory
taxation, nationalization, establishment of currency exchange controls,
political or social instability or diplomatic developments; (8) fluctuations in
foreign exchange rates will affect the value of the Fund's investments, the
value of dividends and interest earned, gains and losses realized on the sale of
securities, net investment income and unrealized appreciation or depreciation of
investments; (9) interest and dividends on foreign securities may be subject to
withholding taxes in a foreign country that could result in a reduction of net
investment income available for distribution; and (10) to the extent the Fund
invests in securities of issuers located in the formerly communist countries of
Eastern Europe and the People's Republic of China, there is the risk that those
countries could convert back to a single economic structure.

Investing in securities of issuers in emerging market countries involves
exposure to economic systems that are generally less mature and political
systems that are generally less stable than, those of developed countries. In
addition, investing in companies in emerging market countries may also involve
exposure to national policies that may restrict investment by foreigners and
undeveloped legal systems governing private and foreign investments and private
property. The typically small size of the markets for securities issued by
companies in emerging markets countries and the possibility of a low or
nonexistent volume of trading in those securities may also result in a lack of
liquidity and in price volatility of those securities. Furthermore, investing in
securities of companies in the formerly communist countries of Eastern Europe
and the People's Republic of China involve additional risks to those associated
with investments in companies in non-formerly communist emerging markets
countries. Specifically, those countries could convert back to a single economic
system, and the claims of property owners prior to the expropriation by the
communist regime could be settled in favor of the former property owners, in
which case the Fund could lose its entire investment in those countries.

If and when the Fund invests in zero coupon bonds, the Fund does not expect to
have enough zero coupon bonds to have a material effect on dividends. The Fund
has undertaken to a state securities authority to disclose that zero coupon
securities pay no interest to holders prior to maturity, and the interest on
these securities is reported as income to the Fund and distributed to its
shareholders. These distributions must be made from the Fund's cash assets or,
if necessary, from the proceeds of sales of portfolio securities. The Fund will
not be able to purchase additional income producing securities with cash used to
make such distributions, and its current income ultimately may be reduced as a
result.

Past performance should not be considered representative of results for any
future period of time. Moreover, should many shareholders change from this Fund
to some other investment at about the same time, the Fund might have to sell
portfolio securities at a time when it would be disadvantageous to do so and at
a lower price than if such securities were held to maturity.

For additional information regarding the Fund's investments in securities of
newer and smaller companies and Rule 144A securities, see "Investment Objective
and Policies". For further information about the types of investments and
investment techniques available to the Fund, including the associated risks, see
"Additional Investment Information" and the statement of additional information.

PRICING SHARES
The net asset value of a Fund share is computed each day on which the New York
Stock Exchange (the "Exchange") is open as of the close of trading on the
Exchange (currently 4:00 p.m. Eastern time for the purpose of pricing fund
shares) except on days when changes in the value of the Fund's portfolio
securities do not affect the current net asset value of its shares. The Exchange
currently is closed on weekends, New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of the Fund is arrived at by determining the value
of the Fund's assets, subtracting its liabilities and dividing the result by the
number of its shares outstanding.

For the purposes of calculating the net asset value of a Fund share on any
given day, securities traded on national securities exchanges or reported on the
National Association of Securities Dealers' Automated Quotation System
("NASDAQ") National Market are valued at the last sale price. If there were no
transactions on that day, securities will be valued at the mean of the closing
bid and asked prices or at such other value as shall be determined in good
faith, by or under the direction of the Fund's Board of Trustees, to be the fair
market value of such securities. Commercial paper is generally valued at cost,
which approximates market.

Other securities, including unlisted securities, are valued at the last
reported bid price if such prices are available. Prices for such securities are
considered to be unavailable if, for example, the securities are restricted
securities, or if there exists a "thin market" in the securities. In such
situations, the value is determined in good faith by or under the direction of
the Fund's Board of Trustees.

DIVIDENDS AND TAXES
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code (the "Code"). The Fund
qualifies if, among other things, it distributes to its shareholders at least
90% of its net investment income for its fiscal year. The Fund also intends to
make timely distributions, if necessary, sufficient in amount to avoid the
nondeductible 4% excise tax imposed on a regulated investment company to the
extent that it fails to distribute, with respect to each calendar year, at least
98% of its ordinary income for such calendar year and 98% of its net capital
gains for the one-year period ending October 31 of such calendar year. Any
taxable dividend declared in October, November, or December to shareholders of
record in such month and paid by the following January 31 will be includable in
the taxable income of the shareholder as if paid on December 31 of the year in
which the dividend was declared. If the Fund qualifies and if it distributes all
of its net investment income and net capital gains, if any, to shareholders, it
will be relieved of any federal income tax liability. The Fund distributes all
of its net investment income and net capital gains at least annually. Because
Class A shares bear most of the costs of distribution of such shares through
payment of a front end sales charge, while Class B and Class C shares bear such
expenses through a higher annual distribution fee, expenses attributable to
Class B shares and Class C shares will generally be higher, and income
distributions paid by the Fund with respect to Class A shares will generally be
greater than those paid with respect to Class B and Class C shares.

Shareholders receive Fund distributions in the form of Fund shares at net
asset value (without a sales charge), or at the shareholder's option, in cash.
Dividends and distributions are taxable whether they are received in cash or in
shares. Income dividends and net short-term gains dividends are taxable as
ordinary income, and net long-term dividends are taxable as capital gains
regardless of how long the Fund's shares are held. If Fund shares held for less
than six months are sold at a loss, however, such loss will be treated for tax
purposes as a long-term capital loss to the extent of any long-term capital
gains dividends received. The Fund advises its shareholders annually as to the
federal tax status of all distributions made during the year.

FUND MANAGEMENT AND EXPENSES
BOARD OF TRUSTEES
Under Massachusetts law, the Fund's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the Fund.
Subject to the authority of the Fund's Board of Trustees, Keystone, the Fund's
investment adviser, provides investment advice, management and administrative
services to the Fund.

INVESTMENT MANAGER
Subject to the authority of the Fund's Board of Directors, Keystone
Management, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034,
serves as investment manager to the Fund and is responsible for the overall
management of the Fund's business and affairs.

Keystone Management, the Fund's investment manager, organized in 1989, is a
wholly-owned subsidiary of Keystone. Its directors and principal executive
officers have been affiliated with Keystone, a seasoned investment adviser, for
a number of years. Keystone Management also serves as investment manager to most
of the other Keystone America Funds and certain other Funds in the Keystone
Investments Family of Funds.

Pursuant to its Investment Management Agreement with the Fund (the "Management
Agreement"), Keystone Management has delegated its investment management
functions, except for certain administrative and management services to
Keystone. Keystone Management has entered into an Investment Advisory Agreement
with Keystone (the "Advisory Agreement") under which Keystone provides
investment advisory and management services to the Fund. Services performed by
Keystone Management include (1) performing research and planning with respect to
(a) the Fund's qualification as a regulated investment company under Subchapter
M of the Internal Revenue Code, (b) tax treatment of the Fund's portfolio
investments, (c) tax treatment of special corporate actions (such as
reorganizations), (d) state tax matters affecting the Fund, and (e) the Fund's
distributions of income and capital gains; (2) preparing the Fund's federal and
state tax returns; (3) providing services to the Fund's shareholders in
connection with federal and state taxation and distributions of income and
capital gains; and (4) storing documents relating to the Fund's activities.

The Fund pays Keystone Management a fee for its services at the annual rate
set forth below:

Aggregate Net Asset
Management Value of the Shares
Fee of the Fund
- ---------------------------------------------------------------------------
0.75% of the first $ 250,000,000, plus
0.675% of the next $ 250,000,000, plus
0.60% of the next $ 500,000,000, plus
0.50% of amounts over $1,000,000,000

computed as of the close of business on each business dayand payable daily.

During the fiscal year ended December 31, 1994, the Fund paid or accrued to
Keystone Management investment management and administrative services fees of
$924,625, which amount represented 0.75% of the Fund's average net assets. Of
the amount paid to Keystone Management, $785,931 was paid to Keystone for
investment advisory services rendered pursuant to the Advisory Agreement.

To the extent the Fund's management fee equals 0.75%, the fee would be higher
than that paid by most mutual funds, but would not necessarily be higher than
that paid by funds with similar objectives.

INVESTMENT ADVISER
Keystone, the Fund's investment adviser, has provided investment advisory and
management services to investment companies and private accounts since it was
organized in 1932. Keystone is a wholly-owned subsidiary of Keystone
Investments, Inc. ("Keystone Investments"), both located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034.

Keystone Investments is a corporation privately owned by current and former
members of management and certain employees of Keystone and its affiliates. The
shares of Keystone Investments common stock beneficially owned by management are
held in a number of voting trusts, the trustees of which are George S. Bissell,
Albert H. Elfner, III, Edward F. Godfrey, and Ralph J. Spuehler, Jr. Keystone
provides accounting, bookkeeping, legal, personnel and general corporate
services to Keystone Management, Keystone, their affiliates and the Keystone
Investments Family of Funds.

Pursuant to the Advisory Agreement, Keystone receives for its services an
annual fee representing 85% of the management fee received by Keystone
Management under the Management Agreement.

The Management Agreement and Advisory Agreement continue in effect from year
to year only so long as such continuance is specifically approved at least
annually by the Fund's Board of Trustees or by vote of a majority of the
outstanding shares of the Fund. In either case, the terms of the Management
Agreement and the Advisory Agreement and continuance thereof must be approved by
the vote of a majority of Independent Trustees in person at a meeting called for
the purpose of voting on such approval. The Management Agreement and the
Advisory Agreement may be terminated, without penalty, on 60 days' written
notice by the Fund, Keystone Management or Keystone or terminated by a vote of
the Fund's shareholders. The Management Agreement and the Advisory Agreement
will terminate automatically upon assignment.

The Fund has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.

PORTFOLIO MANAGER
Maureen E. Cullinane has been the Fund's portfolio manager since 1989. She is
a Keystone Senior Vice President and Senior Portfolio Manager, and has more than
18 years of investment experience.

FUND EXPENSES
The Fund will pay all of its expenses. In addition to the investment advisory
and management fees discussed above, the principal expenses that the Fund is
expected to pay include expenses of certain of its Trustees; transfer, dividend
disbursing and shareholder servicing agent expenses; custodian expenses; fees of
its accountants and legal counsel to its Trustees; fees payable to government
agencies, including registration and qualification fees of the Fund and its
shares under federal and state securities laws; and certain extraordinary
expenses. In addition, each class will pay all of the expenses attributable to
it. Such expenses are currently limited to Distribution Plan expenses. The Fund
also pays its brokerage commissions, interest charges and taxes.

For the fiscal year ended December 31, 1994, the Fund's Class A shares paid
1.41% of Class A average net assets in expenses. For the fiscal year ended
December 31, 1994, the Fund's Class B and Class C shares paid, on an annualized
basis, 2.30% and 2.30%, respectively, of their average net assets in expenses.

During the fiscal year ended December 31, 1994, the Fund paid or accrued to
Keystone Investor Resource Center, Inc. ("KIRC"), the Fund's transfer and
dividend disbursing agent, and Keystone Investments $16,827 for certain
accounting and printing services and $480,953 for shareholder services. KIRC is
a wholly-owned subsidiary of Keystone.

SECURITIES TRANSACTIONS
Under policies established by the Fund's Board of Trustees, Keystone selects
broker-dealers to execute transactions subject to the receipt of best execution.
When selecting broker-dealers to execute portfolio transactions for the Fund,
Keystone may consider as a factor the number of shares of the Fund sold by such
broker-dealer. In addition, broker-dealers executing portfolio transactions may,
from time to time, be affiliated with the Fund, Keystone Management, Keystone,
the Fund's principal underwriter or their affiliates.

The Fund may pay higher commissions to broker-dealers that provide research
services.Keystone may use these services in advising the Fund as well as in
advising its other clients.

PORTFOLIO TURNOVER
For the fiscal year ended December 31, 1994, the portfolio turnover rates for
each of the Fund's Class A, B, and C shares was 137%. For the fiscal year ended
December 31, 1993, the Fund's portfolio turnover rate was 162%. High portfolio
turnover may involve correspondingly greater brokerage commissions and other
transaction costs, which will be borne directly by the Fund, as well as
additional realized gains and/or losses to shareholders. For further information
about brokerage and distributions, see the statement of additional information.

HOW TO BUY SHARES
You may purchase shares of the Fund from any broker-dealer that has a selling
agreement with Keystone Investment Distributors Company (the "Principal
Underwriter") (formerly named Keystone Distributors, Inc.), the Fund's principal
underwriter. The Principal Underwriter, a wholly-owned subsidiary of Keystone,
is located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.

In addition, you may open an account for the purchase of shares of the Fund by
mailing to the Fund c/o Keystone Investor Resource Center, Inc., P.O. Box 2121,
Boston, Massachusetts 02106-2121, a completed account application and a check,
payable to the Fund or you may telephone 1-800-343-2898 to obtain the number of
an account to which you can wire or electronically transfer funds and then send
in a completed account application. Subsequent investments in any amount may be
made by check, by wiring Federal funds or by an electronic funds transfer
("EFT").

Orders for the purchase of shares of the Fund will be confirmed at an offering
price equal to the net asset value per share next determined after receipt of
the order in proper form by the Principal Underwriter, the Fund's principal
underwriter (generally as of the close of the Exchange on that day) plus, in the
case of Class A shares, the front end sales charge. Orders received by dealers
or other firms prior to the close of the Exchange and received by the Principal
Underwriter prior to the close of its business day will be confirmed at the
offering price effective as of the close of the Exchange on that day. The Fund
reserves the right to determine the net asset value more frequently than once a
day if deemed desirable. Dealers and other financial services firms are
obligated to transmit orders promptly.

Orders for shares received by broker-dealers prior to that day's close of
trading on the Exchange and transmitted to the Fund prior to its close of
business that day will receive the offering price equal to the net asset value
per share computed at the close of trading on the Exchange on the same day plus,
in the case of Class A shares, the front end sales charge. Orders received by
broker-dealers after that day's close of trading on the Exchange and transmitted
to the Fund prior to the close of business on the next business day will receive
the next business day's offering price.

Orders for shares received directly by the Fund from you will receive the
offering price equal to the net asset value per share next computed after the
Fund receives the purchase order plus, in the case of Class A shares, the front
end sales charge.

The initial purchase must be at least $1,000. There is no minimum amount for
subsequent purchases.

The Fund reserves the right to withdraw all or any part of the offering made
by this prospectus and to reject purchase orders.

Shareholder inquiries should be directed to KIRC by calling toll free
1-800-343-2898 or writing to KIRC or to the firm from which this prospectus was
received.

ALTERNATIVE SALES OPTIONS
The Fund offers three classes of shares:

CLASS A SHARES -- FRONT END LOAD OPTION
Class A shares are sold with a sales charge at the time of purchase. Class A
shares are not subject to a deferred sales charge when they are redeemed except
as follows: Class A shares purchased in an amount exceeding $1,000,000 or
purchased by a corporate qualified retirement plan or a non-qualified deferred
compensation plan sponsored by a corporation having 100 or more eligible
employees (a "Qualifying Plan"), in either case, without a front end sales
charge will be subject to a contingent deferred sales charge for the 24 month
period following the date of purchase.

CLASS B SHARES -- BACK END LOAD OPTION
Class B shares are sold without a sales charge at the time of purchase, but
are subject to a deferred sales charge if they are redeemed during the year of
purchase or within three calendar years after the calendar year of purchase.
Class B shares will automatically convert to Class A shares at the end of seven
calendar years after the year of purchase.

CLASS C SHARES -- LEVEL LOAD OPTION
Class C shares are sold without a sales charge at the time of purchase, but
are subject to a deferred sales charge if they are redeemed within one year
after the date of purchase. Class C shares are available only through dealers
who have entered into special distribution agreements with the Principal
Underwriter.

Each class of shares, pursuant to its Distribution Plan, pays an annual
service fee of 0.25% of the Fund's average daily net assets attributable to that
class. In addition to the 0.25% service fee, the Class B and C Distribution
Plans provide for the payment of an annual distribution fee of up to 0.75% of
the average net assets attributable to their respective classes. As a result,
income distributions paid by the Fund with respect to Class B and Class C shares
will generally be less than those paid with respect to Class A shares.

Investors who would rather pay the entire cost of distribution at the time of
investment, rather than spreading such cost over time, might consider Class A
shares. Other investors might consider Class B or Class C shares, in which case
100% of the purchase price is invested immediately, depending on the amount of
the purchase and the intended length of investment. The Fund will not normally
accept any purchase of Class B shares in the amount of $250,000 or more and will
not normally accept any purchase of Class C shares in the amount of $1,000,000
or more.

CLASS A SHARES
Class A shares are offered at net asset value plus an initial sales charge as
follows:
<TABLE>
<CAPTION>

AS A % OF CONCESSION TO
AS A % OF NET AMOUNT DEALERS AS A % OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED<F1> OFFERING PRICE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 ...................... 5.75% 6.10% 5.25%
$50,000 but less than $100,000 ......... 4.75% 4.99% 4.25%
$100,000 but less than $250,000 ........ 3.75% 3.90% 3.25%
$250,000 but less than $500,000 ........ 2.50% 2.56% 2.25%
$500,000 but less than $1,000,000 ...... 1.50% 1.52% 1.50%
- ---------
<FN>
<F1>Rounded to the nearest one-hundredth percent.
</TABLE>

---------------------------------------

Purchases of the Fund's Class A shares in the amount of $1 million or more
and/or purchases of Class A shares made by a Qualifying Plan will be at net
asset value without the imposition of a front-end sales charge (each such
purchase, a "NAV Purchase").

With respect to NAV Purchases, the Principal Underwriter will pay
broker/dealers or others concessions based on (1) the investor's cumulative
purchases during the one-year period beginning with the date of the initial NAV
Purchase and (2) the investor's cumulative purchases during each subsequent
one-year period beginning with the first NAV Purchase following the end of the
prior period. For such purchases, concessions will be paid at the following
rate: 1.00% of the investment amount up to $2,999,999; plus 0.50% of the
investment amount between $3,000,000 and $4,999,999; plus 0.25% of the
investment amount over $4,999,999.

Class A shares acquired on or after April 10, 1995 in a NAV Purchase may be
subject to a contingent deferred sales charge of 1.00% upon redemption during
the 24 month period commencing on the date the shares were originally purchased.
Certain Class A shares purchased without a front-end sales charge prior to April
10, 1995 may be subject to a contingent deferred sales charge of 0.25% upon
redemption during the one year period commencing on the date such shares were
originally purchased.

The sales charge is paid to the Principal Underwriter, which in turn normally
reallows a portion to your broker-dealer. In addition, your broker-dealer
currently will be paid periodic service fees at an annual rate of up to 0.25% of
the average daily net asset value of outstanding shares of Class A sold by your
dealer.

Upon written notice to dealers with whom it has dealer agreements, the
Principal Underwriter may reallow up to the full applicable sales charge.

Initial sales charges may be eliminated for persons purchasing Class A shares
to be included in a broker-dealer managed fee based program (a "wrap account")
with broker dealers who have entered into special agreements with the Principal
Underwriter. Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of the Fund alone or in combination with
Class A shares of other Keystone America Funds. See Exhibit A to this
prospectus.

Upon prior notification to the Principal Underwriter, Class A shares may be
purchased at net asset value by clients of registered representatives within six
months after a change in the registered representative's employment, where the
amount invested represents redemption proceeds from a registered open-end
management investment company not distributed or managed by Keystone or its
affiliates; and the shareholder either (i) paid a front end sales charge, or
(ii) was at some time subject to, but did not actually pay, a contingent
deferred sales charge with respect to the redemption proceeds.

In addition, since January 1, 1995 and through December 31, 1995 ("offering
period") and upon prior notification to the Principal Underwriter, Class A
shares may be purchased at net asset value by clients of registered
representatives within six months after the redemption of shares of any
registered open-end investment company not distributed or managed by Keystone or
its affiliates, where the amount invested represents redemption proceeds from
such unrelated registered open-end investment company, and the shareholder
either (i) paid a front end sales charge, or (ii) was at some time subject to,
but did not actually pay, a contingent deferred sales charge with respect to the
redemption proceeds.

CLASS A DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class A shares
(the "Class A Distribution Plan") that provides for expenditures by the Fund,
currently limited to 0.25% annually of the average daily net asset value of
Class A shares, in connection with the distribution of Class A shares. Payment
under the Class A Distribution Plan are currently made to the Principal
Underwriter (which may reallow all or part to others, such as dealers), as
service fees at an annual rate of up to 0.25% of the average daily net asset
value of Class A shares maintained by the recipients outstanding on the books of
the Fund for specified periods.

CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales
charge. With certain exceptions, the Fund may impose a deferred sales charge of
3.00% on shares redeemed during the calendar year of purchase and the first
calendar year after the year of purchase; 2.00% on shares redeemed during the
second calendar year after the year of purchase; and 1.00% on shares redeemed
during the third calendar year after the year of purchase. No deferred sales
charge is imposed on amounts redeemed thereafter. If imposed, the deferred sales
charge is deducted from the redemption proceeds otherwise payable to you. The
deferred sales charge is retained by the Principal Underwriter. Amounts received
by the Principal Underwriter under the Class B Distribution Plan are reduced by
deferred sales charges retained by the Principal Underwriter. See "Calculation
of Contingent Deferred Sales Charges and Waiver of Sales Charges" below.

Class B shares which have been outstanding during seven calendar years will
automatically convert to Class A shares, which are subject to a lower
Distribution Plan charge, without imposition of a front end sales charge or
exchange fee. (Conversion of Class B shares represented by stock certificates
will require the return of the stock certificates to KIRC.) The Class B shares
so converted will no longer be subject to the higher expenses borne by Class B
shares. Because the net asset value per share of the Class A shares may be
higher or lower than that of the Class B shares at the time of conversion,
although the dollar value will be the same, a shareholder may receive more or
less Class A shares than the number of Class B shares converted. Under current
law, it is the Fund's opinion that such a conversion will not constitute a
taxable event under federal income tax law. In the event that this ceases to be
the case, the Board of Trustees will consider what action, if any, is
appropriate and in the best interests of the Class B shareholders.

CLASS B DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class B shares
("Class B Distribution Plan") that provides for expenditures by the Fund at an
annual rate of up to 1.00% of the average daily net asset value of Class B
shares to pay expenses of the distribution of Class B shares. Payments under the
Class B Distribution Plan are currently made to the Principal Underwriter (which
may reallow all or part to others, such as dealers) (1) as commissions for Class
B shares sold and (2) as shareholder service fees. Amounts paid or accrued to
the Principal Underwriter under (1) and (2) in the aggregate may not exceed the
annual limitation referred to above. The Principal Underwriter generally
reallows to brokers or others a commission equal to 3% of the price paid for
each Class B share sold and the shareholder service fee, which is paid at the
rate of 0.25% per annum of the net asset value of shares maintained by the
recipients outstanding on the books of the Fund for specified periods. See
"Distribution Plans" below.

CLASS C SHARES
Class C shares are offered only through dealers who have special distribution
agreements with the Principal Underwriter. Class C shares are offered at net
asset value, without an initial sales charge. With certain exceptions, the Fund
may impose a deferred sales charge of 1.00% on shares redeemed within one year
after the date of purchase. No deferred sales charge is imposed on amounts
redeemed thereafter. If imposed, the deferred sales charge is deducted from the
redemption proceeds otherwise payable to you. The deferred sales charge is
retained by the Principal Underwriter. See "Calculation of Contingent Deferred
Sales Charges and Waiver of Sales Charges" below.

CLASS C DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class C shares
("Class C Distribution Plan") that provides for expenditures by the Fund at an
annual rate of up to 1.00% of the average daily net asset value of Class C
shares to pay expenses of the distribution of Class C shares. Payments under the
Class C Distribution Plan are currently made to the Principal Underwriter (which
may reallow all or part to others, such as dealers) (1) as commissions for Class
C shares sold and (2) as shareholder service fees. Amounts paid or accrued to
the Principal Underwriter under (1) and (2) in the aggregate may not exceed the
annual limitation referred to above. The Principal Underwriter generally
reallows to brokers or others a commission in the amount of 0.75% of the price
paid for each Class C 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 sold, and,
beginning approximately fifteen months after purchase, a commission at an annual
rate of 0.75% (subject to the NASD rule -- see "Distribution Plans") plus
service fees which are paid at the annual rate of 0.25%, respectively, of the
average daily net asset value of each share maintained by the recipients
outstanding on the books of the Fund for specified periods. See "Distribution
Plans" below.

CALCULATION OF CONTINGENT DEFERRED SALES CHARGE AND WAIVER OF SALES CHARGES
Any contingent deferred sales charge imposed upon the redemption of Class A,
Class B or Class C shares is a percentage of the lesser of (1) the net asset
value of the shares redeemed or (2) the net cost of such shares. No contingent
deferred sales charge is imposed when you redeem amounts derived from (1)
increases in the value of your account above the net cost of such shares due to
increases in the net asset value per share of such shares; (2) certain shares
with respect to which the Fund did not pay a commission on issuance, including
shares acquired through reinvestment of dividend income and capital gains
distributions; (3) certain Class A shares held for more than one or two years,
as the case may be, from the date of purchase; (4) Class B shares held during
more than four consecutive calendar years; or (5) Class C shares held for more
than one year from the date of purchase. Upon request for redemption, shares not
subject to the contingent deferred sales charge will be redeemed first.
Thereafter, shares held the longest will be the first to be redeemed.

The Fund may also sell Class A, Class B or Class C shares at net asset value
without any initial sales charge or a contingent deferred sales charge to
certain Directors, Trustees, officers and employees of the Fund and Keystone and
certain of their affiliates, to registered representatives of firms with dealer
agreements with the Principal Underwriter and to a bank or trust company acting
as a trustee for a single account.

With respect to Class A shares purchased by a Qualifying Plan at net asset
value or Class C shares purchased by a Qualifying Plan, no CDSC will be imposed
on any redemptions made specifically by an individual participant in the
Qualifying Plan. This waiver is not available in the event a Qualifying Plan (as
a whole) redeems substantially all of its assets.

In addition, no contingent deferred sales charge is imposed on a redemption of
shares of the Fund in the event of (1) death or disability of the shareholder;
(2) a lump-sum distribution from a 401(k) plan or other benefit plan qualified
under the Employee Retirement Income Security Act of 1974 ("ERISA"); (3)
automatic withdrawals from ERISA plans if the shareholder is at least 59 1/2
years old; (4) involuntary redemptions of accounts having an aggregate net asset
value of less than $1,000; (5) automatic withdrawals under an automatic
withdrawal plan of up to 1 1/2% per month of the shareholder's initial account
balance; (6) withdrawals consisting of loan proceeds to a retirement plan
participant; (7) financial hardship withdrawals made by a retirement plan
participant; or (8) withdrawals consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan participant.

ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
The Principal Underwriter may, from time to time, provide promotional
incentives, including reallowance of up to the entire sales charge, to certain
dealers whose representatives have sold or are expected to sell significant
amounts of Fund shares. In addition, dealers may, from time to time, receive
additional cash payments. The Principal Underwriter may also provide written
information to dealers with whom it has dealer agreements that relates to sales
incentive campaigns conducted by such dealers for their representatives as well
as financial assistance in connection with pre-approved seminars, conferences
and advertising. No such programs or additional compensation will be offered to
the extent they are prohibited by the laws of any state or any self-regulatory
agency such as the NASD. Dealers to whom substantially the entire sales charge
on Class A shares is reallowed may be deemed to be underwriters as that term is
defined under the 1933 Act.

The Principal Underwriter may, at its own expense, pay concessions in addition
to those described above to dealers which satisfy certain criteria established
from time to time by the Principal Underwriter. These conditions relate to
increasing sales of shares of the Keystone funds over specified periods and
certain other factors. Such payments may, depending on the dealer's satisfaction
of the required conditions, be up to .25% of the value of shares sold by such
dealer.

The Principal Underwriter may also pay a transaction fee (up to the level of
payments allowed to dealers for the sale of shares, as described above) to banks
and other financial services firms that facilitate transactions in shares of the
Fund for their clients.

The Glass-Steagall Act currently limits the ability of a depository
institution (such as a commercial bank or a savings and loan association) to
become an underwriter or distributor of securities. In the event the
Glass-Steagall Act is deemed to prohibit depository institutions from accepting
payments under the arrangement described above, or should Congress relax current
restrictions on depository institutions, the Board of Trustees will consider
what action, if any, is appropriate.

In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.

DISTRIBUTION PLANS
The Fund bears some of the costs of selling its shares under Distribution
Plans adopted with respect to its Class A, Class B and Class C shares pursuant
to Rule 12b-1 under the 1940 Act. Payments under the Class A Distribution Plan
are currently limited to up to 0.25% annually of the average daily net asset
value of Class A shares. The Class B Distribution Plan and the Class C
Distribution Plan provide for the payment at an annual rate of up to 1.00% of
the average daily net asset value of Class B shares and Class C shares,
respectively.

The NASD rule limits the amount that a Fund may pay annually in distribution
costs for the sale of its shares and shareholder service fees. The rule limits
annual expenditures to 1% of the aggregate average daily net asset value of its
shares, of which 0.75% may be used to pay such distribution costs and 0.25% may
be used to pay shareholder service fees. The NASD rule also limits the aggregate
amount that the Fund may pay for such distribution costs to 6.25% of gross share
sales since the inception of the 12b-1 Distribution Plan, plus interest at the
prime rate plus 1% on such amounts (less any contingent deferred sales charges
paid by shareholders to the Principal Underwriter ), remaining unpaid from time
to time.

The Principal Underwriter intends, but is not obligated, to continue to pay or
accrue distribution charges incurred in connection with the Class B Distribution
Plan that exceed current annual payments permitted to be received by the
Principal Underwriter from the Fund. The Principal Underwriter intends to seek
full payment of such charges from the Fund (together with annual interest
thereon at the prime rate plus one percent) at such time in the future as, and
to the extent that, payment thereof by the Fund would be within the permitted
limits.

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. Unpaid distribution costs at fiscal year end for Class
B and Class C shares were $2,015,349 (6.25% of Class B's net assets) and
$637,742 (6.44% of Class C's net assets).

For the year ended December 31, 1994, the Fund paid the Principal Underwriter
$103,680, $204,876, and $73,554 pursuant to the Class A, Class B and Class C
Distribution Plans, respectively. The Fund makes no payments in connection with
the sale of its shares other than the fee paid to its Principal Underwriter.

Dealers or others may receive different levels of compensation depending on
which class of shares they sell. Payments pursuant to a Distribution Plan are
included in the operating expenses of the class.

HOW TO REDEEM SHARES
You may redeem Fund shares for cash at their net asset value upon written
order to the Fund c/o KIRC, and presentation to the Fund of a properly endorsed
share certificate (if certificates have been issued). Your signature(s) on the
written order and certificates must be guaranteed as described below. In order
to redeem by telephone or to engage in telephone transactions generally, you
must complete the authorization in your account application. Proceeds for shares
redeemed on telephonic order will be deposited by wire or EFT only to the bank
account designated in your account application.

The redemption value equals the net asset value per share then determined and
may be more or less than your cost depending upon changes in the value of the
Fund's portfolio securities between purchase and redemption.

REDEMPTION OF SHARES IN GENERAL
At various times, the Fund may be requested to redeem shares for which it has
not yet received good payment. In such a case, the Fund may delay the mailing of
a redemption check or the wiring or EFT of redemption proceeds until good
payment has been collected for the purchase of such shares. This may take 15
days. Any delay may be avoided by purchasing shares either with a certified
check or by Federal Reserve or bank wire of funds or by EFT. Although the
mailing of a redemption check or the wiring or EFT of redemption proceeds may be
delayed, the redemption value will be determined and the redemption processed in
the ordinary course of business upon receipt of proper documentation. In such a
case, after the redemption and prior to the release of the proceeds, no
appreciation or depreciation will occur in the value of the redeemed shares, and
no interest will be paid on the redemption proceeds. If the payment of a
redemption has been delayed, the check will be mailed or the proceeds wired or
sent EFT promptly after good payment has been collected.

The Fund computes the amount due you at the close of the Exchange at the end
of the day on which it has received all proper documentation from you. Payment
of the amount due on redemption, less any applicable deferred sales charge, will
be made within seven days thereafter except as discussed herein.

You may also redeem your shares through broker-dealers. The Principal
Underwriter, acting as agent for the Fund, stands ready to repurchase Fund
shares upon orders from dealers and will calculate the net asset value on the
same terms as those orders for the purchase of shares received from
broker-dealers and described under "How to Buy Shares." If the Principal
Underwriter has received proper documentation, it will pay the redemption
proceeds, less any applicable deferred sales charge, to the broker-dealer
placing the order within seven days thereafter. The Principal Underwriter
charges no fee for this service. Your broker-dealer, however, may charge a
service fee.

For your protection, SIGNATURES ON CERTIFICATES, STOCK POWERS AND ALL WRITTEN
ORDERS OR AUTHORIZATIONS MUST BE GUARANTEED BY A U.S. STOCK EXCHANGE MEMBER, A
BANK OR OTHER PERSONS ELIGIBLE TO GUARANTEE SIGNATURES UNDER THE SECURITIES
EXCHANGE ACT OF 1934 AND KIRC'S POLICIES. The Fund or KIRC may waive this
requirement, but also may require additional documents in certain cases.
Currently, the requirement for a signature guarantee has been waived on
redemptions of $50,000 or less when the account address of record has been the
same for a minimum period of 30 days. The Fund and KIRC reserve the right to
withdraw this waiver at any time.

If the Fund receives a redemption order, but you have not clearly indicated
the amount of money or number of shares involved, the Fund cannot execute the
order. In such cases, the Fund will request the missing information from you and
process the order on the day such information is received.

TELEPHONE
Under ordinary circumstances, you may redeem up to $50,000 from your account
by telephone by calling toll free 1-800-343- 2898. You must complete the
Telephone Redemptions section of the application to enjoy telephone redemption
privileges.

In order to insure that instructions received by KIRC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation of
your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days.

If the redemption proceeds are less than $2,500, they will be mailed by check.
If they are $2,500 or more, they will be mailed, wired or sent by EFT to your
previously designated bank account as you direct. If you do not specify how you
wish your redemption proceeds to be sent, they will be mailed by check.

If you cannot reach the Fund by telephone, you should follow the procedures
for redeeming by mail or through a broker as set forth herein.

SMALL ACCOUNTS
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem your account if its value has fallen below $1,000, the current
minimum investment level, as a result of your redemptions (but not as a result
of market action). You will be notified in writing and allowed 60 days to
increase the value of your account to the minimum investment level. No deferred
sales charges are applied to such redemptions.

REDEMPTIONS IN KIND
If conditions arise that would make it undesirable for the Fund to pay for all
redemptions in cash, the Fund may authorize payment to be made in portfolio
securities or other property. The Fund has obligated itself, however, under the
1940 Act to redeem for cash all shares presented for redemption by any one
shareholder up to the lesser of $250,000 or 1% of the Fund's net assets in any
90-day period. Securities delivered in payment of redemptions would be valued at
the same value assigned to them in computing the net asset value per share and
would, to the extent permitted by law, be readily marketable. Shareholders
receiving such securities would incur brokerage costs upon the securities' sale.

GENERAL
The Fund reserves the right at any time to terminate, suspend or change the
terms of any redemption method described in this prospectus, except redemption
by mail, and to impose fees.

Except as otherwise noted, neither the Fund, KIRC nor the Principal
Underwriter assumes responsibility for the authenticity of any instructions
received by any of them from a shareholder in writing, over the Keystone
Automated Response Line ("KARL") or by telephone. KIRC will employ reasonable
procedures to confirm that instructions received over KARL or by telephone are
genuine. Neither the Fund, KIRC nor the Principal Underwriter will be liable
when following instructions received over KARL or by telephone that KIRC
reasonably believes to be genuine.

The Fund may temporarily suspend the right to redeem its shares when (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission so orders.

SHAREHOLDER SERVICES
Details on all shareholder services may be obtained from KIRC by writing or by
calling toll free 1-800-343-2898.

KEYSTONE AUTOMATED RESPONSE LINE
KARL offers you specific fund account information and price and yield
quotations as well as the ability to do account transactions, including
investments, exchanges and redemptions. You may access KARL by dialing toll free
1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a week.

EXCHANGES
A shareholder who has obtained the appropriate prospectus, you may exchange
shares of the Fund for shares of certain other Keystone America Funds and
Keystone Liquid Trust ("KLT") as follows:

Class A shares may be exchanged for Class A shares of other Keystone America
Funds and Class A shares of KLT;

Class B shares may be exchanged for Class B shares of other Keystone America
Funds and Class B shares of KLT; and

Class C shares may be exchanged for Class C shares of other Keystone America
Funds and Class C shares of KLT.

The exchange of Class B shares and Class C shares will not be subject to a
contingent deferred sales charge. However, if the shares being tendered for
exchange are

(i) Class A shares acquired in a NAV Purchase or otherwise without a front end
sales charge,

(ii) Class B shares which have been held for less than four years, or

(iii) Class C shares which have been held for less than one year,

and are still subject to a deferred sales charge, such charge will carry over to
the shares being acquired in the exchange transaction.

You may exchange shares for another Keystone fund for a $10 fee by calling or
writing to Keystone. The exchange fee is waived for individual investors who
make an exchange using KARL. Shares purchased by check are eligible for exchange
after 15 days. If the shares being tendered for exchange are still subject to a
deferred sales charge, such charge will carry over to the shares being acquired
in the exchange transaction. The Fund reserves the right, after providing the
required notice to shareholders, to terminate this exchange offer or to change
its terms, including the right to change the fee for any exchange.

Orders to exchange shares of the Fund for shares of KLT will be executed by
redeeming the shares of the Fund and purchasing shares of KLT at the net asset
value of such shares next determined after the proceeds from such redemption
become available, which may be up to seven days after such redemption. In all
other cases, orders for exchanges received by the Fund prior to 4:00 p.m. on any
day the Fund is open for business will be executed at the respective net asset
values determined as of the close of business that day. Orders for exchanges
received after 4:00 p.m. on any business day will be executed at the respective
net asset values determined at the close of the next business day.

An excessive number of exchanges may be disadvantageous to the Fund.
Therefore, the Fund, in addition to its right to reject any exchange, reserves
the right to terminate the exchange privilege of any shareholder who makes more
than five exchanges of shares of the funds in a year or three in a calendar
quarter.

An exchange order must comply with the requirements for a redemption or
repurchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial purchase requirements of
the fund being acquired. An exchange constitutes a sale for federal income tax
purposes.

The exchange privilege is available only in states where shares of the fund
being acquired may legally be sold.

KEYSTONE AMERICA MONEY LINE
Keystone America Money Line eliminates the delay of mailing a check or the
expense of wiring funds. You must request the service on your application.
Keystone America Money Line allows you to authorize electronic transfers of
money to purchase shares in any amount and to redeem up to $50,000 worth of
shares. You can use Keystone America Money Line like an "electronic check" to
move money between your bank account and your account in the Fund with one
telephone call. You must allow two business days after the call for the transfer
to take place. For money recently invested, you must allow normal check clearing
time before redemption proceeds are sent to your bank.

You may also arrange for systematic monthly or quarterly investments in your
Keystone America account. Once proper authorization is given, your bank account
will be debited to purchase shares in the Fund. You will receive confirmation
from the Principal Underwriter for every transaction.

To change the amount of a Keystone America Money Line or to terminate the
service (which could take up to 30 days), you must write to KIRC and include
account numbers.

RETIREMENT PLANS
The Fund has various pension and profit-sharing plans available to you,
including Individual Retirement Accounts ("IRAs"); Rollover IRAs; Simplified
Employee Pension Plans ("SEPs"), Tax Sheltered Annuity Plans ("TSAs"), 401(k)
Plans; Keogh Plans; Corporate Profit-Sharing Plans, Pension and Target Benefit
Plans; Money Purchase Plans and Salary-Reduction Plans. For details, including
fees and application forms, call toll free 1-800-247-4075 or write to KIRC.

AUTOMATIC WITHDRAWAL PLAN
Under an Automatic Withdrawal Plan, if your account has a value of at least
$10,000, you may arrange for regular monthly or quarterly fixed withdrawal
payments. Each payment must be at least $100 and may be as much as 1.5% per
month or 4.5% per quarter of the total net asset value of the Fund shares in
your account when the Automatic Withdrawal Plan is opened. Fixed withdrawal
payments are not subject to a deferred sales charge. Excessive withdrawals may
decrease or deplete the value of your account. Moreover, because of the effect
of the applicable sales charge, a Class A investor should not make continuous
purchases of the Fund's shares while participating in the Automatic Withdrawal
Plan.

DOLLAR COST AVERAGING
Through dollar cost averaging you can invest a fixed dollar amount each month
or each quarter in any Keystone America Fund. This results in more shares being
purchased when the selected fund's net asset value is relatively low and fewer
shares being purchased when the fund's net asset value is relatively high and
may result in a lower average cost per share than a less systematic investment
approach.

Prior to participating in dollar cost averaging, you must establish an account
in a Keystone America Fund or a money market fund managed or advised by
Keystone. You should designate on the application (1) the dollar amount of each
monthly or quarterly investment (minimum $100) you wish to make and (2) the fund
in which the investment is to be made. Thereafter, on the first day of the
designated month, an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund. If you are a Class A investor and paid a sales
charge on your initial purchase, the shares purchased will be eligible for
Rights of Accumulation and the sales charge applicable to the purchase will be
determined accordingly. In addition, the value of shares purchased will be
included in the total amount required to fulfill a Letter of Intent. If a sales
charge was not paid on the initial purchase, a sales charge will be imposed at
the time of subsequent purchases, and the value of shares purchased will become
eligible for Rights of Accumulation and Letters of Intent.

TWO DIMENSIONAL INVESTING
You may elect to have income and capital gains distributions from any of your
Keystone America Funds automatically invested to purchase Class A shares of any
other Keystone America Fund. You may select this service on your application and
indicate the Keystone America Fund(s) into which distributions are to be
invested. The value of shares purchased will be ineligible for Rights of
Accumulation and Letters of Intent.

OTHER SERVICES
Under certain circumstances, you may, within 30 days after a redemption,
reinstate your account at current net asset value.

PERFORMANCE DATA
From time to time the Fund may advertise "total return" and "current yield.
ALL DATA IS BASED ON HISTORICAL EARNINGS AND IS NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. Total return and yield are computed separately for each class of
shares of the Fund. Total return refers to average annual compounded rates of
return over specified periods determined by comparing the initial amount
invested in a particular class to the ending redeemable value of that amount.
The resulting equation assumes reinvestment of all dividends and distributions
and deduction of the maximum sales charge or applicable contingent deferred
sales charge and all recurring charges, if any, applicable to all shareholder
accounts. The exchange fee is not included in the calculation.

Current yield quotations represent the yield on an investment for a stated
30-day period computed by dividing net investment income earned per share during
the base period by the maximum offering price per share on the last day of the
base period.

The Fund may also include comparative performance data for each class of
shares in advertising or marketing the Fund's shares, such as data from Lipper
Analytical Services, Inc., Morningstar, Inc., Standard & Poor's Corporation,
Ibbotson Associates or other industry publications.

FUND SHARES
The Fund currently issues three classes of shares which participate
proportionately based on their relative net asset values in dividends and
distributions and have equal voting, liquidation and other rights except that
(1) expenses related to the distribution of each series or class of shares or
other expenses that the Board of Trustees may designate as series or class
expenses from time to time, are borne solely by each series or class; (2) each
series or class of shares has exclusive voting rights with respect to its
Distribution Plan, (3) each series or class has different exchange privileges
and (4) each series or class has a different designation. When issued and paid
for, the shares will be fully paid and nonassessable by the Fund. Shares may be
exchanged as explained under "Shareholder Services" but will have no other
preference, conversion, exchange or preemptive rights. Shares are redeemable,
transferable and freely assignable as collateral. The Fund is authorized to
issue series or additional classes of shares.

Shareholders are entitled to one vote for each full share owned and fractional
votes for fractional shares. Shares of the Fund vote together except when
required by law to vote separately by class. The Fund does not have annual
meetings. The Fund will have special meetings, from time to time, as required
under its Declaration of Trust and under the 1940 Act. As provided in the Fund's
Declaration of Trust, shareholders have the right to remove Trustees by an
affirmative vote of two-thirds of the outstanding shares. A special meeting of
the shareholders will be held when 10% of the outstanding shares request a
meeting for the purpose of removing a Trustee. The Fund is prepared to assist
shareholders in communications with one another for the purpose of convening
such a meeting as prescribed by Section 16(c) of the 1940 Act.

Under Massachusetts law, it is possible that a Fund shareholder may be held
personally liable for the Fund's obligations. The Fund's Declaration of Trust
provides, however, that shareholders shall not be subject to any personal
liability for the Fund's obligations and provides indemnification from Fund
assets for any shareholder held personally liable for the Fund's obligations.
Disclaimers of such liability are included in each Fund agreement.

ADDITIONAL INFORMATION
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519, is a
wholly-owned subsidiary of Keystone and serves as the Fund's transfer agent and
dividend disbursing agent.

When the Fund determines from its records that more than one account in the
Fund is registered in the name of a shareholder or shareholders having the same
address, upon notice to those shareholders, the Fund intends, when an annual
report or a semi-annual report of the Fund is required to be furnished, to mail
one copy of such report to that address.

Except as otherwise stated in this prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.

<PAGE>

ADDITIONAL INVESTMENT INFORMATION

The Fund may engage in the following investment practices to the extent
described in the prospectus and the statement of additional information.

CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. These securities, which include
bonds, debentures, corporate notes, preferred stocks and other securities, are
securities that the holder can convert into common stock. Convertible securities
rank senior to common stock in a corporation's capital structure and, therefore,
entail less risk than a corporation's common stock. The value of a convertible
security is a function of its investment value (its market worth without a
conversion privilege) and its conversion value (its market worth if exchanged).
If a convertible security's investment value is greater than its conversion
value, its price primarily will reflect its investment value and will tend to
vary inversely with interest rates (the issuer's creditworthiness and other
factors also may affect its value). If a convertible security's conversion value
is greater than its investment value, its price will tend to be higher than its
conversion value and it will tend to fluctuate directly with the price of the
underlying equity security.

OBLIGATIONS OF FOREIGN BRANCHES OF UNITED STATES BANKS
The obligations of foreign branches of U.S. banks may be general obligations
of the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by government regulation. Payment of interest
and principal upon these obligations may also be affected by governmental action
in the country of domicile of the branch (generally referred to as sovereign
risk). In addition, evidences of ownership of such securities may be held
outside the U.S. and the Fund may be subject to the risks associated with the
holding of such property overseas. Various provisions of federal law governing
domestic branches do not apply to foreign branches of domestic banks.

OBLIGATIONS OF UNITED STATES BRANCHES OF FOREIGN BANKS
Obligations of U.S. branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by federal and state regulation as well as by
governmental action in the country in which the foreign bank has its head
office. In addition, there may be less publicly available information about a
U.S. branch of a foreign bank than about a domestic bank.

MASTER DEMAND NOTES
Master demand notes are unsecured obligations that permit the investment of
fluctuating amounts by the Fund at varying rates of interest pursuant to direct
arrangements between the Fund, as lender, and the issuer as borrower. The Fund
has the right to increase the amount under the note at any time up to the full
amount provided by the note agreement, or to decrease the amount. The borrower
may repay up to the full amount of the note without penalty. Notes acquired by
the Fund permit the Fund to demand payment of principal and accrued interest at
any time (on not more than seven days" notice). Notes acquired by the Fund may
have maturities of more than one year, provided that (1) the Fund is entitled to
payment of principal and accrued interest upon not more than seven days notice,
and (2) the rate of interest on such notes is adjusted automatically at periodic
intervals which normally will not exceed 31 days but may extend up to one year.
The notes will be deemed to have a maturity equal to the longer of the period
remaining to the next interest rate adjustment or the demand notice period.
Because these types of notes are direct lending arrangements between the lender
and borrower, such instruments are not normally traded and there is no secondary
market for these notes, although they are redeemable and thus repayable by the
borrower at face value plus accrued interest at any time. Accordingly, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. In connection with master demand note
arrangements, Keystone considers, under standards established by the Board of
Trustees, earning power, cash flow and other liquidity ratios of the borrower
and will monitor the ability of the borrower to pay principal and interest on
demand. These notes are not typically rated by credit rating agencies. Unless
rated, the Fund may invest in them only if at the time of an investment the
issuer meets the criteria established for commercial paper.

REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements; i.e., the Fund purchases a
security subject to its obligation to resell and the seller's obligation to
repurchase that security at an agreed upon price and date, such date usually
being not more than seven days from the date of purchase. The resale price is
based on the purchase price plus an agreed upon market rate of interest that is
unrelated to the coupon rate or maturity of the purchased security. A repurchase
agreement imposes an obligation on the seller to pay the agreed upon price,
which obligation is in effect secured by the value of the underlying security.
The value of the underlying security is at least equal to the amount of the
agreed upon resale price and marked to market daily. The Fund may enter into
such agreements only with respect to U.S. government securities. Whether a
repurchase agreement is the purchase and sale of a security or a collateralized
loan has not been definitively established. This might become an issue in the
event of the bankruptcy of the other party to the transaction. It does not
presently appear possible to eliminate all risks involved in repurchase
agreements. These risks include the possibility of a decline in the market value
of the underlying securities, as well as delay and costs to the Fund in
connection with bankruptcy proceedings. Therefore, it is the policy of the Fund
to enter into repurchase agreements only with large, well-capitalized banks that
are members of the Federal Reserve System and with primary dealers in U.S.
government securities (as designated by the Federal Reserve Board) whose
creditworthiness has been reviewed and found satisfactory by Keystone.

REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Fund would sell securities and agree
to repurchase them at a mutually agreed upon date and price. The Fund intends to
enter into reverse repurchase agreements to avoid otherwise having to sell
securities during unfavorable market conditions in order to meet redemptions. At
the time the Fund enters into a reverse repurchase agreement, it will establish
a segregated account with the Fund's custodian containing liquid assets such as
U.S. government securities or other high grade debt securities having a value
not less than the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure such value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
that the Fund is obligated to repurchase may decline below the repurchase price.
Borrowing and reverse repurchase agreements magnify the potential for gain or
loss on the portfolio securities of the Fund and, therefore, increase the
possibility of fluctuation in the Fund's net asset value. Such practices may
constitute leveraging. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether to
enforce the Fund's obligation to repurchase the securities and the Fund's use of
the proceeds of the reverse repurchase agreement may effectively be restricted
pending such determination. The staff of the SEC has taken the position that the
Investment Company Act of 1940 treats reverse repurchase agreements as being
included in the percentage limit on borrowings imposed on a Fund.

FOREIGN SECURITIES
The Fund may invest up to 25% of its assets in securities principally traded
in securities markets outside the United States. While investment in foreign
securities is intended to reduce risk by providing further diversification, such
investments involve sovereign risk in addition to the credit and market risks
normally associated with domestic securities. Foreign investments may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations. There may be less publicly available information about a
foreign company, particularly emerging market country companies, than about a
U.S. company, and foreign companies may not be subject to accounting, auditing
and financial reporting standards and requirements comparable to those
applicable to U.S. companies. Securities of some foreign companies are less
liquid or more volatile than securities of U.S. companies, and foreign brokerage
commissions and custodian fees are generally higher than in the United States.
Investments in foreign securities may also be subject to other risks different
from those affecting U.S. investments, including local political or economic
developments, particularly with respect to companies in the formerly communist
countries of Eastern Europe and the People's Republic of China, expropriation or
nationalization of assets, imposition of withholding taxes on dividend or
interest payments and currency blockage (which would prevent cash from being
brought back to the United States). These risks are carefully considered by
Keystone prior to the purchase of these securities.

"WHEN ISSUED" SECURITIES
The Fund may also purchase and sell securities and currencies on a when issued
and delayed delivery basis. When issued or delayed delivery transactions arise
when securities or currencies are purchased or sold by the 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. When the Fund engages in when issued and delayed delivery
transactions, the Fund relies on the buyer or seller, as the case may be, to
consummate the sale. Failure to do so may result in the Fund missing the
opportunity to obtain a price or yield considered to be advantageous. When
issued and delayed delivery transactions may be expected to occur a month or
more before delivery is due. However, no payment or delivery is made by the Fund
until it receives payment or delivery from the other party to 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
delivery agreements are subject to risks from changes in value based upon
changes in the level of interest rates, currency rates and other market factors,
both before and after delivery. The Fund does not accrue any income on such
securities or currencies prior to their delivery. To the extent the Fund engages
in when issued and delayed delivery transactions, it will do so consistent with
its investment objective and policies and not for the purpose of investment
leverage.

SHORT SALES
The Fund may make short sales of securities "against the box." A short sale
involves the borrowing of a security, which must eventually be returned to the
lender. A short sale is "against the box" if, at all times when the short
position is open, the Fund owns the securities sold short or owns an equal
amount of securities convertible into, or exchangeable without further
consideration for, securities identical to the securities sold short. Short
sales against the box are used to defer recognition of gains or losses or in
order to receive a portion of the interest earned by the executing broker from
the proceeds of such sale. The proceeds of a short sale are held by the broker
until the settlement date when the Fund delivers the security or convertible
security to close out its short position. Although prior to such delivery the
Fund will have to pay an amount equal to any dividends paid on the securities
sold short, the Fund will receive the dividends from the securities convertible
into the securities sold short plus a portion of the interest earned from the
proceeds of the short sale. The Fund will not make short sales of securities
subject to outstanding call options written by it. The Fund will segregate the
securities sold short or appropriate convertible securities in a special account
with the Fund's custodian in connection with its short sales "against the box."

LOANS OF SECURITIES
The Fund may lend its securities to broker-dealers or other institutional
borrowers for use in connection with their short sales, arbitrages or other
securities transactions. Such loan transactions afford the Fund an opportunity
to continue to earn income on the securities loaned and at the same time to earn
income on the collateral held by it to secure the loan. Loans of portfolio
securities will be made (if at all) in strict conformity with applicable federal
and state rules and regulations. There may be delays in recovery of loaned
securities or even a loss of rights in collateral should the borrower fail
financially. Therefore, loans will be made only to firms deemed by Keystone to
be of good standing and will not be made unless, in the judgment of Keystone,
the consideration to be earned from such loans justifies the risk.

The Fund understands that it is the current view of the staff of the
Securities and Exchange Commission that it is permitted to engage in loan
transactions only if it meets the following conditions: (1) the Fund must
receive 100% collateral in the form of cash or cash equivalents, e.g., U.S.
Treasury bills or notes, from the borrower; (2) the borrower must increase the
collateral whenever the market value of the securities (determined on a daily
basis) exceeds the value of the collateral; (3) the Fund must be able to
terminate the loan, after notice, at any time; (4) the Fund must receive
reasonable interest on the loan or a flat fee from the borrower, as well as
amounts equivalent to any dividends, interest or other distributions on the
securities loaned and any increase in the securities' market values; (5) the
Fund may pay only reasonable custodian fees in connection with the loan; and (6)
voting rights on the securities loaned may pass to the borrower; however, if a
material event affecting the securities occurs, the Fund must be able to
terminate the loan and vote proxies or enter into an alternative arrangement
with the borrower to enable the Fund to vote proxies. Excluding Items (1) and
(2), these procedures may be amended from time to time, as regulatory policies
may permit, by the Fund's Board of Trustees without shareholder approval. Such
loans may not exceed 25% of the Fund's total assets.

DERIVATIVES
The Fund may use derivatives in furtherance of its investment objective.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. These assets, rates,
and indices may include bonds, stocks, mortgages, commodities, interest rates,
currency exchange rates, bond indices and stock indices. Derivatives can be used
to earn income or protect against risk, or both. For example, one party with
unwanted risk may agree to pass that risk to another party who is willing to
accept the risk, the second party being motivated, for example, by the desire
either to earn income in the form of a fee or premium from the first party, or
to reduce its own unwanted risk by attempting to pass all or part of that risk
to the first party.

Derivatives can be used by investors such as the Fund to earn income and
enhance returns, to hedge or adjust the risk profile of the portfolio, and
either in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. The Fund is permitted to use derivatives for one
or more of these purposes, although the Fund generally uses derivatives
primarily as direct investments in order to enhance yields and broaden portfolio
diversification. Each of these uses entails greater risk than if derivatives
were used solely for hedging purposes. The Fund uses futures contracts and
related options for hedging purposes. Derivatives are a valuable tool which,
when used properly, can provide significant benefit to Fund shareholders.
Keystone is not an aggressive user of derivatives with respect to the Fund.
However, the Fund may take positions in those derivatives that are within its
investment policies if, in Keystone's judgement, this represents an effective
response to current or anticipated market conditions. Keystone's use of
derivatives is subject to continuous risk assessment and control from the
standpoint of the Fund's investment objectives and policies.

Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.

There are four principal types of derivative instruments -- options, futures,
forwards and swaps -- from which virtually any type of derivative transaction
can be created. Further information regarding options and futures, is provided
later in this section and is provided in the Fund's statement of additional
information. The Fund does not presently engage in the use of swaps.

While the judicious use of derivatives by experienced investment managers
such as Keystone can be beneficial, derivatives also involve risks different
from, and, in certain cases, greater than, the risks presented by more
traditional investments. Following is a general discussion of important risk
factors and issues concerning the use of derivatives that investors should
understand before investing in the Fund.

* Market Risk -- This is the general risk attendant to all investments that the
value of a particular investment will decline or otherwise change in a way
detrimental to the Fund's interest.

* Management Risk -- Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument, but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use and
complexity of derivatives require the maintenance of adequate controls to
monitor the transactions entered into, the ability to assess the risk that a
derivative adds to the Fund's portfolio and the ability to forecast price,
interest rate or currency exchange rate movements correctly.

* Credit Risk -- This is the risk that a loss may be sustained by the Fund as a
result of the failure of a another party to a derivative (usually referred to
as a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the
issuer or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there is no
similar clearing agency guarantee. Therefore, the Fund considers the
creditworthiness of each counterparty to a privately negotiated derivative in
evaluating potential credit risk.

* Liquidity Risk -- Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.

OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS. The Fund may write (i.e., sell) covered call and put
options. No more than 25% of its net assets will be subject to covered options.
By writing a call option, the Fund becomes obligated during the term of the
option to deliver the securities underlying the option upon payment of the
exercise price. By writing a put option, the Fund becomes obligated during the
term of the option to purchase the securities underlying the option at the
exercise price if the option is exercised.

The Fund may only write "covered" options. This means that so long as the Fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills. If
the Fund has written options against all of its securities eligible for writing
options, the Fund may be unable to write additional options unless it sells a
portion of its portfolio holdings to obtain new securities against which it can
write options. If this were to occur, higher portfolio turnover and,
correspondingly, greater brokerage commissions and other transaction costs may
result. The Fund does not expect, however, that this will occur.

The Fund will be considered "covered" with respect to a put option it writes
if, so long as it is obligated as the writer of the put option, it deposits and
maintains liquid assets having a value equal to or greater than the exercise
price of the option with its custodian in a segregated account.

The principal reason for writing call or put options is to obtain, through a
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Fund receives a premium from writing a call or
put option, which it retains whether or not the option is exercised. By writing
a call option, the Fund might lose the potential for gain on the underlying
security while the option is open. By writing a put option, the Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.

PURCHASING OPTIONS. The Fund may purchase call and put options.

The Fund would normally purchase call options to hedge against an increase in
the market value of its securities. The Fund will not engage in such
transactions for speculation. The purchase of a call option would entitle the
Fund, in return for the premium paid, to purchase specified securities at a
specified price upon exercise of the option during the option period. The Fund
would ordinarily realize a gain if, during the option period, the value of such
securities exceeds the sum of the exercise price, the premium paid and
transaction costs. Otherwise, the Fund would realize a loss on the purchase of
the call option.

The Fund may purchase put or call options, including purchasing put or call
options for the purpose of offsetting previously written put or call options of
the same series. If the Fund is unable to effect a closing purchase transaction
with respect to covered options it has written, the Fund will not be able to
sell the underlying securities until the options expire or are exercised.

The Fund would normally purchase put options to hedge against a decline in
the market value of securities in its portfolio (protective puts) or securities
of the type in which it is permitted to invest. The purchase of a put option
would entitle the Fund, in exchange for the premium paid, to sell specified
securities at a specified price during the option period. The purchase of
protective puts is designed to offset or hedge against a decline in the market
value of the Fund's securities. Gains and losses on the purchase of protective
put options would tend to be offset by countervailing changes in the value of
underlying portfolio securities. Put options may also be purchased by the Fund
for the purpose of affirmatively benefitting from a decline in the price of
securities that the Fund does not own. The Fund would ordinarily realize a gain
if, during the option period, the value of the underlying securities declined
below the exercise price sufficiently to cover the premium and transaction
costs. Otherwise, the Fund would realize a loss on the purchase of the put
option.

The Fund may purchase put and call options on securities indices for the same
purposes as the purchase of options on securities. Options on securities indices
are similar to options on securities, except that the exercise of securities
index options requires cash payments and does not involve the actual purchase or
sale of securities. In addition, securities index options are designed to
reflect price fluctuations in a group of securities or segment of the securities
market rather than price fluctuations in a single security.

Options on some securities are relatively new, and it is impossible to predict
the amount of trading interest that will exist in such options. There can be no
assurance that viable markets will develop or continue. The failure of such
markets to develop or continue could significantly impair the Fund's ability to
use such options to achieve its investment objective.

OPTIONS TRADING MARKETS. Options which the Fund will trade are generally
listed on national securities exchanges. Exchanges on which such options
currently are traded are the Chicago Board Options Exchange and the New York,
American, Pacific and Philadelphia Stock Exchanges.

FUTURES TRANSACTIONS
The Fund may enter into futures contracts for the purchase or sale of
securities or currency or futures contracts based on stock indices and write
options on such contracts. The Fund intends to enter into such contracts and
related options for hedging purposes. The Fund may enter into other types of
futures contracts that may become available and relate to the securities held by
the Fund. The Fund will enter into futures contracts in order to hedge against
changes in securities prices. A futures contract is an agreement to buy or sell
securities or currencies at a specified price during a designated month. The
Fund does not make payment or deliver securities upon entering into a futures
contract. Instead, it puts down a margin deposit, which is adjusted to reflect
changes in the value of the contract and continues until the contract is
terminated.

The Fund may sell or purchase futures contracts. When a futures contract is
sold by the Fund, the value of the contract will tend to rise when the value of
the underlying securities or currencies declines and to fall when the value of
such securities or currencies increases. Thus, the Fund would sell futures
contracts in order to offset a possible decline in the value of its securities
or currencies. If a futures contract were purchased by the Fund, the value of
the contract would tend to rise when the value of the underlying securities
increased and to fall when the value of such securities declined. The Fund
intends to purchase futures contracts in order to fix what is believed by
Keystone to be a favorable price and rate of return for securities or favorable
exchange rate for currencies the Fund intends to purchase.

The Fund may also purchase put and call options on securities and currency
futures contracts for hedging purposes. A put option purchased by the Fund would
give it the right to assume a position as the seller of a futures contract. A
call option purchased by the Fund would give it the right to assume a position
as the purchaser of a futures contract. The purchase of an option on a futures
contract requires the Fund to pay a premium. In exchange for the premium, the
Fund becomes entitled to exercise the benefits, if any, provided by the futures
contract, but is not required to take any action under the contract. If the
option cannot be exercised profitably before it expires, the Fund's loss will be
limited to the amount of the premium and any transaction costs.

The Fund may write (sell) put and call options on futures contracts for
hedging purposes. The writing of a put option on a futures contract generates a
premium, which may partially offset an increase in the price of securities that
the Fund intends to purchase. However, the Fund becomes obligated to purchase a
futures contract, which may have a value lower than the exercise price.
Conversely, the writing of a call option on a futures contract generates a
premium which may partially offset a decline in the value of the Fund's assets.
By writing a call option, the Fund becomes obligated, in exchange for the
premium, to sell a futures contract, which may have a value higher than the
exercise price.

The Fund may enter into closing purchase and sale transactions in order to
terminate a futures contract and may sell put and call options for the purpose
of closing out its options positions. The Fund's ability to enter into closing
transactions depends on the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. As a result, there can be no
assurance that the Fund will be able to enter into an offsetting transaction
with respect to a particular contract at a particular time. If the Fund is not
able to enter into an offsetting transaction, the Fund will continue to be
required to maintain the margin deposits on the contract and to complete the
contract according to its terms, in which case it would continue to bear market
risk on the transaction.

Although futures and options transactions are intended to enable the Fund to
manage market risk, unanticipated changes in market prices could result in
poorer performance than if it had not entered into these transactions. Even if
Keystone correctly predicts market price movements, a hedge could be
unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between the Fund's futures and securities positions may be caused by differences
between the futures and securities markets or by differences between the
securities underlying the Fund's futures position and the securities held by or
to be purchased for the Fund. Keystone will attempt to minimize these risks
through careful selection and monitoring of the Fund's futures and options
positions.

The Fund does not intend to use futures transactions for speculation. The Fund
may not purchase or sell futures contracts or options on futures, except for
closing purchase or sale transactions, if immediately thereafter the sum of
margin deposits on the Fund's outstanding futures and options positions and
premiums paid for outstanding options on futures would exceed 5% of the market
value of the Fund's total assets. These transactions involve brokerage costs,
require margin deposits and, in the case of contracts and options obligating the
Fund to purchase securities, require the Fund to segregate assets to cover such
contracts and options. In addition, the Fund's activities in futures contracts
may be limited by the requirements of the Internal Revenue Code for
qualification as a regulated investment company.

FOREIGN CURRENCY TRANSACTIONS
As discussed above, the Fund may invest in securities of foreign issuers. When
the Fund invests in foreign securities they usually will be denominated in
foreign currencies, and the Fund temporarily may hold funds in foreign
currencies. Thus, the value of Fund shares will be affected by changes in
exchange rates.

As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, the Fund may enter into forward currency exchange
contracts (agreements to purchase or sell currencies at a specified price and
date). The exchange rate for the transaction (the amount of currency the Fund
will deliver or receive when the contract is completed) is fixed when the Fund
enters into the contract. The Fund usually will enter into these contracts to
stabilize the U.S. dollar value of a security it has agreed to buy or sell. The
Fund intends to use these contracts to hedge the U.S. dollar value of a security
it already owns, particularly if the Fund expects a decrease in the value of the
currency in which the foreign security is denominated. Although the Fund will
attempt to benefit from using forward contracts, the success of its hedging
strategy will depend on Keystone's ability to predict accurately the future
exchange rates between foreign currencies and the U.S. dollar. The value of the
Fund's investments denominated in foreign currencies will depend on the relative
strength of those currencies and the U.S. dollar, and the Fund may be affected
favorably or unfavorably by changes in the exchange rates or exchange control
regulations between foreign currencies and the dollar. Changes in foreign
currency exchange rates also may affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed to shareholders by the Fund. The
Fund may also purchase and sell options related to foreign currencies in
connection with hedging strategies.

<PAGE>

EXHIBIT A

REDUCED SALES CHARGES

Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of the Fund alone or in combination with
Class A shares of other Keystone America Funds.

For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or Letters of Intent, the term "Purchaser"
includes the following persons: an individual; an individual, his or her spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account established for their benefit; an
organization exempt from federal income tax under Section 501 (c)(3) or (13) of
the Internal Revenue Code; a pension, profit-sharing or other employee benefit
plan whether or not qualified under Section 401 of the Internal Revenue Code; or
other organized groups of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some purpose
other than the purchase of redeemable securities of a registered investment
company at a discount. In order to qualify for a lower sales charge, all orders
from an organized group will have to be placed through a single investment
dealer or other firm and identified as originating from a qualifying purchaser.

CONCURRENT PURCHASES
For purposes of qualifying for a reduced sales charge, a Purchaser may combine
concurrent direct purchases of Class A shares of two or more of the "Eligible
Funds," as defined below. For example, if a Purchaser concurrently invested
$75,000 in one of the other "Eligible Funds" and $75,000 in the Fund, the sales
charge would be that applicable to a $150,000 purchase, i.e., 3.75% of the
offering price, as indicated in the Sales Charge Schedule in the Prospectus.

RIGHT OF ACCUMULATION
In calculating the sales charge applicable to current purchases of the Fund's
Class A shares, a Purchaser is entitled to accumulate current purchases with the
current value of previously purchased Class A shares of the Fund and Class A
shares of certain other eligible funds that are still held in (or exchanged for
shares of and are still held in) the same or another eligible fund ("Eligible
Fund(s)"). The Eligible Funds are the Keystone America Funds and Keystone Liquid
Trust.

For example, if a Purchaser held shares valued at $99,999 and purchased an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales charge of 3.75% of the offering price as indicated in the Sales
Charge schedule. KIRC must be notified at the time of purchase that the
Purchaser is entitled to a reduced sales charge, which reduction will be granted
subject to confirmation of the Purchaser's holdings. The Right of Accumulation
may be modified or discontinued at any time.

LETTER OF INTENT
A Purchaser may qualify for a reduced sales charge on a purchase of Class A
shares of the Fund alone or in combination with purchases of Class A shares of
any of the other Eligible Funds by completing the Letter of Intent section of
the application. By so doing, the Purchaser agrees to invest within a
thirteen-month period a specified amount which, if invested at one time, would
qualify for a reduced sales charge. Each purchase will be made at a public
offering price applicable to a single transaction of the dollar amount specified
on the application, as described in this prospectus. The Letter of Intent does
not obligate the Purchaser to purchase, nor the Fund to sell, the amount
indicated.

After the Letter of Intent is received by KIRC, each investment made will be
entitled to the sales charge applicable to the level of investment indicated on
the application. The Letter of Intent may be back-dated up to ninety days so
that any investments made in any of the Eligible Funds during the preceding
ninety-day period, valued at the Purchaser's cost, can be applied toward
fulfillment of the Letter of Intent. However, there will be no refund of sales
charges already paid during the ninety-day period. No retroactive adjustment
will be made if purchases exceed the amount specified in the Letter of Intent.
Income and capital gains distributions taken in additional shares will not apply
toward completion of the Letter of Intent.

If total purchases made pursuant to the Letter of Intent are less than the
amount specified, the Purchaser will be required to remit an amount equal to the
difference between the sales charge paid and the sales charge applicable to
purchases actually made. Out of the initial purchase (or subsequent purchases,
if necessary) 5% of the dollar amount specified on the application will be held
in escrow by KIRC in the form of shares registered in the Purchaser's name. The
escrowed shares will not be available for redemption, transfer or encumbrance by
the Purchaser until the Letter of Intent is completed or the higher sales charge
paid. All income and capital gains distributions on escrowed shares will be paid
to the Purchaser or his order.

When the minimum investment specified in the Letter of Intent is completed
(either prior to or by the end of the thirteen-month period), the Purchaser will
be notified and the escrowed shares will be released. If the intended investment
is not completed, the Purchaser will be asked to remit to the Principal
Underwriter any difference between the sales charge on the amount specified and
on the amount actually attained. If the Purchaser does not within 20 days after
written request by the Principal Underwriter or his dealer pay such difference
in sales charge, KIRC will redeem an appropriate number of the escrowed shares
in order to realize such difference. Shares remaining after any such redemption
will be released by KIRC. Any redemptions made by the Purchaser during the
thirteen-month period will be subtracted from the amount of the purchases for
purposes of determining whether the Letter of Intent has been completed. In the
event of a total redemption of the account prior to completion of the Letter of
Intent, the additional sales charge due will be deducted from the proceeds of
the redemption and the balance will be forwarded to the Purchaser.

By signing the application, the Purchaser irrevocably constitutes and appoints
KIRC his attorney to surrender for redemption any or all escrowed shares with
full power of substitution.

The Purchaser or his dealer must inform the Principal Underwriter or KIRC that
a Letter of Intent is in effect each time a purchase is made.

<PAGE>
KEYSTONE AMERICA
FUND FAMILY

Capital Preservation and Income Fund

Government Securities Fund

Intermediate Term Bond Fund

Strategic Income Fund

World Bond Fund

Tax Free Income Fund

California Insured Tax Free Fund

Florida Tax Free Fund

Massachusetts Tax Free Fund

Missouri Tax Free Fund

New York Insured Tax Free Fund

Pennsylvania Tax Free Fund

Texas Tax Free Fund

Fund for Total Return

Global Opportunities Fund

Hartwell Emerging Growth Fund, Inc.

Hartwell Growth Fund, Inc.

Omega Fund

Fund of the Americas

Strategic Development Fund

[LOGO] KEYSTONE
INVESTMENTS

Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5034
[Recycle Logo]
KOF-P 4/95
13.2M

KEYSTONE

[Photo of Father and Daughter with Dog]

OMEGA
FUND

[LOGO]
PROSPECTUS AND
APPLICATION
<PAGE>

KEYSTONE OMEGA FUND

STATEMENT OF ADDITIONAL INFORMATION

April 28, 1995

This statement of additional information is not a prospectus but
relates to, and should be read in conjunction with the prospectus of Keystone
Omega Fund (the "Fund") dated April 28, 1995. A copy of the prospectus may be
obtained from Keystone Investment Distributors Company, the Fund's principal
underwriter (the "Principal Underwriter"), 200 Berkeley Street, Boston,
Massachusetts 02116-5034.

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TABLE OF CONTENTS
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Page

The Fund 2
Investment Restrictions 2
Distributions and Taxes 5
Valuation of Securities 6
Brokerage 8
Sales Charges 9
Distribution Plans 13
Trustees and Officers 16
Investment Manager 19
Investment Adviser 22
Principal Underwriter 23
Declaration of Trust 25
Standardized Total Return and Yield Quotations 26
Additional Information 27
Appendix A-1
Financial Statements F-1
Independent Auditors' Report F-13

<PAGE>
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THE FUND
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The Fund is an open-end, diversified management investment company
commonly known as a mutual fund. The Fund's investment objective is maximum
capital growth by investing in a varied portfolio consisting primarily of common
stocks and securities convertible into common stocks. The Fund is a
Massachusetts business trust. Originally, the Fund had been incorporated in
Massachusetts on February 8, 1968, as Omega Fund, Inc. Omega Fund, Inc. joined
the Keystone America Funds on April 19, 1989 and was renamed Keystone America
Omega Fund, Inc. The Fund is managed by Keystone Management, Inc. ("Keystone
Management") and advised by Keystone Investment Management Company ("Keystone").

Certain information about the Fund is contained in its prospectus. This
statement of additional information provides additional information about the
Fund that may be of interest to some investors.

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INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------

The investment restrictions set forth below, are fundamental and may
not be changed without the vote of a majority of the Fund's outstanding voting
shares.

The Fund may not do the following:

(1) purchase securities on margin, provided that the Fund may obtain
such short-term credits as may be necessary for the clearance of purchases and
sales of securities;

(2) make short sales of securities or maintain a short position,
unless, at all times when a short position is open, it owns an equal amount of
such securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short and unless not more than 15% of the Fund's net assets
(taken at market or fair value as determined by the Fund's Board of Trustees) is
held as collateral for such sales at any one time (a reason for making such a
sale would be to defer realization of gain or loss for federal income tax
purposes);

(3) make loans, except by the purchase of a portion of an issue of
bonds, notes, debentures or other obligations publicly distributed or of a type
customarily purchased by financial institutions, or by entering into loan
transactions with respect to portfolio securities not in excess of 25% of the
Fund's total assets (taken at current value) immediately after such transaction;
the Fund will not lend any of its assets to any investment adviser or principal
underwriter for the Fund or to any officer, trustee or employee of either of
them or of the Fund;

(4) borrow, unless, immediately after any such borrowing, such
borrowing and all other such borrowings and other liabilities do not exceed
one-third of the value of the Fund's total assets (including all such
borrowings), taken at market or other fair value;

(5) invest more than 10% of the Fund's total assets (taken at market or
fair value as determined by the Fund's Board of Trustees) in the securities of
any one issuer (except United States ("U.S.") government securities);

(6) purchase securities of any company with a record of less than three
years' continuous operation (including that of predecessors) if such purchase
would cause the Fund's investments in such companies taken at cost to exceed 5%
of the Fund's total assets taken at market value;

(7) purchase or sell real estate or interests in real estate;

(8) purchase or sell commodities or commodity contracts, except that
the Fund may engage in transactions in commodity futures contracts and options
on commodity futures contracts, other than physical commodity futures contracts;

(9) purchase or acquire the securities of any other investment company;
except that it may make such a purchase or acquisition in the open market
involving no commission or profit to a sponsor or dealer (other than the
customary broker's commission); provided that, immediately after such purchase
or acquisition, the Fund and any company or companies controlled by the Fund do
not own in the aggregate:

(a) more than 3% of the total outstanding voting stock of the
acquired company;

(b) securities issued by the acquired company having an aggregate
value in excess of 5% of the value of the total assets of the
Fund; or

(c) securities issued by the acquired company and all other
investment companies having an aggregate value in excess of
10% of the value of the total assets of the Fund; and provided
that, immediately after such purchase or acquisition, the
Fund, other investment companies having the same investment
adviser, and companies controlled by the Fund and/or such
investment companies do not own more than 10% of the total
outstanding voting stock of any closed-end investment company
so purchased or acquired;

(10) purchase or retain the securities of any issuer if those officers
and trustees of the Fund or its investment adviser owning individually more than
one-half of 1% of the securities of such issuer together own more than 5% of the
securities of such issuer;

(11) act as a securities underwriter, or act as a distributor of
securities of which it is the issuer, except that the Fund may issue, sell and
distribute securities of which it is the issuer, including additional shares of
its capital stock, and may act as its own distributor of such securities to the
extent that such action is not in contravention of such rules and regulations as
the Securities and Exchange Commission may prescribe in respect thereof, and
except that the Fund might be deemed an underwriter within the meaning of
Section 2(11) of the Securities Act of 1933 ("1933 Act") in making sales of
restricted securities;

(12) concentrate its investments in any particular industry.

A borrowing limitation in excess of 5% is generally associated with a
leveraged fund. The Fund anticipates borrowing only for temporary purposes. To
the extent the Fund's total borrowings exceed 5%, no additional investments will
be made until such borrowings are reduced to 5%.

As a diversified investment company, the Fund has undertaken not to
purchase a security if, as a result, more than 10% of the outstanding voting
securities of any single issuer would be held by the Fund or more than 5% of its
total assets would be invested in securities of any one issuer.

A purchase by the Fund of securities of other investment companies
would result in a layering of expenses such that the Fund's shareholders would
indirectly bear a proportionate share of the expenses of those investment
companies, including operating costs, investment advisory fees and
administrative fees. The Fund does not anticipate purchasing the securities of
other investment companies.

The Fund has adopted the non-fundamental policies set forth below,
which may be changed without shareholder approval or notification in order to
permit the sale of shares in certain states.

The Fund will not do the following:

(1) pledge more than 10% of the Fund's average net assets (taken at
market or fair value as determined by the Board of Trustees) for the preceding
fiscal year at the time of such pledging;

(2) invest in warrants, valued at the lower of cost or market,
exceeding 5%, or, in the case of warrants not listed on the New York or American
Stock Exchanges, 2% of the value (taken at market or fair value as determined by
the Board of Trustees) of the Fund's net assets immediately after the making of
any such investment; warrants acquired in units or attached to securities may be
deemed to be without value;

(3) invest in oil, gas or other mineral leases or exploration programs;

(4) invest in the securities of any issuer if, immediately after the
making of such investment, the Fund would own more than 10% of the voting stock
of, or have more than 5% of the Fund's total assets invested in the securities
of, such issuer;

(5) use leverage except for temporary and emergency purposes, and
leverage will not be used generally for making additional investments; and

(6) purchase or sell real property (including limited partnership
interests, but excluding readily marketable interests in real estate investment
trusts or readily marketable securities of companies which invest in real
estate).

Whenever an investment policy or restriction states a maximum
percentage of the Fund's assets that may be invested in any security or other
asset, it is intended that such minimum or maximum percentage limitation be
determined immediately after and as a result of the acquisition of such security
or other asset. Accordingly, any later increase or decrease resulting from a
change in values, net assets or other circumstances will not be considered when
determining whether the investment complies with the Fund's investment policies
and restrictions.

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DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------

The Fund distributes to its shareholders dividends from net investment
income and net realized long-term and short-term capital gains annually in
shares or, at the option of the shareholder, in cash. Shareholders who have not
opted, prior to the record date for any distribution, to receive cash will have
the number of distributed shares determined on the basis of the Fund's net asset
value per share computed at the end of the day on the record date after
adjustment for the distribution. Net asset value is used in computing the number
of shares in both gains and income distribution reinvestments. Account
statements and/or checks as appropriate will be mailed to shareholders within
seven days after the Fund pays the distribution. Unless the Fund receives
instructions to the contrary from a shareholder before the record date, it will
assume that the shareholder wishes to receive that distribution and future gains
and income distributions in shares. Instructions continue in effect until
changed in writing.

Distributed long-term capital gains are taxable as such to the
shareholder and regardless of the period of time Fund shares have been held by
the shareholder. However, if such shares are held less than six months and
redeemed at a loss, the shareholder will recognize a long term capital loss on
such shares to the extent of the long term capital gain distribution received in
connection with such shares. If the net asset value of the Fund's shares is
reduced below a shareholder's cost by a capital gains distribution, such
distribution, to the extent of the reduction, would be a return of investment
though taxable as stated above. Since distributions of capital gains depend upon
profits actually realized from the sale of securities by the Fund, they may or
may not occur. The foregoing comments relating to the taxation of dividends and
distributions paid on the Fund's shares relate solely to federal income
taxation. Such dividends and distributions may also be subject to state and
local taxes.

When the Fund makes a distribution, it intends to distribute only the
Fund's net capital gains and such income as has been predetermined to the best
of the Fund's ability to be taxable as ordinary income. Shareholders of the Fund
will be advised annually of the federal income tax status of distributions.

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VALUATION OF SECURITIES
- --------------------------------------------------------------------------------

Current values for the Fund's portfolio securities are determined as
follows:

(1) Common stock, preferred stock and other equity securities listed on
the New York Stock Exchange (the "Exchange") are valued on the basis of the last
sale price on the Exchange. In the absence of any sales, such securities are
valued at the last bid price.

(2) Common stock, preferred stock and other equity securities listed on
other U.S. or foreign exchanges will be valued as described in (1) above using
quotations on the exchange on which the security is most extensively traded.

(3) Common stock, preferred stock and other equity securities unlisted
and quoted on the National Market System ("NMS") are valued at the last sale
price, provided a sale has occurred. In the absence of any sales, such
securities are valued at the high or "inside" bid, which is the bid supplied by
the National Association of Securities Dealers Automated Quotation system
("NASDAQ") for securities traded in the over-the-counter market.

(4) Common stock, preferred stock and other equity securities quoted on
the NASDAQ system but not listed on NMS are valued at the high or "inside" bid.

(5) Common stock, preferred stock and other equity securities not
listed and not quoted on the NASDAQ system and for which over-the-counter market
quotations are readily available are valued at the mean between the current bid
and asked prices for such securities.

(6) Non-U.S. common stock, preferred stock and other equity securities
not listed or listed and subject to restrictions on sale are valued at prices
supplied by a dealer selected by Keystone.

(7) Bonds, debentures and other debt securities, whether or not listed
on any national securities exchange, are valued at a price supplied by a pricing
service or a bond dealer selected by Keystone.

(8) Short-term debt securities maturing in sixty days or less are
valued at amortized cost if their original term to maturity from the date of
purchase was sixty days or less, or by amortizing their value on the sixty-first
day prior to maturity if their term to maturity from the date of purchase
exceeds sixty days, unless the Trustees determine that such valuation does not
represent fair market value.

(9) Options, futures contracts and options on futures listed or traded
on a national exchange are valued at the last sale price on such exchange prior
to the time of determining net asset value, or, if no sale is reported, are
valued at the mean between the most recent bid and asked prices.

(10) Forward currency contracts are valued at their last sale as
reported by a pricing service and, in the absence of a report, at a value
determined on the basis of the underlying currency at prevailing exchange rates.

(11) Securities subject to restrictions on resale are valued at fair
value at least monthly by a pricing service under the direction of the Fund's
Board of Trustees.

(12) All other assets are valued at fair market value as determined by
or under the direction of the Fund's Board of Trustees.

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BROKERAGE
- --------------------------------------------------------------------------------

It is the policy of the Fund, in effecting transactions in portfolio
securities, to seek best execution of orders at the most favorable prices. The
determination of what may constitute best execution and price in the execution
of a securities transaction by a broker involves a number of considerations,
including, without limitation, the overall direct net economic result to the
Fund, involving both price paid or received and any commissions and other costs
paid, the efficiency with which the transaction is effected, the ability to
effect the transaction at all where a large block is involved, the availability
of the broker to stand ready to execute potentially difficult transactions in
the future and the financial strength and stability of the broker. Such
considerations are weighed by management in determining the overall
reasonableness of brokerage commissions paid.

Subject to the foregoing, a factor in the selection of brokers is the
receipt of research services, such as analyses and reports concerning issuers,
industries, securities, economic factors and trends and other statistical and
factual information. Any such research and other statistical and factual
information provided by brokers to the Fund or Keystone is considered to be in
addition to, and not in lieu of, services required to be performed by Keystone
under its Investment Advisory Agreement with the Fund. The cost, value and
specific application of such information are indeterminable and cannot be
practically allocated among the Fund and other clients of Keystone who may
indirectly benefit from the availability of such information. Similarly, the
Fund may indirectly benefit from information made available as a result of
transactions effected for such other clients. Under the Investment Advisory
Agreement, Keystone is permitted to pay higher brokerage commissions for
brokerage and research services in accordance with Section 28(e) of the
Securities Exchange Act of 1934. In the event Keystone follows such a practice,
it will do so on a basis that is fair and equitable to the Fund.

The Fund expects that purchases and sales of securities usually will be
effected through brokerage transactions for which commissions are payable.
Purchases from underwriters will include the underwriting commission or
concession. Purchases from dealers serving as market makers will include a
dealer's mark up or reflect a dealer's mark down. Where transactions are made in
the over-the-counter market, the Fund will deal with primary market makers
unless more favorable prices are otherwise obtainable.

The Fund may participate, if and when practicable, in group bidding for
the direct purchase from an issuer of certain securities, thereby taking
advantage of the lower purchase price available to members of such a group.

Neither Keystone nor the Fund intends to place securities transactions
with any particular broker-dealer or group thereof. The Fund's Board of Trustees
has determined, however, that the Fund may follow a policy of considering sales
of shares as a factor in the selection of broker-dealers to execute portfolio
transactions, subject to the requirements of best execution, including best
price, described above.

The policy of the Fund with respect to brokerage is and will be
reviewed by the Fund's Board of Trustees from time to time. Because of the
possibility of further regulatory developments affecting the securities
exchanges and brokerage practices generally, the foregoing practices may be
changed, modified or eliminated.

Investment decisions for the Fund are made independently by Keystone
from those of the other funds and investment accounts managed by Keystone. It
may frequently develop, however, that the same investment decision is made for
more than one fund. Simultaneous transactions are inevitable when the same
security is suitable for the investment objective of more than one account. When
two or more funds or accounts are engaged in the purchase or sale of the same
security, the transactions are allocated as to amount in accordance with a
formula that is equitable to each fund or account. It is recognized that, in
some cases, this system could have a detrimental effect on the price or volume
of the security as far as the Fund is concerned. In other cases, however, it is
believed that the ability of the Fund to participate in volume transactions will
produce better executions for the Fund.

For the fiscal years ended December 31, 1992, 1993 and 1994, the Fund
paid $258,337, $380,450 and $592,800, respectively, in brokerage commissions.

In no instance are portfolio securities purchased from or sold to
Keystone, the Principal Underwriter, or any of their affiliated persons, as said
term is defined under the Investment Company Act of 1940 (the "1940 Act") and
rules and regulations issued thereunder.

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SALES CHARGES
- --------------------------------------------------------------------------------

GENERAL

The Fund offers three classes of shares. Class A shares are offered
with a sales charge of 5.75% payable at the time of purchase of Fund shares
("Front End Load Option"). Class B shares are sold subject to a contingent
deferred sales charge payable upon redemption within three calendar years after
purchase. ("Back End Load Option"). Class B shares which have been outstanding
during seven calendar years will automatically convert to Class A shares,
without imposition of a front end sales charge. (Conversion of Class B shares
represented by stock certificates will require the return of the stock
certificates to Keystone Investor Resource Center, Inc. ("KIRC").) Class C
shares are sold subject to a contingent deferred sales charge payable upon
redemption within one year after purchase ("Level Load Option"). Class C shares
are available only through dealers who have entered into special distribution
agreements with the Principal Underwriter, the Fund's principal underwriter. The
Prospectus contains a general description of how investors may buy shares of the
Fund, as well as a table of applicable sales charges for Class A shares, a
discussion of reduced sales charges which may apply to subsequent purchases and
a description of applicable contingent deferred sales charges.

CONTINGENT DEFERRED SALES CHARGES

In order to reimburse the Fund for certain expenses relating to the
sale of its shares (See "Distribution Plan"), a contingent deferred sales charge
may be imposed at the time of redemption of certain Fund shares, as follows:

CLASS A SHARES

With certain exceptions, purchases of Class A shares in an amount
exceeding $1,000,000 or purchased by a corporate qualified retirement plan or a
non-qualified deferred compensation plan having 100 or more eligible employees
(a "Qualifying Plan"), in either case, without a front-end sales charge will be
subject to a contingent deferred sales charge of 1.00% during the 24 month
period following the date of purchase. The contingent deferred sales charge will
be retained by the Principal Underwriter. See "Calculation of Contingent
Deferred Sales Charge" below.

CLASS B SHARES

With certain exceptions, the Fund may impose a deferred sales charge of
3.00% on shares redeemed during the calendar year of purchase and during the
first calendar year after purchase; 2.00% on shares redeemed during the second
calendar year after purchase; and 1.00% on shares redeemed during the third
calendar year after purchase. No deferred sales charge is imposed on amounts
redeemed thereafter. If imposed, the deferred sales charge is deducted from the
redemption proceeds otherwise payable to you. The deferred sales charge is
retained by the Principal Underwriter. See "Calculation of Contingent Deferred
Sales Charge" below.

CLASS C SHARES

With certain exceptions, the Fund may impose a deferred sales charge of
1% on shares redeemed within one year after the date of purchase. No deferred
sales charge is imposed on amounts redeemed thereafter. If imposed, the deferred
sales charge is deducted from the redemption proceeds otherwise payable to you.
The deferred sales charge is retained by the Principal Underwriter. See
"Calculation of Contingent Deferred Sales Charge" below.

CALCULATION OF CONTINGENT DEFERRED SALES CHARGE

Any contingent deferred sales charge imposed upon the redemption of
Class A, Class B or Class C shares is a percentage of the lesser of (1) the net
asset value of the shares redeemed or (2) the net cost of such shares. No
contingent deferred sales charge is imposed when you redeem amounts derived from
(1) increases in the value of your account above the net cost of such shares due
to increases in the net asset value per share of such shares; (2) certain shares
with respect to which the Fund did not pay a commission on issuance, including
shares acquired through reinvestment of dividend income and capital gains
distributions; (3) certain Class A shares held for more than one or two years,
as the case may be, from the date of purchase; or (4) Class B shares held during
more than four consecutive calendar years; or (5) Class C shares held for more
than one year from the date of purchase. Upon request for redemption, shares not
subject to the contingent deferred sales charge will be redeemed first.
Thereafter, shares held the longest will be the first to be redeemed. There is
no contingent deferred sales charge when the shares of a class are exchanged for
the shares of the same class of another Keystone America Fund. Moreover, when
shares of one such class of a fund have been exchanged for shares of another
such class of a fund, the calendar year of the purchase of the shares of the
fund exchanged into is assumed to be the year shares tendered for exchange were
originally purchased.

WAIVER OF SALES CHARGES

Shares of the Fund may also be sold, to the extent permitted by
applicable law, regulations, interpretations or exemptions, at net asset value
without the imposition of an initial sales charge to (1) certain Directors,
Trustees, officers, full-time employees or sales representatives of the Fund,
Keystone Management, Keystone, Keystone Investments, Inc. ("Keystone
Investments"), one of their subsidiaries or the Principal Underwriter who have
been such for not less than ninety days; (2) a pension and profit-sharing plan
established by such companies, their subsidiaries and affiliates for the benefit
of their Directors, Trustees, officers, full-time employees and sales
representatives; or (3) a registered representative of a firm with a dealer
agreement with the Principal Underwriter; provided, however, that all such sales
are made upon the written assurance that the purchase is made for investment
purposes and that the securities will not be resold except through redemption by
the Fund.

No initial sales charge is charged on purchases of shares of the Fund
by a bank or trust company in a single account in the name of such bank or trust
company as trustee if the initial investment in shares of the Fund or any Fund
in the Keystone Investments Family of Funds purchased pursuant to this waiver is
at least $500,000 and any commission paid at the time of such purchase is not
more than 1% of the amount invested.

If you were an Omega Fund shareholder of record as of May 1, 1987, you
have the perpetual right, so long as you remain a Fund shareholder, to invest
and reinvest in additional shares of the Fund without imposition of a sales
charge or a deferred sales charge. In addition, certain shares held of record as
of April 19, 1989 are not subject to a deferred sales charge.

With respect to Class A shares purchased by a Qualifying Plan at net
asset value or Class C shares purchased by a Qualifying Plan, no CDSC will be
imposed on any redemptions made specifically by an individual participant in the
Qualifying Plan. This waiver is not available in the event a Qualifying Plan as
a whole redeems substantially all of its assets.

In addition, no contingent deferred sales charge is imposed on a
redemption of shares of the Fund in the event of (1) death or disability of the
shareholder; (2) a lump-sum distribution from a benefit plan qualified under the
Employee Retirement Income Security Act of 1974 ("ERISA"); (3) automatic
withdrawals from ERISA plans if the shareholder is at least 59 1/2 years old;
(4) involuntary redemptions of an account having an aggregate net asset value of
less than $1,000; (5) automatic withdrawals under an Automatic Withdrawal Plan
of up to 1 1/2% per month of the shareholder's initial account balance; (6)
withdrawals consisting of loan proceeds to a retirement plan participant; (7)
financial hardship withdrawals made by a retirement plan participant; or (8)
withdrawals consisting of returns of excess contributions or excess deferral
amounts made to a retirement plan participant.

REDEMPTION OF SHARES

The Fund has obligated itself under the 1940 Act to redeem for cash all
shares presented for redemption by any one shareholder up to the lesser of
$250,000 or 1% of the Fund's assets in any 90 day period.

- --------------------------------------------------------------------------------
DISTRIBUTION PLANS
- --------------------------------------------------------------------------------

Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund, to use their assets to bear expenses of distributing their shares if they
comply with various conditions, including adoption of a distribution plan
containing certain provisions set forth in Rule 12b-1.

DISTRIBUTION PLANS IN GENERAL

A rule adopted by the NASD limits the amount that the Fund may pay
annually in distribution costs for sale of its shares and shareholder service
fees. The rule limits annual expenditures to 1% of the aggregate average daily
net asset value of its shares, of which 0.75% may be used to pay such
distribution costs and 0.25% may be used to pay shareholder service fees. The
NASD rule also limits the aggregate amount which the Fund may pay for such
distribution costs to 6.25% of gross share sales since the inception of the
12b-1 Plan, plus interest at the prime rate plus 1% on such amounts (less any
contingent deferred sales charges paid by shareholders to the Principal
Underwriter).

CLASS A DISTRIBUTION PLAN. The Class A Distribution Plan provides that the Fund
may expend daily amounts at an annual rate which is currently limited to up to
0.25% of the Fund's average daily net asset value attributable to Class A shares
to finance any activity which is primarily intended to result in the sale of its
shares, including without limitation, expenditures consisting of payments to the
Principal Underwriter of the Fund (currently the Principal Underwriter) to
enable the Principal Underwriter to pay or to have paid to others who sell Class
A shares a service or other fee, at such intervals as the Principal Underwriter
may determine, in respect of Class A shares maintained by any such recipients
outstanding on the books of the Fund for specified periods.

Amounts paid by the Fund under the Class A Distribution Plan are
currently used to pay others, such as dealers, service fees at an annual rate of
up to 0.25% of the average net asset value of Class A shares sold by such others
and remaining outstanding on the books of the Fund for specified periods.

CLASS B DISTRIBUTION PLAN. The Class B Distribution Plan provides that the Fund
may expend daily amounts at an annual rate of up to 1.00% of the Fund's average
daily net asset value attributable to Class B shares to finance any activity
which is primarily intended to result in the sale of its shares, including,
without limitation, expenditures consisting of payments to the Principal
Underwriter of the Fund (currently the Principal Underwriter) to enable the
Principal Underwriter to pay to others (dealers) commissions in respect of Class
B shares since inception of the Distribution Plan; and (2) to enable the
Principal Underwriter to pay or to have paid to others a service fee, at such
intervals as the Principal Underwriter may determine, in respect of Class B
shares maintained by any such recipients outstanding on the books of the Fund
for specified periods.

Amounts paid by the Fund under the Class B Distribution Plan are
currently used to pay others (dealers) (1) a commission normally equal to 3.00%
for each share sold; and/or (2) service fees at an annual rate of 0.25% of the
average net asset value of shares sold by such others and remaining outstanding
on the books of the Fund for specified periods.

The Principal Underwriter intends, but is not obligated, to continue to
pay or accrue distribution charges incurred in connection with the Class B
Distribution Plan that exceed current annual payments permitted to be received
by the Principal Underwriter from the Fund. The Principal Underwriter intends to
seek full payment of such charges from the Fund (together with annual interest
thereon at the prime rate plus one percent) at such time in the future as, and
to the extent that, payment thereof by the Fund would be within the permitted
limits.

CLASS C DISTRIBUTION PLAN. The Class C Distribution Plan provides that the Fund
may expend daily amounts at an annual rate of up to 1.00% of the Fund's average
daily net asset value attributable to Class C shares to finance any activity
which is primarily intended to result in the sale of its shares, including,
without limitation, expenditures consisting of payments to the Principal
Underwriter of the Fund (currently the Principal Underwriter) to enable the
Principal Underwriter to pay to others (dealers) commissions in respect of Class
C shares since inception of the Distribution Plan; and (2) to enable the
Principal Underwriter to pay or to have paid to others a service fee, at such
intervals as the Principal Underwriter may determine, in respect of Class C
shares maintained by any such recipients outstanding on the books of the Fund
for specified periods.

Amounts paid by the Fund under the Class C Distribution Plan are
currently used to pay others (dealers) (1) a commission normally equal to 1.00%
for each share sold; and (2) a commission at an annual rate of 0.75% (subject to
applicable NASD limitations) and service fees at an annual rate of 0.25%,
respectively, of the average net asset value of each share sold by such others
and remaining outstanding on the books of the Fund for specified periods.

DISTRIBUTION PLANS - GENERAL

Whether any expenditure under a Plan is subject to a state expense
limit will depend upon the nature of the expenditure and the terms of the state
law, regulation or order imposing the limit. A portion of the Fund's
Distribution Plan expenses may be includable in the Fund's total operating
expenses for purposes of determining compliance with state expense limits.

If the Fund's Independent Trustees authorize such payments, the effect
would be to extend the period of time during which the Fund incurs the maximum
amount of costs allowed by a Distribution Plan. If a Distribution Plan is
terminated, the Principal Underwriter will ask the Independent Trustees to take
whatever action they deem appropriate under the circumstances with respect to
payment of such amounts. Each of the Distribution Plans may be terminated at any
time by vote of the Fund's Rule 12b-1 Trustees, or by vote of a majority of the
outstanding voting shares of the respective class of Fund shares.

Any change in a Distribution Plan that would materially increase the
distribution expenses of the Fund provided for in a Distribution Plan requires
shareholder approval. Otherwise, a Distribution Plan may be amended by the
Trustees, including the Rule 12b-1 Trustees. Unpaid distribution costs at
December 31, 1994 for Class B and Class C were $2,015,349 (6.25% of net class
assets and $637,742 (6.44% of net class assets), respectively.

While a Distribution Plan is in effect, the Fund will be required to
commit the selection and nomination of candidates for Independent Trustees to
the discretion of the Independent Trustees.

The total amounts paid by the Fund under the foregoing arrangements may
not exceed the maximum Distribution Plan limit specified above. The amounts and
purposes of expenditures under a Distribution Plan must be reported to the Rule
12b-1 Trustees quarterly. The Rule 12b-1 Trustees may require or approve changes
in the implementation or operation of a Plan and may also require that total
expenditures by the Fund under a Distribution Plan be kept within limits lower
than the maximum amount permitted by a Distribution Plan as stated above.

The Independent Trustees of the Fund have determined that the sales of
the Fund's shares resulting from payments under the Distribution Plans are
expected to benefit the Fund.

For the fiscal year ended December 31, 1994, the Fund paid the
Principal Underwriter $103,680, $204,876 and 73,554 pursuant to the Class A,
Class B and Class C Distribution Plans, respectively. These amounts were used to
pay commissions and fees.

- --------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------

Trustees and officers of the Fund, their principal occupations and some
of their affiliations over the last five years are as follows:

*ALBERT H. ELFNER, III: President, Chief Executive Officer and Trustee of the
Fund; Chairman of the Board, President, Director and Chief Executive
Officer of Keystone Investments, Inc. ("Keystone Investments"), President,
Chief Executive Officer and Trustee or Director of all 30 Funds in the
Keystone Investments Family of Funds; Director and Chairman of the Board,
Chief Executive Officer and Vice Chairman of Keystone Investment Management
Company ("Keystone"); Chairman of the Board and Director of Keystone
Institutional Company, Inc. ("Keystone Institutional") (formerly named
Keystone Investment Management Corporation), and Keystone Fixed Income
Advisors ("KFIA"); Director, Chairman of the Board, Chief Executive Officer
and President of Keystone Management, Inc. ("Keystone Management"),
Keystone Software Inc. ("Keystone Software"); Director and President of
Hartwell Keystone Advisers, Inc. ("Hartwell Keystone"), Keystone Asset
Corporation, Keystone Capital Corporation, and Keystone Trust Company;
Director of Keystone Investment Distributors Company ("the Principal
Underwriter"), Keystone Investor Resource Center, Inc. ("KIRC"), and
Fiduciary Investment Company, Inc. ("FICO"); Director and Vice President of
Robert Van Partners, Inc.; Director of Boston Children's Services
Association; Trustee of Anatolia College, Middlesex School, and Middlebury
College; Member, Board of Governors, New England Medical Center and former
Trustee of Neworld Bank.

FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Professor, Finance Department, George Washington
University; President, Amling & Company (investment advice); Member, Board
of Advisers, Credito Emilano (banking); and former Economics and Financial
Consultant, Riggs National Bank.

CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Investment Counselor to Appleton Partners,
Inc.; former Managing Director, Seaward Management Corporation (investment
advice) and former Director, Executive Vice President and Treasurer, State
Street Research & Management Company (investment advice).

*GEORGE S. BISSELL: Chairman of the Board and Trustee of the Fund; Director of
Keystone Investments; Chairman of the Board and Trustee or Director of all
other Keystone Investments Funds; Director and Chairman of the Board of
Hartwell Keystone; Chairman of the Board and Trustee of Anatolia College;
Trustee of University Hospital (and Chairman of its Investment Committee);
former Chairman of the Board and Chief Executive Officer of Keystone Group;
and former Chief Executive Officer of the Fund.

EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Director, Coalition of Essential
Schools, Brown University; Director and former Executive Vice President,
National Alliance of Business; former Vice President, Educational Testing
Services; and former Dean, School of Business, Adelphi University.

CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; former Group Vice President, Textron Corp.; and
former Director, Peoples Bank (Charlotte, N.C).

LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Director of Phoenix Total Return Fund and Equifax, Inc.;
Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio Fund and The
Phoenix Big Edge Series Fund; and former President, Morehouse College.

K. DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Chairman of the Board, Director and Executive Vice
President, The London Harness Company; Managing Partner, Roscommon Capital
Corp.; Trustee, Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chief Executive Officer, Gifford Gifts of Fine
Foods; Chairman, Gifford, Drescher & Associates (environmental consulting);
President, Oldways Preservation and Exchange Trust (education); and former
Director, Keystone Group and Keystone.

F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Of Counsel, Keyser, Crowley & Meub, P.C.;
Member, Governor's (VT) Council of Economic Advisers; Chairman of the Board
and Director, Central Vermont Public Service Corporation and Hitchcock
Clinic; Director, Vermont Yankee Nuclear Power Corporation, Vermont
Electric Power Company, Inc., Grand Trunk Corporation, Central Vermont
Railway, Inc., S.K.I. Ltd., Sherburne Corporation, Union Mutual Fire
Insurance Company, New England Guaranty Insurance Company, Inc. and the
Investment Company Institute; former Governor of Vermont; former Director
and President, Associated Industries of Vermont; former Chairman and
President, Vermont Marble Company; former Director of Keystone; and former
Director and Chairman of the Board, Green Mountain Bank.

DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Vice President, DHR International,
Inc. (executive recruitment); former Senior Vice President, Boyden
International Inc. (executive recruitment); and Director, Commerce and
Industry Association of New Jersey, 411 International, Inc. and J & M
Cumming Paper Co.

RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Chairman, Environmental Warranty, Inc., and
Consultant, Drake Beam Morin, Inc. (executive outplacement); Director of
Connecticut Natural Gas Corporation, Trust Company of Connecticut, Hartford
Hospital, Old State House Association and Enhanced Financial Services,
Inc.; Member, Georgetown College Board of Advisors; Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Kingswood-Oxford School and
Greater Hartford YMCA; former Director, Executive Vice President and Vice
Chairman of The Travelers Corporation; and former Managing Director of
Russell Miller, Inc.

ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Partner, Farrell, Fritz, Caemmerer, Cleary, Barnosky &
Armentano, P.C.; President, Nassau County Bar Association; former Associate
Dean and Professor of Law, St. John's University School of Law.

EDWARD F. GODFREY: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Investments Funds; Director, Senior Vice President,
Chief Financial Officer and Treasurer of Keystone Investments, the
Principal Underwriter, Keystone Asset Corporation, Keystone Capital
Corporation, Keystone Trust Company; Treasurer of KIMCO, Robert Van
Partners, Inc., and FICO; Treasurer and Director of Keystone Management,
Keystone Software, Inc., and Hartwell Keystone; Vice President and
Treasurer of KFIA; and Director of KIRC.

JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of all
other Keystone Investments Funds; and President of Keystone.

KEVIN J. MORRISSEY: Treasurer of the Fund; Treasurer of all other Keystone
Investments Funds; Vice President of Keystone Investments; Assistant
Treasurer of FICO and Keystone; and former Vice President and Treasurer of
KIRC.

ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Fund; Senior
Vice President and Secretary of all other Keystone Investments Funds;
Senior Vice President, General Counsel and Secretary of Keystone; Senior
Vice President, General Counsel, Secretary and Director of the Principal
Underwriter, Keystone Management and Keystone Software, Senior Vice
President and General Counsel of Keystone Institutional; Senior Vice
President, General Counsel and Director of FICO and KIRC: Senior Vice
President and Secretary of Hartwell Keystone and Robert Van Partners, Inc.
Vice President and Secretary of KFIA; Senior Vice President, General
Counsel and Secretary of Keystone Investments, Keystone Asset Corporation,
Keystone Capital Corporation and Keystone Trust Company.

* This Trustee may be considered an "interested person" within the meaning of
the 1940 Act.

Mr. Elfner and Mr. Bissell are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Investments and several of
its affiliates including Keystone, the Principal Underwriter and KIRC. Mr.
Elfner and Mr. Bissell own shares of Keystone Investments. Mr. Elfner is
Chairman of the Board, Chief Executive Officer and Director of Keystone
Investments. Mr. Bissell is a Director of Keystone Investments.

During the fiscal year ended December 31, 1994, no Trustee affiliated
with Keystone or any officer received any direct remuneration from the Fund.
During the same period, the nonaffiliated Trustees received no retainers or
fees. Annual retainers and meeting fees paid by all funds in the Keystone
Investments Family of Funds (which includes 30 mutual funds) for the fiscal year
ended December 31, 1994, totalled $585,989. As of January 31, 1995, the Trustees
and officers beneficially owned less than 1.0% of the Fund's then outstanding
Class A, Class B or Class C shares.

The address of all the Fund's trustees and officers and the address of
the Fund is 200 Berkeley Street, Boston, Massachusetts 02116-5034.

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INVESTMENT MANAGER
- --------------------------------------------------------------------------------

Subject to the general supervision of the Fund's Board of Trustees,
Keystone Management, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, serves as investment manager to the Fund and is responsible for the
overall management of the Fund's business and affairs. Keystone Management,
organized in 1989, is a wholly-owned subsidiary of Keystone and its directors
and principal executive officers have been affiliated with Keystone, a seasoned
investment adviser, for a number of years. Keystone Management also serves as
investment manager to each of the other Funds in the Keystone Fund Family and to
certain other funds in the Keystone Investments Family of Funds.

Except as otherwise noted below, pursuant to an Investment Management
Agreement with the Fund (the "Management Agreement") and subject to the
supervision of the Fund's Board of Trustees, Keystone Management manages and
administers the operation of the Fund, and manages the investment and
reinvestment of the Fund's assets in conformity with the Fund's investment
objectives and restrictions. The Management Agreement stipulates that Keystone
Management shall provide office space, all necessary office facilities,
equipment and personnel in connection with its services under the Management
Agreement and pay or reimburse the Fund for the compensation of Fund officers
and trustees who are affiliated with the investment manager as well as pay all
expenses of Keystone Management incurred in connection with the provisions of
its services. All charges and expenses other than those specifically referred to
as being borne by Keystone Management will be paid by the Fund, including, but
not limited to, custodian charges and expenses; bookkeeping and auditors'
charges and expenses; transfer agent charges and expenses; fees of Independent
Trustees; brokerage commissions, brokers' fees and expenses; issue and transfer
taxes; costs and expenses under the Distribution Plan; taxes and trust fees
payable to governmental agencies; the cost of share certificates; fees and
expenses of the registration and qualification of the Fund and its shares with
the Securities and Exchange Commission (sometimes referred to herein as the
"SEC" or the "Commission") or under state or other securities laws; expenses of
preparing, printing and mailing prospectuses, statements of additional
information, notices, reports and proxy materials to shareholders of the Fund;
expenses of shareholders' and trustees' meetings; charges and expenses of legal
counsel for the Fund and for the Trustees of the Fund on matters relating to the
Fund; charges and expenses of filing annual and other reports with the SEC and
other authorities; and all extraordinary charges and expenses of the Fund.
Keystone Management pays all charges and expenses relating to these items
subject to reimbursement by the Fund.

The Management Agreement permits Keystone Management to enter into an
agreement with Keystone or other investment adviser, under which Keystone or
such other investment adviser, as investment adviser, will provide substantially
all the services to be provided by Keystone Management under the Management
Agreement. The Management Agreement also permits Keystone Management to delegate
to Keystone or another investment adviser substantially all of the investment
manager's rights, duties and obligations under the Management Agreement.
Keystone Management provides the Fund with certain administrative and management
services, which services include (1) performing research and planning with
respect to (a) the Fund's qualification as a regulated investment company under
Subchapter M of the Internal Revenue Code, (b) tax treatment of the Fund's
portfolio investments, (c) tax treatment of special corporate actions (such as
reorganizations), (d) state tax matters affecting the Fund, and (e) the Fund's
distributions of income and capital gains; and (2) preparing the Fund's federal
and state tax returns; (3) providing services to the Fund's shareholders in
connection with federal and state taxation and distributions of income and
capital gains; and (4) storing documents relating to the Fund's activities.

The Fund pays Keystone Management a fee for its services at the annual
rate of:

Management Aggregate Net Asset Value
Fee of the Shares of the Fund
- --------------------------------------------------------------------------------
0.75% of the first $ 250,000,000 plus
0.675% of the next $ 250,000,000 plus
0.60% of the next $ 500,000,000 plus
0.50% of amounts over $1,000,000,000

computed as of the close of business on each business day and payable daily.

The Fund is subject to certain annual state expense limitations, the
most restrictive of which is as follows:

2.5% of the first $30 million of Fund average net assets; 2.0% of the
next $70 million of Fund average net assets; and 1.5% of Fund average
net assets over $100 million.

Capital charges and certain expenses, including a portion of the Fund's
Distribution Plan fees, are not included in the calculation of the state expense
limitation. This limitation may be modified or eliminated in the future.

As a continuing condition of registration of shares in a state,
Keystone Management has agreed to reimburse the Fund annually for certain
operating expenses incurred by the Fund in excess of certain percentages of the
Fund's average daily net assets. However, Keystone Management is not required to
reimburse the Fund to the extent that such reimbursement would result in the
Fund's inability to qualify as a regulated investment company under the
provisions of the Internal Revenue Code. This condition may be modified or
eliminated in the future.

The Management Agreement continues in effect from year to year only if
approved at least annually by the Fund's Board of Trustees or by a vote of a
majority of the outstanding shares, and such renewal has been approved by the
vote of a majority of the Independent Trustees cast in person at a meeting
called for the purpose of voting on such approval. The Management Agreement may
be terminated, without penalty, on 60 days' written notice by the Fund's Board
of Trustees or by a vote of a majority of outstanding shares.

For further discussion of fees paid to Keystone Management, see
"Investment Adviser" below.

- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- --------------------------------------------------------------------------------

Pursuant to its Management Agreement, Keystone Management has delegated
its investment management functions, except for certain administrative and
management services, to Keystone and has entered into an Investment Advisory
Agreement, with Keystone pursuant to which Keystone provides investment advisory
and management services to the Fund.

Keystone, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, has provided investment advisory and management services to
investment companies and private accounts since it was organized in 1932.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc., which is
located at 200 Berkeley Street, Boston, Massachusetts 02116-5034. Keystone
Investments is a corporation privately owned by current and former members of
Keystone's management and certain employees and its affiliates. The shares of
Keystone Investments common stock beneficially owned by management are held in a
number of voting trusts, the trustees of which are George S. Bissell, Albert H.
Elfner, III, Edward F. Godfrey and Ralph J. Spuehler, Jr. Keystone Investments
provides accounting, bookkeeping, legal, personnel and general corporate
services to Keystone Management, Keystone, their affiliates and the Keystone
Investments Family of Funds.

Pursuant to the Advisory Agreement, Keystone receives for its services
an annual fee representing 85% of the management fee received by Keystone
Management under its Management Agreement.

Under the terms of the Advisory Agreement and subject to the
supervision of the Fund's Board of Trustees, Keystone manages and administers
the operation of the Fund, and manages the investment and reinvestment of the
Fund's assets in conformity with the Fund's investment objectives and
restrictions. The Advisory Agreement stipulates that Keystone shall provide
office space, all necessary office facilities, equipment and personnel in
connection with its services under the Advisory Agreement and pay or reimburse
the Fund for the compensation of Fund officers and trustees who are affiliated
with the investment manager and will pay all expenses of Keystone incurred in
connection with the provision of its services. All charges and expenses other
than those specifically referred to as being borne by Keystone will be paid by
the Fund, including, but not limited to, custodian charges and expenses;
bookkeeping and auditors' charges and expenses; transfer agent charges and
expenses; fees of Independent Trustees; brokerage commissions, brokers' fees and
expenses; issue and transfer taxes; costs and expenses under the Distribution
Plan; taxes and trust fees payable to governmental agencies; the cost of share
certificates, fees and expenses of the registration and qualification of the
Fund and its shares with the SEC or under state or other securities laws;
expenses of preparing, printing and mailing prospectuses, statements of
additional information, notices, reports and proxy materials to shareholders of
the Fund; expenses of shareholders' and Trustees' meetings; charges and expenses
of legal counsel for the Fund and for the Trustees of the Fund on matters
relating to the Fund; charges and expenses of filing annual and other reports
with the SEC and other authorities; and all extraordinary charges and expenses
of the Fund.

During the fiscal year ended December 31, 1992, the Fund paid or
accrued to Keystone Management investment management and administrative services
fees of $464,861. Of such amount paid to Keystone Management, $395,132 was paid
to Keystone under an Investment Advisory Agreement between Keystone Management
and Keystone.

During the fiscal year ended December 31, 1993, the Fund paid or
accrued to Keystone Management investment management and administrative services
fees of $627,879. Of such amount paid to Keystone Management, $533,697 was paid
to Keystone under an Investment Advisory Agreement between Keystone Management
and Keystone.

During the fiscal year ended December 31, 1994, the Fund paid or
accrued to Keystone Management investment management and administrative services
fees of $924,625. Of such amount paid to Keystone Management, $785,931 was paid
to Keystone for investment advisory services under the Investment Advisory
Agreement between Keystone Management and Keystone.

- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------

The Fund has entered into a Principal Underwriting Agreement (the
"Underwriting Agreement") with the Principal Underwriter, a wholly-owned
subsidiary of Keystone.

The Principal Underwriter, located at 200 Berkeley Street, Boston,
Massachusetts, 02116-5034, is a Delaware corporation. The Principal Underwriter,
as agent, currently has the right to obtain subscriptions for and to sell shares
of the Fund to the public. In so doing, the Principal Underwriter may retain and
employ representatives to promote distribution of the shares and may obtain
orders from brokers, dealers or others, acting as principals, for sales of
shares. No such representative, dealer or broker has any authority to act as
agent for the Fund. The Principal Underwriter has not undertaken to buy or to
find purchasers for any specific number of shares. The Principal Underwriter may
receive payments from the Fund pursuant to the Distribution Plans.

All subscriptions and sales of shares by the Principal Underwriter are
at the offering price of the shares, such price being in accordance with the
provisions of the Fund's Declaration of Trust, By-Laws, current prospectus and
statement of additional information. All orders are subject to acceptance by the
Fund, and the Fund reserves the right, in its sole discretion, to reject any
order received. Under the Underwriting Agreement, the Fund is not liable to
anyone for failure to accept any order.

The Fund has agreed under the Underwriting Agreement to pay all
expenses in connection with registration of its shares with the Commission as
well as auditing and filing fees in connection with registration of its shares
under the various state "blue-sky" laws.

From time to time, if in the Principal Underwriter's judgment it could
benefit the sales of Fund shares, the Principal Underwriter may use its
discretion in providing to selected dealers promotional materials and selling
aids, including, but not limited to, personal computers, related software and
Fund data files.

The Principal Underwriter has agreed that it will in all respects duly
conform with all state and federal laws applicable to the sale of the shares and
will indemnify and hold harmless the Fund, and each person who has been, is or
may be a Trustee or officer of the Fund, against expenses reasonably incurred by
any of them in connection with any claim or in connection with any action, suit
or proceeding to which any of them may be a party that arises out of or is
alleged to arise out of any misrepresentation or omission to state a material
fact on the part of the Principal Underwriter or any other person for whose acts
the Principal Underwriter is responsible or is alleged to be responsible, unless
such misrepresentation or omission was made in reliance upon written information
furnished by the Fund.

The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved by a majority of the Fund's
Independent Trustees at least annually at a meeting called for that purpose and
if its continuance is approved annually by vote of a majority of Trustees or by
vote of a majority of the outstanding shares.

The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Fund's Board of Trustees or by a vote of a majority
of outstanding shares. The Underwriting Agreement will terminate automatically
upon its "assignment" as that term is defined in the 1940 Act.

- --------------------------------------------------------------------------------
DECLARATION OF TRUST
- --------------------------------------------------------------------------------

MASSACHUSETTS BUSINESS TRUST

The Fund is a Massachusetts business trust established under a
Declaration of Trust dated September 21, 1994. The Fund is similar in most
respects to a business corporation. The principal distinction between the Fund
and a corporation relates to the shareholder liability described below. A copy
of the Declaration of Trust (the "Declaration of Trust") is filed as an exhibit
to the Registration Statement of which this statement of additional information
is a part. This summary is qualified in its entirety by reference to the
Declaration of Trust.

DESCRIPTION OF SHARES

The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of classes of shares. Each share of the Fund
represents an equal proportionate interest with each other share of that class.
Upon liquidation, shares are entitled to a pro rata share of the Fund based on
the relative net assets of each class. Shareholders have no preemptive or
conversion rights. Shares are redeemable and transferable. The Fund is
authorized to issue additional classes or series of shares. The Fund currently
issues three classes of shares, but may issue additional classes or series of
shares.

SHAREHOLDER LIABILITY

Pursuant to certain decisions of the Supreme Judicial Court of
Massachusetts, shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. If the Fund were held to be a partnership, the possibility of the
shareholders' incurring financial loss for that reason appears remote because
(1) the Fund's Declaration of Trust contains an express disclaimer of
shareholder liability for obligations of the Fund and requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Fund or the Trustees; and (2) because the Declaration of
Trust provides for indemnification out of the Fund's property for any
shareholder held personally liable for the obligations of the Fund.

VOTING RIGHTS

Under the Declaration of Trust, the Fund does not hold annual meetings.
At meetings called for the initial election of Trustees or to consider other
matters, shares are entitled to one vote per share. Shares generally vote
together as one class on all matters. Classes of shares of the Fund have equal
voting rights except that each class of shares has exclusive voting rights with
respect to its respective Distribution Plan. No amendment may be made to the
Declaration of Trust which adversely affects any class of shares without the
approval of a majority of the shares of that class. Shares have non-cumulative
voting rights, which means that the holders of more than 50% of the shares
voting for the election of Trustees can elect 100% of the Trustees to be elected
at a meeting and, in such event, the holders of the remaining 50% or less of the
shares voting will not be able to elect any Trustees.

After an initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, unless and until such time as less than a majority of the Trustees
holding office have been elected by Shareholders at which time the Trustees then
in office will call a shareholders meeting for election of Trustees.

Except as set forth above, the Trustees shall continue to hold office
indefinitely, unless otherwise required by law, and may appoint successor
Trustees. A Trustee may be removed from or cease to hold office (as the case may
be) (1) at any time by two-thirds vote of the remaining Trustees; (2) when such
Trustee becomes mentally or physically incapacitated; or (3) at a special
meeting of shareholders by a two-thirds vote of the outstanding shares. Any
Trustee may voluntarily resign from office.

LIMITATION OF TRUSTEES' LIABILITY

The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.

- --------------------------------------------------------------------------------
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
- --------------------------------------------------------------------------------

Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added and the maximum sales
charge deducted and all recurring fees charged to all shareholder accounts are
deducted. The ending redeemable value assumes a complete redemption at the end
of the relevant periods.

The Class A cumulative total return figures for the one, five and ten
year periods ended December 31, 1994 were (11.09)% (including applicable sales
charge), 66.42% and 305.32%, respectively. The Class A 5-year and 10-year
average annual total returns were 10.72% and 15.02%, respectively. The total
return figures do not reflect expense subsidies by International Heritage Corp.,
the Fund's previous adviser, or Keystone. Effective April 19, 1989, Keystone
became investment adviser to the Fund. Total return figures are included for
historical purposes.

The Class B cumulative total return figure for the one year ended
December 31, 1994 was (9.27)% (including contingent deferred sales charge). The
Class B average annual total return figure since August 2, 1993 (date of initial
public offering) until December 31, 1994 was (0.81)% (including contingent
deferred sales charge).

The Class C cumulative total return (annualized) for the one year ended
December 31, 1994 was (6.56)% (including contingent deferred sales charge). The
Class C average annual total return figure since August 2, 1993 (date of initial
public offering) until December 31, 1994 was 1.44% including contingent deferred
sales charge).

Current yield quotations as they may appear from time to time in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of the Fund computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the base period.

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------

As of March 31, 1995 the following shareholder of record who owned 5%
or more of the Fund's outstanding Class A shares: Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, Florida 32246-6484,
owed 5.2%.

As of March 31, 1995, the following shareholder of record owned 5% or
more of the Fund's outstanding Class B shares: Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, Florida 32246-6484,
owned 13.3%.

As of March 31, 1995, the following shareholder of record owned 5% or
more of the Fund's outstanding Class C shares: Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, Florida 32246-6484,
31.7%.

The equity securities of the Fund owned by all officers and Trustees of
the Fund, as a group, is less than one percent of Class A, Class B and Class C
shares.

State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian ("Custodian") of all securities and cash
of the Fund. The Custodian performs no investment management functions for the
Fund, but, in addition to its custodial services, is responsible for accounting
and related recordkeeping on behalf of the Fund.

KPMG Peat Marwick LLP, One Boston Place, Boston, Massachusetts 02108,
Certified Public Accountants, serve as independent auditors for the Fund.

KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142, is a
wholly-owned subsidiary of Keystone, and acts as transfer agent and dividend
disbursing agent for the Fund.

Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.

No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, statement of additional information or in supplemental sales
literature issued by the Fund or the Principal Underwriter, and no person is
entitled to rely on any information or representation not contained therein.

The Fund's prospectus and statement of additional information omit
certain information contained in the registration statement filed with the
Commission, which may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fee prescribed by the rules and regulations
promulgated by the Commission.

The Fund is one of 15 different investment companies in the family of
Keystone America Funds. The Keystone America Funds offer a range of choices to
serve shareholder needs. The Keystone America Funds consist of the funds having
the various investment objectives described below:

KEYSTONE CAPITAL PRESERVATION AND INCOME FUND - Seeks high current income,
consistent with low volatility of principal, by investing in adjustable rate
securities issued by the U.S. government, its agencies or instrumentalities.

KEYSTONE FUND FOR TOTAL RETURN - Seeks total return from a combination of
capital growth and income from dividend paying common stocks, preferred stocks,
convertible bonds, other fixed-income securities and foreign securities (up to
50%).

KEYSTONE GLOBAL OPPORTUNITIES FUND - Seeks long-term capital growth from foreign
and domestic securities.

KEYSTONE GOVERNMENT SECURITIES FUND - Seeks income and capital preservation from
U.S. government securities.

KEYSTONE HARTWELL EMERGING GROWTH FUND, INC. - Seeks capital appreciation by
investment primarily in small and medium-sized companies in a relatively early
stage of development that are principally traded in the over-the-counter market.

KEYSTONE HARTWELL GROWTH FUND, INC. - Seeks capital appreciation by investment
in securities selected for their long-term growth prospects.

KEYSTONE INTERMEDIATE TERM BOND FUND - Seeks income, capital preservation and
price appreciation potential from investment grade corporate bonds.

KEYSTONE OMEGA FUND - Seeks maximum capital growth from common stocks and
securities convertible into common stocks.

KEYSTONE STATE TAX FREE FUND - A mutual fund consisting of five separate series
of shares investing in different portfolio securities which seeks the highest
possible current income, exempt from federal income taxes and applicable state
taxes.

KEYSTONE STATE TAX FREE FUND - SERIES II - A mutual fund consisting of two
separate series of shares investing in different portfolio securities which
seeks the highest possible current income, exempt from federal income taxes and
applicable state taxes.

KEYSTONE STRATEGIC INCOME FUND - Seeks high yield and capital appreciation
potential from corporate bonds, discount bonds, convertible bonds, preferred
stock and foreign bonds (up to 25%).

KEYSTONE TAX FREE INCOME FUND - Seeks income exempt from federal income taxes
and capital preservation from the four highest grades of municipal bonds.

KEYSTONE WORLD BOND FUND - Seeks total return from interest income, capital
gains and losses and currency exchange gains and losses from investment in debt
securities denominated in U.S. and foreign currencies.

KEYSTONE FUND OF THE AMERICAS - Seeks long-term growth of capital through
investments in equity and debt securities in North America (the United States
and Canada) and Latin America (Mexico and countries in South and Central
America).

KEYSTONE STRATEGIC DEVELOPMENT FUND - Seeks long-term capital growth by
investing primarily in equity securities.

<PAGE>

A-1

- --------------------------------------------------------------------------------

APPENDIX

- --------------------------------------------------------------------------------

COMMON AND PREFERRED STOCK RATINGS

A. S&P's Earnings and Dividend Rankings for Common Stocks

Because the investment process involves assessment of various factors, such
as product and industry position, corporate resources and financial policy, with
results that make some common stocks more highly esteemed than others, S&P
believes that earnings and dividend performance is the end result of the
interplay of these factors and that, over the long run, the record of this
performance has a considerable bearing on relative quality. S&P rankings,
however, do not reflect all of the factors, tangible or intangible, that bear on
stock quality.

Growth and stability of earnings and dividends are deemed key elements in
establishing S&P earnings and dividend rankings for common stocks, which
capsulize the nature of this record in a single symbol.

S&P has established a computerized scoring system based on per-share
earnings and dividend records of the most recent ten years, a period deemed long
enough to measure a company's performance under varying economic conditions. S&P
measures growth, stability within the trend line and cyclicality. The ranking
system also makes allowances for company size, since large companies have
certain inherent advantages over small ones. From these scores for earnings and
dividends are determined.

The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample which
is reviewed and sometimes modified with the following ladder of rankings:

A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower

S&P believes its rankings are not a forecast of future market price
performance, but are basically an appraisal of past performance of earnings and
dividends, and relative current standing.

<PAGE>

A-2

B. Moody's Common Stock Rankings

Moody's presents a concise statement of the important characteristics of a
company and an evaluation of the grade (quality) of its common stock. Data
presented includes: (a) capsule stock information which reveals short and long
term growth and yield afforded by the indicated dividend, based on a recent
price; (b) a long term price chart which shows patterns of monthly stock price
movements and monthly trading volumes; (c) a breakdown of a company's capital
account which aids in determining the degree of conservatism or financial
leverage in a company's balance sheet; (d) interim earnings for the current year
to date, plus three previous years; (e) dividend information; (f) company
background; (g) recent corporate developments; (h) prospects for a company in
the immediate future and the next few years; and (i) a ten year comparative
statistical analysis.

This information provides investors with information on what a company
does, how it has performed in the past, how it is performing currently and what
its future performance prospects appear to be.

These characteristics are then evaluated and result in a grading, or
indication of quality. The grade is based on an analysis of each company's
financial strength, stability of earnings and record of dividend payments. Other
considerations include conservativeness of capitalization, depth and caliber of
management, accounting practices, technological capabilities and industry
position. Evaluation is represented by the following grades:

(1) High Grade
(2) Investment Grade
(3) Medium Grade
(4) Speculative Grade

C. Moody's Preferred Stock Ratings

Preferred stock ratings and their definitions are as follows:

1. aaa: An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.

2. aa: An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.

3. a: An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be

<PAGE>

A-3

somewhat greater then in the "aaa" and "aa" classification, earnings and asset
protection are, nevertheless, expected to be maintained at adequate levels.

4. baa: An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.

5. ba: An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.

6. b: An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.

7. caa: An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payments.

8. ca: An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.

9. c: This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.

CORPORATE BOND RATINGS

S&P Corporate Bond Ratings

An S&P corporate bond rating is a current assessment of the
creditworthiness of an obligor, including obligors outside the United States,
with respect to a specific obligation. This assessment may take into
consideration obligors such as guarantors, insurers or lessees. Ratings of
foreign obligors do not take into account currency exchange and related
uncertainties. The ratings are based on current information furnished by the
issuer or obtained by S&P from other sources it considers reliable.

<PAGE>

A-4

The ratings are based, in varying degrees, on the following considerations:

a. Likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation;

b. Nature of and provisions of the obligation; and

c. Protection afforded by and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.

PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "A" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.

Bond ratings are as follows:

1. AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.

2. AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.

4. BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

5. BB, B, CCC, CC and C - Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

<PAGE>

A-5

Moody's Corporate Bond Ratings

Moody's ratings are as follows:

1. Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

2. Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.

3. A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.

4. Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

5. Ba - Bonds which are rated Ba are judged to have speculative elements.
Their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

6. B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security

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A-6

ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.

ZERO COUPON BONDS

A zero coupon "stripped" bond represents ownership in serially maturing
interest payments or principal payments on specific underlying notes and bonds,
including coupons relating to such notes and bonds. The interest and principal
payments are direct obligations of the issuer. Coupon zero coupon bonds of any
series mature periodically from the date of issue of such series through the
maturity date of the securities related to such series. Principal zero coupon
bonds mature on the date specified therein, which is the final maturity date of
the related securities. Each zero coupon bond entitles the holder to receive a
single payment at maturity. There are no periodic interest payments on a zero
coupon bond. Zero coupon bonds are offered at discounts from their face amounts.

In general, owners of zero coupon bonds have substantially all the rights
and privileges of owners of the underlying coupon obligations or principal
obligations. Owners of zero coupon bonds have the right upon default on the
underlying coupon obligations or principal obligations to proceed directly and
individually against the issuer and are not required to act in concert with
other holders of zero coupon bonds.

For federal income tax purposes, a purchaser of principal zero coupon bonds
or coupon zero coupon bonds (either initially or in the secondary market) is
treated as if the buyer had purchased a corporate obligation issued on the
purchase date with an original issue discount equal to the excess of the amount
payable at maturity over the purchase price. The purchaser is required to take
into income each year as ordinary income an allocable portion of such discounts
determined on a "constant yield" method. Any such income increases the holder's
tax basis for the zero coupon bond, and any gain or loss on a sale of the zero
coupon bonds relative to the holder's basis, as so adjusted, is a capital gain
or loss. If the holder owns both principal zero coupon bonds and coupon zero
coupon bonds representing interest in the same underlying issue of securities, a
special basis allocation rule (requiring the aggregate basis to be allocated
among the items sold and retained based on their relative fair market values at
the time of sale) may apply to determine the gain or loss on a sale of any such
zero coupon bonds items.

PAYMENT-IN-KIND SECURITIES

Payment-in-kind (PIK) securities pay interest in either cash or additional
securities, at the issuer's option, for a specified

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period. The issuer's option to pay in additional securities typically ranges
from one to six years, compared to an average maturity for all PIK securities of
eleven years. Call protection and sinking fund features are comparable to those
offered on traditional debt issues.

PIKs, like zero coupon bonds, are designated to give an issuer flexibility
in managing cash flow. Several PIKs are senior debt. In other cases, where PIKs
are subordinated, most senior lenders view them as equity equivalents.

An advantage of PIKs for the issuer - as with zero coupon securities - is
that interest payments are automatically compounded (reinvested) at the stated
coupon rate, which is not the case with cash-paying securities. However, PIKs
are gaining popularity over zeros since interest payments in additional
securities can be monetized and are more tangible than accretion of a discount.

As a group, PIK bonds trade flat (i.e., without accrued interest). Their
price is expected to reflect an amount representing accreted interest since the
last payment. PIKs generally trade at higher yields than comparable cash-paying
securities of the same issuer. Their premium yield is the result of the lesser
desirability of non-cash interest, the more limited audience for non-cash paying
securities, and the fact that many PIKs have been issued to equity investors who
do not normally own or hold such securities.

Calculating the true yield on a PIK security requires a discounted cash
flow analysis if the security (ex interest) is trading at a premium or a
discount, because the realizable value of additional payments is equal to the
current market value of the underlying security, not par.

Regardless of whether PIK securities are senior or deeply subordinated,
issuers are highly motivated to retire them because they are usually their most
costly form of capital. Sixty-eight percent of the PIK debentures issued prior
to 1987 have already been redeemed, and approximately 35% of the over $10
billion PIK debentures issued through year-end 1988 have been retired.

MONEY MARKET INSTRUMENTS

Money market securities are instruments with remaining maturities of one
year or less such as bank certificates of deposit, bankers' acceptances,
commercial paper and obligations issued or guaranteed by the United States
("U.S.") government, its agencies or instrumentalities, some of which may be
subject to repurchase agreements.

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Commercial Paper

Commercial paper will consist of issues rated at the time of purchase A-1,
A-2 or higher by Standard & Poor's Corporation ("S&P"), Prime-1 or Prime-2 by
Moody's Investors Service, Inc. ("Moody's"), or, if not rated, will be issued by
companies which have an outstanding debt issue rated at the time of purchase
Aaa, Aa or A by Moody's, or AAA, AA or A by S&P, or will be determined by
Keystone to be of comparable quality.

A. S&P Ratings

An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. The top category is as follows:

1. A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.

2. A-1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.

B. Moody's Ratings

The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's commercial
paper ratings are opinions of the ability of issuers to repay punctually
promissory obligations not having an original maturity in excess of nine months.
Moody's employs the following designation, judged to be investment grade, to
indicate the relative repayment capacity of rated issuers.

1. The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are deemed
to have a superior capacity for repayment of short term promissory obligations.
Repayment capacity of Prime-1 issuers is normally evidenced by the following
characteristics:

1) leading market positions in well-established industries;
2) high rates of return on funds employed;
3) conservative capitalization structures with moderate
reliance on debt and ample asset protection;
4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and
5) well established access to a range of financial markets
and assured sources of alternate liquidity.

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A-9

In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.

Certificates of Deposit

Certificates of deposit are receipts issued by a bank in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.

Certificates of deposit will be limited to U.S. dollar-denominated
certificates of United States banks, including their branches abroad, and of
U.S. branches of foreign banks, which are members of the Federal Reserve System
or the Federal Deposit Insurance Corporation, and have at least $1 billion in
deposits as of the date of their most recently published financial statements.

The Fund will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank. Additionally, the Fund does not
currently intend to purchase such foreign securities (except to the extent that
certificates of deposit of foreign branches of U.S. banks may be deemed foreign
securities) or purchase certificates of deposit, bankers' acceptances or other
similar obligations issued by non U.S. branches of foreign banks.

Bankers' Acceptances

Bankers' acceptances typically arise from short term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Fund must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total deposits at the time of purchase in excess of $1 billion and must be
payable in U.S. dollars.

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United States Government Securities

Securities issued or guaranteed by the United States government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance and securities issued by the Government
National Mortgage Association ("GNMA"). Treasury bills have maturities of one
year or less. Treasury notes have maturities of one to ten years and Treasury
bonds generally have maturities of greater than ten years at the date of
issuance. GNMA securities include GNMA mortgage pass-through certificates. Such
securities are supported by the full faith and credit of the U.S. government

Securities issued or guaranteed by U.S. government agencies or
instrumentalities include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime
Administration, The Tennessee Valley Authority, District of Columbia Armory
Board and Federal National Mortgage Association.

Some obligations of U.S. government agencies and instrumentalities, such as
securities of Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury. Others, such as bonds issued by the Federal
National Mortgage Association, a private corporation, are supported only by the
credit of the instrumentality. Because the U.S. government is not obligated by
law to provide support to an instrumentality it sponsors, the Fund will invest
in the securities issued by such an instrumentality only when Keystone
determines under standards established by the Board of Directors that the credit
risk with respect to the instrumentality does not make its securities unsuitable
investments. U.S. government securities do not include international agencies or
instrumentalities in which the U.S. government, its agencies or
instrumentalities participate, such as the World Bank, Asian Development Bank or
the Inter-American Development Bank, or issues insured by the Federal Deposit
Insurance Corporation.

FOREIGN SECURITIES

The Fund may invest in securities principally traded in securities markets
outside the United States. While investment in foreign securities is intended to
reduce risk by providing further diversification, such investments involve
sovereign risk in addition to the credit and market risks normally associated
with domestic securities. Foreign investments may be affected favorably or
unfavorably by changes in currency rates and exchange control regulations. There
may be less publicly available information about a foreign company than about a
U.S. company, and foreign

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A-11

companies may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies.
Securities of some foreign companies are less liquid or more volatile than
securities of U.S. companies, and foreign brokerage commissions and custodian
fees are generally higher than in the United States. Investments in foreign
securities may also be subject to other risks different from those affecting
U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, imposition of withholding taxes on
dividend or interest payments and currency blockage (which would prevent cash
from being brought back to the United States). These risks are carefully
considered by Keystone prior to the purchase of these securities.

OPTIONS TRANSACTIONS

Option Writing and Related Risks

The Fund may write covered call and put options with respect to up to 25%
of its net assets. A call option gives the purchaser of the option the right to
buy, and the writer the obligation to sell, the underlying security at the
exercise price during the option period. Conversely, a put option gives the
purchaser the right to sell, and the writer the obligation to buy, the
underlying security at the exercise price during the option period.

So long as the obligation of the writer continues, the writer may be
assigned an exercise notice by the broker/dealer through whom the option was
sold. The exercise notice would require the writer to deliver, in the case of a
call, or take delivery of, in the case of a put, the underlying security against
payment of the exercise price. This obligation terminates upon expiration of the
option, or at such earlier time that the writer effects a closing purchase
transaction by purchasing an option of the same series as the one previously
sold. Once an option has been exercised, the writer may not execute a closing
purchase transaction. For options traded on national securities exchanges
("Exchanges") to secure the obligation to deliver the underlying security in the
case of a call option, the writer of the option is required to deposit in escrow
the underlying security or other assets in accordance with the rules of the OCC,
an institution created to interpose itself between buyers and sellers of
options. Technically, the OCC assumes the order side of every purchase and sale
transaction on an Exchange and by doing so, gives its guarantee to the
transaction.

The principal reason for writing options on a securities portfolio is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the underlying securities alone. In return for the premium, the
covered call option writer has given up the opportunity for profit from a price
increase in the underlying security above the exercise price so long as the
option remains open, but retains the risk of loss

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A-12

should the price of the security decline. Conversely, the put option writer
gains a profit, in the form of a premium, so long as the price of the underlying
security remains above the exercise price, but assumes an obligation to purchase
the underlying security from the buyer of the put option at the exercise price,
even though the price of the security may fall below the exercise price, at any
time during the option period. If an option expires, the writer realizes a gain
in the amount of the premium. Such a gain may, in the case of a covered call
option, be offset by a decline in the market value of the underlying security
during the option period. If a call option is exercised, the writer realizes a
gain or loss from the sale of the underlying security. If a put option is
exercised, the writer must fulfill his obligation to purchase the underlying
security at the exercise price, which will usually exceed the then market value
of the underlying security. In addition, the premium paid for the put
effectively increases the cost of the underlying security, thus reducing the
yield otherwise available from such securities.

Because the Fund can write only covered options, it may at times be unable
to write additional options unless it sells a portion of its portfolio holdings
to obtain new securities against which it can write options. This may result in
higher portfolio turnover and correspondingly greater brokerage commissions and
other transaction costs.

To the extent that a secondary market is available, the covered option
writer may close out options it has written prior to the assignment of an
exercise notice by purchasing, in a closing purchase transaction, an option of
the same series as the option previously written. If the cost of such a closing
purchase, plus transaction costs, is greater than the premium received upon
writing the original option, the writer will incur a loss in the transaction.

Writing Covered Options

The Fund writes only covered options. Call and put options written by the
Fund will normally have expiration dates of not more than nine months from the
date written. The exercise price of the options may be below, equal to, or above
the current market values of the underlying securities at the times the options
are written.

Unless the option has been exercised, the Fund may close out an option it
has written by effecting a closing purchase transaction, whereby it purchases an
option covering the same underlying security and having the same exercise price
and expiration date (of the same series) as the one it has written. If the Fund
desires to sell a particular security on which it has written a call option, it
will effect a closing purchase transaction prior to or concurrently with the
sale of the security. If the Fund is able to enter into a closing purchase
transaction,

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A-13

the Fund will realize a profit (or loss) from such transaction if the cost of
such transaction is less (or more) than the premium received from the writing of
the option.

An option position may be closed out only in a secondary market for an
option of the same series. Although the Fund will generally write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular option at
any particular time, and for some options no secondary market may exist. In such
event it might not be possible to effect a closing transaction in a particular
option. If the Fund as a covered call option writer is unable to effect a
closing purchase transaction, it will not be able to sell the underlying
securities until the option expires or it delivers the underlying securities
upon exercise.

Because the Fund intends to qualify as a regulated investment company under
the Internal Revenue Code, the extent to which the Fund may write covered call
options and enter into so-called "straddle" transactions involving put and call
options may be limited.

Many options are traded on registered securities exchanges. Options traded
on such exchanges are issued by the Options Clearing Corporation ("OCC"), a
clearing corporation which assumes responsibility for the completion of options
transactions.

Purchasing Put and Call Options

The Fund can close out a put option it has purchased by effecting a closing
sale transaction; for example, the Fund may close out a put option it has
purchased by selling a put option. If, however, a secondary market does not
exist at a time the Fund wishes to effect a closing sale transaction, the Fund
will have to exercise the option to realize any profit.

The Fund may also purchase call options for the purpose of offsetting
previously written call options of the same series.

The Fund's ability to purchase put and call options may be limited by the
Internal Revenue Code's requirements for qualification as a regulated investment
company.

Options Trading Markets

Options which the Fund will trade are generally listed on Exchanges.
Exchanges on which such options currently are traded include the Chicago Board
Options Exchange and the New York, American, Pacific and Philadelphia Stock
Exchanges.

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A-14

The staff of the Commission currently is of the view that the premiums
which the Fund pays for the purchase of unlisted options, and the value of
securities used to cover unlisted options written by the Fund, are considered to
be invested in illiquid securities or assets for the purpose of calculating
whether the Fund is in compliance with its fundamental investment restriction
prohibiting it from investing more than 10% of its total assets (taken at
current value) in any combination of illiquid assets and securities. The Fund
intends to request that the Commission staff reconsider its current view. It is
the intention of the Fund to comply with the staff's current position and the
outcome of such reconsideration.

Special Considerations Applicable to Options

On Treasury Bonds and Notes. Because trading interest in U.S. Treasury
bonds and notes tends to center on the most recently auctioned issues, new
series of options with expirations to replace expiring options on particular
issues will not be introduced indefinitely. Instead, the expirations introduced
at the commencement of options trading on a particular issue will be allowed to
run their course, with the possible addition of a limited number of new
expirations as the original ones expire. Options trading on each series of bonds
or notes will thus be phased out as new options are listed on the more recent
issues, and a full range of expiration dates will not ordinarily be available
for every series on which options are traded.

On Treasury Bills. Because the deliverable U.S. Treasury bill changes from
week to week, writers of U.S. Treasury bill call options cannot provide in
advance for their potential exercise settlement obligations by acquiring and
holding the underlying security. However, if the Fund holds a long position in
U.S. Treasury bills with a principal amount corresponding to the option contract
size, the Fund may be hedged from a risk standpoint. In addition, the Fund will
maintain in a segregated account with its Custodian liquid assets maturing no
later than those which would be deliverable in the event of an assignment of an
exercise notice to ensure that it can meet its open option obligations.

On GNMA Certificates. Options on GNMA certificates are not currently traded on
any Exchange. However, the Fund may purchase and write such options should they
commence trading on any Exchange.

Since the remaining principal balance of GNMA certificates declines each
month as a result of mortgage payments, the Fund, as a writer of a covered GNMA
call holding GNMA certificates as "cover" to satisfy its delivery obligation in
the event of assignment of an exercise notice, may find that its GNMA
certificates no longer have a sufficient remaining principal balance for this
purpose. Should this occur, the Fund will enter

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A-15

into a closing purchase transaction or will purchase additional GNMA
certificates from the same pool (if obtainable) or replacement GNMA certificates
in the cash market in order to remain covered.

A GNMA certificate held by the Fund to cover an option position in any but
the nearest expiration month may cease to present cover for the option in the
event of a decline in the GNMA coupon rate at which new pools are originated
under the FHA/VA loan ceiling in effect at any given time. Should this occur,
the Fund will no longer be covered, and the Fund will either enter into a
closing purchase transaction or replace the GNMA certificate with a certificate
which represents cover. When the Fund closes its position or replaces the GNMA
certificate, it may realize an unanticipated loss and incur transaction costs.

Risks Pertaining to the Secondary Market. An option position may be closed
out only in a secondary market for an option of the same series. Although the
Fund will generally purchase or write only those options for which there appears
to be an active secondary market, there is no assurance that a liquid secondary
market will exist for any particular option at any particular time, and for some
options no secondary market may exist. In such event, it might not be possible
to effect closing transactions in particular options, with the result that the
Fund would have to exercise its options in order to realize any profit and might
incur transaction costs in connection therewith. If the Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.

Reasons for the absence of a liquid secondary market include the following:
(i) insufficient trading interest in certain options; (ii) restrictions imposed
on transactions; (iii) trading halts, suspensions or other restrictions imposed
with respect to particular classes or series of options or underlying
securities; (iv) interruption of the normal operations on an Exchange or by a
broker; (v) inadequacy of the facilities of an Exchange, the OCC or a broker to
handle current trading volume; or (vi) a decision by one or more Exchanges or
brokers to discontinue the trading of options (or a particular class or series
of options), in which event the secondary market in that class or series of
options would cease to exist, although outstanding options issued as a result of
trades would generally continue to be exercisable in accordance with their
terms.

The hours of trading for options on U.S. government securities may not
conform to the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

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A-16

FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS

The Fund intends to enter into futures contracts as a hedge against changes
in prevailing levels of interest or currency exchange rates to seek relative
stability of principal and to establish more definitely the effective return on
securities held or intended to be acquired by the Fund or as a hedge against
changes in the prices of securities or currencies held by the Fund or to be
acquired by the Fund. The Fund's hedging may include sales of futures as an
offset against the effect of expected increases in interest or currency exchange
rates or securities prices and purchases of futures as an offset against the
effect of expected declines in interest or currency exchange rates.

For example, when the Fund anticipates a significant market or market
sector advance, it will purchase a stock index futures contract as a hedge
against not participating in such advance at a time when the Fund is not fully
invested. The purchase of a futures contract serves as a temporary substitute
for the purchase of individual securities which may then be purchased in an
orderly fashion. As such purchases are made, an equivalent amount of index based
futures contracts would be terminated by offsetting sales. In contrast, the Fund
would sell stock index futures contracts in anticipation of or in a general
market or market sector decline that may adversely affect the market value of
the Fund's portfolio. To the extent that the Fund's portfolio changes in value
in correlation with a given index, the sale of futures contracts on that index
would substantially reduce the risk to the portfolio of a market decline or
change in interest rates, and, by doing so, provide an alternative to the
liquidation of the Fund's securities positions and the resulting transaction
costs.

The Fund intends to engage in options transactions which are related to
currency and other financial futures contracts for hedging purposes and in
connection with the hedging strategies described above.

Although techniques other than sales and purchases of futures contracts and
related options transactions could be used to reduce the Fund's exposure to
interest rate and/or market fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Fund does not intend to
take delivery of the instruments underlying futures contracts it holds, the Fund
does not intend to engage in such futures contracts for speculation.

Futures Contracts

Futures contracts are transactions in the commodities markets rather than
in the securities markets. A futures contract creates an obligation by the
seller to deliver to the buyer the commodity

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A-17

specified in the contract at a specified future time for a specified price. The
futures contract creates an obligation by the buyer to accept delivery from the
seller of the commodity specified at the specified future time for the specified
price. In contrast, a spot transaction creates an immediate obligation for the
seller to deliver and the buyer to accept delivery of and pay for an identified
commodity. In general, futures contracts involve transactions in fungible goods
such as wheat, coffee and soybeans. However, in the last decade an increasing
number of futures contracts have been developed which specify currencies,
financial instruments or financially based indexes as the underlying commodity.
The Fund has represented to the Commodity Futures Trading Commission (CFTC) that
the Fund will not enter into any futures contract or related option if, as a
result, the sum of initial margin deposits on futures contracts and options and
premiums paid for options the Fund purchased, after taking in account unrealized
profits and losses on such contracts, would exceed 5% of the Fund's total
assets.

U.S. futures contracts are traded only on national futures exchanges and
are standardized as to maturity date and underlying financial instrument. The
principal financial futures exchanges in the United States are: The Board of
Trade of the City of Chicago; the Chicago Mercantile Exchange; the International
Monetary Market (a division of the Chicago Mercantile Exchange); the New York
Futures Exchange; and the Kansas City Board of Trade. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant (Broker) effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC") and National Futures Association ("NFA").

Index Based Futures Contracts

Stock Index Futures Contracts

A stock index assigns relative values to the common stocks included in the
index. The index fluctuates with changes in the market values of the common
stocks so included. A stock index futures contract is a bilateral agreement by
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the closing value of the
stock index on the expiration date of the contract and the price at which the
futures contract is originally made. No physical delivery of the underlying
stocks in the index is made.

Currently stock index futures contracts can be purchased or sold on the
Standard and Poor's Corporation (S&P) Index of 500

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A-18

Stocks, the S&P Index of 100 Stocks, the New York Stock Exchange Composite
Index, the Value Line Index and the Major Market Index. It is expected that
futures contracts trading in additional stock indices will be authorized. The
standard contract size is $500 times the value of the index.

The Fund does not believe that differences between existing stock indices
will create any differences in the price movements of the stock index futures
contracts in relation to the movements in such indices. However, such
differences in the indices may result in differences in correlation of the
futures with movements in the value of the securities being hedged.

Other Index Based Futures Contracts

It is expected that bond index and other financially based index futures
contracts will be developed in the future. It is anticipated that such index
based futures contracts will be structured in the same way as stock index
futures contracts but will be measured by changes in interest rates, related
indexes or other measures, such as the consumer price index. In the event that
such futures contracts are developed the Fund will sell interest rate index and
other index based futures contracts to hedge against changes which are expected
to affect the Fund's portfolio.

The purchase or sale of a futures contract differs from the purchase or
sale of a security, in that no price or premium is paid or received. Instead, to
initiate trading an amount of cash, cash equivalents, money market instruments,
or U.S. Treasury bills equal to approximately 1 1/2% (up to 5%) of the contract
amount must be deposited by the Fund with the Broker. This amount is known as
initial margin. The nature of initial margin in futures transactions is
different from that of margin in security transactions. Futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. The margin required for a particular futures contract is set by
the exchange on which the contract is traded, and may be significantly modified
from time to time by the exchange during the term of the contract.

Subsequent payments, called variation margin, to the Broker and from the
Broker, are made on a daily basis as the value of the underlying instrument or
index fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as mark-to-market. For example, when the
Fund has purchased a futures contract and the price of the underlying financial
instrument or index has risen, that position will have increased in value and
the Fund will receive from the Broker a variation margin

<PAGE>

A-19

payment equal to that increase in value. Conversely, where the Fund has
purchased a futures contract and the price of the underlying financial
instrument or index has declined, the position would be less valuable and the
Fund would be required to make a variation margin payment to the Broker. At any
time prior to expiration of the futures contract, the Fund may elect to close
the position. A final determination of variation margin is then made, additional
cash is required to be paid to or released by the Broker, and the Fund realizes
a loss or gain.

The Fund intends to enter into arrangements with its custodian and with
Brokers to enable its initial margin and any variation margin to be held in a
segregated account by its custodian on behalf of the Broker.

There can be no assurance, however, that the Fund will be able to enter
into an offsetting transaction with respect to a particular contract at a
particular time. If the Fund is not able to enter into an offsetting
transaction, the Fund will continue to be required to maintain the margin
deposits on the contract and to complete the contract according to its terms.

Purchase of Put Options on Futures Contracts

The purchase of protective put options on currency or other financial
futures contracts is analogous to the purchase of protective puts on individual
stocks, where an absolute level of protection is sought below which no
additional economic loss would be incurred by the Fund. Put options may be
purchased to hedge a portfolio of stocks or debt instruments or a position in
the futures contract upon which the put option is based.

Purchase of Call Options on Futures Contracts

The purchase of a call option on a currency and other financial futures
contract represents a means of obtaining temporary exposure to market
appreciation at limited risk. It is analogous to the purchase of a call option
on an individual stock, which can be used as a substitute for a position in the
stock itself. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the underlying
financial instrument or index itself, purchase of a call option may be less
risky than the ownership of the interest rate or index based futures contract or
the underlying securities. Call options on financial futures contracts may be
purchased to hedge against an interest rate increase or a market advance when
the Fund is not fully invested.

<PAGE>

A-20

Use of New Investment Techniques Involving Currency and Other Financial Futures
Contracts or Related Options

The Fund may employ new investment techniques involving currency and other
financial futures contracts and related options. The Fund intends to take
advantage of new techniques in these areas which may be developed from time to
time and which are consistent with the Fund's investment objective. The Fund
believes that no additional techniques have been identified for employment by
the Fund in the foreseeable future other than those described above.

Limitations on Purchase and Sale of Futures Contracts and Related Options on
Such Futures Contracts

The Fund will not enter into a futures contract if, as a result thereof,
more than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to margin deposits on such
futures contracts and premiums on options on futures contracts.

The Fund intends that its futures contracts and related options
transactions will be entered into for traditional hedging purposes. That is,
futures contracts will be sold to protect against a decline in the price of
securities that the Fund owns, or futures contracts will be purchased to protect
the Fund against an increase in the price of securities it intends to purchase.
The Fund does not intend to enter into futures contracts for speculation.

In instances involving the purchase of futures contracts by the Fund, an
amount of cash and cash equivalents equal to the market value of the futures
contracts will be deposited in a segregated account with the Fund's custodian
and/or in a margin account with a Broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.

Federal Income Tax Treatment

For federal income tax purposes, the Fund is required to recognize as
income for each taxable year its net unrealized gains and losses on futures
contracts as of the end of the year as well as those actually realized during
the year. Any gain or loss recognized with respect to a futures contract is
considered to be 60% long term and 40% short term, without regard to the holding
period of the contract. In the case of a futures transaction classified as a
"mixed straddle," the recognition of losses may be deferred to a later taxable
year. The federal income tax treatment of gains or losses from transactions in
options on futures is unclear.

In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least

<PAGE>

A-21

90% of its gross income for a taxable year must be derived from qualifying
income. Any net gain realized from the closing out of futures contracts, for
purposes of the 90% requirement, will be qualifying income. In addition, gains
realized on the sale or other disposition of securities held for less than three
months must be limited to less than 30% of the Fund's annual gross income. The
1986 Tax Act added a provision which effectively treats both positions in
certain hedging transactions as a single transaction for the purpose of the 30%
requirement. The provision provides that, in the case of any "designated hedge"
increases and decreases in the value of positions of the hedge are to be netted
for the purposes of the 30% requirement. However, in certain situations, in
order to avoid realizing a gain within a three month period, the Fund may be
required to defer the closing out of a contract beyond the time when it would
otherwise be advantageous to do so.

Risks of Futures Contracts

Currency and other financial futures contracts prices are volatile and are
influenced, among other things, by changes in stock prices, market conditions,
prevailing interest rates and anticipation of future stock prices, market
movements or interest rate changes, all of which in turn are affected by
economic conditions, such as government fiscal and monetary policies and
actions, and national and international political and economic events.

At best, the correlation between changes in prices of futures contracts and
of the securities being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances, such as variations in
speculative market demand for futures contracts and for securities, including
technical influences in futures contracts trading; differences between the
securities being hedged and the financial instruments and indexes underlying the
standard futures contracts available for trading, in such respects as interest
rate levels, maturities and creditworthiness of issuers, or identities of
securities comprising the index and those in the Fund's portfolio. In addition
futures contract transactions involve the remote risk that a party will be
unable to fulfill its obligation and that the amount of the obligation will be
beyond the ability of the clearing broker to satisfy. A decision of whether,
when and how to hedge involves the exercise of skill and judgment, and even a
well conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.

Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a 10% decrease in the

<PAGE>

A-22

value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out, and a 15% decrease would result in a loss equal to 150% of the
original margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable losses if, instead
of entering into the futures contract, it had invested in the underlying
financial instrument. Furthermore, in order to be certain that the Fund has
sufficient assets to satisfy its obligations under a futures contract, the Fund
will establish a segregated account in connection with its futures contracts
which will hold cash or cash equivalents equal in value to the current value of
the underlying instruments or indices less the margins on deposit.

Most U.S. futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.

Risks of Options on Futures Contracts

In addition to the risks described above for currency and other financial
futures contracts, there are several special risks relating to options on
futures contracts. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular option or at any particular time. The Fund will not purchase options
on any futures contract unless and until it believes that the market for such
options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with the futures contracts.
Compared to the use of futures contracts, the purchase of options on such
futures involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to the Fund, even though the use of a futures contract would
not, such as when there is no movement in the level of the futures contract.

<PAGE>

A-23

FOREIGN CURRENCY TRANSACTIONS

The Fund may invest in foeign securities. When the Fund invests in foreign
securities they usually will be denominated in foreign currencies and the Fund
temporarily may hold funds in foreign currencies. Thus, the Fund's share value
will be affected by changes in exchange rates.

Forward Currency Contracts

As one way of managing exchange rate risk, the Fund may engage in forward
currency exchange contracts (agreements to purchase or sell currencies at a
specified price and date). Under the contract, the exchange rate for the
transaction (the amount of currency the Fund will deliver or receive when the
contract is completed) is fixed when the Fund enters into the contract. The Fund
usually will enter into these contracts to stabilize the U.S. dollar value of a
security it has agreed to buy or sell. The Fund also may use these contracts to
hedge the U.S. dollar value of a security it already owns, particularly if the
Fund expects a decrease in the value of the currency in which the foreign
security is denominated. Although the Fund will attempt to benefit from using
forward contracts, the success of its hedging strategy will depend on Keystone's
ability to predict accurately the future exchange rates between foreign
currencies and the U.S. dollar. The value of the Fund's investments denominated
in foreign currencies will depend on the relative strength of those currencies
and the U.S. dollar, and the Fund may be affected favorably or unfavorably by
changes in the exchange rates or exchange control regulations between foreign
currencies and the dollar. Changes in foreign currency exchangerates also may
affect the value of dividends and interest earned, gains and losses realized on
the sale of securities and net investment income and gains, if any, to be
distributed to shareholders by the Fund.

Currency Futures Contracts

Currency futures contracts are bilateral agreements under which two parties
agree to take or make delivery of a specified amount of a currency at a
specified future time for a specified price. Trading of currency futures
contracts in the United States is regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission (CFTC) and National Futures Association
(NFA). Currently the only national futures exchange on which currency futures
are traded is the International Monetary Market of the Chicago Mercantile
Exchange. Foreign currency futures trading is conducted in the same manner and
subject to the same regulations as trading in interest rate and index based
futures. The Fund intends to only engage in currency futures contracts for
hedging purposes, and not for speculation. The Fund may engage in currency
futures contracts for other purposes if authorized to do so by the Board. The
hedging strategies which will be used by the Fund in

<PAGE>

A-24

connection with foreign currency futures contracts are similar to those
described above for forward foreign currency exchange contracts.

Currently, currency futures contracts for the British Pound Sterling,
Canadian Dollar, Dutch Guilder, Deutsche Mark, Japanese Yen, Mexican Peso, Swiss
Franc and French Franc can be purchased or sold for U.S. dollars through the
International Monetary Market. It is expected that futures contracts trading in
additional currencies will be authorized. The standard contract sizes are
L125,000 for the Pound, 125,000 for the Guilder, Mark, Swiss and French Francs,
C$100,000 for the Canadian Dollar, Y12,500,000 for the Yen, and 1,000,000 for
the Peso. In contrast to Forward Currency Exchange Contracts which can be traded
at any time, only four value dates per year are available, the third Wednesday
of March, June, September and December.

Foreign Currency Options Transactions

Foreign currency options (as opposed to futures) are traded in a variety of
currencies in both the United States and Europe. On the Philadelphia Stock
Exchange, for example, contracts for half the size of the corresponding futures
contracts on the Chicago Board Options Exchange are traded with up to nine
months maturity in marks, sterling, yen, Swiss francs and Canadian dollars.
Options can be exercised at any time during the contract life and require a
deposit subject to normal margin requirements. Since a futures contract must be
exercised, the Fund must continually make up the margin balance. As a result, a
wrong price move could result in the Fund losing more than the original
investment as it cannot walk away from the futures contract as it can an option
contract.

The Fund will purchase call and put options and sell such options to
terminate an existing position. Options on foreign currency are similar to
options on stocks except that an option on an interest rate and/or index based
futures contract gives the purchaser the right, in return for the premium paid,
to purchase or sell foreign currency, rather than to purchase or sell stock, at
a specified exercise price at any time during the period of the option.

The Fund intends to use foreign currency option transactions in connection
with hedging strategies.

Purchase of Put Options on Foreign Currencies

The purchase of protective put options on a foreign currency is analagous
to the purchase of protective puts on individual stocks, where an absolute level
of protection is sought below which no additional economic loss would be
incurred by the Fund. Put options may be purchased to hedge a portfolio of
foreign stocks or

<PAGE>

A-25

foreign debt instruments or a position in the foreign currency upon which the
put option is based.

Purchase of Call Options on Foreign Currencies

The purchase of a call option on foreign currency represents a means of
obtaining temporary exposure to market appreciation at limited risk. It is
analogous to the purchase of a call option on an individual stock which can be
used as a substitute for a position in the stock itself. Depending on the
pricing of the option compared to either the foreign currency upon which it is
based, or upon the price of the foreign stock or foreign debt instruments, the
purchase of a call option may be less risky than the ownership of the foreign
currency or the foreign securities. The Fund would purchase a call option on a
foreign currency to hedge against an increase in the foreign currency or a
foreign market advance when the Fund is not fully invested.

The Fund may employ new investment techniques involving forward foreign
currency exchange contracts, foreign currency futures contracts and options on
foreign currencies in order to take advantage of new techniques in these areas
which may be developed from time to time and which are consistent with the
Fund's investment objective. The Fund believes that no additional techniques
have been identified for employment by the Fund in the foreseeable future other
than those described above.

Currency Trading Risks

Currency exchange trading may involve significant risks. The four major
types of risk the Fund faces are exchange rate risk, interest rate risk, credit
risk and country risk.

Exchange Rate Risk

Exchange rate risk results from the movement up and down of foreign
currency values in response to shifting market supply and demand. When the Fund
buys or sells a foreign currency, an exposure called an open position is
created. Until the time that position can be "covered" by selling or buying an
equivalent amount of the same currency, the Fund is exposed to the risk that the
exchange rate might move against it. Since exchange rate changes can readily
move in one direction, a position carried overnight or over a number of days
involves greater risk than one carried a few minutes or hours. Techniques such
as foreign currency forward and futures contracts and options on foreign
currency are intended to be used by the Fund to reduce exchange rate risk.

Maturity Gaps and Interest Rate Risk

Interest rate risk arises whenever there are mismatches or gaps in the
maturity structure of the Fund's foreign exchange

<PAGE>

A-26

currency holdings, which is the total of its outstanding spot and forward or
futures contracts.

Foreign currency transactions often involve borrowing short term and
lending longer term to benefit from the normal tendency of interest rates to be
higher for longer maturities. However in foreign exchange trading, while the
maturity pattern of interest rates for one currency is important, it is the
differential between interest rates for two currencies that is decisive.

Credit Risk

Whenever the Fund enters into a foreign exchange contract, it faces a risk,
however small, that the counterparty will not perform under the contract. As a
result there is a credit risk, although no extension of "credit" is intended. To
limit credit risk, the Fund intends to evaluate the creditworthiness of each
other party.

Credit risk exists because the Fund's counterparty may be unable or
unwilling to fulfill its contractual obligations as a result of bankruptcy or
insolvency or when foreign exchange controls prohibit payment. In any foreign
exchange transaction, each party agrees to deliver a certain amount of currency
to the other on a particular date. In establishing its hedges a Fund relies on
each contract being completed. If the contract is not performed, then the Fund's
hedge is eliminated, and the Fund is exposed to any changes in exchange rates
since the contract was originated. To put itself in the same position it would
have been in had the contract been performed, the Fund must arrange a new
transaction. However, the new transaction may have to be arranged at an adverse
exchange rate. The trustee for a bankrupt company may elect to perform those
contracts which are advantageous to the company but disclaim those contracts
which are disadvantageous, resulting in losses to the Fund.

Another form of credit risk stems from the time zone differences between
the U.S. and foreign nations. If the Fund sells sterling it generally must pay
pounds to a counterparty earlier in the day than it will be credited with
dollars in New York. In the intervening hours, the buyer can go into bankruptcy
or can be declared insolvent. Thus, the dollars may never be credited to the
Fund.

Country Risk

At one time or another, virtually every country has interfered with
international transactions in its currency. Interference has taken the form of
regulation of the local exchange market, restrictions on foreign investment by
residents or limits on inflows of investment funds from abroad. Governments take
such measures for example to improve control over the domestic banking system or
to influence the pattern of receipts and payments between

<PAGE>

A-27

residents and foreigners. In those cases, restrictions on the exchange market or
on international transactions are intended to affect the level or movement of
the exchange rate. Occasionally a serious foreign exchange shortage may lead to
payment interruptions or debt servicing delays, as well as interference in the
exchange market. It has become increasingly difficult to distinguish foreign
exchange or credit risk from country risk.

Changes in regulations or restrictions usually do have an important
exchange market impact. Most disruptive are changes in rules which interfere
with the normal payments mechanism. If government regulations change and a
counterparty is either forbidden to perform or is required to do something
extra, then the Fund might be left with an unintended open position or an
unintended maturity mismatch. Dealing with such unintended long or short
positions could result in unanticipated costs to the Fund.

Other changes in official regulations influence international investment
transactions. If one of the factors affecting the buying or selling of a
currency changes, the exchange rate is likely to respond. Changes in such
controls often are unpredictable and can create a significant exchange rate
response.

Many major countries have moved toward liberalization of exchange and
payments restrictions in recent years or accepted the principle that
restrictions should be relaxed. A few industrial countries have moved in the
other direction. Important liberalizations were carried out by Switzerland, the
United Kingdom and Japan. They dismantled mechanisms for restricting either
foreign exchange inflows (Switzerland), outflows (Britain) or elements of both
(Japan). By contrast, France and Mexico have recently tightened foreign exchange
controls.

Overall, many exchange markets are still heavily restricted. Several
countries limit access to the forward market to companies financing documented
export or import transactions in an effort to insulate the market from purely
speculative activities. Some of these countries permit local traders to enter
into forward contracts with residents but prohibit certain forward transactions
with nonresidents. By comparison, other countries have strict controls on
exchange transactions by residents, but permit free exchange transactions
between local traders and non-residents. A few countries have established tiered
markets, funneling commercial transactions through one market and financial
transactions through another. Outside the major industrial countries, relatively
free foreign exchange markets are rare and controls on foreign currency
transactions are extensive.

Another aspect of country risk has to do with the possibility that the Fund
may be dealing with a foreign trader whose home country is facing a payments
problem. Even though the foreign trader intends to perform on its foreign
exchange contracts, the

<PAGE>

A-28

contracts are tied to other external liabilities the country has incurred. As a
result performance may be delayed, and can result in unanticipated cost to the
Fund. This aspect of country risk is a major element in the Fund's credit
judgment as to with whom it will deal and in what amounts.

<PAGE>

A-29

EXHIBIT A

GLOSSARY OF TERMS

Class of Options. Options covering the same underlying security.

Clearing Corporation. The Options Clearing Corporation, Trans Canada
Options, Inc., The European Options Clearing Corporation B.V., or the London
Options Clearing House.

Closing Purchase Transaction. A transaction in which an investor who is
obligated as a writer of an option or seller of a futures contract terminates
his obligation by purchasing on an Exchange an option of the same series as the
option previously written or futures contract identical to the futures contract
previously sold, as the case may be. (Such a purchase does not result in the
ownership of an option or futures contract.)

Closing Sale Transaction. A transaction in which an investor who is the
holder or buyer of an outstanding option or futures contract liquidates his
position as a holder or seller by selling an option of the same series as the
option previously purchased or futures contract identical to the futures
contract previously purchased. (Such sale does not result in the investor
assuming the obligations of a writer or seller).

Covered Call Option Writer. A writer of a call option who, so long as he
remains obligated as a writer, owns the shares of the underlying security or
holds on a share for share basis a call on the same security where the exercise
price of the call held is equal to or less than the exercise price of the call
written, or, if greater than the exercise price of the call written, the
difference is maintained by the writer in cash, U.S. Treasury bills, or other
high grade, short term obligations in a segregated account with the writer's
broker or custodian.

Covered Put Option Writer. A writer of a put option who, so long as he
remains obligated as a writer, has deposited Treasury bills with a value equal
to or greater than the exercise price with a securities depository and has
pledged them to the Options Clearing Corporation for the account of the
brokerdealer carrying the writer's position or holds on a share for share basis
a put on the same security as the put written where the exercise price of the
put held is equal to or greater than the exercise price of the put written, or,
if less than the exercise price of the put written, the difference is maintained
by the writer in cash, U.S. Treasury bills, or other high grade, short term
obligations in a segregated account with the writer's broker or custodian.

<PAGE>

A-30

Securities Exchange. A securities exchange on which call and put options
are traded. The U.S. Exchanges are as follows: The Chicago Board Options
Exchange; American Stock Exchange; New York Stock Exchange; Philadelphia Stock
Exchange; and Pacific Stock Exchange. The foreign securities exchanges in Canada
are the Toronto Stock Exchange and the Montreal Stock Exchange, in the
Netherlands, the European Options Exchange, and in the United Kingdom, the Stock
Exchange (London).

Those issuers whose common stocks have been approved by the Exchanges as
underlying securities for option transactions are published in various financial
publications.

Commodities Exchange. A commodities exchange on which futures contracts are
traded which is regulated by exchange rules that have been approved by the
Commodity Futures Trading Commission. The U.S. exchanges are as follows: The
Chicago Board of Trade of the City of Chicago; Chicago Mercantile Exchange,
International Monetary Market; (a division of the Chicago Mercantile Exchange);
the Kansas City Board of Trade; and the New York Futures Exchange.

Exercise Price. The price per unit at which the holder of a call option may
purchase the underlying security upon exercise or the holder of a put option may
sell the underlying security upon exercise.

Expiration Date. The latest date when an option may be exercised or a
futures contract must be completed according to its terms.

Hedging. An action taken by an investor to neutralize an investment risk by
taking an investment position which will move in the opposite direction as the
risk being hedged so that a loss (or gain) on one will tend to be offset by a
gain (or loss) on the other.

Option. Unless the context otherwise requires, the term "option" means
either a call or put option issued by a Clearing Corporation, as defined above.
A call option gives a holder the right to buy from such Clearing Corporation the
number of shares of the underlying security covered by the option at the stated
exercise price by the filing of an exercise notice prior to the expiration time
of the option. A put option gives a holder the right to sell to a Clearing
Corporation the number of shares of the underlying security covered by the put
at the stated exercise price by the filing of an exercise notice prior to the
expiration time of the option. The Fund will sell ("write") and purchase puts
only on U.S. Exchanges.

Option Period. The time during which an option may be exercised, generally
from the date the option is written through its expiration date.

<PAGE>

A-31

Premium. The price of an option agreed upon between the buyer and writer or
their agents in a transaction on the floor of an Exchange.

Series of Options. Options covering the same underlying security and having
the same exercise price and expiration date.

Stock Index. A stock index assigns relative values to the common stocks
included in the index, and the index fluctuates with changes in the market
values of the common stocks so included.

Underlying Security. The security subject to being purchased upon the
exercise of a call option or subject to being sold upon the exercise of a put
option.
<PAGE>

SCHEDULE OF INVESTMENTS--December 31, 1994

Market
Shares Value
COMMON STOCKS (80.7%)
ADVERTISING & PUBLISHING (3.4%)
Comcast Corp., Class A 125,000 $ 1,960,938
Viacom, Inc., Class B (a) 70,000 2,843,750
4,804,688
AIR TRANSPORTATION (1.3%)
AMR Corp. (a) 35,000 1,863,750

AMUSEMENTS (2.8%)
Hospitality Franchise Systems, Inc.
(a) 50,000 1,325,000
Mattel, Inc. 55,000 1,381,875
Mirage Resorts, Inc. (a) 65,000 1,332,500
4,039,375
AUTOMOTIVE (1.6%)
Exide Securities Corp. 40,500 2,278,125
CAPITAL GOODS (8.5%)
AGCO Corp. 142,500 4,328,437
Caterpillar, Inc. 70,000 3,858,750
General Electric Co. 75,000 3,825,000
12,012,187
CHEMICALS (3.3%)
duPont (E.I.) de Nemours & Co. 30,000 1,687,500
Union Carbide Corp. 100,000 2,937,500
4,625,000
CONSUMER GOODS (5.2%)
Blyth Industries, Inc. (a) 53,900 1,542,887
Department 56, Inc. (a) 80,000 3,180,000
Gillette Co., The 35,000 2,616,250
7,339,137
DRUGS (8.1%)
Abbey Healthcare Group, Inc. (a) 43,700 1,007,831
Forest Laboratories, Inc. (a) 50,000 2,331,250
Mariner Health Group, Inc. (a) 100,000 2,175,000
Merck & Co., Inc. 75,000 2,859,375
Pharmacia Aktiebolag (a) 120,000 1,942,500
Physician Reliance Network,
Inc. (a) 60,300 1,138,163
11,454,119
ELECTRONICS PRODUCTS (8.6%)
Analog Devices, Inc.,
Common Rts. (a) 85,000 $ 2,985,625
KLA Instruments Corp. (a) 63,000 3,094,875
Lam Research Corp. (a) 65,000 2,413,125
Solectron Corp. (a) 50,000 1,375,000
Teradyne, Inc. (a) 70,000 2,371,250
12,239,875
FINANCE (2.1%)
BankAmerica Corp. 50,000 1,975,000
Chase Manhattan Corp., The 30,000 1,031,250
3,006,250
NATURAL GAS (2.4%)
Anadarko Petroleum Corp. 45,000 1,732,500
Barrett Resources Corp. (a) 80,000 1,640,000
3,372,500
OFFICE & BUSINESS EQUIPMENT (4.6%)
EMC Corp. (a) 201,000 4,346,625
Sun Microsystems (a) 60,000 2,126,250
6,472,875
OIL (5.0%)
Amoco Corp. 40,000 2,365,000
Mobil Corp. 30,000 2,527,500
Unocal Corp. 80,000 2,180,000
7,072,500
OIL SERVICES (2.6%)
Baker Hughes, Inc. 100,000 1,825,000
Energy Service Co., Inc. (a) 150,000 1,837,500
3,662,500
RETAIL (7.7%)
Baby Superstore, Inc. (a) 33,600 1,541,400
Best Buy Co., Inc. (a) 50,000 1,562,500
Corporate Express, Inc. (a) 49,100 951,312
Michaels Stores, Inc. (a) 50,000 1,731,250
OfficeMax, Inc. (a) 100,000 2,650,000
Staples, Inc. (a) 102,000 2,511,750
10,948,212
See Notes to Schedule of Investments.

<PAGE>

Market
Shares Value
SOFTWARE SERVICES (8.0%)
Adobe Systems, Inc. 65,000 $ 1,941,875
Computer Sciences Corp. (a) 40,000 2,040,000
Epic Design Technology, Inc. (a) 42,300 941,175
LEGENT Corp. (a) 40,000 1,160,000
Oracle Systems Corp. (a) 70,000 3,097,500
Parametric Technology Corp. (a) 62,000 2,131,250
11,311,800
TELECOMMUNICATIONS (5.6%)
Cabletron Systems, Inc. (a) 40,000 1,860,000
Cisco Systems, Inc. (a) 50,000 1,753,125
DSC Communications Corp. (a) 85,000 3,065,313
NetManage, Inc. (a) 30,000 1,230,000
7,908,438
TOTAL COMMON STOCKS
(COST--$106,214,748) $114,411,331
PREFERRED STOCKS (1.6%)
DRUGS (1.6%)
United States Surgical Corp., conv. 101,600 2,336,800
TOTAL PREFERRED STOCKS
(COST--$2,285,900) $ 2,336,800

Maturity Market
Value Value
SHORT-TERM INVESTMENTS (17.1%)
REPURCHASE AGREEMENTS (17.1%)
PaineWebber, Inc. purchased
12/30/94, (Collateralized by
$11,705,000 U.S. Treasury
Note, 8.875%, due 7/15/95),
5.850% maturing 01/03/95
(Cost $12,180,000) $12,187,917 $ 12,180,000
Sanwa Bank purchased 12/30/94,
(Collateralized by $12,055,000
GNMA, 6.5%, due 6/20/24),
6.000% maturing 01/06/95
(Cost $12,000,000) 12,014,000 12,000,000
TOTAL SHORT-TERM INVESTMENTS
(COST--$24,180,000) $ 24,180,000
TOTAL INVESTMENTS
(COST--$132,680,648) (B) 140,928,131
OTHER ASSETS AND LIABILITIES--
NET (0.6%) 807,065
NET ASSETS (100%) $141,735,196

NOTES TO SCHEDULE OF INVESTMENTS
(a) Non-income producing security.
(b) The cost of investments for Federal income tax purposes is $132,882,513.
Gross unrealized appreciation and depreciation of investments, on identified
tax cost, at December 31, 1994 are as follows:

Gross unrealized appreciation $11,444,255
Gross unrealized depreciation (3,398,637)
Net unrealized appreciation $ 8,045,618

See Notes to Financial Statements.

<PAGE>

Keystone America Omega Fund, Inc.

FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the year)
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992(c) 1991 1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year $ 17.11 $ 15.84 $ 17.68 $ 13.37 $ 16.03 $ 13.66 $ 12.08 $ 13.44 $ 14.12 $ 10.78
Income from investment
operations
Investment income
(loss)--net 0.04 (0.07) 0.00 (0.04) 0.11 0.17 0.30(a) 0.02 0.23 0.28
Net gains (losses) on
investments (1.00) 3.07 0.39 6.92 (0.39) 4.30 1.40 1.11 1.49 3.18
Total from investment
operations (0.96) 3.00 0.39 6.88 (0.28) 4.47 1.70 1.13 1.72 3.46
Less distributions
Dividends from
investment income--net 0.00 0.00 0.00 (0.02) (0.25) (0.20) (0.12) (0.24) (0.28) (0.12)
Distributions in excess
of investment
income--net (a) 0.00 0.00 0.00 (0.05) (0.04) 0.00 0.00 0.00 0.00 0.00
Distributions from
capital gains (0.61) (1.73) (2.23) (2.50) (2.09) (1.90) 0.00 (2.25) (2.12) 0.00
Total distributions (0.61) (1.73) (2.23) (2.57) (2.38) (2.10) (0.12) (2.49) (2.40) (0.12)
Net asset value: End of
year $ 15.54 $ 17.11 $ 15.84 $ 17.68 $ 13.37 $ 16.03 $ 13.66 $ 12.08 $ 13.44 $ 14.12
Total return (b) (5.66%) 19.33% 4.00% 54.49% (2.38%) 33.05% 14.05% 8.27% 12.07% 33.29%
Ratios/supplemental data
Ratios to average net
assets:
Operating and management
expenses 1.41% 1.51% 1.52% 1.57% 1.73% 1.84% 1.78% 1.99% 1.47% 1.65%
Investment income
(loss)--net 0.27% (0.48%) (0.01%) (0.31%) 0.70% 1.03% 2.22% 0.13% 1.60% 2.26%
Portfolio turnover rate 137% 162% 176% 115% 108% 77% 84% 106% 178% 188%
Net assets, end of year
(thousands) $99,569 $90,404 $73,144 $58,671 $38,531 $39,682 $33,951(c) $30,246(c) $31,812(c) $31,036(c)
<FN>
(a) Effective January 1, 1993, the Fund adopted Statement of Position 93-2:
"Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies". As
a result, distribution amounts exceeding book basis net investment income (or
tax basis net income on a temporary basis) are presented as distributions in
excess of investment income--net. Similarly, capital gain distributions in
excess of book basis capital gains (or tax basis capital gains on a temporary
basis) are presented as "Distributions in excess of capital gains". For the
fiscal years ended December 31, 1992, 1991, and 1990, distributions, if any,
in excess of book basis net income were charged to paid-in capital.
(b) Excluding applicable sales charges.
(c) Calculated on average shares outstanding.
</FN>
</TABLE>

See Notes to Financial Statements.

<PAGE>

FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)

<TABLE>
<CAPTION>
August 2, 1993
Year (Date of Initial
Ended Public Offering) to
December 31, 1994 December 31, 1993
<S> <C> <C>
Net asset value:
Beginning of period $ 17.06 $17.29
Income from investment operations
Investment income (loss)--net (0.06) (0.05)
Net gains (losses) on investments (1.05) 1.55
Total from investment operations (1.11) 1.50
Less distributions
Distributions from capital gains (0.61) (1.73)
Total distributions (0.61) (1.73)
Net asset value: End of period $ 15.34 $17.06
Total return (b) (6.57%) 9.02%
Ratios/supplemental data
Ratios to average net assets:
Operating and management expenses 2.30% 2.57%(a)
Investment income (loss)--net (0.58%) (1.73%)(a)
Portfolio turnover rate 137% 162%
Net assets, end of period (thousands) $32,266 $7,423
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.

See Notes to Financial Statements.

<PAGE>
Keystone America Omega Fund, Inc.

FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)

FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
August 2, 1993
Year (Date of Initial
Ended Public Offering) to
December 31, 1994 December 31, 1993
<S> <C> <C>
Net asset value:
Beginning of period $17.09 $17.29
Income from investment operations
Investment income (loss)--net (0.07) (0.06)
Net gains (losses) on investments (1.04) 1.59
Total from investment operations (1.11) 1.53
Less distributions
Distributions from capital gains (0.61) (1.73)
Total distributions (0.61) (1.73)
Net asset value: End of period $15.37 $17.09
Total return (b) (6.56%) 9.20%
Ratios/supplemental data
Ratios to average net assets:
Operating and management expenses 2.30% 2.48%(a)
Investment income (loss)--net (0.63%) (1.64%)(a)
Portfolio turnover rate 137% 162%
Net assets, end of period (thousands) $9,900 $3,620
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.

See Notes to Financial Statements.

<PAGE>

STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994

Assets:
Investments at market value (identified cost--
$108,500,648) $116,748,131
Repurchase Agreements (identified cost--
$24,180,000) 24,180,000
Total investments at market value
(identified cost--$132,680,648) (Note 1) 140,928,131
Cash 761
Receivable for:
Investments sold 2,788,451
Fund shares sold 300,881
Interest and dividends 120,389
Other assets 5,367
Prepaid Expenses 2,461
Total assets 144,146,441
Liabilities:
Payable for:
Investments purchased 2,284,010
Fund shares redeemed 87,425
Capital Gain Distribution 1,241
Accrued reimbursable expenses (Note 4) 16,827
Other accrued expenses 21,742
Total liabilities 2,411,245
Net assets $141,735,196
Net assets represented by:
Paid-in capital $135,501,360
Accumulated realized gains (losses) on investment
transactions--net (2,013,647)
Net unrealized appreciation on investments 8,247,483
Total net assets $141,735,196
Net asset value per share and redemption price per
share (Notes 1 and 2):
Class A Shares ($15.54 on 6,408,219 shares
outstanding) $ 99,569,026
Class B Shares ($15.34 on 2,103,471 shares
outstanding) 32,265,775
Class C Shares ($15.37 on 644,331 shares
outstanding) 9,900,395
$141,735,196
Offering price per share:
Class A Shares (including sales charge of 5.75%) $ 16.49
Class B Shares $ 15.34
Class C Shares $ 15.37

See Notes to Financial Statements.

STATEMENT OF OPERATIONS
Year Ended December 31, 1994

Investment income (Note 1):
Dividends (net of foreign withholding
taxes of $2,692) $ 1,282,870
Interest 758,166
Other income 8,264
Total income 2,049,300
Expenses (Notes 2 and 4):
Management fee $ 924,625
Shareholder services 480,953
Accounting, auditing and legal 33,419
Custodian fee expense 80,666
Printing 15,198
Distribution Plan expenses 382,110
Registration expense 50,141
Miscellaneous expenses 2,480
Total expenses 1,969,592
Investment income--net 79,708
Realized and unrealized gain (loss)
on investments--net
(Notes 1 and 3):
Realized loss on investment
transactions:
Proceeds from sales 169,485,265
Cost of investments sold 171,498,912
Realized loss on investment
transactions--net (2,013,647)
Realized loss on foreign currency
related transactions--net (204,825)
Realized loss on investment and
foreign currency related
transactions--net (2,218,472)
Net unrealized appreciation
(depreciation) on investments
Beginning of year 12,896,631
End of year 8,247,483
Net change in unrealized appreciation
or depreciation
on investments (4,649,148)
Net loss on investment transactions (6,867,620)
Net decrease in net assets resulting
from operations ($6,787,912)

<PAGE>

Keystone America Omega Fund, Inc.
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
<S> <C> <C>
Operations:
Investment income (loss)--net $ 79,708 ($ 422,468)
Realized gain (loss) on investment and foreign currency related
transactions--net (2,218,472) 12,241,623
Net change in unrealized appreciation or depreciation on investments (4,649,148) 2,660,034
Net increase (decrease) in net assets resulting from operations (6,787,912) 14,479,189
Distributions to shareholders from (Notes 1 and 5):
Realized gain from investment transactions--net--Class A Shares (3,782,055) (8,401,302)
Realized gain from investment transactions--net--Class B Shares (984,992) (350,891)
Realized gain from investment transactions--net--Class C Shares (322,709) (241,521)
Total distributions to shareholders (5,089,756) (8,993,714)
Capital share transactions (Note 2):
Proceeds from shares sold--Class A Shares 25,532,191 15,471,805
Proceeds from shares sold--Class B Shares 30,415,780 7,399,377
Proceeds from shares sold--Class C Shares 8,044,614 3,875,434
Payment for shares redeemed--Class A Shares (10,802,653) (11,739,365)
Payment for shares redeemed--Class B Shares (4,383,078) (32,917)
Payment for shares redeemed--Class C Shares (1,273,016) (307,969)
Net asset value of shares issued in reinvestment of distributions from:
Capital Gain Distributions--Class A Shares 3,419,022 7,629,294
Capital Gain Distributions--Class B Shares 909,009 308,602
Capital Gain Distributions--Class C Shares 303,801 213,797
Net increase in net assets resulting from capital share transactions 52,165,670 22,818,058
Total increase in net assets 40,288,002 28,303,533
Net assets:
Beginning of year 101,447,194 73,143,661
End of year $141,735,196 $101,447,194
</TABLE>

See Notes to Financial Statements.

<PAGE>

NOTES TO FINANCIAL STATEMENTS

(1.) Significant Accounting Principles

Keystone America Omega Fund, Inc. (the "Fund") is an open-end diversified
management investment company incorporated in Massachusetts on February 8,
1968. Keystone Management, Inc. ("KMI") is the Investment Manager and
Keystone Custodian Funds, Inc. ("Keystone") is the Investment Adviser. It is
registered under the Investment Company Act of 1940 as a diversified open-end
management investment company.

The Fund currently issues three classes of shares. Class A shares are sold
subject to 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 payable
upon redemption within three calendar years after the calendar year of
purchase. Class C shares are sold subject to a contingent deferred sales
charge payable upon redemption within one year after purchase. Class C shares
are available only through dealers who have entered into special distribution
agreements with Keystone Distributors, Inc. ("KDI"), the Fund's principal
underwriter.

Keystone is a wholly-owned subsidiary of Keystone Group, Inc. ("KGI"), a
Delaware corporation. KGI is privately owned by an investor group consisting
of members of current and former management of Keystone. Keystone Management,
Inc. ("KMI") is a wholly-owned subsidiary of Keystone. Keystone Investor
Resource Center, Inc. ("KIRC"), a wholly-owned subsidiary of Keystone, is the
Fund's transfer agent.

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.
A. Investments are usually valued at the closing price, or in the absence of
sales and for over-the- counter securities, the mean of the bid and asked
quotations. Management values of the following securities at prices it deems
in good faith to be fair: (a) securities (including restricted securities)
for which complete quotations are not readily available and (b) listed
securities if, in the opinion of management, the last sales price does not
reflect a current value, or if no sales occurred. Short-term investments
which are purchased with maturities of sixty days or less are valued at
amortized cost (original purchase cost as adjusted for amortization of
premium or accretion of discount) which when combined with accrued interest
approximates market. Short-term investments maturing in more than sixty days
for which market quotations are readily available are valued at current
market value. Short-term investments maturing in more than sixty days when
purchased which are held on the sixtieth day prior to maturity are valued at
amortized cost (market value on the sixtieth day adjusted for amortization of
premium or accretion of discount) which when combined with accrued interest
approximates market.

B. Securities transactions are accounted for on the trade date. Realized
gains and losses are computed on the identified cost basis. Interest income
is recorded on the accrual basis and dividend income is recorded on the
ex-dividend date. Distributions to the shareholders are recorded by the Fund
on the record date.

C. 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
("Internal Revenue 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 intends to
avoid excise tax liability by making the required distributions under the
Internal Revenue Code.

<PAGE>
Keystone America Omega Fund, Inc.

D. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed
upon date and price) the repurchase price of the securities will generally
equal the amount paid by the Fund plus a negotiated interest amount. The
seller under the repurchase agreement will be required to provide securities
("collateral") to the Fund whose value will be maintained at an amount not
less than the repurchase price, and which generally will be maintained at
101% of the repurchase price. The Fund monitors the value of collateral on a
daily basis, and if the value of the collateral falls below required levels,
the Fund intends to seek additional collateral from the seller or terminate
the repurchase agreement. If the seller defaults, the Fund would suffer a
loss to the extent that the proceeds from the sale of the underlying
securities were less than the repurchase price. Any loss would be increased
by any cost incurred on disposing of such securities. If bankruptcy
proceedings are commenced against the seller under the repurchase agreement,
the realization on the collateral may be delayed or limited. Repurchase
agreements entered into by the Fund will be limited to transactions with
dealers or domestic banks believed to present minimal credit risks, and the
Fund will take constructive receipt of all securities underlying repurchase
agreements until such agreements expire.

E. From time to time the Fund may enter into forward foreign currency
exchange contracts to hedge certain foreign currency assets. Contracts are
recorded at market value. Realized gains and losses arising from such trans-
actions are included in net realized gain (loss) on foreign currency related
transactions. The Fund is subject to the credit risk that the other party
will not complete the obligations of the contract.

F. The Fund distributes net income and net capital gains, if any, annually.
Distributions from investment income--net are based on tax basis net income.
From time to time, the Fund may distribute dividends which exceed book basis
net income. Effective January 1, 1993 the Fund adopted Statement of Position
93-2: Determination, Disclosure, and Financial Statement Presentation of
Income, Capital Gain, and Return of Capital Distributions by Investment
Companies. As a result, the Fund changed the financial statement
classification of distributions to shareholders to more clearly reflect the
differences between financial statement amounts available for distribution
and amounts distributed to comply with income tax regulations.

The significant differences between financial statement amounts available for
distribution and distributions
made in accordance with income tax regulations are due to the deferral of
losses for income tax purposes that have been recognized for financial
statement purposes and the treatment of certain realized gains on foreign
currency transactions.

(2.) Capital Share Transactions

Two hundred million shares of the Fund with a par value of $1.00 are
authorized for issuance. Transactions in shares of the Fund were as follows:

<PAGE>

Class A Shares
Year Ended December 31,
1994 1993
Shares sold 1,577,169 914,263
Shares redeemed (668,733) (701,038)
Shares issued in
reinvestment of
distributions from
realized
gains--net 216,943 453,335
Net increase 1,125,379 666,560

Class B Shares
August 2, 1993
(Date of Initial
Year Ended Public Offering) to
December 31, 1994 December 31, 1993
Shares sold 1,881,751 418,519
Shares redeemed (271,676) (1,958)
Shares issued in
reinvestment of
distributions from
realized
gains--net 58,195 18,640
Net increase 1,668,270 435,201

Class C Shares
August 2, 1993
(Date of Initial
Year Ended Public Offering) to
December 31, 1994 December 31, 1993
Shares sold 493,899 217,151
Shares redeemed (80,825) (18,207)
Shares issued in
reinvestment of
distributions from
realized
gains--net 19,425 12,888
Net increase 432,499 211,832

The Fund bears some of the costs of selling its shares under a Distribution
Plan adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940.

The Class A Distribution Plan provides for payments which are currently
limited to 0.25% annually of the average daily net asset value of Class A
shares to pay expenses of the distribution of Class A shares. Amounts paid by
the Fund to KDI under the Class A Distribution Plan are currently used to pay
others such as brokers or dealers, service fees at an annual rate of up to
0.25% of the average net asset value of the shares sold by such others and
remaining outstanding on the books of the Fund for specified periods.

The Class B Distribution Plan provides payment at an annual rate of 1.00% of
the average daily net asset value of Class B shares. Amounts paid by the Fund
under the Class B Distribution Plan are currently used to pay others
(dealers) (i) a commission at the time of purchase normally equal to 3.00% of
the value of each share sold; and/or (ii) service fees currently at an annual
rate of 0.25% of the average net asset value of shares sold by such others
and remaining outstanding on the books of the Fund for specified periods.

The Class C Distribution Plan provides for payments at an annual rate of
1.00% of the average daily net asset value of Class C shares to pay expenses
of the distribution of Class C shares. Amounts paid by the Fund under the
Class C Distribution Plan are currently used to pay others (dealers) (i)
payment at time of purchase of 1.00% of the value of each share sold, such
payment to consist of a commission in the amount of 0.75% and the first
year's service fee in advance in the amount of 0.25%; and (ii) beginning
approximately 15 months after purchase, a commission at an annual rate of
0.75% (subject to applicable limi

<PAGE>
Keystone America Omega Fund, Inc.

tations imposed by the rules of the National Association of Securities
Dealers, Inc.) and service fees at an annual rate of 0.25%, respectively, of
the average net asset value of each share sold by such others and remaining
outstanding on the books of the Fund for specified periods.

Each of the Distribution Plans may be terminated at any time by vote of the
Independent Directors or by vote of a majority of the outstanding voting
shares of the respective class. However, after the termination of the Class B
Distribution Plan, payments to KDI will continue at the annual rate of 1.00%
of the average daily net asset value of Class B shares, as compensation for
its services which had been earned while the Class B Distribution Plan was in
effect. Under the National Association of Securities Dealers, Inc. Rule, the
maximum uncollected amounts for which KDI may seek payment from the Fund
under its Distribution Plans are $2,015,349, and $637,742, respectively, for
Class B and Class C as of December 31, 1994.

During the year ended December 31, 1994, the Fund paid KDI $103,680,
$204,876, and $73,554 under its Class A, Class B, and Class C Distribution
Plans, respectively.

(3.) Securities Transactions

As of December 31, 1994, the Fund had a capital loss carryover for Federal
income tax purposes of approximately $452,000 which expires in the year 2002.
Additionally, the Fund has incurred capital losses of approximately
$1,300,000 in the current fiscal year which, under the Tax Reform Act of 1986
are treated for tax purposes as occurring on the first day of the Fund's next
fiscal year and are available as an offset to capital gains that may be
recognized in the next fiscal year.

Cost of purchases and proceeds from sales of investment securities (including
proceeds received at maturity) for the year ended December 31, 1994, were as
follows:
Cost of Proceeds
Purchases From Sales
Portfolio
Securities $ 203,664,645 $ 169,485,265
Short-term
investments 3,288,711,268 3,275,958,532
$3,492,375,913 $3,445,443,797

(4.) Investment Management and Transactions with Affiliates

Under the terms of the Investment Management Agreement between KMI and the
Fund, dated December 29, 1989, KMI provided investment management and
administrative services to the Fund during the year ended December 31, 1994.
The management fee was computed and charged to the Fund daily. The management
fee is determined by applying percentage rates, starting at 0.75% and
declining as net assets increase, to 0.50% per annum, to the net asset value
of the Fund. During the year ended December 31, 1994, the Fund paid or
accrued to KMI investment management and administrative services fees of
$924,625, which represented 0.75% of the Fund's average net assets. Of such
amounts paid to KMI, $785,931 was paid to Keystone under an Investment
Advisory Agreement between KMI and Keystone dated December 30, 1989, pursuant
to which Keystone provides investment advisory services to the Fund and
receives 85% of the amount paid to KMI.

During the year ended December 31, 1994, the Fund paid or accrued to KGI
$16,827 as reimbursement for the cost of accounting and printing expense
provided to the Fund. During the year ended December 31, 1994, $480,953 was
paid or accrued to KIRC for shareholder services.

<PAGE>

Certain officers and/or Directors of Keystone are also officers and/or
Directors of the Fund. Officers of Keystone and affiliated Directors receive
no compensation directly from the Fund. Currently, the independent Directors
of the Fund receive no compensation for their services.

(5.) Distributions to Shareholders

The Fund intends to distribute to its shareholders dividends from net
investment income and all net taxable realized long-term capital gains, if
any, annually. Any distribution which is declared in December and paid before
the next February 1 will be taxable to shareholders in the year declared.

Federal Tax Status--Fiscal 1994 Distributions (Unaudited)

The per-share distributions paid to you for fiscal 1994, whether taken in
shares or cash, are as follows:

Capital Gain
Payment Date Long-term Short-term Total
September 7, 1994 $0.10 $0.51 $0.61

<PAGE>

Keystone America Omega Fund, Inc.

INDEPENDENT AUDITORS' REPORT

The Directors and Shareholders
Keystone America Omega Fund, Inc.

We have audited the accompanying statement of assets and liabilities of
Keystone America Omega Fund, Inc., including the schedule of investments, as
of December 31, 1994, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years in the six-year period then ended for Class A Shares and for the year
then ended and the period from August 2, 1993 (Date of Initial Public
Offering) to December 31, 1993 for Class B and Class C Shares. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
financial highlights for Class A Shares for each of the years in the
four-year period ended December 31, 1988 were audited by other auditors whose
report, dated February 3, 1989, expressed an unqualified opinion thereon.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1994 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone America Omega Fund, Inc. as of December 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the six-year period then ended for Class A Shares and
for the year then ended and the period from August 2, 1993 to December 31,
1993 for Class B and Class C Shares, in conformity with generally accepted
accounting principles.

KPMG Peat Marwick LLP
Boston, Massachusetts
February 3, 1995