<PAGE>
AS FILED WITH THE SECURITIES AND EXACHANGE COMMISSION ON MARCH 31, 1995
File Nos. 33-11051
and 811-4951
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
---- -----
Post-Effective Amendment No. 15 X
---- -----
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 17 X
---- -----
KEYSTONE AMERICA TAX FREE INCOME FUND
(Exact name of Registrant as specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(617) 338-3200
Rosemary D. Van Antwerp, Esq., 200 Berkeley Street,
Boston, MA 02116-5034
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
X immediately upon filing pursuant to paragraph (b) of Rule 485.
---
--- on (date) pursuant to paragraph (b) of Rule 485.
--- 60 days after filing pursuant to paragraph (a)(i) of Rule 485.
--- on (date) pursuant to paragraph (a)(i) of Rule 485.
--- 75 days after filing pursuant to paragraph (a)(ii) of Rule 485.
--- on (date) pursuant to paragraph (a)(ii) of Rule 485.
The Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940. A Rule 24f-2 Notice for Registrant's last fiscal
year was filed on December 27, 1994.
<PAGE>
KEYSTONE AMERICA TAX FREE INCOME FUND
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 15
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 15 to Registration Statement No.
33-11051/811-4951 consists of the following pages, items of information, and
documents.
The Facing Sheet
The Contents Page
The Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C
PART C - OTHER INFORMATION - ITEM 24(a) and (b)
Financial Statements
Independent Auditors' Report
Listing of Exhibits
PART C - OTHER INFORMATION - ITEMS 25-32-SIGNATURE PAGES
Number of Security Holders
Indemnification
Business and Other Connections
Principal Underwriters
Location of Accounts and Records
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE AMERICA TAX FREE INCOME FUND
Cross-Reference Sheet pursuant to Rules 404 and 495 under the Securities Act of
1933.
Items in
Part A of
Form N-1A Prospectus Caption
--------- ------------------
1 Cover Page
2 Fee Table
3 Financial Highlights
Performance Data
4 Cover Page
The Fund
Investment Objective and Policies
Investment Restrictions
Risk Factors
5 Fund Management and Expenses
Additional Information
5A Not applicable
6 The Fund
Dividends and Taxes
Fund Shares
Shareholder Services
7 Pricing Shares
How to Buy Shares
Distribution Plans
Shareholder Services
Exhibit A
8 How to Redeem Shares
9 Not applicable
Items in
Part B of
Form N-1A Statement of Additional Information Caption
--------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 Not applicable
<PAGE>
KEYSTONE AMERICA TAX FREE INCOME FUND
Cross-Reference Sheet continued.
Items in
Part B of
Form N-1A Statement of Additional Information Caption
--------- -------------------------------------------
13 The Fund
Investment Policies
Investment Restrictions
Appendix
14 Trustees and Officers
15 Additional Information
16 Investment Manager
Investment Adviser
Principal Underwriter
Distribution Plans
Sales Charges
Additional Information
17 Brokerage
18 The Fund
Declaration of Trust
19 Sales Charges
Valuation of Securities
Distribution Plans
Redemptions in Kind
20 Not Applicable
21 Principal Underwriter
22 Standardized Total Return and Yield Quotations
23 Financial Statements
<PAGE>
KEYSTONE AMERICA TAX FREE INCOME FUND
PART A
PROSPECTUS
<PAGE>
KEYSTONE AMERICA TAX FREE INCOME FUND
PROSPECTUS MARCH , 1995
Keystone America Tax Free Income Fund (the "Fund") is a mutual fund that seeks
the highest possible current income, exempt from federal income taxes, while
preserving capital. The Fund invests primarily in municipal bonds. The Fund's
net asset value per share will fluctuate in response to changes in the market
value of its portfolio securities.
The Fund offers three classes of shares. Information on share classes and
their fee and sales charge structures may be found in the Fund's fee table,
"Alternative Sales Options," "Contingent Deferred Sales Charge and Waiver of
Sales Charge," "Distribution Plans," and "Fund Shares."
This prospectus concisely states information about the Fund that you should
know before investing. Please read it and retain it for future reference.
Additional information about the Fund, including information about securities
ratings, is contained in the Fund's statement of additional information dated
March , 1995, which has been filed with the Securities and Exchange Commission
and is incorporated by reference into this prospectus. For a free copy, or for
other information about the Fund, write to the address or call the telephone
number listed below.
KEYSTONE AMERICA TAX FREE INCOME FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
TABLE OF CONTENTS
Page
Fee Table 2
Financial Highlights 3
The Fund 6
Investment Objective and Policies 6
Investment Restrictions 7
Risk Factors 8
Pricing Shares 9
Dividends and Taxes 9
Fund Management and Expenses 11
How to Buy Shares 13
Alternative Sales Options 14
Contingent Deferred Sales Charge and Waiver of Sales Charges 17
Distribution Plans 18
How to Redeem Shares 18
Shareholder Services 20
Performance Data 22
Fund Shares 23
Additional Information 23
Additional Investment Information (i)
Exhibit A A-1
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FEE TABLE
KEYSTONE AMERICA TAX FREE INCOME FUND
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in each class will bear directly or
indirectly. For more complete descriptions of the various costs and expenses,
see the following sections of this prospectus: "Fund Management and Expenses";
"How to Buy Shares"; "Alternative Sales Options"; "Contingent Deferred Sales
Charge and Waiver of Sales Charges"; "Distribution Plans"; and "Shareholders
Services."
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
FRONT END BACK END LEVEL LOAD
SHAREHOLDER TRANSACTION EXPENSES LOAD OPTION LOAD OPTION<F1> OPTION<F2>
------------- ------------- -------------
<S> <C> <C> <C>
Sales Charge ........................... 4.75%<F3> None None
(as a percentage of offering price)
Contingent Deferred Sales Charge ....... 0.00%<F4> 3.00% in the first year 1.00% in the first year
(as a percentage of the lesser of cost declining to 1.00% in the and 0.00% thereafter
or market value of shares redeemed) fourth year and 0.00%
thereafter
Exchange Fee (per exchange)<F5> ....... $10.00 $10.00 $10.00
ANNUAL FUND OPERATING EXPENSES<F6>
(as a percentage of average net
assets)
Management Fees ....................... 0.61% 0.61% 0.61%
12b-1 Fees ............................ 0.25% 1.00%<F7> 1.00%<F7>
Other Expenses ........................ 0.27% 0.27% 0.28%
----- ----- -----
Total Fund Operating Expenses ......... 1.13% 1.88% 1.89%
===== ===== =====
<CAPTION>
EXAMPLES<F8> 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each
period:
Class A .......................... $58.00 $82.00 $107.00 $178.00
Class B .......................... $49.00 $79.00 $102.00 N/A
Class C .......................... $29.00 $59.00 $102.00 $221.00
You would pay the following expenses on a $1,000 investment, assuming no
redemption at the end of each period:
Class A .......................... $58.00 $82.00 $107.00 $178.00
Class B .......................... $19.00 $59.00 $102.00 N/A
Class C .......................... $19.00 $59.00 $102.00 $221.00
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
<FN>
<F1> Class B Shares convert tax free to Class A shares after seven calendar years.
<F2> Class C shares are available only through dealers who have entered into special distribution agreements with Keystone
Distributors, Inc.
<F3> The sales charge applied to purchases of Class A shares declines as the amount invested increases. See "Alternative
Sales Options."
<F4> Purchases of Class A shares in the amount of $1,000,000 or more are not subject to a sales charge, but may be subject
to a contingent deferred sales charge of 0.25%. See the "Contingent Deferred Sales Charge and Waiver of Sales Charges"
section of this prospectus for an explanation of the charge.
<F5> There is no exchange fee for exchange orders received by the Fund directly from an individual shareholder over the Keystone
Automated Response Line ("KARL"). (For a description of KARL, see "Shareholder Services.")
<F6> Expense ratios shown above are for the Fund's fiscal year ended November 30, 1994.
<F7> Long term shareholders may pay more than the economic equivalent of the maximum front end sales charges permitted by
rules adopted by the National Association of Securities Dealers, Inc. ("NASD").
<F8> The Securities and Exchange Commission requires use of a 5% annual return figure for purposes of this example.
Actual return for the Fund may be greater or less than 5%.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE AMERICA TAX FREE INCOME FUND
CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
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 included in the statement of additional information.
Additional information about the Fund's performance is contained in its Annual
Report, which will be made available upon request and without charge.
<TABLE>
<CAPTION>
FEBRUARY 13, 1987
YEAR ENDED NOVEMBER 30, (COMMENCEMENT
----------------------------------------------------------------------------------- OF OPERATIONS) TO
1994 1993 1992 1991 1990 1989 1988 NOVEMBER 30, 1987
------- ------- ------- ------- ------- ------- ------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD.. $10.250 $10.170 $10.130 $ 9.940 $10.240 $ 9.960 $ 9.640 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income--net. 0.513 0.567 0.625 0.605 0.593 0.617 0.630 0.329
Realized gains (losses)
on investments--net... (1.285) 0.368 0.306 0.314 (0.060) 0.347 0.370 (0.317)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss)
from investment
operations ........... (0.772) 0.935 0.931 0.919 0.533 0.964 1.000 0.012
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from
investment income--net (0.517) (0.571) (0.621) (0.605) (0.603) (0.634) (0.680) (0.372)
Distributions in excess
of investment income--
net(b)................ 0 (0.044) 0 (0.004) (0.030) 0 0 0
Distributions from
realized gain on
investments--net...... 0 (0.240) (0.270) (0.120) (0.200) (0.050) 0 0
Tax basis return of
capital.............. (0.031) 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- -------
Total distributions.... (0.548) (0.855) (0.891) (0.729) (0.833) (0.684) (0.680) (0.372)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value end of
period............... $ 8.930 $10.250 $10.170 $10.130 $ 9.940 $10.240 $ 9.960 $ 9.640
======= ======= ======= ======= ======== ======= ======= =======
TOTAL RETURN(c)........ (7.81%) 9.37% 9.35% 9.59% 5.55% 9.97% 10.60% 0.17%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net
assets:
Operating and
management expenses 1.13% 1.21% 1.25% 1.58% 1.66% 1.62% 1.57% 1.00%<F1>
Investment income--
net................ 5.27% 5.40% 6.02% 5.95% 6.03% 6.15% 6.13% 6.85%<F1>
Portfolio turnover rate 98% 47% 32% 37% 42% 49% 109% 67%
Net assets end of
period (thousands).... $95,691 $124,102 $120,660 $133,524 $146,335 $162,013 $179,191 $16,090
<FN>
---------
<F1> Annualized for the period April 14, 1987 (Commencement of Operations) to November 30, 1987.
<F2> Effective December 1, 1993 the Fund adopted Statement of Position 93-2: Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain and Return of Capital Distributions by Investment Companies.
As a result, distribution amounts exceeding book basis investment income -- net (or tax basis net income on a temporary
basis) are presented as "Distributions in excess of investment income--net." Similarly, capital gain distributions
in excess of book basis capital gains (or tax basis gains on a temporary basis) are presented as "Distributions in excess
of realized gains." For the fiscal years ended prior to November 30, 1993, distributions in excess of book basis net
income were charged to paid in capital.
<F3> Excluding applicable sales charges.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE AMERICA TAX FREE INCOME FUND
CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
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 included in the statement of additional information.
Additional information about the Fund's performance is contained in its Annual
Report, which will be made available upon request and without charge.
FEBRUARY 1, 1993
(DATE OF INITIAL
YEAR ENDED PUBLIC OFFERING)
NOVEMBER 30, TO
1994 NOVEMBER 30, 1993
------------ -----------------
NET ASSET VALUE BEGINNING OF PERIOD............ $10.250 $10.270
-------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income--net......................... 0.452 0.369
Realized gains (losses) on investments--net.... (1.287) 0.301
-------- -------
Total income (loss) from investment operations. (0.835) 0.670
-------- -------
LESS DISTRIBUTIONS
Dividends from investment income--net.......... (0.505) (0.369)
Distributions in excess of investment income-- 0 (0.081)
net(b).......................................
Distributions from realized gain on 0 (0.240)
investments--net ............................
Tax basis return of capital.................... (0.030) 0
-------- -------
Total distributions............................ (0.535) (0.690)
-------- -------
Net asset value end of period.................. $ 8.880 $10.250
-------- -------
-------- -------
TOTAL RETURN(c)................................ (8.43%) 6.59%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Operating and management expenses............ 1.88% 1.96%(a)
Investment income--net....................... 4.60% 4.42%(a)
Portfolio turnover rate........................ 98% 47%
Net assets end of period (thousands)........... $28,860 $14,091
---------
(a) Annualized.
(b) Effective December 1, 1993 the Fund adopted Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies. As
a result, distribution amounts exceeding book basis investment income-- net
(or tax basis net income on a temporary basis) are presented as
"Distributions in excess of investment income--net." Similarly, capital gain
distributions in excess of book basis capital gains (or tax basis gains on a
temporary basis) are presented as "Distributions in excess of realized
gains." For the period ended November 30, 1993, distributions in excess of
book basis net income were charged to paid in capital.
(c) Excluding applicable sales charge.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE AMERICA TAX FREE INCOME FUND
CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
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 included in the statement of additional information.
Additional information about the Fund's performance is contained in its Annual
Report, which will be made available upon request and without charge.
FEBRUARY 1, 1993
(DATE OF INITIAL
YEAR ENDED PUBLIC OFFERING)
NOVEMBER 30, TO
1994 NOVEMBER 30, 1993
------------ -----------------
NET ASSET VALUE BEGINNING OF PERIOD............ $10.260 $10.270
------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income--net......................... 0.431 0.371
Realized gains (losses) on investments--net.... (1.276) 0.309
------- -------
Total income (loss) from investment operations. (0.845) 0.680
-------- -------
LESS DISTRIBUTIONS
Dividends from investment income--net.......... (0.505) (0.371)
Distributions in excess of investment income--
net(b)....................................... 0 (0.079)
Distributions from realized gain on
investments--net ............................ 0 (0.240)
Tax basis return of capital.................... (0.030) 0
------- -------
Total distributions............................ (0.535) (0.690)
------- -------
Net asset value end of period.................. $ 8.880 $10.260
======= =======
TOTAL RETURN(c)................................ (8.52%) 6.70%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Operating and management expenses............ 1.89% 1.94%(a)
Investment income--net....................... 4.52% 4.41%(a)
Portfolio turnover rate........................ 98% 47%
Net assets end of period (thousands)........... $23,230 $27,261
---------
(a) Annualized.
(b) Effective December 1, 1993 the Fund adopted Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies. As
a result, distribution amounts exceeding book basis investment income-- net
(or tax basis net income on a temporary basis) are presented as
"Distributions in excess of investment income--net." Similarly, capital gain
distributions in excess of book basis capital gains (or tax basis gains on a
temporary basis) are presented as "Distributions in excess of realized
gains." For the period ended November 30, 1993, distributions in excess of
book basis net income were charged to paid in capital.
(c) Excluding applicable sales charge.
<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 twenty funds managed by Keystone
Management, Inc. ("Keystone Management"), its investment manager, and one of
twenty-nine funds advised by Keystone Custodian Funds, Inc. ("Keystone"), the
Fund's investment adviser. Keystone and Keystone Management are, from time to
time, collectively referred to as "Keystone."
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks the highest possible current income, exempt from federal income
taxes, while preserving capital.
PRINCIPAL INVESTMENT
The Fund invests substantially all and, under ordinary circumstances, at least
80% of its assets in federally tax-exempt obligations, including municipal bonds
and notes and tax-exempt commercial paper (municipal bonds), that are
obligations issued by or on behalf of states, territories and possessions of the
United States ("U.S."), the District of Columbia and their political
subdivisions, agencies and instrumentalities, the interest from which is, in the
opinion of counsel to the issuers of such bonds, exempt from federal income
taxes. Municipal bonds include debt obligations issued by or on behalf of a
political subdivision of the U.S. or any agency or instrumentality thereof to
obtain funds for various public purposes. In addition, municipal bonds include
certain types of industrial development bonds that have been or may be issued by
or on behalf of public authorities to finance privately operated facilities.
General obligation bonds involve the credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues. Their payment
may be dependent upon an appropriation by the issuer's legislative body and may
be subject to quantitative limitations on the issuer's taxing power. Limited
obligation or revenue bonds are payable only from the revenues of a particular
facility or class of facilities or, in some cases, from the proceeds of a
specific revenue source, such as the user of the facility. Since the Fund
considers preservation of capital as well as the level of tax exempt income, the
Fund may realize less income than a fund willing to expose shareholders' capital
to greater risk.
The Tax Reform Act of 1986 made significant changes in the federal tax status
of certain obligations that were previously fully federally tax exempt. As a
result, three categories of such obligations issued after August 7, 1986 now
exist: (1) "public purpose" bonds, the income from which remains fully exempt
from federal income tax; (2) qualified "private activity" industrial development
bonds, the income from which, while exempt from federal income tax under Section
103 of the Internal Revenue Code (the "Code"), is includable in the calculation
of the federal alternative minimum tax; and (3) "private activity" (private
purpose) bonds, the income from which is not exempt from federal income tax. The
Fund will not invest in private activity (private purpose) bonds and, except as
described under "Other Eligible Securities," will not invest in qualified
"private activity" industrial development bonds.
The Fund invests in municipal bonds only if, at the date of investment, they
are rated within the four highest grades by Standard & Poor's Corporation
("S&P") (AAA, AA, A and BBB) or by Moody's Investors Service, Inc. ("Moody's")
(Aaa, Aa, A and Baa) or, if not rated or rated under a different system, are of
comparable quality to obligations so rated as determined by Keystone. Securities
rated Baa by Moody's may have some speculative characteristics.
While the Fund may invest in securities of any maturity, it is currently
expected that the Fund will not invest in securities (other than certain money
market securities) with maturities of more than 30 years or less than 5 years.
OTHER ELIGIBLE SECURITIES
The Fund may invest up to 20% of its assets under ordinary circumstances and
up to 100% of its assets for temporary defensive purposes in the following types
of instruments: (1) commercial paper, including master demand notes, that at the
date of investment is rated A-1, the highest grade given by S&P, PRIME-1, the
highest grade given by Moody's 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; (2) obligations, including certificates of deposit and
bankers' acceptances, of banks or savings and loan associations having at least
$1 billion in assets as of the date of their most recently published financial
statements that are members of the Federal Deposit Insurance Corporation,
including U.S. branches of foreign banks and foreign branches of U.S. banks; (3)
corporate obligations (maturing in 13 months or less) that at the date of
investment are rated A or better by S&P or Moody's; (4) obligations issued or
guaranteed by the U.S. government or by any agency or instrumentality of the
U.S.; and (5) qualified "private activity" industrial development bonds, the
income from which, while exempt from federal income tax under Section 103 of the
Code, is includable in the calculation of the federal alternative minimum tax.
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 and purchase call and put options, including
purchasing put or call options to close out existing positions, and may employ
new investment techniques with respect to such options. The Fund may also engage
in currency and other financial futures contracts and related options
transactions for hedging purposes and not for speculation and may employ new
investment techniques with respect to such futures contracts and related
options. In addition, the Fund may invest in obligations denominated in foreign
currencies that are exempt from federal income tax and may use subsequently
developed investment techniques that are related to any of its investment
policies.
In addition to the options and futures contracts mentioned above, only if it
is consistent with its investment objective, the Fund may also invest in certain
other types of "derivative instruments," including structured securities.
For further information about the types of investments and investment
techniques available to the Fund, including the associated risks, see the
section of this prospectus entitled "Additional Investment Information" and the
statement of additional information.
Of course, there can be no assurance that the Fund will achieve its investment
objective since there is uncertainty in every investment.
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVE
The investment objective of the Fund and the requirement that the Fund invest,
under ordinary circumstances, at least 80% of its assets in federally tax-exempt
obligations are fundamental and neither may be changed without the vote of a
majority of the Fund's outstanding shares (which means the lesser of (1) 67% of
the shares represented at a meeting at which more than 50% of the Fund's
outstanding shares are represented or (2) more than 50% of the outstanding
shares).
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental restrictions summarized below,
which may not be changed without the vote of a majority of the Fund's
outstanding shares. These restrictions and certain other fundamental and
nonfundamental restrictions are contained 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;
(2) borrow money or enter into reverse repurchase agreements, except that
the Fund may enter into reverse repurchase agreements or 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 (not including reverse repurchase agreements) exceed 5% of the Fund's
net assets, any such borrowings will be repaid before additional investments
are made;
(3) purchase any security (other than U.S. government securities) of any
issuer if as a result more than 25% of its total assets would be invested in a
single industry including industrial development bonds from the same facility
or similar types of facilities; governmental issuers of municipal bonds are
not regarded as members of an industry, and the Fund may invest more than 25%
of its assets in industrial development bonds; and
(4) invest more than 10% of its assets in securities with legal or
contractual restrictions on resale or in securities for which market
quotations are not readily available, or in repurchase agreements maturing in
more than seven days.
As a matter of practice, the Fund treats reverse repurchase agreements as
borrowings for purposes of compliance with the limitations of the 1940 Act.
Reverse repurchase agreements will be taken into account along with borrowings
from banks for purposes of the 5% limit set forth in the second investment
restriction above.
The foregoing is only a summary of the Fund's investment restrictions and
policies. See the statement of additional information for details and the full
text of the Fund's investment restrictions and related policies.
RISK FACTORS
Investing in the Fund involves the risk inherent to investing in any security,
i.e., net asset value will fluctuate in response to changes in economic
conditions, interest rates and the market's perception of the underlying
portfolio securities of the Fund.
The Fund's ability to achieve its objective depends partially on the prompt
payment by issuers of the interest on and principal of the municipal bonds held
by the Fund. A moratorium, default or other nonpayment of interest or principal
when due on any municipal bond, in addition to affecting the market value and
liquidity of that particular security, could affect the market value and
liquidity of other municipal bonds held by the Fund. In addition, the market for
municipal bonds is often thin and can be temporarily affected by large purchases
and sales, including those by the Fund.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal bonds, and similar proposals may well be introduced in the
future. If such a proposal were enacted, the availability of municipal bonds for
investment by the Fund and the value of the Fund's portfolio could be materially
affected. In which event, the Fund would reevaluate its investment objective and
policies and consider changes in the structure of the Fund or dissolution.
By itself, the Fund does not constitute a balanced investment program and is
not designed for investors seeking capital appreciation or maximum tax-exempt
income irrespective of fluctuations in principal or marketability. Shares of the
Fund would not be suitable for tax-exempt institutions and may not be suitable
for certain retirement plans that are unable to benefit from the Fund's
federally tax-exempt dividends. In addition, the Fund may not be an appropriate
investment for entities that are "substantial users" of facilities financed by
industrial development bonds or related persons thereof.
The market value of fixed income securities may vary inversely to changes in
prevailing interest rates.
If and when the Fund invests in zero coupon bonds, the Fund does not expect to
have enough zero coupon bonds to have a material effect on dividends. The Fund
has undertaken to a state securities authority to disclose that zero coupon
securities pay no interest to holders prior to maturity, and the interest on
these securities is reported as income to the Fund and distributed to its
shareholders. These distributions must be made from the Fund's cash assets or,
if necessary, from the proceeds of sales of portfolio securities. The Fund will
not be able to purchase additional income producing securities with cash used to
make such distributions and its current income ultimately may be reduced as a
result.
PRICING SHARES
The net asset value of a Fund share is computed each day on which the New York
Stock Exchange (the "Exchange") is open as of the close of trading on the
Exchange (currently 4:00 p.m. eastern time for the purpose of pricing Fund
shares) except on days when changes in the value of the Fund's portfolio
securities do not affect the current net asset value of its shares. The Exchange
currently is closed on weekends, New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of the Fund is arrived at by determining the value
of the Fund's assets, subtracting its liabilities and dividing the result by the
number of its shares outstanding.
The Fund values municipal bonds 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 and various relationships between
securities in determining value. The Fund values short-term investments with
maturities of sixty days or less when purchased at amortized cost (original
purchase cost as adjusted for amortization of premium or accretion of discount),
which, when combined with accrued interest, approximates market. Short-term
investments maturing in more than sixty days 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; and which in
any case reflects fair value as determined by the Fund's Board of Trustees. 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 Board of Trustees.
DIVIDENDS AND TAXES
The Fund intends to declare dividends from net investment income monthly and
to distribute to its shareholders such dividends monthly and to declare and
distribute all net realized long-term capital gains annually. All dividends and
distributions will be payable in shares or, at the option of the shareholder, in
cash. Shareholders who have not opted to receive cash prior to the record date
for any distribution will have the number of such shares determined on the basis
of the Fund's net asset value per share computed at the end of the day on the
record date after adjustment for the distribution. Net asset value is used in
computing the number of shares in both capital gains and income distribution
reinvestments. Account statements and/or checks as appropriate will be mailed to
shareholders within seven days after the Fund pays the distribution. Unless the
Fund receives instructions to the contrary from a shareholder before the record
date, it will assume that the shareholder wishes to receive that distribution
and future capital gains and income distributions in shares. Instructions
continue in effect until changed in writing.
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Code. The Fund qualifies if, among other things, it
distributes to its shareholders at least 90% of its net investment income for
its fiscal year. The Fund also intends to make timely distributions, if
necessary, sufficient in amount to avoid the nondeductible 4% excise tax imposed
on a regulated investment company 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 such distribution would be (1) declared in October,
November or December to shareholders of record in such a month, (2) paid by the
following January 31, and (3) includable in the taxable income of the
shareholder for the year in which such distributions were declared. If the Fund
qualifies 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.
Because Class A shares bear most of the costs of distribution of such shares
through payment of a front end sales charge while Class B and Class C shares
bear such expenses through a higher annual distribution fee, expenses
attributable to Class B shares and Class C shares will generally be higher.
The Fund expects that substantially all of its dividends will be "exempt
interest dividends," which will be treated by the shareholder as excludable from
federal gross income. In order to pay exempt interest dividends, at the close of
each quarter, at least 50% of the value of the Fund's assets must consist of
federally tax-exempt obligations. An exempt interest dividend is any dividend or
part thereof (other than a capital gain dividend) paid by the Fund with respect
to its net federally excludable municipal bond interest and designated as an
exempt interest dividend in a written notice mailed to each shareholder not
later than 60 days after the close of its taxable year. The percentage of the
total dividends paid by the Fund with respect to any taxable year that qualifies
as exempt interest dividends will be the same for all shareholders receiving
dividends with respect to such year. If you receive an exempt interest dividend
with respect to any share and such share is held for six months or less, any
loss on the sale or exchange of such share will be disallowed to the extent of
the exempt interest dividend amount.
Any shareholder who may be a "substantial user" of a facility financed with an
issue of tax- exempt obligations or a "related person" to such a user should
consult his tax adviser concerning his qualification to receive exempt interest
dividends should the Fund hold obligations financing such facility.
Under the Tax Reform Act of 1986, interest on certain "private activity bonds"
issued after August 7, 1986, although otherwise tax exempt, is treated as a tax
preference item for alternative minimum tax purposes. Under regulations to be
promulgated, the Fund's exempt interest dividends will be treated the same way
to the extent attributable to interest paid on such private activity bonds.
Corporate shareholders should also be aware that the receipt of exempt interest
dividends could subject them to alternative minimum tax under the provisions of
Section 56(g) of the Code.
Some or all of the Fund's exempt interest dividends may be subject to state
income taxes. The Fund will report to shareholders on a state by state basis the
sources of its exempt interest dividends.
Since none of the Fund's income will consist of corporate dividends, no
distributions will qualify for the corporate dividends received deduction.
The Fund intends to distribute its net capital gains as capital gain
dividends; such dividends are treated by shareholders as long-term capital
gains. Such distributions will be designated as capital gain dividends by a
written notice mailed to each shareholder no later than 60 days after the close
of the Fund's taxable year. If a shareholder receives a capital gain dividend
and holds his shares for six months or less, then any allowable loss on
disposition of such shares will be treated as a long-term capital loss to the
extent of such capital gain dividend.
Interest on indebtedness incurred or continued by shareholders to purchase or
carry shares of the Fund will not be deductible for federal income tax purposes
to the extent of the portion of the interest expense relating to exempt interest
dividends; that portion is determined by multiplying the total amount of
interest paid or accrued on the indebtedness by a fraction, the numerator of
which is the exempt interest dividends received by a shareholder in his taxable
year and the denominator of which is the sum of the exempt interest dividends
and the taxable distributions out of the Fund's investment income and long-term
capital gains received by the shareholder.
The Fund may acquire an option to "put" specified securities to municipal bond
dealers or issuers from whom the securities are purchased. It is expected that
the Fund will be treated for federal income tax purposes as the owner of the
municipal bonds acquired subject to the put. The interest on the municipal bonds
will be tax exempt to the Fund, and the purchase prices must be allocated
between such securities and the put based upon their respective fair market
values. The Internal Revenue Service has not issued a published ruling on this
matter and could reach a different conclusion.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Fund and its shareholders. No attempt is made to present
a detailed explanation of the federal income tax treatment of the Fund or its
shareholders, and this discussion is not intended as a substitute for careful
tax planning. Accordingly, potential investors in the Fund are urged to consult
their tax advisers with specific reference to their own tax situation.
As mentioned above, at the end of each quarter, at least 50% of the value of
the Fund's assets must be invested in municipal bonds in order for distributions
to qualify as exempt interest dividends. Under particularly unusual
circumstances, such as when the Fund is in a prolonged defensive investment
position, it is possible that no portion of the Fund's distributions of income
to its shareholders for a fiscal year would be exempt from federal income tax;
however, the Fund does not presently anticipate that such unusual circumstances
will occur.
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 Board of Trustees, Keystone
Management, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034,
serves as investment manager to the Fund and is responsible for the overall
management of the Fund's business and affairs.
INVESTMENT MANAGER
Keystone Management, the Fund's investment manager, organized in 1989, is a
wholly-owned subsidiary of Keystone. Its directors and principal executive
officers have been affiliated with Keystone, a seasoned investment adviser, for
a number of years. Keystone Management also serves as investment manager to most
of the other, Keystone America Funds and to certain other funds in the Keystone
Group of Mutual Funds.
Pursuant to its Investment Management Agreement with the Fund (the "Management
Agreement"), Keystone Management has delegated its investment management
functions, except for certain administrative and management services, to
Keystone and has entered into an Investment Advisory Agreement with Keystone
(the "Advisory Agreement") under which Keystone provides investment advisory and
management services to the Fund. Services performed by Keystone Management
include (1) performing research and planning with respect to (a) the Fund's
qualification as a regulated investment company under Subchapter M of the Code,
(b) tax treatment of the Fund's portfolio investments, (c) tax treatment of
special corporate actions (such as reorganizations), (d) state tax matters
affecting the Fund, and (e) the Fund's distributions of income and capital
gains; (2) preparing the Fund's federal and state tax returns; (3) providing
services to the Fund's shareholders in connection with federal and state
taxation and distributions of income and capital gains; and (4) storing
documents relating to the Fund's activities.
The Fund pays Keystone Management a fee for its services at the annual rate
set forth below:
Aggregate Net Asset
Management Value of the Shares
Fee 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
computed as of the close of business each business day and paid or accrued
daily. During the fiscal year ended November 30, 1994, the Fund paid or accrued
to Keystone Management investment management and administrative services fees of
$1,005,305, which represented 0.61% of the Fund's average net assets. Of such
amount paid to Keystone Management, $854,509 was paid to Keystone for its
services to the Fund.
INVESTMENT ADVISER
Keystone, the Fund's investment adviser, located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034, has provided investment advisory and
management services to investment companies and private accounts since it was
organized in 1932. Keystone is a wholly-owned subsidiary of Keystone Group, Inc.
("Keystone Group"), 200 Berkeley Street, Boston, Massachusetts 02116- 5034.
Keystone Group is a corporation predominantly owned by current and former
members of management of Keystone and its affiliates. The shares of Keystone
Group common stock beneficially owned by management are held in a number of
voting trusts, the trustees of which are George S. Bissell, Albert H. Elfner,
III, Edward F. Godfrey and Ralph J. Spuehler, Jr. Keystone Group provides
accounting, bookkeeping, legal, personnel and general corporate services to
Keystone Management, Keystone, their affiliates and the Keystone Group of Mutual
Funds.
Pursuant to the Advisory Agreement, Keystone receives for its services an
annual fee representing 85% of the management fee received by Keystone
Management under the Management Agreement.
The Management Agreement and the Advisory Agreement continue in effect from
year to year only so long as such continuance is specifically approved at least
annually by the Board of Trustees or by vote of a majority of the outstanding
shares of the Fund. In either case, the terms of the Management Agreement and
the Advisory Agreement and continuance thereof must be approved by the vote of a
majority of the Fund's Independent Trustees 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 Board of Trustees
of the Fund, Keystone Management or Keystone, or by a vote of the shareholders
of the Fund. The Management Agreement and the Advisory Agreement will terminate
automatically upon assignment.
Keystone, Keystone Management and the Fund have each adopted a Code of Ethics
incorporating policies on personal securities trading as recommended by the
Investment Company Institute.
FUND EXPENSES
The Fund will pay all of its expenses. In addition to the investment advisory
and management fees discussed above, the principal expenses that the Fund is
expected to pay include expenses relating to certain of its Trustees, its
transfer, dividend disbursing and shareholder servicing agent, its custodian,
its independent auditors and legal counsel to its Board of Trustees; fees
payable to government agencies, including registration and qualification fees of
the Fund and its shares under federal and state securities laws; and certain
extraordinary expenses. In addition, each class will pay all of the expenses
attributable to it. Such expenses are currently limited to Distribution Plan
expenses. The Fund also pays its brokerage commissions, interest charges and
taxes.
For the fiscal year ended November 30, 1994, the Fund's Class A shares paid
1.13% of average net assets in expenses. For the fiscal year ended November 30,
1994, the Fund's Class B and Class C shares paid 1.88% and 1.89%, respectively,
of average net assets in expenses.
During the fiscal year ended November 30, 1994, the Fund paid or accrued to
Keystone Investor Resource Center, Inc. ("KIRC"), the Fund's transfer and
dividend disbursing agent, and Keystone Group $18,676 as reimbursement for
certain accounting and printing services and paid or accrued to KIRC $232,940
for shareholder services. KIRC is a wholly-owned subsidiary of Keystone.
PORTFOLIO MANAGER
Betsy A. Blacher has been the Fund's Portfolio Manager since 1991. She is a
Keystone Vice President and Senior Portfolio Manager and has more than 15 years
of investment experience.
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 follow a policy of considering as a factor the number of shares of
the Fund sold by the broker-dealer. In addition, broker-dealers may, from time
to time, be affiliated with the Fund, Keystone, the Fund's principal underwriter
or their affiliates.
The Fund may pay higher commissions to broker-dealers that provide research
services. Keystone may use these services in advising the Fund as well as in
advising its other clients.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rates for the fiscal years ended November 30,
1994, 1993 and 1992 were 98%, 47% and 32%, respectively. High portfolio turnover
may involve correspondingly greater brokerage commissions and other transaction
costs, which would be borne directly by the Fund, as well as additional gains
and/or losses to shareholders. For additional information about brokerage and
distributions, see the statement of additional information to this prospectus.
HOW TO BUY SHARES
Shares of the Fund may be purchased from any broker-dealer that has a selling
agreement with Keystone Distributors, Inc. ("KDI"), the Fund's principal
underwriter. KDI, a wholly-owned subsidiary of Keystone, is located at 200
Berkeley Street, Boston, Massachusetts 02116-5034.
In addition, you may open an account for the purchase of shares of the Fund by
mailing to the Fund, c/o KIRC, P.O. Box 2121, Boston, Massachusetts 02106- 2121,
a completed account application and a check payable to the Fund. Or, you may
telephone 1-800-343-2898 to obtain the number of an account to which you can
wire or electronically transfer funds and then send in a completed account
application. Subsequent investments in Fund shares in any amount may be made by
check, by wiring federal funds or by an electronic funds transfer ("EFT").
Orders for the purchase of Fund shares will be confirmed at the offering price
equal to the net asset value per share next determined after receipt of the
order in proper form by KDI (generally as of the close of the Exchange on that
day) plus, in the case of Class A shares, the applicable sales charge. Orders
received by dealers or other firms prior to the close of the Exchange and
received by KDI prior to the close of its business day will be confirmed at the
offering price effective as of the close of the Exchange on that day. The Fund
reserves the right to determine the net asset value more frequently than once a
day if deemed desirable. Dealers and other financial services firms are
obligated to transmit orders promptly.
Orders for shares received other than as stated above will receive the
offering price equal to the net asset value per share next determined (generally
the next business day's offering price) plus, in the case of Class A shares, the
applicable sales charge.
The initial purchase must be at least $1,000 for Class A, Class B and Class C
shares. There is no minimum amount for subsequent purchases.
The Fund reserves the right to withdraw all or any part of the offering made
by this prospectus and to reject purchase orders.
Shareholder inquiries should be directed to KIRC by calling toll free 1-800-
343-2898 or writing to KIRC or to the firm from which you received this
prospectus.
ALTERNATIVE SALES OPTIONS
The Fund offers three classes of shares:
CLASS A SHARES -- FRONT END LOAD OPTION
Class A shares are sold with a sales charge at the time of purchase. Class A
shares are not subject to a sales charge when they are redeemed (except that
shares sold in a single purchase in excess of $1,000,000 without a front end
sales charge will be subject to a contingent deferred sales charge for one
year).
CLASS B SHARES -- BACK END LOAD OPTION
Class B shares are sold without a sales charge at the time of purchase, but
are subject to a deferred sales charge if they are redeemed during the calendar
year of purchase or within three calendar years after the calendar year of
purchase. Class B shares will automatically convert to Class A shares at the end
of seven calendar years after purchase.
CLASS C SHARES -- LEVEL LOAD OPTION
Class C shares are sold without a sales charge at the time of purchase, but
are subject to a deferred sales charge if they are redeemed within one year
after the date of purchase. Class C shares are available only through dealers
who have entered into special distribution agreements with KDI.
Each class of shares, pursuant to its respective Distribution Plan, pays an
annual service fee of 0.25% of the Fund's average daily net assets attributable
to that class. In addition to the 0.25% service fee, the Class B and C
Distribution Plans provide for the payment of an annual distribution fee of up
to 0.75% of the average daily net assets attributable to their respective
classes.
Investors who would rather pay the entire cost of distribution at the time of
investment, rather than spread the cost over time, might consider Class A
shares. Other investors might consider Class B or Class C shares, depending on
the amount of the purchase and the intended length of investment; in which case,
100% of the purchase price is invested immediately. The Fund will not normally
accept any purchase of Class B shares in the amount of $250,000 or more and will
not normally accept any purchase of Class C shares in the amount of $1,000,000
or more.
--------------------------------------
CLASS A SHARES
Class A shares are offered at net asset value plus an initial sales charge as
follows:
AS A % OF CONCESSION TO
AS A % OF NET AMOUNT DEALERS AS A % OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED* AMOUNT INVESTED
--------------------------------------------------------------------------------
Less than $100,000 4.75% 4.99% 4.25%
$100,000 but less than
$250,000 3.75% 3.90% 3.25%
$250,000 but less than
$500,000 2.50% 2.56% 2.25%
$500,000 but less than
$1,000,000 1.50% 1.52% 1.50%
$1,000,000 and over** 0% 0% 0.25%
*Rounded to the nearest one-hundredth percent.
**Purchases of $1,000,000 or more may be subject to a contingent deferred sales
charge of 0.25%. See the "Calculation of Contingent Deferred Sales Charge and
Waiver of Sales Charges" section of this prospectus.
The sales charge is paid to KDI, which, in turn, normally reallows a portion
to your broker-dealer. In addition, your broker-dealer currently will be paid
periodic service fees at an annual rate of up to 0.25% of the average daily net
asset value of outstanding shares of Class A maintained by such recipient
outstanding on the books of the Fund for specified periods.
Upon written notice to dealers with whom it has dealer agreements, KDI may
reallow up to the full applicable sales charge.
Initial sales charges may be eliminated for persons purchasing Class A shares
to be included in a managed fee based program (a "wrap account") through broker
dealers who have entered into special agreements with KDI. Initial sales charges
may be reduced or eliminated for persons or organizations purchasing Class A
shares of the Fund alone or in combination with Class A shares of other Keystone
America Funds. See Exhibit A to this prospectus.
Beginning January 1, 1995 through June 30, 1995 ("offering period") and upon
prior notification to KDI, Class A shares may be purchased at net asset value by
clients of registered representatives within six months after the redemption of
shares of any registered open-end investment company not distributed or managed
by KDI or its affiliates, where the amount invested represents redemption
proceeds from such unrelated registered open-end investment company, and the
shareholder either (1) paid a front end sales charge, or (2) was at some time
subject to, but did not actually pay, a contingent deferred sales charge with
respect to the redemption proceeds.
In addition, upon prior notification to KDI, Class A shares may be purchased
at net asset value by clients of registered representatives within six months
after a change in the registered representative's employment, where the amount
invested represents redemption proceeds from a registered open-end management
investment company not distributed or managed by KDI or its affiliates; and the
shareholder either (1) paid a front end sales charge, or (2) was at some time
subject to, but did not actually pay, a contingent deferred sales charge with
respect to the redemption proceeds.
With certain exceptions, purchases of Class A shares in the amount of
$1,000,000 or more on which no sales charge has been paid will be subject to a
contingent deferred sales charge of 0.25% upon redemption during the one year
period commencing on the date the shares were originally purchased. The
contingent deferred sales charge is retained by KDI. See "Contingent Deferred
Sales Charges and Waiver of Sales Charges" below.
CLASS A DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class A shares
(the "Class A Distribution Plan") that provides for expenditures, currently
limited to 0.25% annually of the average daily net asset value of Class A
shares, to pay expenses associated with the distribution of Class A shares.
Amounts paid by the Fund to KDI under the Class A Distribution Plan are
currently used to pay others, such as dealers, service fees at an annual rate of
up to 0.25% of the average daily net asset value of Class A shares maintained by
such recipients outstanding on the books of the Fund for specified periods.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales
charge. With certain exceptions, the Fund may impose a deferred sales charge of
3.00% on shares redeemed during the calendar year of purchase and the first
calendar year after the year of purchase; 2.00% on shares redeemed during the
second calendar year after the year of purchase; and 1.00% on shares redeemed
during the third calendar year after the year of purchase. No deferred sales
charge is imposed on amounts redeemed thereafter. If imposed, the deferred sales
charge is deducted from the redemption proceeds otherwise payable to you. The
deferred sales charge is retained by KDI. Amounts received by KDI under the
Class B Distribution Plan are reduced by deferred sales charges retained by KDI.
See "Contingent Deferred Sales Charges and Waiver of Sales Charges" below.
Class B shares that have been outstanding during seven calendar years will
automatically convert to Class A shares, which are subject to a lower
Distribution Plan charge, without imposition of a front end sales charge or
exchange fee. (Conversion of Class B shares represented by stock certificates
will require the return of the stock certificates to KIRC.) The Class B shares
so converted will no longer be subject to the higher expenses borne by Class B
shares. Because the net asset value per share of the Class A shares may be
higher or lower than that of the Class B shares at the time of conversion
(although the dollar value will be the same), a shareholder may receive more or
less Class A shares than the number of Class B shares converted. Under current
law, it is the Fund's opinion that such a conversion will not constitute a
taxable event under federal income tax law. In the event that this ceases to be
the case, the Board of Trustees will consider what action, if any, is
appropriate and in the best interests of the Class B shareholders.
CLASS B DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class B shares
("Class B Distribution Plan") that provides for expenditures at an annual rate
of up to 1.00% of the average daily net asset value of Class B shares to pay
expenses of the distribution of Class B shares. Payments under the Class B
Distribution Plan are currently made to KDI (which may reallow all or part to
others, such as dealers) (1) as commissions for Class B shares sold and (2) as
shareholder service fees. Amounts paid or accrued to KDI under (1) and (2) in
the aggregate may not exceed the annual limitation referred to above. KDI
generally reallows to brokers or others a commission equal to 3% of the price
paid for each Class B share sold as well as a shareholder service fee at the
rate of 0.25% per annum of the net asset value of Class B shares maintained by
such recipients outstanding on the books of the Fund for specified periods. See
"Distribution Plans" below.
CLASS C SHARES
Class C shares are available only through dealers who have special dealer
agreements with KDI. Class C shares are offered at net asset value, without an
initial sales charge. With certain exceptions, the Fund may impose a deferred
sales charge of 1.00% on shares redeemed within one year after the date of
purchase. No deferred sales charge is imposed on amounts redeemed thereafter. If
imposed, the deferred sales charge is deducted from the redemption proceeds
otherwise payable to you. The deferred sales charge is retained by KDI. See
"Contingent Deferred Sales Charges and Waiver of Sales Charges" below.
CLASS C DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class C shares
("Class C Distribution Plan") that provides for expenditures at an annual rate
of up to 1.00% of the average daily net asset value of Class C shares to pay
expenses of the distribution of Class C shares. Payments under the Class C
Distribution Plan are currently made to KDI (which may reallow all or part to
others, such as dealers) (1) as commissions for Fund shares sold and (2) as
shareholder service fees. Amounts paid or accrued to KDI under (1) and (2) in
the aggregate may not exceed the annual limitation referred to above. KDI
generally reallows to brokers or others a commission in the amount of 0.75% of
the price paid for each Class C share sold, plus the first year's service fee in
advance in the amount of 0.25% of the price paid for each Class C share sold,
and, beginning approximately fifteen months after purchase, a commission at an
annual rate of 0.75% (subject to NASD rules -- see "Distribution Plans") plus
service fees at an annual rate of 0.25%, respectively, of the average daily net
asset value of Class C shares maintained by such recipients outstanding on the
books of the Fund for specified periods. See "Distribution Plans" below.
CONTINGENT DEFERRED SALES CHARGE AND WAIVER OF SALES CHARGES
Any contingent deferred sales charge imposed upon the redemption of Class A,
Class B or Class C shares is a percentage of the lesser of (1) the net asset
value of the shares redeemed or (2) the net cost of such shares. No contingent
deferred sales charge is imposed when you redeem amounts derived from (1)
increases in the value of your account above the net cost of such shares due to
increases in the net asset value per share of the Fund; (2) certain shares with
respect to which the Fund did not pay a commission on issuance, including shares
acquired through reinvestment of dividend income and capital gains
distributions; (3) Class C shares and certain Class A shares held for more than
one year from the date of purchase; or (4) Class B shares held during more than
four consecutive calendar years. Upon request for redemption, shares not subject
to the contingent deferred sales charge will be redeemed first. Thereafter,
shares held the longest will be the first to be redeemed.
The Fund may also sell Class A, Class B or Class C shares at net asset value
without any initial sales charge or a contingent deferred sales charge to
certain Directors, Trustees, officers and employees of the Fund and Keystone and
certain of their affiliates; registered representatives of firms with dealer
agreements with KDI; and a bank or trust company acting as a trustee for a
single account.
In addition, no contingent deferred sales charge is imposed on a redemption of
shares of the Fund in the event of (1) death or disability of the shareholder;
(2) a lump-sum distribution from a 401(k) plan or other benefit plan qualified
under the Employee Retirement Income Security Act of 1974 ("ERISA"); (3)
automatic withdrawals from ERISA plans if the shareholder is at least 5912 years
old; (4) involuntary redemptions of accounts having an aggregate net asset value
of less than $1,000; or (5) automatic withdrawals under an automatic withdrawal
plan of up to 1.5% per month of the shareholder's initial account balance.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
From time to time, KDI may provide promotional incentives, including
reallowance of up to the entire sales charge, to certain dealers whose
representatives have sold or are expected to sell significant amounts of the
Fund. In addition, dealers may, from time to time, receive additional cash
payments. KDI may provide written information to dealers with whom it has dealer
agreements that relates to sales incentive campaigns conducted by such dealers
for their representatives as well as financial assistance in connection with
pre-approved seminars, conferences and advertising. No such programs or
additional compensation will be offered to the extent they are prohibited by the
laws of any state or any self-regulatory agency, such as the NASD. Dealers to
whom substantially the entire sales charge on Class A shares is reallowed may be
deemed to be underwriters as that term is defined under the Securities Act of
1933.
KDI may, at its own expense, pay concessions in addition to those described
above to dealers that satisfy certain criteria established from time to time by
KDI. These conditions relate to increasing sales of shares of the Keystone funds
over specified periods and certain other factors. Such payments may, depending
on the dealer's satisfaction of the required conditions, be up to 0.25% of the
value of shares sold by such dealer.
KDI may also pay a transaction fee (up to the level of payment allowed to
dealers for the sale of shares, as described above) to banks and other financial
services firms that facilitate transactions in shares of the Fund for their
clients. The Glass-Steagall Act currently limits the ability of a depository
institution (such as a commercial bank or a savings and loan association) to
become an underwriter or distributor of securities. In the event the
Glass-Steagall Act is deemed to prohibit depository institutions from accepting
payments under the arrangement described above, or should Congress relax current
restrictions on depository institutions, the Board of Trustees will consider
what action, if any, would be appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
DISTRIBUTION PLANS
The Fund bears some of the costs of selling its shares under Distribution
Plans adopted with respect to its Class A, Class B and Class C shares pursuant
to Rule 12b-1 under the 1940 Act. Payments under the Class A Distribution Plan
are currently limited to up to 0.25% annually of the average daily net asset
value of Class A shares. The Class B Distribution Plan and the Class C
Distribution Plan provide for expenditures at an annual rate of up to 1.00% of
the average daily net asset value of Class B shares and Class C shares,
respectively.
The NASD limits the amount that a fund may pay annually in distribution costs
for sale of its shares and shareholder service fees. NASD rules limit annual
expenditures to 1% of the aggregate average daily net asset value of a fund's
shares, of which 0.75% may be used to pay such distribution costs and 0.25% may
be used to pay shareholder service fees. The NASD rules also limit the aggregate
amount that the Fund may pay for such distribution costs to 6.25% of gross share
sales since the inception of the 12b-1 Distribution Plan, plus interest at the
prime rate plus 1% on such amounts (less any contingent deferred sales charges
paid by shareholders to KDI).
KDI intends, but is not obligated, to continue to pay or accrue distribution
charges incurred in connection with the Class B Distribution Plan that exceed
current annual payments permitted to be received by KDI from the Fund. KDI
intends to seek full payment of such charges from the Fund (together with annual
interest thereon at the prime rate plus one percent) at such time in the future
as, and to the extent that, payment thereof by the Fund would be within the
permitted limits. If the Fund's Independent Trustees authorize such payments,
the effect would be to extend the period of time during which the Fund incurs
the maximum amount of costs allowed by each Distribution Plan. If a Distribution
Plan is terminated, KDI will ask the Independent Trustees to take whatever
action they deem appropriate under the circumstances with respect to payment of
such amounts.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class.
Unreimbursed distribution expenses under the Class B Distribution Plan at
November 30, 1994 were $1,996,948 (6.92% of Class B net assets). Unreimbursed
distribution expenses under the Class C Distribution Plan at November 30, 1994
were $2,087,302 (8.99% of Class C net assets).
For the year ended November 30, 1994, the Fund paid KDI $269,046, $241,979 and
$279,001 pursuant to its Class A, Class B and Class C Distribution Plans,
respectively.
Dealers or others may receive different levels of compensation depending on
which class of shares they sell. Payments pursuant to a Distribution Plan are
included in the operating expenses of the class.
HOW TO REDEEM SHARES
Fund shares may be redeemed for cash at their redemption value upon written
order sent by you to the Fund, c/o Keystone Investor Resource Center, Inc.
("KIRC"), and presentation to the Fund of a properly endorsed share certificate
if certificates have been issued. Your signature(s) on the written order and
certificates must be guaranteed as described below. The redemption value is 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. In order to redeem by telephone you
must have completed the authorization in your account application.
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 with a certified check or by
bank wire of funds or EFT. Although the mailing of a redemption check or 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 check has been delayed, the check will
be mailed promptly after good payment has been collected.
The Fund computes the redemption value at the close of the Exchange at the end
of the day on which it has received all proper documentation from you. Payment
of the amount due on redemption, less any applicable deferred sales charge, will
be made within seven days thereafter except as discussed herein.
You may also redeem your shares through broker-dealers. KDI, acting as agent
for the Fund, stands ready to repurchase Fund shares upon orders from dealers at
the redemption value described above computed on the day KDI receives the order.
KDI will pay the redemption proceeds, less any applicable deferred sales charge,
to the broker-dealer placing the order within seven days thereafter assuming it
has received proper documentation. KDI charges no fees for this service, but
your broker-dealer may do so.
For your protection, SIGNATURES ON CERTIFICATES, STOCK POWERS AND ALL WRITTEN
ORDERS OR AUTHORIZATIONS MUST BE GUARANTEED BY A U.S. STOCK EXCHANGE MEMBER, A
BANK OR OTHER PERSONS ELIGIBLE TO GUARANTEE SIGNATURES UNDER THE SECURITIES
EXCHANGE ACT OF 1934 AND KIRC'S POLICIES. The Fund and KIRC may waive this
requirement, but may also require additional documents in certain cases.
Currently, the requirement for a signature guarantee has been waived on
redemptions of $50,000 or less where the account address of record has been the
same for a minimum period of 30 days. The Fund and KIRC reserve the right to
withdraw this waiver at any time.
If the Fund receives a redemption order, but you have not clearly indicated
the amount of money or number of shares involved, the Fund cannot execute the
order. In such cases, the Fund will request the missing information from you and
process the order on the day such information is received.
TELEPHONE
Under ordinary circumstances, you may redeem up to $50,000 from your account
by telephone by calling toll free 1-800-343-2898. 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 KIRC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation of
your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days. If you cannot reach the Fund by telephone, you should follow the
procedures for redeeming by mail or through a broker as set forth above.
SMALL ACCOUNTS
Because of the high cost of maintaining small accounts, the Fund reserves the
right to redeem your account if its value has fallen below $1,000, the current
minimum investment level, as a result of your redemptions (but not as a result
of market action). You will be notified in writing and allowed 60 days to
increase the value of your account to the minimum investment level. No deferred
sales charges are applied to such redemptions.
REDEMPTIONS IN KIND
If conditions arise that would make it undesirable for the Fund to pay for all
redemptions in cash, the Fund may authorize payment to be made in portfolio
securities or other property. The Fund has obligated itself, however, under the
1940 Act to redeem for cash all shares presented for redemption by any one
shareholder in any 90-day period up to the lesser of $250,000 or 1% of the
Fund's net assets. Securities delivered in payment of redemptions would be
valued at the same value assigned to them in computing the net asset value per
share. Shareholders receiving such securities would incur brokerage costs when
these securities are sold.
REDEMPTION OF CERTAIN CLASS A SHARES
Certain purchases of Class A shares in the amount of $1,000,000 or more, on
which no initial sales charge has been paid, are subject to a contingent
deferred sales charge of 0.25%. See the section entitled "Class A Shares."
GENERAL
The Fund reserves the right at any time to terminate, suspend or change the
terms of any redemption method described in this prospectus, except redemption
by mail, and to impose fees.
Except as otherwise noted, neither the Fund, KIRC nor KDI assumes
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Keystone Automated Response Line
("KARL") or by telephone. KIRC will employ reasonable procedures to confirm that
instructions received over KARL or by telephone are genuine. Neither the Fund,
KIRC nor KDI will be liable when following instructions received over KARL or by
telephone that KIRC reasonably believes to be genuine.
The Fund may temporarily suspend the right to redeem its shares when (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission so orders.
SHAREHOLDER SERVICES
Details on all shareholder services may be obtained from KIRC by writing or by
calling toll free 1-800-343-2898.
KEYSTONE AUTOMATED RESPONSE LINE
The Keystone Automated Response Line 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 shares of
the Fund for shares of certain other Keystone America Funds and Keystone Liquid
Trust ("KLT") as follows:
Class A shares may be exchanged for Class A shares of other Keystone America
Funds and Class A shares of KLT;
Class B shares may be exchanged for Class B shares of other Keystone America
Funds and Class B shares of KLT; and
Class C shares may be exchanged for Class C shares of other Keystone America
Funds and Class C shares of KLT. The exchange of Class B shares and Class C
shares will not be subject to a contingent deferred sales charge. However, if
the shares being tendered for exchange are
(1) Class A shares where the original purchase was for $1,000,000 or more
and no sales charge was paid,
(2) Class B shares that have been held for less than four years, or
(3) Class C shares that have been held for less than one year,
and are still subject to a deferred sales charge, such charge will carry over to
the shares being acquired in the exchange transaction.
You may exchange shares by calling KIRC at1-800-343-2898, by writing KIRC or
by calling KARL at 1-800-346-3858. However, you must complete the Telephone
Exchanges section of the application to enjoy the telephone exchange privileges.
Shares purchased by check are eligible for exchange after 15 days. There is a
$10.00 fee for each exchange, except that there is no fee for exchange orders
received by the Fund directly from an individual shareholder using KARL. If the
shares being tendered for exchange have been held for less than four years and
are still subject to a deferred sales charge, such charge will carry over to the
shares being acquired in the exchange transaction. The Fund reserves the right,
after 60 days' notice to shareholders, to terminate this exchange offer,
including the right to change the fee for each exchange.
Orders to exchange shares of the Fund for shares of KLT will be executed by
redeeming the shares of the Fund and purchasing shares of KLT at the net asset
value of KLT shares next determined after the proceeds from such redemption
become available, which may be up to seven days after such redemption. In all
other cases, orders for exchanges received by the Fund prior to 4:00 p.m.
eastern time on any day the funds are open for business will be executed at the
respective net asset values determined as of the close of business that day.
Orders for exchanges received after 4:00 p.m. 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. Exchanges are subject to the minimum initial purchase requirements of
the fund being acquired. An exchange constitutes a sale for federal income tax
purposes.
The exchange privilege is available only in states where shares of the fund
being acquired may legally be sold.
KEYSTONE AMERICA MONEY LINE
Keystone America Money Line eliminates the delay of mailing a check or the
expense of wiring funds. You must request the service on your application.
Keystone America Money Line allows you to authorize electronic transfers of
money to purchase shares in any amount and to redeem up to $50,000 worth of
shares. You can use Keystone America Money Line like an "electronic check" to
move money between your bank account and your account in the Fund with one
telephone call. You must allow two business days after the call for the transfer
to take place. For money recently invested, you must allow normal check clearing
time before redemption proceeds are sent to your bank.
You may also arrange for systematic monthly or quarterly investments in your
Keystone America account. Once proper authorization is given, your bank account
will be debited to purchase shares in the Fund. You will receive confirmation
from KDI for every transaction.
To change the amount of a Keystone America Money Line or terminate the service
(which could take up to 30 days), you must write to KIRC, P.O. Box 2121, Boston,
Massachusetts 02106-2121, and include your account number.
AUTOMATIC WITHDRAWAL PLAN
Under an Automatic Withdrawal Plan, if your account has a value of at least
$10,000, you may arrange for regular monthly or quarterly fixed withdrawal
payments. Each payment must be at least $100 and may be as much as 1.5% per
month or 4.5% per quarter of the total net asset value of the Fund shares in
your account when the Automatic Withdrawal Plan is opened. Fixed withdrawal
payments are not subject to a deferred sales charge. Excessive withdrawals may
decrease or deplete the value of your account. Because of the effect of the
applicable sales charge, a Class A investor should not make continuous purchases
of the Fund's shares while participating in an Automatic Withdrawal Plan.
DOLLAR COST AVERAGING
Through dollar cost averaging you can invest a fixed dollar amount each month
or each quarter in any Keystone America Fund. This results in more shares being
purchased when the selected fund's net asset value is relatively low and fewer
shares being purchased when the fund's net asset value is relatively high, which
may cause a lower average cost per share than a less systematic investment
approach.
Prior to participating in dollar cost averaging, you must have established an
account in a Keystone America Fund or a money market fund managed or advised by
Keystone. You should designate on the application the dollar amount of each
monthly or quarterly investment (minimum $100) you wish to make and the fund in
which the investment is to be made. Thereafter, on the first day of the
designated month an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund. If you are a Class A investor and paid a sales
charge on your initial purchase, the shares purchased will be eligible for
Rights of Accumulation and the sales charge applicable to the purchase, will be
determined accordingly. In addition, the value of shares purchased will be
included in the total amount required to fulfill a Letter of Intent. If a sales
charge was not paid on the initial purchase, a sales charge will be imposed at
the time of subsequent purchases, and the value of shares purchased will become
eligible for Rights of Accumulation and Letters of Intent.
TWO DIMENSIONAL INVESTING
You may elect to have income and capital gains distributions from any of your
Keystone America Funds automatically invested to purchase Class A shares of any
other Keystone America Fund. You may select this service on 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 at current net asset value.
PERFORMANCE DATA
From time to time, the Fund may advertise "total return," "current yield" and
a "tax equivalent yield." ALL FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. Total return and yield are computed
separately for each class of shares of the Fund. Total return refers to the
Fund's average annual compounded rates of return over specified periods
determined by comparing the initial amount invested to the ending redeemable
value of that amount. The resulting equation assumes reinvestment of all
dividends and distributions and deduction of the sales charge and all recurring
charges, if any, applicable to all shareholder accounts. The deduction of the
contingent deferred sales charge is reflected in the applicable years. 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.
Tax equivalent yield is, in general, the current yield divided by a factor
equal to one minus a stated income tax rate and reflects the yield a taxable
investment would have to achieve in order to equal on an after-tax basis a tax
exempt yield.
The Fund may include comparative performance information and general mutual
fund industry information for each class of shares when advertising or marketing
the Fund's shares, such as data from Lipper Analytical Services, Inc.,
Morningstar, Inc., CDS-Weisenberger and Value Line or other financial and
industry publications.
FUND SHARES
The Fund currently issues three classes of shares, which participate in
dividends and distributions and have equal voting, liquidation and other rights
except that (1) expenses related to the distribution of each class of shares or
other expenses that the Board of Trustees may designate as class expenses, from
time to time, are borne solely by each class; (2) each class of shares has
exclusive voting rights with respect to its Distribution Plan; (3) each class
has different exchange privileges; and (4) each class has a different
designation.
Shareholders are entitled to one vote for each full share owned and fractional
votes for fractional shares. Shares of the Fund vote together except when
required by law to vote separately by class. The Fund does not have annual
meetings. The Fund will have special meetings, from time to time, as required
under its Declaration of Trust and under the 1940 Act. As provided in the Fund's
Declaration of Trust, shareholders have the right to remove Trustees by an
affirmative vote of two-thirds of the outstanding shares. A special meeting of
the shareholders will be held when 10% of the outstanding shares request a
meeting for the purpose of removing a Trustee. The Fund is prepared to assist
shareholders in communications with one another for the purpose of convening
such meeting as prescribed by Section 16(c) of the 1940 Act.
Under Massachusetts law, it is possible that a Fund shareholder may be held
personally liable for the Fund's obligations. The Fund's Declaration of Trust
provides, however, that shareholders shall not be subject to any personal
liability for the Fund's obligations and provides indemnification from Fund
assets for any shareholder held personally liable for the Fund's obligations.
The Fund is authorized to issue additional classes or series of shares.
ADDITIONAL INFORMATION
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1515, is a
wholly-owned subsidiary of Keystone. As previously mentioned, KIRC serves as the
Fund's transfer agent and dividend disbursing agent.
When the Fund determines from its records that more than one account in the
Fund is registered in the name of a shareholder or shareholders having the same
address, upon notice to those shareholders, the Fund intends, when an annual
report or a semi-annual report of the Fund is required to be furnished, to mail
one copy of such report to that address.
Except as otherwise stated in this prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
The Fund may only engage in the following investment practices to the extent
disclosed in the Fund's prospectus and statement of additional information.
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, and 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 monitors 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 discussed in the
statement of additional information (which limit such investments to commercial
paper rated A-1 by S&P, Prime-1, by Moody's and F-1 by Fitch Investors Service,
Inc.).
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with member banks of the Federal
Reserve System which have 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 are required to 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 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 is
determined on a daily basis by marketing 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 which 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 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
which the Fund is obligated to repurchase may decline below the repurchase
price. Borrowing and reverse repurchase agreements magnify the potential for
gain or loss on the portfolio securities of the Fund and, therefore, increase
the possibility of fluctuation in the Fund's net asset value. Such practices may
constitute leverage. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether to
enforce the Fund's obligation to repurchase the securities and the Fund's use of
the proceeds of the reverse repurchase agreement may effectively be restricted
pending such determination. The staff of the Securities Exchange Commission has
taken the position that the 1940 Act treats reverse repurchase agreements as
being includable in the percentage limit on borrowings imposed on the Fund.
"WHEN ISSUED" AND "FORWARD COMMITMENT" TRANSACTIONS
The Fund may also purchase securities and currencies on a when issued or
delayed delivery basis and may purchase or sell securities on a forward
commitment basis. When issued or delayed delivery transactions arise when
securities 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 purchase. A forward commitment
transaction is an agreement by the Fund to purchase or sell securities at a
specified future date. The Fund may also enter into foreign currency forward
contracts which are described in more detail in the section entitled "Foreign
Currency Transactions." When the Fund engages in these 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, delayed delivery and
forward commitment 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. The
Securities and Exchange Commission has established certain requirements to
assure that the Fund is able to meet its obligations under these contracts, for
example a separate account of liquid assets equal to the value of such purchase
commitments may 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 any of these transactions, it will do so for the purpose of acquiring
portfolio securities or currencies 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. Each of these uses entails greater risk than if
derivatives were used solely for hedging purposes. The Fund uses futures
contracts and related options for hedging purposes. Derivatives are a valuable
tool which, when used properly, can provide significant benefit to Fund
shareholders. Keystone is not an aggressive user of derivatives with respect to
the Fund. However, the Fund may take positions in those derivatives that are
within its investment policies if, in Keystone's judgement, this represents an
effective response to current or anticipated market conditions. Keystone's use
of derivatives is subject to continuous risk assessment and control from the
standpoint of the Fund's investment objectives and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments -- options, futures,
forwards and swaps -- from which virtually any type of derivative transaction
can be created. Further information regarding options and futures, is provided
later in this section and is provided in the Fund's statement of additional
information. The Fund does not presently engage in the use of swaps.
While the judicious use of derivatives by experienced investment managers such
as Keystone can be beneficial, derivatives also involve risks different from,
and, in certain cases, greater than, the risks presented by more traditional
investments.
Following is a general discussion of important risk factors and issues
concerning the use of derivatives that investors should understand before
investing in the Fund.
* Market Risk -- This is the general risk attendant to all investments that the
value of a particular investment will decline or otherwise change in a way
detrimental to the Fund's interest.
* Management Risk -- Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument, but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use and
complexity of derivatives require the maintenance of adequate controls to
monitor the transactions entered into, the ability to assess the risk that a
derivative adds to the Fund's portfolio and the ability to forecast price,
interest rate or currency exchange rate movements correctly.
* Credit Risk -- This is the risk that a loss may be sustained by the Fund as a
result of the failure of 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 may also 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 which 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 broker commissions and other transaction costs may
result. However, the Fund does not expect 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
price upon exercise.
PURCHASING OPTIONS
The Fund may purchase put or call options, including purchasing put or call
options for the purpose of offsetting previously written put or call options of
the same series. If the Fund is unable to effect a closing purchase transaction
with respect to covered options it has written, the Fund will not be able to
sell the underlying securities 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 Exchange Commission is of the view that the
premiums which the Fund pays for the purchase of unlisted options and the value
of securities used to cover unlisted options written by the Fund are considered
to be invested in illiquid securities or assets for the purpose of calculating
whether the Fund is in compliance with its investment restrictions relating to
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 futures on
securities, currencies 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 currency and other financial 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 fix what is believed by Keystone to be a favorable price and rate of return
for securities or favorable exchange rate for currencies the Fund intends to
purchase.
The Fund also intends to purchase put and call options on currency and other
financial 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 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
The Fund may invest in securities 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, 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
and 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 the ability of Keystone 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
strengths of those currencies and the U.S. dollar, and the Fund may be affected
favorably or unfavorably by changes in the exchange rates or exchange control
regulations between foreign currencies and the dollar. Changes in foreign
currency exchange rates also may affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed to shareholders by the Fund. The
Fund may also purchase and sell options related to foreign currencies, in
connection with hedging strategies.
INVERSE FLOATING RATE SECURITIES. The Fund may also invest in securities 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.
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.
If permitted by its investment policies, 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. To the extent permitted by its investment policies, the
Fund may invest in various structured securities. Structured securities
represent interests in entities organized and operated solely for the purpose of
restructuring the investment characteristics of certain debt obligations. This
type of restructuring involves the deposit with or purchase by an entity, such
as a corporation or trust, of specified instruments 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.
<PAGE>
EXHIBIT A
REDUCED SALES CHARGES
Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of the Fund alone or in combination with
Class A shares of other Keystone America Funds.
For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or Letters of Intent, the term "Purchaser"
includes the following persons: an individual; an individual, his or her spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account established for their benefit; an
organization exempt from federal income tax under Section 501 (c)(3) or (13) of
the Internal Revenue Code; a pension, profit-sharing or other employee benefit
plan whether or not qualified under Section 401 of the Internal Revenue Code; or
other organized groups of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some purpose
other than the purchase of redeemable securities of a registered investment
company at a discount. In order to qualify for a lower sales charge, all orders
from an organized group will have to be placed through a single investment
dealer or other firm and identified as originating from a qualifying purchaser.
CONCURRENT PURCHASES
For purposes of qualifying for a reduced sales charge, a Purchaser may combine
concurrent direct purchases of Class A shares of two or more of the "Eligible
Funds," as defined below. For example, if a Purchaser concurrently invested
$75,000 in one of the other "Eligible Funds" and $75,000 in the Fund, the sales
charge would be that applicable to a $150,000 purchase, i.e., 3.75% of the
offering price, as indicated in the Sales Charge Schedule in the prospectus.
RIGHT OF ACCUMULATION
In calculating the sales charge applicable to current purchases of the Fund's
Class A shares, a Purchaser is entitled to accumulate current purchases with the
current value of previously purchased Class A shares of the Fund and Class A
shares of certain other eligible funds that are still held in (or exchanged for
shares of and are still held in) the same or another eligible fund ("Eligible
Fund(s)"). The Eligible Funds are the Keystone America Funds and Keystone Liquid
Trust.
For example, if a Purchaser held shares valued at $99,999 and purchased an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales charge of 3.75% of the offering price as indicated in the Sales
Charge schedule. KIRC must be notified at the time of purchase that the
Purchaser is entitled to a reduced sales charge, which reduction will be granted
subject to confirmation of the Purchaser's holdings. The Right of Accumulation
may be modified or discontinued at any time.
LETTER OF INTENT
A Purchaser may qualify for a reduced sales charge on a purchase of Class A
shares of the Fund alone or in combination with purchases of Class A shares of
any of the other Eligible Funds by completing the Letter of Intent section of
the application. By so doing, the Purchaser agrees to invest within a
thirteen-month period a specified amount, which, if invested at one time, would
qualify for a reduced sales charge. Each purchase will be made at a public
offering price applicable to a single transaction of the dollar amount specified
on the application, as described in this prospectus. The Letter of Intent does
not obligate the Purchaser to purchase, nor the Fund to sell, the amount
indicated.
After the Letter of Intent is received by KIRC, each investment made will be
entitled to the sales charge applicable to the level of investment indicated on
the application. The Letter of Intent may be back-dated up to ninety days so
that any investments made in any of the Eligible Funds during the preceding
ninety-day period, valued at the Purchaser's cost, can be applied toward
fulfillment of the Letter of Intent. However, there will be no refund of sales
charges already paid during the ninety-day period. No retroactive adjustment
will be made if purchases exceed the amount specified in the Letter of Intent.
Income and capital gains distributions taken in additional shares will not apply
toward completion of the Letter of Intent.
If total purchases made pursuant to the Letter of Intent are less than the
amount specified, the Purchaser will be required to remit an amount equal to the
difference between the sales charge paid and the sales charge applicable to
purchases actually made. Out of the initial purchase (or subsequent purchases,
if necessary) 5% of the dollar amount specified on the application will be held
in escrow by KIRC in the form of shares registered in the Purchaser's name. The
escrowed shares will not be available for redemption, transfer or encumbrance by
the Purchaser until the Letter of Intent is completed or the higher sales charge
paid. All income and capital gains distributions on escrowed shares will be paid
to the Purchaser or his order.
When the minimum investment specified in the Letter of Intent is completed
(either prior to or by the end of the thirteen-month period), the Purchaser will
be notified and the escrowed shares will be released. If the intended investment
is not completed, the Purchaser will be asked to remit to KDI any difference
between the sales charge on the amount specified and on the amount actually
attained. If the Purchaser does not within 20 days after written request by KDI
or his dealer pay such difference in sales charge, KIRC will redeem an
appropriate number of the escrowed shares in order to realize such difference.
Shares remaining after any such redemption will be released by KIRC. Any
redemptions made by the Purchaser during the thirteen-month period will be
subtracted from the amount of the purchases for purposes of determining whether
the Letter of Intent has been completed. In the event of a total redemption of
the account prior to completion of the Letter of Intent, the additional sales
charge due will be deducted from the proceeds of the redemption and the balance
will be forwarded to the Purchaser.
By signing the application, the Purchaser irrevocably constitutes and appoints
KIRC his attorney to surrender for redemption any or all escrowed shares with
full power of substitution.
The Purchaser or his dealer must inform KDI or KIRC that a Letter of Intent is
in effect each time a purchase is made.
<PAGE>
KEYSTONE AMERICA
FAMILY OF FUNDS
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Insured Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Pennsylvania Tax Free Fund
Texas Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund Inc.
Hartwell Growth Fund Inc.
Omega Fund Inc.
Fund of the Americas
Strategic Development Fund
[Logo] KEYSTONE
Distributors, Inc.
200 Berkeley Street
Boston, Massachusetts 02116-5034
KATFIF-P 3/95
18M
KEYSTONE
AMERICA
[PHOTO: AMERICAN FLAG FLYING: WITH WOMAN AND BABY STANDING ON BALCONY]
TAX FREE
INCOME FUND
[Logo]
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE AMERICA TAX FREE INCOME FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
KEYSTONE AMERICA TAX FREE INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH __, 1995
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
America Tax Free Income Fund (the "Fund"), dated March __, 1995. A copy of the
prospectus may be obtained from Keystone Distributors, Inc. ("KDI"), the Fund's
current principal underwriter ("Principal Underwriter"), 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
--------------------------------------------------------------------------------
TABLE OF CONTENTS
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Page
The Fund 2
Investment Policies 2
Investment Restrictions 5
Valuation of Securities 9
Sales Charges 10
Distribution Plans 13
Redemptions in Kind 16
Investment Manager 16
Investment Adviser 18
Trustees and Officers 20
Principal Underwriter 24
Brokerage 25
Declaration of Trust 27
Standardized Total Return and Yield Quotations 29
Additional Information 30
Appendix A-1
Financial Statements F-1
Independent Auditors' Report F-18
<PAGE>
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THE FUND
--------------------------------------------------------------------------------
The Fund is an open-end, diversified management investment company commonly
known as a mutual fund. The Fund seeks the highest possible current income,
exempt from federal income taxes, while preserving capital. The Fund was formed
as a Massachusetts business trust on October 24, 1986. The Fund is managed by
Keystone Management, Inc. ("Keystone Management") and advised by Keystone
Custodian Funds, Inc. ("Keystone").
The essential information about the Fund is contained in its prospectus.
This statement of additional information provides additional information about
the Fund that may be of interest to some investors.
--------------------------------------------------------------------------------
INVESTMENT POLICIES
--------------------------------------------------------------------------------
The Fund invests primarily in municipal bonds, but also may invest in
certain other securities as described below.
MUNICIPAL BONDS
Municipal bonds include debt obligations issued by or on behalf of a state,
a territory or a possession of the United States ("U.S."), the District of
Columbia or any political subdivision, agency or instrumentality thereof (for
example, counties, cities, towns, villages, districts, authorities) to obtain
funds for various public purposes, including the construction of a wide range of
public facilities, such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which municipal bonds may be issued include the refunding of
outstanding obligations, obtaining funds for general operating expenses and
obtaining funds to lend to public or private institutions for the construction
of facilities such as educational, hospital and housing facilities. In addition,
certain types of industrial development bonds have been or may be issued by or
on behalf of public authorities to finance certain privately-operated facilities
and certain local facilities for water supply, gas, electricity or sewage or
solid waste disposal. Such obligations are included within the term municipal
bonds if the interest paid thereon qualifies as fully exempt from federal income
tax. The income of certain types of industrial development bonds used to finance
certain privately-operated facilities (qualified "private activity" bonds)
issued after August 7, 1986, while exempt from federal income tax, is included
for the purposes of the calculation of the alternative minimum tax. Other types
of industrial development bonds, the proceeds of which are used for the
construction, equipment, repair or improvement of privately operated industrial
or commercial facilities, may constitute municipal bonds, although the current
federal tax laws place substantial limitations on the size of such issues.
The two principal classifications of municipal bonds are "general
obligation" and limited obligation or "revenue" bonds. General obligation bonds
are obligations involving the credit of an issuer possessing taxing power and
are payable from the issuer's general unrestricted revenues and not from any
particular fund or revenue source. Their payment may be dependent upon an
appropriation by the issuer's legislative body and may be subject to
quantitative limitations on the issuer's taxing power. The characteristics and
methods of enforcement of general obligation bonds vary according to the law
applicable to the particular issuer. Limited obligation or revenue bonds are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, such as the user of the facility. Industrial
development bonds that are municipal bonds are, in most cases, revenue bonds and
generally are not payable from the unrestricted revenues of the issuer. The
credit quality of industrial development revenue bonds is usually directly
related to the credit standing of the owner or user of the facilities. There
are, of course, variations in the security of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors.
The yields on municipal bonds are dependent on a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, size of a particular
offering, the maturity of the obligation and rating of the issue. The ratings of
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P"), as described below, represent their opinions as to the quality of the
municipal bonds that they undertake to rate. It should be emphasized, however,
that ratings are general and are not absolute standards of quality.
Consequently, municipal bonds with the same maturity, interest rate and rating
may have different yields while municipal bonds of the same maturity and
interest rate with different ratings may have the same yield. It should also be
noted that the standards of disclosure applicable to and the amount of
information relating to the financial condition of issuers of municipal bonds
are not generally as extensive as those relating to corporations.
Subsequent to its purchase by the Fund, an issue of municipal bonds or
other investment may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Fund. Neither event requires the
elimination of such obligation from the Fund's portfolio, but Keystone will
consider such an event in its determination of whether the Fund should continue
to hold such obligation in its portfolio.
The ability of the Fund to achieve its investment objective is dependent
upon the continuing ability of issuers of municipal bonds to meet their
obligations to pay interest and principal when due. Obligations of issuers of
municipal bonds, including municipal bonds issued by them, are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Act, and laws, if any,
that may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations. There is also the possibility that as a result
of litigation or other conditions, the power or ability of any one or more
issuers to pay, when due, principal of and interest on its or their municipal
bonds may be materially affected. In addition, the market for municipal bonds is
often thin and can be temporarily affected by large purchases and sales
including those by the Fund.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal bonds, and similar proposals may well be introduced in the
future. If such a proposal were enacted, the availability of municipal bonds for
investment by the Fund and the value of the Fund's portfolio could be materially
affected. In which event, the Fund would reevaluate its investment objective and
policies and consider changes in the structure of the Fund or dissolution.
The Tax Reform Act of 1986 made significant changes in the federal tax
status of certain obligations that were previously fully federally tax exempt.
As a result, three categories of such obligations issued after August 7, 1986
now exist: (1) "public purpose" bonds, the income from which remains fully
exempt from federal income tax; (2) qualified "private activity" industrial
development bonds, the income from which, while exempt from federal income tax
under Section 103 of the Internal Revenue Code, as amended (the "Code"), is
included in the calculation of the federal alternative minimum tax; and (3)
"private activity" (private purpose) bonds, the income from which is not exempt
from federal income tax. The Fund will not invest in private activity (private
purpose) bonds, and, except as described under "Other Eligible Securities," will
not invest in qualified "private activity" industrial development bonds.
OTHER ELIGIBLE SECURITIES
The Fund may invest up to 20% of its assets under ordinary circumstances
and up to 100% of its assets for temporary defensive purposes in the following
types of instruments: (1) commercial paper, including master demand notes, that
at the date of investment is rated A-1 (the highest grade given by S&P), Prime-1
(the highest grade given by Moody's) 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; (2) obligations, including certificates of
deposit and bankers' acceptances, of banks, or savings and loan associations,
having at least $1 billion in assets as of the date of their most recently
published financial statements that are members of the Federal Deposit Insurance
Corporation, including U.S. branches of foreign banks and foreign branches of
U.S. banks; (3) corporate obligations that at the date of investment are rated A
or better by S&P or Moody's; (4) obligations issued or guaranteed by the U.S.
government or by any agency or instrumentality of the U.S. government; and (5)
qualified "private activity" industrial development bonds, the income from
which, while exempt from federal income tax under Section 103 of the Code, is
included in the calculation of the federal alternative minimum tax.
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVE
The investment objective of the Fund is fundamental and may not be changed
without approval of the holders of a majority as defined in the Investment
Company Act of 1940 ("1940 Act") of the Fund's outstanding voting shares (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).
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INVESTMENT RESTRICTIONS
--------------------------------------------------------------------------------
The investment restrictions set forth below are fundamental and may not be
changed without the vote of a 1940 Act majority of the Fund's outstanding voting
shares. Unless otherwise stated, all references to the assets of the Fund are in
terms of current market value. 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;
(2) purchase securities on margin except that it may obtain such short term
credit as may be necessary for the clearance of purchases and sales of
securities;
(3) make short sales of securities or maintain a short position, unless at
all times when a short position is open it owns an equal amount of such
securities or of securities which, without payment of any further consideration,
are convertible into or exchangeable for securities of the same issue as, and
equal in amount to, the securities sold short;
(4) borrow money or enter into reverse repurchase agreements, except that
the Fund may enter into reverse repurchase agreements or 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 (not
including reverse repurchase agreements) exceed 5% of the Fund's net assets, any
such borrowings will be repaid before additional investments are made;
(5) pledge more than 15% of its net assets to secure indebtedness; the
purchase or sale of securities on a "when issued" basis, or collateral
arrangement with respect to the writing of options on securities, are not deemed
to be a pledge of assets;
(6) issue senior securities; the purchase or sale of securities on a "when
issued" basis or collateral arrangement with respect to the writing of options
on securities, are not deemed to be the issuance of a senior security;
(7) make loans, except that the Fund may purchase or hold debt securities
consistent with its investment objective, lend portfolio securities valued at
not more than 15% of its total assets to broker-dealers and enter into
repurchase agreements;
(8) purchase any security (other than U.S. government securities) of any
issuer if as a result more than 25% of its total assets would be invested in a
single industry, including industrial development bonds from the same facility
or similar types of facilities; governmental issuers of municipal bonds are not
regarded as members of an industry and the Fund may invest more than 25% of its
assets in industrial development bonds;
(9) invest more than 10% of its total assets in securities with legal or
contractual restrictions on resale or in securities for which market quotations
are not readily available, or in repurchase agreements maturing in more than
seven days;
(10) invest more than 5% of its total assets in securities of any company
having a record, together with its predecessors, of less than three years of
continuous operation;
(11) purchase securities of other investment companies, except as part of a
merger, consolidation, purchase of assets or similar transaction;
(12) purchase or sell commodities or commodity contracts or real estate,
except that it may purchase and sell securities secured by real estate and
securities of companies which invest in real estate, and may engage in currency
or other financial futures contracts and related options transactions; and
(13) underwrite securities of other issuers, except that the Fund may
purchase securities from the issuer or others and dispose of such securities in
a manner consistent with its investment objective.
Additional restrictions adopted by the Fund, which may be changed by the
Board of Trustees, provide that the Fund may not purchase or retain securities
of an issuer if, to the knowledge of the Fund, officers, Trustees or Directors
of the Fund or Keystone each owning beneficially more than 1/2 of 1% of the
securities of such issuer own in the aggregate more than 5% of the securities of
such issuer, or such persons or management personnel of the Fund or Keystone
have a substantial beneficial interest in the securities of such issuer.
Portfolio securities of the Fund may not be purchased from or sold or loaned to
Keystone or any affiliate thereof or any of their Directors, officers or
employees.
Although not fundamental restrictions or policies requiring a shareholders'
vote to change, the Fund has undertaken to a state securities authority that, so
long as the state authority requires and shares of the Fund are registered for
sale in that state, the Fund (1) will not invest in interests in oil, gas or
other mineral exploration or development programs, except publicly traded
securities of companies engaging in such activities; (2) will not write,
purchase or sell puts, calls or combinations thereof, except that notes; and (3)
in connection with the purchase of debt securities, it may acquire warrants or
other rights to subscribe for securities of issuers or securities of parents or
subsidiaries of such issuers (warrants), provided that no more than 5% of its
total assets may be invested in warrants (for the purpose of this restriction,
warrants attached to securities acquired by the Fund may be deemed to be without
value), in all cases unless authorized by a vote of a majority of the Fund's
outstanding voting shares.
In addition, although not fundamental restrictions or policies requiring a
shareholders' vote to change, the Fund has undertaken to a state securities
authority that, so long as the state authority requires and shares of the Fund
are registered for sale in that state, the Fund will (1) limit its purchase of
warrants to 5% of net assets, of which 2% may be warrants not listed on the New
York or American Stock Exchange; and (2) not invest in real estate limited
partnership interests.
Although not a fundamental restriction or policy requiring a shareholders'
vote to change, the Fund has undertaken to a state securities authority that, so
long as the state authority requires and shares of the Fund are registered for
sale in that state, the Fund will not invest in securities (other than U.S.
government securities) of any issuer if, as a result, more than 5% of its assets
would be invested in securities of a single issuer.
The Fund does not presently intend to invest more than 25% of its total
assets in (1) municipal bonds of a single state and its subdivisions, agencies
and instrumentalities; of a single territory or possession of the U.S. and its
subdivisions, agencies or instrumentalities; or of the District of Columbia and
any subdivision, agency or instrumentality thereof; or (2) municipal bonds, the
payment of which depends on revenues derived from a single facility or similar
types of facilities. Since certain municipal bonds may be related in such a way
that an economic, business or political development or change affecting one such
security could likewise affect the other securities, a change in this policy
could result in increased investment risk, but no change is presently
contemplated. The Fund may invest more than 25% of its total assets in
industrial development bonds.
As a continuing condition of registration of the Fund in a state, the Fund
has undertaken not to purchase any securities (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.
For the purpose of limitations 1, 10 and 13, the Fund will treat each
state, territory and possession of the U.S., the District of Columbia and, if
its assets and revenues are separate from those of the entity or entities
creating it, each political subdivision, agency and instrumentality of any one
(or more, as in the case of a multi-state authority or agency) of the foregoing
as an issuer of all securities that are backed primarily by its assets or
revenues; each company as an issuer of all securities that are backed primarily
by its assets or revenues; and each of the foregoing entities as an issuer of
all securities that it guarantees; provided, however, that for the purpose of
limitation 1 no entity shall be deemed to be an issuer of a security that it
guarantees so long as no more than 10% of the Fund's total assets (taken at
current value) are invested in securities guaranteed by the entity and
securities of which it is otherwise deemed to be an issuer.
Although not fundamental restrictions or policies requiring a shareholders'
vote to change, the Fund has undertaken to a state securities authority that, so
long as the state authority requires and shares of the Fund are registered for
sale in that state, the Fund (1) will limit its purchase of warrants to 5% of
net assets, of which 2% may be warrants not listed on the New York or American
Stock Exchange; and (2) will not invest in real estate limited partnership
interests.
Although not a fundamental restriction or a policy requiring a
shareholders' vote to change, the Fund has undertaken to a state securities
authority that, so long as the state authority requires and shares of the Fund
are registered for sale in that state, the Fund will maintain 300% asset
coverage with respect to any bank borrowings.
In order to permit the sale of Fund shares in certain states, the Fund may
make commitments more restrictive than the investment restrictions described
above. Should the Fund determine that any such commitment is no longer in the
best interests of the Fund, it will revoke the commitment by terminating sales
of its shares in the state involved.
If a percentage limit is satisfied at the time of investment or borrowing,
a later increase or decrease resulting from a change in asset value is not a
violation of the limit.
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VALUATION OF SECURITIES
--------------------------------------------------------------------------------
Current values for the Fund's portfolio securities are determined in the
following manner:
(1) securities for which market quotations are readily available are valued
at the mean of the bid and asked prices at the time of valuation;
(2) short-term investments that are purchased with maturities of sixty days
or less are valued at amortized cost (original purchase cost as adjusted for
amortization of premium or accretion of discount), which, when combined with
accrued interest, approximates market;
(3) short-term investments having maturities of more than sixty days, for
which market quotations are readily available, are valued at current market
value;
(4) 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; and
(5) the following securities are valued at prices deemed in good faith to
be fair under procedures established by the Fund's Board of Trustees: (a)
securities, including restricted securities, for which market quotations are not
readily available; and (b) other assets.
The Fund believes that reliable market quotations are generally not readily
available for purposes of valuing municipal bonds. As a result, depending on the
particular municipal bonds owned by the Fund, it is likely that most of the
valuations for such bonds will be based upon their fair value determined under
procedures approved by the Fund's Board of Trustees. The Fund's Board of
Trustees has authorized the use of a pricing service to determine the fair value
of its municipal securities and certain other securities. Non-tax exempt
securities for which market quotations are readily available are valued on a
consistent basis at that price quoted that, in the opinion of the Board of
Trustees or the person designated by the Board of Trustees to make the
determination, most nearly represents the market value of the particular
security. Any securities for which market quotations are not readily available
or other assets are valued on a consistent basis at fair value as determined in
good faith using methods prescribed by the Fund's Board of Trustees.
--------------------------------------------------------------------------------
SALES CHARGES
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GENERAL
The Fund offers three classes of shares. Class A shares are offered with a
maximum front end sales charge of 4.75% payable at the time of purchase of Fund
shares ("Front End Load Option"). Class B shares are sold subject to a
contingent deferred sales charge payable upon redemption within four calendar
years after purchase. ("Back End Load Option"). Class B shares that have been
outstanding during seven calendar years will automatically convert to Class A
shares, without imposition of a front end sales charge. (Conversion of Class B
shares represented by stock certificates will require the return of stock
certificates to KIRC.) Class C shares are sold subject to a contingent deferred
sales charge payable upon redemption within one year after purchase ("Level Load
Option"). Class C shares are available only through dealers who have entered
into special distribution agreements with KDI, the Fund's Principal Underwriter.
The prospectus contains a general description of how investors may buy shares of
the Fund, as well as a table of applicable sales charges for Class A shares, a
discussion of reduced sales charges that may apply to subsequent purchases and a
description of applicable contingent deferred sales charges.
CONTINGENT DEFERRED SALES CHARGES
In order to reimburse the Fund for certain expenses relating to the sale of
its shares (see "Distribution Plans"), a contingent deferred sales charge may be
imposed at the time of redemption of certain Fund shares, as follows:
CLASS A SHARES
With certain exceptions, purchases of Class A shares in the amount of
$1,000,000 on which no sales charge has been paid will be subject to a
contingent deferred sales charge of 0.25% upon redemption during the one year
period commencing on the date the shares were originally purchased. The
contingent deferred sales charge will be retained by KDI. See "Calculation of
Contingent Deferred Sales Charge" below.
CLASS B SHARES
With certain exceptions, the Fund may impose a deferred sales charge of
3.00% on shares redeemed during the calendar year of purchase and during the
first calendar year after purchase; 2.00% on shares redeemed during the second
calendar year after the year of purchase; and 1.00% on shares redeemed during
the third calendar year after the year of purchase. No contingent deferred sales
charge is imposed on amounts redeemed thereafter. If imposed, the contingent
deferred sales charge is deducted from the redemption proceeds otherwise payable
to you. The contingent deferred sales charge is retained by KDI. See
"Calculation of Contingent Deferred Sales Charge" below.
CLASS C SHARES
With certain exceptions, the Fund may impose a contingent deferred sales
charge of 1% on shares redeemed within one year after the date of purchase. No
contingent deferred sales charge is imposed on amounts redeemed thereafter. If
imposed, the contingent deferred sales charge is deducted from the redemption
proceeds otherwise payable to you. The contingent deferred sales charge is
retained by KDI. See "Calculation of Contingent Deferred Sales Charge" below.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE
Any contingent deferred sales charge imposed upon the redemption of Class
A, Class B or Class C shares is a percentage of the lesser of (1) the net asset
value of the shares redeemed or (2) the net cost of such shares. No contingent
deferred sales charge is imposed when you redeem amounts derived from (1)
increases in the value of your account above the net cost of such shares due to
increases in the net asset value per share of the Fund; (2) certain shares with
respect to which the Fund did not pay a commission on issuance, including shares
acquired through reinvestment of dividend income and capital gains
distributions; (3) Class C shares and certain Class A shares held during more
than one year; or (4) Class B shares held during more than four consecutive
calendar years. Upon request for redemption, shares not subject to the
contingent deferred sales charge will be redeemed first. Thereafter, shares held
the longest will be the first to be redeemed. There is no contingent deferred
sales charge when the shares of a class are exchanged for the shares of the same
class of another Keystone America Fund. Moreover, when shares of one such class
of a fund have been exchanged for shares of another such class of a fund, the
calendar year of the purchase of the shares of the fund exchanged into is
assumed to be the year shares tendered for exchange were originally purchased.
Shares purchased in any amount prior to May 2, 1991 are subject to a 2%
contingent deferred sales charge if redeemed within four calendar years after
their purchase. This contingent deferred sales charge does not decline during
the four calendar year period in which it may be applied.
WAIVER OF SALES CHARGES
Shares of the Fund also may be sold, to the extent permitted by applicable
law, regulations, interpretations or exemptions, at net asset value without the
imposition of an initial sales charge to (1) certain officers, Directors,
Trustees, full-time employees and sales representatives of the Fund, Keystone
Management, Keystone, Keystone Group, Inc. ("Keystone Group"), their
subsidiaries and KDI who have been such for not less than ninety days; (2) the
pension and profit-sharing plans established by such companies, their
subsidiaries and affiliates, for the benefit of their officers, Trustees,
Directors, full-time employees and sales representatives; and (3) registered
representatives of firms with dealer agreements with KDI, provided all such
sales are made upon the written assurance of the purchaser that the purchase is
made for investment purposes and that the securities will not be resold except
through redemption by the Fund.
No initial sales charge is charged on purchases of shares of the Fund by a
bank or trust company in a single account in the name of such bank or trust
company as trustee if the initial investment in shares of the Fund, or any
Keystone Group Fund, pursuant to this waiver is at least $500,000 and any
commission paid at the time of such purchase is not more than 1% of the amount
invested.
In addition, no contingent deferred sales charge is imposed on a redemption
of shares of the Fund in the event of (1) death or disability of the
shareholder; (2) a lump-sum distribution from a benefit plan qualified under the
Employee Retirement Income Security Act of 1974 ("ERISA"); (3) automatic
withdrawals from ERISA plans if the shareholder is at least 59 1/2 years old;
(4) involuntary redemptions of an account having an aggregate net asset value of
less than $1,000; or (5) automatic withdrawals under an automatic withdrawal
plan of up to 1 1/2% per month of the shareholder's initial account balance.
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DISTRIBUTION PLANS
--------------------------------------------------------------------------------
Rule 12b-1 under the Investment Company Act of 1940 ("1940 Act") permits
investment companies, such as the Fund, to use their assets to bear expenses of
distributing their shares if they comply with various conditions, including
adoption of a distribution plan containing certain provisions set forth in the
Rule. On February 17, 1987, the Fund's Class A Distribution Plan was approved by
the Fund's Board of Trustees, including a majority of the Trustees who are not
interested persons of the Fund as defined in the 1940 Act ("Independent
Trustees") and the Trustees who have no direct or indirect financial interest in
the Distribution Plan or any agreement related thereto (the "Rule 12b-1
Trustees" who are the same as the Independent Trustees). On November 17, 1992,
the Class B and Class C Distribution Plans were approved by the Fund's Board of
Trustees, including a majority of the Independent Trustees (The Class A, B and C
Distribution Plans each a "Distribution Plan," and collectively "Distribution
Plans.")
The National Association of Securities Dealers, Inc. ("NASD") currently
limits the amount that a fund may pay annually in distribution costs for the
sale of its shares and shareholder service fees. The NASD limits annual
expenditures to 1% of the aggregate average daily net asset value of its shares,
of which 0.75% may be used to pay such distribution costs and 0.25% may be used
to pay shareholder service fees. The NASD also limits the aggregate amount that
the Fund may pay for such distribution costs to 6.25% of gross share sales since
the inception of the 12b-1 Plan, plus interest at the prime rate plus 1% on such
amounts (less any contingent deferred sales charges paid by shareholders to
KDI).
CLASS A DISTRIBUTION PLAN
The Class A Distribution Plan provides that the Fund may expend daily
amounts at an annual rate, currently limited to up to 0.25% of the Fund's
average daily net asset value attributable to Class A shares, to finance any
activity that is primarily intended to result in the sale of Class A shares,
including without limitation, expenditures consisting of payments to a Principal
Underwriter of the Fund (currently KDI) to enable the Principal Underwriter to
pay or to have paid to others who sell Class A shares a service or other fee, at
such intervals as the Principal Underwriter may determine, in respect of Class A
shares maintained by such recipients outstanding on the books of the Fund for
specified periods.
Amounts paid by the Fund under the Class A Distribution Plan are currently
used to pay others, such as dealers, service fees at an annual rate of up to
0.25% of the average net asset value of Class A shares sold by such others and
remaining outstanding on the books of the Fund for specific periods.
CLASS B DISTRIBUTION PLAN
The Class B Distribution Plan provides that the Fund may expend daily
amounts at an annual rate of up to 1.00% of the Fund's average daily net asset
value attributable to Class B shares to finance any activity that is primarily
intended to result in the sale of Class B shares. Payments under the Class B
Distribution Plan are currently made to KDI (which may reallow all or part to
others, such as dealers) (1) as commissions in respect of Class B shares sold
and (2) as shareholder service fees. Amounts paid or accrued to KDI under (1)
and (2) in the aggregate may not exceed the annual limitation referred to above.
KDI generally reallows to brokers a commission equal to 3.00% of the price paid
for each Class B share sold as well as a service fee at the rate of 0.25% of the
average net asset value of shares maintained by such recipients outstanding on
the books of the Fund for specified periods.
KDI intends, but is not obligated, to continue to pay or accrue
distribution charges incurred in connection with the Class B Distribution Plan
that exceed current annual payments permitted to be received by KDI from the
Fund. KDI intends to seek full payment of such charges from the Fund (together
with annual interest thereon at the prime rate plus one percent) at such time in
the future as, and to the extent that, payment thereof by the Fund would be
within the permitted limits.
CLASS C DISTRIBUTION PLAN
The Class C Distribution Plan provides that the Fund may expend daily
amounts at an annual rate of up to 1.00% of the Fund's average daily net asset
value attributable to Class C shares to finance any activity that is primarily
intended to result in the sale of Class C shares. Payments under the Class C
Distribution Plan are currently made to KDI (which may reallow all or part to
others, such as dealers) (1) as commissions for Class C shares sold and (2) as
shareholder service fees. Amounts paid or accrued to KDI under (1) and (2) in
the aggregate may not exceed the annual limitation referred to above. KDI
generally reallows to brokers or others (1) a commission in the amount of 0.75%
of the price paid for each Class C share sold, plus the first year's service
fees in advance in the amount of 0.25% of the price paid for each Class C share
sold and (2) beginning approximately fifteen months after purchase, a commission
at an annual rate of 0.75% (subject to NASD rules) plus service fees at an
annual rate of 0.25%, respectively, of the average daily net asset value of each
Class C share maintained by such recipients outstanding on the books of the Fund
for specified periods.
DISTRIBUTION PLANS IN GENERAL
Each of the Distribution Plans may be terminated at any time by vote of the
Rule 12b-1 Trustees, or by vote of a majority of the outstanding voting shares
of the respective class of the Fund. Any change in a Distribution Plan that
would materially increase the distribution expenses of the Fund provided for in
the Distribution Plan requires shareholder approval. Otherwise, the Distribution
Plan may be amended by the Trustees, including the Rule 12b-1 Trustees.
The total amounts paid by the Fund under the foregoing arrangements may not
exceed the maximum Distribution Plan limit specified above, and the amounts and
purposes of expenditures under a Distribution Plan must be reported to the Rule
12b-1 Trustees quarterly. The Rule 12b-1 Trustees may require or approve changes
in the implementation or operation of a Distribution Plan, and may also require
that total expenditures by the Fund under a Distribution Plan be kept within
limits lower than the maximum amount permitted by the Distribution Plan as
stated above.
During the year ended November 30, 1994, the Fund paid KDI $269,046,
$241,979 and $279,001 under the Fund's Class A, B and C Distribution Plans,
respectively. Unreimbursed distribution expenses under the Class B and Class C
Distribution Plans at November 30, 1994 were $1,996,948 (6.92% of Class B net
assets at November 30, 1994) and $2,087,302 (8.99% of Class C net assets at
November 30, 1994), respectively.
Whether any expenditure under a Distribution Plan is subject to a state
expense limit will depend upon the nature of the expenditure and the terms of
the state law, regulation or order imposing the limit. A portion of the Fund's
Distribution Plan expenses may be included in the Fund's total operating
expenses for purposes of determining compliance with state expense limits.
The Fund is currently subject to certain annual state expense limitations,
the most restrictive of which is:
2.5% of the first $30 million of Fund average net assets,
2.0% of the next $70 million of Fund average net assets, and
1.5% of Fund average net assets over $100 million.
Capital charges and certain expenses, including a portion of the Fund's
Distribution Plan fees, are currently not included in the calculation of the
state expense limitation. This limitation may be modified or eliminated in the
future.
While a Distribution Plan is in effect, the Fund will be required to commit
the selection and nomination of candidates for Independent Trustees to the
discretion of the Independent Trustees.
The Independent Trustees of the Fund have determined that the sales of the
Fund's shares resulting from payments under the Distribution Plans have
benefited the Fund.
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REDEMPTIONS IN KIND
--------------------------------------------------------------------------------
If conditions arise that would make it undesirable for the Fund to pay
for all redemptions in cash, the Fund's Board of Trustees may authorize payment
to be made in portfolio securities or other Fund property. The Fund has
obligated itself, however, under the 1940 Act to redeem for cash all shares
presented for redemption by any one shareholder up to the lesser of $250,000 or
1% of the Fund's net assets in any 90-day period. Securities delivered in
payment of redemptions would be valued at the same value assigned to them in
computing the net asset value per share and would be readily marketable.
Shareholders receiving such securities would incur brokerage costs when these
securities are sold.
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INVESTMENT MANAGER
--------------------------------------------------------------------------------
Subject to the general supervision of the Fund's Board of Trustees,
Keystone Management, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, serves as investment manager to the Fund and is responsible for the
overall management of the Fund's business and affairs. Keystone Management,
organized in 1989, is a wholly-owned subsidiary of Keystone and its directors
and principal executive officers have been affiliated with Keystone, a seasoned
investment adviser, for a number of years. Keystone Management also serves as
investment manager to each of the other Keystone Custodian Funds and to certain
other funds in the Keystone Group of Mutual Funds.
Except as otherwise noted below, pursuant to an Investment Management
Agreement (the "Management Agreement"), and subject to the supervision of the
Fund's Board of Trustees, Keystone Management has agreed to manage and
administer the operation of the Fund and manage the investment and reinvestment
of the Fund's assets in conformity with the Fund's investment objectives and
restrictions. The Management Agreement stipulates that Keystone Management shall
provide office space, all necessary office facilities, equipment and personnel
in connection with its services as well as pay or reimburse the Fund for the
compensation of Fund officers and Trustees who are affiliated with the
investment manager and pay all expenses of Keystone Management incurred in
connection with its services. All charges and expenses other than those
specifically referred to as being borne by Keystone Management will be paid by
the Fund, including, but not limited to, custodian charges and expenses;
bookkeeping and auditors' charges and expenses; transfer agent charges and
expenses; fees of Independent Trustees; brokerage commissions, brokers' fees and
expenses; issue and transfer taxes; costs and expenses under the Distribution
Plans; taxes and trust fees payable to governmental agencies; the cost of share
certificates; fees and expenses of the registration and qualification of the
Fund and its shares with the Securities and Exchange Commission (sometimes
referred to herein as the "SEC" or the "Commission") or under state or other
securities laws; expenses of preparing, printing and mailing prospectuses,
statements of additional information, notices, reports and proxy materials to
shareholders of the Fund; expenses of shareholder's and Trustees' meetings;
charges and expenses of legal counsel for the Fund and for the Trustees of the
Fund on matters relating to the Fund; charges and expenses of filing annual and
other reports with the SEC and other authorities; and all extraordinary charges
and expenses of the Fund.
The Management Agreement permits Keystone Management to enter into an
agreement with Keystone or another investment adviser, under which Keystone or
another investment adviser, as investment adviser, will provide substantially
all the services to be provided by Keystone Management under the Management
Agreement, and to delegate to Keystone or another investment adviser
substantially all of the investment manager's rights, duties and obligations
under the Management Agreement.
Keystone Management currently provides the Fund with certain administrative
and management services, which services include (1) performing research and
planning with respect to (a) the Fund's qualification as a regulated investment
company under Subchapter M of the Code, (b) tax treatment of the Fund's
portfolio investments, (c) tax treatment of special corporate actions (such as
reorganizations), (d) state tax matters affecting the Fund, and (e) the Fund's
distributions of income and capital gains; (2) preparing the Fund's federal and
state tax returns; (3) providing services to the Fund's shareholders in
connection with federal and state taxation and distributions of income and
capital gains; and (4) storing documents relating to the Fund's activities.
The Fund pays Keystone Management a fee for its services at the annual rate
of set forth below:
Aggregate Net
Management Asset Value of the
Fee Income shares 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;
computed as of the close of business on each business day and payable daily.
As a continuing condition of registration of shares in a state, Keystone
Management has agreed to reimburse the Fund annually for certain operating
expenses incurred by the Fund in excess of certain percentages of the Fund's
average daily net assets. Keystone Management is not required to make such
reimbursements to the extent such reimbursement would result in the Fund's
inability to qualify as a regulated investment company under provisions of the
Code. This condition may be modified or eliminated in the future.
The Management Agreement continues in effect from year to year only if
approved at least annually by the Fund's Board of Trustees or by a vote of a
majority of the outstanding shares, and such renewal has been approved by the
vote of a majority of the Independent Trustees cast in person at a meeting
called for the purpose of voting on such approval. The Management Agreement may
be terminated, without penalty, on 60 days' written notice by the Fund's Board
of Trustees or by a vote of a majority of outstanding shares. The Management
Agreement will terminate automatically upon its "assignment" as that term is
defined in the 1940 Act.
For an additional discussion of fees paid to Keystone Management, see
"Investment Adviser" below.
--------------------------------------------------------------------------------
INVESTMENT ADVISER
--------------------------------------------------------------------------------
Pursuant to the Management Agreement, Keystone Management has delegated its
investment management functions, except for certain administrative and
management services, to Keystone and has entered into an Investment Advisory
Agreement (the "Advisory Agreement") with Keystone under which Keystone provides
investment advisory and management services to the Fund.
Keystone, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034,
has provided investment advisory and management services to investment companies
and private accounts since it was organized in 1932. Keystone is a wholly-owned
subsidiary of Keystone Group, 200 Berkeley Street, Boston, Massachusetts
02116-5034.
Keystone Group is a corporation predominantly owned by former and current
members of management of Keystone and its affiliates. The shares of Keystone
Group common stock beneficially owned by management are held in a number of
voting trusts, the trustees of which are George S. Bissell, Albert H. Elfner,
III, Edward F. Godfrey and Ralph J. Spuehler, Jr.
Keystone Group provides accounting, bookkeeping, legal, personnel and
general corporate services to Keystone Management, Keystone, their affiliates
and the Keystone Group of Mutual Funds. Pursuant to the Advisory Agreement,
Keystone receives for its services an annual fee representing 85% of the
management fee received by Keystone Management under the Management Agreement.
Pursuant to the Advisory Agreement, and subject to the supervision of the
Fund's Board of Trustees, Keystone manages and administers the operation of the
Fund, and manages the investment and reinvestment of the Fund's assets in
conformity with the Fund's investment objective and restrictions. The Advisory
Agreement stipulates that Keystone shall provide office space, all necessary
office facilities, equipment and personnel in connection with its services as
well as pay or reimburse the Fund or Keystone Management, as the case may be,
for the compensation of Fund officers and Trustees who are affiliated with
Keystone and pay all expenses of Keystone incurred in connection with the
provision of its services. All charges and expenses other than those
specifically referred to as being borne by Keystone will be paid by the Fund,
including, but not limited to, custodian charges and expenses; bookkeeping and
auditors' charges and expenses; transfer agent charges and expenses; fees of
Independent Trustees; brokerage commissions, brokers' fees and expenses; issue
and transfer taxes; costs and expenses under the Distribution Plans; taxes and
trust fees payable to governmental agencies; the cost of share certificates;
fees and expenses of the registration and qualification of the Fund and its
shares with the SEC or under state or other securities laws; expenses of
preparing, printing and mailing prospectuses, statements of additional
information, notices, reports and proxy materials to shareholders of the Fund;
expenses of shareholder's and Trustees' meetings; charges and expenses of legal
counsel for the Fund and for the Trustees of the Fund on matters relating to the
Fund; charges and expenses of filing annual and other reports with the SEC and
other authorities; and all extraordinary charges and expenses of the Fund.
During the fiscal year ended November 30, 1992, the Fund paid or accrued to
Keystone Management investment management and administrative service fees of
$827,208, which represented 0.64% of the Fund's average net assets. Of such
amount paid to Keystone Management, $703,127 was paid to Keystone for its
services to the Fund.
During the fiscal year ended November 30, 1993, the Fund paid or accrued to
Keystone Management investment management and administrative service fees of
$876,654, which represented 0.62% of the Fund's average net assets. Of such
amount paid to Keystone Management, $745,160 was paid to Keystone for its
services to the Fund.
During the fiscal year ended November 30, 1994, the Fund paid or accrued to
Keystone Management investment management and administrative services fees of
$1,005,305, which represented ____% of the Fund's average net assets. Of such
amount paid to Keystone Management, $854,509 was paid to Keystone for its
services to the Fund.
--------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
Trustees and officers of the Fund, their principal occupations and some
of their affiliations over the last five years are as follows:
*ALBERT H. ELFNER, III: President, Trustee and Chief Executive Officer of the
Fund; Chairman of the Board, President, Director and Chief Executive
Officer of Keystone Group; President and Trustee or Director of Keystone
America Capital Preservation and Income Fund, Keystone America Intermediate
Term Bond Fund, Keystone America Strategic Income Fund, Keystone America
World Bond Fund, Keystone America State Tax Free Fund, Keystone America
State Tax Free Fund - Series II, Keystone America Fund for Total Return,
Keystone America Global Opportunities Fund, Keystone America Hartwell
Emerging Growth Fund, Inc., Keystone America Hartwell Growth Fund, Inc.,
Keystone America Omega Fund, Inc., Keystone Fund of the Americas-Luxembourg
and Keystone Fund of the Americas - U.S., Keystone Strategic Development
Fund (collectively, together with the Fund, "Keystone America Funds");
Keystone Custodian Funds, Series B-1, B-2, B-4, K-1, K-2, S-1, S-3, and
S-4; Keystone International Fund, Keystone Precious Metals Holdings, Inc.,
Keystone Tax Free Fund, Keystone Tax Exempt Trust, Keystone Liquid Trust
(collectively, "Keystone Custodian Funds"); Keystone Institutional
Adjustable Rate Fund and Master Reserves Trust (all such funds,
collectively, "Keystone Group Funds"); Director and Chairman of the Board,
Chief Executive Officer and Vice Chairman of Keystone; Chairman of the
Board and Director of Keystone Investment Management Corporation ("KIMCO")
and Keystone Fixed Income Advisers, Inc. ("KFIA"); Director, Chairman of
the Board, Chief Executive Officer and President of Keystone Management,
Keystone Software Inc. ("Keystone Software"); Director and President of
Hartwell Keystone Advisers, Inc. ("Hartwell Keystone"), Keystone Asset
Corporation, Keystone Capital Corporation, and Keystone Trust Company;
Director of KDI, Keystone Investor Resource Center, Inc. ("KIRC"), and
Fiduciary Investment Company, Inc. ("FICO"); Director and Vice President of
Robert Van Partners, Inc.; Director of Boston Children's Services
Association; Trustee of Anatolia College, Middlesex School, and Middlebury
College; Member, Board of Governors, New England Medical Center and former
Trustee of Neworld Bank.
FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other Keystone
Group Funds; Professor, Finance Department, George Washington University;
President, Amling & Company (investment advice); Member, Board of Advisers,
Credito Emilano (banking); and former Economics and Financial Consultant,
Riggs National Bank.
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; Investment Counselor to Appleton Partners, Inc.;
former Managing Director, Seaward Management Corporation (investment
advice) and former Director, Executive Vice President and Treasurer, State
Street Research & Management Company (investment advice).
*GEORGE S. BISSELL: Chairman of the Board and Trustee of the Fund; Chairman of
the Board and Trustee or Director of all other Keystone Group Funds;
Director of Keystone Group; Director and Chairman of the Board of Hartwell
Keystone; Chairman of the Board and Trustee of Anatolia College; Trustee of
University Hospital (and Chairman of its Investment Committee); former
Chairman of the Board and Chief Executive Officer of Keystone Group; and
former Chief Executive Officer of the Fund.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; Executive Director, Coalition of Essential Schools,
Brown University; Director and former Executive Vice President, National
Alliance of Business; former Vice President, Educational Testing Services;
and former Dean, School of Business, Adelphi University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; former Group Vice President, Textron Corp.; and
former Director, Peoples Bank (Charlotte, NC).
LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other Keystone
Group Funds; Director of Phoenix Total Return Fund and Equifax, Inc.;
Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio Fund and The
Phoenix Big Edge Series Fund; and former President, Morehouse College.
K. DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other Keystone
Group Funds; Chairman of the Board, Director and Executive Vice President,
The London Harness Company; Managing Partner, Roscommon Capital Corp.;
Trustee, Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chief Executive Officer, Gifford Gifts of Fine
Foods; Chairman, Gifford, Drescher & Associates (environmental consulting);
President, Oldways Preservation and Exchange Trust (education); and former
Director, Keystone Group and Keystone.
F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; Of Counsel, Keyser, Crowley & Meub, P.C.; Member,
Governor's (VT) Council of Economic Advisers; Chairman of the Board and
Director, Central Vermont Public Service Corporation and Hitchcock Clinic;
Director, Vermont Yankee Nuclear Power Corporation, Vermont Electric Power
Company, Inc., Grand Trunk Corporation, Central Vermont Railway, Inc.,
S.K.I. Ltd., Sherburne Corporation, Union Mutual Fire Insurance Company,
New England Guaranty Insurance Company, Inc. and the Investment Company
Institute; former Governor of Vermont; former Director and President,
Associated Industries of Vermont; former Chairman and President, Vermont
Marble Company; former Director of Keystone; and former Director and
Chairman of the Board, Green Mountain Bank.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; Executive Vice President, DHR International, Inc.
(executive recruitment); former Senior Vice President, Boyden International
Inc. (executive recruitment); and Director, Commerce and Industry
Association of New Jersey, 411 International, Inc. and J & M Cumming Paper
Co.
RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other Keystone
Group Funds; Chairman, Environmental Warranty, Inc., and Consultant, Drake
Beam Morin, Inc. (executive outplacement); Director of Connecticut Natural
Gas Corporation, Trust Company of Connecticut, Hartford Hospital, Old State
House Association and Enhanced Financial Services, Inc.; Member, Georgetown
College Board of Advisors; Chairman, Board of Trustees, Hartford Graduate
Center; Trustee, Kingswood-Oxford School and Greater Hartford YMCA; former
Director, Executive Vice President and Vice Chairman of The Travelers
Corporation; and former Managing Director of Russell Miller, Inc.
ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other Keystone
Group Funds; Partner, Farrell, Fritz, Caemmerer, Cleary, Barnosky &
Armentano, P.C.; President, Nassau County Bar Association; former Associate
Dean and Professor of Law, St. John's University School of Law.
EDWARD F. GODFREY: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Group Funds; Director, Senior Vice President, Chief
Financial Officer and Treasurer of Keystone Group, KDI, Keystone Asset
Corporation, Keystone Capital Corporation, Keystone Trust Company;
Treasurer of KIMCO, Robert Van Partners, Inc., and FICO; Treasurer and
Director of Keystone Management, Keystone Software, Inc., and Hartwell
Keystone; Vice President and Treasurer of KFIA; and Director of KIRC.
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of all
other Keystone Group Funds; and President of Keystone.
KEVIN J.MORRISSEY: Treasurer of the Fund; Treasurer of all other Keystone Group
Funds; Vice President of Keystone Group; Assistant Treasurer of FICO and
Keystone; and former Vice President and Treasurer of KIRC.
BETSY A. BLACHER: Vice President of the Fund; Vice President of certain other
Keystone Group Funds; Vice President of Keystone.
CHRISTOPHER P. CONKEY: Vice President of the Fund; Vice President of certain
other Keystone Group Funds; Vice President of Keystone
ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Fund; Senior
Vice President and Secretary of all other Keystone Group Funds; Senior Vice
President, General Counsel and Secretary of Keystone; Senior Vice
President, General Counsel, Secretary and Director of KDI, Keystone
Management and Keystone Software; Senior Vice President and General Counsel
of KIMCO; Senior Vice President, General Counsel and Director of FICO and
KIRC; Senior Vice President and Secretary of Hartwell Keystone and Robert
Van Partners, Inc.; Vice President and Secretary of KFIA; Senior Vice
President, General Counsel and Secretary of Keystone Group, Keystone Asset
Corporation, Keystone Capital Corporation and Keystone Trust Company.
* This Trustee may be considered an "interested person" within the meaning of
the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Group and several of its
affiliates including Hartwell Keystone, KDI and KIRC. Mr. Elfner and Mr. Bissell
own shares of Keystone Group. Mr. Elfner is Chairman of the Board, Chief
Executive Officer, President and Director of Keystone Group. Mr. Bissell is a
Director of Keystone Group.
During the fiscal year ended November 30, 1994, no Trustee affiliated with
Keystone or any officer of Keystone received any direct remuneration from the
Fund. During the same period the nonaffiliated Trustees were paid $8,485 in
retainers and fees. As of November 30, 1994, fees paid to Independent Trustees
on a fund complex wide basis were approximately $585,975. On February 28, 1995,
the Trustees and officers of the Fund beneficially owned less than 1% of the
Fund's then outstanding shares.
The address of the Fund's Trustees and officers is 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
--------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER
--------------------------------------------------------------------------------
Pursuant to a Principal Underwriting Agreement dated August 19, 1993,
between the Fund and KDI (the "Underwriting Agreement"), KDI acts as the Fund's
Principal Underwriter. KDI located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, is a Delaware corporation wholly-owned by Keystone. KDI, as agent,
has agreed to use its best efforts to find purchasers for the shares. KDI may
retain and employ representatives to promote distribution of the shares and may
obtain orders from brokers, dealers and others, acting as principals, for sales
of shares to them. The Underwriting Agreement provides that KDI will bear the
expense of preparing, printing and distributing advertising and sales literature
and prospectuses used by it. In its capacity as Principal Underwriter, KDI may
receive payments from the Fund pursuant to the Fund's Distribution Plan.
All subscriptions and sales of shares by KDI are at the offering price of
the shares in accordance with the provisions of the Declaration of Trust,
By-Laws, and the Fund's current prospectus and statement of additional
information. All orders are subject to acceptance by the Fund, and the Fund
reserves the right in its sole discretion to reject any order received. Under
the Underwriting Agreement, the Fund is not liable to anyone for failure to
accept any order.
The Fund has agreed under the Underwriting Agreement to pay all expenses in
connection with registration of its shares with the Commission and auditing and
filing fees in connection with registration of its shares under the various
state "blue-sky" laws, and KDI assumes the cost of sales literature and
preparation of prospectuses used by it and certain other expenses.
From time to time, if in KDI's judgment it could benefit the sales of Fund
shares, KDI may use its discretion in providing to selected dealers promotional
materials and selling aids, including, but not limited to, personal computers,
related software and Fund data files.
KDI has agreed that it will in all respects duly conform with all state and
federal laws applicable to the sale of the shares and will indemnify and hold
harmless the Fund, and each person who has been, is or may be a Trustee or
officer of the Fund, against expenses reasonably incurred by any of them in
connection with any claim or in connection with any action, suit or proceeding
to which any of them may be a party, that arises out of or is alleged to arise
out of any misrepresentation or omission to state a material fact on the part of
KDI or any other person for whose acts KDI is responsible or is alleged to be
responsible, unless such misrepresentation or omission was made in reliance upon
written information furnished by the Fund.
The Underwriting Agreement provides that it will remain in effect as long
as its terms and continuance are approved by a majority of the Fund's
Independent Trustees at least annually at a meeting called for that purpose, and
if its continuance is approved annually by vote of a majority of Trustees, or by
vote of a majority of the outstanding shares.
The Underwriting Agreement may be terminated, without penalty, on 60 days'
written notice by the Board of Trustees or by a vote of a majority of
outstanding shares. The Underwriting Agreement will terminate automatically upon
its "assignment" as that term is defined in the 1940 Act.
--------------------------------------------------------------------------------
BROKERAGE
--------------------------------------------------------------------------------
It is the policy of the Fund, in effecting transactions in portfolio
securities, to seek best execution of orders at the most favorable prices. The
determination of what may constitute best execution and price in the execution
of a securities transaction by a broker involves a number of considerations,
including, without limitation, the overall direct net economic result to the
Fund, involving both price paid or received and any commissions and other costs
paid, the efficiency with which the transaction is effected, the ability to
effect the transaction at all where a large block is involved, the availability
of the broker to stand ready to execute potentially difficult transactions in
the future and the financial strength and stability of the broker. Management
weighs such considerations in determining the overall reasonableness of
brokerage commissions paid.
Subject to the foregoing, a factor in the selection of brokers is the
receipt of research services, such as analyses and reports concerning issuers,
industries, securities, economic factors and trends and other statistical and
factual information. Any such research and other statistical and factual
information provided by brokers to the Fund, Keystone Management or Keystone is
considered to be in addition to and not in lieu of services required to be
performed by Keystone Management under the Management Agreement or Keystone
under the Advisory Agreement. The cost, value and specific application of such
information are indeterminable and cannot be practically allocated among the
Fund and other clients of Keystone Management or Keystone who may indirectly
benefit from the availability of such information. Similarly, the Fund may
indirectly benefit from information made available as a result of transactions
effected for such other clients. Under the Management Agreement and the Advisory
Agreement, Keystone Management and Keystone are permitted to pay higher
brokerage commissions for brokerage and research services in accordance with
Section 28(e) of the Securities Exchange Act of 1934. In the event Keystone
Management and Keystone do follow such a practice, they will do so on a basis
which is fair and equitable to the Fund.
The Fund expects that purchases and sales of municipal bonds and temporary
instruments usually will be principal transactions. Municipal bonds and
temporary instruments are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. There usually will be no
brokerage commissions paid by the Fund for such purchases. Purchases from
underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark up
or reflect a dealer's mark down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
The Fund may participate, if and when practicable, in group bidding for the
purchase directly from an issuer of certain securities for the Fund's portfolio
in order to take advantage of the lower purchase price available to members of
such a group.
Neither Keystone Management, Keystone nor the Fund intend to place
securities transactions with any particular broker-dealer or group thereof.
However, the Fund's Board of Trustees has determined that the Fund may follow a
policy of considering sales of shares as a factor in the selection of
broker-dealers to execute portfolio transactions, subject to the requirements of
best execution, including best price, described above.
The policy of the Fund with respect to brokerage is and will be reviewed by
the Fund's Board of Trustees from time to time. Because of the possibility of
further regulatory developments affecting the securities exchanges and brokerage
practices generally, the foregoing practices may be changed, modified or
eliminated.
Investment decisions for the Fund are made independently by Keystone
Management or Keystone from those of the other funds and investment accounts
managed by Keystone Management or Keystone. It may frequently develop that the
same investment decision is made for more than one fund. Simultaneous
transactions are inevitable when the same security is suitable for the
investment objective of more than one account. When two or more funds or
accounts are engaged in the purchase or sale of the same security, the
transactions are allocated as to amount in accordance with a formula that is
equitable to each fund or account. It is recognized that in some cases this
system could have a detrimental effect on the price or volume of the security as
far as the Fund is concerned. In other cases, however, it is believed that the
ability of the Fund to participate in volume transactions will produce better
executions for the Fund.
During the fiscal years ended November 30, 1992, 1993 and 1994 the Fund did
not pay any brokerage commissions.
In no instance are portfolio securities purchased from or sold to Keystone
Management, Keystone, KDI or any of their affiliated persons, as defined in the
1940 Act and rules and regulations issued thereunder.
--------------------------------------------------------------------------------
DECLARATION OF TRUST
--------------------------------------------------------------------------------
MASSACHUSETTS BUSINESS TRUST
The Fund is a Massachusetts business trust established under a Declaration
of Trust dated October 24, 1986, (the "Declaration of Trust"). The Fund is
similar in most respects to a business corporation. The principal distinction
between the Fund and a corporation relates to the shareholder liability
described below. A copy of the Declaration of Trust was filed as an exhibit to
the Fund's Registration Statement. This summary is qualified in its entirety by
reference to the Declaration of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest of classes of shares, each of which represents an
equal proportionate interest in the Fund with each other share of that class.
Shares are entitled upon liquidation of the Fund to a pro-rata share of the Fund
based on the relative net assets of each class. Shareholders have no preemptive
or conversion rights. Shares are transferable, redeemable and fully assignable
as collateral. There are no sinking fund provisions. The Fund currently issues
three classes of shares, but may issue additional classes or series of shares.
SHAREHOLDER LIABILITY
Pursuant to certain decisions of the Supreme Judicial Court of
Massachusetts, shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. Even if, however, the Fund were held to be a partnership, the possibility
of the shareholders incurring financial loss for that reason appears remote
because (1) the Fund's Declaration of Trust contains an express disclaimer of
shareholder liability for obligations of the Fund; (2) requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Fund or the Trustees; and because the Declaration of
Trust provides for indemnification out of Fund property for any shareholder held
personally liable for the obligations of the Fund.
VOTING RIGHTS
Under the Declaration of Trust the Fund does not hold annual meetings.
Shares are entitled to one vote per share. Shares generally vote together as one
class on all matters. Classes of shares of the Fund have equal voting rights
except that each class of shares has exclusive voting rights with respect to its
respective Distribution Plan. No amendment may be made to the Declaration of
Trust that adversely affects any class of shares without the approval of a
majority of the shares of that class. Shares have non-cumulative voting rights,
which means that the holders of more than 50% of the shares voting for the
election of Trustees can elect 100% of the Trustees to be elected at a meeting
and, in such event, the holders of the remaining 50% or less of the shares
voting will not be able to elect any Trustees.
After the initial meeting to elect Trustees, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders, at which time the Trustees
then in office will call a shareholders' meeting for election of Trustees.
Except as set forth above, the Trustees shall continue to hold office
indefinitely, unless otherwise required by law, and may appoint successor
Trustees. A Trustee may be removed from or cease to hold office (as the case may
be) (1) at any time by two-thirds vote of the remaining Trustees; (2) when any
such Trustee becomes mentally or physically incapacitated; or (3) at a special
meeting of shareholders by a two-thirds vote of the outstanding shares. Any
Trustee may voluntarily resign from office.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for
his own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person; provided, however, that
nothing in the Declaration of Trust shall protect a Trustee against any
liability for his willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties.
The Trustees have absolute and exclusive control over the management and
disposition of all assets of the Fund and may perform such acts as in their sole
judgment and discretion are necessary and proper for conducting the business and
affairs of the Fund or promoting the interests of the Fund and the shareholders.
--------------------------------------------------------------------------------
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
--------------------------------------------------------------------------------
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
The cumulative total return of Class A of the Fund for the period April 14,
1987 (commencement of investment operations) through November 30, 1994 was
47.99%. The total cumulative return of Class A of the Fund for the one and five
year periods ended November 30, 1994 were (12.19)% and 21.47%, respectively. The
compounded average annual rate of return of Class A of the Fund for the period
April 14, 1987 (commencement of investment operations) to November 30, 1994 was
5.27%. The compounded average annual rate of return of Class A of the Fund for
the one and five year periods ended November 30, 1994 were (12.19)% and 3.97%.
The cumulative total returns for Class B and C of the Fund for the period
from February 1, 1993 (inception of Class B and C) through November 30, 1994
were (4.98)% and (2.39)%, respectively. The cumulative total returns for Class B
and Class C of the Fund for the one year period ended November 30, 1994 were
(11.03)% and (8.52)%, respectively. The compounded average annual rates of
return for Class B and Class C for the one year period ended November 30, 1994
were (11.03)% and (8.52)%, respectively.
Current yield quotations as they may appear from time to time in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of the Fund, computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the base period. The standardized yield of
Class A, B and C of the Fund for the 30-day period ended November 30, 1994 were
5.77%, 5.29% and 5.27%, respectively.
Tax equivalent yield is, in general, the current yield divided by a factor
equal to one minus a stated income tax rate and reflects the yield a taxable
investment would have to achieve in order to equal on an after-tax basis a
tax-exempt yield. The federal tax equivalent yields for Class A, Class B and
Class C shares of the Fund for an investor in the 31% federal tax bracket for
the 30-day period ended November 30, 1994 were 8.36%, 7.67% and 7.64%,
respectively.
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian of all securities and cash of the Fund
(the "Custodian"). The Custodian may hold securities of some foreign issuers
outside the U.S. The Custodian performs no investment management functions for
the Fund, but, in addition to its custodial services, is responsible for
accounting and related recordkeeping on behalf of the Fund.
KPMG Peat Marwick LLP, One Boston Place, Boston, Massachusetts 02108,
Certified Public Accountants, are the independent auditors.
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519, is a
wholly-owned subsidiary of Keystone. As previously mentioned, KIRC serves as the
Fund's transfer agent and dividend disbursing agent.
Except as otherwise stated in its prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in its prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
No dealer, salesman or other person is authorized to give any information
or to make any representation not contained in the Fund's prospectus, this
statement of additional information or in supplemental sales literature issued
by the Fund or KDI, and no person is entitled to rely on any information or
representation not contained therein.
The Fund's prospectus and this statement of additional information omit
certain information contained in the registration statement filed with the SEC,
which may be obtained from the SEC's principal office in Washington, D.C. upon
payment of the fee prescribed by the rules and regulations promulgated by the
SEC.
On February 28, 1995, Merrill Lynch Pierce Fenner & Smith, Attn: Book
Entry, 4800 Deer Lake Drive, E 3rd Fl, Jacksonville, Florida 32246-6484 owned
22.6%, 24.53% and 50.21%, respectively, of the Fund's outstanding Class A, B and
C shares. In addition, on February 28, 1995, Alletta Laird Downs TTEE, U/A
03-28-89, Alletta Laird Downs Trust, P.O. Box 3666, Wilmington, DE 19807-0666
owned 6.13% of the Fund's outstanding Class B shares. Management does not
believe that any other person beneficially owns 5% or more of the Fund's Class
A, B and C shares.
The Fund is one of 15 different investment companies in the Keystone
America family, which offers a range of choices to serve shareholder needs. The
Keystone America family consists of the following funds having the various
investment objectives described below:
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC. - Seeks capital
appreciation by investment primarily in small and medium-sized companies in a
relatively early stage of development that are principally traded in the
over-the-counter market.
KEYSTONE AMERICA HARTWELL GROWTH FUND, INC. - Seeks capital appreciation by
investment in securities selected for their long-term growth prospects.
KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND - Seeks high level of
current income, consistent with low volatility of principal, by investing under
ordinary circumstances at least 65% in adjustable rate securities issued by the
U.S. government, its agencies or instrumentalities.
KEYSTONE AMERICA FUND FOR TOTAL RETURN - Seeks total return from a combination
of capital and growth income from dividend paying quality common stocks,
preferred stocks, convertible bonds, other fixed-income securities and foreign
securities (up to 25%).
KEYSTONE AMERICA GLOBAL OPPORTUNITIES FUND - Seeks long-term capital growth from
foreign and domestic securities.
KEYSTONE AMERICA GOVERNMENT SECURITIES FUND - Seeks income and capital
preservation from U.S. government securities.
KEYSTONE AMERICA INTERMEDIATE TERM BOND FUND - Seeks income, capital
preservation and price appreciation potential from investment grade corporate
bonds.
KEYSTONE AMERICA OMEGA FUND, INC. - Seeks maximum capital growth from common
stocks and securities convertible into common stocks.
KEYSTONE AMERICA STATE TAX FREE FUND - A mutual fund consisting of two separate
series of shares investing in different portfolio securities which seeks the
highest possible current income, exempt from federal income taxes and applicable
state taxes.
KEYSTONE AMERICA STATE TAX FREE FUND - SERIES II - A mutual fund currently
offering two separate series of shares investing in different portfolio
securities which seeks the highest possible current income, exempt from federal
income taxes and applicable state taxes.
KEYSTONE AMERICA STRATEGIC INCOME FUND - Seeks high yield and capital
appreciation potential from corporate bonds, discount bonds, convertible bonds,
preferred stock and foreign bonds (up to 25%).
KEYSTONE AMERICA TAX FREE INCOME FUND - Seeks income exempt from federal income
taxes and capital preservation from the four highest grades of municipal bonds.
KEYSTONE AMERICA WORLD BOND FUND - Seeks total return from interest income,
capital gains and losses and currency exchange gains and losses from investment
in debt securities denominated in U.S. and foreign currencies.
KEYSTONE FUND OF THE AMERICAS - Seeks growth and income from a diversified
portfolio of established North American stocks, Latin American stocks and Latin
American bonds.
KEYSTONE STRATEGIC DEVELOPMENT FUND - Seeks long term capital growth by
investing primarily in equity securities.
<PAGE>
A-1
APPENDIX
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MONEY MARKET INSTRUMENTS
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Money market securities are instruments with remaining maturities of one
year or less such as bank certificates of deposit, bankers' acceptances,
commercial paper (including variable rate master demand notes) and obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
some of which may be subject to repurchase agreements.
COMMERCIAL PAPER
Commercial paper will consist of issues rated at the time of purchase A-1,
by S&P, or PRIME-1 by Moody's or F-1 by Fitch Investors Services, Inc.
(Fitch's); or, if not rated, will be issued by companies that have an
outstanding debt issue rated at the time of purchase Aaa, Aa or A by Moody's, or
AAA, AA or A by S&P, or will be determined by Keystone to be of comparable
quality.
A. S&P RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. The top category is as follows:
1. A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree of
safety.
2. A-1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted with
a plus (+) sign designation.
B. MOODY'S RATINGS
The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's commercial
paper ratings are opinions of the ability of issuers to repay punctually
promissory obligations not having an original maturity in excess of nine months.
Moody's employs the following designation, judged to be investment grade, to
indicate the relative repayment capacity of rated issuers.
1. The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are deemed
to have a superior capacity for repayment of short term promissory obligations.
Repayment capacity of Prime-1 issuers is normally evidenced by the following
characteristics:
1) leading market positions in well-established industries;
2) high rates of return on funds employed;
3) conservative capitalization structures with moderate reliance on debt
and ample asset protection;
4) broad margins in earnings coverage of fixed financial charges and high
internal cash generation; and
5) well established access to a range of financial markets and assured
sources of alternate liquidity.
In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.
CERTIFICATES OF DEPOSIT
Certificates of deposit are receipts issued by a bank in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-denominated
certificates of U.S. banks, including their branches abroad, and of U.S.
branches of foreign banks, which are members of the Federal Reserve System or
the Federal Deposit Insurance Corporation, and have at least $1 billion in
deposits as of the date of their most recently published financial statements;
or of savings and loan associations that are members of the Federal Savings and
Loan Insurance Corporation, and have at least $1 billion in deposits as of the
date of their most recent financial statements.
The Fund will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, (the "World Bank"), the
Asian Development Bank or the Inter-American Development Bank. Additionally, the
Fund does not currently intend to purchase foreign securities (except to the
extent that certificates of deposit of foreign branches of U.S. banks may be
deemed foreign securities) or purchase certificates of deposit, bankers'
acceptances or other similar obligations issued by foreign banks.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Fund must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total deposits at the time of purchase in excess of $1 billion and must be
payable in U.S. dollars.
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. government include a variety of
Treasury securities that differ only in their interest rates, maturities and
dates of issuance and securities issued by the Government National Mortgage
Association ("GNMA"). Treasury bills have maturities of one year or less.
Treasury notes have maturities of one to ten years and Treasury bonds generally
have maturities of greater than ten years at the date of issuance. GNMA
securities include GNMA mortgage pass-through certificates. Such securities are
supported by the full faith and credit of the U.S.
Securities issued or guaranteed by U.S. government agencies or
instrumentalities include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the U.S.,
Small Business Administration, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Land Banks, Maritime Administration,
The Tennessee Valley Authority, District of Columbia Armory Board and Federal
National Mortgage Association.
Some obligations of U.S. government agencies and instrumentalities, such as
securities of Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury. Others, such as bonds issued by the Federal
National Mortgage Association, a private corporation, are supported only by the
credit of the instrumentality. Because the U.S. government is not obligated by
law to provide support to an instrumentality it sponsors, the Fund will invest
in the securities issued by such an instrumentality only when Keystone
determines under standards established by the Board of Trustees that the credit
risk with respect to the instrumentality does not make its securities unsuitable
investments. U.S. government securities do not include international agencies or
instrumentalities in which the U.S. government, its agencies or
instrumentalities participate, such as the World Bank, Asian Development Bank or
the Inter-American Development Bank, or issues insured by the Federal Deposit
Insurance Corporation or Federal Savings and Loan Insurance Corporation.
CORPORATE AND MUNICIPAL BOND RATINGS
S&P CORPORATE AND MUNICIPAL BOND RATINGS
A. MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria are used in making that assessment:
a. Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note), and
b. Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note ratings are as follows:
1. SP-1: Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will
be given a plus (+) designation.
2. SP-2: Satisfactory capacity to pay principal and interest.
3. SP-3: Speculative capacity to pay principal and interest.
B. TAX EXEMPT DEMAND BONDS
S&P assigns "dual" ratings to all long-term debt issues that have as part
of their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/A-1+"). For the newer "demand notes," S&P note rating
symbols, combined with the commercial paper symbols, are used (for example,
"SP-1+/A-1+" ).
C. CORPORATE AND MUNICIPAL BOND RATINGS
An S&P corporate or municipal bond rating is a current assessment of the
credit worthiness of an obligor, including obligors outside the U.S., with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers or lessees. Ratings of foreign obligors do
not take into account currency exchange and related uncertainties. The ratings
are based on current information furnished by the issuer or obtained by S&P from
other sources it considers reliable.
The ratings are based, in varying degrees, on the following considerations:
a. Likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in the
event of bankruptcy reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "BBB" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
A provisional rating is sometimes used by S&P. It assumes the successful
completion of the project being financed by the debt being rated and indicates
that payment of debt service requirements is largely or entirely dependent upon
the successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood of, or the risk of default upon failure of, such
completion.
C. BOND RATINGS ARE AS FOLLOWS:
1. AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
D. MOODY'S CORPORATE AND MUNICIPAL BOND RATINGS
Moody's ratings are as follows:
1. Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
2. Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present that make the long term risks appear somewhat
larger than in Aaa securities.
3. A - Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present that suggest a susceptibility to impairment sometime in the
future.
4. Baa - Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
CON. (---) - Municipal bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Those municipal bonds in the Aa, A, and Baa groups that Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, and Baa 1.
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FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS
--------------------------------------------------------------------------------
The Fund intends to enter into currency and other financial futures
contracts as a hedge against changes in prevailing levels of interest or
currency exchange rates to seek relative stability of principal and to establish
more definitely the effective return on securities held or intended to be
acquired to the Fund or as a hedge against changes in the prices of securities
or currencies held by the Fund or to be acquired by the Fund. The Fund's hedging
may include sales of futures as an offset against the effect of expected
increases in interest or currency exchange rates or securities prices and
purchases of futures as an offset against the effect of expected declines in
interest or currency exchange rates.
For example, when the Fund anticipates a significant market or market
sector advance, it will purchase a stock index futures contract as a hedge
against not participating in such advance at a time when the Fund is not fully
invested. The purchase of a futures contract serves as a temporary substitute
for the purchase of individual securities which may then be purchased in an
orderly fashion. As such purchases are made, an equivalent amount of index based
futures contracts would be terminated by offsetting sales. In contrast, the Fund
would sell stock index futures contracts in anticipation of or in a general
market or market sector decline that may adversely affect the market value of
the Fund's portfolio. To the extent that the Fund's portfolio changes in value
in correlation with a given index, the sale of futures contracts on that index
would substantially reduce the risk to the portfolio of a market decline or
change in interest rates, and, by doing so, provide an alternative to the
liquidation of the Fund's securities positions and the resulting transaction
costs.
The Fund intends to engage in options transactions that are related to
currency and other financial futures contracts for hedging purposes and in
connection with the hedging strategies described above.
Although techniques other than sales and purchases of futures contracts and
related options transactions could be used to reduce the Fund's exposure to
interest rate and/or market fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Fund does not intend to
take delivery of the instruments underlying futures contracts it holds, the Fund
does not intend to engage in such futures contracts for speculation.
FUTURES CONTRACTS
Futures contracts are transactions in the commodities markets rather than
in the securities markets. A futures contract creates an obligation by the
seller to deliver to the buyer the commodity specified in the contract at a
specified future time for a specified price. The futures contract creates an
obligation by the buyer to accept delivery from the seller of the commodity
specified at the specified future time for the specified price. In contrast, a
spot transaction creates an immediate obligation for the seller to deliver and
the buyer to accept delivery of and pay for an identified commodity. In general,
futures contracts involve transactions in fungible goods such as wheat, coffee
and soybeans. However, in the last decade an increasing number of futures
contracts have been developed that specify currencies, financial instruments or
financially based indexes as the underlying commodity.
U.S. futures contracts are traded only on national futures exchanges and
are standardized as to maturity date and underlying financial instrument. The
principal financial futures exchanges in the United States are The Board of
Trade of the City of Chicago, the Chicago Mercantile Exchange, the International
Monetary Market (a division of the Chicago Mercantile Exchange), the New York
Futures Exchange and the Kansas City Board of Trade. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant ("Broker") effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC") and National Futures Association ("NFA").
INTEREST RATE FUTURES CONTRACTS
The sale of an interest rate futures contract creates an obligation by the
Fund, as seller, to deliver the type of financial instrument specified in the
contract at a specified future time for a specified price. The purchase of an
interest rate futures contract creates an obligation by the Fund, as purchaser,
to accept delivery of the type of financial instrument specified at a specified
future time for a specified price. The specific securities delivered or
accepted, respectively, at settlement date, are not determined until at or near
that date. The determination is in accordance with the rules of the exchange on
which the futures contract sale or purchase was made.
Currently interest rate futures contracts can be purchased or sold on
90-day U.S. Treasury bills, U.S. Treasury bonds, U.S. Treasury notes with
maturities between 6 1/2 and 10 years, GNMA certificates, 90-day domestic bank
certificates of deposit, 90-day Commercial paper, and 90-day Eurodollar
certificates of deposit. It is expected that futures contracts trading in
additional financial instruments will be authorized. The standard contract size
is $100,000 for futures contracts in U.S. Treasury bonds, U.S. Treasury notes
and GNMA certificates, and $1,000,000 for the other designated contracts. While
U.S. Treasury bonds, U.S. Treasury bills and U.S. Treasury notes are backed by
the full faith and credit of the U.S. government and GNMA certificates are
guaranteed by a U.S. government agency, the futures contracts in U.S. government
securities are not obligations of the U.S. Treasury.
INDEX BASED FUTURES CONTRACTS
STOCK INDEX FUTURES CONTRACTS
A stock index assigns relative values to the common stocks included in the
index. The index fluctuates with changes in the market values of the common
stocks so included. A stock index futures contract is a bilateral agreement by
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the closing value of the
stock index on the expiration date of the contract and the price at which the
futures contract is originally made. No physical delivery of the underlying
stocks in the index is made.
Currently stock index futures contracts can be purchased or sold on the S&P
Index of 500 Stocks, the S&P Index of 100 Stocks, the New York Stock Exchange
Composite Index, the Value Line Index and the Major Market Index. It is expected
that futures contracts trading in additional stock indices will be authorized.
The standard contract size is $500 times the value of the index.
The Fund does not believe that differences between existing stock indices
will create any differences in the price movements of the stock index futures
contracts in relation to the movements in such indices. However, such
differences in the indices may result in differences in correlation of the
futures with movements in the value of the securities being hedged.
OTHER INDEX BASED FUTURES CONTRACTS
It is expected that bond index and other financially based index futures
contracts will be developed in the future. It is anticipated that such index
based futures contracts will be structured in the same way as stock index
futures contracts but will be measured by changes in interest rates, related
indexes or other measures, such as the consumer price index. In the event that
such futures contracts are developed the Fund will sell interest rate index and
other index based futures contracts to hedge against changes which are expected
to affect the Fund's portfolio.
The purchase or sale of a futures contract differs from the purchase or
sale of a security, in that no price or premium is paid or received. Instead, to
initiate trading an amount of cash, cash equivalents, money market instruments,
or U.S. Treasury bills equal to approximately 1 1/2% (up to 5%) of the contract
amount must be deposited by the Fund with the Broker. This amount is known as
initial margin. The nature of initial margin in futures transactions is
different from that of margin in security transactions. Futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. The margin required for a particular futures contract is set by
the exchange on which the contract is traded and may be significantly modified
from time to time by the exchange during the term of the contract.
Subsequent payments, called variation margin, to the Broker and from the
Broker, are made on a daily basis as the value of the underlying instrument or
index fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as mark-to-market. For example, when the
Fund has purchased a futures contract and the price of the underlying financial
instrument or index has risen, that position will have increased in value, and
the Fund will receive from the Broker a variation margin payment equal to that
increase in value. Conversely, where the Fund has purchased a futures contract
and the price of the underlying financial instrument or index has declined, the
position would be less valuable and the Fund would be required to make a
variation margin payment to the Broker. At any time prior to expiration of the
futures contract, the Fund may elect to close the position. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the Broker, and the Fund realizes a loss or gain.
The Fund intends to enter into arrangements with its custodian and with
Brokers to enable its initial margin and any variation margin to be held in a
segregated account by its custodian on behalf of the Broker.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of financial instruments, and index based futures
contracts call for the delivery of cash equal to the difference between the
closing value of the index on the expiration date of the contract and the price
at which the futures contract is originally made, in most cases such futures
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out a futures contract sale is effected by an offsetting
transaction in which the Fund enters into a futures contract purchase for the
same aggregate amount of the specific type of financial instrument or index and
same delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the difference
and realizes a loss. Similarly, the closing out of a futures contract purchase
is effected by an offsetting transaction in which the Fund enters into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain. If the purchase price exceeds the offsetting sale price the
Fund realizes a loss. The amount of the Fund's gain or loss on any transaction
is reduced or increased, respectively, by the amount of any transaction costs
incurred by the Fund.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one contract of September U.S. Treasury bills on an
exchange may be fulfilled at any time before delivery of the contract is
required (i.e. on a specified date in September, the "delivery month") by the
purchase of one contract of September U.S. Treasury bills on the same exchange.
In such instance the difference between the price at which the futures contract
was sold and the price paid for the offsetting purchase after allowance for
transaction costs, represents the profit or loss to the Fund.
There can be no assurance, however, that the Fund will be ableto 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.
OPTIONS ON CURRENCY AND OTHER FINANCIAL FUTURES
The Fund intends to purchase call and put options on currency and other
financial futures contracts and sell such options to terminate an existing
position. Options on futures are similar to options on stocks except that an
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) rather than to
purchase or sell stock, at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account. This amount represents the amount by which the market price of
the futures contract at exercise exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. If an option is exercised the last trading day prior to the expiration
date of the option, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and value of the futures
contract.
The Fund intends to use options on currency and other financial futures
contracts in connection with hedging strategies. In the future the Fund may use
such options for other purposes.
PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS
The purchase of protective put options on currency and other financial
futures contracts is analogous to the purchase of protective puts on individual
stocks, where an absolute level of protection is sought below which no
additional economic loss would be incurred by the Fund. Put options may be
purchased to hedge a portfolio of stocks or debt instruments or a position in
the futures contract upon which the put option is based.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS
The purchase of a call option on a currency and other financial futures
contract represents a means of obtaining temporary exposure to market
appreciation at limited risk. It is analogous to the purchase of a call option
on an individual stock, which can be used as a substitute for a position in the
stock itself. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the underlying
financial instrument or index itself, purchase of a call option may be less
risky than the ownership of the interest rate or index based futures contract or
the underlying securities. Call options on commodity futures contracts may be
purchased to hedge against an interest rate increase or a market advance when
the Fund is not fully invested.
USE OF NEW INVESTMENT TECHNIQUES INVOLVING CURRENCY AND OTHER FINANCIAL FUTURES
CONTRACTS OR RELATED OPTIONS
The Fund may employ new investment techniques involving currency and other
financial futures contracts and related options. The Fund intends to take
advantage of new techniques in these areas which may be developed from time to
time and which are consistent with the Fund's investment objective. The Fund
believes that no additional techniques have been identified for employment by
the Fund in the foreseeable future other than those described above.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND RELATED OPTIONS ON
SUCH FUTURES CONTRACTS
The Fund will not enter into a futures contract if, as a result thereof,
more than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to margin deposits on such
futures contracts.
The Fund intends that its futures contracts and related options
transactions will be entered into for traditional hedging purposes. That is,
futures contracts will be sold to protect against a decline in the price of
securities that the Fund owns, or futures contracts will be purchased to protect
the Fund against an increase in the price of securities it intends to purchase.
The Fund does not intend to enter into futures contracts for speculation.
In instances involving the purchase of futures contracts by the Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts will be deposited in a segregated account with the Fund's custodian
and/or in a margin account with a Broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
FEDERAL INCOME TAX TREATMENT
For federal income tax purposes, the Fund is required to recognize as
income for each taxable year its net unrealized gains and losses on futures
contracts as of the end of the year as well as those actually realized during
the year. Any gain or loss recognized with respect to a futures contract is
considered to be 60% long term and 40% short term, without regard to the holding
period of the contract. In the case of a futures transaction classified as a
"mixed straddle," the recognition of losses may be deferred to a later taxable
year. The federal income tax treatment of gains or losses from transactions in
options on futures is unclear.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income. Any net gain realized
from the closing out of futures contracts, for purposes of the 90% requirement,
will be qualifying income. In addition, gains realized on the sale or other
disposition of securities held for less than three months must be limited to
less than 30% of the Fund's annual gross income. The 1986 Tax Act added a
provision which effectively treats both positions in certain hedging
transactions as a single transaction for the purpose of the 30% requirement. The
provision provides that, in the case of any "designated hedge," increases and
decreases in the value of positions of the hedge are to be netted for the
purposes of the 30% requirement. However, in certain situations, in order to
avoid realizing a gain within a three month period, the Fund may be required to
defer the closing out of a contract beyond the time when it would otherwise be
advantageous to do so.
RISKS OF FUTURES CONTRACTS
Currency and other financial futures contracts prices are volatile and are
influenced, among other things, by changes in stock prices, market conditions,
prevailing interest rates and anticipation of future stock prices, market
movements or interest rate changes, all of which in turn are affected by
economic conditions, such as government fiscal and monetary policies and
actions, and national and international political and economic events.
At best, the correlation between changes in prices of futures contracts and
of the securities being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances, such as variations in
speculative market demand for futures contracts and for securities, including
technical influences in futures contracts trading; differences between the
securities being hedged and the financial instruments and indexes underlying the
standard futures contracts available for trading, in such respects as interest
rate levels, maturities and credit worthiness of issuers, or identities of
securities comprising the index and those in the Fund's portfolio. In addition
futures contract transactions involve the remote risk that a party be unable to
fulfill its obligations and that the amount of the obligation will be beyond the
ability of the clearing broker to satisfy. A decision of whether, when and how
to hedge involves the exercise of skill and judgment, and even a well-conceived
hedge may be unsuccessful to some degree because of market behavior or
unexpected interest rate trends.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out, and a 15% decrease would result in a loss equal to 150% of the
original margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable losses if, instead
of entering into the futures contract, it had invested in the underlying
financial instrument. Furthermore, in order to be certain that the Fund has
sufficient assets to satisfy its obligations under a futures contract, the Fund
will establish a segregated account in connection with its futures contracts
that will hold cash or cash equivalents equal in value to the current value of
the underlying instruments or indices less the margins on deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
RISKS OF OPTIONS ON FUTURES CONTRACTS
In addition to the risks described above for currency and other financial
futures contracts, there are several special risks relating to options on
futures contracts. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. The Fund will not purchase
options on any futures contract unless and until it believes that the market for
such options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with the futures contracts.
Compared to the use of futures contracts, the purchase of options on such
futures involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to the Fund, even though the use of a futures contract would
not, such as when there is no movement in the level of the futures contract.
FOREIGN CURRENCY TRANSACTIONS
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 a
Fund share will be affected by changes in exchange rates.
FORWARD CURRENCY CONTRACTS
As one way of managing exchange rate risk, the Fund may enter into forward
currency exchange contracts (agreements to purchase or sell currencies at a
specified price and date). Under the contract, the exchange rate for the
transaction (the amount of currency the Fund will deliver or receive when the
contract is completed) is fixed when the Fund enters into the contract. The Fund
usually will enter into these contracts to stabilize the U.S. dollar value of a
security it has agreed to buy or sell. The Fund also may use these contracts to
hedge the U.S. dollar value of a security it already owns, particularly if the
Fund expects a decrease in the value of the currency in which the foreign
security is denominated. Although the Fund will attempt to benefit from using
forward contracts, the success of its hedging strategy will depend on Keystone's
ability to predict accurately the future exchange rate 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 rate or exchange control regulations between foreign
currencies and the dollar. Changes in foreign currency exchange rates also may
affect the value of dividends and interest earned, gains and losses realized on
the sale of securities and net investment income and gains, if any, to be
distributed to shareholders by the Fund.
CURRENCY FUTURES CONTRACTS
Currency futures contracts are bilateral agreements under which two parties
agree to take or make delivery of a specified amount of a currency at a
specified future time for a specified price. Trading of currency futures
contracts in the United States is regulated under the Commodity Exchange Act by
the CFTC and NFA. Currently the only national futures exchange on which currency
futures are traded is the International Monetary Market of the Chicago
Mercantile Exchange. Foreign currency futures trading is conducted in the same
manner and subject to the same regulations as trading in interest rate and index
based futures. The Fund intends to only engage in currency futures contracts for
hedging purposes, and not for speculation. The Fund may engage in currency
futures contracts for other purposes if authorized to do so by the Board. The
hedging strategies which will be used by the Fund in connection with foreign
currency futures contracts are similar to those described above for forward
foreign currency exchange contracts.
Currently, currency futures contracts for the British Pound Sterling,
Canadian Dollar, Dutch Guilder, Deutsche Mark, Japanese Yen, Mexican Peso, Swiss
Franc, and French Franc can be purchased or sold for U.S. dollars through the
International Monetary Market. It is expected that futures contracts trading in
additional currencies will be authorized. The standard contract sizes are
L125,000 for the Pound, 125,000 for the Guilder, Mark and Swiss Francs,
C$100,000 for the Canadian Dollar, Y12,500,000 for the Yen, and 1,000,000 for
the Peso. In contrast to Forward Currency Exchange Contracts which can be traded
at any time, only four value dates per year are available, the third Wednesday
of March, June, September and December.
FOREIGN CURRENCY OPTIONS TRANSACTIONS
Foreign currency options (as opposed to futures) are traded in a variety of
currencies in both the United States and Europe. On the Philadelphia Stock
Exchange, for example, contracts for half the size of the corresponding futures
contracts on the Chicago Board Options Exchange are traded with up to nine
months maturity in marks, sterling, yen, Swiss Francs, and Canadian dollars.
Options can be exercised at any time during the contract life, and require a
deposit subject to normal margin requirements. Since a futures contract must be
exercised, the Fund must continually make up the margin balance. As a result, a
wrong price move could result in the Fund losing more than the original
investment, as it cannot walk away from the futures contract as it can an option
contract.
The Fund will purchase call and put options and sell such options to
terminate an existing position. Options on foreign currency are similar to
options on stocks except that an option on an interest rate and/or index based
futures contract gives the purchaser the right, in return for the premium paid,
to purchase or sell foreign currency, rather than to purchase or sell stock, at
a specified exercise price at any time during the period of the option.
The Fund intends to use foreign currency option transactions in connection
with hedging strategies.
PURCHASE OF PUT OPTIONS ON FOREIGN CURRENCIES
The purchase of protective put options on a foreign currency is analogous
to the purchase of protective puts on individual stocks, where an absolute level
of protection is sought below which no additional economic loss would be
incurred by the Fund. Put options may be purchased to hedge a portfolio of
foreign stocks or foreign debt instruments or a position in the foreign currency
upon which the put option is based.
PURCHASE OF CALL OPTIONS ON FOREIGN CURRENCIES
The purchase of a call option on foreign currency represents a means of
obtaining temporary exposure to market appreciation at limited risk. It is
analogous to the purchase of a call option on an individual stock, which can be
used as a substitute for a position in the stock itself. Depending on the
pricing of the option compared to either the foreign currency upon which it is
based, or upon the price of the foreign stock or foreign debt instruments,
purchase of a call option may be less risky than the ownership of the foreign
currency or the foreign securities. The Fund would purchase a call option on a
foreign currency to hedge against an increase in the foreign currency or a
foreign market advance when the Fund is not fully invested.
The Fund may employ new investment techniques involving forward foreign
currency exchange contracts, foreign currency futures contracts and options on
foreign currencies in order to take advantage of new techniques in these areas
which may be developed from time to time and which are consistent with the
Fund's investment objective. The Fund believes that no additional techniques
have been identified for employment by the Fund in the foreseeable future other
than those described above.
CURRENCY TRADING RISKS
Currency exchange trading may involve significant risks. The four major
types of risk the Fund faces are exchange rate risk, interest rate risk, credit
risk and country risk.
EXCHANGE RATE RISK
Exchange rate risk results from the movement up and down of foreign
currency values in response to shifting market supply and demand. When the Fund
buys or sells a foreign currency, an exposure called an open position is
created. Until the time that position can be "covered" by selling or buying an
equivalent amount of the same currency, the Fund is exposed to the risk that the
exchange rate might move against it. Since exchange rate changes can readily
move in one direction, a position carried overnight or over a number of days
involves greater risk than one carried a few minutes or hours. Techniques such
as foreign currency forward and futures contracts and options on foreign
currency are intended to be used by the Fund to reduce exchange rate risk.
MATURITY GAPS AND INTEREST RATE RISK
Interest rate risk arises whenever there are mismatches or gaps in the
maturity structure of the Fund's foreign exchange currency holdings, which is
the total of its outstanding spot and forward or futures contracts.
Foreign currency transactions often involve borrowing short term and
lending longer term to benefit from the normal tendency of interest rates to be
higher for longer maturities. However in foreign exchange trading, while the
maturity pattern of interest rates for one currency is important, it is the
differential between interest rates for two currencies that is decisive.
CREDIT RISK
Whenever the Fund enters into a foreign exchange contract, it faces a risk,
however small, that the counter party will not perform under the contract. As a
result there is a credit risk, although no extension of "credit" is intended. To
limit credit risk, the Fund intends to evaluate the credit worthiness of each
other party. The Fund does not intend to trade more than 5% of its net assets
under foreign exchange contracts with one party.
Credit risk exists because the Fund's counter party may be unable or
unwilling to fulfill its contractual obligations as a result of bankruptcy or
insolvency or when foreign exchange controls prohibit payment. In any foreign
exchange transaction, each party agrees to deliver a certain amount of currency
to the other on a particular date. In establishing its hedges, a Fund relies on
each contract being completed. If the contract is not performed, then the Fund's
hedge is eliminated, and the Fund is exposed to any changes in exchange rates
since the contract was originated. To put itself in the same position it would
have been in had the contract been performed, the Fund must arrange a new
transaction. However, the new transaction may have to be arranged at an adverse
exchange rate. The trustee for a bankrupt company may elect to perform those
contracts that are advantageous to the company but disclaim those contracts that
are disadvantageous, resulting in losses to the Fund.
Another form of credit risk stems from the time zone differences between
the U.S. and foreign nations. If the Fund sells sterling it generally must pay
pounds to a counter party earlier in the day than it will be credited with
dollars in New York. In the intervening hours, the buyer can go into bankruptcy
or can be declared insolvent. Thus, the dollars may never be credited to the
Fund.
COUNTRY RISK
At one time or another, virtually every country has interfered with
international transactions in its currency. Interference has taken the form of
regulation of the local exchange market, restrictions on foreign investment by
residents, or limits on inflows of investment funds from abroad. Governments
take such measures, for example, to improve control over the domestic banking
system, or to influence the pattern of receipts and payments between residents
and foreigners. In those cases, restrictions on the exchange market or on
international transactions are intended to affect the level or movement of the
exchange rate. Occasionally a serious foreign exchange shortage may lead to
payments interruptions or debt servicing delays, as well as interference in the
exchange market. It has become increasingly difficult to distinguish foreign
exchange or credit risk from country risk.
Changes in regulations or restrictions usually do have an important
exchange market impact. Most disruptive are changes in rules which interfere
with the normal payments mechanism. If government regulations change and a
counterparty is either forbidden to perform or is required to do something
extra, then the Fund might be left with an unintended open position or an
unintended maturity mismatch. Dealing with such unintended long or short
positions could result in unanticipated costs to the Fund.
Other changes in official regulations influence international investment
transactions. If one of the factors affecting the buying or selling of a
currency changes, the exchange rate is likely to respond. Changes in such
controls often are unpredictable and can create a significant exchange rate
response.
Many major countries have moved toward liberalization of exchange and
payments restrictions in recent years or accepted the principle that
restrictions should be relaxed. A few industrial countries have moved in the
other direction. Important liberalizations were carried out by Switzerland, the
United Kingdom and Japan. They dismantled mechanisms for restricting either
foreign exchange inflows (Switzerland), outflows (Britain), or elements of both
(Japan). By contrast, France and Mexico have recently tightened foreign exchange
controls.
Overall, many exchange markets are still heavily restricted. Several
countries limit access to the forward market to companies financing documented
export or import transactions in an effort to insulate the market from purely
speculative activities. Some of these countries permit local traders to enter
into forward contracts with residents but prohibit certain forward transactions
with nonresidents. By comparison, other countries have strict controls on
exchange transactions by residents, but permit free exchange transactions
between local traders and non-residents. A few countries have established tiered
markets, funneling commercial transactions through one market and financial
transactions through another. Outside the major industrial countries, relatively
free foreign exchange markets are rare and controls on foreign currency
transactions are extensive.
Another aspect of country risk has to do with the possibility that the Fund
may be dealing with a foreign trader whose home country is facing a payments
problem. Even though the foreign trader intends to perform on its foreign
exchange contracts, the contracts are tied to other external liabilities the
country has incurred. As a result, performance may be delayed and can result in
unanticipated cost to the Fund. This aspect of country risk is a major element
in the Fund's credit judgment as to with whom it will deal and in what amounts.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.3%)
ALABAMA
Alabama Housing Finance Agency, Single Family Mortgage 10.750% 06/01/2013 $ 485,000 $ 497,600
ALASKA
Alaska Housing Finance Corporation, Collateralized Home
Mortgage 8.750 12/01/2016 1,700,000 1,746,104
North Slope Borough, Alaska, General Obligation
Refunding (ETM) 8.350 06/30/1998 450,000 485,393
ARIZONA
Salt River Project, Arizona, Agricultural Improvement,
Series C 5.000 01/01/2016 3,000,000 2,299,350
CALIFORNIA
California Educational Facilities Authority, Stanford
University Project, Series H 5.000 01/01/2015 1,250,000 976,075
California Housing Finance Agency, Home Mortgage
Revenue, Single Family 8.600 08/01/2019 480,000 495,178
California Statewide Community Development, Salk
Institute 6.100 07/01/2014 920,000 812,571
Fresno, California, Health Facility, Holy Cross Health
Systems (MBIA) 5.625 12/01/2015 1,500,000 1,254,270
Los Angeles, California, Community Redevelopment
Agency, Series H (FSA) 6.500 12/01/2016 750,000 704,085
Los Angeles, California, Public Works Finance
Authority, Multi Capital Facilities Project 1v (MBIA) 5.250 12/01/2016 1,500,000 1,192,965
Pleasant Hill, California, Joint Powers Financing,
Capital Improvement Progam, Series A 5.250 12/01/2016 500,000 398,125
Sacramento County, California, Certificates of
Participation 5.750 06/01/2015 1,040,000 895,305
San Joaquin Hills, California, Transportation Corridor
Agency, Toll Road 6.750 01/01/2032 1,000,000 884,700
San Joaquin Hills, California, Transportation Corridor
Agency, Toll Road (effective yield 7.75%) (a) 0.000 01/01/2020 2,000,000 277,440
San Jose, California, Redevelopment Tax Allocation
(MBIA) 6.000 08/01/2015 500,000 451,185
Southern California Public Power Authority 5.750 07/01/2017 1,000,000 981,950
University of California, Multiple Purpose Project,
Series C (AMBAC) 5.000 09/01/2013 500,000 394,070
COLORADO
City and County of Denver, Colorado, Airport System,
Series A 7.000 11/15/1999 1,250,000 1,216,437
City and County of Denver, Colorado, Airport System,
Series A, S-91 8.750 11/15/2023 750,000 765,262
City and County of Denver, Colorado, Airport System,
Series A 7.250 11/15/2025 1,000,000 907,940
City and County of Denver, Colorado, Airport System,
Series B 7.250 11/15/2012 750,000 692,558
City and County of Denver, Colorado, Airport System,
Series D 7.750 11/15/2013 1,100,000 1,056,429
City and County of Denver, Colorado, Airport System,
Series D 7.000 11/15/2025 1,000,000 869,480
Colorado Housing Finance Authority, Single Family
Residential Revenue 8.750 09/01/2017 650,000 669,429
Jefferson County, Colorado, Single Family Refunding 8.875 10/01/2013 215,000 222,994
CONNECTICUT
Connecticut Special Tax Obligation, Revenue
Transportation
Infrastructure Series 5.375 09/01/2008 1,000,000 860,240
DELAWARE
Delaware Health Facilities Authority, Medical Center of
Delaware (MBIA) 6.250 10/01/2006 1,000,000 997,810
<PAGE>
Keystone America Tax Free Income Fund
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
DISTRICT OF COLUMBIA
District of Columbia, General Obligation (AMBAC) 5.400% 06/01/2006 $1,000,000 $ 894,490
District of Columbia, General Obligation, Series E
(FSA) 6.000 06/01/2011 1,000,000 896,970
FLORIDA
Dade County, Florida, School District (MBIA) 5.000 08/01/2013 1,000,000 796,180
Escambia County, Florida, Pollution Control, Champion
International Corp. Project 6.900 08/01/2022 1,500,000 1,367,430
Florida Board of Education Capital Outlay, Public
Education, Series A 6.100 06/01/2024 1,750,000 1,578,255
Florida Board of Education Capital Outlay, Refunding
Public Education, Series D 5.000 06/01/2015 1,000,000 777,950
Florida State Turnpike Authority, Series A 5.000 07/01/2014 2,000,000 1,594,540
Orange County Housing Finance Authority, Florida, GNMA
Collateralized Mortgage Revenue Refunding 8.400 12/01/2018 300,000 309,450
Palm Beach County, Florida, Health Facilities
Authority, Good Samaritan Health Systems 6.200 10/01/2011 1,500,000 1,298,550
Palm Beach County, Florida, Solid Waste Authority,
Adjustable/Fixed Rate Revenue 8.750 07/01/2010 55,000 60,156
Palm Beach County, Florida, Solid Waste Industrial
Development (Osceola Power) 6.950 01/01/2022 1,250,000 1,114,625
Palm Beach County, Florida, Solid Waste Industrial
Development, Okeelanta Power Project 6.850 02/15/2021 2,000,000 1,773,340
Tallahassee, Florida, Health Facilities, Tallahassee
Memorial Regional Medical Project 6.625 12/01/2013 2,640,000 2,576,798
Tampa, Florida, Subordinated Guaranteed Entitlement
Revenue, Series 1988B 8.400 10/01/2008 1,105,000 1,208,660
ILLINOIS
Chicago, Illinois, Gas Supply Revenue (People's Gas
Light and Coke Co.) 8.100 05/01/2020 910,000 965,819
Illinois Educational Facilities Authority, Wesleyan
University 5.625 09/01/2018 1,500,000 1,214,640
Illinois Health Facilities Authority, Community
Hospital, Ottawa Project 6.850 08/15/2024 1,500,000 1,277,595
Illinois Health Facilities Authority, United Medical
Center 8.375 07/01/2012 1,000,000 1,137,100
Quincy, Illinois, Blessing Hospital Revenue 6.000 11/15/2018 750,000 606,848
Robbins, Illinois, Resources Recovery Revenue 9.250 08/15/2014 1,000,000 1,014,030
LOUISIANA
Louisiana Public Facilities Authority Revenue
Prerefunded Health and Education Capital D 7.900 12/01/2015 235,000 257,828
Louisiana Public Facilities Authority, West Jefferson
Medical Center 7.900 12/01/2015 1,470,000 1,588,688
MARYLAND
Maryland State Community Development Administration 8.125 04/01/2017 420,000 427,820
MASSACHUSETTS
Boston, Massachusetts, Metropolitan District General
Obligation 5.900 12/01/2009 900,000 844,056
Massachusetts Bay Transportation Authority, Series A 7.000 03/01/2011 1,000,000 1,016,830
Massachusetts Bay Transportation Authority, Series A 6.250 03/01/2012 2,000,000 1,864,860
Massachusetts General Obligation (FGIC) (effective
yield 7.00%) (a) 0.000 06/01/2007 400,000 180,372
<PAGE>
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
MASSACHUSETTS--continued
Massachusetts Health And Educational Facilities
Authority, Daughters of Charity 6.100% 07/01/2014 $ 600,000 $ 543,168
Massachusetts Health And Educational Facilities
Authority, Holyoke Hospital 6.500 07/01/2015 1,000,000 854,420
Massachusetts Health And Educational Facilities
Authority, Mount Auburn Hospital 6.250 08/15/2014 500,000 457,440
Massachusetts Health And Educational Facilities
Authority, Winchester Hospital 5.750 07/01/2024 350,000 277,728
Massachusetts Housing Finance Agency 6.300 10/01/2013 3,500,000 3,168,865
Massachusetts Housing Finance Agency (MBIA) 5.950 12/01/2014 850,000 736,185
Massachusetts Housing Finance Agency, Housing Revenue 9.000 12/01/2018 305,000 317,423
Massachusetts Housing Finance Agency, Multi-family
Residential Housing 8.800 08/01/2021 250,000 255,003
Massachusetts Housing Finance Agency, Residential
Housing 8.500 08/01/2020 15,000 15,148
Massachusetts Housing Finance Agency, Residential
Housing 8.400 08/01/2021 1,490,000 1,501,935
Massachusetts Industrial Finance Agency, Harvard
Community Health Plan, Inc. 8.125 10/01/2017 300,000 310,473
Massachusetts Industrial Finance Agency, Solid Waste
Disposal 9.000 07/01/2016 1,400,000 1,393,392
Massachusetts State Water Pollution, Series A 6.375 02/01/2015 1,000,000 933,710
Massachusetts Water Resources Authority, Series C 6.000 12/01/2011 1,000,000 916,050
North Adams, Massachusetts, Limited Tax, General
Obligation 5.700 03/01/2013 600,000 526,062
Quincy, Massachusetts, Revenue Refunding, Quincy
Hospital 5.250 01/15/2016 375,000 298,732
MICHIGAN
Monroe County, Michigan, Economic Development Corp.,
Detroit Edison Co. (FGIC) 6.950 09/01/2022 500,000 496,865
Pinckney, Michigan, Community Schools, Livingston and
Washtenaw Counties 5.000 05/01/2014 500,000 394,800
MINNESOTA
Minnesota Housing Finance Agency, Single Family
Mortgage 8.200 08/01/2019 595,000 604,121
MISSOURI
Kansas City, Missouri, School District Building,
Capital Improvement Project 5.000 02/01/2014 1,500,000 1,203,045
Missouri Health and Educational Facility Revenue,
Children's Mercy Hospital Project 6.000 08/15/2023 1,000,000 771,880
Missouri Housing Development Corp. Multi-family Series
A 5.400 02/01/2013 60,000 50,281
Missouri State Health and Educational Facilities
Authority, Barnes Jewish Inc. 5.250 05/15/2012 700,000 566,237
University of Missouri, Refunding Improvement Systems
Facilities 5.200 11/01/2008 500,000 431,155
NEVADA
Henderson County, Nevada, Water, Series A (AMBAC) 6.200 12/01/2009 1,280,000 1,198,451
Henderson County, Nevada, Water, Series A (AMBAC) 6.375 12/01/2010 1,360,000 1,293,129
NEW HAMPSHIRE
New Hampshire Housing Finance Authority, Single Family
Residential Mortgage 8.625 07/01/2013 245,000 249,596
<PAGE>
Keystone America Tax Free Income Fund
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
NEW JERSEY
New Jersey Health Care Facilities Financing Authority,
General Hospital Center of Passaic, Inc. 10.375% 07/01/2014 $1,000,000 $ 1,049,040
NEW MEXICO
Albuquerque, New Mexico, Airport Revenue 8.750 07/01/2019 500,000 536,395
New Mexico Mortgage Finance Authority, Single Family
Mortgage 8.500 07/01/2007 415,000 413,315
New Mexico Mortgage Finance Authority, Single Family
Mortgage 8.625 07/01/2017 2,140,000 2,130,627
NEW YORK
Erie County, New York, Water Authority, Fourth
Resolution Revenue Refunding (effective yield 7.30%)
(a) 0.000 12/01/2017 330,000 63,505
Metropolitan Transportation Authority, New York, Series
K Transport Facilities Revenue 6.000 07/01/2016 135,000 120,048
New York City, New York, General Obligation, Fiscal
1992, Series A 7.750 08/15/2015 1,500,000 1,523,400
New York State Dormitory Authority, City University
(AMBAC) 6.250 07/01/2016 365,000 338,096
New York State Dormitory Authority, State University 5.300 05/15/2010 100,000 84,397
New York State Dormitory Authority, State University 5.875 05/15/2011 1,500,000 1,283,805
New York State Dormitory Authority, State University 6.375 05/15/2014 2,000,000 1,804,920
New York State Environmental Facilities Corp., State
Water Pollution Control (New York City Water Finance
Authority) 5.875 06/15/2014 2,000,000 1,744,560
New York State Local Government Assistance Corp.,
Series A 5.375 04/01/2014 1,100,000 888,426
New York State Thruway Authority, Service Contract
Revenue, Local Highways and Bridges 5.750 04/01/2009 1,300,000 1,183,416
New York State Thruway Authority, Service Contract
Revenue, Local Highways and Bridges 5.875 04/01/2014 2,000,000 1,710,080
New York State Urban Development Corp. Correctional
Capital Facilities Series 4 5.250 01/01/2013 1,000,000 778,020
New York State Urban Development Corp., Correctional
Facilities 5.750 01/01/2013 1,000,000 827,050
New York, New York, General Obligation 7.700 02/01/2009 1,000,000 1,023,620
NORTH CAROLINA
North Carolina Eastern Municipal Power Agency 7.250 01/01/2007 1,000,000 1,014,750
North Carolina Eastern Municipal Power Agency, Series
1993C 5.000 01/01/2021 2,000,000 1,409,340
North Carolina Municipal Power Agency No. 1, Catawba
Electric 9.000 01/01/2013 100,000 102,419
OKLAHOMA
Tulsa, Oklahoma Industrial Authority Hospital Revenue,
St. John Medical Center Project, Series A 6.250 02/15/2014 1,250,000 1,114,700
OREGON
Western Generation Agency, Oregon, Wauna Cogeneration
Project,
Series B (7/15/94-$1,000,000) (c) 7.400 01/01/2016 1,000,000 947,200
PENNSYLVANIA
Beaver County, Pennsylvania, Industrial Development
Authority, Pollution Control Power Co.-Mansfield
Project) 5.450 09/15/2028 2,000,000 1,608,560
<PAGE>
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
PENNSYLVANIA--continued
Butler County, Pennsylvania, Hospital Authority, Butler
Memorial Hospital 8.000% 07/01/2016 $ 935,000 $ 977,402
Cambria County, Pennsylvania, Hospital Development
Authority, Conemaugh Valley Memorial Hospital 8.875 07/01/2018 2,070,000 2,321,712
Chester County, Pennsylvania, Health And Education
Facilities Authority, Mainline Health System 5.500 05/15/2015 1,000,000 778,700
Pennsylvania Convention Center Authority (effective
yield 7.00%) (a) 0.000 09/01/2008 3,500,000 1,411,410
Pennsylvania Economic Development Financing Authority,
Resources Recovery, Culver Project 7.125 12/01/2015 1,000,000 916,470
Pennsylvania Economic Development Financing Authority,
Resources Recovery, Northampton Project 6.500 01/01/2013 2,000,000 1,715,040
Pennsylvania General Obligation 5.375 05/01/2013 700,000 584,689
Pennsylvania Higher Education Facilities Authority,
Temple University 5.750 04/01/2031 500,000 407,960
Philadelphia, Pennsylvania, Hospital and Higher
Education Facilities, Albert Einstein Medical Center
Authority 7.625 04/01/2011 250,000 254,273
Philadelphia, Pennsylvania, Hospital and Higher
Education Facilities, Children's Hospital Authority,
Hospital Revenue 5.375 02/15/2014 2,000,000 1,607,640
Philadelphia, Pennsylvania, Hospital and Higher
Education Facilities, Community College (MBIA) 6.500 05/01/2007 1,000,000 989,450
Pottsville, Pennsylvania, Hospital Authority, Daughters
of Charity Health Systems, Inc., 8.250 08/01/2012 290,000 315,682
Scranton-Lackawanna, Pennsylvania, Health and Welfare
Authority Revenue, Walters Institute Project 8.125 07/15/2028 2,200,000 2,322,540
PUERTO RICO
Puerto Rico Commonwealth, General Obligation 7.000 07/01/2005 1,000,000 981,270
Puerto Rico Electric Power Authority, Series S 7.000 07/01/2007 1,365,000 1,394,116
Puerto Rico Public Buildings Authority, Guaranteed
Public Education and Health Facilities, Series M 5.700 07/01/2009 1,000,000 892,490
SOUTH DAKOTA
South Dakota Student Loan Finance 6.750 08/01/2010 1,510,000 1,405,357
TENNESSEE
Bristol, Tennessee, Health and Education Authority,
Bristol Memorial Hospital (FGIC) 6.750 09/01/2010 2,000,000 1,985,740
Bristol, Tennessee, Health and Education Authority,
Bristol Memorial Hospital (FGIC) 8.870 09/01/2021 1,300,000 1,175,720
Knox County, Tennessee, Health and Educational
Facilities 7.250 01/01/2010 1,000,000 1,043,570
Knox County, Tennessee, Health and Educational
Facilities, Fort Saunders Hospital Alliance, Series C
(MBIA) 5.250 01/01/2015 1,500,000 1,222,875
TEXAS
Brazos River Authority, Texas, Revenue Refunding,
Houston Light and Power Project (BIGI) 8.100 05/01/2019 3,000,000 3,204,600
Brazos, Texas, Higher Education Authority Inc. 6.500 06/01/2004 450,000 438,930
<PAGE>
Keystone America Tax Free Income Fund
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
TEXAS--continued
Harris County, Texas, Toll Road 7.000% 08/15/2010 $1,000,000 $ 1,029,160
Harris County, Texas, Toll Road Sr. Lien Revenue Toll
Road 8.625 08/15/2007 1,000,000 1,106,110
Harris County, Texas, Toll Road, Unlimited Tax and
Subordinate Lien Refunding 8.125 08/01/2015 2,250,000 2,477,227
Lower Colorado River Authority, Texas Revenue 5.375 01/01/2016 3,860,000 3,125,596
Midland County, Texas, Hospital District, Midland
Memorial Hospital 7.500 06/01/2016 400,000 373,856
Midland County, Texas, Hospital District, Midland
Memorial Hospital (effective yield 7.70%) (a) 0.000 06/01/2007 90,000 34,681
Port of Corpus Christi, Texas, Industrial Development
Corp., (Valero Refining and Marketing Co. Project) 10.250 06/01/2017 990,000 1,083,624
Texas Municipal Power Agency (effective yield 7.09%)
(a) 0.000 09/01/2008 2,125,000 834,403
Texas Municipal Power Agency (effective yield 7.15%)
(a) 0.000 09/01/2006 2,500,000 1,150,625
Texas State Water Development, Unlimited Tax, General
Obligation 5.125 08/01/2015 900,000 722,340
UTAH
Intermountain Power Agency, Utah, Power Supply (ETM)
(effective yield 6.80%) (a) 0.000 07/01/2002 500,000 64,715
Intermountain Power Agency, Utah, Power Supply
Refunding (effective yield 6.95%)(a) 0.000 07/01/2007 750,000 321,952
Utah State Housing Finance Authority, Single Family
Mortgage 9.000 01/01/2019 45,000 43,808
VIRGINIA
Pittsylvania County, Virginia, Industrial Development 7.500 01/01/2014 3,500,000 3,310,300
WASHINGTON
Port of Seattle, Washington, General Obligation 5.750 05/01/2014 500,000 424,465
Washington Public Power Supply System, Nuclear Project
# 1 15.000 07/01/1996 250,000 294,182
Washington Public Power Supply System, Nuclear Project
# 1 14.500 07/01/2002 150,000 182,132
Washington Public Power Supply System, Nuclear Project
# 2 7.625 07/01/2010 1,000,000 1,092,850
Washington State General Obligation 6.750 02/01/2015 1,000,000 991,930
WYOMING
Wyoming Community Development Authority, Single Family
Mortgage 7.875 06/01/2018 1,600,000 1,617,344
TOTAL MUNICIPAL BONDS (COST--$150,992,597) 143,742,744
TEMPORARY TAX-EXEMPT INVESTMENTS (0.8%)
Sayre County, Pennsylvania, Health Care Facilities
Authority, Variable Rate Demand Hospital Revenue Bonds
(VHA of Pennsylvania Inc. Capital Asset Financing
Program) Series 1985B (b) (Cost $1,210,000) 3.650 12/01/2020 1,210,000 1,210,000
TOTAL INVESTMENTS (COST--$152,202,597) (d) 144,952,744
OTHER ASSETS AND LIABILITIES--NET (1.9%) 2,828,740
NET ASSETS (100.0%) $147,781,484
</TABLE>
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Effective yield is the yield at which the bond accretes on an annual
basis until its maturity date. All zero coupon bonds are non-callable.
(b) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued
interest upon surrendering the security to the issuing agent according to the
terms of the demand features.
(c) All or a portion of these securities are restricted (i.e., securities
which may not be publicly sold without registration under the Federal
Securities Act of 1933) which are valued at fair value in the opinion of
management--in the case of bonds, at estimated value considering quality,
coupon, term, call feature, yield to maturity of the security and similar
issues which are actively traded, sinking fund, marketability, plus
adjustment, if any, for equity features or other special factors. The Fund
may make investments in an amount up to 10% of the value of the Fund's net
assets in such securities. Dates of acquisition and costs are set forth in
parentheses after the titles of the restricted securities. On the date of
acquisition there was no market quotation or similar securities and the above
securities were valued at acquisition costs. At November 30, 1994, the fair
value of these restricted securities was $947,200 (0.6% of net assets). The
Fund will not pay the costs of disposition of the above restricted securities
other than ordinary brokerage fees, if any.
(d) The cost of investments for federal tax purposes amounted to
$152,232,717. Gross unrealized appreciation and depreciation of investments,
based on identified tax cost, at November 30, 1994 are as follows:
Gross unrealized appreciation $ 2,216,503
Gross unrealized depreciation (9,496,476)
Net unrealized depreciation ($ 7,279,973)
<PAGE>
Keystone America Tax Free Income Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 13, 1987
(Commencement
Year Ended November 30, of Operations) to
1994 1993 1992 1991 1990 1989 1988 November 30, 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value beginning of period $10.250 $ 10.170 $ 10.130 $ 9.940 $ 10.240 $ 9.960 $ 9.640 $10.000
Income from investment operations
Investment income--net 0.513 0.567 0.625 0.605 0.593 0.617 0.630 0.329
Realized gains (losses) on
investments--net (1.285) 0.368 0.306 0.314 (0.060) 0.347 0.370 (0.317)
Total income (loss) from investment
operations (0.772) 0.935 0.931 0.919 0.533 0.964 1.000 0.012
Less distributions
Dividends from investment income--
net (0.517) (0.571) (0.621) (0.605) (0.603) (0.634) (0.680) (0.372)
Distributions in excess of investment
income--net(b) 0 (0.044) 0 (0.004) (0.030) 0 0 0
Distributions from realized gain on
investments--net 0 (0.240) (0.270) (0.120) (0.200) (0.050) 0 0
Tax basis return of capital (0.031) 0 0 0 0 0 0 0
Total distributions (0.548) (0.855) (0.891) (0.729) (0.833) (0.684) (0.680) (0.372)
Net asset value end of period $ 8.930 $ 10.250 $ 10.170 $ 10.130 $ 9.940 $ 10.240 $ 9.960 $ 9.640
Total return(c) (7.81%) 9.37% 9.35% 9.59% 5.55% 9.97% 10.60% 0.17%
Ratios/supplemental data
Ratios to average net assets:
Operating and management expenses 1.13% 1.21% 1.25% 1.58% 1.66% 1.62% 1.57% 1.00%(a)
Investment income--net 5.27% 5.40% 6.02% 5.95% 6.03% 6.15% 6.13% 6.85%(a)
Portfolio turnover rate 98% 47% 32% 37% 42% 49% 109% 67%
Net assets end of period (thousands) $95,691 $124,102 $120,660 $133,524 $146,335 $162,013 $179,191 $16,090
</TABLE>
(a) Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to November 30, 1987.
(b) Effective December 1, 1993 the Fund adopted Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies. As
a result, distribution amounts exceeding book basis investment income--net
(or tax basis net income on a temporary basis) are presented as
"Distributions in excess of investment income--net." Similarly, capital gain
distributions in excess of book basis capital gains (or tax basis gains on a
temporary basis) are presented as "Distributions in excess of realized
gains." For the fiscal years ended prior to November 30, 1993, distributions
in excess of book basis net income were charged to paid in capital.
(c) Excluding applicable sales charge.
See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS-CLASS B SHARES
(For a share outstanding throughout the period)
February 1, 1993
Year Ended (Date of Initial
November 30, Public Offering) to
1994 November 30, 1993
Net asset value beginning of period $10.250 $10.270
Income from investment operations
Investment income--net 0.452 0.369
Realized gains (losses) on
investments--net (1.287) 0.301
Total income (loss) from investment
operations (0.835) 0.670
Less distributions
Dividends from investment income--net (0.505) (0.369)
Distributions in excess of investment
income--net(b) 0 (0.081)
Distributions from realized gain on
investments--net 0 (0.240)
Tax basis return of capital (0.030) 0
Total distributions (0.535) (0.690)
Net asset value end of period $ 8.880 $10.250
Total return(c) (8.43%) 6.59%
Ratios/supplemental data
Ratios to average net assets:
Operating and management expenses 1.88% 1.96%(a)
Investment income--net 4.60% 4.42%(a)
Portfolio turnover rate 98% 47%
Net assets end of period (thousands) $28,860 $14,091
(a) Annualized.
(b) Effective December 1, 1993 the Fund adopted Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies. As
a result, distribution amounts exceeding book basis investment income--net
(or tax basis net income on a temporary basis) are presented as
"Distributions in excess of investment income--net." Similarly, capital gain
distributions in excess of book basis capital gains (or tax basis gains on a
temporary basis) are presented as "Distributions in excess of realized
gains." For the period ended November 30, 1993, distributions in excess of
book basis net income were charged to paid in capital.
(c) Excluding applicable sales charge.
See Notes to Financial Statements.
<PAGE>
Keystone America Tax Free Income Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
February 1, 1993
Year Ended (Date of Initial
November 30, Public Offering) to
1994 November 30, 1993
Net asset value beginning of period $10.260 $10.270
Income from investment operations
Investment income--net 0.431 0.371
Realized gains (losses) on
investments--net (1.276) 0.309
Total income (loss) from investment
operations (0.845) 0.680
Less distributions
Dividends from investment income--net (0.505) (0.371)
Distributions in excess of investment
income--net (b) 0 (0.079)
Distributions from realized gain on
investments--net 0 (0.240)
Tax basis return of capital (0.030) 0
Total distributions (0.535) (0.690)
Net asset value end of period $ 8.880 $10.260
Total return (c) (8.52%) 6.70%
Ratios/supplemental data
Ratios to average net assets:
Operating and management expenses 1.89% 1.94%(a)
Investment income--net 4.52% 4.41%(a)
Portfolio turnover rate 98% 47%
Net assets end of period (thousands) $23,230 $27,261
(a) Annualized.
(b) Effective December 1, 1993 the Fund adopted Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies. As
a result, distribution amounts exceeding book basis investment income--net
(or tax basis net income on a temporary basis) are presented as
"Distributions in excess of investment income--net." Similarly, capital gain
distributions in excess of book basis capital gains (or tax basis gains on a
temporary basis) are presented as "Distributions in excess of realized
gains." For the period ended November 30, 1993, distributions in excess of
book basis net income were charged to paid in capital.
(c) Excluding applicable sales charge.
See Notes to Financial Statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES--
November 30, 1994
Assets:
Investments at market value (identified
cost--$152,202,597) (Note 1) $144,952,744
Cash 119,680
Receivable for:
Fund shares sold 47,799
Interest 3,406,224
Prepaid expenses 16,798
Total assets 148,543,245
Liabilities:
Payable for:
Fund shares redeemed 367,775
Distributions to shareholders 333,841
Accrued reimbursable expenses (Note 5) 1,681
Other accrued expenses 58,464
Total liabilities 761,761
Net assets $147,781,484
Net assets represented by:
Paid-in capital $161,237,835
Accumulated distributions in excess of investment
income--net (333,473)
Accumulated realized gains (losses) on investments--net (5,873,025)
Net unrealized depreciation of investments (7,249,853)
Total net assets $147,781,484
Net asset value and redemption price per
share (Note 2):
Class A Shares ($8.93 on 10,719,229 shares outstanding) $ 95,691,357
Class B Shares ($8.88 on 3,251,836 shares outstanding) 28,860,412
Class C Shares ($8.88 on 2,616,944 shares outstanding) 23,229,715
$147,781,484
Offering price per share:
Class A Shares (including sales charge of 4.75%) $ 9.38
Class B Shares $ 8.88
Class C Shares $ 8.88
STATEMENT OF OPERATIONS--
Year Ended November 30, 1994
Investment Income (Note 1):
Interest $ 10,594,712
Expenses (Notes 2 and 5):
Management fee $ 1,005,305
Shareholder services 232,940
Accounting, auditing and legal 46,963
Custodian fees 80,825
Printing 20,112
Trustees' fees and expenses 8,485
Distribution Plan expenses 790,026
Registration fees 69,596
Miscellaneous expenses 9,822
Total expenses 2,264,074
Investment income--net 8,330,638
Realized and unrealized gain (loss)
on investments and closed futures
contracts--net (Notes 1 and 3):
Realized gain (loss) on:
Investments (6,084,448)
Closed futures contracts 215,071
Realized loss on investments and
closed futures contracts--net (5,869,377)
Net unrealized appreciation
(depreciation) on investments:
Beginning of year 8,775,608
End of year (7,249,853)
Increase (decrease) in unrealized
appreciation or depreciation--net (16,025,461)
Net loss on investments and closed
futures contracts (21,894,838)
Net decrease in net assets resulting
from operations ($ 13,564,200)
See Notes to Financial Statements.
<PAGE>
Keystone America Tax Free Income Fund
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended November 30,
1994 1993
Operations:
Investment income--net $ 8,330,638 $ 7,501,414
Realized gain (loss) on investments
and closed futures contracts--net (5,869,377) 4,011,821
Increase (decrease) in unrealized
appreciation or depreciation--net (16,025,461) 170,627
Net increase (decrease) in net
assets resulting from operations (13,564,200) 11,683,862
Distributions to shareholders from
(Notes 1 and 4):
Investment income--net--Class A
Shares (5,980,145) (6,825,448)
In excess of investment
income--net--Class A Shares 0 (527,495)
Realized gain on
investments--net--Class A Shares 0 (2,860,476)
Tax basis return of capital--Class A
Shares (338,046) 0
Investment income--net--Class B
Shares (1,297,179) (256,353)
In excess of investment
income--net--Class B Shares 0 (56,138)
Realized gain on
investments--net--Class B Shares 0 (320,614)
Tax basis return of capital--Class B
Shares (101,954) 0
Investment income--net--Class C
Shares (1,452,252) (467,617)
In excess of investment
income--net--Class C Shares 0 (99,222)
Realized gain on
investments--net--Class C Shares 0 (623,513)
Tax basis return of capital--Class C
Shares (82,063) 0
Total distributions to shareholders (9,251,639) (12,036,876)
Capital share transactions (Note 2):
Proceeds from shares sold--Class A
Shares 6,833,913 9,960,198
Proceeds from shares sold--Class B
Shares 21,886,789 14,717,020
Proceeds from shares sold--Class C
Shares 9,086,896 28,545,190
Payment for shares redeemed--Class A
Shares (23,370,474) (15,535,841)
Payment for shares redeemed--Class B
Shares (4,163,609) (628,895)
Payment for shares redeemed--Class C
Shares (10,093,259) (1,272,363)
Net asset value of shares issued in
reinvestment of distributions from:
Investment income--net and in excess
of investment income--net--
Class A Shares 3,231,223 4,138,211
Investment income--net and in excess
of investment income--net--
Class B Shares 718,132 184,997
Investment income--net and in excess
of investment income--net--
Class C Shares 1,013,566 376,599
Realized gain on
investments--net--Class A Shares 0 3,947,202
Realized gain on
investments--net--Class B Shares 0 238,620
Realized gain on
investments--net--Class C Shares 0 476,455
Net increase in net assets resulting
from capital share transactions 5,143,177 45,147,393
Total increase (decrease) in net
assets (17,672,662) 44,794,379
Net assets:
Beginning of year 165,454,146 120,659,767
End of year [including accumulated
distributions in excess of investment
income--net as follows: November
1994--($333,473) and November
1993--($326,527)]
(Note 1) $147,781,484 $165,454,146
See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone America Tax Free Income Fund (the "Fund") is a Massachusetts
business trust for which Keystone Management, Inc. ("KMI") is the Investment
Manager and Keystone Custodian Funds, Inc. ("Keystone") is the Investment
Adviser. The Fund was organized on October 24, 1986 and had no operations
prior to February 13, 1987. It is registered under the Investment Company Act
of 1940 as a diversified open-end investment company.
The Fund currently issues three classes of shares. Class A shares are sold
subject to a maximum sales charge of 4.75% payable at the time of purchase.
Class B shares are sold subject to a contingent deferred sales charge payable
upon redemption within three calendar years after the year of purchase. Class
C shares are sold subject to a contingent deferred sales charge payable upon
redemption within one year after purchase. Class C shares are available only
through dealers who have entered into special distribution agreements with
Keystone Distributors, Inc. ("KDI"), the Fund's principal underwriter.
Keystone is a wholly-owned subsidiary of Keystone Group, Inc., ("KGI"), a
Delaware corporation. KGI is privately owned by an investor group consisting
of members of current and former management of Keystone. KMI is a
wholly-owned subsidiary of Keystone. Keystone Investor Resource Center, Inc.
(KIRC), a wholly-owned subsidiary of Keystone, is the Fund's transfer agent.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Tax-exempt bonds are stated on the basis of valuations provided by a
pricing service, approved by the Board of Trustees, that uses information
with respect to transactions in bonds, quotations from bond dealers and
market transactions in various relationships between securities in
determining value. Non-tax-exempt securities for which market quotations are
readily available are valued at the price quoted which, in the opinion of the
Board of Trustees or their representative, most nearly represents their
market value. Short-term investments which are purchased with maturities of
sixty days or less are valued at amortized cost (original purchase cost as
adjusted for amortization of premium or accretion of discount) which when
combined with accrued interest approximates market. Short-term investments
maturing in more than sixty days for which market quotations are readily
available are valued at current market value. Short-term investments maturing
in more than sixty days when purchased which are held on the sixtieth day
prior to maturity are valued at amortized cost (market value on the sixtieth
day adjusted for amortization of premium or accretion of discount) which when
combined with accrued interest approximates market. All other securities and
other assets are valued at fair value as determined in good faith using
methods prescribed by the Board of Trustees.
A futures contract is an agreement between two parties to buy and sell a
specific amount of a commodity, security, financial instrument, or, in the case
of a stock index, cash at a set price on a future date. Upon entering into a
futures contract, the Fund is required to deposit with a broker an amount
("initial margin") equal to a certain percentage of the purchase price indicated
in the futures contract. Subsequent payments ("variation margin") are made or
received by the Fund each day, as the value of the underlying instrument or
index fluctuates, and are recorded for book purposes as unrealized gains or
losses by the Fund. For federal income tax purposes, any futures contracts which
remain open at fiscal year-end are marked-to-market and the resultant net gain
or loss is included in federal taxable income.
<PAGE>
Keystone America Tax Free Income Fund
B. Securities transactions are accounted for on the trade date. Realized
gains and losses are recorded on the identified cost basis. Interest income
is recorded on the accrual basis. All premiums and original issue discounts
are amortized/accreted for both financial reporting and federal income tax
purposes. Distributions to shareholders are recorded by the the Fund at the
close of business on the ex-dividend date.
C. The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code of 1986, as amended
("Internal Revenue Code"). Thus the Fund is relieved of any federal income
tax liability by distributing all of its net taxable investment income and
net taxable capital gains, if any, to its shareholders. The tax-exempt
interest portion of each dividend is declared uniformly based on the ratio of
the Fund's tax-exempt and taxable income for the entire year. Any
distribution which is declared in December and paid before the next February
1 will be taxable to shareholders in the year declared. The Fund intends to
avoid excise tax liability by making the required distributions under the
Internal Revenue Code.
D. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed
upon date and price) the repurchase price of the securities will generally
equal the amount paid by the Fund plus a negotiated interest amount. The
seller under the repurchase agreement will be required to provide securities
("collateral") to the Fund whose value will be maintained at an amount not
less than the repurchase price and which generally will be maintained at 101%
of the repurchase price. The Fund monitors the value of collateral on a daily
basis, and if the collateral falls below required levels, the Fund intends to
seek additional collateral from the seller or terminate the repurchase
agreement. If the seller defaults, the Fund would suffer a loss to the extent
that the proceeds from the sale of the underlying securities were less than
the repurchase price. Any such loss would be increased by any cost incurred
on disposing of such securities. If bankruptcy proceedings are commenced
against the seller under the repurchase agreement, the realization on the
collateral may be delayed or limited. Repurchase agreements entered into by
the Fund will be limited to transactions with dealers or domestic banks
believed to present minimal credit risks and the Fund will take constructive
receipt of all securities underlying repurchase agreements until such
agreements expire.
E. The Fund distributes net investment income monthly and net capital gains,
if any, annually. Distributions from net investment income are based on tax
basis net income. From time to time the Fund may distribute dividends which
exceed book basis net income. Excess distributions were previously charged to
paid-in capital. Effective December 1, 1993, the Fund adopted Statement of
Position 93-2: Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain and Return of Capital Distributions by
Investment Companies. As a result of this statement, the Fund changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined
in accordance with income tax regulations. Accordingly, the following
reclassifications have been made as of November 30, 1993: an increase in paid
in capital of $132,111, an increase in accumulated distributions in excess of
investment income--net of $326,527, and an increase in accumulated realized
<PAGE>
gain (loss) on investments--net of $194,416. Differences between book basis
investment income--net available for distribution and tax basis investment
income--net available for distribution are primarily attributable to
differences in the treatment of 12b-1 Distribution Plan charges and tax basis
returns of capital.
(2.) Capital Share Transactions
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of
the Fund were as follows:
Class A Shares
Year Ended November 30,
1994 1993
Shares sold 697,684 948,591
Shares redeemed (2,421,649) (1,483,607)
Shares issued in reinvestment of
distributions from:
Investment income--net and
distributions in excess of investment
income--net 333,532 396,419
Realized gains--net 0 386,150
Net increase (decrease) (1,390,433) 247,553
Class B Shares
February 1, 1993
(Date of Initial
Public Offering)
Year Ended to
November 30, November 30,
1994 1993
Shares sold 2,235,194 1,392,975
Shares redeemed (432,965) (59,469)
Shares issued in reinvestment of
distributions from:
Investment income--net and
distributions in excess of investment
income--net 75,307 17,559
Realized gains--net 0 23,235
Net increase 1,877,536 1,374,300
Class C Shares
February 1, 1993
(Date of Initial
Public Offering)
Year Ended to
November 30, November 30,
1994 1993
Shares sold 922,206 2,696,646
Shares redeemed (1,068,581) (120,566)
Shares issued in reinvestment of
distributions from:
Investment income--net and
distributions in excess of
investment income--net 105,124 35,767
Realized gains--net 0 46,348
Net increase (decrease) (41,251) 2,658,195
<PAGE>
Keystone America Tax Free Income Fund
The Fund bears some of the costs of selling its shares under Distribution
Plans adopted with respect to its Class A, Class B and Class C shares.
The Class A Distribution Plan provides for payments which are currently
limited to 0.25% annually of the average daily net asset value of Class A
shares to pay expenses of the distribution of Class A shares. Amounts paid by
the Fund to KDI under the Class A Distribution Plan are currently used to pay
others, such as dealers, service fees at an annual rate of 0.25% of the
average net asset value of shares sold by such others and remaining
outstanding on the books of the Fund for specified periods.
The Class B Distribution Plan provides for payments at an annual rate of
1.00% of the average daily net asset value of Class B shares to pay expenses
of the distribution of Class B shares. Amounts paid by the Fund under the
Class B Distribution Plan are currently used to pay others (dealers) (i) a
commission at the time of purchase normally equal to 3.00% of the value of
each share sold; and/or (ii) service fees currently at an annual rate of
0.25% of the average net asset value of shares sold by such others and
remaining outstanding on the books of the Fund for specified periods.
The Class C Distribution Plan provides for payments at an annual rate of up
to 1.00% of the average daily net asset value of Class C shares to pay
expenses of the distribution of Class C shares. Amounts paid by the Fund
under the Class C Distribution Plan are currently used to pay others
(dealers) (i) a payment at the time of purchase of 1.00% of the value of each
share sold, such payment to consist of a commission in the amount of 0.75%
and the first year's service fee in advance in the amount of 0.25%, and (ii)
beginning approximately fifteen months after purchase, a commission at an
annual rate of 0.75% (subject to applicable limitations imposed by the rules
of National Association of Securities Dealers, Inc.) and service fees at the
annual rate of 0.25% of the average net asset value of shares sold by such
others and remaining outstanding on the books of the Fund for specified
periods.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by a vote of a majority of the outstanding voting
shares of the respective class. However, after the termination of the Class B
Distribution Plan, payments to KDI will continue at the annual rate of 1.00%
of the average daily net asset value of Class B shares, as compensation for
its services which had been earned while the Class B Distribution Plan was in
effect. Unreimbursed distribution expenses at November 30, 1994 were
$719,756.
For the year ended November 30, 1994 the Fund paid KDI $269,046, $241,979 and
$279,001 for Class A, Class B and Class C Distribution Plans, respectively.
Presently, the Fund's class-specific expenses are limited to Distribution
Plan expenses incurred by a class of shares.
(3.) Securities Transactions
As of November 30, 1994, the Fund had a capital loss carryover for federal
income tax purposes of approximately $5,838,000 which expires in 2002. For
the year ended November 30, 1994, purchases and sales of investment
securities were as follows:
Cost of Proceeds
Purchases From Sales
Tax-exempt investments $167,552,928 $154,960,782
Short-term commercial and tax-exempt notes 89,125,200 95,813,291
$256,678,128 $250,774,073
<PAGE>
(4.) Distributions to Shareholders
Distributions of net investment income of $0.043, $0.039 and $0.039 per share
were declared payable January 6, 1995 to shareholders of record December 23,
1994 for Class A, Class B and Class C shares, respectively. These
distributions are not reflected in the accompanying financial statements.
The Fund intends to distribute to its shareholders dividends from net
investment income monthly and all taxable net realized long-term capital
gains, if any, annually.
(5.) Investment Management and Transactions with Affiliates
Under the terms of the Investment Management Agreement between KMI and the
Fund, dated December 29, 1989, KMI provides investment management and
administrative services to the Fund. In return, KMI is paid a management fee
computed and payable daily at a rate of 2.0% of the Fund's gross investment
income plus an amount determined by applying percentage rates, which start at
0.50% and decline, as net assets increase, to 0.25% per annum, to the net
asset value of the Fund. KMI has entered into an Investment Advisory
Agreement with Keystone, dated December 30, 1989, under which Keystone
provides investment advisory and management services to the Fund and receives
for its services an annual fee representing 85% of the management fee
received by KMI. During the year ended November 30, 1994, the Fund paid or
accrued to KMI investment and administrative services fees of $1,005,305. Of
such amount paid to KMI, $854,509 was paid to Keystone for its services to
the Fund.
During the year ended November 30, 1994, the Fund paid or accrued to KIRC
$232,940 for shareholder services and a total of $18,676 to KIRC and KGI as
reimbursement for certain accounting services.
Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the Fund. Officers of Keystone and affiliated Trustees receive no
compensation directly from the Fund.
<PAGE>
Keystone America Tax Free Income Fund
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone America Tax Free Income Fund
We have audited the accompanying statement of assets and liabilities of
Keystone America Tax Free Income Fund, including the schedule of investments,
as of November 30, 1994, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years in the seven-year period then ended and for the period from February
13, 1987 (commencement of operations) to November 30, 1987 for Class A shares
and for the year ended November 30, 1994 and for the period from February 1,
1993 (Date of Initial Public Offering) to November 30, 1993 for Class B
shares and Class C shares. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of November 30, 1994, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone America Tax Free Income Fund as of November 30, 1994, the results of
its operations for the year then ended, the changes in its net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the periods stated in the first paragraph above in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 6, 1995
<PAGE>
KEYSTONE AMERICA TAX FREE INCOME FUND
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24(a). Financial Statements
All financial statements listed below are included in the Registrant's Statement
of Additional Information.
Schedule of Investments November 30, 1994
Financial Highlights February 13, 1987 (commencement of
operations) to November 30, 1987
and fiscal years ended November
30, 1988 through 1994 for Class A
shares; and February 1, 1993 (date
of initial public offering) to
November 30, 1993 and fiscal year
ended November 30, 1994 for Class
B and Class C shares, individually
Statement of Assets and Liabilities November 30, 1994
Statement of Operations Year ended November 30, 1994
Statement of Changes in Net Assets Two years ended November 30, 1994
Notes to Financial Statements
Independent Auditors' Report
dated January 6, 1995
All other statements and schedules are omitted as the required information is
inapplicable.
24(b). Exhibits.
(1) A copy of Registrant's Declaration of Trust dated October 24, 1986 was
filed with Registration Statement No. 33-11051/811-4951 as Exhibit
24(b)(1) and is incorporated by reference herein.
(2) A copy of Registrant's By-Laws was filed with Registration Statement
No. 33-11051/811-4951 as Exhibit 24(b)(2) and is incorporated by
reference herein. Copies of the First and Second Amendments to the
Registrant's By-Laws were filed with Pre-Effective Amendment No. 1 to
Registration Statement No. 33-11051/811-4951 as part of Exhibit
24(b)(2) and are incorporated by reference herein.
(3) Not applicable.
(4) A copy of the form of Registrant's share certificate was filed with
Pre-Effective Amendment No. 1 to Registration Statement No.
33-11051/811-4951 as Exhibit 24(b)(4) and is incorporated by reference
herein.
(5) (A) A copy of the Investment Management Agreement between the
Registrant and Keystone Management, Inc. dated August 19, 1993 was
filed with Post-Effective Amendment No. 14 to Registration Statement
No. 33-11051/811-4951 as Exhibit 24(b)(5) and is incorporated by
reference herein.
(B) A copy of the Investment Advisory Agreement between Keystone
Management, Inc. and Keystone Custodian Funds, Inc. dated August 19,
1993 was filed with Post-Effective Amendment No. 14 to Registration
Statement No. 33-11051/811-4951 as Exhibit 24(b)(5) and is
incorporated by reference herein.
(6) A copy of the Principal Underwriting Agreement between the Registrant
and Keystone Distributors, Inc. dated August 19, 1993 was filed with
Post-Effective Amendment No. 14 to Registration Statement No.
33-11051/811-4951 as Exhibit 24(b)(6) and is incorporated by reference
herein. A copy of the form of Dealer Agreement used by Keystone
Distributors, Inc. was filed with Post-Effective Amendment No. 10 to
Registration Statement No. 33-11051/811-4951 as Exhibit 24(b)(6) and
is incorporated by reference herein.
(7) Not applicable.
(8) A copy of the form of Registrant's Custodian, Fund Accounting and
Recordkeeping Agreement with State Street Bank & Trust Company was
filed with Pre-Effective Amendment No. 1 to Registration Statement
No. 33-11051/811-4951 as Exhibit 24(b)(8) and is incorporated by
reference herein. Copies of Amendments Nos. 1-4 to said Agreement were
filed with Post-Effective Amendment No. 13 to
Item 24(b) Exhibits (continued).
Registration Statement No. 33-11051/811-4951 as part of Exhibit
24(b)(8) and are incorporated by reference herein.
(9) Not applicable.
(10) An opinion and consent of counsel as to the legality of the securities
registered was filed with Registrant's Rule 24f-2 Notice on January
31, 1994 and is incorporated by reference herein.
(11) Consent as to the use of opinion of Registrant's Independent Auditors
is filed herewith.
(12) Not applicable.
(13) Copies of Subscription Agreements were filed with Registration
Statement No. 33-11051/811-4951 as Exhibit 24(b)(13) and are
incorporated by reference herein. Copies of the release of one
Subscription Agreement and a new Subscription Agreement were filed
with Pre-Effective Amendment No. 1 to Registration Statement No.
33-11051/811-4951 as part of Exhibit 24(b)(13) and are incorporated by
reference herein.
(14) Copies of model plans used in the establishment of retirement plans in
connection with which Registrant will offer its securities were filed
with Post-Effective Amendment No. 66 to Registration Statement No.
2-10527/811-96 as Exhibit 24(b)(14) and are incorporated by reference
herein.
(15) Copies of the forms of Registrant's Class A, B, and C Distribution
Plans were filed with Post-Effective Amendment No. 14 to Registration
Statement No. 33-11051/811-4951 as Exhibit 24(b)(15) and are
incorporated by reference herein.
(16) Schedules for the computation of total return and current and tax
equivalent yield quotations are filed herewith.
(17) Powers of Attorney are filed herewith.
Exhibit
27 Financial data schedules are filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record
Title of Class Holders as of February 28, 1995
-------------- -------------------------------
Shares of Beneficial Class A - 2,769
Interest, without par Class B - 877
value Class C - 338
Item 27. Indemnification
Provisions for the indemnification of the Registrant's Trustees and
officers are contained in Article VIII of the Registrant's Restatement
of Trust Agreement, a copy of which was filed with Registration
Statement No. 33-11051/811-4951 as Exhibit 24(b)(1) and is
incorporated by reference herein.
Provisions for the indemnification of Keystone Distributors, Inc., the
Registrant's principal underwriter, are contained in Section 9 of the
Principal Underwriting Agreement between the Registrant and Keystone
Distributors, Inc., a copy of which was filed with Post-Effective No.
14 to Registration Statement No. 33-11051/811-4951 as Exhibit 24(b)(6)
and is incorporated by reference herein.
Provisions for the indemnification of Keystone Management, Inc. and
Keystone Custodian Funds, Inc., Registrant's investment manager and
adviser, respectively, are contained in Section 6 of the Investment
Management Agreement between the Registrant and Keystone Management,
Inc. and Section 5 of the Investment Advisory Agreement between
Keystone Management, Inc. and Keystone Custodian Funds, Inc., copies
of which were filed with Post-Effective No. 14 to Registration
Statement No. 33-11051/811-4951 as Exhibit 24(b)(5) and are
incorporated by reference herein.
Item 28. Businesses and Other Connections of Investment Advisers
The following tables list the names of the various officers and
directors of Keystone Management, Inc. and Keystone Custodian Funds,
Inc., Registrant's investment manager and adviser, respectively, and
their respective positions. For each named individual, the tables
list, for at least the past two fiscal years, (i) any other
organizations (for Keystone Custodian Funds, Inc., excluding
investment advisory clients) with which the officer and/or director
has had or has substantial involvement; and (ii) positions held with
such organizations.
<PAGE>
Position with Other
Keystone Business
Name Management, Inc. Affiliations
---- ------------- ------------
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer, Vice Keystone Group, Inc.
Chairman and Keystone Management,
Director Inc.
Keystone Software, Inc.
Keystone Asset
Corporation
Keystone Capital
Corporation
Keystone Group Funds
Chairman of the Board and
Director:
Keystone Investment
Management Corporation
Keystone Fixed Income
Advisers, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Investor
Resource Center, Inc.
Robert Van Partners, Inc.
Boston Children's
Services Association
Associate Fiduciary
Investment Company, Inc.
Middlesex School
Middlebury College
Keystone Distributors,
Inc.
Former Trustee or
Director:
Neworld Bank
<PAGE>
Position with
Keystone Other
Management, Business
Name Inc. Affiliations
Edward F. Godfrey Treasurer and Senior Vice President,
Director Chief Financial Officer,
Treasurer and Director:
Keystone Group, Inc.
Keystone Custodian
Funds, Inc.
Keystone Distributors,
Inc.
Treasurer:
Keystone Investment
Management Corporation
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Treasurer and Director:
Hartwell Keystone
Advisers, Inc.
Senior Vice President:
Keystone Group Funds
Ralph J. Director President and Director:
Spuehler, Jr. Keystone Distributors,
Inc.
Director:
Keystone Investor
Resource Center, Inc.
Keystone Custodian
Funds, Inc.
Senior Vice President and
Director:
Keystone Group, Inc.
Treasurer:
Hartwell Emerging Growth
Fund
Hartwell Growth Fund
Former President:
Keystone Management, Inc.
Former Treasurer:
Keystone Group, Inc.
The Kent Funds
Keystone Custodian
Funds, Inc.
<PAGE>
Position with
Keystone Other
Management, Business
Name Inc. Affiliations
Rosemary D. Van Senior Vice Senior Vice President,
Antwerp President, General Counsel and
General Counsel Director:
and Secretary Fiduciary Investment
Company, Inc.
Keystone Group, Inc.
Keystone Investor
Resource Center, Inc.
Keystone Distributors,
Inc.
Keystone Software, Inc.
Senior Vice President and
General Counsel:
Keystone Investment
Management Corporation
Senior Vice President and
Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and
Secretary:
Keystone Fixed Income
Advisers, Inc.
Former Assistant Secretary:
The Kent Funds
Kevin Morrissey Assistant Vice President:
Treasurer Keystone Group, Inc.
Assistant Treasurer:
Fiduciary Investment
Company, Inc.
Former Assistant Treasurer:
The Kent Funds
J. Kevin Kenely Vice President Vice President and
and Controller Controller:
Keystone Group, Inc.
Keystone Custodian
Funds, Inc.
Keystone Distributors,
Inc.
Keystone Investment
Management Corporation
<PAGE>
Position with
Keystone Other
Management, Business
Name Inc. Affiliations
J. Kevin Kenely (con't) Hartwell Keystone
Advisers, Inc.
Fiduciary Investment
Company, Inc.
Keystone Software, Inc.
Jean Susan Assistant Vice President and
Loewenberg Secretary Counsel:
Keystone Group, Inc.
Vice President and
Secretary:
Keystone Trust Company
Secretary:
Keystone Investor
Resource Center, Inc.
Clerk:
Keystone Investment
Management Corporation
Fiduciary Investment
Company, Inc.
Assistant Secretary:
Keystone Asset
Corporation
Keystone Capital
Corporation
Keystone Fixed Income
Advisers, Inc.
Keystone Group Funds
Hartwell Keystone
Advisers, Inc.
Keystone Software, Inc.
Keystone Distributors,
Inc.
Keystone Custodian
Funds, Inc.
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF KEYSTONE CUSTODIAN FUNDS, INC.
Position with
Keystone Other
Custodian Business
Name Funds, Inc. Affiliations
---- ------------- ------------
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer, Vice Keystone Group, Inc.
Chairman and Keystone Management,
Director Inc.
Keystone Software, Inc.
Keystone Asset
Corporation
Keystone Capital Corp.
Chairman of the Board and
Director:
Keystone Fixed Income
Advisers, Inc.
Keystone Investment
Management Corporation
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Distributors,
Inc.
Keystone Investor
Resource Center, Inc.
Robert Van Partners,
Inc.
Boston Children's
Services Associates
Fiduciary Investment
Company, Inc.
Middlesex School
Middlebury College
Formerly Trustee:
Neworld Bank
Philip M. Byrne Director President and Director:
Keystone Investment
Management Corporation
Senior Vice President:
Keystone Group, Inc.
<PAGE>
Position with
Keystone Other
Custodian Business
Name Funds, Inc. Affiliations
---- ------------- ------------
Herbert L. Senior Vice None
Bishop, Jr. President
Donald C. Dates Senior Vice None
President
Gilman Gunn Senior Vice None
President
Edward F. Godfrey Director, Director, Senior Vice
Senior Vice Chief Financial
President, Treasurer:
Treasurer and Keystone Group, Inc.
Chief Financial Keystone
Officer Distributors,Inc.
Treasurer:
Keystone Investment
Management Corporation
Keystone Management,
Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Treasurer and Director:
Hartwell Keystone
Advisers, Inc.
James R. McCall Director and None
President
Ralph J. Spuehler, Jr. Director President and Director:
Keystone
Distributors,Inc.
Senior Vice President and
Director:
Keystone Group, Inc.
Treasurer:
Hartwell Emerging Growth
Fund, Inc.
Hartwell Growth
Fund,Inc.
Director:
Keystone Investor
Resource Center, Inc.
Keystone Management,
Inc.
<PAGE>
Position with
Keystone Other
Custodian Business
Name Funds, Inc. Affiliations
---- ------------- ------------
Ralph J. Spuehler, Jr. Formerly President:
(con't) Keystone Management,
Inc.
Formerly Treasurer:
The Kent Funds
Keystone Group, Inc.
Keystone Custodian
Funds, Inc.
Rosemary D. Van Antwerp Senior Vice General Counsel, Senior
President, Vice President and
General Counsel Secretary:
and Secretary Keystone Group, Inc.
Senior Vice President and
General Counsel:
Keystone Investment
Management Corporation
Senior Vice President,
General Counsel and
Director:
Keystone Investor
Resource Center, Inc.
Fiduciary Investment
Company, Inc.
Keystone Distributors,
Inc.
Keystone Management,
Inc.
Keystone Software, Inc.
Senior Vice President and
Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and
Secretary:
Keystone Fixed Income
Advisers, Inc.
Formerly Assistant
Secretary:
The Kent Funds
Harry Barr Baumback Vice President None
Robert K. Vice President None
<PAGE>
Position with
Keystone Other
Custodian Business
Name Funds, Inc. Affiliations
---- ------------- ------------
Betsy A. Blacher Vice President None
Francis X. Claro Vice President None
Kristine R. Cloyes Vice President None
Christopher P. Conkey Vice President None
Richard Cryan Vice President None
Maureen E. Cullinane Vice President None
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Christopher R. Ely Vice President None
Roland Gillis Vice President None
Robert L. Hockett Vice President None
Sami J. Karam Vice President None
Donald M. Keller Vice President None
George J. Kimball Vice President None
JoAnn L. Lydon Vice President None
John C. Madden, Jr. Vice President None
Stephen A. Marks Vice President None
Eleanor H. Marsh Vice President None
Walter T. McCormick Vice President None
Barbara McCue Vice President None
<PAGE>
Position with
Keystone Other
Custodian Business
Name Funds, Inc. Affiliations
---- ------------- ------------
Stanley M. Niksa Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
William H. Parsons Vice President None
Daniel A. Rabasco Vice President None
David L. Smith Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
Marcia Waterman Vice President None
J. Kevin Kenely Vice President None
Joseph J. Decristofaro Vice President None
Jean Susan Loewenberg Assistant Vice President and
Secretary Counsel:
Keystone Group, Inc.
Vice President and
Secretary:
Keystone Trust Company
Secretary:
Keystone Investor
Resource Center, Inc.
Assistant Secretary:
Keystone Asset
Corporation
Keystone Capital
Corporation
Keystone Distributors,
Inc.
Keystone Fixed Income
Advisers, Inc.
Keystone Management,
Inc.
Keystone Software, Inc.
Hartwell Keystone
Advisers, Inc.
<PAGE>
Position with
Keystone Other
Custodian Business
Name Funds, Inc. Affiliations
---- ------------- ------------
Jean Susan Loewenberg Clerk:
(con't) Keystone Investment
Management Corporation
Fiduciary Investment
Company, Inc.
Assistant Secretary:
Hartwell Keystone
Advisers, Inc.
Keystone Distributors,
Inc.
Colleen L. Mette Assistant Assistant Secretary:
Secretary Keystone Distributors,
Inc.
Keystone Group, Inc.
Kevin J. Morrissey Assistant Vice President:
Treasurer Keystone Group, Inc.
Assistant Treasurer:
Fiduciary Investment
Company, Inc.
Formerly Assistant
Treasurer:
The Kent Funds
<PAGE>
Item 29. Principal Underwriter
(a) Keystone Distributors, Inc., which acts as Registrant's principal
underwriter, also acts as principal underwriter for the following
entities:
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone America Hartwell Growth Fund, Inc.
Keystone Custodian Fund, Series B-1
Keystone Custodian Fund, Series B-2
Keystone Custodian Fund, Series B-4
Keystone Custodian Fund, Series K-1
Keystone Custodian Fund, Series K-2
Keystone Custodian Fund, Series S-1
Keystone Custodian Fund, Series S-3
Keystone Custodian Fund, Series S-4
Keystone America Capital Preservation and Income Fund
Keystone America Fund for Total Return
Keystone America Global Opportunities Fund
Keystone America Government Securities Fund
Keystone America Intermediate Term Bond Fund
Keystone America Omega Fund, Inc.
Keystone America State Tax Free Fund
Keystone America State Tax Free Fund, Series II
Keystone America Strategic Income Fund
Keystone America World Bond Fund
Keystone Fund of the Americas
Keystone Tax Free Fund
Keystone Tax Exempt Trust
Keystone Liquid Trust
Keystone International Fund Inc.
Keystone Precious Metals Holdings, Inc.
Keystone Strategic Development Fund
(b) For information with respect to each officer and director of
Registrant's acting principal underwriter, see the following
pages.
<PAGE>
Item 29(b) continued
Position and
Name and Principal Position and Offices with Offices with
Business Address Keystone Distributors, Inc. the Fund
------------------ --------------------------- ------------
Ralph J. Spuehler* Director, President None
Edward F. Godfrey* Director, Senior Vice Senior Vice
President, Treasurer President
and Chief Financial
Officer
Rosemary D. Van Antwerp Director, Senior Vice Senior Vice
President, General Counsel President
and Secretary
Albert H. Elfner, III* Director President
Charles W. Carr* Senior Vice President None
Peter M. Delehanty* Senior Vice President None
J. Kevin Kenely* Vice President and None
Controller
Frank O. Gebhardt Divisional Vice None
2626 Hopeton President
San Antonio, TX 78230
C. Kenneth Molander Divisional Vice None
8 King Edward Drive President
Londenderry, NH 03053
David S. Ashe Regional Manager and None
32415 Beaconsfield Vice President
Birmingham, MI 48025
David E. Achzet Regional Vice President None
60 Lawn Avenue -
Greenway 27
Stamford, CT 06902
William L. Carey, Jr. Regional Manager and None
4 Treble Lane Vice President
Malvern, PA 19355
John W. Crites Regional Manager and None
2769 Oakland Circle W. Vice President
Aurora, CO 80014
<PAGE>
Item 29(b) continued
Position and
Name and Principal Position and Offices with Offices with
Business Address Keystone Distributors, Inc. the Fund
------------------ --------------------------- ------------
Richard J. Fish Regional Vice President None
309 West 90th Street
New York, NY 10024
Michael E. Gathings Regional Manager and None
245 Wicklawn Way Vice President
Roswell, GA 30076
Robert G. Holz, Jr. Regional Manager and None
313 Meadowcrest Drive Vice President
Richardson, Texas 75080
Todd L. Kobrin Regional Manager and None
20 Iron Gate Vice President
Metuchen, NJ 08840
Ralph H. Johnson Regional Manager and None
345 Masters Court, #2 Vice President
Walnut Creek, CA 94598
Paul J. McIntyre Regional Manager and None
Vice President
Dale M. Pelletier Regional Manager and None
464 Winnetka Ave. Vice President
Winnetka, IL 60093
Juliana Perkins Regional Manager and None
2348 West Adrian Street Vice President
Newbury Park, CA 91320
Matthew D. Twomey Regional Manager and None
9627 Sparrow Court Vice President
Ellicott City, MD 21042
Mitchell I. Weiser Regional Manager and None
7031 Ventura Court Vice President
Parkland, FL 33067
Welden L. Evans Regional Banking Officer None
490 Huntcliff Green and Vice President
Atlanta, GA 30350
Russell A. Haskell* Vice President None
Robert J. Matson* Vice President None
<PAGE>
Item 29(b) continued
Position and
Name and Principal Position and Offices with Offices with
Business Address Keystone Distributors, Inc. the Fund
------------------ --------------------------- ------------
John M. McAllister* Vice President None
Gregg A. Mahalich Vice President None
14952 Richards Drive W.
Minnetonka, MN 55345
Burton Robbins Vice President None
1586 Folkstone Terrace
Westlake Village, CA
91361
Thomas E. Ryan, III* Vice President None
Peter Willis* Vice President None
Raymond P. Ajemian* Manager and Vice President None
Joan M. Balchunas* Assistant Vice President None
Thomas J. Gainey* Assistant Vice President None
Eric S. Jeppson* Assistant Vice President None
Julie A. Robinson* Assistant Vice President None
Peter M. Sullivan Assistant Vice President None
21445 Southeast 35th Way
Issaquah, WA 98027
Jean S. Loewenberg* Assistant Secretary Assistant
Secretary
Colleen L. Mette* Assistant Secretary Assistant
Secretary
Dorothy E. Bourassa* Assistant Secretary Assistant
Secretary
* Located at 200 Berkeley Street, Boston, Massachusetts 02116-5034
Item 29(c). - Not applicable
<PAGE>
Item 30. Location of Accounts and Records
200 Berkeley Street
Boston, Massachusetts 02116-5034
Keystone Investor Resource Center, Inc.
101 Main Street
Cambridge, MA 02142-1519
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, MA 02171
DataVault Inc.
3431 Sharps Lot Road
Swansea, Massachusetts 02777
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
Upon request and without charge, Registrant hereby undertakes to
furnish a copy of its latest annual report to shareholders to each
person to whom a copy of Registrant's prospectus is delivered.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for the effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston, in The
Commonwealth of Massachusetts, on the 22nd day of March, 1995.
KEYSTONE AMERICA TAX FREE
INCOME FUND
By:/s/ George S. Bissell
---------------------------------
George S. Bissell*
Chairman of the Board
*By:/s/ James M. Wall
--------------------------------
James M. Wall**
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 22nd day of March, 1995.
SIGNATURES TITLE
/s/ George S. Bissell Chairman of the Board and Trustee
---------------------
George S. Bissell*
/s/ Albert H. Elfner, III President, Chief Executive Officer
------------------------- and Trustee
Albert H. Elfner, III*
/s/ Kevin J. Morrissey Treasurer (Principal Accounting
---------------------- and Financial Officer)
Kevin J. Morrissey*
*By: /s/ James M. Wall
--------------------------------
James M. Wall**
Attorney-in-Fact
<PAGE>
SIGNATURES TITLE
/s/ Frederick Amling Trustee
--------------------------
Frederick Amling*
/s/ Charles A. Austin, III Trustee
--------------------------
Charles A. Austin, III*
/s/ Edwin D. Campbell Trustee
--------------------------
Edwin D. Campbell*
/s/ Charles F. Chapin Trustee
--------------------------
Charles F. Chapin*
/s/ K. Dun Gifford Trustee
--------------------------
K. Dun Gifford*
/s/ Leroy Keith, Jr. Trustee
--------------------------
Leroy Keith, Jr.*
/s/ F. Ray Keyser, Jr. Trustee
--------------------------
F. Ray Keyser, Jr.*
/s/ David M. Richardson Trustee
--------------------------
David M. Richardson*
/s/ Richard J. Shima Trustee
--------------------------
Richard J. Shima*
/s/ Andrew J. Simons Trustee
--------------------------
Andrew J. Simons*
*By/s/ James M. Wall
---------------------------------
James M. Wall**
Attorney-in-Fact
**James M. Wall, by signing his name hereto, does hereby sign this document on
behalf of each of the above-named individuals pursuant to powers of attorney
duly executed by such persons and attached hereto as Exhibit 24(b)(17).
<PAGE>
INDEX TO EXHIBITS
Page Number
Exhibit in Sequential
Number Exhibit Number System
1 Declaration of Trust(1)
2 By-Laws(1)
First and Second Amendments
to By-Laws(2)
4 Specimen Share Certificate(2)
5 (A) Investment Management Agreement(8)
(B) Investment Advisory Agreement(8)
6 (A) Principal Underwriting Agreement(8)
(B) Dealers Agreement(4)
8 Custody Agreement(2)
Amendments to Custody Agreements(5)
10 Opinion and Consent of Counsel(6)
11 Independent Auditors' Consent
13 Subscription Agreements(1,2)
14 Model Retirement Plans(7)
15 Forms of Class A, B, and C Distribution Plans(8)
16 Performance Data Schedules
17 Powers of Attorney
27 Financial Data Schedules
------------------------------------------------------------------------------
(1) Incorporated herein by reference to Registration Statement No.
33-11051/811-4951
(2) Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registration Statement No. 33-11051/811-4951
(3) Incorporated herein by reference to Post-Effective Amendment No. 6 to
Registration Statement No. 33-11051/811-4951.
(4) Incorporated herein by reference to Post-Effective Amendment No. 10 to
Registration Statement No. 33-11051/811-4951.
(5) Incorporated herein by reference to Post-Effective Amendment No. 13 to
Registration Statement No. 33-11051/811-4951.
(6) Incorporated by reference to Registrant's Rule 24f-2 Notice filed on
January 31, 1994.
(7) Incorporated herein by reference to Post-Effective Amendment No. 66 to
Registration Statement No. 2-10527/811-96.
(8) Incorporated herein by reference to Post-Effective Amendment No. 14 to
Registration Statement No. 33-11051/811-4951.
EXHIBIT 99. 24(b)(11)
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Keystone America Tax Free Income Fund
We consent to the use of our report dated January 6, 1995 included herein and to
the references to our firm under the captions "FINANCIAL HIGHLIGHTS" in the
prospectus and "ADDITIONAL INFORMATION" in the statement of additional
information.
/s/ KPMG Peat Marwick LLP
------------------------
KPMG Peat Marwick LLP
Boston, Massachusetts
March 22 , 1995
<PAGE>
<TABLE>
EXHIBIT 99.24(B)(16)
<CAPTION>
KATFIF CLASS A MTD YTD ONE YEAR THREE YEAR THREE YEAR FIVE YEAR FIVE YEAR INCEPTION INCEPTION
30-Nov-94 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.75% LOAD -13.93% -12.19% 5.02% 1.65% 21.47% 3.97% 47.99% 5.27%
no load -2.14% -9.64% -7.81% 10.25% 3.31% 27.52% 4.98% 55.38% 5.95%
Beg dates 31-Oct-94 31-Dec-93 30-Nov-93 29-Nov-91 29-Nov-91 30-Nov-89 30-Nov-89 14-Apr-87 14-Apr-87
Beg Value
(LOAD) 16,669 18,052 17,695 14,795 14,795 12,792 12,792 10,499 10,499
Beg Value
(no load) 15,877 17,194 16,854 14,092 14,092 12,184 12,184 10,000 10,000
End Value 15,538 15,538 15,538 15,538 15,538 15,538 15,538 15,538 15,538
TIME 3 5 7.6305555556
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KATFIF-B MTD YTD ONE YEAR INCEPTION INCEPTION
30-Nov-94 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A -12.82% -11.03% -4.98% -2.75%
W/O CDSC -2.15% -10.27% -8.43% -2.39% -1.31%
Beg dates 31-Oct-94 31-Dec-93 30-Nov-93 01-Feb-93 01-Feb-93
Beg Value (no load) 9,976 10,878 10,659 10,000 10,000
End Value (W/O CDSC) 9,761 9,761 9,761 9,761 9,761
End Value (with cdsc) 9,483 9,484 9,502 9,502
beg nav 9.12 10.42 10.25 10.27 10.27
end nav 8.88 8.88 8.88 8.88 8.88
shares originally purhased 1,093.83 1,043.94 1,039.95 973.71 973.71
3% cdsc thru date=> 31-Dec-94
TIME 2% cdsc thru date=> 31-Dec-95 1.8333333333
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KATFIF-C MTD YTD ONE YEAR INCEPTION INCEPTION
30-Nov-94 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A -11.12% -8.52% -2.39% -1.31%
W/O CDSC -2.15% -10.27% -8.52% -2.39% -1.31%
Beg dates 31-Oct-94 31-Dec-93 30-Nov-93 01-Feb-93 01-Feb-93
Beg Value (no load) 9,975 10,878 10,670 10,000 10,000
End Value (W/O CDSC) 9,761 9,761 9,761 9,761 9,761
End Value (with cdsc) 9,668 9,761 9,761 9,761
beg nav 9.12 10.42 10.26 10.27 10.27
end nav 8.88 8.88 8.88 8.88 8.88
shares originally purchased 1,093.79 1,043.93 1,039.93 973.71 973.71
TIME 1.8333333333
</TABLE>
<PAGE>
FUND NAME: KEYSTONE TAX FREE INCOME FUND SEC STANDARDIZED ADVERTISING YIELD
CLASS A PHASE II - ROLLING
PRICING DATE 22-NOV-94 TOTAL INCOME FOR PERIOD
TOTAL EXPENSES FOR PERIOD
30 DAY YTM 5.768851% AVERAGE SHARES OUTSTANDING
LAST PRICE DURING PERIOD
-------------------------------------------------------------------------------
PRICE TOTAL ADJUSTED DAILY FD & DAILY
DATE INCOME INCOME CLASS EXPENSES SHARES
Input Input
-------------------------------------------------------------------------------
24-OCT-94 30,313.19 19,612.18 3,102.73 11,062,210.405
25-OCT-94 30,489.94 19,715.06 4,116.29 11,050,670.617
26-OCT-94 29,951.91 19,331.89 3,329.19 11,023,744.826
27-OCT-94 30,080.09 19,413.38 3,307.98 11,034,008.413
28-OCT-94 30,148.06 19,495.08 3,312.41 11,044,011.254
29-OCT-94 30,085.78 19,483.44 3,061.76 11,034,343.734
30-OCT-94 30,085.78 19,483.44 3,061.76 11,034,343.734
31-OCT-94 30,085.78 19,483.44 3,061.76 11,034,343.734
01-NOV-94 30,048.82 19,438.92 3,691.02 11,024,070.843
02-NOV-94 30,062.83 19,447.70 3,295.02 11,017,541.532
03-NOV-94 30,240.78 19,556.49 3,298.83 11,000,955.842
04-NOV-94 30,094.64 19,470.63 3,295.07 10,989,826.532
05-NOV-94 29,902.39 19,330.89 3,026.19 10,967,090.970
06-NOV-94 29,902.40 19,330.89 3,026.19 10,967,090.970
07-NOV-94 29,902.40 19,330.89 3,026.19 10,967,090.970
08-NOV-94 29,953.39 19,357.87 4,023.31 10,960,226.465
09-NOV-94 30,228.18 19,554.65 3,265.33 10,942,085.064
10-NOV-94 30,233.21 19,529.38 3,259.76 10,916,640.003
ll-NOV-94 30,178.21 19,479.99 3,256.84 10,895,460.595
12-NOV-94 27,192.02 17,556.36 2,989.66 10,883,812.539
13-NOV-94 27,192.02 17,556.36 2,989.67 10,883,812.539
14-NOV-94 27,192.02 17,556.36 2,989.67 10,883,812.539
15-NOV-94 30,020.11 19,387.22 4,001.65 10,872,775.918
16-NOV-94 30,082.68 19,477.61 3,252.39 10,865,813.017
17-NOV-94 30,071.03 19,452.77 3,238.96 10,844,575.163
18-NOV-94 30,042.67 19,403.95 3,223.51 10,829,046.528
l9-NOV-94 29,808.16 19,279.26 2,971.53 10,798,432.049
20-NOV-94 29,808.16 19,279.26 2,971.53 10,798,432.049
21-NOV-94 29,808.16 19,279.26 2,971.53 10,798,432.049
22-NOV-94 29,855.93 19,313.66 3,780.46 10,784,096.062
<PAGE>
FUND NAME: KEYSTONE TAX FREE INCOME FUND SEC STANDARDIZED ADVERTISING YIELD
CLASS B PHASE II - ROLLING
PRICING DATE 22-NOV-94 TOTAL INCOME FOR PERIOD
TOTAL EXPENSES FOR PERIOD
30 DAY YTM 5.28676% AVERAGE SHARES OUTSTANDING
LAST PRICE DURING PERIOD
--------------------------------------------------------------------------------
PRICE TOTAL ADJUSTED DAILY DAILY
DATE INCOME INCOME EXPENSES SHARES
Input Input
--------------------------------------------------------------------------------
24-OCT-94 30,313.19 5,720.43 1,523.87 3,242,734.698
25-OCT-94 30,489.94 5,765.66 1,820.62 3,248,128.698
26-OCT-94 29,951.91 5,668.65 1,589.47 3,248,904.196
27-OCT-94 30,080.09 5,697.31 1,580.89 3,254,784.981
28-OCT-94 30,148.06 5,719.91 1,579.41 3,257,021.730
29-OCT-94 30,085.78 5,705.51 1,507.54 3,247,983.747
30-OCT-94 30,085.78 5,705.51 1,507.54 3,247,983.747
31-OCT-94 30,085.78 5,705.51 1,507.54 3,247,983.747
01-NOV-94 30,048.82 5,717.37 1,696.31 3,259,356.730
02-NOV-94 30,062.83 5,723.23 1,576.29 3,259,356.834
03-NOV-94 30,240.78 5,773.57 1,575.41 3,264,875.598
04-NOV-94 30,094.64 5,758.19 1,575.85 3,267,255.996
05-NOV-94 29,902.39 5,733.10 1,496.28 3,267,255.996
06-NOV-94 29,902.40 5,733.11 1,496.28 3,269,824.748
07-NOV-94 29,902.40 5,733.11 1,496.27 3,269,824.748
08-NOV-94 29,953.39 5,756.36 1,791.97 3,276,672.933
09-NOV-94 30,228.18 5,814.54 1,563.44 3,271,125.344
10-NOV-94 30,233.21 5,814.56 1,567.16 3,267,813.561
ll-NOV-94 30,178.21 5,824.19 1,569.60 3,275,225.688
12-NOV-94 27,192.02 5,254.58 1,488.98 3,275,225.688
13-NOV-94 27,192.02 5,254.58 1,488.98 3,275,225.688
14-NOV-94 27,192.02 5,254.58 1,488.98 3,275,225.688
15-NOV-94 30,020.11 5,797.89 1,792.37 3,269,474.475
16-NOV-94 30,082.68 5,801.75 1,565.63 3,254,450.450
17-NOV-94 30,071.03 5,807.10 1,557.37 3,255,299.450
18-NOV-94 30,042.67 5,808.69 1,552.75 3,259,770.824
l9-NOV-94 29,808.16 5,762.98 1,476.92 3,245,905.829
20-NOV-94 29,808.16 5,762.98 1,476.92 3,245,905.829
21-NOV-94 29,808.16 5,762.98 1,476.91 3,245,905.829
22-NOV-94 29,855.93 5,780.33 1,716.10 3,245,791.824
<PAGE>
FUND NAME: KEYSTONE TAX FREE INCOME FUND SEC STANDARDIZED ADVERTISING YIELD
CLASS C PHASE II - ROLLING
PRICING DATE 22-NOV-94 TOTAL INCOME FOR PERIOD
TOTAL EXPENSES FOR PERIOD
30 DAY YTM 5.27441% AVERAGE SHARES OUTSTANDING
LAST PRICE DURING PERIOD
--------------------------------------------------------------------------------
PRICE TOTAL ADJUSTED DAILY DAILY
DATE INCOME INCOME EXPENSES SHARES
Input Input
--------------------------------------------------------------------------------
24-OCT-94 30,313.19 4,980.58 1,327.05 2,822,883.740
25-OCT-94 30,489.94 5,009.22 1,583.29 2,821,526.566
26-OCT-94 29,951.91 4,951.37 1,384.53 2,837,351.914
27-OCT-94 30,080.09 4,969.40 1,379.91 2,838,489.909
28-OCT-94 30,148.06 4,933.07 1,372.07 2,808,535.751
29-OCT-94 30,085.78 4,896.83 1,297.27 2,838,489.909
30-OCT-94 30,085.78 4,896.83 1,297.27 2,838,489.909
31-OCT-94 30,085.78 4,896.83 1,297.27 2,838,489.909
01-NOV-94 30,048.82 4,892.53 1,453.63 2,788,661.508
02-NOV-94 30,062.83 4,891.91 1,348.14 2,785,434.508
03-NOV-94 30,240.78 4,910.73 1,343.33 2,776,472.479
04-NOV-94 30,094.64 4,865.82 1,335.52 2,760,508.285
05-NOV-94 29,902.39 4,838.40 1,263.63 2,759,138.644
06-NOV-94 29,902.40 4,838.40 1,263.63 2,759,138.644
07-NOV-94 29,902.40 4,838.40 1,263.63 2,759,138.644
08-NOV-94 29,953.39 4,839.16 1,509.06 2,754,175.371
09-NOV-94 30,228.18 4,858.99 1,310.48 2,733,153.262
10-NOV-94 30,233.21 4,889.27 1,313.63 2,747,405.322
ll-NOV-94 30,178.21 4,874.03 1,316.73 2,740,454.999
12-NOV-94 27,192.02 4,381.07 1,243.91 2,730,319.999
13-NOV-94 27,192.02 4,381.07 1,243.91 2,730,319.999
14-NOV-94 27,192.02 4,381.07 1,243.92 2,730,319.999
15-NOV-94 30,020.11 4,835.00 1,494.57 2,726,056.409
16-NOV-94 30,082.68 4,803.32 1,300.98 2,693,952.369
17-NOV-94 30,071.03 4,811.16 1,289.81 2,696,556.446
18-NOV-94 30,042.67 4,830.03 1,288.76 2,710,110.920
l9-NOV-94 29,808.16 4,765.91 1,224.94 2,683,871.206
20-NOV-94 29,808.16 4,765.91 1,224.94 2,683,871.206
21-NOV-94 29,808.16 4,765.91 1,224.95 2,683,871.206
22-NOV-94 29,855.93 4,761.94 1,416.20 2,673,489.014
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone America Tax Free Income Fund/Class A
Calculation Period: 30 days ended November 30, 1994
Yield: 5.77%
The Keystone America Tax Free Income Fund intends to advertise tax
equivalent yield based on the yield of the Fund over a 30-day period. The
calculation includes the tax equivalent yield from an investment which is exempt
from federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 5.77% = 8.36% Federal Tax Equivalent Yield
-----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone America Tax Free Income Fund/Class B
Calculation Period: 30 days ended November 30, 1994
Yield: 5.29%
The Keystone America Tax Free Income Fund intends to advertise tax
equivalent yield based on the yield of the Fund over a 30-day period. The
calculation includes the tax equivalent yield from an investment which is exempt
from federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 5.29% = 7.67% Federal Tax Equivalent Yield
-----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone America Tax Free Income Fund/Class C
Calculation Period: 30 days ended November 30, 1994
Yield: 5.27%
The Keystone America Tax Free Income Fund intends to advertise tax
equivalent yield based on the yield of the Fund over a 30-day period. The
calculation includes the tax equivalent yield from an investment which is exempt
from federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 5.27% = 7.64% Federal Tax Equivalent Yield
-----
0.69
EXHIBIT 99.24(b)(17)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/George S. Bissell
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chief Executive Officer and for
which Keystone Custodian Funds, Inc. serves as Adviser or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and in my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Director/Trustee,
President and Chief
Executive Officer
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director, Trustee or officer and for which Keystone
Custodian Funds, Inc. serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and in my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Kevin J. Morrissey
Kevin J. Morrissey
Treasurer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Frederick Amling
Frederick Amling
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles A. Austin III
Charles A. Austin III
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Edwin D. Campbell
Edwin D. Campbell
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles F. Chapin
Charles F. Chapin
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ K. Dun Gifford
K. Dun Gifford
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Leroy Keith, Jr.
Leroy Keith, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ F. Ray Keyser, Jr.
F. Ray Keyser, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ David M. Richardson
David M. Richardson
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Richard J. Shima
Richard J. Shima
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/Andrew J. Simons
Andrew J. Simons
Director/Trustee
Dated: December 14, 1994
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<CIK> 0000808334
<NAME> KEYSTONE AMERICA TAX FREE INCOME FUND
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<CIK> 0000808334
<NAME> KEYSTONE AMERICA TAX FREE INCOME FUND
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</LEGEND>
<CIK> 0000808334
<NAME> KEYSTONE AMERICA TAX FREE INCOME FUND
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