<PAGE>
SUPPLEMENT TO CURRENT PROSPECTUS
and
STATEMET OF ADDITIONAL INFORMATION
OF
KEYSTONE AMERICA FUND FOR TOTAL RETURN
The Fund's prospectus and statement of additional information is hereby
supplemented to reflect the following change to the Fund's fundamental
investment objective:
"The Fund seeks total return from a combination of capital growth and
income."
March 2, 1995
<PAGE>
- --------------------------------------------------------------------------------
KEYSTONE
AMERICA
[PHOTOGRAPH]
FUND FOR
TOTAL RETURN
[LOGO]
PROSPECTUS AND
APPLICATION
- --------------------------------------------------------------------------------
<PAGE>
Keystone America Fund For Total Return
Prospectus March 31, 1994
Supplemented September 16, 1994
Keystone America Fund for Total Return (the "Fund") is a mutual fund that
attempts to invest primarily in common stocks that in the aggregate have a
published current yield that is higher than the published current composite
yield of the Standard & Poor's Corporation ("S&P") Index of 500 Common Stocks.
As a secondary objective, the Fund seeks capital appreciation. 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. Class A shares are offered at a
public offering price that includes a sales charge at the time of purchase.
Class B shares are offered without an initial sales charge, although a
contingent deferred sales charge may be imposed at the time of redemption that
decreases depending on how long the shares have been held. Class C shares are
offered without an initial sales charge, although a contingent deferred sales
charge may be imposed on redemptions within one year of 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. Each class makes service fee payments under a Distribution Plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("1940 Act").
Both Class B and Class C shares make commission related payments under their
Distribution Plans. See "How to Buy Shares."
This prospectus concisely states information about the Fund that you should
know before investing. Please read it and retain it for future reference.
Keystone America Fund For Total Return
200 Berkeley Street
Boston, Massachusetts 02116-5034
Call Toll Free 1-800-343-2898
Additional information about the Fund, including information about securities
ratings, is contained in a statement of additional information and its appendix
dated March 31, 1994, and supplemented September 15, 1994, 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.
THE FUND WILL INVEST UP TO 36% OF ITS ASSETS IN EITHER OR BOTH OF (I) LOWER
RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS" AND (II) BONDS ISSUED BY FOREIGN
ISSUERS RATED BELOW INVESTMENT GRADE, BOTH OF WHICH ENTAIL GREATER RISKS,
INCLUDING DEFAULT RISK, UNTIMELY INTEREST AND PRINCIPAL PAYMENTS, AND PRICE
VOLATILITY, THAN THOSE FOUND IN HIGHER RATED SECURITIES, AND MAY PRESENT
PROBLEMS OF LIQUIDITY AND VALUATION. INVESTORS SHOULD CAREFULLY CONSIDER THESE
RISKS BEFORE INVESTING. SEE "FUND OBJECTIVES AND POLICIES," PAGE 6; "RISK
FACTORS," PAGE 8.
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>
TABLE OF CONTENTS
Page
Fee Table ................................................................. 3
Financial Highlights ...................................................... 4
The Fund .................................................................. 6
Investment Objectives and Policies ........................................ 6
Investment Restrictions ................................................... 7
Risk Factors .............................................................. 8
Pricing Shares ............................................................ 10
Dividends and Taxes ....................................................... 11
Fund Management and Expenses .............................................. 11
How to Buy Shares ......................................................... 13
Alternative Sales Options ................................................. 14
Distribution Plans ........................................................ 17
How to Redeem Shares ...................................................... 18
Shareholder Services ...................................................... 20
Performance Data .......................................................... 22
Fund Shares ............................................................... 23
Additional Information .................................................... 23
Exhibit A ................................................................. A-1
Additional Investment Information ......................................... (i)
<PAGE>
FEE TABLE
Keystone America Fund for Total Return
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.
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
Front End Back End Level Load
Shareholder Transaction Expenses Load Option Load Option<F1> Option<F2>
----------- -------------- ---------
<S> <C> <C> <C>
Sales Charge .................................. 5.75%<F3> None None
(as a percentage of offering price)
Contingent Deferred Sales Charge .............. 0.00%<F4> 3.00% in the first year 1.00% in the first
(as a percentage of the lesser of cost or declining to 1.00% in year and 0.00%
market value of shares redeemed) the fourth year and thereafter
0.00% thereafter
Exchange Fee (per exchange)<F5>................ $10.00 $10.00 $10.00
Annual Fund Operating Expenses<F6>
(as a percentage of average net assets)
Management Fees ............................... 0.65% 0.65% 0.65%
12b-1 Fees .................................... 0.25% 1 00%<F7> 1.00%<F7>
Other Expenses ................................ 0.95% 0.99% 0.99%
---- ---- ----
Total Fund Operating Expenses ................. 1.85% 2.64%<F8> 2.64%<F8>
==== ==== ====
<CAPTION>
Examples<F9> 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 ..................................................................... $ 75.00 $112.00 $152.00 $262.00
Class B ..................................................................... $ 57.00 $102.00 $140.00 N/A
Class C ..................................................................... $ 37.00 $ 82.00 $140.00 $297.00
You would pay the following expenses on the same investment, assuming no
redemption at the end of each period:
Class A ..................................................................... $ 75.00 $112.00 $152.00 $262.00
Class B ..................................................................... $ 27.00 $ 82.00 $140.00 N/A
Class C ..................................................................... $ 27.00 $ 82.00 $140.00 $297.00
</TABLE>
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., the
Fund's principal underwriter.
<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 "Calculation of Contingent Deferred Sales Charge
and Waiver of Sales Charges" for an explanation of the charge.
<F5> There is no exchange fee for individual investors making exchanges 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, 1993.
<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> Annualized for the period February 1, 1993 (Date of Initial Public
Offering) to November 30, 1993.
<F9> The Securities and Exchange Commission requires use of a 5% annual return
figure for purposes of this example. Actual return for the Fund may be
greater or less than 5%.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE AMERICA FUND FOR TOTAL RETURN
CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table contains significant financial information with respect to
the Fund and has been audited by KPMG Peat Marwick, the Fund's independent
auditors. The table has been taken from the Fund's 1993 Annual Report and should
be read in conjunction with the Fund's financial statements and related notes,
which also appear, together with the auditors' report, in the Fund's 1993 Annual
Report. The Fund's financial statements, related notes, and auditors' report are
included in the statement of additional information. Additional information
about the Fund's performance is contained in its annual report that will be made
available upon request and without charge.
<TABLE>
<CAPTION>
CLASS A SHARES February 13, 1987
------------------------------------------------------------------------ (Commencement of
Year Ended November 30, Operations) to
------------------------------------------------------------------------ November 30,
1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ... $ 12.06 $ 11.45 $ 10.29 $ 10.89 $ 9.41 $ 8.59 $ 10.00
------- ------- ------- ------- ------- ------- --------
Income from investment operations
Investment income--net ................. 0.21 0.23 0.34 0.41 0.42 0.46 0.30
Net gains (losses) on securities ....... 1.31 1.19 1.38 (0.61) 2.01 0.89 (1.47)
------- ------- ------- ------- ------- ------- --------
Total from investment operations ....... 1.52 1.42 1.72 (0.20) 2.43 1.35 (1.17)
------- ------- ------- ------- ------- ------- --------
Less distributions
Dividends from net investment income ... (0.21) (0.23) (0.35) (0.40) (0.42) (0.53) (0.24)
Distributions from capital gains ....... (1.03) (0.53) (0.16) 0.00 (0.53) 0.00 0.00
Distributions from paid-in capital<F2>.. (0.03) (0.05) (0.05) 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------- --------
Total distributions .................... (1.27) (0.81) (0.56) (0.40) (0.95) (0.53) (0.24)
------- ------- ------- ------- ------- ------- --------
Net asset value, end of period ......... $ 12.31 $ 12.06 $ 11.45 $ 10.29 $10.89 $ 9.41 $ 8.59
------- ------- ------- ------- ------- ------- --------
Total return<F4> ....................... 12.67% 12.56% 16.70% (1.85%) 26.17% 15.98% (11.94%)
Ratios/supplemental data
Ratios to average net assets:
Operating and management expenses<F3>. 1.85% 1.85% 1.88% 2.00% 2.00% 1.47 1.00%<F1>
Net investment income ................ 1.63% 1.87% 2.98% 3.85% 3.94% 4.87 4.94%<F1>
Portfolio turnover rate ................ 92% 66% 43% 51% 50% 64 16%
Net assets, end of period (thousands) .. $26,367 $23,607 $22,974 $22,080 $22,764 $20,735 $ 7,672
<FN>
<F1> Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to November 30, 1987.
<F2> Distributions in excess of book basis net income are charged to paid-in
capital. For the fiscal years ended prior to January 31, 1990, these excess
distributions were charged to undistributed net investment income.
<F3> Figures are net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the "Ratio
of net operating and management expenses to average net assets" would have
been 2.41%,2.48%,2.92% and 4.77% (on an annualized basis), respectively,
for the years ended 1990, 1989, 1988 and the period from February 13, 1987
(Commencement of Operations) to November 30, 1987.
<F4> Excluding sales charges.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE AMERICA FUND FOR TOTAL RETURN
CLASS B SHARES
CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
The following table contains significant financial information with respect to
the Fund and has been audited by KPMG Peat Marwick, the Fund's independent
auditors. The table has been taken from the Fund's 1993 Annual Report and should
be read in conjunction with the Fund's financial statements and related notes,
which also appear, together with the auditors' report, in the Fund's 1993 Annual
Report. The Fund's financial statements, related notes, and auditors' report are
included in the statement of additional information. Additional information
about the Fund's performance is contained in its annual report that will be made
available upon request and without charge.
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
-------------- --------------
February 1, 1993 February 1, 1993
(Date of Initial Public (Date of Initial Public
Offering) to Offering) to
November 30, 1993 November 30, 1993
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period ....................................... $12.65 $ 12.65
------- -------
Income from investment operations
Investment income--net ..................................................... 0.10 0.10
Net gain on securities ..................................................... 0.74 0.75
------- -------
Total from investment operations ........................................... 0.84 0.85
------- -------
Less distributions
Dividends from net investment income ....................................... (0.10) (0.10)
Distributions from capital gains ........................................... (1.03) (1.03)
Distributions from paid-in capital<F2> ...................................... (0.04) (0.04)
------- -------
Total distributions ........................................................ (1.17) (1.17)
------- -------
Net asset value, end of period ............................................. $12.32 $ 12.33
======= =======
Total return<F3> ............................................................ 6.68% 6.76%
Ratios/supplemental data
Ratios to average net assets:
Operating and management expenses ........................................ 2.64%<F1> 2.64%<F1>
Net investment income .................................................... 0.84%<F1> 0.83%<F1>
Portfolio turnover rate .................................................... 92% 92%
Net assets end of period (thousands) ....................................... $4,283 $5,030
<FN>
<F1> Annualized for the period February 1, 1993 (Date of Initial Public
Offering) to November 30, 1993.
<F2> Distributions in excess of book basis net income are charged to paid-in
capital.
<F3> Excluding applicable sales charges.
</TABLE>
<PAGE>
THE FUND
The Fund is an open-end, diversified management investment company commonly
known as a mutual fund. The Fund was formed as a Massachusetts business trust on
October 24, 1986. The Fund is one of twenty managed by Keystone Management, Inc.
("Keystone Management"), the Fund's investment manager, and one of thirty 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 OBJECTIVES AND POLICIES
The Fund attempts to invest in common stocks that in the aggregate have a
published current yield that is higher than the published current composite
yield of the S&P Index of 500 Common Stocks. As a secondary objective, the Fund
will seek capital appreciation.
PRINCIPAL INVESTMENTS
Under ordinary circumstances, the Fund will invest principally in dividend
paying common stocks, preferred stocks and securities convertible into common
stocks. While the Fund may invest in securities issued both by domestic and
foreign corporations, it is currently anticipated that the Fund will not invest
more than 25% of its assets in foreign issuers of common stocks, preferred
stocks and securities convertible into common stocks. Non-dividend paying common
stocks may also be owned by the Fund if, in Keystone's judgment, that is
consistent with or will enhance the Fund's ability to achieve its objectives.
The Fund may invest up to 50% of its assets in foreign securities.
The Fund may invest up to 35% of its total assets in debt securities of U.S.
and foreign issuers, including secured and unsecured debt obligations, of any
assigned rating by S&P or Moody's Investors Service, Inc. ("Moody's") or
unrated. The Fund may also invest in non-investment grade rated zero coupon and
payment-in-kind ("PIK") securities.
Non-investment grade securities are commonly referred to as high yield or high
risk securities. High yield bonds are also commonly known as "junk bonds". High
yield, high risk securities are generally riskier than higher quality securities
and are subject to more credit risk, including risk of default, and greater
volatility than higher quality securities. In addition, such securities may have
less liquidity and experience more price fluctuation than higher quality
securities. Non-investment grade rated zero coupon and PIK securities generally
are more speculative and subject to higher fluctuations in value than other high
yield, high risk securities.
The Fund may write (i.e., sell) covered call and put options and purchase call
and put options. The Fund may enter into repurchase agreements, reverse
repurchase agreements and firm commitment agreements for securities and
currencies and may use subsequently developed investment techniques related to
any of its investment policies. The Fund also may 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.
OTHER ELIGIBLE SECURITIES
In addition, the Fund may invest up to 35% of its total assets under ordinary
circumstances and (when, in Keystone's opinion, market conditions warrant) up to
100% of its assets for temporary defensive purposes in the following types of
money market instruments: (1) commercial paper, including master demand notes,
which at the date of investment is rated A-1, the highest grade, by S&P,
PRIME-l, the highest grade, by Moody's or, if not rated by such services, is
issued by a company which 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 United States ("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; and (4) obligations issued
or guaranteed by the U.S. government or by any agency or instrumentality of the
U.S.
The Fund may also make temporary investments in debt securities and high grade
preferred stocks for defensive purposes when it believes market conditions
warrant.
For further information about the types of investments and investment
techniques available to the Fund, including the risks associated therewith, see
the section of this prospectus entitled "Additional Investment Information" and
the statement of additional information.
There can, of course, be no assurance that the Fund will achieve its
investment objectives since there is uncertainty in every investment.
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVES
The investment objectives of the Fund set forth above are fundamental and may
not 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 outstanding shares are represented or (2) more than
50% of the outstanding shares).
INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental restrictions set forth below, which may
not be changed without the vote of a majority of the Fund's outstanding shares.
These restrictions and certain other fundamental restrictions are set forth in
the statement of additional information. Unless otherwise stated, all references
to the Fund's assets are in terms of current market value.
The Fund may not do the following:
(1) 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) 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;
(4) 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; except that there is no restriction with respect to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
(5) 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;
(6) purchase any security (other than U.S. government securities) of any
issuer if as a result it would hold more than 10% of the voting securities of
the issuer; and
(7) 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.
The Fund intends to follow policies of the Securities and Exchange Commission
as they are adopted from time to time with respect to illiquid securities,
including, at this time, (1) treating as illiquid, securities which may not be
sold or disposed of in the ordinary course of business within seven days at
approximately the value at which the Fund has valued the investment on its books
and (2) limiting its holdings of such securities to 15% of net assets.
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 with borrowings from
banks for purposes of the 5% limit set forth in the second investment
restriction above.
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 write puts and calls on securities
unless (a) the option is issued by the Options Clearing Corporation, (b) the
security underlying the put or call is within the investment policies of the
Fund, and (c) the aggregate value of the securities underlying the calls or
obligations underlying the puts determined, as of the date of sale, does not
exceed 25% of its net assets; and (2) will not buy and sell puts and calls
written by others unless (a) the options are listed on a national securities or
commodities exchange or offered through certain approved national securities
associations, and (b) the aggregate premiums paid on such options held at any
time do not exceed 20% of the Fund's net assets.
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 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 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; and (2) will not invest more
than 5% of its assets in securities of issuers that the Fund may not sell to the
public without registration under the Securities Act of 1933.
RISK FACTORS
Investing in the Fund involves the risk common to investing in any security,
i.e., net asset value will fluctuate in response to changes in economic
conditions, interest rates and the market's perception of the underlying
portfolio securities of the Fund.
By itself, the Fund does not constitute a balanced investment plan. The Fund
stresses providing current yield, although it will consider the potential for
capital appreciation. Therefore, you should not expect capital appreciation
comparable to that of funds which have that primary objective. The yield of the
Fund's portfolio securities will fluctuate with changing market conditions and
normally in relation to the yield of stocks in the S&P Index of 500 Common
Stocks. The Fund makes most sense for those investors who can afford to ride out
changes in the stock market because it invests a substantial portion of its
assets in common and preferred stocks.
Current income levels should not be considered representative of income for
any future period of time. Moreover, should many shareholders change from this
Fund to some other investment at about the same time, the Fund might have to
sell portfolio securities at a time when it would be disadvantageous to do so
and at a lower price than if such securities were held to maturity.
The Fund may invest up to 35% of its assets in bonds issued by foreign issuers
rated below investment grade, which entail greater risks of untimely interest
and principal payments, default and price volatility, than higher rated
securities, and may present problems of liquidity and valuation. Investors
should carefully consider these risks before investing.
The maximum return sought by the Fund with respect to a portion of its assets
is ordinarily associated with securities in the lower rating categories of the
recognized rating agencies or with securities that are unrated. Such high yield,
high risk securities are generally rated BB or lower by S&P or Ba or lower by
Moody's. The Fund may invest in securities that are rated as low as D by S&P and
C- by Moody's. For a description of these rating categories see "Additional
Investment Information." The Fund intends to invest in D rated debt only in
cases where, in Keystone's judgment, there is a distinct prospect of improvement
in the issuer's financial position as a result of the completion of a
reorganization or otherwise. The Fund may also invest in unrated securities
which, in Keystone's judgment, offer comparable yields and risks to those of
securities that are rated, as well as in non-investment quality zero coupon and
PIK securities.
While providing opportunities to maximize return over time, investors should
be aware of the following: (1) securities rated BB or lower by S&P or BA or
lower by Moody's are considered predominantly speculative with respect to the
ability of the issuer to meet principal and interest payments; (2) the value of
high yield, high risk securities may be more susceptible to real or perceived
adverse economic, company or industry conditions than is the case for higher
quality securities; (3) adverse market, credit or economic conditions could make
it difficult at certain times to sell certain high yield, high risk securities
held by the Fund; (4) the secondary market for high yield, high risk securities
may be less liquid than the secondary market for higher quality securities,
which may affect the value of certain high yield, high risk securities held by
the Fund at certain times; and (5) zero coupon and PIK high yield, high risk
securities may be subject to greater changes in value due to market conditions,
the absence of a cash interest payment and the tendency of issuers of such
securities to have weaker overall credit conditions than other high yield, high
risk securities. These characteristics of high yield, high risk securities make
them generally more appropriate for long term investment.
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.
Since the Fund takes an aggressive approach to investing a portion of its
assets, Keystone tries to maximize the return by controlling risk through
diversification, credit analysis, review of sector and industry trends, interest
rate forecasts and economic analysis. Keystone's analysis of securities focuses
on values based on factors such as interest or dividend coverage, asset values,
earnings prospects and the quality of management of the company. In making
investment recommendations, Keystone also considers current income, potential
for Capital appreciation, maturity structure, quality guidelines, coupon
structure, average yield, percentage of zeros and PIKs, percentage of
nonaccruing items and yield to maturity. Keystone also considers the ratings of
Moody's and S&P assigned to various securities but does not rely solely on
ratings assigned by Moody's and S&P because (1) Moody's and S&P assigned ratings
are based largely on historical financial data and may not accurately reflect
the current financial outlook of companies, and (2) there can be large
differences among the current financial conditions of issuers within the same
rating category.
The Fund may invest in restricted securities, including securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933 (the "1933
Act"). Generally, Rule 144A establishes a safe harbor from the registration
requirements of the 1933 Act for resales by large institutional investors of
securities not publicly traded in the U.S. The Fund intends to purchase Rule
144A securities when such securities present an attractive investment
opportunity and otherwise meet the Fund's selection criteria. The Board of
Trustees has adopted guidelines and procedures pursuant to which the liquidity
of the Fund's Rule 144A securities is determined by Keystone and the Board of
Trustees monitors Keystone's implementation of such guidelines and procedures.
At the present time, the Fund cannot accurately predict exactly how the market
for Rule 144A securities will develop. A Rule 144A security that was readily
marketable upon purchase may subsequently become illiquid. In such an event, the
Board of Trustees will consider what action, if any, is appropriate.
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 purposes 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 is currently
closed on weekends, New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value per share of the Fund is arrived at by determining the value of the Fund's
assets, subtracting its liabilities and dividing the result by the number of its
shares outstanding.
Current values for the Fund's portfolio securities are determined in the
following manner:
1. securities that are traded on a national securities exchange or on the
over-the-counter National Market System ("NMS") are valued on the basis of
the last sales price on the exchange where primarily traded or NMS prior to
the time of the valuation, provided that a sale has occurred and that this
price reflects current market value according to procedures established by
the Board of Trustees;
2. securities traded in the over-the-counter market, other than NMS, are
valued at the mean of the bid and asked prices at the time of valuation;
3. short-term instruments having maturities of more than sixty days for
which market quotations are readily available are valued at current market
value; where market quotations are not available, such instruments are valued
at fair value as determined by the Board of Trustees;
4. short-term instruments which are purchased with maturities of sixty days
or less (including all master demand notes) 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 instruments 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; and in any case, reflects fair value as determined by the
Fund's Board of Trustees; and
5. the following securities are valued at prices deemed in good faith to be
fair under procedures established by the Board of Trustees: (a) securities,
including restricted securities, for which complete quotations are not readily
available; (b) listed securities or those on NMS if, in the Fund's opinion,
the last sales price does not reflect a current market value or if no sale
occurred; and (c) other assets.
DIVIDENDS AND TAXES
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code (the "Code"). The Fund
qualifies if, among other things, it distributes to its shareholders at least
90% of its net investment income for its fiscal year. The Fund also intends to
make timely distributions, if necessary, sufficient in amount to avoid the
nondeductible 4% excise tax imposed on a regulated investment company to the
extent that it fails to distribute, with respect to each calendar year, at least
98% of its ordinary income for such calendar year and 98% of its net capital
gains for the one-year period ending on October 31 of such calendar year. Any
taxable distributions (1) would be declared by December 31 to shareholders of
record in December and paid by the following January 31 and (2) would be taxable
income to the shareholder for the year in which such distributions were
declared. If the Fund qualifies and if it distributes all of its net investment
income and net capital gains, if any, to shareholders, it will be relieved of
any federal income tax liability. The Fund distributes all of its net investment
income quarterly and net capital gains at least annually. Because Class A shares
bear most of the costs of distribution of such shares through payment of a front
end sales charge while Class B and Class C shares bear such expenses through a
higher annual distribution fee, expenses attributable to Class B shares and
Class C shares will generally be higher than those attributable to Class A
shares, and income distributions paid by the Fund with respect to Class A shares
will generally be greater than those paid with respect to Class B and Class C
shares.
Income dividends received by corporate shareholders may be eligible for the
70% dividends received deduction for corporations.
Fund distributions are distributed to you in shares of the Fund or, at your
option, in cash and may be reinvested at net asset value without any sales
charge. Income dividends and net short-term gains distributions are taxable as
ordinary income and net long-term gains are taxable as capital gains regardless
of how long you have held the Fund's shares. However, if Fund shares held for
less than six months are sold at a loss, such loss will be treated for tax
purposes as a long-term capital loss to the extent of any longterm capital gains
dividends received. The Fund will advise you annually as to the federal tax
status of all distributions made during the year.
FUND MANAGEMENT AND EXPENSES
BOARD OF TRUSTEES
Under Massachusetts law, the Fund's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the Fund.
Subject to the authority of the Fund's Board of Trustees, Keystone Management,
located at 200 Berkeley Street, Boston, Massachusetts 0211~5034, 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 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 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 be
performed by Keystone Management, 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. 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
of:
Aggregate Net Asset
Management Value of the Shares
Fee Income of the Fund
- --------------------------------------------------------------------------------
1.5% of
Gross Dividend and
Interest Income
plus
0.60% of the first $ 100,000,000, plus
0.55% of the next $ 100,000,000, plus
0.50% of the next $ 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 $ 500,000,000, plus
0.30% of amounts over $1,000,000,000
computed as of the close of business each business day and paid daily.
During the year ended November 30, 1993, the Fund paid or accrued to Keystone
Management investment management and administrative services fees of $200,203,
which represented 0.65% of the Fund's average net assets. Of such amount paid to
Keystone Management, $170,173 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"), located at 200 Berkeley Street, Boston, Massachusetts
02116-5034.
Keystone Group is a corporation privately 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,
Roger T. Wickers, 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 Fund's Board of Trustees or by vote of a majority of the
outstanding shares of the Fund. In either case, the terms of the Management
Agreement and the Advisory Agreement and continuance thereof must be approved by
the vote of a majority of Independent Trustees in person at a meeting called for
the purpose of voting on such approval. The Management Agreement and the
Advisory Agreement may be terminated, without penalty, on 60 days' written
notice by the Fund, Keystone Management or Keystone or may be terminated by a
vote of shareholders of the Fund. The Management Agreement and the Advisory
Agreement will terminate automatically upon assignment.
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, but are not limited to, expenses relating to
certain of its Trustees, its transfer, dividend disbursing and shareholder
servicing agent, its custodian, its accountants and legal counsel to its
Trustees; fees payable to government agencies, including registration and
qualification fees of the Fund and its shares under federal and state
securities laws; and certain extraordinary expenses. In addition, each class
will pay all of the expenses attributable to it. Such expenses are currently
limited to Distribution Plan expenses. The Fund also pays its brokerage
commissions, interest charges and taxes.
For the fiscal year ended November 30, 1993, the Fund's Class A shares paid
1.85% of its average net assets in expenses. For the ten-month period ended
November 30, 1993, the Fund's Class B and Class C shares each paid 2.18% of its
average net assets in expenses (2.64% annualized).
The Fund is subject to certain annual state expense limitations, the most
restrictive of which is as follows:
2.5% of the first $30 million of Fund average net assets; 2.0% of the next
$70 million of Fund average net assets; and 1.5% of Fund average net assets
over $100 million.
Capital charges and certain expenses, including a portion of the Fund's
Distribution Plan fees, are not included in the calculation of the state expense
limitation. This limitation may be modified or eliminated in the future.
During the fiscal year ended November 30, 1993, the Fund paid or accrued to
Keystone Investor Resource Center, Inc. ("KIRC"), the Fund's transfer and
dividend disbursing agent, $49,494 for certain accounting and printing services
and $94,890 for shareholder services. KIRC is a wholly-owned subsidiary of
Keystone.
PORTFOLIO MANAGER
Walter McCormick has been the Fund's Portfolio Manager since 1987. Mr.
McCormick is also a Vice President and Senior Portfolio Manager of Keystone and
has more than 24 years' 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 such 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,
1992 and 1993 were 66% and 92%, respectively.
HOW TO BUY SHARES
Shares of the Fund may be purchased from any broker-dealer that has a selling
agreement with KDI. 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 Keystone Investor Resource Center, Inc., P.O. Box 2121,
Boston, Massachusetts 02106-2121, a completed account application and a check
payable to the Fund. Or you may telephone 1-800-343-2898 to obtain the number of
an account to which you can wire or electronically transfer funds and then send
in a completed account application. Subsequent investments in 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 shares of the Fund will be confirmed at an offering
price equal to the net asset value per share next determined after receipt of
the order in proper form by KDI (generally as of the close of the Exchange on
that day) plus, in the case of Class A shares, the 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 of the Fund received by broker-dealers prior to that day's
close of trading on the Exchange and transmitted to the Fund prior to its close
of business that day will receive the offering price equal to the net asset
value per share computed at the close of trading on the Exchange on the same day
plus, in the case of Class A shares, the sales charge. Orders received by
broker-dealers after that day's close of trading on the Exchange and transmitted
to the Fund prior to the close of business on the next business day will receive
the next business day's offering price.
Orders for shares received directly by the Fund from you will receive the
offering price equal to the net asset value per share next computed after the
Fund receives the purchase order plus, in the case of Class A shares, the sales
charge.
Your initial purchase must be at least $1,000. There is no minimum amount for
subsequent purchases.
The Fund reserves the right to withdraw all or any part of the offering made
by this prospectus and to reject purchase orders.
Shareholder inquiries should be directed to KIRC by calling toll free
1-800-343-2898 or writing to KIRC or to the firm from which 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 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. As a
result, income distributions paid by the Fund with respect to Class B and Class
C shares will generally be less than those paid with respect to Class A shares.
Investors who would rather pay the entire cost of distribution at the time of
investment, rather than spreading such cost over time, might consider Class A
shares. Other investors might consider Class B or Class C shares, in which case
100% of the purchase price is invested immediately, depending on the amount of
the purchase and the intended length of investment. The Fund will not normally
accept any purchase of Class B shares in the amount of $250,000 or more, and
will not normally accept any purchase of Class C shares in the amount of
$1,000,000 or more.
Class A Shares
Class A shares are offered at net asset value plus an initial sales charge as
follows:
<TABLE>
<CAPTION>
As a % of Concession to
As a % of Net Amount Dealers as a % of
Amount of Purchase Offering Price Invested<F1> Offering Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 ................................................ 5.75% 6.10% 5.25%
$50,000 but less than $100,000 ................................... 4.75% 4.99% 4.25%
$100,000 but less than $250,000 .................................. 3.75% 3.90% 3.25%
$250,000 but less than $500,000 .................................. 2.50% 2.56% 2.25%
$500,000 but less than $1,000,000 ................................ 1.50% 1.52% 1.50%
$1,000,000 and over<F2> .......................................... 0% 0% 0.25%
<FN>
- ----------------
<F1> Rounded to the nearest one-hundredth percent.
<F2> Purchases of $1,000,000 or more may be subject to a contingent deferred
sales charge of 0.25%. See "Calculation of Contingent Deferred Sales Charge
and Waiver of Sales Charges".
</TABLE>
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 sold by your dealer.
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.
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 "Calculation of
Contingent Deferred Sales Charge 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"), which 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 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 sold by such
others and remaining 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 "Calculation of Contingent Deferred Sales Charge 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
(the "Class B Distribution Plan"), which provides for payments 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. Amounts paid by the Fund under
the Class B Distribution Plan are currently used to pay others (dealers) (1) a
commission at the time of purchase normally equal to 3.00% of the value of each
share sold; and/or (2) service fees at an annual rate of 0.25% of the average
daily net asset value of shares sold by such others and remaining 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
distribution 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
"Calculation of Contingent Deferred Sales Charge and Waiver of Sales Charges"
below.
CLASS C DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class C shares
(the "Class C Distribution Plan"), which 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) (1) 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% plus the first year's
service fee in advance in the amount of 0.25%, and (2) beginning approximately
fifteen months after purchase, a commission at an annual rate of 0.75% (subject
to the NASD rule--see "Distribution Plans") plus service fees at an annual rate
of 0.25%, respectively, of the average daily net asset value of each share sold
by such others and remaining outstanding on the books of the Fund for specified
periods.
CALCULATION OF CONTINGENT DEFERRED
SALES CHARGE AND WAIVER OF
SALES CHARGES
Any contingent deferred sales charge imposed upon the redemption of Class A,
Class B or Class C shares is a percentage of the lesser of (1) the net asset
value of the shares redeemed or (2) the net cost of such shares. No contingent
deferred sales charge is imposed when you redeem amounts derived from (1)
increases in the value of your account above the net cost of such shares due to
increases in the net asset value per share of 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 also may 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 (1)
certain Directors, Trustees, officers and employees of the Fund and Keystone and
certain of their affiliates; (2) registered representatives of firms with dealer
agreements with KDI; and (3) 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 59 1/2
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
KDI may, from time to time, provide promotional incentives, including
reallowance of up to the entire sales charge, to certain dealers whose
representatives have sold or are expected to sell significant amounts of the
Fund shares. 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 preapproved seminars, conferences and advertising. No such programs or
additional compensation will be offered to the extent they are prohibited by the
laws of any state or any self-regulatory agency, such as the NASD. Dealers to
whom substantially the entire sales charge on Class A shares is reallowed may be
deemed to be underwriters as that term is defined under the 1933 Act.
KDI also may pay banks and other financial services firms that facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the payments made allowable to dealers for the sale of such shares as
described above. The Glass-Steagall Act currently limits the ability of a
depository institution (such as a commercial bank or a savings and loan
association) to become an underwriter or distributor of securities. In the event
the Glass-Steagall Act is deemed to prohibit depository institutions from
accepting payments under the arrangement described above, or should Congress
relax current restrictions on depository institutions, the Board of Trustees
will consider what action, if any, is appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and banks and financial
institutions may be required to register as dealers pursuant to state law.
DISTRIBUTION PLANS
The Fund bears some of the costs of selling its shares under Distribution
Plans adopted with respect to its Class A, Class B and Class C shares pursuant
to Rule 12b-1 under the 1940 Act. Payments under the Class A Distribution Plan
are currently limited to up to 0.25% annually of the average daily net asset
value of Class A shares. The Class B Distribution Plan and the Class C
Distribution Plan provide for the payment at an annual rate of up to 1.00% of
the average daily net asset value of Class B shares and Class C shares,
respectively.
A new rule adopted by the NASD limits the amount that a Fund may pay annually
in distribution costs for the sale of its shares and shareholder service fees.
The rule limits annual expenditures to 1% of the aggregate average daily net
asset value of its shares, of which 0.75% may be used to pay such distribution
costs and 0.25% may be used to pay shareholder service fees. The new NASD rule
also limits the aggregate amount which the Fund may pay for such distribution
costs to 6.25% of gross share sales since the inception of the 12b-1
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.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class. However, after the termination of the Class B
Distribution Plan, KDI would be entitled to receive payment, 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 at any time during which the Class B
Distribution Plan was in effect. Unreimbursed distribution expenses at November
30, 1993 for Class B shares were $164,100 (7% of Class B's net assets).
For the year ended November 30, 1993, the Fund paid or accrued to KDI $67,104,
$19,544 and $26,098 pursuant to its Class A, Class B and Class C Distribution
Plans, respectively. The Fund makes no payments in connection with the sale of
its shares other than the fee paid to its Principal Underwriter.
Dealers or others may receive different levels of compensation depending on
which class of shares they sell. Payments pursuant to a Distribution Plan are
included in the operating expenses of the class.
HOW TO REDEEM SHARES
You may redeem Fund shares for cash at their redemption value upon written
order to the Fund, c/o KIRC, and presentation to the Fund of a properly endorsed
share certificate if certificates have been issued. Your signature(s) on the
written order and certificates must be guaranteed as described below. In order
to redeem by telephone you must have completed the authorization in your account
application. Proceeds for shares redeemed on telephonic order will be deposited
by wire or EFT only to the bank account designated in your account application.
The redemption value equals the net asset value per share adjusted for
fractions of a cent and may be more or less than your cost depending upon
changes in the value of the Fund's portfolio securities between purchase and
redemption.
REDEMPTION OF SHARES IN GENERAL
At various times the Fund may be requested to redeem shares for which it has
not yet received good payment. In such a case, the Fund may delay the mailing of
a redemption check or the wiring or EFT of redemption proceeds until good
payment has been collected for the purchase of such shares. This may take up to
15 days. Any delay may be avoided by purchasing shares either with a certified
check or by Federal Reserve or bank wire of funds or 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 has been delayed, the check will be mailed or the proceeds wired or
sent EFT promptly after good payment has been collected.
The Fund computes the amount due you at the close of the Exchange at the end
of the day on which it has received all proper documentation from you. Payment
of the amount due on redemption, less any applicable deferred sales charge, will
be made within seven days thereafter except as discussed herein.
You also may 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.
If KDI has received proper documentation, it will pay the redemption proceeds,
less any applicable deferred sales charge, to the broker-dealer placing the
order within seven days thereafter. KDI charges no fees for this service.
However, 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
U.S. COMMERCIAL BANK OR TRUST COMPANY 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 your
order. In such cases, the Fund will request the missing information from you and
process the order on the day such information is received.
TELEPHONE
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 the redemption proceeds are less than $2,500, they will be mailed by check.
If they are $2,500 or more, they will be mailed, wired or sent by EFT to your
previously designated bank account as you direct. If you do not specify how you
wish your redemption proceeds to be sent, they will be mailed by check.
If you cannot reach the Fund by telephone, you should follow the procedures
for redeeming by mail or through a broker as set forth herein.
SMALL ACCOUNTS
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 and would, to the extent permitted by law, be readily marketable.
Shareholders receiving such securities would incur brokerage costs when these
securities are sold.
REDEMPTION OF CERTAIN CLASS A SHARES
Class A shares purchased prior to January 1, 1991 and redeemed within four
calendar years of purchase may be subject to a 2.0% contingent deferred sales
charge. In instances where an existing Class A shareholder has purchased
additional Class A shares of the Fund after January 1, 1991 and subsequently
requests a redemption of a portion of his Class A shares, the shares first
redeemed will be those purchased after January 1, 1991 that were not purchased
subject to a contingent deferred sales charge. In addition, 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 "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. If, for any reason,
reasonable procedures are not followed, the Fund, KIRC or KDI may be liable for
any losses due to unauthorized or fraudulent instructions.
The Fund may temporarily suspend the right to redeem its shares when (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission so orders.
SHAREHOLDER SERVICES
Details on all Shareholder Services may be obtained from KIRC by writing or by
calling toll free 1-800-343-2898.
KEYSTONE AUTOMATED RESPONSE LINE
KARL offers you specific fund account information; price, total return and
yield quotations; and the ability to effect account transactions, including
investments, exchanges and redemptions. You may access KARL by dialing toll-free
1-800-34~3858 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 toll free 1-800-343-2898, or by calling
KARL. Shares purchased by check are eligible for exchange after 15 days. There
is no exchange fee for exchanges initiated by an individual investor through
KARL; other exchanges made through KARL, as well as exchanges made by phone, are
subject to a $10 exchange fee. The Fund reserves the right, after providing
shareholders with any required notice to shareholders, to terminate this
exchange offer or to change its terms, including the right to change the fee for
any exchange.
Orders to exchange shares of the Fund for shares of KLT will be executed by
redeeming the shares of the Fund and purchasing shares of KLT at the net asset
value of such shares next determined after the proceeds from such redemption
become available, which may be up to seven days after such redemption. In all
other cases, orders for exchanges received by the Fund prior to 4:00 p.m. on any
day the Fund is open for business will be executed at the respective net asset
values determined as of the close of business that day. Orders for exchanges
received after 4:00 p.m. on any business day will be executed at the respective
net asset values determined at the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Fund.
Therefore, the Fund, in addition to its right to reject any exchange, reserves
the right to terminate the exchange privilege of any shareholder who makes more
than five exchanges of shares of the funds in a year or three in a calendar
quarter.
An exchange order must comply with the requirements for a redemption or
repurchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial purchase requirements of
the fund being acquired. An exchange constitutes a sale for federal income tax
purposes.
The exchange privilege is available only in states where shares of the fund
being acquired may legally be sold.
KEYSTONE AMERICA MONEY LINE
Keystone America Money Line eliminates the delay of mailing a check or the
expense of wiring funds. You must request the service on your application.
Keystone America Money Line allows you to authorize electronic transfers of
money to purchase shares in any amount and to redeem up to $50,000 worth of
shares. You can use Keystone America Money Line like an "electronic check" to
move money between your bank account and your account in the Fund with one
telephone call. You must allow two business days after the call for the transfer
to take place. For money recently invested, you must allow normal check clearing
time before redemption proceeds are sent to your bank.
You may also arrange for systematic monthly or quarterly investments in your
Keystone America account. Once proper authorization is given, your bank account
will be debited to purchase shares in the Fund. You will receive confirmation
from KDI for every transaction.
To change the amount of a Keystone America Money Line service or to terminate
such service (which could take up to 30 days), you must write to Keystone
Investor Resource Center, Inc., P.O. Box 2121, Boston, Massachusetts 02106-2121,
and include your account number.
RETIREMENT PLANS
The Fund has various pension and profit-sharing plans available to you,
including Individual Retirement Accounts ("IRAs"); Rollover IRAs; Simplified
Employee Pension Plans ("SEPs"); Tax Sheltered Annuity Plans ("TSAs"); 401 (k)
Plans; Keogh Plans; Corporate Profit-Sharing Plans, Pension and Target Benefit
Plans; Money Purchase Pension Plans and Salary-Reduction Plans. For details,
including fees and application forms, call toll free 1-800-247-4075 or write to
KIRC.
AUTOMATIC WITHDRAWAL PLAN
Under an Automatic Withdrawal Plan, if your account has a value of at least
$10,000, you may arrange for regular monthly or quarterly fixed withdrawal
payments. Each payment must be at least $100 and may be as much as 1.5% per
month or 4.5% per quarter of the total net asset value of the Fund shares in
your account when the Automatic Withdrawal Plan is opened. Fixed withdrawal
payments are not subject to a deferred sales charge. Excessive withdrawals may
decrease or deplete the value of your account. Moreover, because of the effect
of the applicable sales charge, a Class A investor should not make continuous
purchases of the Fund's shares while participating in 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. The value of shares purchased will be ineligible for Rights of
Accumulation and Letters of Intent.
OTHER SERVICES
Under certain circumstances, you may, within 30 days after a redemption,
reinstate your account at current net asset value.
PERFORMANCE DATA
From time to time the Fund may advertise "total return" and "current yield."
ALL DATA IS BASED ON HISTORICAL EARNINGS AND IS NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. Total return and yield are computed separately for each class of
shares of the Fund. Total return refers to average annual compounded rates of
return over specified periods determined by comparing the initial amount
invested in a particular class to the ending redeem- I able value of that
amount. The resulting equation assumes reinvestment of all dividends and
distributions and deduction of the maximum sales charge or applicable contingent
deferred sales charge and all recurring charges, if any, applicable to all
shareholder accounts. The exchange fee is not included in the calculation.
Current yield quotations represent the yield on an investment for a stated
30-day period computed by dividing net investment income earned per share during
the base period by the maximum offering price per share on the last day of the
base period.
The Fund may also include comparative performance data for each class of
shares in advertising or marketing the Fund's shares, such as data from industry
publications including Morningstar, Inc., Standard and Poor's Corporation and
Lipper Analytical Services, Inc.
FUND SHARES
The Fund currently issues three classes of shares, which participate
proportionately based on their relative net asset values in dividends and
distributions and have equal voting, liquidation and other rights except that
(1) expenses related to the distribution of each 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.
When issued and paid for, the shares will be fully paid and nonassessable by the
Fund. Shares may be exchanged as explained under "Shareholder Services," but
will have no other preference, conversion, exchange or preemptive rights. Shares
are transferable, redeemable and freely assignable as collateral. There are no
sinking fund provisions. The Fund is authorized to issue additional classes or
series of shares.
Shareholders of the Fund 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 Declaration of Trust of the Fund, 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. As prescribed by
Section 16(c) of the 1940 Act, shareholders may be eligible for shareholder
communication assistance in connection with the special meeting.
Under Massachusetts law, it is possible that a Fund shareholder may be held
personally liable for the Fund's obligations. However, the Fund's Declaration of
Trust provides that shareholders shall not be subject to any personal liability
for the Fund's obligations and provides indemnification from Fund assets for any
shareholder held personally liable for the Fund's obligations. Disclaimers of
such liability are included in each Fund agreement.
ADDITIONAL INFORMATION
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519, is a
wholly-owned subsidiary of Keystone and serves as the Fund's transfer agent and
dividend disbursing agent.
When the Fund determines from its records that more than one account in the
Fund is registered in the name of a shareholder or shareholders having the same
address, upon written notice to those shareholders, the Fund intends, when an
annual report or semi-annual report of the Fund is required to be furnished, to
mail one copy of such report to that address.
Except as otherwise stated in this prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
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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 hot, 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>
ADDITIONAL INVESTMENT INFORMATION
DESCRIPTIONS OF CERTAIN TYPES OF INVESTMENTS AND
INVESTMENT TECHNIQUES AVAILABLE TO THE FUND
CORPORATE BOND RATINGS
Higher yields are usually available on securities that are lower rated or that
are unrated. Bonds rated Baa by Moody's are considered as medium grade
obligations which are neither highly protected nor poorly secured. Debt rated
BBB by S&P is regarded as having an adequate capacity to pay interest and repay
principal, although adverse economic conditions are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories. Lower rated securities are usually defined as
Baa or lower by Moody's or BBB or lower by S&P. The Fund may purchase unrated
securities, which are not necessarily of lower quality than rated securities but
may not be attractive to as many buyers. Debt rated BB, B, CCC, CC and C by S&P
is regarded, on balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. Debt rated CI by S&P is debt (income
bonds) on which no interest is being paid. Debt rated D by S&P is in default and
payment of interest and/or repayment of principal is in arrears. The Fund
intends to invest in D-rated debt only in cases where in Keystone's judgment
there is a distinct prospect of improvement in the issuer's financial position
as a result of the completion of reorganization or otherwise. Bonds which are
rated Caa by Moody's are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca by Moody's represent obligations which are speculative
in a high degree. Such issues are often in default or have other market
shortcomings. Bonds which are rated C by Moody's are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
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 will be deemed to have a maturity equal to
the longer of the period remaining to the next interest rate adjustment or the
demand notice period. Because these types of notes are direct lending
arrangements between the lender and 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 notes, Keystone considers, under standards
established by the Board of Trustees, earning power, cash flow and other
liquidity ratios of the borrower and will monitor the ability of the borrower to
pay principal and interest on demand. These notes typically are not rated by
credit rating agencies. Unless rated, the Fund may 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 or 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 upon
entering into the contract to repurchase the security at a mutually agreed upon
date and price, thereby determining the yield during the term of the agreement.
This results in a fixed rate of return insulated from market fluctuations during
such period. Under a repurchase agreement, the seller must maintain the value of
the securities subject to the agreement at not less than the repurchase price,
and such value will be determined on a daily basis by marking the underlying
securities to their market value. Although the securities subject to the
repurchase agreement might bear maturities exceeding a year, the Fund only
intends to enter into repurchase agreements 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 maintain such value. 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 leveraging. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether to
enforce the Fund's obligation to repurchase the securities, and the Fund's use
of the proceeds of the reverse repurchase agreement may effectively be
restricted pending such determination. The staff of the Securities and Exchange
Commission has taken the position that reverse repurchase agreements are subject
to the percentage limit on borrowings imposed on a fund under the 1940 Act.
FOREIGN SECURITIES
The Fund may invest up to 25% of its assets in securities principally traded
in securities markets outside the U.S. While investment in foreign securities is
intended to reduce risk by providing further diversification, such investments
involve sovereign risk in addition to the credit and market risks normally
associated with domestic securities. Foreign investments may be affected
favorably or unfavorably by changes in currency rates and exchange control
regulations. There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of some foreign
companies are less liquid or more volatile than securities of U.S. companies,
and foreign brokerage commissions and custodian fees are generally higher than
in the United States. Investments in foreign securities may also be subject to
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets,
imposition of withholding taxes on dividend or interest payments and currency
blockage (which would prevent cash from being brought back to the United
States). These risks are carefully considered by Keystone prior to the purchase
of these securities.
"WHEN ISSUED" SECURITIES
The Fund may also purchase and sell securities and currencies on a when issued
and delayed delivery basis. When issued or delayed delivery transactions arise
when securities or currencies are purchased or sold by the Fund with payment and
delivery taking place in the future in order to secure what is considered to be
an advantageous price and yield to the Fund at the time of entering into the
transaction. When the Fund engages in when issued and delayed delivery
transactions, the Fund relies on the buyer or seller, as the case may be, to
consummate the sale. Failure to do so may result in the Fund missing the
opportunity to obtain a price or yield considered to be advantageous. When
issued and delayed delivery transactions may be expected to occur a month or
more before delivery is due. However, no payment or delivery is made by the Fund
until it receives payment or delivery from the other party to the transaction. A
separate account of liquid assets equal to the value of such purchase
commitments will be maintained until payment is made. When issued and delayed
delivery agreements are subject to risks from changes in value based upon
changes in the level of interest rates, currency rates and other market factors,
both before and after delivery. The Fund does not accrue any income on such
securities or currencies prior to their delivery.
To the extent the Fund engages in when issued and delayed delivery transactions,
it will do so for the purpose of acquiring portfolio securities 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.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS
The Fund may write (i.e., sell) covered call and put options. By writing a
call option, the Fund becomes obligated during the term of the option to deliver
the securities underlying the option upon payment of the exercise price. By
writing a put option, the Fund becomes obligated during the term of the option
to purchase the securities underlying the option at the exercise price if the
option is exercised. The Fund also may write straddles (combinations of covered
puts and calls on the same underlying security).
The Fund may only write "covered" options. This means that so long as the Fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills.
The Fund will be considered "covered" with respect to a put option it writes
if, so long as it is obligated as the writer of the put option, it deposits and
maintains with its custodian in a segregated account liquid assets having a
value equal to or greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain, through a
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Fund receives a premium from writing a call or
put option which it retains whether or not the option is exercised. By writing a
call option, the Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option the Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.
PURCHASING OPTIONS
The Fund may purchase put and call options, including put or call options for
the purpose of offsetting previously written put and 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 objectives.
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 would 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 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
As discussed above, the Fund may invest in securities of foreign issuers. When
the Fund invests in foreign securities they usually will be denominated in
foreign currencies, and the Fund temporarily may hold funds in foreign
currencies. Thus, the value of Fund shares will be affected by changes in
exchange rates.
As one way of managing exchange rate risk, 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 Keystone's ability to predict
accurately the future exchange rates between foreign currencies and the U.S.
dollar. The value of the Fund's investments denominated in foreign currencies
will depend on the relative strength of those currencies and the U.S. dollar,
and the Fund may be affected favorably or unfavorably by changes in the exchange
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. The Fund may also purchase and sell options related to
foreign currencies in connection with hedging strategies.
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.
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KEYSTONE AMERICA
FAMILY OF FUNDS
[LOGO]
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
- --------------------------------------------------------------------------------
[LOGO] KEYSTONE
Distributors, Inc.
200 Berkeley Street
Boston, Massachusetts 02116-5034
KAFTR-P 3/94 Recycled
Sup 9/94 25M Paper
<PAGE>
KEYSTONE AMERICA FUND FOR TOTAL RETURN
STATEMENT OF ADDITIONAL INFORMATION
March 31, 1994
Supplemented September 15, 1994
This statement of additional information is not a prospectus, but relates
to, and should be read in conjunction with, the prospectus of Keystone America
Fund For Total Return (the "Fund") dated March 31, 1994 and supplemented
September 15, 1994. 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
Page
The Fund .................................................................. 2
Investment Policies ....................................................... 2
Investment Restrictions ................................................... 2
Dividends and Taxes ....................................................... 6
Valuation of Securities ................................................... 7
Brokerage ................................................................. 8
Sales Charges ............................................................. 10
Distribution Plans ........................................................ 13
Trustees and Officers ..................................................... 16
Investment Manager ........................................................ 22
Investment Adviser ........................................................ 24
Principal Underwriter ..................................................... 26
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-15
<PAGE>
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THE FUND
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The Fund is an open-end, diversified management investment company commonly
known as a mutual fund. The Fund seeks an aggregate published current yield from
common stocks that exceeds the published current composite yield of the Standard
& Poor's Corporation ("S&P") Index of 500 Common Stocks. As a secondary
objective, the Fund seeks capital appreciation. 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.
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INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Under ordinary circumstances, the Fund will invest principally in dividend
paying common stocks, preferred stocks and securities convertible into common
stocks. Certain investments, investment techniques, including the risks
associated with such investments and investment techniques, and ratings criteria
applicable to the Fund are more fully explained in the Appendix to this
statement of additional information.
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVES
The investment objectives of the Fund are fundamental and may not be
changed without approval of the holders of a majority 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 following investment restrictions are fundamental and may not be
changed without the vote of a 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 any of the following:
(1) purchase any security (other than United States ("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; except that (a) there is no restriction with respect to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentali- ties; (b) wholly-owned finance companies will be considered to be
in the industries of their parents if their activities are primarily related to
financing the activities of the parents; (c) the industry classification of
utilities will be determined according to their services (for example, gas, gas
transmission, electric and telephone will each be considered a separate
industry); and (d) the industry classification of medically related industries
will be determined according to their services (for example, management,
hospital supply, medical equipment and pharmaceuticals will each be considered a
separate industry);
(9) 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;
(10) purchase securities of other investment companies, except as part of a
merger, consolidation, purchase of assets or similar transaction;
(11) 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;
(12) 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 objectives;
(13) purchase any security (other than U.S. government securi- ties) of any
issuer if as a result the Fund would hold more than 10% of the voting securities
of the issuer; and
(14) purchase any security for the purpose of control or management.
The Fund intends to follow policies of the Securities and Exchange
Commission as they are adopted from time to time with respect to illiquid
securities, including, at this time, (1) treating as illiquid, securities which
may not be sold or disposed of in the ordinary course of business within seven
days at approximately the value at which the Fund has valued the investment on
its books and (2) limiting its holdings of such securities to 15% of net assets.
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.
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, any officer, Trustee or Director
of the Fund, Keystone Management 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, Keystone Management 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 Management, 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, or sell
puts, calls or combinations thereof, except that it may write covered put and
call options; (3) in connection with the purchase of debt securities, 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 each case, unless authorized by the vote of a
majority of the Fund's outstanding voting shares; (4) invest more than 15% of
its net assets (calculated at the time of purchase) in securities which are
neither registered, nor exempt from registration, in that state; and (5) invest
more than 10% of its net assets (calculated at the time of purchase) in not
readily marketable securities.
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 not (1) write puts and calls on securities
unless (a) the option is issued by the Options Clearing Corporation, (b) the
security underlying the put or call is within the investment policies of the
Fund, and (c) the aggregate value of the securities underlying the calls or
obligations underlying the puts, determined as of the date of sale, does not
exceed 25% of its net assets; and (2) buy and sell puts and calls written by
others unless (a) the options are listed on a national securities or commodities
exchange or offered through certain approved national securities associations,
and (b) the aggregate premiums paid on such options held at any time do not
exceed 20% of the Fund's net assets.
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 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 not (1) 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 and (2) invest more than 5%
of its assets in securities of issuers which the Fund may not sell to the public
without registration under the Federal Securities Act of 1933.
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.
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 an asset coverage
of 300% 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.
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DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
The Fund intends to distribute to its shareholders dividends from net
investment income quarterly and all net realized long-term capital gains
annually. Such distributions will be 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 gains and income
distribution reinvestments. Account statements and/or checks as appropriate will
be mailed to shareholders within seven days after the Fund pays the
distribution. Unless the Fund receives instructions to the contrary from a
shareholder before the record date, it will assume that the shareholder wishes
to receive that distribution and future gains and income distributions in
shares. Instructions continue in effect until changed in writing.
It is expected that a substantial portion of the Fund's income
distributions will be eligible for the corporate dividends received deduction.
It is not expected, however, that the Fund's capital gains distributions will be
so eligible. Distributed long-term capital gains are taxable as such to the
shareholder whether received in cash or in additional Fund shares and regardless
of the period of time Fund shares have been held by the shareholder. If such
shares are held less than six months and redeemed at a loss, however, the
shareholder will recognize a long-term capital loss on such shares to the extent
of the distribution received in connection with such shares. If the net asset
value of the Fund's shares is reduced below a shareholder's cost by a capital
gains distribution, such distribution, to the extent of the reduction, would be
a return of investment reducing the shareholder's federal tax basis for such
shares, though taxable as stated above. Since distributions of capital gains
depend upon profits actually realized from the sale of securities by the Fund,
they may or may not occur. The foregoing comments relating to the taxation of
dividends and distributions paid on the Fund's shares relate solely to federal
income taxation. Such dividends and distributions may also be subject to state
and local taxes.
When the Fund makes a distribution, it intends to distribute only the
Fund's net capital gains and such income as has been predetermined to the best
of the Fund's ability to be taxable as ordinary income. Therefore, net
investment income distributions will not be made on the basis of distributable
income as computed on the books of the Fund, but will be made on a federal
income tax basis. Shareholders of the Fund will be advised annually of the
federal income tax status of distributions.
VALUATION OF SECURITIES
Current values for the Fund's portfolio securities are determined in the
following manner:
(1) securities that are traded on a national securities exchange or the
over-the-counter National Market System ("NMS") are valued on the basis of the
last sales price on the exchange where primarily traded or NMS prior to the time
of the valuation, provided that a sale has occurred and that this price reflects
current market value according to procedures established by the Board of
Trustees;
(2) securities traded in the over-the-counter market, other than on NMS,
for which market quotations are readily available, are valued at the mean of the
bid and asked prices at the time of valuation;
(3) short-term instruments having maturities of more than sixty days for
which market quotations are readily available, are valued at current market
value; where market quotations are not available, such instruments are valued at
fair value as determined by the Board of Trustees;
(4) short-term instruments which are purchased with maturities of sixty
days or less (including all master demand notes) 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 instruments 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; and
which in either case reflects fair value as determined by the Fund's Board of
Trustees; and
(5) the following securities are valued at prices deemed in good faith to
be fair under procedures established by the Board of Trustees: (a) securities,
including restricted securities; for which complete quotations are not readily
available; (b) listed securities or those on NMS if, in the Fund's opinion, the
last sales price does not reflect a current market value or if no sale occurred;
and (c) other assets.
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BROKERAGE
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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 when 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 its Investment Management Agreement with
the Fund or Keystone under its Investment Advisory Agreement with Keystone
Management. 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 Investment Management Agreement and the Investment
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
that is fair and equitable to the Fund.
The Fund expects that purchases and sales of securities usually will be
effected through brokerage transactions for which commissions are payable.
Purchases from underwriters will include the underwriting commission or
concession, 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 intends to place
securities transactions with any particular broker-dealer or group thereof. The
Fund's Board of Trustees has determined, however, that the Fund may follow a
policy of considering sales of shares as a factor in the selection of
broker-dealers to execute portfolio transactions, subject to the requirements of
best execution, including best price, described above.
The policy of the Fund with respect to brokerage is and will be reviewed by
the Fund's Board of Trustees from time to time. Because of the possibility of
further regulatory developments affecting the securities exchanges and brokerage
practices generally, the foregoing practices may be changed, modified or
eliminated.
Investment decisions for the Fund are made independently by Keystone
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.
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
Investment Company Act of 1940 ("1940 Act") and rules and regulations issued
thereunder.
For the fiscal years ended November 30, 1991 and 1992, the Fund paid
$17,000 and $24,924, respectively in brokerage commissions. For the fiscal year
ended November 30, 1993, the Fund paid $59,217 in brokerage commissions.
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SALES CHARGES
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GENERAL
The Fund offers three classes of shares. Class A shares are offered with a
sales charge of 5.75% payable at the time of purchase of Fund shares ("Front End
Load Option"). Class B shares are sold subject to a contingent deferred sales
charge payable upon redemption during the calendar year of purchase or within
three calendar years after purchase. ("Back End Load Option"). Class B shares
which have been outstanding during seven calendar years will automatically
convert to Class A shares, without imposition of a front end sales charge.
(Conversion of Class B shares represented by stock certificates will require the
return of the stock certificates to 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 applicable to
subsequent purchases and a description of applicable contingent deferred sales
charges.
CONTINGENT DEFERRED SALES CHARGES
In order to reimburse the Fund for certain expenses relating to the sale of
its shares (See "Distribution Plan"), a contingent deferred sales charge may be
imposed at the time of redemption of certain Fund shares, as follows:
CLASS A SHARES
With certain exceptions, purchases of Class A shares in 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 purchase; and 1.00% on shares redeemed during the third
calendar year after purchase. No deferred sales charge is imposed on amounts
redeemed thereafter. If imposed, the deferred sales charge is deducted from the
redemption proceeds otherwise payable to you. The deferred sales charge is
retained by KDI. See "Calculation of Contingent Deferred Sales Charge" below.
CLASS C SHARES
With certain exceptions, the Fund may impose a deferred sales charge of 1%
on shares redeemed within one year after the date of purchase. No deferred sales
charge is imposed on amounts redeemed thereafter. If imposed, the deferred sales
charge is deducted from the redemption proceeds otherwise payable to you. The
deferred sales charge is retained by KDI. See "Calculation of Contingent
Deferred Sales Charge" below.
REDEMPTION OF CERTAIN CLASS A SHARES
Class A shares purchased prior to January 1, 1991 and redeemed within four
calendar years of purchase may be subject to a 2.0% contingent deferred sales
charge. In instances where an existing shareholder purchases additional Class A
shares after January 1, 1991 and subsequently requests a redemption of a portion
of his Class A shares, the shares first redeemed will be those purchased after
January 1, 1991 that were not purchased subject to a contingent deferred sales
charge.
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 exchange purchase is assumed to be the year shares tendered
for exchange were originally purchased.
WAIVER OF SALES CHARGES
Shares 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 Directors, Trustees,
officers, full-time employees and sales representatives of the Fund, Keystone
Management, Keystone, Keystone Group, Inc. ("Keystone Group"), Hartwell
Management Company, Inc., Harbor Capital Management Company, Inc., their
subsidiaries or KDI, who have been such for not less than ninety days; (2) a
pension and profit-sharing plan established by any such company, their
subsidiaries and affiliates, for the benefit of their Trustees, Directors,
officers, full-time employees and sales representatives; or (3) a registered
representative of a firm with a dealer agreement with KDI, provided all such
sales are made upon the written assurance that the purchase is made for
investment purposes and that the securities will not be resold except through
redemption by the Fund.
No initial sales charge is charged on purchases of shares of the Fund by a
bank or trust company in a single account in the name of such bank or trust
company as trustee, if the initial investment in shares of the Fund or any
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
redemptions of such shares.
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
ERISA; (3) automatic withdrawals from ERISA plans if the shareholder is at least
59 1/2 years old; (4) involuntary redemptions of accounts having an aggregate
net asset value of less than $1,000; 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
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Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund, to use their assets to bear expenses of distribu-ting 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) and the Fund's sole shareholder. 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, Class B and Class
C Distribution Plans were last approved by the Fund's Board of Trustees on June
16, 1993.
A new rule adopted by the National Association of Securities Dealers, Inc.
("NASD") limits the amount that a Fund may pay annually in distribution costs
for sale of its shares and shareholder service fees. The rule limits annual
expenditures to 1% of the aggregate average daily net asset value of its shares,
of which 0.75% may be used to pay such distribution costs and 0.25% may be used
to pay shareholder service fees. The new NASD rule also limits the aggregate
amount which the Fund may pay for such distribution costs to 6.25% of gross
share sales since the inception of the 12b-1 Plan, plus interest at the prime
rate plus 1% on such amounts (less any contingent deferred sales charges paid by
shareholders to KDI).
CLASS A DISTRIBUTION PLAN
The Class A Distribution Plan provides that the Fund may expend daily
amounts at an annual rate which is currently limited to up to 0.25% of the
Fund's average daily net asset value attributable to Class A shares to finance
any activity 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 ("Principal Underwriter") (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 previously sold by any such others and
remaining outstanding during the period in respect of which such fee is or has
been paid.
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, including, without limitation,
expenditures consisting of payments to a Principal Underwriter of the Fund
(currently KDI) to enable the Principal Underwriter to pay to others (dealers)
commissions in respect of Class B shares since inception of the Distribution
Plan; and (2) to enable the Principal Underwriter to pay or to have paid to
others a service fee, at such intervals as the Principal Underwriter may
determine, in respect of Class B shares previously sold by any such others and
remaining outstanding during the period in respect of which such fee is or has
been paid.
Amounts paid by the Fund under the Class B Distribution Plan are currently
used to pay others (dealers) (1) a commission normally equal to 3.00% for each
share sold; and/or (2) service fees at an annual rate of 0.25% of the average
net asset value of shares sold by such others and remaining outstanding on the
books of the Fund for specified periods.
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, including, without limitation,
expenditures consisting of payments to a Principal Underwriter of the Fund
(currently KDI) to enable the Principal Underwriter to pay to others (dealers)
commissions in respect of Class C shares since inception of the Distribution
Plan; and (2) to enable the Principal Underwriter to pay or to have paid to
others a service fee, at such intervals as the Principal Underwriter may
determine, in respect of Class C shares previously sold by any such others and
remaining outstanding during the period in respect of which such fee is or has
been paid.
Amounts paid by the Fund under the Class C Distribution Plan are currently
used to pay others (dealers) (1) 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% plus the first year's service fee in advance in the amount of
0.25%, and (2) beginning approximately fifteen months after purchase, a
commission at an annual rate of 0.75% (subject to the NASD rule - see
"Distribution Plans") plus service fees at an annual rate of 0.25%,
respectively, of the average daily net asset value of each share sold by such
others and remaining 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. However, after the termination of
the Class B Distribution Plan, KDI would be entitled to receive payment, 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 at any time during which the
Class B Distribution Plan was in effect. Unreimbursed distribution expenses at
November 30, 1993 for the Class B shares were $164,100 (7% of Class B's net
assets). Any change in the 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 a Distribution Plan as stated
above.
During the fiscal year ended November 30, 1993, the Fund paid or accrued to
KDI $67,104, $19,544 and $26,098 pursuant to its Class A, Class B and Class C
Distribution Plans, respectively. This amount was used to pay commissions and
service fees.
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 includable in the Fund's total operating
expenses for purposes of determining compliance with state expense limits.
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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TRUSTEES AND OFFICERS
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The Trustees and Officers of the Fund, their principal occupations and some
of their affiliations over the last five years are as follows:
*GEORGE S. BISSELL: Chairman of the Board, Trustee and Chief Executive Officer
of the Fund; Chairman of the Board, Director and Chief Executive Officer of
Keystone Group, Inc. ("Keystone Group"), Keystone Custodian Funds, Inc.
("Keystone"), Keystone Management, Inc. ("Keystone Management"), Keystone
Software Inc. ("Keystone Software"), Keystone Fixed Income Advisers, Inc.
("KFIA") and Keystone Investor Resource Center, Inc. ("KIRC"); Chairman of
the Board, Chief Executive Officer and Trustee or Director of Keystone
America Capital Preservation and Income Fund, Keystone America Capital
Preservation and Income Fund II, Keystone America Intermediate Term Bond
Fund, Keystone America Strategic Income Fund, Keystone America World Bond
Fund, Keystone Australia Income Fund, Keystone Tax Free Income Fund,
Keystone America State Tax Free Fund, Keystone America State Tax Free Fund
- Series II, Keystone America Equity Income Fund, 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. (collectively, "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"); Chairman of the Board, Hartwell
Keystone Advisers, Inc. ("Hartwell Keystone"); Director of Keystone
Investment Management Corporation ("KIMCO"); Chairman of the Board and
Trustee of Anatolia College; and Trustee of University Hospital (and
Chairman of its Investment Committee).
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; Managing Director, Seaward Management Corporation
(investment advice); and former Director, Executive Vice President and
Treasurer, State Street Research & Management Company (investment advice).
*ALBERT H. ELFNER, III: President and Trustee of the Fund; President and Trustee
or Director of all other Keystone Group Funds; Director and Vice Chairman
of Keystone; Chief Operating Officer, President and Director of Keystone
Group; Chairman of the Board and Director of KIMCO and KFIA; President and
Director of Keystone Management, Hartwell Keystone and Keystone Software;
Director of Keystone Distributors, Inc. ("KDI"), KIRC, Fiduciary Investment
Company, Inc. ("FICO") and Robert Van Partners, Inc.; Director of Boston
Children's Services Association and Trustee of Anatolia College, Middlesex
School and Middlebury College ; Member, Board of Governors, New England
Medical Center; former Trustee of Neworld Bank and former President of
Keystone.
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, N.C).
LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other Keystone
Group Funds; President, Morehouse College; 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.
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 recruit- ment); 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; Consultant, Russell Miller, Inc. (investment bankers) 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; Senior Vice President, Chief Financial
Officer and Treasurer of Keystone Group and KDI; Director, Senior Vice
President, Chief Financial Officer and Treasurer of Keystone; Treasurer of
KIMCO, Keystone Management, Keystone Software, Inc. and FICO; and Treasurer
and Director of Hartwell Keystone.
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of all
other Keystone Group Funds; and President of Keystone.
ROGER T. WICKERS: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Group Funds; Director, Senior Vice President, General
Counsel and Secretary, Keystone Group and KDI; Director and Secretary,
Keystone and Vice President, Assistant Secretary and Director, Keystone
Management.
KEVIN J. MORRISSEY: Treasurer of the Fund; Treasurer of all other Keystone Group
Funds; Vice President of Keystone Group; and former Vice President and
Treasurer of KIRC.
ROSEMARY D. VAN ANTWERP: Vice President and Secretary of the Fund; Vice
President and Secretary of all other Keystone Group Funds; Senior Vice
President and General Counsel of Keystone, Keystone Management, Hartwell
Keystone, KIRC, KFIA, Keystone Software and KIMCO; Vice President,
Assistant Secretary and Associate General Counsel of Keystone Group; Senior
Vice President, General Counsel, Director and Assistant Clerk, FICO;
Assistant Secretary of KDI.
THOMAS S. DRUMM: Vice President of the Fund; Senior Vice President of Keystone;
and Vice President of 11 Keystone America Funds, 2 other Keystone Group
Funds, 4 Keystone Custodian Funds and Keystone Institutional Adjustable
Rate Fund.
* This Trustee may be considered an "interested person" within the meaning of
the 1940 Act.
Mr. Bissell and Mr. Elfner 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. Bissell and Mr. Elfner
own shares of Keystone Group. Mr. Bissell is Chairman of the Board, Chief
Executive Officer and Director of Keystone Group. Mr. Elfner is President,
Director and Chief Operating Officer of Keystone Group.
The Board of Trustees of the Fund has established an Advisory Board
composed principally of former Trustees. The members of the Advisory Board are
James R. Dempsey, Knight Edwards, Donald T. Ellis, John M. Haffenreffer, Philip
B. Harley, Everett P. Pope, John W. Sharp, Spencer R. Stuart, Russel R. Taylor,
and Charles M. Williams. The Advisory Board will advise the Board of Trustees
and Keystone with respect to the management and operation of the Fund. The
recommendations of the Advisory Board will be considered by the Board of
Trustees and Keystone, but will not be binding on them.
The principal occupations and affiliations of the members of the Advisory
Board over the past five years are set forth below:
JAMES R. DEMPSEY: a private investor; Director or Trustee, Convest Energy
Corporation, Superior Electric Co., Phoenix Total Return Fund, Phoenix
Multi-Portfolio Fund, Phoenix Series Fund, The Phoenix Big Edge Series
Fund; former Chairman of the Board, Transatlantic Investment Capital
Corporation, Transatlantic Capital Corporation and former Trustee or
Director of 7 Keystone Group Funds.
KNIGHT EDWARDS: Of Counsel, Edwards & Angell; Member of the Board of Managers of
7 variable annuity separate accounts of The Travelers Insurance Company
("Travelers"); Trustee, 5 mutual funds sponsored by Travelers; and former
Trustee or Director of 8 Keystone Group Funds.
DONALD T. ELLIS: President, D.T. Ellis Associates; Associate, Michael Saunders &
Co., real estate broker; former Senior Vice President, Goldman Financial
Services, Inc.; former President, Chief Executive Officer and Treasurer,
Scott Seaboard Corpora- tion; and former Trustee or Director of 8 Keystone
Group Funds.
JOHN M. HAFFENREFFER: Vice President, Director and Treasurer of Haffenreffer &
Co.; Member of the Corporation and Treasurer of Haffenreffer Benevolent
Corp.; Director and Member of the Executive Committee of Liberty Bank and
Trust Company; Director of the Massachusetts Council of Churches; Vice
President, Director and Treasurer, Forest Hills Company; former Director of
Keystone; and former Trustee or Director of all Keystone Group Funds.
PHILIP B. HARLEY: Director of General Host Corporation, Stamford, Connecticut; a
private investor; former Director, President and Chief Executive Officer,
Baker Perkins, Inc.; former Director, Baker Perkins Holdings Ltd. (U.K.);
and former Trustee or Director of all Keystone Group Funds.
EVERETT P. POPE: former Chairman and Trustee, Bowdoin College; former Chairman
of the Board and President of Workingmens Cooperative Bank; former
Chairman, Massachusetts Higher Education Assistance Corporation (guarantor
of student loans); and former Trustee or Director of all Keystone Group
Funds.
JOHN W. SHARP: Governor and past President of Montreal General Hospital, Canada;
Honorary Vice Chairman and former National President of Boy Scouts of
Canada; Honorary Colonel, The Black Watch Royal Highland Regiment of
Canada; former Director of Keystone and Unimed, Inc.; former Chairman and
President, Vilas Industries, Ltd. (Canada); former Chairman, Moyer School
supplies, Ltd. (Canada); former Senior Economic Adviser, Province of
Quebec, in New York City; former registered representative with F.H. Deacon
Hodgson Ltd.; and former Trustee or Director of all Keystone Group Funds.
SPENCER R. STUART: Director of U.S. Tobacco Company, Asset Guaranty Inc.,
International Finance Group and Enhanced Financial Services Inc.; Director
and Chairman, Human Resources Committee, Allegheny International, Inc.;
former Director of Western Airlines, Inc., International Finance Group and
Keystone; former Chairman, Council of Managing Advisers, Dean Witter
Reynolds Bank; Founder/former Chairman of Spencer Stuart & Associates; and
former Trustee or Director of all Keystone Group Funds.
RUSSEL R. TAYLOR: Trustee of the Gintel Funds, Greenwich, Connecticut; Associate
Professor and Director, H.W. Taylor Institute of Entrepreneurial Studies,
College of New Rochelle; former Director of Annis Furs, Inc. and
Minnetonka, Inc.; and former Trustee or Director of all Keystone Group
Funds.
CHARLES M. WILLIAMS: Director, Horace Mann Educator Corp.; President, Charles M.
Williams Associates; Advisory Director, Orix U.S.A., Inc.; Director of Fort
Dearborn Income Securities, Inc., 4 Merrill Lynch Funds, National Life
Insurance Company of Vermont and the Institute for Financial Management,
Inc.; President of Charles M. Williams Associates, Inc.; George Gund
Professor of Commercial Banking, Emeritus, at Harvard University Graduate
School of Business Administration; former Director of Keystone, Hammermill
Paper Co., Sonat, Inc., United States Leasing International, Inc.; and
former Trustee or Director of all Keystone Custodian Funds and Keystone
America Funds.
During the fiscal year ended November 30, 1993, no Trustee affiliated with
Keystone or any officer received any direct remuneration from the Fund. During
this same period, the nonaffiliated Trustees received no retainers and fees. On
December 31, 1993, the Trustees, officers and Advisory Board members of the Fund
did not beneficially own any of the Fund's then outstanding shares for Class A,
Class B and Class C.
The address of all the Fund's Trustees, officers and Advisory Board members
is 200 Berkeley Street, Boston, Massachusetts 02116- 5034.
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
- --------------------------------------------------------------------------------
Subject to the general supervision of the Fund's Board of Trustees,
Keystone Management, located 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 with the Fund dated August 19, 1993 (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 under the Management
Agreement and pay or reimburse the Fund for the compensation of officers and
trustees of the Fund who are affiliated with the investment manager and will pay
all expenses of Keystone Management incurred in connection with the provisions
of its services. All charges and expenses other than those specifically referred
to as being borne by Keystone Management will be paid by the Fund, including,
but not limited to, custodian charges and expenses, bookkeeping and auditors'
charges and expenses; transfer agent charges and expenses; fees of Independent
Trustees, brokerage commissions, brokers' fees and expenses; issue and transfer
taxes; costs and expenses under the Distribution Plan; taxes and trust fees
payable to governmental agencies; the cost of share certificates, fees and
expenses of the registration and qualification of the Fund and its shares with
the Securities and Exchange Commission (sometimes referred to herein as the
"SEC" or the "Commission") or under state or other securities laws; expenses of
preparing, printing and mailing prospectuses, statements of additional
information, notices, reports and proxy materials to shareholders of the Fund;
expenses of shareholders' and Trustees' meetings; charges and expenses of legal
counsel for the Fund and for the Trustees of the Fund on matters relating to the
Fund, charges and expenses of filing annual and other reports with the SEC and
other authorities; and all extraordinary charges and expenses of the Fund.
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. The Management Agreement also permits Keystone Management to delegate
to Keystone or another investment adviser substantially all of the investment
manager's rights, duties and obligations under the Management Agreement.
Keystone Management presently provides the Fund with certain admistrative and
management services, such services include (1) performing research and planning
with respect to (a) the Fund's qualification as a regulated investment company
under Subchapter M of the Internal Revenue Code, (b) tax treatment of the Fund's
portfolio investments, (c) tax treatment of special corporate actions (such as
reorganizations), (d) state tax matters affecting the Fund, and (e) the Fund's
distributions of income and capital gains; (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:
Aggregate Net Asset Value
Management of the Shares
Fee Income of the Fund
- --------------------------------------------------------------------------------
1.5% of
Gross Dividend and
Interest Income
Plus
0.60% of the first $ 100,000,000, plus
0.55% of the next $ 100,000,000, plus
0.50% of the next $ 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 $ 500,000,000, plus
0.30% of amounts over $1,000,000,000;
computed as of the close of business each business day and paid 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, however, to make
such reimbursements to the extent it would result in the Fund's inability to
qualify as a regulated investment company under provisions of the Internal
Revenue Code. This condition may be modified or eliminated in the future.
The Management Agreement continues in effect 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
- --------------------------------------------------------------------------------
As noted, pursuant to the Management Agreement, Keystone Management has
delegated its investment management functions, except for certain administrative
and management services to be performed by Keystone Management, to Keystone and
has entered into an Investment Advisory Agreement, dated August 19, 1993 (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 privately owned by 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, Roger T.
Wickers, 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 Fund's operation,
and manages the investment and reinvestment of the Fund's assets in conformity
with the Fund's investment objectives and restrictions. The Advisory Agreement
stipulates that Keystone shall provide office space, all necessary office
facilities, equipment and personnel in connection with its services under the
Advisory Agreement and pay or reimburse the Fund for the compensation of
officers and Trustees of the Fund who are affiliated with the investment manager
as well as pay all expenses of Keystone incurred in connection with the
provisions 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 shareholders' and Trustees' meetings, charges and expenses of legal
counsel for the Fund and for the Trustees of the Fund on matters relating to the
Fund; charges and expenses of filing annual and other reports with the SEC and
other authorities; and all extraordinary charges and expenses of the Fund.
During the year ended November 30, 1991, the Fund paid or accrued to
Keystone Management investment management and administrative services fees of
$159,660, which represented 0.67% of the Fund's average net assets. Of such
amount paid to Keystone Management, $135,711 was paid to Keystone for its
services to the Fund.
During the year ended November 30, 1992, the Fund paid or accrued to
Keystone Management investment management and administrative services fees of
$160,094, which represented 0.66% of the Fund's average net assets. Of such
amount paid to Keystone Management, $136,080 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 services fees of
$200,203, which represented 0.65% of the Fund's average net assets. Of such
amount paid to Keystone Management, $170,173 was paid to Keystone for its
services to the Fund.
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
Pursuant to a Principal Underwriting Agreement, dated August 19, 1993 the
(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 representa-tives 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 Plans.
All subscriptions and sales of shares by KDI are at the offering price of
the shares in accordance with the provisions of the Fund's Declaration of Trust,
By-Laws, the current prospectus and statement of additional information. All
orders are subject to acceptance by the Fund, and the Fund reserves the right in
its sole discretion to reject any order received. Under the Underwriting
Agreement, the Fund is not liable to anyone for failure to accept any order.
The Fund has agreed under the Underwriting Agreement to pay all expenses in
connection with registration of its shares with the Commission as well as
auditing and filing fees in connection with registration of its shares under the
various state "blue-sky" laws. 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, which 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 terms of the Underwriting
Agreement and such continuance were last approved on June 16, 1993.
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.
- --------------------------------------------------------------------------------
DECLARATION OF TRUST
- --------------------------------------------------------------------------------
MASSACHUSETTS BUSINESS TRUST
The Fund is a Massachusetts business trust established under a Declaration
of Trust dated October 24, 1986 ("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 filed as an exhibit to the Registration
Statement of which this statement of additional information is a part. This
summary is qualified in its entirety by reference to the Declaration of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest of classes of shares, each of which represents an
equal proportionate interest in the Fund with each other share of that class.
Upon liquidation, shares are entitled to a pro rata share of the Fund based on
the relative net assets of each class. Shareholders have no preemptive or
conversion rights. Shares are 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 of series of shares.
SHAREHOLDER LIABILITY
Pursuant to certain decisions of the Supreme Judicial Court of
Massachusetts, shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. If the Fund were held to be a partnership, the possibility of the
shareholders incurring financial loss for that reason appears remote because (1)
the Fund's Declaration of Trust Agreement contains an express disclaimer of
shareholder liability for obligations of the Fund; and (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 (3) because the Declaration of
Trust Agreement 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 Agreement 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 Agreement which adversely affects any class of shares
without the approval of a majority of the shares of that class. Shares have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of the Trustees to
be elected at a meeting and, in such event, the holders of the remaining 50% or
less of the shares voting will not be able to elect any Trustees.
After an initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, 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 a
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 the maximum sales
charge 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 total return for Class A of the Fund for the period April 14, 1987
(commencement of investment operations) through November 30, 1993 was 76.41%.
The total returns for Class A of the Fund for the one and five year periods
ended November 30, 1993 were 6.19% and 72.73%, respectively. The compounded
average rate of return for Class A of the Fund for the period April 14, 1987
(commencement of investment operations) through November 30, 1993 was 8.94%. The
compounded average rate of return for Class A of the Fund for the five year
period ended November 30, 1993 was 11.55%. The total return for Class B and
Class C of the Fund for the period February 1, 1993 (date of initial public
offering) through November 30, 1993 were 6.68% and 6.76%, respectively.
Standardized 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 Fund does not presently
intend to advertise current yield.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
As of December 31, 1993, Merrill Lynch Pierce Fenner & Smith, Attn: Book
Entry, 4800 Deer Lake Dr. E 3rd FL, Jacksonville, FL 32246-6468 owned 6.45% of
the outstanding Class A shares of the Fund.
As of December 31, 1993, Merrill Lynch Pierce Fenner & Smith, Attn: Book
Entry, 4800 Deer Lake Dr. E 3rd FL, Jacksonville, FL 32246-6468 owned 11.76% of
the outstanding Class B shares of the Fund. As of December 31, 1993, The Knapp
Foundation, Inc., Box O, St. Michaels, MD 21663 owned 11.16% of the outstanding
Class B shares of the Fund.
As of December 31, 1993, the following shareholders owned 5% or more of the
outstanding Class C shares of the Fund:
Lavedna Ellingson, Douglas Ellingson TTEE, U/A DTD 05/01/86, Lavedna
Ellingson Marital Trust, 8510 McClintock, Tempe, AZ 85284- 2527 owned 31.88%;
Merrill Lynch Pierce Fenner & Smith, Attn: Book Entry, 4800 Deer Lake Dr. E 3rd
FL, Jacksonville, FL 32246-6468 owned 14.16%; and Lavedna Ellingson, Douglas
Ellingson TTEE, U/A DTD 09/03/84, Ellingson Revocable Trust, 8510 McClintock,
Tempe, AZ 85284-2527 owned 9.43%.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is custodian of all securities and cash of the Fund (the
"Custodian"). 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, One Boston Place, Boston, Massachusetts 02108, Certified
Public Accountants, are the Fund's independent auditors.
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142- 1519, is
a wholly-owned subsidiary of Keystone and acts as transfer agent and dividend
disbursing agent for the Fund.
Except as otherwise stated in its prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in its prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
No dealer, salesman or other person is authorized to give any information
or to make any representation not contained in the Fund's prospectus, statement
of additional information or in supplemental sales literature issued by the Fund
or KDI, and no person is entitled to rely on any information or representation
not contained therein.
The Fund's prospectus and statement of additional information omit certain
information contained in the registration statement filed with the 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.
The Fund is one of 16 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 current
income, consistent with low volatility of principal, by investing in adjustable
rate securities issued by the U.S. government, its agencies or
instrumentalities.
KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND - II - Seeks high level of
current income, consistent with low volatility of principal, by investing under
ordinary circumstances at least 65% of its assets in adjustable rate securities
issued by the U.S. government, its agencies or instrumentalities.
KEYSTONE AMERICA FUND FOR TOTAL RETUREN - Seeks above-average income, dividend
growth and capital appreciation potential from quality common stocks, preferred
stocks, convertible bonds, other fixed-income securities and foreign securities
(up to 50%).
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 currently offering five
separate series of shares investing in different portfolio securities which
seeks the highest possible current income, exempt from federal income taxes and
applicable state taxes.
KEYSTONE 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.
<PAGE>
SCHEDULE OF INVESTMENTS--November 30, 1994
<TABLE>
<CAPTION>
Market
Shares Value
<S> <C> <C>
COMMON STOCKS/RIGHTS (57.6%)
CAPITAL GOODS (3.5%)
General Electric Co. 14,000 $ 644,000
Regal Beloit Corp. 50,000 631,250
1,275,250
CHEMICALS (6.4%)
Dow Chemical Co. 15,000 960,000
E.I. du Pont de Nemours
& Co. 15,000 808,125
Union Carbide Corp. 20,000 572,500
2,340,625
CONSUMER GOODS (5.2%)
Eastman Kodak Co. 10,000 456,250
Gillette Co. 7,500 551,250
International Flavors &
Fragrances, Inc., Common
Rts. 20,000 880,000
1,887,500
DRUGS (3.1%)
American Home Products
Corp. 9,000 586,125
Johnson & Johnson 10,000 533,750
1,119,875
FINANCE (7.3%)
Beacon Properties Corp. 30,000 540,000
Chase Manhattan Corp.,
Common Rts. 15,000 536,250
FHLMC* 10,000 498,750
Liberty Property Trust 25,000 440,625
State Street Boston
Corp. 20,000 631,250
2,646,875
FOODS (2.1%)
Philip Morris Cos., Inc. 12,500 746,875
INSURANCE (0.6%)
General Reinsurance
Corp. 2,000 234,750
NATURAL GAS (3.0%)
Enron Corp. 20,000 540,000
Sonat, Inc. 20,000 562,500
1,102,500
OFFICE & BUSINESS EQUIPMENT (1.9%)
IBM Corp. 10,000 707,500
OIL (6.7%)
Amoco Corp. 6,000 $364,500
Atlantic Richfield Co. 3,500 362,250
Chevron Corp., Common
Rts. 15,000 654,375
Mobil Corp., Common Rts. 6,000 511,500
Unocal Corp. 20,000 532,500
2,425,125
OIL SERVICES (2.4%)
Baker Hughes, Inc. 10,000 180,000
Halliburton Co. 20,000 697,500
877,500
PAPER & PACKAGING (1.1%)
Weyerhaeuser Co. 10,000 383,750
RETAIL (3.5%)
J.C. Penney Co., Inc. 15,000 690,000
Wal-Mart Stores, Inc. 25,000 578,125
1,268,125
SERVICES (1.0%)
Loewen Group, Inc. 15,000 379,687
TELECOMMUNICATIONS
(6.2%)
AT&T Credit Corp. 12,000 589,500
Bell South Corp. 7,000 363,125
GTE Corp. 18,000 551,250
Indosat Co., ADR* 20,000 760,000
2,263,875
TRANSPORTATION (1.7%)
Conrail, Inc. 12,000 624,000
UTILITIES (1.9%)
Central & South West
Corp. 20,000 425,000
Florida Progress Corp.,
Rts. 9,000 273,375
698,375
TOTAL COMMON STOCKS
(Cost--$17,705,758) $20,982,187
PREFERRED STOCKS (9.7%)
CAPITAL GOODS (1.6%)
Agco Corp., Conv.,
Depository Shares 10,000 597,500
<PAGE>
Keystone America Fund for Total Return
SCHEDULE OF INVESTMENTS--November 30, 1994
Market
Shares Value
CHEMICALS (1.0%)
Atlantic Richfield Co. 15,000 $ 369,375
DIVERSIFIED COMPANIES (2.3%)
Alco Standard Corp.,
Depository Shares 12,500 825,000
REAL ESTATE (1.3%)
Rouse Co. (The), Conv.,
Series A 10,000 482,500
RETAIL (1.6%)
Best Buy Capital L.P.,
Conv. 10,000 565,000
TRANSPORTATION (1.9%)
Burlington Northern,
Inc., 6.25% Cumulative
Conv., Series A 12,500 698,438
TOTAL PREFERRED STOCKS
(Cost--$3,122,917) $3,537,813
Par
Value
FIXED INCOME (9.7%)
CONVERTIBLE BONDS (1.5%)
CONSTRUCTION & HOUSING (1.5%)
Empresas Ica Sociedad
Controladora, S.A. de
C.V., Conv. (Subord.)
Debenture, 5.000%, 2004 $ 500,000 535,000
FOREIGN BONDS (NON U.S. DOLLARS) (2.8%)
Commonwealth of
Australia Government
Bond, 12.500%, 1997 A$1,250,000 1,018,800
FOREIGN BONDS (U.S. DOLLARS) (1.5%)
Banco Nacional De Mexico
S.A., Conv. (Subord.)
Exch. Debentures (a),
7.000%, 1999 $ 500,000 542,500
PRIVATE PLACEMENT BONDS & NOTES (2.3%)
Cemex S.A., Unsecured
Conv. (Subord.)
Euro-dollar Notes (a),
4.250%, 1997 800,000 831,000
Par Market
Value Value
BANK & FINANCE BONDS & NOTES (1.6%)
EMC Corp., Conv.
Debentures, 4.250%, 2001 $ 500,000 $ 606,250
TOTAL FIXED INCOME
(Cost--$3,299,084) $ 3,533,550
Maturity
Value
SHORT-TERM INVESTMENTS (19.5%)
REPURCHASE AGREEMENTS (19.5%)
Goldman, Sachs & Co.,
purchased 11/30/94
(collateralized by
$4,220,000 Federal Home
Loan Mortgage, 4.34%,
due 12/1/23) (Cost
$3,600,000), 5.650%,
12/01/94 3,600,565 3,600,000
HSBC Securities, Inc.,
purchased 11/30/94
(collateralized by
$2,950,000 U.S. Treasury
Bond, 10.75%, due
8/15/05) (Cost
$3,531,000), 5.600%,
12/01/94 3,531,549 3,531,000
TOTAL SHORT-TERM INVESTMENTS
(Cost--$7,131,000) $7,131,000
TOTAL INVESTMENTS
(Cost--$31,258,759)(b) 35,184,550
OTHER ASSETS AND LIABILITIES--
NET (3.5%) 1,259,176
NET ASSETS (100.0%) $36,443,726
<PAGE>
<FN>
NOTES TO SCHEDULE OF INVESTMENTS
(a) Securities that may be resold to "qualified institutional buyers" under
Rule 144A of the Federal Securities Act of 1933. These securities have been
determined to be liquid under guidelines established by the Board of
Trustees.
(b) The cost of investments for federal income tax purposes is identical. Gross
unrealized appreciation and depreciation of investments, based on identified
tax cost, at November 30, 1994 are as follows:
Gross unrealized appreciation $4,142,952
Gross unrealized depreciation (217,161)
Net unrealized appreciation $3,925,791
*Legend of Portfolio abbreviations:
FHLMC--Federal Home Loan Mortgage Corporation.
ADR--American Depository Receipts.
</FN>
</TABLE>
<PAGE>
Keystone America Fund for Total Return
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 13, 1987
(Commencement of
CLASS A SHARES Operations) to
Year Ended November 30, November 30,
1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period $ 12.31 $ 12.06 $ 11.45 $ 10.29 $ 10.89 $ 9.41 $ 8.59 $ 10.00
Income from investment operations
Investment income--net 0.24 0.21 0.23 0.34 0.41 0.42 0.46 0.30
Net gain (loss) on investments (0.56) 1.31 1.19 1.38 (0.61) 2.01 0.89 (1.47)
Total from investment operations (0.32) 1.52 1.42 1.72 (0.20) 2.43 1.35 (1.17)
Less distributions
Dividends from investment
income--net (0.24) (0.21) (0.23) (0.35) (0.40) (0.42) (0.53) (0.24)
Distributions in excess of
investment income--net (a) 0.00 (0.03) (0.05) (0.05) 0.00 0.00 0.00 0.00
Distributions from capital gains 0.00 (1.03) (0.53) (0.16) 0.00 (0.53) 0.00 0.00
Total distributions (0.24) (1.27) (0.81) (0.56) (0.40) (0.95) (0.53) (0.24)
Net asset value: End of period $ 11.75 $ 12.31 $ 12.06 $ 11.45 $ 10.29 $ 10.89 $ 9.41 $ 8.59
Total return (d) (2.65%) 12.67% 12.56% 16.70% (1.85%) 26.17% 15.98 (11.94%)
Ratios/supplemental data
Ratios to average net assets:
Operating and management
expenses (b) 1.59% 1.85% 1.85% 1.88% 2.00% 2.00% 1.47% 1.00%(c)
Net investment income 1.93% 1.63% 1.87% 2.98% 3.85% 3.94% 4.87% 4.94%(c)
Portfolio turnover rate 57% 92% 66% 43% 51% 50% 64% 16%
Net assets, end of period
(thousands) $23,162 $26,367 $23,607 $22,974 $22,080 $22,764 $20,735 $7,672
<FN>
(a) Effective November 30, 1993 the Fund adopted Statement of Position
93-2: Determination, Disclosure, and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions by Investment
Companies. As a result, distribution amounts exceeding book basis net income
(or tax basis net income on a temporary basis) are presented as
"Distributions in excess of investment income--net". Similarly, capital gain
distributions in excess of book basis capital gains (or tax basis capital
gains on a temporary basis) are presented as "Distributions in excess of
realized gains on investments--net". For the fiscal years ended 1993, 1992,
and 1991 distributions in excess of book basis net income were charged to
paid-in capital. For the fiscal years ended prior to January 31, 1990, these
excess distributions were charged to undistributed net investment income.
(b) Figures are net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the "Ratio
of net operating and management expenses to average net assets" would have
been 2.41%, 2.48%, 2.92%, and 4.77% (on an annualized basis), respectively,
for the years ended 1990, 1989, 1988 and the period from February 13, 1987
(Commencement of Operations) to November 30, 1987.
(c) Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to November 30, 1987.
(d) Excluding applicable sales charges.
</FN>
</TABLE>
See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
Year (Date of Initial
Ended Public Offering) to
November 30, 1994 November 30, 1993
<S> <C> <C>
Net asset value:
Beginning of period $12.32 $12.65
Income from investment operations
Investment income--net 0.15 0.10
Net gain (loss) on investments (0.56) 0.74
Total income from investment operations (0.41) 0.84
Less distributions
Dividends from investment income--net (0.14) (0.10)
Distributions in excess of investment
income--net (b) 0.00 (0.04)
Distributions from capital gains 0.00 (1.03)
Total distributions (0.14) (1.17)
Net asset value: End of period $11.77 $12.32
Total return(c) (3.36%) 6.68%
Ratios/supplemental data
Ratios to average net assets:
Operating and management expenses 2.31% 2.64%(a)
Net investment income 1.27% 0.84%(a)
Portfolio turnover rate 57% 92%
Net assets, end of period (thousands) $7,314 $4,283
<FN>
(a) Annualized.
(b) Effective November 30, 1993 the Fund adopted Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. As
a result, distribution amounts exceeding book basis net income (or tax basis
net income on a temporary basis) are presented as "Distributions in excess of
investment income--net". Similarly, capital gain distributions in excess of
book basis capital gains (or tax basis capital gains on a temporary basis)
are presented as "Distributions in excess of realized gains on
investments--net". For the period February 1, 1993 (Date of Initial Public
Offering) to November 30, 1993 distributions in excess of book basis net
income were charged to paid-in capital.
(c) Excluding applicable sales charges.
</FN>
</TABLE>
See Notes to Financial Statements.
<PAGE>
Keystone America Fund for Total Return
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
Year (Date of Initial
Ended Public Offering) to
November 30, 1994 November 30, 1993
<S> <C> <C>
Net asset value:
Beginning of period $12.33 $12.65
Income from investment
operations
Investment income--net 0.15 0.10
Net gain (loss) on
investments (0.56) 0.75
Total income from
investment operations (0.41) 0.85
Less distributions
Dividends from investment
income--net (0.14) (0.10)
Distributions in excess
of investment income--
net (b) 0.00 (0.04)
Distributions from
capital gains 0.00 (1.03)
Total distributions (0.14) (1.17)
Net asset value:
End of period $11.78 $12.33
Total return(c) 3.36%) 6.76%
Ratios/supplemental data
Ratios to average net assets:
Operating and management
expenses 2.34% 2.64%(a)
Net investment income 1.21% 0.83%(a)
Portfolio turnover rate 57% 92%
Net assets, end of
period (thousands) $5,968 $5,030
<FN>
(a) Annualized.
(b) Effective November 30, 1993 the Fund adopted Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. As
a result, distribution amounts exceeding book basis net income (or tax basis
net income on a temporary basis) are presented as "Distributions in excess of
investment income--net". Similarly, capital gain distributions in excess of
book basis capital gains (or tax basis capital gains on a temporary basis)
are presented as "Distributions in excess of realized gains on
investments--net". For the period February 1, 1993 (Date of Initial Public
Offering) to November 30, 1993 distributions in excess of book basis net
income were charged to paid-in capital.
(c) Excluding applicable sales charges.
</FN>
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES--
November 30, 1994
<TABLE>
<S> <C> <C>
Assets:
Investments at market value (identified
cost--$31,258,759) (Note 1) $35,184,550
Cash 551
Receivable for:
Investments sold 1,047,620
Fund shares sold 93,616
Interest and dividends (net of withholding
taxes of $4,332) 190,968
Prepaid expenses 2,689
Total assets 36,519,994
Liabilities:
Payable for:
Fund shares redeemed 30,981
Income distribution 19,542
Accrued reimbursable expenses (Note 4) 16,947
Other accrued expenses 8,798
Total liabilities 76,268
Net assets $36,443,726
Net assets represented by:
Paid-in capital $32,579,237
Distributions in excess of investment
income--net (20,169)
Accumulated realized gains (losses) on
investment transactions--net (41,777)
Net unrealized appreciation on investments
and other assets and liabilities 3,926,435
Total net assets $36,443,726
Net asset value per share and redemption
price per share (Notes 1 and 2):
Class A Shares ($11.75 on 1,970,607 shares
outstanding) $23,162,495
Class B Shares ($11.77 on 621,259 shares
outstanding) 7,313,546
Class C Shares ($11.78 on 506,766 shares
outstanding) 5,967,685
$36,443,726
Offering price per share:
Class A Shares (including sales charge of
5.75%) $12.47
Class B Shares $11.77
Class C Shares $11.78
See Notes to Financial Statements.
STATEMENT OF OPERATIONS--
Year Ended November 30, 1994
Investment Income (Note 1):
Dividends $1,038,250
Interest 275,708
Total income 1,313,958
Expenses (Notes 2 and 4):
Management fee $242,315
Shareholder services 116,408
Accounting, auditing and legal 41,009
Custodian fees 39,340
Printing 13,167
Distribution Plan expenses 177,608
Registration fees 41,928
Miscellaneous expenses 4,359
Total expenses 676,134
Investment income--net 637,824
Realized and unrealized gain (loss) on
investments--net
(Notes 1 and 3):
Realized gain on investment transactions:
Proceeds from sales 24,528,115
Cost of investments sold 24,569,892
Realized loss on investment
transactions--net (41,777)
Net unrealized appreciation (depreciation)
on investments and other assets and
liabilities:
Beginning of year 5,634,298
End of year 3,926,435
Net change in unrealized appreciation or
depreciation (1,707,863)
Net loss on investment transactions (1,749,640)
Net decrease in net assets resulting from
operations ($1,111,816)
</TABLE>
<PAGE>
Keystone America Fund for Total Return
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended November 30,
1994 1993
<S> <C> <C>
Operations:
Investment income--net $ 637,824 $ 463,192
Realized gain (loss) on investments--net (41,777) 2,683,025
Net change in unrealized appreciation or
depreciation (1,707,863) 166,265
Net increase (decrease) in net assets
resulting from operations (1,111,816) 3,312,482
Net equalization charges and credits (Note
1) 0 2,820
Distributions to shareholders from (Notes 1
and 5):
Investment income--net--Class A Shares (490,921) (424,258)
In excess of investment income--net--Class A
Shares 0 (56,403)
Realized gain from investment
transactions--net--Class A Shares 0 (2,038,726)
Investment income--net--Class B Shares (71,686) (17,336)
In excess of investment income--net--Class B
Shares 0 (8,147)
Realized gain from investment
transactions--net--Class B Shares 0 (330,636)
Investment income--net--Class C Shares (68,622) (24,418)
In excess of investment income--net--Class C
Shares 0 (10,182)
Realized gain from investment
transactions--net--Class C Shares 0 (387,702)
Total distributions to shareholders (631,229) (3,297,808)
Capital share transactions (exclusive of net
equalization charges and credits) (Note 2):
Proceeds from shares sold--Class A Shares 2,393,728 2,706,520
Proceeds from shares sold--Class B Shares 4,728,142 5,100,034
Proceeds from shares sold--Class C Shares 2,716,402 5,525,860
Payment for shares redeemed--Class A Shares (4,913,128) (3,643,603)
Payment for shares redeemed--Class B Shares (1,410,354) (848,265)
Payment for shares redeemed--Class C Shares (1,547,569) (629,167)
Net asset value of shares issued in
reinvestment of distributions from:
Investment income--net and
paid-in-capital--Class A Shares 423,378 518,734
Investment income--net and
paid-in-capital--Class B Shares 56,510 18,387
Investment income--net and
paid-in-capital--Class C Shares 59,476 31,618
Capital Gain Distributions--Class A Shares 0 2,651,528
Capital Gain Distributions--Class B Shares 0 264,383
Capital Gain Distributions--Class C Shares 0 360,116
Net increase in net assets resulting from
capital share transactions 2,506,585 12,056,145
Total increase in net assets 763,540 12,073,639
Net assets:
Beginning of year 35,680,186 23,606,547
End of year [including distributions in
excess of investment income--net as follows:
1994 ($20,169) and 1993 ($28,912)] $36,443,726 $35,680,186
</TABLE>
See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone America Fund for Total Return (the "Fund"), formerly known as
Keystone America Equity Income 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 Advisor. 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 5.75% payable at the time of purchase.
Class B shares are sold subject to a contingent deferred sales charge payable
upon redemption within three calendar years after the 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 management of Keystone and its affiliates. Keystone
Management, Inc. ("KMI") is a wholly-owned subsidiary of Keystone. Keystone
Investor Resource Center, Inc. ("KIRC") a wholly-owned subsidiary of
Keystone, is the Fund's transfer agent.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Investments are usually valued at the closing sales price, or in the
absence of sales and for over-the-counter securities, the mean of bid and
asked quotations. Management values the following securities at prices it
deems in good faith, by or under the direction of the Board of Trustees, to
be fair: (a) securities (including restricted securities) for which complete
quotations are not readily available and (b) listed securities if, in the
opinion of management, the last sales price does not reflect a current value,
or if no sale occurred.
Short-term investments, which are purchased with maturities of sixty days or
less, are valued at amortized cost (original purchase cost as adjusted for
amortization of premium or accretion of discount) which when combined with
accrued interest approximates market. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued
at current market value. Short-term investments maturing in more than sixty
days when purchased which are held on the sixtieth day prior to maturity are
valued at amortized cost (market value on the sixtieth day adjusted for
amortization of premium or accretion of discount) which when combined with
accrued interest approximates market. All other securities and other assets
are valued at fair value as determined in good faith using methods prescribed
by the Board of Trustees.
Short-term investments denominated in a foreign currency are adjusted daily
to reflect changes in exchange rates. Market quotations are not considered to
be readily available for long-term corporate bonds and notes; such
investments are stated at fair value on the basis of valuations furnished by
a pricing service, approved by the Trustees, which determines valuations for
normal, institutional-size trading units of such securities using methods
based on market transactions
<PAGE>
Keystone America Fund for Total Return
for comparable securities that are generally recognized by institutional
traders.
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 fluctuated, 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.
B. Securities transactions are accounted for on the trade date. Realized
gains and losses are computed on the identified cost basis. Interest income
is recorded on the accrual basis and dividend income is recorded on the
ex-dividend date. Distributions to the shareholders are recorded by the Fund
at the close of business on the record date.
C. The Fund has qualified, and intends to qualify in the future, as a
regulated investment company under the Internal Revenue Code of 1986, as
amended ("Internal Revenue Code"). Thus, the Fund is relieved of any federal
income or excise tax liability by distributing all of its net taxable
investment income and net taxable capital gains, if any, to its shareholders.
The Fund intends to avoid excise tax liability by making the required
distributions under the Internal Revenue Code.
D. For the year ended November 30, 1993 the Fund used the accounting practice
known as equalization by which a portion of the proceeds from sales and costs
of redemption of capital shares (equivalent on a per share basis to the
amount of undistributed net investment income on the date of the
transactions) was credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share was not affected
by sales or redemption of shares. Effective December 1, 1993 the Fund
discontinued equalization accounting.
E. 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, which generally will be maintained at 101% of
the repurchase price. The Fund monitors the value of collateral on a daily
basis, and if the value of the collateral falls below required levels, the
Fund intends to seek additional collateral from the seller or terminate the
repurchase agreement. If the seller defaults, the Fund would suffer a loss to
the extent that the proceeds from the sale of the underlying securities were
less than the repurchase price. Any 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.
<PAGE>
F. The Fund distributes net investment income quarterly, 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. Effective December 1, 1993, the Fund
adopted Statement of Position: Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. As a result, the Fund changed the
financial statement classification of distributions to shareholders to more
clearly reflect the differences between financial statement amounts available
for distribution and amounts distributed to comply with income tax
regulations. Accordingly, the following reclassifications have been made as
of November 30, 1993: an increase in distributions in excess of investment
income--net of $28,912 and increases in paid-in-capital and accumulated
realized gains (losses) on investment transactions--net of $28,683 and $229,
respectively to reflect adoption of the statement.
(2.) Capital Share Transactions
The Trust Agreement authorizes the issuance of an unlimited number of shares
of beneficial interest without par value. Transactions in shares of the Fund
were as follows:
<TABLE>
<CAPTION>
Class A Shares
Year Ended November 30,
1994 1993
<S> <C> <C>
Shares sold 194,554 208,856
Shares redeemed (400,894) (281,584)
Shares issued in
reinvestment of
distributions from:
Investment income--net
and distributions in
excess of investment
income--net 34,783 40,868
Realized gains--net 0 216,901
Net increase (decrease) (171,557) 185,041
<CAPTION>
Class B Shares
February 1, 1993
(Date of Initial
Public Offering)
Year Ended to
November 30, November 30,
1994 1993
<S> <C> <C>
Shares sold 384,290 389,311
Shares redeemed (115,399) (64,524)
Shares issued in
reinvestment of
distributions from:
Investment income--net
and distributions in
excess of investment
income--net 4,656 1,430
Realized gains--net 0 21,495
Net increase 273,547 347,712
</TABLE>
<PAGE>
Keystone America Fund for Total Return
<TABLE>
<CAPTION>
Class C Shares
February 1, 1993
(Date of Initial
Public Offering)
Year Ended to
November 30, November 30,
1994 1993
<S> <C> <C>
Shares sold 220,445 423,857
Shares redeemed (126,563) (47,567)
Shares issued in
reinvestment of
distributions from:
Investment income--net
and distributions in
excess of investment
income--net 4,885 2,455
Realized gains--net 0 29,254
Net increase 98,767 407,999
</TABLE>
The Fund bears some of the costs of selling its shares under a Distribution
Plan adopted with respect to Class A, Class B, and Class C shares pursuant to
Rule 12b-1 under the Investment Company Act of 1940 ("1940 Act").
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. Amounts paid by the Fund to KDI under the Class A Distribution Plan
are currently used to pay others such as brokers or dealers, service fees at
an annual rate of 0.25% of the average net asset value of the shares sold by
such others remaining outstanding on the books for 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 15 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 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.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting
shares of the respective class. However, after the termination of 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 the 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
$111,482 and $9,726 for Class B and Class C Distribution Plans, respectively.
For the year ended November 30, 1994, the Fund paid KDI $61,310, $58,824, and
$57,474 under its
<PAGE>
Class A, Class B, and Class C Distribution Plans, respectively.
Presently, the Fund's class specific expenses are limited to Distribution
Plan expense 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 $42,000 which expires in the year 2002.
Purchases and sales of investment securities (including proceeds received at
maturity) for the year ended November 30, 1994 were as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Portfolio securities $ 21,033,507 $ 24,528,115
Short-term investments 878,765,305 873,032,976
$899,798,812 $897,561,091
</TABLE>
(4.) Investment Management and Transactions with Affiliates
Under the terms of the Investment Management Agreement between KMI and the
Fund, KMI provided investment management and administrative services to the
Fund. In return, KMI is paid a management fee computed and paid daily
calculated at a rate of 1.5% of the Fund's gross investment income plus an
amount determined by applying percentage rates, which start at 0.60% and
decline, as net assets increase, to 0.30% per annum, to the net asset value
of the Fund. KMI has entered into an Investment Advisory Agreement with
Keystone, 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 management and administrative
service fees of $242,315, which represent 0.65% of the Fund's average net
assets. Of such amounts paid to KMI, $205,968 was paid to Keystone for its
services to the Fund.
During the year ended November 30, 1994, the Fund paid or accrued to KIRC and
KGI a total of $18,517 as reimbursement for the cost of accounting and
printing expenses provided to the Fund. During the year ended November 30,
1994, $116,408 was paid or accrued to KIRC for shareholder 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.
(5.) Distributions to Shareholders
The Fund intends to distribute to its shareholders dividends from net
investment income quarterly and all net taxable realized long-term capital
gains, if any, annually. Any distribution which is declared in December and
paid before the next February 1 will be taxable to shareholders in the year
declared.
Federal Tax Status--Fiscal 1994 Distributions (Unaudited)
The per-share distributions paid to you for fiscal 1994, whether taken in
shares or cash, are as follows:
<TABLE>
<CAPTION>
Income
Dividends
<S> <C>
Class A shares $0.240
Class B shares $0.140
Class C shares $0.140
</TABLE>
In January 1995, we will send you information on the distributions paid
during the calendar year to help you in completing your federal income tax
return.
<PAGE>
Keystone America Fund for Total Return
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone America Fund for Total Return
We have audited the accompanying statement of assets and liabilities of
Keystone America Fund for Total Return (formerly known as Keystone America
Equity Income Fund), including the schedule of investments, as of November
30, 1994, and related statement of operations for the year then ended, the
statement 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 ended November 30, 1994, 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 the period from February 1, 1993
(Initial Public Offering) to November 30, 1993 for Class B and Class C
shares. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
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 and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Keystone America Fund for Total Return 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 years or periods referred to above in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 6, 1995
