KEYSTONE STRATEGIC INCOME FUND, 497, 1996-12-13

KEYSTONE STRATEGIC INCOME FUND
497, 1996-12-13

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<PAGE>

KEYSTONE STRATEGIC INCOME FUND
PROSPECTUS DECEMBER 10, 1996
AS SUPPLEMENTED DECEMBER 11, 1996

CLASS Y

Keystone Strategic Income Fund (the "Fund") is a mutual fund that seeks high
current income from interest on debt securities. Secondarily, the Fund considers
potential for growth of capital in selecting securities. The Fund intends to
allocate its assets principally between eligible domestic high yield, high risk
bonds and debt securities of foreign governments and foreign corporations. In
addition, from time to time, the Fund will allocate a portion of its assets to
United States ("U.S.") government securities.

This prospectus provides information regarding the Fund's Class Y shares,
which the Fund will begin offering January 2, 1997. Information on share classes
may be found in the "Fund Shares" section of this prospectus.

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 dated December 10, 1996, as supplemented December 11,
1996, 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 SHARES ARE NOT INSURED OR OTHERWISE PROTECTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
TABLE OF CONTENTS

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

Page

Expense Information 2
Financial Highlights 3
The Fund 6
Investment Objectives and Policies 6
Investment Restrictions 8
Risk Factors 8
Pricing Shares 11
Dividends and Taxes 11
Fund Management and Expenses 12
How to Buy Shares 16
How to Redeem Shares 16
Shareholder Services 18
Performance Data 19
Fund Shares 20
Additional Information 20
Additional Investment Information (i)

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>

EXPENSE INFORMATION
KEYSTONE STRATEGIC INCOME FUND

The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in Class Y shares of the Fund 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;'" and "Shareholder Services."

CLASS Y SHARES
NO LOAD
OPTION(1)
--------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases ........................ None
(as a percentage of offering price)

Deferred Sales Load ............................................ None
(as a percentage of the lesser of original purchase price or redemption
proceeds, as applicable)

Exchange Fee ................................................... None
ANNUAL FUND OPERATING EXPENSES(2)
(as a percentage of average net assets)
Management Fees ................................................ 0.65%
12b-1 Fees ..................................................... None
Other Expenses ................................................. 0.42%
----
Total Fund Operating Expenses .................................. 1.07%
====

EXAMPLES(3) 1 YEAR 3 YEARS
------ -------

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 Y .............................................. $11 $34

You would pay the following expenses on the same
investment, assuming no redemption at the end of each
period:

Class Y .............................................. $11 $34

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.

- ----------
(1) Class Y shares are only available to certain investors through
broker-dealers who have entered into special distribution agreements with
Evergreen Keystone Distributor, Inc., the Fund's principal underwriter. See
"How to Buy Shares."
(2) Expense ratio is estimated for the Fund's fiscal year ending July 31, 1997.
Total Fund Operating Expenses include indirectly paid expenses. Excluding
indirectly paid expenses, the expense ratio for Class Y shares is expected
to be 1.05%. The Fund also offers Class A, B and C shares which have
different expenses and sales charges.
(3) 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%.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE STRATEGIC INCOME FUND -- CLASS A SHARES

(For a share outstanding throughout each year)

The following table contains important financial information relating 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 independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are incorporated by reference into 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>
FEBRUARY 13,
1987
(COMMENCEMENT
OF
YEAR ENDED JULY 31, OPERATIONS)
--------------------------------------------------------------------------------------------- TO
1996 1995 1994(C) 1993 1992 1991 1990 1989 1988 JULY 31, 1987
-------- ------- -------- ------- ------- ------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR .. $ 6.89 $ 7.35 $ 7.86 $ 7.02 $ 6.10 $ 7.17 $ 9.02 $ 9.36 $ 10.04 $10.00
------- ------- -------- ------- ------- ------- ------- -------- -------- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.54 0.64 0.61 0.69 0.78 0.89 1.03 1.10 1.05 0.22
Net realized and
unrealized gain
(loss) on
investments, closed
futures contracts
and forward foreign
currency related
transactions ....... (0.09) (0.45) (0.44) 0.89 0.89 (1.01) (1.79) (0.31) (0.65) 0.00
------- ------- -------- ------- ------- ------- ------- -------- -------- ------
Total from investment
operations ......... 0.45 0.19 0.17 1.58 1.67 (0.12) (0.76) 0.79 0.40 0.22
------- ------- -------- ------- ------- ------- ------- -------- -------- ------
LESS DISTRIBUTIONS FROM:
Net investment income (0.52) (0.60) (0.61) (0.72) (0.75) (0.89) (1.04) (1.11) (1.08) (0.18)
In excess of net
investment income 0 (0.03) (0.03) (0.02) 0 (0.06) (0.05) 0 0 0
Tax basis return of
capital ............ (0.05) (0.02) (0.04) 0 0 0 0 0 0 0
Net realized gains ... 0 0 0 0 0 0 0 (0.02) 0 0
------- ------- -------- ------- ------- ------- ------- -------- -------- ------
Total distributions .. (0.57) (0.65) (0.68) (0.74) (0.75) (0.95) (1.09) (1.13) (1.08) (0.18)
------- ------- -------- ------- ------- ------- ------- -------- -------- ------
NET ASSET VALUE END OF
YEAR ............... $ 6.77 $ 6.89 $ 7.35 $ 7.86 $ 7.02 $ 6.10 $ 7.17 $ 9.02 $ 9.36 $10.04
======= ======= ======== ======= ======= ======= ======= ======== ======== ======
TOTAL RETURN(A) ...... 6.84% 3.00% 1.86% 24.13% 28.73% 0.54% (8.55%) 9.00% 4.49% 2.20%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses .... 1.30%(d) 1.33% 1.32% 1.80% 2.09% 2.00% 2.00% 1.81% 1.28% 1.00%(b)
Total expenses
excluding
reimbursement .... 1.30%(d) 1.33% 1.32% 1.80% 2.12% 2.25% 2.01% 1.90% 2.08% 6.08%(b)
Net investment
income ........... 8.05% 9.31% 7.79% 9.50% 11.73% 15.23% 12.91% 12.06% 10.98% 10.12%(b)
Portfolio turnover
rate ............... 101% 95% 92% 151% 95% 82% 36% 73% 46% 13%
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS END OF YEAR
(THOUSANDS) ........ $68,118 $85,970 $105,181 $85,793 $70,459 $70,246 $83,106 $138,499 $114,310 $8,191
======= ======= ======== ======= ======= ======= ======= ======== ======== ======
<FN>
(a) Excluding applicable sales charges.
(b) Annualized for the period from April 14, 1987 (Commencement of Investment Operations) to July 31, 1987.
(c) Calculation based on average shares outstanding.
(d) Ratio of total expenses to average net assets for the year ended July 31, 1996 includes indirectly paid expenses. Excluding
indirectly paid expenses, the expense ratio would have been 1.28%.
</TABLE>
<PAGE>

FINANCIAL HIGHLIGHTS
KEYSTONE STRATEGIC INCOME FUND -- CLASS B SHARES

(For a share outstanding throughout each year)

FEBRUARY 1, 1993
YEAR ENDED JULY 31, (DATE OF INITIAL
------------------------------------ PUBLIC OFFERING) TO
1996 1995 1994(C) JULY 31, 1993
------------ ---------- ---------- -------------------
NET ASSET VALUE
BEGINNING OF YEAR $ 6.92 $ 7.38 $ 7.89 $ 7.07
-------- -------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income ........... 0.50 0.60 0.55 0.24
Net realized and
unrealized gain
(loss) on
investments,
closed futures
contracts and
forward foreign
currency related
transactions .... (0.09) (0.47) (0.44) 0.92
-------- -------- -------- -------
Total from investment
operations ...... 0.41 0.13 0.11 1.16
-------- -------- -------- -------
LESS DISTRIBUTIONS FROM:
Net investment
income ........... (0.47) (0.55) (0.55) (0.24)
In excess of net
investment income 0 (0.03) (0.03) (0.10)
Tax basis return of
capital .......... (0.05) (0.01) (0.04) 0
-------- -------- -------- -------
Total distributions (0.52) (0.59) (0.62) (0.34)
-------- -------- -------- -------
NET ASSET VALUE END
OF YEAR ......... $ 6.81 $ 6.92 $ 7.38 $ 7.89
======== ======== ======== =======
TOTAL RETURN(A) ... 6.21% 2.12% 1.10% 16.75%
RATIOS/SUPPLEMENTAL
DATA
RATIOS TO AVERAGE NET
ASSETS:
Total expenses .. 2.07%(d) 2.06% 2.07% 2.37%(b)
Net investment
income ........ 7.28% 8.58% 7.11% 7.18%(b)
Portfolio turnover
rate ............ 101% 95% 92% 151%
- ------------------------------------------------------------------------------
NET ASSETS END OF
YEAR (THOUSANDS) $123,389 $149,091 $162,866 $35,415
======== ======== ======== =======

(a) Excluding applicable sales charges.

(b) Annualized.

(d) Ratio of total expenses to average net assets for the year ended July 31,
1996 includes indirectly paid expenses. Excluding indirectly paid expenses,
the expense ratio would have been 2.05%.
<PAGE>

FINANCIAL HIGHLIGHTS
KEYSTONE STRATEGIC INCOME FUND -- CLASS C SHARES

(For a share outstanding throughout each year)

FEBRUARY 1, 1993
YEAR ENDED JULY 31, (DATE OF INITIAL
--------------------------------- PUBLIC OFFERING) TO
1996 1995 1994(C) JULY 31, 1993
----------- --------- --------- -------------------
NET ASSET VALUE
BEGINNING OF YEAR ... $ 6.92 $ 7.37 $ 7.88 $ 7.07
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.49 0.59 0.55 0.24
Net realized and
unrealized gain
(loss) on
investments, closed
futures contracts
and forward foreign
currency related
transactions ........ (0.09) (0.45) (0.44) 0.91
------- ------- ------- -------
Total from investment
operations .......... 0.40 0.14 0.11 1.15
------- ------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income . (0.47) (0.55) (0.55) (0.24)
In excess of net
investment income ... 0 (0.03) (0.03) (0.10)
Tax basis return of
capital .............. (0.05) (0.01) (0.04) 0
------- ------- ------- -------
Total distributions ... (0.52) (0.59) (0.62) (0.34)
------- ------- ------- -------
NET ASSET VALUE END OF
YEAR ................ $ 6.80 $ 6.92 $ 7.37 $ 7.88
======= ======= ======= =======
TOTAL RETURN(A) ....... 6.07% 2.27% 1.09% 16.61%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses ...... 2.07%(d) 2.08% 2.07% 2.25%(b)
Net investment
income ............ 7.29% 8.56% 7.09% 7.35%(b)
Portfolio turnover
rate ................ 101% 95% 92% 151%
- ------------------------------------------------------------------------------
NET ASSETS END OF YEAR
(THOUSANDS) .......... $31,816 $46,221 $59,228 $19,706
======= ======= ======= =======
(a) Excluding applicable sales charges.
(b) Annualized.
(c) Calculation based on average shares outstanding.
(d) Ratio of total expenses to average net assets for the year ended July 31,
1996 includes indirectly paid expenses. Excluding indirectly paid expenses,
the expense ratio would have been 2.05%.
<PAGE>

THE FUND
The Fund is an open-end, diversified management investment company, commonly
known as a mutual fund. The Fund was formed as a Massachusetts business trust on
October 24, 1986. The Fund is one of more than thirty funds advised and managed
by Keystone Investment Management Company ("Keystone"), the Fund's investment
adviser.

INVESTMENT OBJECTIVES AND POLICIES

INVESTMENT OBJECTIVES
The Fund seeks high current income from interest on debt securities.
Secondarily, the Fund considers potential for growth of capital in selecting
securities.

The Fund intends to allocate its assets principally between eligible domestic
high yield, high risk bonds and debt securities of foreign governments and
foreign corporations. In addition, the Fund will, from time to time, allocate a
portion of its assets to United States ("U.S.") government securities. This
allocation will be made on the basis of Keystone's assessment of global
opportunities for high income. From time to time, the Fund may invest 100% of
its assets in U.S. or foreign securities.

The investment objectives of the Fund are fundamental and may not be changed
without the vote of a majority of the Fund's outstanding shares (as defined in
the Investment Company Act of 1940 ("1940 Act")), which means 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 (a "1940 Act Majority").

Any investment involves risk, and there is no assurance that the Fund will
achieve its investment objectives.

PRINCIPAL INVESTMENTS
Under normal circumstances, the Fund will invest principally in domestic high
yield bonds and foreign government and corporate debt securities. In addition,
the Fund will, from time to time, invest a portion of its assets in U.S.
government securities.

DOMESTIC HIGH YIELD BONDS. The Fund may invest principally in domestic debt
obligations, including zero coupon bonds and payment-in-kind securities
("PIKs"), debentures, convertible debentures, fixed, increasing and adjustable
rate bonds, stripped bonds, mortgage bonds, mortgage backed securities,
corporate notes (including convertible notes) with maturities at the date of
issue of at least five years (which may be senior or junior to other bonds),
equipment trust certificates, and units consisting of bonds with stock or
warrants to buy stock attached.

FOREIGN SECURITIES. The Fund may invest in debt obligations (which may be
denominated in U.S. dollars or in non-U.S. currencies) issued or guaranteed by
foreign corporations, certain supranational entities (such as the World Bank),
foreign governments, their agencies and instrumentalities, and debt
obligations issued by U.S. corporations denominated in non-U.S. currencies.
These debt obligations may include bonds, debentures, notes and short-term
obligations.

U.S. GOVERNMENT SECURITIES. The Fund may invest in debt instruments issued
or guaranteed by the U.S. government, its agencies or instrumentalities ("U.S.
Government Securities"). Certain of these obligations, including U.S. Treasury
notes and bonds and Government National Mortgage Association debentures
("Ginnie Mae's"), are issued by, or guaranteed with respect to, both principal
and interest by the full faith and credit of the U.S. government. Certain
other U.S. Government Securities, issued or guaranteed by federal agencies or
government-sponsored enterprises, are not supported by the full faith and
credit of the U.S. government. These latter securities may include obligations
supported by the right of the issuer to borrow from the U.S. Treasury, such as
obligations of Federal Home Loan Mortgage Corporation ("Freddie Mac's"), and
obligations supported by the credit of the instrumentality such as Federal
National Mortgage Association bonds ("Fannie Mae's"). U.S. Government
Securities in which the Fund may invest include zero coupon U.S. Treasury
securities, mortgage-backed securities and money market instruments.

While the Fund may invest in securities of any maturity, it is currently
expected that the Fund will not invest in securities with maturities of more
than 30 years.

OTHER ELIGIBLE INVESTMENTS
Under ordinary circumstances, the Fund may also invest a limited portion of
its assets in the securities described below. When, in Keystone's opinion,
market conditions warrant, the Fund may invest up to 100% of its assets for
temporary defensive purposes in the money market securities described below.
When the Fund is investing for temporary defensive purposes, it is not pursuing
its investment objective.

EQUITY SECURITIES. The Fund may invest in preferred stocks, including
adjustable rate and convertible preferred stocks, common stocks and other equity
securities, including convertible securities and warrants, which may be used to
create other permissible investments. Such investments must be consistent with
the Fund's primary objective of seeking a high level of current income or be
acquired as part of a unit combining income and equity securities. In addition,
the Fund may invest in limited partnerships, including master limited
partnerships.

MONEY MARKET SECURITIES. The Fund may invest in the following types of money
market securities: (1) obligations issued or guaranteed by the U.S. government
its agencies or instrumentalities of the U.S. government; (2) commercial
paper, including master demand notes, that at the date of investment is rated
A-1, the highest grade by Standard & Poors Corporation ("S&P"), PRIME-1, the
highest grade by Moody's Investor Service ("Moodys"), or, if not rated by such
services, is issued by a company that at the date of investment has an
outstanding issue rated A or better by S&P or Moody's; (3) obligations,
including certificates of deposit and bankers' acceptances, of banks or
savings and loan associations having at least $1 billion in assets that are
members of the Federal Deposit Insurance Corporation, including U.S. branches
of foreign banks and foreign branches of U.S. banks; and (4) obligations of
U.S. corporations that at the date of investment are rated A or better by S&P
or Moody's.

INVESTMENT TECHNIQUES
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 Securities Act of 1933 (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 intends to 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.

In addition to the options, futures contracts, forwards and mortgage-backed
securities mentioned above, the Fund may also invest in certain other types of
derivative instruments, including collateralized mortgage obligations,
structured notes, interest rate swaps, index swaps, currency swaps and caps and
floors. These vehicles can also be combined to create more complex products
called hybrid derivatives or structured securities.

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

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

INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental restrictions summarized below, which may
not be changed without the vote of a 1940 Act Majority of the Fund's outstanding
shares. These restrictions and certain other fundamental and nonfundamental
restrictions are set forth in detail in the statement of additional information.
Unless otherwise stated, all references to the Fund's assets are in terms of
current market value.

Generally, the Fund may not do the following:
(1) purchase any security (other than U.S. government securities) of any issuer
if as a result more than 5% of its total assets would be invested in securities
of the issuer, except that up to 25% of its total assets may be invested without
regard to this limit; and

(2) borrow money or enter into reverse repurchase agreements, except that the
Fund may (a) enter into reverse repurchase agreements or (b) borrow money from
banks for temporary or emergency purposes in aggregate amounts up to one-third
of the value of the Fund's net assets; provided that while borrowings from banks
exceed 5% of the Fund's net assets, any such borrowings will be repaid before
additional investments are made.

RISK FACTORS
Like any investment, your investment in the Fund involves an element of risk.
Before you buy shares of the Fund, you should carefully evaluate your ability to
assume the risks your investment in the Fund poses. YOU CAN LOSE MONEY BY
INVESTING IN THE FUND. YOUR INVESTMENT IS NOT GUARANTEED. A DECREASE IN THE
VALUE OF THE FUND'S PORTFOLIO SECURITIES CAN RESULT IN A DECREASE IN THE VALUE
OF YOUR INVESTMENT.

By itself, the Fund does not constitute a balanced investment program. The
Fund seeks high current income and capital appreciation predominantly from high
yielding, high risk bonds, commonly known as "junk bonds." This investment
approach involves risks greater than a more conservative approach. You should
take into account your own investment objectives as well as your other
investments when considering an investment in the Fund.

Certain risks related to the Fund are discussed below. In addition to the
risks discussed in this section, specific risks relating to individual
securities or investment practices are discussed in "Additional Investment
Information" and the statement of additional information.

FUND RISKS. A need for cash due to large liquidations from the Fund when the
prices of the securities in which the Fund invests are declining could result in
losses to the Fund.

Investing in the Fund involves the risk common to investing in any security,
that is that the value of the securities held by the Fund will fluctuate in
response to changes in economic conditions or public expectations about those
securities. The net asset value of the Fund's shares will change accordingly.

BELOW-INVESTMENT GRADE BONDS. Since 1935, Keystone has had experience
investing in bonds selling at a substantial discount from par, convertible
bonds, below-investment grade bonds and other securities that, as a class, may
be considered high yield, high risk securities.

Prior to the 1980's, corporate bonds were primarily issued to finance growth
and development. Below-investment grade bonds were predominantly bonds that
often traded at discounts from par because the company's credit ratings had been
downgraded. The rapid growth of the below-investment grade sector of the bond
market during the 1980s was largely attributable to the issuance of such bonds
to finance corporate reorganizations. This growth paralleled a long economic
expansion. An economic downturn could severely disrupt the market for high
yield, high risk bonds and adversely affect the value of outstanding bonds and
the ability of issuers to repay principal and interest.

Although the change in the size and characteristics of the market may result
in higher risks associated with individual bonds, Keystone believes that an
effective program of broad diversification can, over time, enable the Fund to
successfully achieve its investment objectives while reducing the risk of
investing in individual below-investment grade bonds.

While an investment in the Fund provides opportunities to maximize return over
time, investors should be aware of the following risks associated with
below-investment grade bonds:

(1) Securities rated BB or lower by S&P or BA or lower by Moody's are
considered predominantly speculative with respect to the ability of the issuer
to meet principal and interest payments.

(2) The lower ratings of these securities reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates may impair the
ability of the issuer to make payments of interest and principal, especially if
the issuer is highly leveraged. Such issuer's ability to meet its debt
obligations may also be adversely affected by specific corporate developments or
the issuer's inability to meet specific projected business forecasts or the
unavailability of additional financing. Also, an economic downturn or an
increase in interest rates may increase the potential for default by the issuers
of these securities.

(3) Their value may be more susceptible to real or perceived adverse economic,
company or industry conditions and publicity than is the case for higher quality
securities.

(4) Their value, like those of other fixed income securities, fluctuates in
response to changes in interest rates; generally rising when interest rates
decline and falling when interest rates rise. For example, if interest rates
increase after a fixed income security is purchased, the security, if sold prior
to maturity, may return less than its cost. The prices of below- investment
grade bonds, however, are generally less sensitive to interest rate changes than
the prices of higher-rated bonds, but are more sensitive to adverse or positive
economic changes or individual corporate developments.

(5) The secondary market for such securities may be less liquid at certain
times than the secondary market for higher quality debt securities, which may
adversely affect (i) the market price of the security, (ii) the Fund's ability
to dispose of particular issues and (iii) the Fund's ability to obtain accurate
market quotations for purposes of valuing its assets.

(6) Zero coupon bonds and PIKs involve additional special considerations. For
example, zero coupon bonds pay no interest to holders prior to maturity. PIKs
are debt obligations that provide that the issuer may, at its option, pay
interest on such bonds in cash or in the form of additional debt obligations.
Such investments may experience greater fluctuation in value due to changes in
interest rates than debt obligations that pay interest currently. Even though
these investments do not pay current interest in cash, the Fund is, nonetheless,
required by tax laws to accrue interest income on such investments and to
distribute such amounts at least annually to shareholders. Thus, the Fund could
be required at times to liquidate investments in order to fulfill its intention
to distribute substantially all of its net income as dividends. 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.

The generous income sought by the Fund is ordinarily associated with
securities in the lower rating categories of the recognized rating agencies or
with securities that are unrated. Such securities are generally rated BB or
lower by S&P or BA or lower by Moody's. The Fund may invest in securities that
are rated as low as D by S&P and C- by Moody's. The Fund may also invest in
unrated securities that, in Keystone's judgment, offer comparable yields and
risks as securities that are rated. It is possible for securities rated D or C-,
respectively, to have defaulted on payments of principal and/or interest at the
time of investment. The Additional Investment Information section of this
prospectus describes these rating categories. The Fund intends to invest in D
rated debt only in cases when, in Keystone's judgment, there is a distinct
prospect of improvement in the issuer's financial position as a result of the
completion of reorganization or otherwise.

Keystone considers the ratings of S&P and Moody's assigned to various
securities, but does not rely solely on these ratings because (1) S&P and
Moody's assigned ratings are based largely on historical financial data and may
not accurately reflect the current financial outlook of companies; and (2) there
can be large differences among the current financial conditions of issuers
within the same rating category.

The following table shows the weighted average percentages of the Fund's
assets invested at the end of each month during the last fiscal year in
securities assigned to the various rating categories by S&P and in unrated
securities determined by Keystone to be of comparable quality. Since the
percentages in this table are based on month-end averages throughout the Fund's
fiscal year, they do not reflect the Fund's holdings at any one point in time.
The percentages in each category may be higher or lower on any day than those
shown in the table below.

*UNRATED SECURITIES
OF COMPARABLE
RATED SECURITIES QUALITY AS
AS PERCENTAGE OF PERCENTAGE OF
RATING FUND'S ASSETS FUND'S ASSETS
- ------ ------------- -------------

AAA 17.97% 0.00%
AA 10.71% 0.00%
A 1.14% 0.00%
BBB 0.75% 0.00%
BB 20.01% 0.83%
B 18.77% 17.77%
CCC 0.00% 1.69%
CC 0.00% 0.20%
CA 0.00% 0.00%
Unrated* 20.49% 0.00%
U.S. Governments,
equities and others 10.16% 0.00%
------
TOTAL 100.00%
======

Since the Fund takes an aggressive approach to investing, Keystone attempts to
maximize the return by controlling risk through diversification, credit
analysis, review of sector and industry trends, interest rate forecasts and
economic analysis. Keystone's analysis of securities focuses on factors such as
interest or dividend coverage, asset values, earnings prospects and the quality
of management of the company. In making investment recommendations, Keystone
also considers current income, potential for capital appreciation, maturity
structure, quality guidelines, coupon structure, average yield, percentage of
zero coupon bonds and PIKs, percentage of non-accruing items and yield to
maturity.

Income and yields on high yield, high risk securities, as on all securities,
will fluctuate over time.

FOREIGN RISK. Investing in securities of foreign issuers generally involves
more risk than investing in a portfolio consisting solely of securities of
domestic issuers for the following reasons: publicly available information on
issuers and securities may be scarce; many foreign countries do not follow the
same accounting, auditing, and financial reporting standards as are used in the
U.S.; market trading volumes may be smaller, resulting in less liquidity and
more price volatility compared to U.S. securities of comparable quality; there
may be less regulation of securities trading and its participants; the
possibility may exist for expropriation, confiscatory taxation, nationalization,
establishment of exchange controls, political or social instability or negative
diplomatic developments; and dividend or interest withholding may be imposed at
the source.

Fluctuations in foreign exchange rates impose an additional level of risk,
possibly affecting the value of the Fund's foreign investments and earnings, as
well as gains and losses realized through trades, and the unrealized
appreciation or depreciation of investments. The Fund may also incur costs when
it shifts assets from one country to another.

With respect to derivative or structured securities, the market value of such
securities may vary depending on the manner in which such securities have been
structured. As a result, the value of such investments may change at a more
rapid rate than that of traditional fixed income securities.

PRICING SHARES
The Fund computes its net asset value as of the close of trading (currently
4:00 p.m. eastern time) on each day that the New York Stock Exchange (the
"Exchange") is open. However, the Fund does not compute its net asset value 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 is currently 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.

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

1. certain publicly traded bonds are valued on the basis of valuations
provided by a pricing service, approved by the Fund's Board of Trustees, which
uses information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities, various relationships
between securities and yield to maturity in determining value.

2. short-term investments maturing in sixty days or less are valued at
amortized cost (original purchase cost as adjusted for amortization of premium
or accretion of discount), which approximates market value.

3. short-term investments maturing in more than sixty days when purchased that
are held on the sixtieth day prior to maturity are valued at amortized cost
(market value on the sixtieth day adjusted for amortization of premium or
accretion of discount), which, when combined with accrued interest, approximates
market.

4. all other investments are valued at market value or, where market
quotations are not readily available, at fair value as determined in good faith
according to procedures established by the Fund's Board of Trustees.

DIVIDENDS AND TAXES
The Fund has qualified and intends to continue to qualify as a regulated
investment company (a "RIC") under the Internal Revenue Code of 1986, as amended
(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 RIC when 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 on 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 as a RIC and if it distributes substantially 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 will make distributions from its net investment income to its
shareholders monthly and net capital gains, if any, at least annually.

Shareholders receive Fund distributions in the form of additional shares of
that class of shares upon which the distribution is based or, at the
shareholder's option, in cash. Fund distributions in the form of additional
Class Y shares are made at net asset value.

The Fund's income distributions are largely derived from interest on bonds and
thus are not, to any significant degree, eligible, in whole or in part, for the
corporate 70% dividends received deduction.

Dividends and distributions are taxable whether they are received in cash or
in shares. Income dividends and net short-term gains distributions are taxable
as ordinary income. Net long-term gains dividends are taxable as capital gains
regardless of how long the Fund's shares are held. If Fund shares are held for
less than six months, however, and are sold at a loss, such loss will be treated
as a long-term capital loss for tax purposes 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 general supervision of the Fund's Board of Trustees, Keystone
provides investment advice, management and administrative services to the Fund.

INVESTMENT ADVISER
Keystone has provided investment advisory and management services to
investment companies and private accounts since 1932. Keystone is a wholly-owned
subsidiary of Keystone Investments, Inc. ("Keystone Investments"). Keystone
Investments provides accounting, bookkeeping, legal, personnel and general
corporate services to Keystone, its affiliates, and the Keystone Investments
Families of Funds. Both Keystone and Keystone Investments are located at 200
Berkeley Street, Boston, Massachusetts 02116-5034.

On December 11, 1996, Keystone Investments succeeded to the business of a
corporation with the same name, but under different ownership. Keystone
Investments is a wholly-owned subsidiary of First Union National Bank of North
Carolina ("FUNB"). FUNB is a subsidiary of First Union Corporation ("First
Union"), the sixth largest bank holding company in the U.S based on total assets
as of September 30, 1996.

First Union is headquartered in Charlotte, North Carolina, and had $133.9
billion in consolidated assets as of September 30, 1996. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the U.S. The Capital Management Group of FUNB ("CGM"),
together with Lieber & Company and Evergreen Asset Management Corp. ("Evergreen
Asset"), wholly-owned subsidiaries of FUNB, manage or otherwise oversee the
investment of over $50 billion in assets belonging to a wide range of clients,
including the Evergreen Family of Funds.

Pursuant to its Investment Advisory and Management Agreement with the Fund
(the "Advisory Agreement"), Keystone manages the investment and reinvestment of
the Fund's assets, supervises the operation of the Fund and provides all
necessary office space, facilities and equipment.

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

Aggregate
Net Asset Value
Management of the Shares
Fee Income of the Fund
- ------------------------------------------------------------------------------
2.0% of Gross Dividend
and Interest Income
plus

0.50% of the first $100,000,000, plus
0.45% of the next $100,000,000, plus
0.40% of the next $100,000,000, plus
0.35% of the next $100,000,000, plus
0.30% of the next $100,000,000, plus
0.25% of amounts over $500,000,000

Keystone's fee is computed as of the close of business on each business day and
payable daily.

The Advisory Agreement continues in effect for two years from its effective
date and, thereafter, 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 shareholders of the Fund. In either case, the terms of the Advisory
Agreement and continuance thereof must be approved by the vote of a majority of
the Fund's Independent Trustees (Trustees who are not "interested persons" of
the Fund, as defined in the 1940 Act, and who have no direct or indirect
financial interest in the Fund's Distribution Plans or any agreement related
thereto) cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement may be terminated, without penalty, on 60 days'
written notice by the Fund or Keystone, or by a vote of shareholders of the
Fund. The Advisory Agreement will terminate automatically upon its assignment.

PRINCIPAL UNDERWRITER
Evergreen Keystone Distributor, Inc. (formerly Evergreen Funds Distributor,
Inc.) ("EKD"), a wholly-owned subsidiary of Furman Selz LLC ("Furman Selz"),
which is not affiliated with First Union, is the Fund's principal
underwriter (the "Principal Underwriter"). EKD replaces Evergreen Keystone
Investment Services, Inc. (formerly Keystone Investment Distributors Company)
("EKIS") as the Fund's principal underwriter. EKIS may no longer act as
principal underwriter of the Fund due to regulatory restrictions imposed by the
Glass-Steagall Act upon national banks, such as FUNB and their affiliates, that
prohibit such entities from acting as the underwriters or distributors of mutual
fund shares. While EKIS may no longer act as principal underwriter of the Fund
as discussed above, EKIS may continue to receive compensation from the Fund or
the Principal Underwriter in respect of underwriting and distribution services
performed prior to the termination of EKIS as principal underwriter. In
addition, EKIS may also be compensated by the Principal Underwriter for the
provision of certain marketing support services to the Principal Underwriter at
an annual rate of up to .75% of the average daily net assets of the Fund,
subject to certain restrictions. Both EKD and Furman Selz are located at 230
Park Avenue, New York, New York 10169.

SUB-ADMINISTRATOR
Furman Selz provides officers and certain administrative services to the Fund
pursuant to a sub-administration agreement. For its services under that
agreement, Furman Selz receives a fee from Keystone at the maximum annual rate
of .01% of the average daily net assets of the Fund.

It is expected that on or about January 2, 1997, Furman Selz will transfer
EKD, and its related mutual fund distribution and administration business, to
BISYS Group, Inc. ("BISYS"). At that time, BISYS will succeed as sub-
administrator for the Fund. It is not expected that the acquisition of the
mutual fund distribution and administration business by BISYS will affect the
services currently provided by EKD or Furman Selz.

PORTFOLIO MANAGERS
Richard M. Cryan has managed the domestic high yield, high risk bond portion
of the Fund's portfolio since 1994. Mr. Cryan is a Keystone Senior Vice
President and has more than 16 years of experience in fixed-income investing.
He is responsible for the Fund's overall management.

Gilman C. Gunn has managed the portion of the Fund's portfolio invested in
foreign securities since 1993. Mr. Gunn is a Keystone Senior Vice President
and has served as the head of Keystone's international group for over three
years. Prior to that, he headed a global investment department of Citibank in
London. Mr. Gunn has over 22 years of experience in foreign securities
investing.

Christopher P. Conkey has managed the portion of the Fund's portfolio
invested in U.S. Government Securities since 1993. Mr. Conkey is a Keystone
Senior Vice President and has more than 13 years of experience in fixed-income
investing.

FUND EXPENSES
The Fund pays all of its expenses. In addition to the investment advisory fees
discussed above, the principal expenses the Fund is expected to pay include, but
are not limited to, expenses of its Independent Trustees; transfer, dividend
disbursing and shareholder servicing agent expenses; custodian expenses; fees of
its independent auditors and legal counsel to the Fund and its Independent
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 for the Class A, B and C shares. The Fund also pays
its brokerage commissions, interest charges and taxes.

For the fiscal year ended July 31, 1996, the Fund paid or accrued to Keystone
Management, Inc., the Fund's former investment manager, investment management
and administrative services fees of $1,663,669 (0.65% of the Fund's average
daily net asset value on an annualized basis). Of such amount, $1,414,119 was
paid to Keystone for its services to the Fund.

For the fiscal year ended July 31, 1996, the Fund paid or accrued to Evergreen
Keystone Service Company (formerly Keystone Investor Resource Center, Inc.)
("EKSC") $655,455 for services rendered as the Fund's transfer agent and
dividend disbursing agent and to Keystone $24,365 for certain accounting
services. EKSC, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, is a wholly-owned subsidiary of Keystone.

SECURITIES TRANSACTIONS
Under policies established by the 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 the number of shares of the Fund sold by the
broker-dealer. In addition, broker-dealers executing portfolio transactions,
from time to time, may be affiliated with the Fund, Keystone, the 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 years ended July 31, 1995 and 1996, the Fund's portfolio
turnover rates were 95% and 101%, respectively. 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. The Fund pays brokerage commissions in connection with the
writing of options and effecting the closing purchase or sale transactions, as
well as for some purchases and sales of portfolio securities.

For further information about brokerage and distributions, see the statement
of additional information.

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

ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
The Principal Underwriter may, from time to time, provide promotional
incentives to certain broker-dealers whose representatives have sold or are
expected to sell significant amounts of Fund shares. In addition, broker-dealers
may, from time to time, receive additional cash payments. The Principal
Underwriter may also provide written information to those broker-dealers with
whom it has dealer agreements that relates to sales incentive campaigns
conducted by such broker-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.

The Principal Underwriter may, at its own expense, pay concessions in
addition to those described above to broker-dealers including, from time to
time, First Union Brokerage Services, Inc., an affiliate of Keystone, that
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 broker-dealer's satisfaction of the required conditions,
be periodic and may be up to 1.00% of the value of shares sold by such
broker-dealer.

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 broker-dealers pursuant to state law.

EFFECTS OF BANKING LAWS
The Glass-Steagall Act currently limits the ability of depository institutions
(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.

The Glass-Steagall Act and other banking laws and regulations also presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Fund. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. Keystone
and its affiliates, since they are direct or indirect subsidiaries of FUNB, are
subject to and in compliance with the aforementioned laws and regulations.

Changes to applicable laws and regulations or future judicial or
administrative decisions could prevent Keystone Investments or its affiliates
from performing the services required under the Advisory Agreement or
from acting as agent in connection with the purchase of shares of a fund by its
customers. In such event, it is expected that the Trustees would identify, and
call upon each Fund's shareholders to approve, a new investment adviser. If this
were to occur, it is not anticipated that the shareholders of any Fund would
suffer any adverse financial consequences.

HOW TO BUY SHARES
Class Y shares are offered at net asset value without a front-end or
back-end sales load. Class Y shares are not offered to the general public and
are available only to (1) persons who at or prior to December 31, 1994 owned
shares in a mutual fund advised by Evergreen Asset of Purchase, New York, (2)
certain institutional investors and (3) investment advisory clients of CMG,
Evergreen Asset or their affiliates.

You may purchase shares of the Fund from any broker-dealer that has a selling
agreement with the Principal Underwriter. In addition, you may purchase shares
of the Fund by mailing to the Fund, c/o Evergreen Keystone Service Company, P.O.
Box 2121, Boston, Massachusetts 02106-2121, a completed account application and
a check payable to the Fund. You may also 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, by direct deposit or by an
electronic funds transfer ("EFT").

Orders for the purchase of Class Y shares of the Fund will be confirmed at the
public offering price which is equal to the net asset value per share next
determined after receipt of the order in proper form by the Principal
Underwriter (generally as of the close of the Exchange on that day). Orders
received by broker-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. Broker-dealers and other financial services firms are
obligated to transmit orders promptly.

Orders for Class Y shares received other then as stated above will receive the
public offering price which is equal to the net asset value per share next
determined (generally the next business day's offering price).

The Fund reserves the right to determine the net asset value more frequently
than once a day if deemed desirable.

The initial purchase amount must be at least $1,000, which may be waived in
certain circumstances. 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 EKSC by calling toll free 1-800-
343-2898 or writing to EKSC or to the firm from which you received this
prospectus.

HOW TO REDEEM SHARES
You may redeem Class Y shares of the Fund for cash at their net redemption
value by writing to the Fund, c/o EKSC, and presenting a properly endorsed share
certificate (if certificates have been issued) to the Fund. 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 telephone order will be deposited by wire or EFT only to the
bank account designated in your account application.

You may also redeem your shares through your broker-dealer. The Principal
Underwriter, acting as agent for the Fund, stands ready to repurchase Fund
shares upon orders from broker-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 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.

The redemption value equals the net asset value per share adjusted for
fractions of a cent 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 will mail the redemption
proceeds upon clearance of the purchase check, which may take up to 15 days or
more. Any delay may be avoided by purchasing shares either with a certified
check, by Federal Reserve or bank wire of funds, by direct deposit 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, will be made within seven days thereafter
except as discussed herein.

For your protection, SIGNATURES ON CERTIFICATES, STOCK POWERS AND ALL WRITTEN
ORDERS OR AUTHORIZATIONS MUST BE GUARANTEED BY A U.S. STOCK EXCHANGE MEMBER, OR
BANK OR OTHER PERSONS ELIGIBLE TO GUARANTEE SIGNATURES UNDER THE SECURITIES
EXCHANGE ACT OF 1934 AND EKSC'S POLICIES. The Fund or EKSC may waive this
requirement or 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 EKSC 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 your
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 REDEMPTIONS
Under ordinary circumstances, you may redeem up to $50,000 from your account
by telephone by calling toll free 1-800-343-2898. As mentioned above, to engage
in telephone transactions generally, you must complete the appropriate sections
of the Fund's application.

In order to insure that instructions received by EKSC 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 you cannot reach the Fund by telephone you should follow the procedures for
redeeming by mail or through a broker-dealer 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.

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, EKSC, 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. EKSC will employ reasonable
procedures to confirm that instructions received over KARL or by telephone are
genuine. Neither the Fund, EKSC, nor the Principal Underwriter will be liable
when following instructions received over KARL or by telephone that EKSC
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 EKSC 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
If you have obtained the appropriate prospectus, you may exchange Class Y
shares of the Fund for Class Y shares of certain other Keystone America Funds at
net asset value by calling or writing to EKSC or by using KARL.

Orders for exchanges received by the Fund prior to 4:00 p.m. eastern time on
any day the funds are open for business will be executed at the respective net
asset values of each fund's Class Y shares determined as of the close of
business that day. Orders for exchanges received after 4:00 p.m. eastern time 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. 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.

AUTOMATIC INVESTMENT PLAN
With a Keystone Automatic Investment Plan, you can automatically transfer as
little as $25 per month or $75 per quarter from your bank account or Keystone
Liquid Trust to the Keystone fund of your choice. Your bank account will be
debited for each transfer. You will receive confirmation with your next account
statement.

To establish or terminate an Automatic Investment Plan or to change the amount
or schedule of your automatic investments, you may write to or call EKSC. Please
include your account numbers. Termination may take up to 30 days.

RETIREMENT PLANS
The Fund has various retirement plans available to you, including Individual
Retirement Accounts (IRAs); Rollover IRAs; Simplified Employee Pension Plans
(SEPs); Salary-Reduction Plans (SARSEPs); Tax Sheltered Annuity Plans; 403(b)
(7) Plans; 401(k) Plans; Keogh Plans; Corporate Profit-Sharing Plans; and Money
Purchase Plans. For details, including fees and application forms, call toll
free 1-800-247-4075 or write to EKSC.

SYSTEMATIC INCOME PLAN
Under a Systematic Income 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 $75 and may be as much as 1.0% per month
or 3.0% per quarter of the total net asset value of the Fund shares in your
account when the Systematic Income Plan was opened. Excessive withdrawals may
decrease or deplete the value of your account.

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, which
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 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.

TWO DIMENSIONAL INVESTING
You may elect to have income and capital gains distributions from any Class Y
Keystone America Fund shares you may own automatically invested to purchase the
same class of certain other Keystone America Funds. You may select this service
on the application and indicate the Keystone America Fund(s) into which
distributions are to be invested.

OTHER SERVICES
Under certain circumstances, you may, within 30 days after a redemption,
reinstate your account in the same class of shares that you redeemed 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 RESULTS. PAST PERFORMANCE SHOULD NOT BE
CONSIDERED REPRESENTATIVE OF RESULTS FOR ANY FUTURE PERIOD OF TIME. Total return
and current 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 when advertising or marketing the Fund's shares, such as data from Lipper
Analytical Services, Inc., Morningstar, Inc., Standard & Poor's Corporation and
Ibbotson Associates or other industry publications.

FUND SHARES
The Fund issues Class A, B, C and Y shares, which participate proportionately
based on their relative net asset value in dividends and distributions and have
equal voting, liquidation and other rights except that (1) expenses related to
the distribution of Class A, B and C shares, or other expenses that the Board of
Trustees may designate as class expenses from time to time, are borne solely by
the relevant class; (2) each class of shares having a Distribution Plan has
exclusive voting rights with respect to its Distribution Plan; (3) each class
has different exchange privileges; and (4) each class generally has a different
designation. When issued and paid for, the shares will be fully paid and
nonassessable by the Fund.

Class A shares bear most of the costs of distribution of such shares through
payment of a front-end sales load while Class B and Class C shares bear such
expenses through a higher annual distribution fee. As a result, 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.

Class Y shares are not subject to a front-end sales load or a contingent
deferred sales charge and pay no distribution or shareholder servicing expenses.
Therefore, income distributions paid by the Fund on Class Y shares will be
greater than those paid with respect to Class A, B and C shares.

Class Y shares may be exchanged as explained under "Shareholder Services," but
will have no other preference, conversion, exchange or preemptive rights. Shares
are transferable, redeemable and freely assignable as collateral. The Fund is
authorized to issue additional classes or series 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 holders of 10% of the outstanding shares
request a meeting for the purpose of removing a Trustee. As prescribed by
Section 16(c) of the 1940 Act, the Fund is prepared to assist shareholders in
communications with one another for the purpose of convening such a meeting.

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
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 written notice to those shareholders, the Fund intends, when an
annual report or 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.

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ADDITIONAL INVESTMENT INFORMATION
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The Fund may engage in the investment practices described below to the extent
described in the prospectus and statement of additional information.

CORPORATE BOND RATINGS
Higher yields are usually available on securities that are lower rated or that
are unrated. Bonds rated Baa by Moody's are considered as medium grade
obligations which are neither highly protected nor poorly secured. Debt rated
BBB by S&P is regarded as having an adequate capacity to pay interest and repay
principal, although adverse economic conditions 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. Lower rated securities are usually defined as
Baa or lower by Moody's or BBB or lower by S&P. The Fund may purchase unrated
securities, which are not necessarily of lower quality than rated securities but
may not be attractive to as many buyers. Debt rated BB, B, CCC, CC and C by S&P
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. Debt rated CI by S&P is debt (income
bonds) on which no interest is being paid. Debt rated D by S&P is in default and
payment of interest and/or repayment of principal is in arrears. The Fund
intends to invest in D-rated debt only in cases where in Keystone's judgment
there is a distinct prospect of improvement in the issuer's financial position
as a result of the completion of reorganization or otherwise. Bonds which are
rated Caa by Moody's are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca by Moody's represent obligations which are speculative
in a high degree. Such issues are often in default or have other market
shortcomings. Bonds which are rated C by Moody's are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.

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 value at
the time of sale) may apply to determine the gain or loss on a sale of any such
zero coupon bonds.

PAYMENT-IN-KIND SECURITIES
PIKs pay interest in either cash or additional securities, at the issuer's
option, for a specified period. The issuer's option to pay in additional
securities typically ranges from one to six years, compared to an average
maturity for all PIKs 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., 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 PIKs 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.

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 purchased 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 are 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 the 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 will invest in them only if the issuer meets
the criteria established for commercial paper.

REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with member banks of the Federal
Reserve System having at least $1 billion in assets, primary dealers in U.S.
government securities or other financial institutions believed by Keystone to be
creditworthy. Such persons must be registered as U.S. government securities
dealers with an appropriate regulatory organization. Under such agreements, the
bank, primary dealer or other financial institution agrees upon entering into
the contract to repurchase the security at a mutually agreed upon date and
price, thereby determining the yield during the term of the agreement. This
results in a fixed rate of return insulated from market fluctuations during such
period. Under a repurchase agreement, the seller must maintain the value of the
securities subject to the agreement at not less than the repurchase price, such
value being determined on a daily basis by marking the underlying securities to
their market value. Although the securities subject to the repurchase agreement
might bear maturities exceeding a year, the Fund only intends to enter into
repurchase agreements that provide for settlement within a year and usually
within seven days. Securities subject to repurchase agreements will be held by
the Fund's custodian or in the Federal Reserve book entry system. The Fund does
not bear the risk of a decline in the value of the underlying security unless
the seller defaults under its repurchase obligation. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and
losses, including (1) possible declines in the value of the underlying
securities during the period while the Fund seeks to enforce its rights thereto;
(2) possible subnormal levels of income and lack of access to income during this
period; and (3) expenses of enforcing its rights. The Board of Trustees of the
Fund has established procedures to evaluate the creditworthiness of each party
with whom the Fund enters into repurchase agreements by setting guidelines and
standards of review for Keystone and monitoring Keystone's actions with regard
to repurchase agreements.

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
the Fund is obligated to repurchase may decline below the repurchase price.

"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. No payment or delivery is made by the Fund,
however, 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 objectives and policies and not for
the purpose of investment leverage. The Fund currently does not intend to invest
more than 5% of its assets in when issued or delayed delivery transactions.

LOANS OF SECURITIES TO BROKER-DEALERS
The Fund may lend securities to brokers and dealers pursuant to agreements
requiring that the loans be continuously secured by cash, or securities of the
U.S. government, its agencies or instrumentalities or any combination of cash
and such securities, as collateral equal at all times in value to at least the
market value of the securities loaned. Such securities loans will not be made
with respect to the Fund if, as a result, the aggregate of all outstanding
securities loans exceeds 15% of the value of the Fund's total assets taken at
their current value. The Fund continues to receive interest or dividends on the
securities loaned and simultaneously earns interest on the investment of the
cash loan collateral in U.S. Treasury notes, certificates of deposit, other
high-grade, short-term obligations or interest bearing cash equivalents.
Although voting rights attendant to securities loaned pass to the borrower, such
loans may be called at any time and will be called so that the securities may be
voted by the Fund if, in the opinion of the Fund, a material event affecting the
investment is to occur. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral should the borrower of the securities fail financially. Loans may
only be made, however, to borrowers deemed to be of good standing, under
standards approved by the Board of Trustees, when the income to be earned from
the loan justifies the attendant risks.

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. The use of derivatives for non-hedging purposes
entails greater risks. The Fund uses futures contracts and related options as
well as forwards 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, futures, forwards, and swaps,
is provided later in this section and is provided in the Fund's statement of
additional information.

Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. See "Indexed Commercial Paper" and
"Structured Securities" below. The term "derivative" is also sometimes used to
describe securities involving rights to a portion of the cash flows from an
underlying pool of mortgages or other assets from which payments are passed
through to the owner of, or that collateralize, the securities. See "Mortgage
Related Securities," "Collateralized Mortgage Obligations," "Adjustable Rate
Mortgage Securities," "Stripped Mortgage Securities," "Mortgage Securities --
Special Considerations," and "Other Asset-Backed Securities" and the Fund's
statement of additional information.

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 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.

* Leverage Risk -- Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss generally is related
to a notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.

* Other Risks -- Other risks in using derivatives include the risk of mispricing
or improper valuation and the inability of derivatives to correlate perfectly
with underlying assets, rates, and indices. Many derivatives, in particular
privately negotiated derivatives, are complex and often valued subjectively.
Improper valuations can result in increased cash payment requirements to
counterparties or a loss of value to the Fund. Derivatives do not always
perfectly or even highly correlate or track the value of the assets, rates or
indices they are designed to closely track. Consequently, the Fund's use of
derivatives may not always be an effective means of, and sometimes could be
counterproductive to, furthering the Fund's investment objective.

OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS The Fund may write (i.e., sell) covered call and put
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 also may write straddles
(combinations of covered puts and calls on the same underlying security).

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 that are available
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 with its custodian in a segregated account liquid assets having a
value equal to or greater than the exercise price of the option.

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, and, 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 put or call options, including 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 or dispose of assets held in a segregated account until the options
expire or are exercised.

An option position may be closed out only in a secondary market for an option
of the same series. Although the Fund generally will 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.

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 in which the Fund will trade are generally
listed on national securities 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. Options on some
securities may not be listed on any exchange, but traded in the over-the-counter
market. Options traded in the over-the-counter market involve the additional
risk that securities dealers participating in such transactions could fail to
meet their obligations to the Fund. The use of options traded in the
over-the-counter market may be subject to limitations imposed by certain state
securities authorities. In addition to the limits on its use of options
discussed herein, the Fund is subject to the investment restrictions described
in this prospectus and in the statement of additional information.

The staff of the Securities and Exchange Commission is of the view that the
premiums that 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 policies on illiquid securities.

FUTURES TRANSACTIONS
The Fund may enter into currency and other financial futures contracts and
write options on such contracts. The Fund intends to enter into such contracts
and related options for hedging purposes. The Fund will enter into securities,
currency or index-based futures contracts in order to hedge against changes in
interest or exchange rates or securities prices. A futures contract on
securities or currencies is an agreement to buy or sell securities or currencies
at a specified price during a designated month. A futures contract on a
securities index does not involve the actual delivery of securities, but merely
requires the payment of a cash settlement based on changes in the securities
index. 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 which 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 sells futures contracts
in order to offset a possible decline in the value of its securities or
currencies. If a futures contract is purchased by the Fund, the value of the
contract will tend to rise when the value of the underlying securities or
currencies increases and to fall when the value of such securities or currencies
declines. The Fund intends to purchase futures contracts in order to establish
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 also intends to purchase put and call options on 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 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 related options transactions are intended to enable the
Fund to manage market, interest rate or exchange rate risk, unanticipated
changes in interest rates, exchange rates or market prices could result in
poorer performance than if it had not entered into these transactions. Even if
Keystone correctly predicts interest or exchange rate 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 or currencies positions may be caused
by differences between the futures and securities or currencies markets or by
differences between the securities or currencies underlying the Fund's futures
position and the securities or currencies 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 or
leverage. The Fund has the ability to write options on futures, but intends to
write such options only to close out options purchased by the Fund. The Fund
will not change these policies without supplementing the information in its
prospectus and statement of additional information.

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 U.S. 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.
Although the Fund does not currently intend to do so, the Fund may also purchase
and sell options related to foreign currencies. The Fund does not intend to
enter into foreign currency transactions for speculation or leverage.

INTEREST RATE TRANSACTIONS (SWAPS, CAPS, AND FLOORS) If the Fund enters into
interest rate swap, cap or floor transactions, it expects to do so primarily for
hedging purposes, which may include preserving a return or spread on a
particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund does not currently intend to use these transactions in a
speculative manner.

Interest rate swaps involve the exchange by the Fund with another party of
their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). Interest rate caps and floors
are similar to options in that the purchase of an interest rate cap or floor
entitles the purchaser, to the extent that a specified index exceeds (in the
case of a cap) or falls below (in the case of a floor) a predetermined interest
rate, to receive payments of interest on a contractually-based principal
("notional") amount from the party selling the interest rate cap or floor. The
Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities, and will usually enter into interest rate swaps on a net
basis (i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments).

The swap market has grown substantially in recent years, with a large number
of banks and investment banking firms acting as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become more established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions also involve the delivery of securities or other
underlying assets and principal. Accordingly, the risk of loss to the Fund from
interest rate transactions is limited to the net amount of interest payments
that the Fund is contractually obligated to make.

INDEXED COMMERCIAL PAPER Indexed commercial paper may have its principal
linked to changes in foreign currency exchange rates whereby its principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect changes in the referenced exchange rate. If permitted by its investment
policies, the Fund will purchase such commercial paper with the currency in
which it is denominated and, at maturity, will receive interest and principal
payments thereon in that currency, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables the Fund to
hedge (or cross-hedge) against a decline in the U.S. dollar value of investments
denominated in foreign currencies while providing an attractive money market
rate of return.

MORTGAGE-RELATED SECURITIES The mortgage-related securities in which the Fund
may invest typically are securities representing interests in pools of mortgage
loans made to home owners. Mortgage-related securities bear interest at either a
fixed rate or an adjustable rate determined by reference to an index rate. The
mortgage loan pools may be assembled for sale to investors (such as the Fund) by
governmental or private organizations. Mortgage-related securities issued by the
Government National Mortgage Association ("GNMA") are backed by the full faith
and credit of the U.S. government; those issued by Federal National Mortgage
Associated ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") are not
so backed.

Securities representing interests in pools created by private issuers
generally offer a higher rate of interest than securities representing interests
in pools created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are generally
dependent upon the ratings of the providers of such liquidity and credit support
and would be adversely affected if the rating of such an enhancer were
downgraded. The Fund may buy mortgage-related securities without credit
enhancement if the securities meet the Fund's investment standards. Although the
market for mortgage-related securities is becoming increasingly liquid, those of
certain private organizations may not be readily marketable.

One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing or foreclosure of the underlying
properties are also paid to the holders of these securities. Some
mortgage-related securities, such as securities issued by GNMA, are referred to
as "modified pass-through" securities. The holders of these securities are
entitled to the full and timely payment of principal and interest, net of
certain fees, regardless of whether payments are actually made on the underlying
mortgages. Another form of mortgage-related security is a "pay- through"
security, which is a debt obligation of the issuer secured by a pool of mortgage
loans pledged as collateral that is legally required to be paid by the issuer
regardless of whether payments are actually made on the underlying mortgages.

COLLATERALIZED MORTGAGE OBLIGATIONS "CMOS") CMOs are the predominant type of
"pay-through" mortgage-related security. CMOs are designed to reduce the risk of
prepayment for investors by issuing multiple classes of securities, each having
different maturities, interest rates and payment schedules, and with the
principal and interest on the underlying mortgages allocated among the several
classes in various ways. The collateral securing the CMOs may consist of a pool
of mortgages, but may also consist of mortgage-backed bonds or pass-through
securities. CMOs may be issued by a U.S. government instrumentality or agency or
by a private issuer. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by GNMA,
FNMA or FHLMC, these CMOs represent obligations solely of the private issuer and
are not insured or guaranteed by GNMA, FNMA, FHLMC, any other governmental
agency, or any other person or entity.

INVERSE FLOATING RATE COLLATERALIZED MORTGAGE OBLIGATIONS In addition to
investing in fixed rate and adjustable rate CMOs, the Fund may also invest in
CMOs with rates that move inversely to market rates ("inverse floaters").

An inverse floater bears an interest rate that resets in the opposite
direction of the change in a specified interest rate index. As market interest
rates rise, the interest rate on the inverse floater goes down, and vice versa.
Inverse floaters tend to exhibit greater price volatility than fixed-rate bonds
of similar maturity and credit quality. The interest rates on inverse floaters
may be significantly reduced, even to zero, if interest rates rise. Moreover,
the secondary market for inverse floaters may be limited in rising interest rate
environments.

ADJUSTABLE RATE MORTGAGE SECURITIES Another type of mortgage-related security,
known as adjustable-rate mortgage securities ("ARMS"), bears interest at a rate
determined by reference to a predetermined interest rate or index. There are two
main categories of rates or indices: (1) rates based on the yield on U.S.
Treasury securities and (2) indices derived from a calculated measure such as a
cost of funds index or a moving average of mortgage rates. Some rates and
indices closely mirror changes in market interest rate levels, while others tend
to lag changes in market rate levels and tend to be somewhat less volatile.

ARMS may be secured by adjustable-rate mortgages or fixed-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon rates
of the securities. To the extent that general interest rates increase faster
than the interest rates on the ARMS, these ARMS will decline in value. The
adjustable-rate mortgages that secure ARMS will frequently have caps that limit
the maximum amount by which the interest rate or the monthly principal and
interest payments on the mortgages may increase. These payment caps can result
in negative amortization (i.e., an increase in the balance of the mortgage
loan). Furthermore, since many adjustable-rate mortgages only reset on an annual
basis, the values of ARMS tend to fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the interest rates
payable on the underlying adjustable-rate mortgages.

STRIPPED MORTGAGE SECURITIES Stripped mortgage-related securities ("SMRS") are
mortgage-related securities that are usually structured with two classes of
securities collateralized by a pool of mortgages or a pool of mortgaged-backed
bonds or pass-through securities, with each class receiving different
proportions of the principal and interest payments from the underlying assets. A
common type of SMRS has one class of interest-only securities ("IOs") receiving
all of the interest payments from the underlying assets, while the other class
of securities, principal-only securities ("POs"), receives all of the principal
payments from the underlying assets. IOs and POs are extremely sensitive to
interest rate changes and are more volatile than mortgage-related securities
that are not stripped. IOs tend to decrease in value as interest rates decrease,
while POs generally increase in value as interest rates decrease. If prepayments
of the underlying mortgages are greater than anticipated, the amount of interest
earned on the overall pool will decrease due to the decreasing principal balance
of the assets. Changes in the values of IOs and POs can be substantial and occur
quickly, such as occurred in the first half of 1994 when the value of many POs
dropped precipitously due to an increase in interest rates. For this reason, the
Fund does not rely on IOs and POs as the principal means of furthering its
investment objective.

MORTGAGE-RELATED SECURITIES -- SPECIAL CONSIDERATIONS The value of
mortgage-related securities is affected by a number of factors. Unlike
traditional debt securities, which have fixed maturity dates, mortgage-related
securities may be paid earlier than expected as a result of prepayment of the
underlying mortgages. If property owners make unscheduled prepayments of their
mortgage loans, these prepayments will result in the early payment of the
applicable mortgage-related securities. In that event, the Fund may be unable to
invest the proceeds from the early payment of the mortgage-related securities in
an investment that provides as high a yield as the mortgage-related securities.
Consequently, early payment associated with mortgage-related securities causes
these securities to experience significantly greater price and yield volatility
than experienced by traditional fixed-income securities. The occurrence of
mortgage prepayments is affected by the level of general interest rates, general
economic conditions, and other social and demographic factors. During periods of
falling interest rates, the rate of mortgage prepayments tends to increase,
thereby tending to decrease the life of mortgage-related securities. During
periods of rising interest rates, the rate of mortgage prepayments usually
decreases, thereby tending to increase the life of mortgage-related securities.
If the life of a mortgage-related security is inaccurately predicted, the Fund
may not be able to realize the rate of return it expected.

As with fixed-income securities generally, the value of mortgage-related
securities can also be adversely affected by increases in general interest rates
relative to the yield provided by such securities. Such adverse effect is
especially possible with fixed-rate mortgage securities. If the yield available
on other investments rises above the yield of the fixed-rate mortgage securities
as a result of general increases in interest rate levels, the value of the
mortgage-related securities will decline. Although the negative effect could be
lessened if the mortgage-related securities were to be paid earlier (thus
permitting the Fund to reinvest the prepayment proceeds in investments yielding
the higher current interest rate), as described above the rate of mortgage
prepayments and earlier payment of mortgage-related securities generally tends
to decline during a period of rising interest rates.

Although the value of ARMS may not be affected by rising interest rates as
much as the value of fixed-rate mortgage securities is affected by rising
interest rates, ARMS may still decline in value as a result of rising interest
rates. Although, as described above, the yield on ARMS varies with changes in
the applicable interest rate or index, there is often a lag between increases in
general interest rates and increases in the yield on ARMS as a result of
relatively infrequent interest rate reset dates. In addition, adjustable-rate
mortgages and ARMS often have interest rate or payment caps that limit the
ability of the adjustable-rate mortgages or ARMS to fully reflect increases in
the general level of interest rates.

OTHER ASSET-BACKED SECURITIES The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card receivables,
home equity loans, equipment leases and trade receivables, are being securitized
in structures similar to the structures used in mortgage securitizations. These
asset-backed securities are subject to risks associated with changes in interest
rates and prepayment of underlying obligations similar to the risks of
investment in mortgage-related securities discussed above.

Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There have also been proposals to cap the interest rate that a credit card
issuer may charge. In some transactions, the value of the asset-backed security
is dependent on the performance of a third party acting as credit enhancer or
servicer. Furthermore, in some transactions (such as those involving the
securitization of vehicle loans or leases) it may be administratively burdensome
to perfect the interest of the security issuer in the underlying collateral and
the underlying collateral may become damaged or stolen.

VARIABLE, FLOATING, AND LEVERAGED INVERSE FLOATING RATE INSTRUMENTS Fixed-
income securities may have fixed, variable or floating rates of interest.
Variable and floating rate securities pay interest at rates that are adjusted
periodically, according to a specified formula. A "variable" interest rate
adjusts at predetermined intervals (e.g., daily, weekly or monthly), while a
"floating" interest rate adjusts whenever a specified benchmark rate (such as
the bank prime lending rate) changes.

The Fund may invest in fixed-income securities that pay interest at a coupon
rate equal to a base rate, plus additional interest for a certain period of time
if short-term interest rates rise above a predetermined level or "cap." The
amount of such an additional interest payment typically is calculated under a
formula based on a short-term interest rate index multiplied by a designated
factor.

An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in market value.

STRUCTURED SECURITIES Structured securities represent interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations or foreign government securities.
This type of restructuring involves the deposit with or purchase by an entity,
such as a corporation or trust, of specified instruments (such as commercial
bank loans or Brady Bonds) and the issuance by that entity of one or more
classes of structured securities backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued structured securities to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to structured securities is dependent on the extent of the cash
flow on the underlying instruments. Because structured securities typically
involve no credit enhancement, their credit risk generally will be equivalent to
that of the underlying instruments. Structured securities of a given class may
be either subordinated or unsubordinated to the right of payment of another
class. Subordinated structured securities typically have higher yields and
present greater risks than unsubordinated structured securities.

BRADY BONDS Brady Bonds are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection with
debt restructurings under a plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been issued
only recently, and, accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various currencies (although
most are U.S. dollar-denominated) and they are actively traded in the
over-the-counter secondary market.

U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations that
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments, but generally are not collateralized. Brady
Bonds are often viewed as having up to four valuation components: (1)
collateralized repayment of principal at final maturity, (2) collateralized
interest payments, (3) uncollateralized interest payments, and (4) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
<PAGE>
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KEYSTONE AMERICA
FUND FAMILY

()

Balanced Fund II
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Tax Free Fund
Pennsylvania Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Omega Fund
Fund of the Americas
Global Resources and Development Fund
Small Company Growth Fund II
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Evergreen Keystone
[logo] FUNDS [logo]
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Evergreen Keystone Distributor, Inc.
230 Park Avenue
New York, New York 10169

10M [recycle logo]
540238

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KEYSTONE

[graphic omitted]

STRATEGIC
INCOME FUND

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Evergreen Keystone
[logo] FUNDS [logo]
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PROSPECTUS AND
APPLICATION
Class Y Shares