<PAGE>
KEYSTONE GLOBAL OPPORTUNITIES FUND
PART A
PROSPECTUS
<PAGE>
KEYSTONE GLOBAL OPPORTUNITIES FUND
PROSPECTUS JANUARY 30, 1995
AS SUPPLEMENTED JUNE 1, 1995
Keystone Global Opportunities Fund (formerly named Keystone America Global
Opportunities Fund) (the "Fund") is a diversified, open-end management
investment company, commonly known as a mutual fund, that is authorized to issue
more than one series of shares ("Portfolios"). At this time, the Fund issues
shares of only one Portfolio, the Global Opportunities Portfolio (the
"Portfolio").
The Portfolio's objective is capital growth. The Portfolio's investments are
globally varied and primarily comprised of equity securities of small to medium
sized companies in a relatively early stage of development.
Generally, the Fund offers three classes of shares. Information on share
classes and their fee and sales charge structures may be found in the Fund's fee
table, "Alternative Sales Options," "Contingent Deferred Sales Charge and Waiver
of Sales Charges," "Distribution Plans" and "Fund Shares."
This prospectus concisely states information about the Fund that you should
know before investing. Please read it and retain it for future reference.
Additional information about the Fund, including information about securities
ratings, is contained in a statement of additional information dated January 30,
1995, as supplemented June 1, 1995, which has been filed with the Securities and
Exchange Commission and is incorporated by reference into this prospectus. For a
free copy, or for other information about the Fund, write to the address or call
the telephone number provided on this page.
KEYSTONE GLOBAL OPPORTUNITIES FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
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.
TABLE OF CONTENTS
Page
Fee Table 2
Financial Highlights 3
The Fund 6
Global Opportunities Portfolio -- Investment Objective and Policies 6
Investment Restrictions 8
Risk Factors 8
Pricing Shares 9
Dividends and Taxes 10
Fund Management and Expenses 11
How to Buy Shares 13
Alternative Sales Options 14
Contingent Deferred Sales Charge and
Waiver of Sales Charges 18
Distribution Plans 19
How to Redeem Shares 20
Shareholder Services 22
Performance Data 24
Fund Shares 24
Additional Information 25
Additional Investment Information (i)
Exhibit A A-1
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FEE TABLE
KEYSTONE GLOBAL OPPORTUNITIES FUND
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in each class will bear directly or
indirectly. For more complete descriptions of the various costs and expenses,
see the following sections of this prospectus: "Fund Management and Expenses";
"How to Buy Shares"; "Distribution Plans" and "Shareholder Services."
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
FRONT END BACK END LEVEL LOAD
LOAD OPTION LOAD OPTION<F1> OPTION<F2>
SHAREHOLDER TRANSACTION EXPENSES -------------- --------------- --------------
<S> <C> <C> <C>
Sales Charge ...................................... 5.75%<F3> None None
(as a percentage of offering price)
Contingent Deferred Sales Charge .................. 0.00%<F4> 5.00% in the first year 1.00% in the first
(as a percentage of the lesser of cost or market declining to 1.00% in year and 0.00%
value of shares redeemed) the sixth 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 ................................... 1.00% 1.00% 1.00%
12b-1 Fees ........................................ 0.25% 1.00%<F7> 1.00%<F7>
Other Expenses .................................... 0.41% 0.41% 0.41%
----- ----- -----
Total Fund Operating Expenses ..................... 1.66% 2.41% 2.41%
===== ===== =====
<CAPTION>
EXAMPLES<F8> 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each period:
Class A ................................................................... $73.00 $107.00 $143.00 $243.00
Class B ................................................................... $74.00 $105.00 $149.00 $275.00
Class C ................................................................... $34.00 $ 75.00 $129.00 $275.00
You would pay the following expenses on the same investment, assuming no
redemption at the end of each period:
Class A ................................................................... $73.00 $107.00 $143.00 $243.00
Class B ................................................................... $24.00 $ 75.00 $129.00 N/A
Class C ................................................................... $24.00 $ 75.00 $129.00 $275.00
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<FN>
- ---------
<F1> Class B shares purchased on or after June 1, 1995 convert tax free to Class
A shares after eight years. See "Class B shares" for more information.
<F2> Class C shares are available only through dealers who have entered into
special distribution agreements with Keystone Investment Distributors
Company, the Fund's principal underwriter.
<F3> The sales charge applied to purchases of Class A shares declines as the
amount invested increases. See "Class A shares."
<F4> Purchases of Class A shares in the amount of $1,000,000 or more and/or
purchases made by certain qualifying retirement or other plans are not
subject to a sales charge, but may be subject to a contingent deferred
sales charge of 0.25%. See the "Contingent Deferred Sales Charge and Waiver
of Sales Charges" section of this prospectus for an explanation of the
charge.
<F5> There is no fee for exchange orders received by the Fund directly from a
shareholder over the Keystone Automated Response Line ("KARL"). (For a
description of KARL, see "Shareholder Services.")
<F6> Expense ratios are for the Fund's fiscal year ended September 30, 1994,
except "Other Expenses" have been restated to reflect estimated future
costs.
<F7> Long term shareholders may pay more than the economic equivalent of the
maximum front end sales charges permitted by the National Association of
Securities Dealers, Inc. ("NASD").
<F8> The Securities and Exchange Commission requires use of a 5% annual return
figure for purposes of this example. Actual return for the Fund may be
greater or less than 5%.
</FN>
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE GLOBAL OPPORTUNITIES FUND -- CLASS A SHARES
GLOBAL OPPORTUNITIES PORTFOLIO
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table contains important financial information relating to the
Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are included in the statement of additional information.
Additional information about the Fund's performance is contained in its Annual
Report, which will be made available upon request and without charge.
<TABLE>
<CAPTION>
MARCH 16, 1988
(COMMENCMENT OF
YEAR ENDED SEPTEMBER 30, OPERATIONS) TO
-------------------------------------------------------------------- SEPTEMBER 30,
1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE: BEGINNING OF
PERIOD ....................... $18.02 $11.69 $12.89 $ 9.89 $11.17 $ 9.77 $10.00
------ ------ ------ ------ ------ ------ ------
Income from investment operations
Investment income (deficit) --
net ............................ (0.14) (0.14) (0.08) 0.17 0.19 0.09 0.05
Net gains (losses) on investment
and foreign currency related
transactions ................. 1.60 6.47 0.23 3.06 (1.27) 1.66 (0.28)
------ ------ ------ ------ ------ ------ ------
Total from investment operations 1.56 6.33 0.15 3.23 (1.08) 1.75 (0.23)
------ ------ ------ ------ ------ ------ ------
Less distributions
Dividends from investment income
-- net ....................... 0 0 0 (0.23) (0.12) (0.09) 0
Distributions from capital gains (0.16) 0 (1.35) 0 (0.08) (0.26) 0
------ ------ ------ ------ ------ ------ ------
Total distributions ............ (0.16) 0 (1.35) (0.23) (0.20) (0.35) 0
------ ------ ------ ------ ------ ------ ------
Net asset value: end of period . $19.42 $18.02 $11.69 $12.89 $ 9.89 $11.17 $ 9.77
------ ------ ------ ------ ------ ------ ------
TOTAL RETURN<F3> ............... 8.74% 54.15% 1.81% 32.71% (9.65%) 16.94% (1.20%)<F4>
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Operating and management
expenses ................... 2.01% 2.84% 2.50%<F1> 2.03%<F1> 2.00%<F1> 2.00%<F1> 1.50%<F1><F2>
Net investment income (loss) . (0.86%) (1.72%) (0.69%) 1.49% 1.80%<F1> 0.86% 1.42%<F1><F2>
Portfolio turnover rate ........ 32% 64% 75% 134% 51% 13% 19%
Net assets, end of period
(thousands) .................. $71,122 $29,942 $10,859 $2,159 $1,519 $1,378 $1,082
<FN>
<F1> The "Ratio of net operating and management expenses to average net assets"
would have been 3.67%, 7.77%, 10.39%, 13.06% and 5.54% for the years ended
September 30, 1992, 1991, 1990, 1989 and the period March 16, 1988
(Commencement of Operations) to September 30, 1988, respectively.
<F2> Annualized for the period March 16, 1988 (Commencement of Operations) to
September 30, 1988.
<F3> Excluding applicable sales charges.
<F4> Annualized total return from March 16, 1988 (Commencement of Operations) to
September 30, 1988 is (2.20%).
</FN>
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE GLOBAL OPPORTUNITIES FUND -- CLASS B SHARES
GLOBAL OPPORTUNITIES PORTFOLIO
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table contains important financial information relating to the
Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are included in the statement of additional information.
Additional information about the Fund's performance is contained in its Annual
Report, which will be made available upon request and without charge.
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
(DATE OF INITIAL
YEAR ENDED PUBLIC OFFERING) TO
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993
------------------ -------------------
<S> <C> <C>
NET ASSET VALUE: BEGINNING OF PERIOD ................................. $17.95 $14.04
------ ------
Income from investment operations
Investment income (deficit) -- net ................................... (0.15) (0.04)
Net gains (losses) on investment and foreign currency
related transactions ............................................... 1.56 3.95
------ ------
Total from investment operations ..................................... 1.41 3.91
------ ------
Less distributions
Dividends from investment income -- net .............................. 0 0
Distributions from capital gains ..................................... (0.16) 0
------ ------
Total distributions .................................................. (0.16) 0
------ ------
Net asset value: end of period ....................................... $19.20 $17.95
====== ======
TOTAL RETURN <F3> .................................................... 7.93% 27.85%<F2>
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Operating and management expenses .................................. 2.83% 3.35%<F1>
Net investment income (loss) ....................................... (1.61%) (1.86%)<F1>
Portfolio turnover rate .............................................. 32% 64%
Net assets: end of period (thousands) ................................ $131,695 $15,534
<FN>
<F1> Annualized for the period February 1, 1993 (Date of Initial Public
Offering) to September 30, 1993.
<F2> Annualized total return for the period February 1, 1993 (Date of Initial
Public Offering) to September 30, 1993 is 42.01%.
<F3> Excluding applicable sales charges.
</FN>
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE GLOBAL OPPORTUNITIES FUND -- CLASS C SHARES
GLOBAL OPPORTUNITIES PORTFOLIO
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table contains important financial information relating to the
Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditor's report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are included in the statement of additional information.
Additional information about the Fund's performance is contained in its Annual
Report, which will be made available upon request and without charge.
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
(DATE OF INITIAL
YEAR ENDED PUBLIC OFFERING) TO
SEPTEMBER 30, 1994 -------------------
------------------ SEPTEMBER 30, 1993
<S> <C> <C>
NET ASSET VALUE: BEGINNING OF PERIOD ................................. $17.99 $14.04
------ ------
Income from investment operations
Investment income (deficit) -- net ................................... (0.15) (0.04)
Net gains (losses) on investment and foreign currency
related transactions ............................................... 1.58 3.99
------ ------
Total from investment operations ..................................... 1.43 3.95
------ ------
Less distributions
Dividends from investment income -- net .............................. 0 0
Distributions from capital gains ..................................... (0.16) 0
------ ------
Total distributions .................................................. (0.16) 0
------ ------
Net asset value: end of period ....................................... $19.26 $17.99
====== ======
TOTAL RETURN <F3> .................................................... 8.02% 28.13%<F2>
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Operating and management expenses .................................. 2.85% 3.04%<F1>
Net investment income (loss) ....................................... (1.62%) (1.55%)<F1>
Portfolio turnover rate .............................................. 32% 64%
Net assets: end of period (thousands) ................................ $50,535 $6,217
<FN>
<F1> Annualized for the period February 1, 1993 (Date of Initial Public
Offering) to September 30, 1993.
<F2> Annualized total return for the period February 1, 1993 (Date of Initial
Public Offering) to September 30, 1993 is 42.43%.
<F3> Excluding applicable sales charges.
</FN>
</TABLE>
<PAGE>
THE FUND
The Fund is authorized to issue more than one Portfolio, each investing in a
different portfolio of securities. At this time, the Fund issues only shares of
the Portfolio. The Fund was formed as a Massachusetts business trust on June 17,
1987. The Fund is one of 30 funds advised by Keystone Investment Management
Company (formerly named Keystone Custodian Funds, Inc.) ("Keystone"). Keystone
has retained the services of Credit Lyonnais International Asset Management,
North America ("Credit Lyonnais") to provide the Portfolio with subadvisory
services, subject to the supervision of the Fund's Board of Trustees and
Keystone.
GLOBAL OPPORTUNITIES PORTFOLIO --
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio's primary investment objective is capital growth.
PRINCIPAL INVESTMENTS
In selecting its investments, the Portfolio attempts to identify those
companies within various countries and industries that have the best
opportunities for above-average increases in revenues and earnings and strong
prospects for continued revenue growth. In addition, the Portfolio seeks to
identify those countries and industries where economic and political factors,
including currency movements, are likely to produce above-average growth.
In pursuing its objective, the Portfolio may invest in securities of U.S.
companies and of issuers located in certain foreign countries with developed
markets as well as those with emerging markets and the formerly communist
countries of Eastern Europe and the People's Republic of China. In its
investments in securities of issuers in the United States ("U.S.") and other
countries with developed securities markets, the Portfolio seeks to achieve its
objective by investment in equity securities of small to medium sized companies
(generally under $1 billion in market capitalization) that are in a relatively
early stage of development. In its investments in foreign securities, the
Portfolio seeks to achieve its objective by investing in equity securities of
issuers that are managed and positioned to take advantage of opportunities for
above average increases in revenues and earnings and have strong prospects for
continued revenue growth. For this purpose, countries with emerging markets are
generally those where the per capita income is in the low to middle ranges, as
determined by the International Bank for Reconstruction and Development ("World
Bank").
It is expected that, under ordinary circumstances, at least 65% of the
Portfolio's assets will be invested in securities of issuers located in at least
three countries, one of which may be the U.S. Under ordinary circumstances, the
Portfolio invests at least 65% of its assets in equity securities.
Some examples of the securities in which the Fund may invest are common
stocks, securities convertible into common stocks or having common stock
characteristics (consisting of rights, warrants and options), preferred stocks,
debt securities convertible into or exchangeable for preferred or common stock,
debt securities of the U.S. and any foreign governments, including their
political subdivisions, debt securities of any international agency (such as the
World Bank, Asian Development Bank or Inter-American Development Bank) and time
deposits with U.S. and foreign banks, and may hold cash and cash equivalents as
discussed below. The Portfolio's securities and other assets may be denominated
in U.S. currency or currency of any foreign nation. Except as described above,
there are no limitations on the type, size, operating history or dividend paying
record of companies or industries in which the Portfolio may invest. The
Portfolio's securities may be traded in the over-the-counter market as well as
being listed on a foreign exchange. The primary investment criterion used by the
Portfolio in the selection of portfolio securities is that the securities
provide opportunities for capital growth.
Although the Portfolio intends to invest primarily in common stocks and
securities convertible into common stocks to achieve its objective of growth of
capital, the Portfolio may invest in any security listed above. For example,
because the market value of debt obligations can be expected to vary inversely
with changes in prevailing interest rates, investing in debt securities may
provide an opportunity for capital appreciation when interest rates are expected
to decline. In addition, the Fund may hold cash and invest in cash equivalents,
including time deposits, for temporary purposes in order to meet redemption
requests or for such periods of time as are necessary to evaluate market
conditions and other factors.
OTHER ELIGIBLE INVESTMENTS
When, in the opinion of Keystone, market conditions warrant, the Portfolio may
invest 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, that at the date of investment is rated A-1 (the highest
grade given by S&P), PRIME-1 (the highest grade given by Moody's) or, if not
rated by such services, is issued by a company that at the date of investment
has an outstanding issue rated A or better by S&P or Moody's; (2) obligations,
including certificates of deposit and bankers' acceptances, of banks or savings
and loan associations having at least $1 billion in deposits as of the date of
their most recently published financial statements and which are members of the
Federal Deposit Insurance Corporation, including U.S. branches of foreign banks
and foreign branches of U.S. banks; (3) corporate obligations that at the date
of investment are rated A or better by S&P or Moody's; and (4) obligations
issued or guaranteed by the U.S. government or by any agency or instrumentality
of the U.S. When the Portfolio's assets are being invested for temporary
defensive purposes, the Portfolio is not pursuing its investment objective.
The Fund may enter into repurchase and reverse repurchase agreements, invest
in master demand notes, lend portfolio securities, purchase and sell securities
and currencies on a when issued and delayed delivery basis and purchase or sell
securities on a forward commitment basis, write covered call and put options and
purchase call and put options to close out existing positions and may employ new
investment techniques with respect to such options. The Fund may also enter into
currency and other financial futures contracts and related options transactions
for hedging purposes and not for speculation, and may employ new investment
techniques with respect to such futures contracts and related options.
The Fund intends to follow policies of the Securities and Exchange Commission
as they are adopted from time to time with respect to illiquid securities,
including at this time (1) treating as illiquid securities that may not be sold
or disposed of in the ordinary course of business within seven days at
approximately the value at which the Fund has valued such securities on its
books and (2) limiting its holdings of such securities to 15% of net assets.
The Fund may invest in restricted securities, including securities eligible
for resale pursuant to Rule 144A under the 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 Keystone
determines the liquidity of the Fund's Rule 144A securities. The Board 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.
For further information about the types of investments and investment
techniques available to the Fund, including the risks associated therewith, see
the sections of this prospectus entitled "Risk Factors" and "Additional
Investment Information" and the statement of additional information.
Of course, there can be no assurance that the Portfolio will achieve its
investment objective since there is uncertainty in every investment.
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVE
The Portfolio's investment objective is fundamental and may not be changed
without the vote of a majority (as defined in the Investment Company Act of 1940
("1940 Act")) of the Portfolio's outstanding shares.
INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental investment restrictions set forth below,
which may not be changed with respect to the Portfolio without the vote of a
majority (as defined in the 1940 Act) of the Portfolio's outstanding shares.
These restrictions and certain other fundamental restrictions are set forth in
the statement of additional information.
The Portfolio may not do the following: (1) invest more than 5% of its total
assets in the securities of any one issuer (other than U.S. government
securities), except that up to 25% of its total assets may be invested without
regard to this limit; (2) borrow, except that the Portfolio may borrow from
banks for temporary or emergency purposes in aggregate amounts up to one-third
of the value of the Portfolio's net assets and/or enter into reverse repurchase
agreements; and (3) concentrate its investments in any particular industry.
RISK FACTORS
Investing in the Portfolio involves the risk inherent in any investment in a
security, i.e., net asset value of a share of the Fund can increase or decrease
in response to changes in economic conditions, interest rates and the market's
perception of the underlying securities of the Portfolio.
Investing in common stocks, particularly those having growth characteristics,
frequently involves greater risks (and possibly greater rewards) than investing
in other types of securities. Common stock prices tend to be more volatile and
companies having growth characteristics may sometimes be unproven.
By itself, the Portfolio does not constitute a balanced investment plan. The
Portfolio stresses providing growth of capital by investing principally in
globally varied equity securities of small to medium sized companies in a
relatively early stage of development. The yield of the Fund's portfolio
securities will fluctuate with changing market conditions. The Fund makes most
sense for those investors who can afford to ride out changes in the stock market
because it invests a substantial portion of its assets in equities.
Investing in securities of foreign issuers generally involves more risk than
investing in securities of domestic issuers for the following reasons: (1) there
may be less public information available about foreign companies than is
available about U.S. companies; (2) foreign companies are not generally subject
to the uniform accounting, auditing and financial reporting standards and
practices applicable to U.S. companies; (3) foreign stock markets have less
volume than the U.S. market, and the securities of some foreign companies are
much less liquid and much more volatile than the securities of comparable U.S.
companies; (4) foreign securities transactions may involve higher brokerage
commissions; (5) there may be less government regulation of stock markets,
brokers, listed companies and banks in foreign countries than in the U.S.; (6)
the Portfolio may incur fees on currency exchanges when it changes investments
from one country to another; (7) the Portfolio's foreign investments could be
affected by expropriation, confiscatory taxation, nationalization, establishment
of currency exchange controls, political or social instability or diplomatic
developments; (8) fluctuations in foreign exchange rates will affect the value
of the Portfolio's investments, the value of dividends and interest earned,
gains and losses realized on the sale of securities, net investment income and
unrealized appreciation or depreciation of investments; (9) interest and
dividends on foreign securities may be subject to withholding taxes in a foreign
country that could result in a reduction of net investment income available for
distribution; and (10) to the extent the Portfolio invests in securities of
issuers located in the formerly communist countries of Eastern Europe and the
People's Republic of China, there is the risk that those countries could convert
back to a single economic structure.
Investing in securities of issuers in emerging markets countries involves
exposure to economic systems that are generally less mature and political
systems that are generally less stable than, those of developed countries. In
addition, investing in companies in emerging markets countries may also involve
exposure to national policies that may restrict investment by foreigners and
undeveloped legal systems governing private and foreign investments and private
property. The typically small size of the markets for securities issued by
companies in emerging markets countries and the possibility of a low or
nonexistent volume of trading in those securities may also result in a lack of
liquidity and in price volatility of those securities. Furthermore, investing in
securities of companies in the formerly communist countries of Eastern Europe
and the People's Republic of China involve additional risks to those associated
with investments in companies in non-formerly communist emerging markets
countries. Specifically, those countries could convert back to a single economic
system, and the claims of property owners prior to the expropriation by the
communist regime could be settled in favor of the former property owners, in
which case the Portfolio could lose its entire investment in those countries.
If and when the Fund invests in zero coupon bonds, the Fund does not expect to
have enough zero coupon bonds to have a material effect on dividends. The Fund
has undertaken to a state securities authority to disclose that zero coupon
securities pay no interest to holders prior to maturity, and that the interest
on these securities is reported as income to the Fund and distributed to its
shareholders. These distributions must be made from the Fund's cash assets or,
if necessary, from the proceeds of sales of portfolio securities. The Fund will
not be able to purchase additional income producing securities with cash used to
make such distributions, and its current income ultimately may be reduced as a
result.
Past performance should not be considered representative of results for any
future period of time. Moreover, should many shareholders change from this Fund
to some other investment at about the same time, the Fund might have to sell
portfolio securities at a time when it would be disadvantageous to do so and at
a lower price than if such securities were held to maturity or until an
investment decision is made to dispose of them.
For additional information regarding the Fund's investments in Rule 144A
securities, see "Investment Objective and Policies". For further information
about the types of investments and investment techniques available to the Fund,
including the associated risks, see "Additional Investment Information" and the
statement of additional information.
PRICING SHARES
The net asset value of a Portfolio 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 Portfolio's securities do not
affect the current net asset value of its shares. The Exchange currently is
closed on weekends, New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value per share of the Portfolio is arrived at by determining the value of the
Portfolio's assets, subtracting its liabilities and dividing the result by the
number of its shares outstanding.
Current values for the Portfolio's 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, for
which market quotations are readily available, are valued at the mean of the
bid and asked prices at the time of valuation;
3. 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. instruments that 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;
instruments maturing in more than sixty days when purchased that are held on
the sixtieth day prior to maturity are valued at amortized cost (market value
on the sixtieth day adjusted for amortization of premium or accretion of
discount), which, when combined with accrued interest, approximates market;
and which in 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.
Foreign securities are valued on the basis of valuations provided by a pricing
service, approved by the Fund's Board of Trustees, which uses information with
respect to transactions in such securities, quotations from broker-dealers,
market transactions in comparable securities and various relationships between
securities and yield to maturity in determining value.
DIVIDENDS AND TAXES
The Portfolio has qualified and intends to qualify in the future as a
regulated investment company under the Internal Revenue Code (the "Code"). The
Portfolio qualifies if, among other things, it distributes to its shareholders
at least 90% of its net investment income for its fiscal year. The Portfolio
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 dividend declared in October, November or December to
shareholders of record in such a month and paid by the following January 31 will
be includable in the taxable income of the shareholder as if paid on December 31
of the year in which such dividend was declared. If the Portfolio 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 Portfolio will make distributions from its net investment income and net
capital gains, if any, annually. Because Class A shares bear most of the costs
of distribution of such shares through payment of a front end sales charge while
Class B and Class C shares bear such expenses through a higher annual
distribution fee, expenses attributable to Class B shares and Class C shares
will generally be higher, and income distributions paid by the Portfolio with
respect to Class A shares will generally be greater than those paid with respect
to Class B and Class C shares.
Shareholders receive Fund distributions in the form of additional shares of
that class of shares upon which the distribution is based or, at the
shareholder's option, in cash. Fund distributions in the form of additional
shares are made at net asset value without the imposition of a sales charge.
Dividends and distributions are taxable whether they are received in cash or in
shares. Income dividends and net short-term gains dividends are taxable as
ordinary income, and net long-term dividends are taxable as capital gains
regardless of how long the Fund's shares are held. If Fund shares held for less
than six months are sold at a loss, however, such loss will be treated for tax
purposes as a long-term capital loss to the extent of any long-term capital
gains dividends received. The Fund advises its shareholders annually as to the
federal tax status of all distributions made during the year.
If more than 50% of the value of the Portfolio's total assets at the end of a
fiscal year is represented by securities of foreign corporations and the
Portfolio elects to make foreign tax credits available to its shareholders, a
shareholder will be required to include in his gross income both actual
dividends and the amount the Portfolio advises him is his pro rata portion of
income taxes withheld by foreign governments from interest and dividends paid on
the Portfolio's investments. The shareholder will be entitled, however, to take
the amount of such foreign taxes withheld as a credit against his U.S. income
tax, or to treat the foreign tax withheld as an itemized deduction from his
gross income, if that should be to his advantage. In substance, this policy
enables the shareholder to benefit from the same foreign tax credit or deduction
that he would have received if he had been the individual owner of foreign
securities and had paid foreign income tax on the income therefrom. As in the
case of individuals receiving income directly from foreign sources, the above
described tax credit and deductions are subject to certain limitations.
In the event the Fund establishes additional Portfolios, each Portfolio will
be considered, and intends to qualify as, a regulated investment company.
FUND MANAGEMENT AND EXPENSES
BOARD OF TRUSTEES
Under Massachusetts law, the Fund's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the Fund.
Subject to the authority of the Fund's Board of Trustees, Keystone, the Fund's
investment adviser, provides investment advice, management and administrative
services to the Fund.
INVESTMENT ADVISER
Keystone, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034,
has provided investment advisory and management services to investment companies
and private accounts since it was organized in 1932. Keystone is a wholly-owned
subsidiary of Keystone Investments, Inc. ("Keystone Investments"), located at
200 Berkeley Street, Boston, Massachusetts 02116-5034.
Keystone Investments is a corporation privately owned by current and former
members of management and certain employees of Keystone and its affiliates. The
shares of Keystone Investments common stock beneficially owned by management are
held in a number of voting trusts, the trustees of which are George S. Bissell,
Albert H. Elfner, III, Edward F. Godfrey and Ralph J. Spuehler, Jr. Keystone
Investments provides accounting, bookkeeping, legal, personnel and general
corporate services to Keystone Management, Inc., Keystone, their affiliates and
the Keystone Investments Family of Funds.
Pursuant to its Investment Advisory and Management Agreement (the "Advisory
Agreement") with the Fund, Keystone provides investment advisory and management
services to the Fund. Keystone manages the investment and reinvestment of the
Fund's assets, supervises the operation of the Fund, provides all necessary
office space, facilities, equipment and personnel and arranges at the request of
the Fund for its employees to serve as officers or agents of the Fund.
The Fund pays Keystone a fee for its services with respect to the Fund at the
annual rate set forth below:
Aggregate Net Asset Value
Management of the Shares
Fee of the Fund
- ------------------------------------------------------------------------------
1.00% of the first $200,000,000, plus
0.95% of the next $200,000,000, plus
0.85% of the next $200,000,000, plus
0.75% of amounts over $600,000,000;
computed as of the close of business each business day and paid daily.
For the year ended September 30, 1994, the Fund paid or accrued to Keystone
investment management and administrative services fees of $1,618,327, which
represented 1.00% of the Fund's average net assets on an annualized basis. Of
such amount, Keystone retained $809,164 for its services to the Fund.
A management fee of 0.75% is higher than that paid by most other investment
companies. However, the Fund's fee structure is comparable to that of other
global and international funds subject to the higher costs involved in managing
a portfolio of predominantly international securities.
The Advisory Agreement continues in effect from year to year only so long as
such continuance is specifically approved at least annually by the Board of
Trustees or by vote of a majority of the outstanding shares of the Fund. In
either case, the terms of the 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 Advisory
Agreement may be terminated, without penalty, on 60 days' written notice by the
Fund or Keystone or may be terminated by a vote of shareholders of the Fund. The
Advisory Agreement will terminate automatically upon its assignment.
SUB-ADVISER
Keystone has entered into a Subadvisory Agreement with Credit Lyonnais
International Asset Management, North America ("CLIAM"), an international
investment management firm located at 1301 Avenue of the Americas, New York, New
York 10019. CLIAM is a subsidiary of Credit Lyonnais, which is among the world's
largest banks, with $250 billion in assets and offices in 76 countries. Under
the Subadvisory Agreement, CLIAM provides the Fund with certain investment
advisory services, and Keystone pays CLIAM at the beginning of each fiscal
quarter a fee that represents 50% of the management fee paid by the Fund to
Keystone for the preceding quarter. The Fund has no responsibility to pay
CLIAM's fee.
The Subadvisory Agreement continues in effect from year to year only so long
as such continuance is specifically approved at least annually by the Board of
Trustees or by vote of a majority of the outstanding shares of the Fund. In
either case, the terms of the Subadvisory 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 Subadvisory
Agreement may be terminated, without penalty, on 60 days' written notice by the
Fund or Keystone or may be terminated by a vote of shareholders of the Fund. The
Subadvisory Agreement will terminate automatically upon its assignment.
For the year ended September 30, 1994, Keystone paid or accrued $809,163 to
CLIAM for its services as subadviser to the Fund.
The Fund has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
PORTFOLIO MANAGER
Christopher R. Ely has been the Fund's Portfolio Manager since 1995. He is a
Keystone Senior Vice President and Senior Portfolio Manager and has more than 15
years' experience in equity investing.
FUND EXPENSES
The Portfolio will pay all of its expenses. In addition to the investment
management and distribution plan fees discussed herein, the principal expenses
that the Portfolio is expected to pay include, but are not limited to, expenses
of certain of its Trustees; transfer, dividend disbursing and shareholder
servicing agent expenses; custodian expenses; fees of its independent auditors
and legal counsel to its Trustees; fees payable to government agencies,
including registration and qualification fees attributable to the Portfolio 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
Portfolio also pays its brokerage commissions, interest charges and taxes.
For the fiscal year ended September 30, 1994, the Portfolio's Class A, Class B
and Class C shares paid 2.01%, 2.83% and 2.85%, respectively, of their
respective average class net assets in expenses.
During the fiscal year ended September 30, 1994, the Portfolio paid or accrued
to Keystone Investor Resource Center, Inc. ("KIRC"), the Fund's transfer and
dividend disbursing agent, and Keystone Investments $22,520 for certain
accounting and printing services and $742,785 for shareholder services. KIRC is
a wholly-owned subsidiary of Keystone.
SECURITIES TRANSACTIONS
Under policies established by the Board of Trustees, Keystone selects
broker-dealers to execute transactions subject to the receipt of best execution.
When selecting broker-dealers to execute portfolio transactions for the
Portfolio, Keystone may follow a policy of considering as a factor the number of
shares of the Portfolio sold by such broker-dealer. In addition, broker-dealers
executing portfolio transactions may, from time to time, be affiliated with the
Fund, Keystone, the Fund's principal underwriter or their affiliates.
The Portfolio may pay higher commissions to broker-dealers that provide
research services. Keystone may use these services in advising the Portfolio as
well as in advising its other clients.
PORTFOLIO TURNOVER
The Portfolio's portfolio turnover rate for the fiscal years ended September
30, 1993 and 1994 were 64% and 32%, respectively. High portfolio turnover may
involve correspondingly greater brokerage commissions and other transaction
costs, which would be borne directly by the Fund, as well as additional realized
gains and/or losses to shareholders. For further information about brokerage and
distributions, see the statement of additional information.
HOW TO BUY SHARES
You may purchase shares of the Fund from any broker-dealer that has a selling
agreement with Keystone Investment Distributors Company (formerly named Keystone
Distributors, Inc.) (the "Principal Underwriter"), the Fund's principal
underwriter. The Principal Underwriter, a wholly-owned subsidiary of Keystone,
is located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
In addition, you may open an account for the purchase of shares of the Fund by
mailing to the Fund, c/o Keystone Investor Resource Center, Inc., P.O. Box 2121,
Boston, Massachusetts 02106-2121, a completed account application and a check
payable to the Fund, or you may telephone 1-800-343-2898 to obtain the number of
an account to which you can wire or electronically transfer funds and then send
in a completed account application. Subsequent investments in any amount may be
made by check, by wiring Federal funds or by an electronic funds transfer
("EFT").
Orders for the purchase of shares of the Fund will be confirmed at an offering
price equal to the net asset value per share next determined after receipt of
the order in proper form by the Principal Underwriter (generally as of the close
of the Exchange on that day) plus, in the case of Class A shares, the front end
sales charge. Orders received by dealers or other firms prior to the close of
the Exchange and received by the Principal Underwriter prior to the close of its
business day will be confirmed at the offering price effective as of the close
of the Exchange on that day. The Fund reserves the right to determine the net
asset value more frequently than once a day if deemed desirable. Dealers and
other financial services firms are obligated to transmit orders promptly.
Orders for shares received by broker-dealers prior to that day's close of
trading on the Exchange and transmitted to the Fund prior to its close of
business that day will receive the offering price equal to the net asset value
per share computed at the close of trading on the Exchange on the same day plus,
in the case of Class A shares, the front end sales charge. Orders received by
broker-dealers after that day's close of trading on the Exchange and transmitted
to the Fund prior to the close of business on the next business day will receive
the next business day's offering price.
Orders for shares received directly by the Fund from you will receive the
offering price equal to the net asset value per share next computed after the
Fund receives the purchase order plus, in the case of Class A shares, the front
end sales charge.
The initial purchase must be at least $1,000. There is no minimum amount for
subsequent purchases.
The Fund reserves the right to withdraw all or any part of the offering made
by this prospectus and to reject purchase orders.
Shareholder inquiries should be directed to KIRC by calling toll free 1-800-
343-2898 or writing to KIRC or to the firm from which you received this
prospectus.
ALTERNATIVE SALES OPTIONS
Generally, the Fund offers three classes of shares:
CLASS A SHARES -- FRONT END LOAD OPTION
Class A shares are sold with a sales charge at the time of purchase. Class A
shares are not subject to a deferred sales charge when they are redeemed except
as follows: Class A shares purchased on or after April 10, 1995 (1) in an amount
equal to or exceeding $1,000,000 or (2) by a corporate qualified retirement plan
or a non-qualified deferred compensation plan sponsored by a corporation having
100 or more eligible employees (a "Qualifying Plan"), in either case without a
front end sales charge, will be subject to a contingent deferred sales charge
for the 24 month period following the date of purchase. Certain Class A shares
purchased prior to April 10, 1995 may be subject to a deferred sales charge upon
redemption during the one year period following the date of purchase.
CLASS B SHARES -- BACK END LOAD OPTION
Class B shares are sold without a sales charge at the time of purchase, but
are, with certain exceptions, subject to a contingent deferred sales charge if
they are redeemed. Class B shares sold on or after June 1, 1995 are subject to a
deferred sales charge upon redemption during the 72 month period following the
month of purchase. Class B shares sold prior to June 1, 1995 are subject to a
deferred sales charge upon redemption during the four calendar years following
purchase. Class B shares purchased on or after June 1, 1995 that have been
outstanding for eight years following the month of purchase will automatically
convert to Class A shares without the imposition of a front-end sales charge or
exchange fee. Class B shares purchased prior to June 1, 1995 will retain their
existing conversion rights.
CLASS C SHARES -- LEVEL LOAD OPTION
Class C shares are sold without a sales charge at the time of purchase, but
are subject to a deferred sales charge if they are redeemed within one year
after the date of purchase. Class C shares are available only through dealers
who have entered into special distribution agreements with the Principal
Underwriter.
Each class of shares, pursuant to its Distribution Plan or other plan, pays an
annual service fee of 0.25% of the Fund's average daily net assets attributable
to that class. In addition to the 0.25% service fee, the Class B and C
Distribution Plans provide for the payment of an annual distribution fee of up
to 0.75% of the average net assets attributable to their respective classes. As
a result, income distributions paid by the Fund with respect to Class B and
Class C shares will generally be less than those paid with respect to Class A
shares.
Investors who would rather pay the entire cost of distribution at the time of
investment, rather than spreading such cost over time, might consider Class A
shares. Other investors might consider Class B or Class C shares, in which case
100% of the purchase price is invested immediately, depending on the amount of
the purchase and the intended length of investment. The Fund will not normally
accept any purchase of Class B shares in the amount of $250,000 or more and will
not normally accept any purchase of Class C shares in the amount of $1,000,000
or more.
<PAGE>
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* OFFERING PRICE
- ---------------------------------------------------------------------------------------------------
<S> <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%
- ---------
*Rounded to the nearest one-hundredth percent.
</TABLE>
---------------------------------------
Purchases of the Fund's Class A shares in the amount of $1 million or more
and/or purchases of Class A shares made by a Qualifying Plan will be at net
asset value without the imposition of a front-end sales charge (each such
purchase, an "NAV Purchase").
With respect to NAV Purchases, the Principal Underwriter will pay broker/
dealers or others concessions based on (1) the investor's cumulative purchases
during the one-year period beginning with the date of the initial NAV Purchase
and (2) the investor's cumulative purchases during each subsequent one-year
period beginning with the first NAV Purchase following the end of the prior
period. For such purchases, concessions will be paid at the following rate:
1.00% of the investment amount up to $2,999,999; plus 0.50% of the investment
amount between $3,000,000 and $4,999,999; plus 0.25% of the investment amount
over $4,999,999.
Class A shares acquired on or after April 10, 1995 in an NAV Purchase are
subject to a contingent deferred sales charge of 1.00% upon redemption during
the 24 month period commencing on the date the shares were originally purchased.
Certain Class A shares purchased without a front-end sales charge prior to April
10, 1995 are subject to a contingent deferred sales charge of 0.25% upon
redemption during the one year period commencing on the date such shares were
originally purchased.
The sales charge is paid to the Principal Underwriter, which in turn normally
reallows a portion to your broker-dealer. In addition, your broker-dealer
currently will be paid periodic service fees at an annual rate of up to 0.25% of
the average daily net asset value of Class A shares maintained by such recipient
outstanding on the books of the Fund for specified periods.
Upon written notice to dealers with whom it has dealer agreements, the
Principal Underwriter may reallow up to the full applicable sales charge.
Initial sales charges may be eliminated for persons purchasing Class A shares
which are included in a broker-dealer managed fee based program (a "wrap
account") with broker dealers who have entered into special agreements with the
Principal Underwriter. Initial sales charges may be reduced or eliminated for
persons or organizations purchasing Class A shares of the Fund alone or in
combination with Class A shares of other Keystone America Funds.
See Exhibit A to this prospectus.
Upon prior notification to the Principal Underwriter, Class A shares may be
purchased at net asset value by clients of registered representatives within six
months after a change in the registered representative's employment, where the
amount invested represents redemption proceeds from a registered open-end
management investment company not distributed or managed by Keystone or its
affiliates; and the shareholder either (1) paid a front end sales charge, or (2)
was at some time subject to, but did not actually pay, a contingent deferred
sales charge with respect to the redemption proceeds.
Since January 1, 1995 through December 31, 1995 and upon prior notification to
the Principal Underwriter, Class A shares may be purchased at net asset value by
clients of registered representatives within six months after the redemption of
shares of any registered open-end investment company not distributed or managed
by Keystone or its affiliates, where the amount invested represents redemption
proceeds from such unrelated registered open-end investment company, and the
shareholder either (1) paid a front end sales charge, or (2) was at some time
subject to, but did not actually pay, a contingent deferred sales charge with
respect to the redemption proceeds.
CLASS A DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class A shares
(the "Class A Distribution Plan") that provides for expenditures by the Fund,
currently limited to 0.25% annually of the average daily net asset value of
Class A shares, in connection with the distribution of Class A shares. Payment
under the Class A Distribution Plan are currently made to the Principal
Underwriter (which may reallow all or part to others, such as dealers), as
service fees at an annual rate of up to 0.25% of the average daily net asset
value of Class A shares maintained by the recipients outstanding on the books of
the Fund for specified periods.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales
charge.
With respect to Class B shares purchased on or after June 1, 1995, the Fund,
with certain exceptions, imposes a deferred sales charge in accordance with the
following schedule:
DEFERRED
SALES
CHARGE
REDEMPTION TIMING IMPOSED
- ----------------- -------
First twelve month period following month of
purchase ................................... 5.00%
Second twelve month period following month of
purchase ................................... 4.00%
Third twelve month period following month of
purchase ................................... 3.00%
Fourth twelve month period following month of
purchase ................................... 3.00%
Fifth twelve month period following month of
purchase ................................... 2.00%
Sixth twelve month period following month of
purchase ................................... 1.00%
No deferred sales charge is imposed on amounts redeemed thereafter.
With respect to Class B shares sold prior to June 1, 1995, the Fund, with
certain exceptions, imposes 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.
When imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to you. The deferred sales charge is retained by the
Principal Underwriter. Amounts received by the Principal Underwriter under the
Class B Distribution Plans are reduced by deferred sales charges retained by the
Principal Underwriter. See "Contingent Deferred Sales Charges and Waiver of
Sales Charges" below.
Class B shares purchased on or after June 1, 1995 that have been outstanding
for eight years following the month of purchase 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. Class B shares purchased
prior to June 1, 1995 will similarly convert to Class A shares at the end of
seven calendar years after the year of purchase. (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 fewer 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 PLANS
The Fund has adopted Distribution Plans with respect to its Class B shares
(the "Class B Distribution Plans") that provide for expenditures by the Fund at
an annual rate of up to 1.00% of the average daily net asset value of Class B
shares to pay expenses of the distribution of Class B shares. Payments under the
Class B Distribution Plans are currently made to the Principal Underwriter
(which may reallow all or part to others, such as dealers) (1) as commissions
for Class B shares sold and (2) as shareholder service fees. Amounts paid or
accrued to the Principal Underwriter under (1) and (2) in the aggregate may not
exceed the annual limitation referred to above.
The Principal Underwriter generally reallows to brokers or others a commission
equal to 4.00% of the price paid for each Class B share sold plus the first
year's service fee in advance in the amount of 0.25% of the price paid for each
Class B share sold. Beginning approximately 15 months after the purchase of a
Class B share, the broker or other party will receive service fees at an annual
rate of 0.25% of the average daily net asset value of such Class B share
maintained by the recipient outstanding on the books of the Fund for specified
periods. See "Distribution Plans" below.
With respect to the Fund's Class B shares only, for the period June 1, 1995 to
August 31, 1995, the Principal Underwriter will reallow an increased commission
equal to 4.75% of the price paid for each Class B share sold to those
broker/dealers or others who allow their individual selling representatives to
participate in the additional 0.75% commission.
CLASS C SHARES
Class C shares are offered only through dealers who have special distribution
agreements with the Principal Underwriter. Class C shares are offered at net
asset value, without an initial sales charge. With certain exceptions, the Fund
imposes a deferred sales charge of 1.00% on shares redeemed within one year
after the date of purchase. No deferred sales charge is imposed on amounts
redeemed thereafter. If imposed, the deferred sales charge is deducted from the
redemption proceeds otherwise payable to you. The deferred sales charge is
retained by the Principal Underwriter. See "Contingent Deferred Sales Charges
and Waiver of Sales Charges" below.
CLASS C DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class C shares
(the "Class C Distribution Plan") that provides for expenditures by the Fund at
an annual rate of up to 1.00% of the average daily net asset value of Class C
shares to pay expenses of the distribution of Class C shares. Payments under the
Class C Distribution Plan are currently made to the Principal Underwriter (which
may reallow all or part to others, such as dealers) (1) as commissions for Class
C shares sold and (2) as shareholder service fees. Amounts paid or accrued to
the Principal Underwriter under (1) and (2) in the aggregate may not exceed the
annual limitation referred to above.
The Principal Underwriter generally reallows to brokers or others a
commission in the amount of 0.75% of the price paid for each Class C share sold,
plus the first year's service fee in advance in the amount of 0.25% of the price
paid for each Class C share sold, and, beginning approximately fifteen months
after purchase, a commission at an annual rate of 0.75% (subject to NASD rules
- -- see "Distribution Plans") plus service fees, which are paid at the annual
rate of 0.25%, respectively, of the average daily net asset value of each Class
C share maintained by the recipients outstanding on the books of the Fund for
specified periods. See "Distribution Plans" below.
CONTINGENT DEFERRED SALES CHARGE
AND WAIVER OF SALES CHARGES
Any contingent deferred sales charge imposed upon the redemption of Class A,
Class B or Class C shares is a percentage of the lesser of (1) the net asset
value of the shares redeemed or (2) the net asset value at the time of purchase
of such shares. No contingent deferred sales charge is imposed when you redeem
amounts derived from (1) increases in the value of your account above the net
cost of such shares due to increases in the net asset value per share of such
shares; (2) certain shares with respect to which the Fund did not pay a
commission on issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions; (3) certain Class A shares held
for more than one or two years, as the case may be, from the date of purchase;
(4) Class B shares held more than four consecutive calendar years or more than
72 months after the month of purchase, as the case may be; or (5) Class C shares
held for more than one year from the date of purchase. Upon request for
redemption, shares not subject to the contingent deferred sales charge will be
redeemed first. Thereafter, shares held the longest will be the first to be
redeemed.
The Fund may also sell Class A, Class B or Class C shares at net asset value
without any initial sales charge or a contingent deferred sales charge to
certain Directors, Trustees, officers and employees of the Fund and Keystone and
certain of their affiliates, to registered representatives of firms with dealer
agreements with the Principal Underwriter and to a bank or trust company acting
as a trustee for a single account.
With respect to Class A shares purchased by a Qualifying Plan at net asset
value or Class C shares purchased by a Qualifying Plan, no contingent deferred
sales charge will be imposed on any redemptions made specifically by an
individual participant in the Qualifying Plan. This waiver is not available in
the event a Qualifying Plan (as a whole) redeems substantially all of its
assets.
In addition, no contingent deferred sales charge is imposed on a redemption of
shares of the Fund in the event of (1) death or disability of the shareholder;
(2) a lump-sum distribution from a 401(k) plan or other benefit plan qualified
under the Employee Retirement Income Security Act of 1974 ("ERISA"); (3)
automatic withdrawals from ERISA plans if the shareholder is at least 59 1/2
years old; (4) involuntary redemptions of accounts having an aggregate net asset
value of less than $1,000; (5) automatic withdrawals under an automatic
withdrawal plan of up to 1 1/2% per month of the shareholder's initial account
balance; (6) withdrawals consisting of loan proceeds to a retirement plan
participant; (7) financial hardship withdrawals made by a retirement plan
participant; or (8) withdrawals consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan participant.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
The Principal Underwriter may, from time to time, provide promotional
incentives, including reallowance of up to the entire sales charge, to certain
dealers whose representatives have sold or are expected to sell significant
amounts of Fund shares. In addition, dealers may, from time to time, receive
additional cash payments. The Principal Underwriter may also provide written
information to dealers with whom it has dealer agreements that relates to sales
incentive campaigns conducted by such dealers for their representatives as well
as financial assistance in connection with pre-approved seminars, conferences
and advertising. No such programs or additional compensation will be offered to
the extent they are prohibited by the laws of any state or any self-regulatory
agency such as the NASD. Dealers to whom substantially the entire sales charge
on Class A shares is reallowed may be deemed to be underwriters as that term is
defined under the 1933 Act.
The Principal Underwriter may, at its own expense, pay concessions in addition
to those described above to dealers which satisfy certain criteria established
from time to time by the Principal Underwriter. These conditions relate to
increasing sales of shares of the Keystone funds over specified periods and
certain other factors. Such payments may, depending on the dealer's satisfaction
of the required conditions, be periodic and may be up to 0.25% of the value of
shares sold by such dealer.
The Principal Underwriter may also pay a transaction fee (up to the level of
payments allowed to dealers for the sale of shares, as described above) to banks
and other financial services firms that facilitate transactions in shares of the
Fund for their clients.
The Glass-Steagall Act currently limits the ability of a depository
institution (such as a commercial bank or a savings and loan association) to
become an underwriter or distributor of securities. In the event the Glass-
Steagall Act is deemed to prohibit depository institutions from accepting
payments under the arrangement described above, or should Congress relax current
restrictions on depository institutions, the Board of Trustees will consider
what action, if any, is appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
DISTRIBUTION PLANS
As discussed above, 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.
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 NASD limits annual
expenditures to 1% of the aggregate average daily net asset value of its shares,
of which 0.75% may be used to pay such distribution costs and 0.25% may be used
to pay shareholder service fees. The NASD also limits the aggregate amount that
the Fund may pay for such distribution costs to 6.25% of gross share sales since
the inception of the 12b-1 Distribution Plan, plus interest at the prime rate
plus 1% on such amounts (less any deferred sales charges paid by shareholders to
the Principal Underwriter ), remaining unpaid from time to time.
The Principal Underwriter intends, but is not obligated, to continue to pay or
accrue distribution charges incurred in connection with the Class B Distribution
Plans that exceed current annual payments permitted to be received by the
Principal Underwriter from the Fund. The Principal Underwriter intends to seek
full payment of such charges from the Fund (together with annual interest
thereon at the prime rate plus one percent) at such time in the future as, and
to the extent that, payment thereof by the Fund would be within the permitted
limits.
If the Fund's Independent Trustees authorize such payments, the effect would
be to extend the period of time during which the Fund incurs the maximum amount
of costs allowed by a Distribution Plan. If a Distribution Plan is terminated,
the Principal Underwriter will ask the Independent Trustees to take whatever
action they deem appropriate under the circumstances with respect to payment of
such amounts.
In connection with financing its distribution costs, including commission
advances to dealers and others, the Principal Underwriter has sold to a
financial institution substantially all of its 12b-1 fee collection rights and
contingent deferred sales charge collection rights in respect of Class B shares
sold during the two-year period commencing approximately June 1, 1995. The Fund
has agreed not to reduce the payment of 12b-1 fees in respect of such Class B
shares, unless it terminates such shares' Distribution Plan completely. If it
terminates such Distribution Plan, the Fund may be subject to possible adverse
distribution consequences.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class. Unpaid distribution costs at September 30, 1994 for
Class B and Class C shares were $7,617,606 (9.8% of Class B net assets) and
$3,090,411 (10.8% of Class C net assets), respectively.
For the year ended September 30, 1994, the Fund paid the Principal Underwriter
$136,945, $774,646 and $286,141 pursuant to the Portfolio's Class A, Class B and
Class C Distribution Plans, respectively. The Portfolio makes no payments in
connection with the sale of its shares other than the fee paid to the Fund's
Principal Underwriter.
Dealers or others may receive different levels of compensation depending on
which class of shares they sell. Payments pursuant to a Distribution Plan are
included in the operating expenses of the class.
HOW TO REDEEM SHARES
You may redeem Fund shares for cash at their net asset value upon written
order to the Fund c/o KIRC, and presentation to the Fund of a properly endorsed
share certificate (if certificates have been issued). Your signature (s) on the
written order and certificates must be guaranteed as described below. In order
to redeem by telephone or to engage in telephone transactions generally, you
must complete the authorization in your account application. Proceeds for shares
redeemed on telephonic order will be deposited by wire or EFT only to the bank
account designated in your account application.
The redemption value equals the net asset value per share then determined and
may be more or less than your cost depending upon changes in the value of the
Fund's portfolio securities between purchase and redemption.
If imposed, the deferred sales charge is deducted from the redemption proceeds
otherwise payable to you.
REDEMPTION OF SHARES IN GENERAL
At various times, the Fund may be requested to redeem shares for which it has
not yet received good payment. In such a case, the Fund will mail the redemption
proceeds upon clearance of the purchase check, which may take up to 15 days or
more. Any delay may be avoided by purchasing shares either with a certified
check or by Federal Reserve or bank wire of funds or by EFT. Although the
mailing of a redemption check or the wiring or EFT of redemption proceeds may be
delayed, the redemption value will be determined and the redemption processed in
the ordinary course of business upon receipt of proper documentation. In such a
case, after the redemption and prior to the release of the proceeds, no
appreciation or depreciation will occur in the value of the redeemed shares, and
no interest will be paid on the redemption proceeds. If the payment of a
redemption has been delayed, the check will be mailed or the proceeds wired or
sent EFT promptly after good payment has been collected.
The Fund computes the amount due you at the close of the Exchange at the end
of the day on which it has received all proper documentation from you. Payment
of the amount due on redemption, less any applicable contingent deferred sales
charge (as described above), will be made within seven days thereafter except as
discussed herein.
You may also redeem your shares through broker-dealers. The Principal
Underwriter, acting as agent for the Fund, stands ready to repurchase Fund
shares upon orders from dealers and will calculate the net asset value on the
same terms as those orders for the purchase of shares received from
broker-dealers and described under "How to Buy Shares." If the Principal
Underwriter has received proper documentation, it will pay the redemption
proceeds, less any applicable deferred sales charge, to the broker-dealer
placing the order within seven days thereafter. The Principal Underwriter
charges no fee for this service. Your broker-dealer, however, may charge a
service fee.
For your protection, SIGNATURES ON CERTIFICATES, STOCK POWERS AND ALL WRITTEN
ORDERS OR AUTHORIZATIONS MUST BE GUARANTEED BY A U.S. STOCK EXCHANGE MEMBER, A
BANK OR OTHER PERSONS ELIGIBLE TO GUARANTEE SIGNATURES UNDER THE SECURITIES
EXCHANGE ACT OF 1934 AND KIRC'S POLICIES. The Fund or KIRC may waive this
requirement, but also may require additional documents in certain cases.
Currently, the requirement for a signature guarantee has been waived on
redemptions of $50,000 or less when the account address of record has been the
same for a minimum period of 30 days. The Fund and KIRC reserve the right to
withdraw this waiver at any time.
If the Fund receives a redemption order, but you have not clearly indicated
the amount of money or number of shares involved, the Fund cannot execute the
order. In such cases, the Fund will request the missing information from you and
process the order on the day such information is received.
TELEPHONE
Under ordinary circumstances, you may redeem up to $50,000 from your account
by telephone by calling toll free 1-800-343-2898. You must complete the
Telephone Redemptions section of the application to enjoy telephone redemption
privileges.
In order to insure that instructions received by KIRC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation of
your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days.
If the redemption proceeds are less than $2,500, they will be mailed by check.
If they are $2,500 or more, they will be mailed, wired or sent by EFT to your
previously designated bank account as you direct. If you do not specify how you
wish your redemption proceeds to be sent, they will be mailed by check.
If you cannot reach the Fund by telephone, you should follow the procedures
for redeeming by mail or through a broker as set forth herein.
SMALL ACCOUNTS
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem your account if its value has fallen below $1,000, the current
minimum investment level, as a result of your redemptions (but not as a result
of market action). You will be notified in writing and allowed 60 days to
increase the value of your account to the minimum investment level. No deferred
sales charges are applied to such redemptions.
REDEMPTIONS IN KIND
If conditions arise that would make it undesirable for the Fund to pay for all
redemptions in cash, the Fund may authorize payment to be made in portfolio
securities or other property. The Fund has obligated itself, however, under the
1940 Act to redeem for cash all shares presented for redemption by any one
shareholder up to the lesser of $250,000 or 1% of the Fund's net assets in any
90-day period. Securities delivered in payment of redemptions would be valued at
the same value assigned to them in computing the net asset value per share and
would, to the extent permitted by law, be readily marketable. Shareholders
receiving such securities would incur brokerage costs upon the securities' sale.
GENERAL
The Fund reserves the right at any time to terminate, suspend or change the
terms of any redemption method described in this prospectus, except redemption
by mail, and to impose fees.
Except as otherwise noted, neither the Fund, KIRC nor the Principal
Underwriter assumes responsibility for the authenticity of any instructions
received by any of them from a shareholder in writing, over the Keystone
Automated Response Line ("KARL") or by telephone. KIRC will employ reasonable
procedures to confirm that instructions received over KARL or by telephone are
genuine. Neither the Fund, KIRC nor the Principal Underwriter will be liable
when following instructions received over KARL or by telephone that KIRC
reasonably believes to be genuine.
The Fund may temporarily suspend the right to redeem its shares when (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission so orders.
SHAREHOLDER SERVICES
Details on all shareholder services may be obtained from KIRC by writing or by
calling toll free 1-800-343-2898.
KEYSTONE AUTOMATED RESPONSE LINE
KARL offers you specific fund account information and price and yield
quotations as well as the ability to do account transactions, including
investments, exchanges and redemptions. You may access KARL by dialing toll free
1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a week.
EXCHANGES
A shareholder who has obtained the appropriate prospectus 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 the same type of Class B shares of other
Keystone America Funds and the same type of Class B shares of KLT; and
Class C shares may be exchanged for Class C shares of other Keystone America
Funds and Class C shares of KLT.
The exchange of Class B shares and Class C shares will not be subject to a
contingent deferred sales charge. However, if the shares being tendered for
exchange are
(i) Class A shares acquired in an NAV Purchase or otherwise without a front
end sales charge,
(ii) Class B shares that have been held for less than 72 months or four
years, as the case may be, or
(iii) 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 for another Keystone fund for a $10 fee by calling or
writing to Keystone. The exchange fee is waived for individual investors who
make an exchange using KARL. Shares purchased by check are eligible for exchange
after 15 days. If the shares being tendered for exchange are still subject to a
deferred sales charge, such charge will carry over to the shares being acquired
in the exchange transaction. The Fund reserves the right, after providing the
required notice to shareholders, to terminate this exchange offer or to change
its terms, including the right to change the fee for any exchange.
Orders to exchange a certain class of shares of the Fund for the corresponding
class of shares of KLT will be executed by redeeming the shares of the Fund and
purchasing the corresponding class of shares of KLT at the net asset value of
such shares next determined after the proceeds from such redemption become
available, which may be up to seven days after such redemption. In all other
cases, orders for exchanges received by the Fund prior to 4:00 p.m. on any day
the Fund is open for business will be executed at the respective net asset
values determined as of the close of business that day. Orders for exchanges
received after 4:00 p.m. on any business day will be executed at the respective
net asset values determined at the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Fund.
Therefore, the Fund, in addition to its right to reject any exchange, reserves
the right to terminate the exchange privilege of any shareholder who makes more
than five exchanges of shares of the funds in a year or three in a calendar
quarter.
An exchange order must comply with the requirements for a redemption or
repurchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial purchase requirements of
the fund being acquired. An exchange constitutes a sale for federal income tax
purposes.
The exchange privilege is available only in states where shares of the fund
being acquired may legally be sold.
KEYSTONE AMERICA MONEY LINE
Keystone America Money Line eliminates the delay of mailing a check or the
expense of wiring funds. You must request the service on your application.
Keystone America Money Line allows you to authorize electronic transfers of
money to purchase shares in any amount and to redeem up to $50,000 worth of
shares. You can use Keystone America Money Line like an "electronic check" to
move money between your bank account and your account in the Fund with one
telephone call. You must allow two business days after the call for the transfer
to take place. For money recently invested, you must allow normal check clearing
time before redemption proceeds are sent to your bank.
You may also arrange for systematic monthly or quarterly investments in your
Keystone America account. Once proper authorization is given, your bank account
will be debited to purchase shares in the Fund. You will receive confirmation
from the Principal Underwriter for every transaction.
To change the amount of a Keystone America Money Line or to terminate the
service (which could take up to 30 days), you must write to KIRC and include
account numbers.
RETIREMENT PLANS
The Fund has various pension and profit-sharing plans available to you,
including Individual Retirement Accounts ("IRAs"); Rollover IRAs; Simplified
Employee Pension Plans ("SEPs"), Tax Sheltered Annuity Plans ("TSAs"), 401(k)
Plans; Keogh Plans; Corporate Profit-Sharing Plans, Pension and Target Benefit
Plans; Money Purchase Plans and Salary-Reduction Plans. For details, including
fees and application forms, call toll free 1-800-247-4075 or write to KIRC.
AUTOMATIC WITHDRAWAL PLAN
Under an Automatic Withdrawal Plan, if your account has a value of at least
$10,000, you may arrange for regular monthly or quarterly fixed withdrawal
payments. Each payment must be at least $100 and may be as much as 1.5% per
month or 4.5% per quarter of the total net asset value of the Fund shares in
your account when the Automatic Withdrawal Plan is opened. Fixed withdrawal
payments are not subject to a deferred sales charge. Excessive withdrawals may
decrease or deplete the value of your account. Moreover, because of the effect
of the applicable sales charge, a Class A investor should not make continuous
purchases of the Fund's shares while participating in the Automatic Withdrawal
Plan.
DOLLAR COST AVERAGING
Through dollar cost averaging you can invest a fixed dollar amount each month
or each quarter in any Keystone America Fund. This results in more shares being
purchased when the selected fund's net asset value is relatively low and fewer
shares being purchased when the fund's net asset value is relatively high and
may result in a lower average cost per share than a less systematic investment
approach.
Prior to participating in dollar cost averaging, you must establish an account
in a Keystone America Fund or a money market fund managed or advised by
Keystone. You should designate on the application (1) the dollar amount of each
monthly or quarterly investment (minimum $100) you wish to make and (2) the fund
in which the investment is to be made. Thereafter, on the first day of the
designated month, an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund. If you are a Class A investor and paid a sales
charge on your initial purchase, the shares purchased will be eligible for
Rights of Accumulation and the sales charge applicable to the purchase will be
determined accordingly. In addition, the value of shares purchased will be
included in the total amount required to fulfill a Letter of Intent. If a sales
charge was not paid on the initial purchase, a sales charge will be imposed at
the time of subsequent purchases, and the value of shares purchased will become
eligible for Rights of Accumulation and Letters of Intent.
TWO DIMENSIONAL INVESTING
You may elect to have income and capital gains distributions from any class
Keystone America Fund shares you may own automatically invested to purchase the
same class of shares of any other Keystone America Fund. You may select this
service on your application and indicate the Keystone America Fund(s) into which
distributions are to be invested. The value of shares purchased will be
ineligible for Rights of Accumulation and Letters of Intent.
OTHER SERVICES
Under certain circumstances, you may, within 30 days after a redemption,
reinstate your account in the same class of shares that you redeemed at current
net asset value.
PERFORMANCE DATA
From time to time the Fund may advertise "total return" and "current yield".
ALL DATA IS BASED ON HISTORICAL EARNINGS AND IS NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. Total return and current yield are computed separately for each
class of shares of the Fund. Total return refers to average annual compounded
rates of return over specified periods determined by comparing the initial
amount invested in a particular class to the ending redeemable value of that
amount. The resulting equation assumes reinvestment of all dividends and
distributions and deduction of the maximum sales charge or applicable contingent
deferred sales charge and all recurring charges, if any, applicable to all
shareholder accounts. The exchange fee is not included in the calculation.
Current yield quotations represent the yield on an investment for a stated
30-day period computed by dividing net investment income earned per share during
the base period by the maximum offering price per share on the last day of the
base period.
The Fund may also include comparative performance data for each class of
shares in advertising or marketing the Fund's shares, such as data from Lipper
Analytical Services, Inc., Morningstar, Inc., Standard & Poor's Corporation,
Ibbotson Associates or other industry publications.
FUND SHARES
Generally, the Fund currently issues one series of shares, which offers three
classes of shares that participate proportionately based on their relative net
asset values in dividends and distributions and have equal voting, liquidation
and other rights except that (1) expenses related to the distribution of each
series or class of shares or other expenses that the Board of Trustees may
designate as class expenses from time to time, are borne solely by each series
or class; (2) each series or class of shares has exclusive voting rights with
respect to its Distribution Plan; (3) each series or class has different
exchange privileges; and (4) each series or class generally has a different
designation. When issued and paid for, the shares will be fully paid and
nonassessable by the Fund. Shares may be exchanged as explained under
"Shareholder Services", but will have no other preference, conversion, exchange
or preemptive rights. Shares are redeemable, transferable and freely assignable
as collateral. The Fund is authorized to issue additional classes or series of
shares.
Shareholders are entitled to one vote for each full share owned and fractional
votes for fractional shares. Shares of the Fund vote together except when
required by law to vote separately by series or class. The Fund does not have
annual meetings. The Fund will have special meetings, from time to time, as
required under its Declaration of Trust and under the 1940 Act. As provided in
the Fund's Declaration of Trust, shareholders have the right to remove Trustees
by an affirmative vote of two-thirds of the outstanding shares. A special
meeting of the shareholders will be held when 10% of the outstanding shares
request a meeting for the purpose of removing a Trustee. The Fund is prepared to
assist shareholders in communications with one another for the purpose of
convening such a meeting as prescribed by Section 16(c) of the 1940 Act.
Under Massachusetts law, it is possible that a Fund shareholder may be held
personally liable for the Fund's obligations. The Fund's Declaration of Trust
provides, however, that shareholders shall not be subject to any personal
liability for the Fund's obligations and provides indemnification from Fund
assets for any shareholder held personally liable for the Fund's obligations.
Disclaimers of such liability are included in each Fund agreement.
ADDITIONAL INFORMATION
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519, is a
wholly-owned subsidiary of Keystone, serves as the Fund's transfer agent and
dividend disbursing agent.
When the Fund determines from its records that more than one account in the
Fund is registered in the name of a shareholder or shareholders having the same
address, upon notice to those shareholders, the Fund intends, when an annual
report or a semi-annual report of the Fund is required to be furnished, to mail
one copy of such report to that address.
Except as otherwise stated in this prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
THE GLOBAL OPPORTUNITIES PORTFOLIO
The Portfolio may engage in the following investment practices to the extent
described in the prospectus and the statement of additional information.
OBLIGATIONS OF FOREIGN BRANCHES OF UNITED STATES BANKS
The obligations of foreign branches of U.S. banks may be general obligations
of the parent bank in addition to the issuing branch or may be limited by the
terms of a specific obligation and by government regulation. Payment of interest
and principal upon these obligations also may 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 Portfolio 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.
TIME DEPOSITS
The Portfolio may acquire time deposits or obligations issued by international
agencies, such as the International Bank for Reconstruction and Development, the
Asian Development Bank or the Inter-American Bank. Additionally, the Portfolio
may purchase certificates of deposit, bankers' acceptances, time deposits or
other similar obligations issued by foreign banks.
MASTER DEMAND NOTES
Master demand notes are unsecured obligations that permit the investment of
fluctuating amounts by the Portfolio at varying rates of interest pursuant to
direct arrangements between the Portfolio, as lender, and the issuer, as
borrower. Master demand notes may permit daily fluctuations in the interest rate
and daily changes in the amounts borrowed. The Portfolio 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 Portfolio
permit the Portfolio to demand payment of principal and accrued interest at any
time (on not more than seven days' notice). Notes acquired by the Portfolio may
have maturities of more than one year, provided that (1) the Portfolio is
entitled to payment of principal and accrued interest upon not more than seven
days' notice, and (2) the rate of interest on such notes is adjusted
automatically at periodic intervals which normally will not exceed 31 days, but
may extend up to one year. The notes are deemed to have a maturity equal to the
longer of the period remaining to the next interest rate adjustment or the
demand notice period. Because these types of notes are direct lending
arrangements between the lender and the borrower, such instruments are not
normally traded and there is no secondary market for these notes, although they
are repayable by the borrower at face value plus accrued interest at any time.
Accordingly, the Portfolio's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. In connection with master
demand note arrangements, Keystone considers, under standards established by the
Board of Trustees, earning power, cash flow and other liquidity ratios of the
borrower and will monitor the ability of the borrower to pay principal and
interest on demand. These notes are not typically rated by credit rating
agencies. Unless rated, the Portfolio will invest in them only if the issuer
meets the criteria established for commercial paper.
REPURCHASE AGREEMENTS
The Portfolio may enter into repurchase agreements; i.e., the Portfolio
purchases a security subject to the Fund's obligation to resell and the seller's
obligation to repurchase that security at an agreed upon price and date, such
date usually being not more than seven days from the date of purchase. The
resale price is based on the purchase price plus an agreed upon current market
rate of interest that (for purposes of the transaction) is generally unrelated
to the coupon rate or maturity of the purchased security. A repurchase agreement
imposes an obligation on the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security. The
value of the underlying security is at least equal to the amount of the agreed
upon resale price and marked to market daily to cover such amount. The Portfolio
may enter into such agreements only with respect to U.S. government and foreign
government securities, which may be denominated in U.S. or foreign currencies.
The Portfolio may enter into such repurchase agreements with foreign banks and
securities dealers approved in advance by the Fund's Trustees. Whether a
repurchase agreement is the purchase and sale of a security or a collateralized
loan has not been definitively established. This might become an issue in the
event of the bankruptcy of the other party to the transaction. It does not
presently appear possible to eliminate all risks involved in repurchase
agreements. These risks include the possibility of an increase in the market
value of the underlying securities or inability of the repurchaser to perform
its obligation to repurchase coupled with an uncovered decline in the market
value of the collateral, including the underlying securities, as well as delay
and costs to the Portfolio in connection with enforcement or bankruptcy
proceedings. Therefore, it is the policy of the Portfolio to enter into
repurchase agreements only with large, well-capitalized banks that are members
of the Federal Reserve System and with primary dealers in U.S. government
securities (as designated by the Federal Reserve Board) whose creditworthiness
has been reviewed and found satisfactory by the Portfolio's advisers.
REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Portfolio would sell securities and
agree to repurchase them at a mutually agreed upon date and price. The Portfolio
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 Portfolio enters into a reverse repurchase
agreement, it will establish a segregated account with the Portfolio's custodian
containing liquid assets having a value not less than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
such value is maintained. Reverse repurchase agreements involve the risk that
the market value of the securities which the Portfolio is obligated to
repurchase may decline below the repurchase price. Borrowing and reverse
repurchase agreements magnify the potential for gain or loss on the securities
of the Portfolio and, therefore, increase the possibility of fluctuation in the
Portfolio's net asset value. Such practice may constitute leverage. In the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Portfolio's
obligation to repurchase the securities and the Portfolio's use of the proceeds
of the reverse repurchase agreement may effectively be restricted pending such
determination. The staff of the SEC has taken the position that the Investment
Company Act of 1940 treats reverse repurchase agreements as being included in
the percentage limit on borrowings imposed on a Fund.
FOREIGN SECURITIES
The Portfolio may invest up to 25% of its assets in securities principally
traded in securities markets outside the United States. While investment in
foreign securities is intended to reduce risk by providing further
diversification, such investments involve sovereign risk in addition to the
credit and market risks normally associated with domestic securities. Foreign
investments may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations. There may be less publicly available
information about a foreign company, particularly emerging market country
companies, than about a U.S. company, and foreign companies may not be subject
to accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of some foreign
companies are less liquid or more volatile than securities of U.S. companies,
and foreign brokerage commissions and custodian fees are generally higher than
in the United States. Investments in foreign securities may also be subject to
other risks different from those affecting U.S. investments, including local
political or economic developments, particularly with respect to companies in
the formerly communist countries of Eastern Europe and the People's Republic of
China, expropriation or nationalization of assets, imposition of withholding
taxes on dividend or interest payments and currency blockage (which would
prevent cash from being brought back to the United States).
"WHEN ISSUED" SECURITIES
The Portfolio may also purchase and sell securities or currencies on a when
issued and delayed delivery basis. When issued and delayed delivery transactions
arise when securities or currencies are purchased or sold by the Portfolio 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 Portfolio at the time of
entering into the transaction. When the Portfolio engages in when issued and
delayed delivery transactions, the Portfolio relies on the buyer or seller, as
the case may be, to consummate the sale. Failure to do so may result in the
Portfolio missing the opportunity to obtain a price or yield considered to be
advantageous. When issued and delayed delivery transactions may be expected to
occur a month or more before delivery is due. No payment or delivery is made by
the Fund however, until it receives payment or delivery from the other party to
the transaction. A separate account of liquid assets equal to the value of such
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 and other market factors, both before and
after delivery. The Portfolio does not accrue any income on such securities
prior to their delivery. To the extent the Portfolio engages in when issued and
delayed delivery transactions, it will do so for the purposes consistent with
its investment objective and policies and not for the purpose of investment
leverage.
DERIVATIVES
The Portfolio may use derivatives in furtherance of its investment objective.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. These assets, rates
and indices may include bonds, stocks, mortgages, commodities, interest rates,
currency exchange rates, bond indices and stock indices. Derivatives can be used
to earn income or protect against risk, or both. For example, one party with
unwanted risk may agree to pass that risk to another party who is willing to
accept the risk, the second party being motivated, for example, by the desire
either to earn income in the form of a fee or premium from the first party, or
to reduce its own unwanted risk by attempting to pass all or part of that risk
to the first party.
Derivatives can be used by investors such as the Portfolio to earn income and
enhance returns, to hedge or adjust the risk profile of the portfolio, and
either in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. The Portfolio is permitted to use derivatives
for one or more of these purposes, although the Portfolio generally uses
derivatives primarily as direct investments in order to enhance yields and
broaden portfolio diversification. Each of these uses entails greater risk than
if derivatives were used solely for hedging purposes. The Portfolio uses futures
contracts and related options for hedging purposes. Derivatives are a valuable
tool which, when used properly, can provide significant benefit to Portfolio
shareholders. Keystone is not an aggressive user of derivatives with respect to
the Portfolio. However, the Portfolio may take positions in those derivatives
that are within its investment policies if, in Keystone's judgement, this
represents an effective response to current or anticipated market conditions.
Keystone's use of derivatives is subject to continuous risk assessment and
control from the standpoint of the Portfolio's investment objectives and
policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments -- options, futures,
forwards and swaps -- from which virtually any type of derivative transaction
can be created. Further information regarding options and futures is provided
later in this section and is provided in the Portfolio's statement of additional
information. The Portfolio does not presently engage in the use of swaps.
While the judicious use of derivatives by experienced investment managers such
as Keystone can be beneficial, derivatives also involve risks different from,
and, in certain cases, greater than, the risks presented by more traditional
investments.
Following is a general discussion of important risk factors and issues
concerning the use of derivatives that investors should understand before
investing in the Portfolio.
* Market Risk -- This is the general risk attendant to all investments that
the value of a particular investment will decline or otherwise change in a way
detrimental to the Portfolio's interest.
* Management Risk -- Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument, but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use and
complexity of derivatives require the maintenance of adequate controls to
monitor the transactions entered into, the ability to assess the risk that a
derivative adds to the Portfolio's portfolio and the ability to forecast
price, interest rate or currency exchange rate movements correctly.
* Credit Risk -- This is the risk that a loss may be sustained by the Portfolio
as a result of the failure of another party to a derivative (usually referred
to as a "counterparty") to comply with the terms of the derivative contract.
The credit risk for exchange traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the
issuer or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there is no
similar clearing agency guarantee. Therefore, the Portfolio considers the
creditworthiness of each counterparty to a privately negotiated derivative in
evaluating potential credit risk.
* Liquidity Risk -- Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.
* Leverage Risk -- Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss generally is related
to a notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
* Other Risk -- Other risks in using derivatives include the risk of mispricing
or improper valuation and the inability of derivatives to correlate perfectly
with underlying assets, rates and indices. Many derivatives; in particular,
privately negotiated derivatives, are complex and often valued subjectively.
Improper valuations can result in increased cash payment requirements to
counterparties or a loss of value to a Portfolio. Derivatives do not always
perfectly or even highly correlate or track the value of the assets, rates or
indices they are designed to closely track. Consequently, the Portfolio's use
of derivatives may not always be an effective means of, and sometimes could be
counterproductive to, furthering the Fund's investment objective.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS. The Portfolio may write (i.e., sell) covered call and
put options. By writing a call option, the Portfolio 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 Portfolio 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 Portfolio also
may write straddles (combinations of covered puts and calls on the same
underlying security).
The Portfolio may only write "covered" options. This means that so long as the
Portfolio 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 Portfolio might own substantially similar U.S. Treasury
bills. If the Portfolio has written options against all of its securities that
are available for writing options, the Portfolio may be unable to write
additional options unless it sells a portion of its portfolio holdings to obtain
new securities against which it can write options. If this were to occur, higher
portfolio turnover and correspondingly greater brokerage commissions and other
transaction costs may result. The Portfolio does not expect, however, that this
will occur.
The Portfolio 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 Portfolio 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 Portfolio might lose the potential for gain on the
underlying security while the option is open, and by writing a put option, the
Portfolio might become obligated to purchase the underlying security for more
than its current market price upon exercise.
PURCHASING OPTIONS
The Portfolio may purchase put or call options for the purpose of offsetting
previously written put or call options of the same series.
If the Portfolio is unable to effect a closing purchase transaction with
respect to covered options it has written, the Portfolio 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 Portfolio 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 Portfolio's
ability to use such options to achieve its investment objective.
OPTIONS TRADING MARKETS. Options which the Portfolio will trade are generally
listed on national securities exchanges. Exchanges on which such options
currently are traded, include the Chicago Board Options Exchange and the New
York, American, Pacific and Philadelphia Stock Exchanges. Options on some
securities may not be listed on any Exchange but traded in the over-the-counter
market. Options traded in the over-the-counter market involve the additional
risk that securities dealers participating in such transactions could fail to
meet their obligations to the Portfolio. 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 Portfolio is subject to the investment restrictions
described in this prospectus and the statement of additional information.
The staff of the SEC is of the view that the premiums which the Fund pays for
the purchase of unlisted options and the value of securities used to cover
unlisted options written by the Fund are considered to be invested in illiquid
securities or assets for the purpose of calculating whether the Fund is in
compliance with its fundamental investment restriction relating to illiquid
securities.
FUTURES TRANSACTIONS
The Portfolio may enter into currency and other financial futures contracts
and write options on such contracts. The Portfolio intends to enter into such
contracts and related options for hedging purposes. The Portfolio will enter
into futures for 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 Portfolio 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 remains in effect until the contract is terminated.
The Portfolio may sell or purchase currency and other financial futures
contracts. When a futures contract is sold by the Portfolio, 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 Portfolio 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 Portfolio, 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 Portfolio
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 Portfolio intends to purchase.
The Portfolio also intends to purchase put and call options on currency and
other financial futures contracts for hedging purposes. A put option purchased
by the Portfolio would give it the right to assume a position as the seller of a
futures contract. A call option purchased by the Portfolio 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 Portfolio to pay a premium. In
exchange for the premium, the Portfolio 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 Portfolio's loss will be limited to the amount of the
premium and any transaction costs.
The Portfolio 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 Portfolio'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 Portfolio will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Portfolio is not able to enter into an offsetting transaction, the Portfolio
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 Portfolio
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 Portfolio's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between the Portfolio'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
Portfolio's futures position and the securities or currencies held by or to be
purchased for the Portfolio. In addition, futures contracts transactions involve
the remote risk that a party participating in a transaction will not be able to
fulfill its obligations and the amount of the obligation will exceed the ability
of the clearing broker to satisfy. Keystone will attempt to minimize these risks
through careful selection and monitoring of the Portfolio's futures and options
positions.
The Portfolio does not intend to use futures transactions for speculation or
leverage. The Portfolio has the ability to write options on futures, but intends
to write such options only to close out options purchased by the Portfolio. The
Portfolio will not change these policies without supplementing the information
in its prospectus and statement of additional information.
FOREIGN CURRENCY TRANSACTIONS
As discussed above, the Portfolio may invest in securities of foreign issuers.
When the Portfolio invests in foreign securities they usually will be
denominated in foreign currencies, and the Portfolio temporarily may hold funds
in foreign currencies. Thus, the value of Portfolio shares will be affected by
changes in exchange rates.
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, the Portfolio 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 Portfolio will deliver and receive when the contract is completed) is fixed
when the Portfolio enters into the contract. The Portfolio usually will enter
into these contracts to stabilize the U.S. dollar value of a security it has
agreed to buy or sell. The Portfolio intends to use these contracts to hedge the
U.S. dollar value of a security it already owns, particularly if the Portfolio
expects a decrease in the value of the currency in which the foreign security is
denominated. Although the Portfolio 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 Portfolio's investments denominated in foreign
currencies will depend on the relative strength of those currencies and the U.S.
dollar, and the Portfolio 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 Portfolio. The Portfolio may also purchase and sell options
related to foreign currencies in connection with hedging strategies.
LOANS OF SECURITIES
The Portfolio 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 Portfolio if as a result the
aggregate of all outstanding securities loans exceeds 15% of the value of the
Portfolio's total assets taken at their current value. The Portfolio 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 Portfolio if, in the
opinion of the Portfolio, 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.
<PAGE>
EXHIBIT A
REDUCED SALES CHARGES
Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of the Fund alone or in combination with
Class A shares of other Keystone America Funds.
For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or Letters of Intent, the term "Purchaser"
includes the following persons: an individual; an individual, his or her spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account established for their benefit; an
organization exempt from federal income tax under Section 501 (c)(3) or (13) of
the Internal Revenue Code; a pension, profit-sharing or other employee benefit
plan whether or not qualified under Section 401 of the Internal Revenue Code; or
other organized groups of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some purpose
other than the purchase of redeemable securities of a registered investment
company at a discount. In order to qualify for a lower sales charge, all orders
from an organized group will have to be placed through a single investment
dealer or other firm and identified as originating from a qualifying purchaser.
CONCURRENT PURCHASES
For purposes of qualifying for a reduced sales charge, a Purchaser may combine
concurrent direct purchases of Class A shares of two or more of the "Eligible
Funds," as defined below. For example, if a Purchaser concurrently invested
$75,000 in one of the other "Eligible Funds" and $75,000 in the Fund, the sales
charge would be that applicable to a $150,000 purchase, i.e., 3.75% of the
offering price, as indicated in the Sales Charge Schedule in the prospectus.
RIGHT OF ACCUMULATION
In calculating the sales charge applicable to current purchases of the Fund's
Class A shares, a Purchaser is entitled to accumulate current purchases with the
current value of previously purchased Class A shares of the Fund and Class A
shares of certain other eligible funds that are still held in (or exchanged for
shares of and are still held in) the same or another eligible fund ("Eligible
Fund(s)"). The Eligible Funds are the Keystone America Funds and Keystone Liquid
Trust.
For example, if a Purchaser held shares valued at $99,999 and purchased an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales charge of 3.75% of the offering price as indicated in the Sales
Charge schedule. KIRC must be notified at the time of purchase that the
Purchaser is entitled to a reduced sales charge, which reduction will be granted
subject to confirmation of the Purchaser's holdings. The Right of Accumulation
may be modified or discontinued at any time.
LETTER OF INTENT
A Purchaser may qualify for a reduced sales charge on a purchase of Class A
shares of the Fund alone or in combination with purchases of Class A shares of
any of the other Eligible Funds by completing the Letter of Intent section of
the application. By so doing, the Purchaser agrees to invest within a
thirteen-month period a specified amount which, if invested at one time, would
qualify for a reduced sales charge. Each purchase will be made at a public
offering price applicable to a single transaction of the dollar amount specified
on the application, as described in this prospectus. The Letter of Intent does
not obligate the Purchaser to purchase, nor the Fund to sell, the amount
indicated.
After the Letter of Intent is received by KIRC, each investment made will be
entitled to the sales charge applicable to the level of investment indicated on
the application. The Letter of Intent may be back-dated up to ninety days so
that any investments made in any of the Eligible Funds during the preceding
ninety-day period, valued at the Purchaser's cost, can be applied toward
fulfillment of the Letter of Intent. However, there will be no refund of sales
charges already paid during the ninety-day period. No retroactive adjustment
will be made if purchases exceed the amount specified in the Letter of Intent.
Income and capital gains distributions taken in additional shares will not apply
toward completion of the Letter of Intent.
If total purchases made pursuant to the Letter of Intent are less than the
amount specified, the Purchaser will be required to remit an amount equal to the
difference between the sales charge paid and the sales charge applicable to
purchases actually made. Out of the initial purchase (or subsequent purchases,
if necessary) 5% of the dollar amount specified on the application will be held
in escrow by KIRC in the form of shares registered in the Purchaser's name. The
escrowed shares will not be available for redemption, transfer or encumbrance by
the Purchaser until the Letter of Intent is completed or the higher sales charge
paid. All income and capital gains distributions on escrowed shares will be paid
to the Purchaser or his order.
When the minimum investment specified in the Letter of Intent is completed
(either prior to or by the end of the thirteen-month period), the Purchaser will
be notified and the escrowed shares will be released. If the intended investment
is not completed, the Purchaser will be asked to remit to the Principal
Underwriter any difference between the sales charge on the amount specified and
on the amount actually attained. If the Purchaser does not within 20 days after
written request by the Principal Underwriter or his dealer pay such difference
in sales charge, KIRC will redeem an appropriate number of the escrowed shares
in order to realize such difference. Shares remaining after any such redemption
will be released by KIRC. Any redemptions made by the Purchaser during the
thirteen-month period will be subtracted from the amount of the purchases for
purposes of determining whether the Letter of Intent has been completed. In the
event of a total redemption of the account prior to completion of the Letter of
Intent, the additional sales charge due will be deducted from the proceeds of
the redemption and the balance will be forwarded to the Purchaser.
By signing the application, the Purchaser irrevocably constitutes and appoints
KIRC his attorney to surrender for redemption any or all escrowed shares with
full power of substitution.
The Purchaser or his dealer must inform the Principal Underwriter or KIRC that
a Letter of Intent is in effect each time a purchase is made.
<PAGE>
- ------------------------------------
KEYSTONE AMERICA
FUND FAMILY
*
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Insured Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Pennsylvania Tax Free Fund
Texas Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Hartwell Growth Fund
Omega Fund
Fund of the Americas
Strategic Development Fund
- ------------------------------------
[Logo] KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5034
GOF-P 6/95 [Recycle Logo]
49.5M
--------------------------------------------
KEYSTONE
PHOTO:
CHESS PIECES
ON MAP
GLOBAL
OPPORTUNITIES
FUND
--------------------------------------------
[Logo]
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE GLOBAL OPPORTUNITIES FUND
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 30, 1995
AS SUPPLEMENTED JUNE 1, 1995
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
Global Opportunities Fund (the "Fund") dated January 30, 1995, as supplemented
June 1, 1995. A copy of the prospectus may be obtained from Keystone Investment
Distributors Company (formerly named Keystone Distributors, Inc.) (the
"Principal Underwriter"), the Fund's principal underwriter, 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
The Fund 2
Investment Objective and Policies 2
Investment Restrictions 3
Distributions and Taxes 6
Valuation of Securities 7
Brokerage 8
Sales Charges 10
Distribution Plans 13
Trustees and Officers 17
Investment Adviser 21
SubAdviser 23
Principal Underwriter 24
Declaration of Trust 25
Standardized Total Return
and Yield Quotations 27
Additional Information 28
Appendix A-1
Financial Statements F-1
Independent Auditors' Report F-17
<PAGE>
- --------------------------------------------------------------------------------
THE FUND
- --------------------------------------------------------------------------------
The Fund is a diversified, open-end management investment company
commonly known as a mutual fund that is authorized to issue more than one series
of shares (the "Portfolios"), each series investing in different portfolios of
securities. At this time, the Fund issues only shares of its Global
Opportunities Portfolio. The Global Opportunities Portfolio (the "Portfolio")
seeks capital growth.
The Fund was formed as a Massachusetts business trust on June 17, 1987.
The Fund is managed and advised by Keystone Investment Management Company
(formerly named Keystone Custodian Funds, Inc.) ("Keystone") and has as its
subadviser Credit Lyonnais International Asset Management, North America
("CLIAM").
The essential information about the Fund is contained in its
prospectus. This statement of additional information provides additional
information about the Fund that may be of interest to some investors.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
It is expected that under ordinary circumstances at least 65% of the
Portfolio's assets will be invested in securities of issuers of at least three
different countries, one of which may be the United States ("U.S"). Certain
types of investments, investment techniques and ratings criteria applicable to
the Portfolio are more fully explained in the appendix to this statement of
additional information.
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVE
The investment objective of the Portfolio is fundamental and may not be
changed without approval of the holders of a majority of the Portfolio'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).
- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The following investment restrictions are fundamental and may not be
changed with respect to any Portfolio without the vote of a majority of the
affected Portfolio's outstanding voting shares. Unless otherwise stated, all
references to the assets of a Portfolio are in terms of current market value.
The Portfolio may not do any of the following:
(1) purchase any security of any issuer (other than any security issued
or guaranteed as to principal or interest by the United States ("U.S."), its
agencies or instrumentalities [U.S. government securities]) 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, except that the Portfolio may borrow money from banks
and/or enter into reverse repurchase agreements for temporary or emergency
purposes in aggregate amounts up to one-third of the value of the Portfolio's
net assets provided that no additional investments shall be made at any time
that outstanding borrowings (including amounts payable under reverse repurchase
agreements) exceed 5% of the Portfolio's assets;
(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 Portfolio may purchase or hold debt
securities, including nonpublicly offered debt securities and convertible 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 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 U.S. government securities; (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 it may engage in
currency and other financial futures contracts and related options transactions;
(12) underwrite securities of other issuers, except that the Portfolio
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
securities) of any issuer if as a result the Portfolio 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 the 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 any
security that may not be sold or disposed of in the ordinary course of business
within seven days at approximately the value at which the Fund has valued the
investment on its books and (2) limiting its holdings of such securities to 15%
of its net assets.
Additional restrictions adopted by the Fund, which may be changed by
the Board of Trustees, provide that the Portfolio may not purchase or retain
securities of an issuer if, to the knowledge of the Fund, any officer, Trustee
or Director of the Fund or Keystone, each owning beneficially more than one-half
of 1% of the securities of such issuer, own in the aggregate more than 5% of the
securities of such issuer, or such persons or management personnel of the Fund
or, Keystone or Keystone Management, Inc. ("Keystone Management") have a
substantial beneficial interest in the securities of such issuer. Portfolio
securities of the Portfolio may not be purchased from or sold or loaned to
Keystone or any affiliate thereof or any of their Directors, officers or
employees; and the Portfolio may not purchase or sell interests in oil, gas or
other mineral exploration or development programs, except that the Portfolio
may, pursuant to its investment objectives and policies, purchase publicly
traded securities of companies engaging in such activities.
If a percentage limit is satisfied at the time of investment or
borrowing, a later increase or decrease resulting from a change in the value of
a security or a decrease in the Portfolio's assets is not a violation of the
limit.
In order to permit the sale of the Portfolio's 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 the Portfolio's shares in the state involved.
Although not fundamental restrictions or policies requiring a
shareholders' vote to change, the Fund has agreed that, so long as certain state
authorities require and shares of the Portfolio are registered for sale in those
states, the Portfolio will (1) 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 Portfolio,
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; (2) 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 Portfolio's net assets; (3) not write put options; (4) limit
its purchases of put and call options written by others to 2% of its net assets
calculated at the time of payment; (5) 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; (6) not invest in real estate limited partnership interests; (7)
not invest in gas, oil or other mineral leases; (8) not invest more than 5% of
its assets in securities of issuers which the Portfolio may not sell to the
public without registration under the federal Securities Act of 1933; and (9)
maintain 300% asset coverage on any leverage or bank borrowings.
- --------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
The Fund distributes to the Portfolio's shareholders dividends from net
investment income and net realized capital gains annually 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 Portfolio'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 Portfolio
pays the distribution. Unless the Portfolio receives instructions to the
contrary from a shareholder before the record date, it will assume that the
shareholder wishes to receive that distribution and future gains and income
distributions in shares. Instructions continue in effect until changed in
writing.
Distributed long-term capital gains are taxable as such to the
shareholder whether received in cash or in additional Portfolio shares and
regardless of the period of time Portfolio shares have been held by the
shareholder. However, if such shares are held less than six months and redeemed
at a loss, the shareholder will recognize a long-term capital loss on such
shares to the extent of the long-term capital gain distribution received in
connection with such shares. If the net asset value of the Portfolio's shares is
reduced below a shareholder's cost by a capital gains distribution, such
distribution, to the extent of the reduction, would be a return of investment,
though taxable as stated above. Since distributions of capital gains depend upon
profits actually realized from the sale of securities by the Portfolio, they may
or may not occur. The foregoing comments relating to the taxation of dividends
and distributions paid on the Portfolio's shares relate solely to federal income
taxation. Such dividends and distributions may also be subject to state and
local taxes.
When the Portfolio makes a distribution, it intends to distribute only
the Portfolio's net capital gains and such income as has been predetermined, to
the best of the Fund's ability to be taxable as ordinary income. Shareholders of
the Portfolio will be advised annually of the federal income tax status of
distributions.
If more than 50% of the value of the Portfolio's total assets at the
end of a fiscal year is represented by securities of foreign corporations and
the Portfolio elects to make foreign tax credits available to its shareholders,
a shareholder will be required to include in his gross income both actual
dividends and the amount the Portfolio advises him is his pro rata portion of
income taxes withheld by foreign governments from interest and dividends paid on
the Portfolio's investments. The shareholder will be entitled, however, to take
the amount of such foreign taxes withheld as a credit against his U.S. income
tax, or to treat the foreign tax withheld as an itemized deduction from his
gross income, if that should be to his advantage. In substance, this policy
enables the shareholder to benefit from the same foreign tax credit or deduction
that he would have received if he had been the individual owner of foreign
securities and had paid foreign income tax on the income therefrom. As in the
case of individuals receiving income directly from foreign sources, the above
described tax credit and deductions are subject to certain limitations.
- --------------------------------------------------------------------------------
VALUATION OF SECURITIES
- --------------------------------------------------------------------------------
Current values for the Portfolio's 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 investments that are purchased with maturities of sixty
days or less are valued at amortized cost (original purchase cost as adjusted
for amortization of premium or accretion of discount), which, when combined with
accrued interest, approximates market; short-term investments maturing in more
than sixty days when purchased that are held on the sixtieth day prior to
maturity are valued at amortized cost (market value on the sixtieth day adjusted
for amortization of premium or accretion of discount) which, when combined with
accrued interest, approximates market; and which in either case reflects fair
value as determined by the Board of Trustees;
(4) short-term investments having maturities of more than sixty day for
which market quotations are readily available, are valued at current market
value; where market quotations are not available, such investments are valued at
fair value as determined by the 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.
Foreign securities are valued on the basis of valuations provided by a
pricing service, approved by the Fund's Board of Trustees, which uses
information with respect to transactions in such securities, quotations from
broker-dealers, market transactions in comparable securities and various
relationships between securities and yield to maturity in determining value.
- --------------------------------------------------------------------------------
BROKERAGE
- --------------------------------------------------------------------------------
It is the policy of the Fund, in effecting transactions in portfolio
securities, to seek best execution of orders at the most favorable prices. The
determination of what may constitute best execution and price in the execution
of a securities transaction by a broker involves a number of considerations,
including, without limitation, the overall direct net economic result to the
Fund, involving both price paid or received and any commissions and other costs
paid, the efficiency with which the transaction is effected, the ability to
effect the transaction at all where a large block is involved, the availability
of the broker to stand ready to execute potentially difficult transactions in
the future and the financial strength and stability of the broker. Such
considerations are judgmental and are weighed by management in determining the
overall reasonableness of brokerage commissions paid.
Subject to the foregoing, a factor in the selection of brokers is the
receipt of research services, such as analyses and reports concerning issuers,
industries, securities, economic factors and trends and other statistical and
factual information. Any such research and other statistical and factual
information provided by brokers to the Fund or Keystone is considered to be in
addition to and not in lieu of services required to be performed by Keystone
under its Investment Advisory and Management Agreement with the Fund. The cost,
value and specific application of such information are indeterminable and cannot
practicably allocated among the Fund and other clients of Keystone who may
indirectly benefit from the availability of such information. Similarly, the
Fund may indirectly benefit from information made available as a result of
transactions effected for such other clients. Under the Investment Advisory and
Management Agreement, Keystone is permitted to pay higher brokerage commissions
for brokerage and research services in accordance with Section 28(e) of the
Securities Exchange Act of 1934. In the event Keystone does follow such a
practice, they will do so on a basis which is fair and equitable to the Fund.
The Fund expects that purchases and sales of 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 direct purchase from an issuer of certain securities for the Portfolio in
order to take advantage of the lower purchase price available to members of such
a group.
Neither Keystone nor the Fund intend to place securities transactions
with any particular broker-dealer or group thereof. The Fund's Board of
Trustees, however, has determined that the Fund may follow a policy of
considering sales of shares as a factor in the selection of broker-dealers to
execute portfolio transactions, subject to the requirements of best execution,
including best price, described above.
The policy of the Fund with respect to brokerage is and will be
reviewed by the Fund's Board of Trustees from time to time. Because of the
possibility of further regulatory developments affecting the securities
exchanges and brokerage practices generally, the foregoing practices may be
changed, modified or eliminated.
Investment decisions for the Fund are made independently by Keystone
from those of the other funds and investment accounts managed by 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 which is
equitable to each fund or account. It is recognized that in some cases this
system could have a detrimental effect on the price or volume of the security as
far as the Fund is concerned. In other cases, however, it is believed that the
ability of the Fund to participate in volume transactions will produce better
executions for the Fund.
During the fiscal years ended September 30, 1992, 1993 and 1994, the
Portfolio paid approximately $7,162, $-0- and $1,064, respectively, in brokerage
commissions.
In no instance are portfolio securities purchased from or sold to
Keystone, KDI or any of their affiliated persons, as defined in the Investment
Company Act of 1940 (the "1940 Act") and rules and regulations issued
thereunder.
- --------------------------------------------------------------------------------
SALES CHARGES
- --------------------------------------------------------------------------------
GENERAL
Generally, the Portfolio offers three classes of shares. Class A shares
are offered with a maximum sales charge of 5.75% payable at the time of purchase
("Front End Load Option"). Class B shares purchased on or after June 1, 1995 are
subject to a contingent deferred sales charge payable upon redemption during the
72 month period following the month of purchase. Class B shares purchased prior
to June 1, 1995 are subject to a contingent deferred sales charge payable upon
redemption within three calendar years following the year of purchase. ("Back
End Load Option"). Class B shares purchased on or after June 1, 1995 that have
been outstanding eight years following the month of purchase will automatically
convert to Class A shares without imposition of a front end sales charge or
exchange fee. Class B shares purchased prior to June 1, 1995 that have been
outstanding during seven calendar years will similarly convert to Class A
shares. (Conversion of Class B shares represented by stock certificates will
require the return of the stock certificates to Keystone Investor Resource
Center, Inc, the Fund's transfer and dividend disbursing agent ("KIRC").) Class
C shares are sold subject to a contingent deferred sales charge payable upon
redemption within one year after purchase ("Level Load Option"). Class C shares
are available only through dealers who have entered into special distribution
agreements with the Principal Underwriter. The prospectus contains a general
description of how investors may buy shares of the Funds as well as a table of
applicable sales charges for Class A shares; a discussion of reduced sales
charges that may apply to subsequent purchases; and a description of applicable
contingent deferred sales charges.
CONTINGENT DEFERRED SALES CHARGES
In order to reimburse the Fund for certain expenses relating to the
sale of its shares (see "Distribution Plan"), a contingent deferred sales charge
is imposed at the time of redemption of certain Fund shares, as follows:
CLASS A SHARES
With certain exceptions, purchases of Class A shares made on or after
April 10, 1995 (1) in an amount equal to or exceeding $1,000,000, and/or (2)
purchased by a corporate qualified retirement plan or a non-qualified deferred
compensation plan sponsored by a corporation having 100 or more eligible
employees (a "Qualifying Plan"), in either case without a front-end sales
charge, will be subject to a contingent deferred sales charge of 1.00% during
the 24 month period following the date of purchase. Certain Class A shares
purchased without a front-end sales charge prior to April 10, 1995 may be
subject to a contingent deferred sales charge of 0.25% upon redemption during
the one year period commencing on the date such shares were originally
purchased. The contingent deferred sales charge will be retained by the
Principal Underwriter. See "Calculation of Contingent Deferred Sales Charge"
below.
CLASS B SHARES
With respect to Class B shares purchased on or after June 1, 1995, the
Fund, with certain exceptions, will impose a deferred sales charge as a
percentage of net asset value or net cost of such Class B shares redeemed during
succeeding twelve-month periods following the month of purchase as follows: 5%
during the first period; 4% during the second period; 3% during the third
period; 3% during the fourth period; 2% during the fifth period, and 1% during
the sixth period. No deferred sales charge is imposed on amounts redeemed
thereafter.
With respect to Class B shares purchased prior to June 1, 1995, the
Fund, with certain exceptions, may impose a deferred sales charge of 3.00% on
shares redeemed during the calendar year of purchase and the first calendar year
after the year of purchase; 2.00% on shares redeemed during the second calendar
year after the year of purchase; and 1.00% on shares redeemed during the third
calendar year after the year of purchase. No deferred sales charge is imposed on
amounts redeemed thereafter.
If imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to you. The deferred sales charge is retained by the
Principal Underwriter. Amounts received by the Principal Underwriter under the
Class B Distribution Plans are reduced by deferred sales charges retained by the
Principal Underwriter. See "Calculation of Contingent Deferred Sales charges and
Waiver of Sales Charges" below.
CLASS C SHARES
With certain exceptions, the Fund will impose a deferred sales charge
of 1% on shares redeemed within one year after the date of purchase. No deferred
sales charge is imposed on amounts redeemed thereafter. If imposed, the deferred
sales charge is deducted from the redemption proceeds otherwise payable to you.
The deferred sales charge is retained by the Principal Underwriter. See
"Calculation of Contingent Deferred Sales Charge" below.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE
Any contingent deferred sales charge imposed upon the redemption of
Class A, Class B or Class C shares is a percentage of the lesser of (1) the net
asset value of the shares redeemed or (2) the net cost of such shares.
No contingent deferred sales charge is imposed when you redeem amounts
derived from (1) increases in the value of your account above the net cost of
such shares due to increases in the net asset value per share due to increases
in the net asset value per share of such shares; (2) certain shares with respect
to which the Fund did not pay a commission on issuance, including shares
acquired through reinvestment of dividend income and capital gains
distributions; (3) certain Class A shares held for more than one or two years,
as the case may be, from the date of purchase; (4) Class B shares held during
more than four consecutive calendar years or more than 72 months after the month
of purchase, as the case may be; or (5) Class C shares held for more than one
year from the date of purchase.
Upon request for redemption, shares not subject to the contingent
deferred sales charge will be redeemed first. Thereafter, shares held the
longest will be the first to be redeemed. There is no contingent deferred sales
charge when the shares of a class are exchanged for the shares of the same class
of another Keystone America Fund. Moreover, when shares of one such class of a
fund have been exchanged for shares of another such class of a fund, the
calendar year of the purchase of the shares of the fund exchanged into is
assumed to be the year shares tendered for exchange were originally purchased.
WAIVER OF SALES CHARGES
Shares of the Portfolio 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 or sales representatives of the Fund,
Keystone, Keystone Investments, Inc. (formerly Keystone Group, Inc.) ("Keystone
Investments"), Keystone Management, certain of their subsidiaries and affiliates
or the Principal Underwriter and who have been such for not less than ninety
days; (2) a pension and profit-sharing plan established by such companies, their
subsidiaries and affiliates, for the benefit of their Directors, Trustees,
officers, full-time employees and sales representatives; or (3) a registered
representative of a firm with a dealer agreement with the Principal Underwriter;
provided, however, that all such sales are made upon the written assurance that
the purchase is made for investment purposes and that the securities will not be
resold except through redemption by the Fund.
No initial sales charge is charged on purchases of shares of the
Portfolio 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
Portfolio or any Fund in the Keystone Investments Family of Funds, purchased
pursuant to this waiver is at least $500,000 and any commission paid at the time
of such purchase is not more than 1% of the amount invested.
With respect to Class A shares purchased by a Qualifying Plan at net
asset value or Class C shares purchased by a Qualifying Plan, no Contingent
Deferred Sales Charge will be imposed on any redemptions made specifically by an
individual participant in the Qualifying Plan. This waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially all of its
assets.
In addition, no contingent deferred sales charge is imposed on a
redemption of shares of the Fund in the event of (1) death or disability of the
shareholder; (2) a lump-sum distribution from a benefit plan qualified under the
Employee Retirement Income Security Act of 1974 ("ERISA"); (3) automatic
withdrawals from ERISA plans if the shareholder is at least 59 1/2 years old;
(4) involuntary redemptions of an account having an aggregate net asset value of
less than $1,000; or (5) automatic withdrawals under an automatic withdrawal
plan of up to 1 1/2% per month of the shareholder's initial account balance; (6)
withdrawals consisting of loan proceeds to a retirement plan participant; (7)
financial hardship withdrawals made by a retirement plan participant; or (8)
withdrawals consisting of returns of excess contributions or excess deferral
amounts made to a retirement plan participant.
REDEMPTION OF SHARES
The Fund has obligated itself under the 1940 Act to redeem for cash all
shares presented for redemption by any one shareholder up to the lesser of
$250,000 or 1% of the Fund's assets in any 90 day period.
- --------------------------------------------------------------------------------
DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund, to use their assets to bear expenses of distributing their shares if they
comply with various conditions, including adoption of a distribution plan
containing certain provisions set forth in Rule 12b-1.
DISTRIBUTION PLANS IN GENERAL
The NASD limits the amount that the Fund may pay annually in
distribution costs for sale of its shares and shareholder service fees. The NASD
limits annual expenditures to 1% of the aggregate average daily net asset value
of its shares, of which 0.75% may be used to pay such distribution costs and
0.25% may be used to pay shareholder service fees. The NASD also limits the
aggregate amount that the Fund may pay for such distribution costs to 6.25% of
gross share sales since the inception of the 12b-1 Plan, plus interest at the
prime rate plus 1% on such amounts (less any contingent deferred sales charges
paid by shareholders to the Principal Underwriter).
CLASS A DISTRIBUTION PLAN. The Class A Distribution Plan provides that the
Portfolio may expend daily amounts at an annual rate, which is currently limited
to up to 0.25% of the Portfolio's average daily net asset value attributable to
Class A shares, to finance any activity which is primarily intended to result in
the sale of Class A shares, including, without limitation, expenditures
consisting of payments to the principal underwriter of the Fund (currently the
Principal Underwriter) to enable the Principal Underwriter to pay or to have
paid to others who sell Class A shares a service or other fee, at such intervals
as the Principal Underwriter may determine, in respect of Class A shares
maintained by any such recipients outstanding on the books of the Fund for
specified periods.
Amounts paid by the Portfolio 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 maintained by such
others outstanding on the books of the Fund for specified periods.
CLASS B DISTRIBUTION PLANS. The Portfolio has adopted Distribution Plans for its
Class B shares. Each Class B Distribution Plan provides that the Portfolio may
expend daily amounts at an annual rate of up to 1.00% of the Portfolio'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 the principal
underwriter of the Fund (currently the Principal Underwriter) (1) to enable the
Principal Underwriter to pay to others (dealers) commissions in respect of Class
B shares of the Portfolio sold since inception of the Distribution Plans; and
(2) to enable the Principal Underwriter to pay or to have paid to others a
service fee, at such intervals as the Principal Underwriter may determine, in
respect of Class B shares maintained by any such recipients outstanding on the
books of the Fund for specified periods.
The Principal Underwriter generally reallows to brokers or others a
commission equal to 4.00% of the price paid for each Class B share sold plus the
first year's service fee in advance in the amount of 0.25% of the price paid for
each Class B share sold. Beginning approximately 12 months after the purchase of
a Class B share, the broker or other party receives service fees at an annual
rate of 0.25% of the average daily net asset value of such Class B share
maintained by the recipient outstanding on the books of the Fund for specified
periods.
The Principal Underwriter intends, but its not obligated, to continue
to pay or accrue distribution charges incurred in connection with a Class B
Distribution Plan that exceed current annual payments permitted to be received
by the Principal Underwriter from the Fund. The Principal Underwriter intends to
seek full payment of such charges from the Fund (together with annual interest
thereon at the prime rate plus one percent) at such time in the future as, and
to the extent that, payment thereof by the Fund would be within the permitted
limits.
If the Fund's Independent Trustees authorize such payments, the effect
would be to extend the period of time during which the Fund incurs the maximum
amount of costs allowed by a Class B Distribution Plan. If a Class B
Distribution Plan is terminated, the Principal Underwriter will ask the
Independent Trustees to take whatever action they deem appropriate under the
circumstances with respect to payment of such amounts.
In connection with financing its distribution costs, including
commission advances to dealers and others, the Principal Underwriter has sold to
a financial institution substantially all of its 12b-1 fee collection rights and
contingent deferred sales charge collection rights in respect of Class B shares
sold during the two-year period commencing approximately June 1, 1995. The Fund
has agreed not to reduce the rate of payment of 12b-1 fees in respect of such
Class B shares unless it terminates such shares' Distribution Plan completely.
If it terminates such Distribution Plan, the Fund may be subject to possible
adverse distribution consequences.
CLASS C DISTRIBUTION PLAN
The Class C Distribution Plan provides that the Portfolio 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 the principal underwriter of
the Fund (currently the Principal Underwriter) (1) to enable the Principal
Underwriter to pay to others (dealers) commissions in respect of Class C shares
sold since inception of the Distribution Plan; and (2) to enable the Principal
Underwriter to pay or to have paid to others a service fee, at such intervals as
the Principal Underwriter may determine, in respect of Class C shares maintained
by any such recipients outstanding on the books of the Fund for specified
periods.
The Principal Underwriter generally reallows to brokers or others a
commission in the amount of 0.75% of the price paid for each Class C share sold
plus the first year's service fee in advance in the amount of 0.25% of the price
paid for each Class C share sold. Beginning approximately fifteen months after
purchase, brokers or others receive a commission at an annual rate of 0.75%
(subject to NASD rules) plus service fees at the annual rate of 0.25% of the
average daily net asset value of each Class C share maintained by the recipients
outstanding on the books of the Fund for specified periods.
DISTRIBUTION PLANS - GENERAL
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 Portfolio's total operating
expenses for purposes of determining compliance with state expense limits.
Each of the Distribution Plans may be terminated at any time by a vote
of the Rule 12b-1 Trustees, or may be terminated with respect to the Portfolio
by vote of a majority of the outstanding voting shares of the respective class
of the Portfolio.
Any change in a Distribution Plan that would materially increase the
distribution expenses of the Portfolio provided for in a Distribution Plan
requires shareholder approval. Otherwise, a Distribution Plan may be amended by
the Trustees, including the Rule 12b-1 Trustees. Unpaid distribution costs at
September 30, 1994 for Class B and Class C shares were $3,003,410 and $213,323,
respectively.
While a Distribution Plan is in effect, the Fund will be required to
commit the selection and nomination of candidates for Independent Trustees to
the discretion of the Independent Trustees.
The total amounts paid by the Portfolio under the foregoing
arrangements may not exceed the maximum Distribution Plan limits specified
above. The amounts and purposes of expenditures under a Distribution Plan must
be reported to the Rule 12b-1 Trustees quarterly. The Rule 12b-1 Trustees may
require or approve changes in the implementation or operation of a Distribution
Plan, and may also require that total expenditures by the Portfolio under a
Distribution Plan be kept within limits lower than the maximum amount permitted
by the Distribution Plan as stated above.
The Independent Trustees of the Fund have determined that the sales of
the Portfolio's shares resulting from payments under the Distribution Plans have
benefited the Portfolio.
For the fiscal year ended September 30, 1994, the Portfolio paid the
Principal Underwriter $136,945, $774,646 and $286,141 pursuant to its Class A,
Class B and Class C Distribution Plans, respectively. These amounts were was
used to pay commissions and service fees.
- --------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
Trustees and officers of the Fund, their principal occupations and some
of their affiliations over the last five years are as follows:
*ALBERT H. ELFNER, III: President, Chief Executive Officer and Trustee of the
Fund; Chairman of the Board, President, Director and Chief Executive
Officer of Keystone Investments, Inc. ("Keystone Investments");
President, Chief Executive Officer and Trustee or Director of all 30
Funds in the Keystone Investments Family of Funds; Director and
Chairman of the Board, Chief Executive Officer and Vice Chairman of
Keystone Investment Management Company ("Keystone"); Chairman of the
Board and Director of Keystone Institutional Company, Inc. ("Keystone
Institutional") (formerly named Keystone Investment Management
Corporation), and Keystone Fixed Income Advisors ("KFIA"); Director,
Chairman of the Board, Chief Executive Officer and President of
Keystone Management, Inc. ("Keystone Management"), Keystone Software
Inc. ("Keystone Software"); Director and President of Hartwell Keystone
Advisers, Inc. ("Hartwell Keystone"), Keystone Asset Corporation,
Keystone Capital Corporation, and Keystone Trust Company; Director of
Keystone Investment Distributors Company ("the Principal Underwriter"),
Keystone Investor Resource Center, Inc. ("KIRC"), and Fiduciary
Investment Company, Inc. ("FICO"); Director and Vice President of
Robert Van Partners, Inc.; Director of Boston Children's Services
Association; Trustee of Anatolia College, Middlesex School, and
Middlebury College; Member, Board of Governors, New England Medical
Center; and former Trustee of Neworld Bank.
FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Professor, Finance Department, George Washington
University; President, Amling & Company (investment advice); Member,
Board of Advisers, Credito Emilano (banking); and former Economics and
Financial Consultant, Riggs National Bank.
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Investment Counselor to Appleton Partners,
Inc.; former Managing Director, Seaward Management Corporation
(investment advice) and former Director, Executive Vice President and
Treasurer, State Street Research & Management Company (investment
advice).
*GEORGE S. BISSELL: Chairman of the Board and Trustee of the Fund; Director of
Keystone Investments; Chairman of the Board and Trustee or Director of
all other Keystone Investments Funds; Director and Chairman of the
Board of Hartwell Keystone; Chairman of the Board and Trustee of
Anatolia College; Trustee of University Hospital (and Chairman of its
Investment Committee); former Chairman of the Board and Chief Executive
Officer of Keystone Investments; and former Chief Executive Officer of
the Fund.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Director, Coalition of Essential
Schools, Brown University; Director and former Executive Vice
President, National Alliance of Business; former Vice President,
Educational Testing Services; and former Dean, School of Business,
Adelphi University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; former Group Vice President, Textron Corp.;
and former Director, Peoples Bank (Charlotte, N.C).
LEROY KEITH, JR.: Trustee of t he Fund; Trustee or Director of all other
Keystone Investments Funds; Director of Phoenix Total Return Fund and
Equifax, Inc.; Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio
Fund and The Phoenix Big Edge Series Fund; and former President,
Morehouse College.
K. DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Chairman of the Board, Director and
Executive Vice President, The London Harness Company; Managing Partner,
Roscommon Capital Corp.; Trustee, Cambridge College; Chairman Emeritus
and Director, American Institute of Food and Wine; Chief Executive
Officer, Gifford Gifts of Fine Foods; Chairman, Gifford, Drescher &
Associates (environmental consulting); President, Oldways Preservation
and Exchange Trust (education); and former Director, Keystone
Investments and Keystone.
F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Of Counsel, Keyser, Crowley & Meub, P.C.;
Member, Governor's (VT) Council of Economic Advisers; Chairman of the
Board and Director, Central Vermont Public Service Corporation and
Hitchcock Clinic; Director, Vermont Yankee Nuclear Power Corporation,
Vermont Electric Power Company, Inc., Grand Trunk Corporation, Central
Vermont Railway, Inc., S.K.I. Ltd., Sherburne Corporation, Union Mutual
Fire Insurance Company, New England Guaranty Insurance Company, Inc.
and the Investment Company Institute; former Governor of Vermont;
former Director and President, Associated Industries of Vermont; former
Chairman and President, Vermont Marble Company; former Director of
Keystone; and former Director and Chairman of the Board, Green Mountain
Bank.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Vice President, DHR
International, Inc. (executive recruitment); former Senior Vice
President, Boyden International Inc. (executive recruitment); and
Director, Commerce and Industry Association of New Jersey, 411
International, Inc. and J & M Cumming Paper Co.
RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Chairman, Environmental Warranty, Inc., and
Consultant, Drake Beam Morin, Inc. (executive outplacement); Director
of Connecticut Natural Gas Corporation, Trust Company of Connecticut,
Hartford Hospital, Old State House Association and Enhanced Financial
Services, Inc.; Member, Georgetown College Board of Advisors; Chairman,
Board of Trustees, Hartford Graduate Center; Trustee, Kingswood-Oxford
School and Greater Hartford YMCA; former Director, Executive Vice
President and Vice Chairman of The Travelers Corporation; and former
Managing Director of Russell Miller, Inc.
ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Partner, Farrell, Fritz, Caemmerer, Cleary,
Barnosky & Armentano, P.C.; President, Nassau County Bar Association;
former Associate Dean and Professor of Law, St. John's University
School of Law.
EDWARD F. GODFREY: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Investments Funds; Director, Senior Vice President,
Chief Financial Officer and Treasurer of Keystone Investments, the
Principal Underwriter, Keystone Asset Corporation, Keystone Capital
Corporation, Keystone Trust Company; Treasurer of KIMCO, Robert Van
Partners, Inc., and FICO; Treasurer and Director of Keystone
Management, Keystone Software, and Hartwell Keystone; Vice President
and Treasurer of KFIA; and Director of KIRC.
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Investments Funds; and President of Keystone.
KEVIN J. MORRISSEY: Treasurer of the Fund; Treasurer of all other Keystone
Investments Funds; Vice President of Keystone Investments; Assistant
Treasurer of FICO and Keystone; and former Vice President and Treasurer
of KIRC.
ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Fund; Senior
Vice President and Secretary of all other Keystone Investments Funds;
Senior Vice President, General Counsel and Secretary of Keystone;
Senior Vice President, General Counsel, Secretary and Director of the
Principal Underwriter, Keystone Management and Keystone Software;
Senior Vice President and General Counsel of Keystone Institutional;
Senior Vice President, General Counsel and Director of FICO and KIRC:
Senior Vice President and Secretary of Hartwell Keystone and Robert Van
Partners, Inc. Vice President and Secretary of KFIA; Senior Vice
President, General Counsel and Secretary of Keystone Investments,
Keystone Asset Corporation, Keystone Capital Corporation and Keystone
Trust Company.
* This Trustee may be considered an "interested person" within the meaning of
the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Investments and several of
its affiliates including Keystone, the Principal Underwriter and KIRC. Mr.
Elfner and Mr. Bissell own shares of Keystone Investments. Mr. Elfner is
Chairman of the Board, Chief Executive Officer and Director of Keystone
Investments. Mr. Bissell is a Director of Keystone Investments.
During the fiscal year ended September 30, 1994, no Trustee affiliated
with Keystone or any officer received any direct remuneration from the Fund.
Annual retainers and meeting fees paid by all funds in the Keystone Investments
Family of Funds (which includes 30 mutual funds) for the fiscal year ended
September 30, 1994, totalled approximately $585,990. As of December 31, 1994,
the Trustees and officers beneficially owned less than 1.0% the Fund's then
outstanding shares.
The address of the Fund's Trustees and officers and the address of the
Fund is 200 Berkeley Street, Boston, Massachusetts 02116-5034.
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Subject to the general supervision of the Fund's Board of Trustees,
Keystone, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034,
provides investment advice, management and administrative services to the Fund.
Keystone, organized in 1932, is a wholly-owned subsidiary of Keystone
Investments, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
Keystone Investments is a corporation privately owned by current and
former members of management and certain employees of Keystone and its
affiliates. The shares of Keystone Investments common stock beneficially owned
by management are held in a number of voting trusts, the trustees of which are
George S. Bissell, Albert H. Elfner, III, Edward F. Godfrey and Ralph J.
Spuehler, Jr. Keystone Investments provides accounting, bookkeeping, legal,
personnel and general corporate services to Keystone, its affiliates and the
Keystone Investments Family of Funds.
Except as otherwise noted below, pursuant to an Investment Advisory and
Management Agreement with the Fund (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 objective and restrictions. The
Advisory Agreement stipulates that Keystone shall provide office space, all
necessary office facilities, equipment and personnel in connection with its
services 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 adviser as well as pay all expenses of Keystone incurred in
connection with the provision of its services. All charges and expenses other
than those specifically referred to as being borne by Keystone will be paid by
the Fund, including, but not limited to, custodian charges and expenses;
bookkeeping and auditors' charges and expenses; transfer agent charges and
expenses; fees of Independent Trustees; brokerage commissions; brokers' fees and
expenses; issue and transfer taxes; costs and expenses under the Distribution
Plan; taxes and trust fees payable to governmental agencies; the cost of share
certificates; fees and expenses of the registration and qualification of the
Fund and its shares with the Securities and Exchange Commission (sometimes
referred 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.
During the fiscal year ended September 30, 1992, the Fund paid or
accrued investment management and administrative services fees of $60,892, which
represented 1.00% of the Fund's average net assets. Of such amount, $30,446 was
paid or accrued to Keystone and $30,446 was paid or accrued to CLIAM for its
services as subadviser.
During the fiscal year ended September 30, 1993, the Fund paid or
accrued, investment management and administrative services fees of $179,783,
which represented 1.00% of the Fund's average net assets. Of such amount,
$89,891 was paid or accrued to CLIAM for its services as subadviser.
During the fiscal year ended September 30, 1994, the Fund paid or
accrued investment management and administrative services fees of $1,618,327
which represented 1.00% of the Fund's average net assets. Of such amount,
$809,163 was paid or accrued to CLIAM for its services as subadviser.
The Fund pays Keystone a fee for its services at the annual rate set
forth below:
Aggregate Net Asset
Management Value of the
Fee Shares of the Fund
- --------------------------------------------------------------------------------
1.00% of the first $ 200,000,000, plus
0.95% of the next $ 200,000,000, plus
0.85% of the next $ 200,000,000, plus
0.75% of amounts over $ 600,000,000;
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 has agreed to reimburse the Fund annually for certain operating
expenses incurred by the Fund in excess of certain percentages of the Fund's
average daily net assets. However, Keystone is not required to make such
reimbursements to an extent which 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 Fund is subject to certain annual state expense limitations imposed
on each of its Portfolios, the most restrictive of which is currently:
2.50% of the first $30 million of a Portfolio's average net assets;
2.00% of the next $70 million of a Portfolio's average net assets; and
1.50% of a Portfolio's average net assets over $100 million.
Under the Advisory Agreement any liability of Keystone in connection
with rendering services thereunder is limited to situations involving its
willful misfeasance, bad faith, gross negligence, or reckless disregard of its
duties.
Since August 7, 1991, Keystone, provided investment management and
advisory services to the Fund and has been paid a management fee computed and
paid daily, calculated by applying percentage rates, starting at 1.00% and
declining as net assets increase, to 0.75%, to the net asset value of the Fund.
The fee charged to the Fund is higher than that charged to most other investment
companies. The fee is comparable, however, to fees charged to other global and
international funds, which, together with the Fund, are subject to the higher
costs involved in managing a portfolio of predominantly international
securities.
The Advisory Agreement continues in effect only if approved at least
annually by the Board of Trustees of the Fund 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 Advisory 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 Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
- --------------------------------------------------------------------------------
SUBADVISER
- --------------------------------------------------------------------------------
Pursuant to the Advisory Agreement, Keystone has delegated certain
investment advisory services to CLIAM and has entered into a SubAdvisory
Agreement with CLIAM (the "SubAdvisory Agreement") under which CLIAM provides
those investment advisory services to the Fund.
CLIAM, located at 1301 Avenue of the Americas, New York, New York
10019, is an international investment management firm, established in April
1991, which is wholly-owned by Credit Lyonnais, Paris, France, a financial
institution with assets of $250 billion and over 500 branches in 70 countries.
Pursuant to the SubAdvisory Agreement, CLIAM receives for its services an annual
fee representing 50% of the management fee received by Keystone under the
Advisory Agreement.
Pursuant to the SubAdvisory Agreement, CLIAM will, subject to the
supervision of the Fund's Board of Trustees and Keystone, furnish a continuous
investment program for the Fund's non-North American portfolio, will determine
what securities will be purchased for or sold from the non-North American
portfolio of the Fund and will recommend what portion of the Fund's non-North
American assets shall be held uninvested.
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Fund has entered into a Principal Underwriting Agreement (the
"Underwriting Agreement") with Keystone Investment Distributors Company, a
wholly-owned subsidiary of Keystone.
The Principal Underwriter, located at 200 Berkeley Street, Boston,
Massachusetts, 02116-5034, is a Delaware corporation. The Principal Underwriter,
as agent, currently has the right to obtain subscriptions for and to sell shares
of the Fund to the public. In so doing, the Principal Underwriter may retain and
employ representatives to promote distribution of the shares and may obtain
orders from brokers, dealers and others, acting as principals, for sales of
shares. No such representative, dealer or broker has any authority to act as
agent for the Fund. The Principal Underwriter has not undertaken to buy or to
find purchasers for any specific number of shares. The Principal Underwriter may
receive payments from the Fund pursuant to the Fund's Distribution Plans.
All subscriptions and sales of shares by the Principal Underwriter are
at the offering price of the shares, such price being in accordance with the
provisions of the Fund's Declaration of Trust, By-Laws, current prospectus, and
statement of additional information. All orders are subject to acceptance by the
Fund and the Fund reserves the right, in its sole discretion, to reject any
order received. Under the Underwriting Agreement, the Fund is not liable to
anyone for failure to accept any order.
The Fund has agreed under the Underwriting Agreement to pay all
expenses in connection with registration of its shares with the Commission and
auditing and filing fees in connection with registration of its shares under the
various state "blue-sky" laws.
The Principal Underwriter has agreed to reimburse certain expenses
incurred by Mariner Financial Services, Inc. in connection with its sales of the
Fund's shares.
From time to time, if in the Principal Underwriter's judgment it could
benefit the sales of Fund shares, the Principal Underwriter may use its
discretion in providing to selected dealers promotional materials and selling
aids, including, but not limited to, personal computers, related software and
Fund data files.
The Principal Underwriter has agreed that it will, in all respects,
duly conform with all state and federal laws applicable to the sale of the
shares and will indemnify and hold harmless the Fund and each person who has
been, is or may be a Trustee or officer of the Fund against expenses reasonably
incurred by any of them in connection with any claim or in connection with any
action, suit or proceeding to which any of them may be a party that arises out
of or is alleged to arise out of any misrepresentation or omission to state a
material act on the part of the Principal Underwriter or any other person for
whose acts the Principal Underwriter is responsible or is alleged to be
responsible, unless such misrepresentation or omission was made in reliance upon
written information furnished by the Fund.
The Underwriting Agreement will remain in effect as long as its terms
and continuance are approved by a majority of the Fund's Independent Trustees at
least annually at a meeting called for that purpose, and if its continuance is
approved annually by vote of a majority of Trustees, or by vote of a majority of
the outstanding shares.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares. The Underwriting Agreement will terminate automatically upon
its "assignment" as that term is defined in the 1940 Act.
- --------------------------------------------------------------------------------
DECLARATION OF TRUST
- --------------------------------------------------------------------------------
MASSACHUSETTS BUSINESS TRUST
The Fund is a Massachusetts business trust established under a
Declaration of Trust dated June 17, 1987. The Fund is similar in most respects
to a business corporation. The principal distinction between the Fund and a
corporation relates to the shareholder liability described below. A copy of the
Declaration of Trust (the "Declaration of Trust") is filed as an exhibit to the
Registration Statement of which this statement of additional information is a
part. This summary is qualified in its entirety by reference to the Declaration
of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of classes of shares. Each share of the Fund
represents an equal proportionate interest with each other share of that class.
Upon liquidation, shares are entitled to a pro rata share of the Fund based on
the relative net assets of each class. Shareholders have no preemptive or
conversion rights. Shares are redeemable and transferable. The Fund is
authorized to issue additional classes or series of shares. Generally, the Fund
currently issues three classes of shares, but may issue additional classes or
series of shares.
SHAREHOLDER LIABILITY
Pursuant to certain decisions of the Supreme Judicial Court of
Massachusetts, shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. If the Fund were held to be a partnership, the possibility of the
shareholders' incurring financial loss for that reason appears remote because
(1) the Fund's Declaration of Trust contains an express disclaimer of
shareholder liability for obligations of the Fund and requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Fund or the Trustees; and (2) because the Declaration of
Trust provides for indemnification out of the Fund's property for any
shareholder held personally liable for the obligations of the Fund.
VOTING RIGHTS
Under the Declaration of Trust, the Fund does not hold annual meetings.
At meetings called for the initial election of Trustees or to consider other
matters, shares are entitled to one vote per share. Shares generally vote
together as one class on all matters. Classes of shares of the Fund have equal
voting rights except that each class of shares has exclusive voting rights with
respect to its respective Distribution Plan. No amendment may be made to the
Declaration of Trust which adversely affects any class of shares without the
approval of a majority of the shares of that class. Shares have non-cumulative
voting rights, which means that the holders of more than 50% of the shares
voting for the election of Trustees can elect 100% of the Trustees to be elected
at a meeting and, in such event, the holders of the remaining 50% or less of the
shares voting will not be able to elect any Trustees.
After an initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, unless and until such time as less than a majority of the Trustees
holding office have been elected by Shareholders at which time the Trustees then
in office will call a shareholders meeting for election of Trustees.
Except as set forth above, the Trustees shall continue to hold office
indefinitely, unless otherwise required by law, and may appoint successor
Trustees. A Trustee may be removed from or cease to hold office (as the case may
be) (1) at any time by two-thirds vote of the remaining Trustees; (2) when such
Trustee becomes mentally or physically incapacitated; or (3) at a special
meeting of shareholders by a two-thirds vote of the outstanding shares. Any
Trustee may voluntarily resign from office.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful malfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
- --------------------------------------------------------------------------------
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
- --------------------------------------------------------------------------------
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten years 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 cumulative total returns of Class A shares for the five year period
and the Life of Class ended September 30, 1994 were 92.85% and 122.82%,
respectively. The compounded average annual total rates of return for Class A
shares for the one and five year periods ended September 30, 1994 and the period
from March 16, 1988 (commencement of operations) to September 30, 1994 were
2.48%, 14.04% and 13.03%, respectively.
The cumulative total returns for Class B and Class C shares for the
period February 1, 1993 (commencement of operations) through fiscal year ended
September 30, 1994 were 34.99% (including applicable contingent deferred sales
charges), and 38.41%, respectively. The compounded average annual rates of
return for Class B and Class C shares for the one year period ended September
30, 1994 were 4.93% (including applicable contingent deferred sales charge) and
8.02%, respectively. The compounded average annual total rates of return for
Class B and Class C shares for the period February 1, 1993 (commencement of
operations) through September 30, 1994 were 19.72% (including applicable
contingent deferred sales charges) and 21.53%, respectively.
Current yield quotations as they may appear from time to time in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of the Portfolio 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 Portfolio does not
presently intend to advertise current yield.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
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 LLP, One Boston Place, Boston, Massachusetts
02108, Certified Public Accountants, are the Independent Auditors
of the Fund.
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519,
is a wholly-owned subsidiary of Keystone Custodian Funds, Inc. and acts as
transfer agent and dividend disbursing agent for the Fund.
As of December 31, 1994, the following owned of record 5% or more of
the outstanding Class A shares of the Fund: Merrill Lynch Pierce, Fenner &
Smith, Attn: Book Entry, 4800 Deer Lake Dr. E 3rd, FL, Jacksonville, FL
32246-6484 owned 19.45%.
As of December 31, 1994, the following owned of record 5% or more of
the outstanding Class B shares of the Fund: Merrill Lynch Pierce, Fenner &
Smith, Atten: Book Entry, 4800 Deer Lake Dr E 3rd Fl, Jacksonville, FL
32246-6484 owned 22.71%.
As of December 31, 1994, the following owned 5% or more of the
outstanding Class C shares of the Fund: Merrill Lynch Pierce, Fenner & Smith,
Atten: Book Entry, 4800 Deer Lake Dr E 3rd Fl, Jacksonville, FL 32246-6484 owned
47,64%.
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, statement of additional information or in supplemental sales
literature issued by the Fund or the Principal Underwriter, and no person is
entitled to rely on any information or representation not contained therein.
The Fund's prospectus and statement of additional information omit
certain information contained in the registration statement filed with the
Securities and Exchange Commission, which may be obtained from the Securities
and Exchange Commission's principal office in Washington, D.C. upon payment of
the fee prescribed by the rules and regulations promulgated by the Securities
and Exchange Commission.
The Fund is one of 15 different investment companies in the Keystone
America Fund Family, which offers a range of choices to serve shareholder needs.
The Keystone America Fund Family consists of the following Funds having the
various investment objectives described below:
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND - Seeks high current income,
consistent with low volatility of principal, by investing in adjustable rate
securities issued by the U.S. government, its agencies or instrumentalities.
KEYSTONE FUND FOR TOTAL RETURN - Seeks total return from a combination of
capital growth and income from dividend paying common stocks, preferred stocks,
convertible bonds, other fixed-income securities and foreign securities (up to
50%).
KEYSTONE GOVERNMENT SECURITIES FUND - Seeks income and capital preservation from
U.S. government securities.
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 HARTWELL GROWTH FUND - Seeks capital appreciation by investment in
securities selected for their long-term growth prospects.
KEYSTONE INTERMEDIATE TERM BOND FUND - Seeks income, capital preservation and
price appreciation potential from investment grade corporate bonds.
KEYSTONE OMEGA FUND - Seeks maximum capital growth from common stocks and
securities convertible into common stocks.
KEYSTONE STATE TAX FREE FUND - A mutual fund consisting of five separate series
of shares investing in different portfolio securities which seeks the highest
possible current income, exempt from federal income taxes and applicable state
taxes.
KEYSTONE STATE TAX FREE FUND - Series II - A mutual fund consisting of two
separate series of shares investing in different portfolio securities which
seeks the highest possible current income, exempt from federal income taxes and
applicable state taxes.
KEYSTONE STRATEGIC INCOME FUND - Seeks high yield and capital appreciation
potential from corporate bonds, discount bonds, convertible bonds, preferred
stock and foreign bonds (up to 25%).
KEYSTONE TAX FREE INCOME FUND - Seeks income exempt from federal income taxes
and capital preservation from the four highest grades of municipal bonds.
KEYSTONE WORLD BOND FUND - Seeks total return from interest income, capital
gains and losses and currency exchange gains and losses from investment in debt
securities denominated in U.S. and foreign currencies.
KEYSTONE FUND OF THE AMERICAS - Seeks long-term growth of capital through
investments in equity and debt securities in North America (the United States
and Canada), and Latin America (Mexico and countries in South and Central
America).
KEYSTONE STRATEGIC DEVELOPMENT FUND - Seeks long-term capital growth by
investing primarily in equity securities.
<PAGE>
APPENDIX
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of one
year or less such as bank certificates of deposit, bankers' acceptances,
commercial paper (including variable rate master demand notes), and obligations
issued or guaranteed by the United States ("U.S.") government, its agencies or
instrumentalities, some of which may be subject to repurchase agreements.
COMMERCIAL PAPER
Commercial paper, including commercial paper of foreign issuers, will
consist of issues rated at the time of purchase A-1 by Standard & Poor's
Corporation (S&P), or PRIME-1 by Moody's Investors Service, Inc., (Moody's); or,
if not rated, will be issued by companies which have an outstanding debt issue
rated at the time of purchase Aaa, Aa or A by Moody's, or AAA, AA or A by S&P,
or will be determined by Keystone to be of comparable quality.
A. S&P RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. The top category is as follows:
1. A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
a. A-1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
B. MOODY'S RATINGS
The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's commercial
paper ratings are opinions of the ability of issuers to repay punctually
promissory obligations not having an original maturity in excess of nine months.
Moody's employs the following designation, judged to be investment grade, to
indicate the relative repayment capacity of rated issuers.
The rating PRIME-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated PRIME-1 (or related supporting institutions) are deemed
to have a superior capacity for repayment of short term promissory obligations.
Repayment capacity of PRIME-1 issuers is normally evidenced by the following
characteristics:
1) leading market positions in well-established industries;
2) high rates of return on funds employed;
3) conservative capitalization structures with moderate reliance on debt
and ample asset protection;
4) broad margins in earnings coverage of fixed financial charges and high
internal cash generation; and
5) well established access to a range of financial markets and assured
sources of alternate liquidity.
In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.
U.S. CERTIFICATES OF DEPOSIT
U.S. Certificates of deposit are receipts issued by a U.S. bank in exchange
for the deposit of funds. The issuer agrees to pay the amount deposited plus
interest to the bearer of the receipt on the date specified on the certificate.
The certificate usually can be traded in the secondary market prior to maturity.
U.S. Certificates of deposit will be limited to U.S. dollar-denominated
certificates of U.S. banks, including their branches abroad, which are members
of the Federal Reserve System or the Federal Deposit Insurance Corporation, and
of U.S. branches of foreign banks, each of which have total assets at the time
of purchase in excess of $1 billion as of the date of their most recently
published financial statements.
TIME DEPOSITS
The Portfolio may acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Interamerican Development Bank. Additionally, the Fund may purchase
time deposits certificates of deposit, bankers' acceptances or other similar
obligations issued by non U. S. branches of foreign banks.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Portfolio must have been accepted by
commercial banks, having total deposits at the time of purchase in excess of $1
billion.
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. government include a variety of
Treasury securities that differ only in their interest rates, maturities and
dates of issuance and securities issued by the Government National Mortgage
Association ("GNMA").
Treasury bills have maturities of one year or less. Treasury notes have
maturities of one to ten years and Treasury bonds generally have maturities of
greater than ten years at the date of issuance. GNMA securities include GNMA
mortgage pass-through certificates. Such securities are supported by the full
faith and credit of the U.S.
Securities issued or guaranteed by U.S. government agencies or
instrumentalities include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime
Administration, The Tennessee Valley Authority, District of Columbia Armory
Board and Federal National Mortgage Association.
Some obligations of U.S. government agencies and instrumentalities, such as
securities of Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury. Others, such as bonds issued by the Federal
National Mortgage Association, a private corporation, are supported only by the
credit of the instrumentality. Because the United States government is not
obligated by law to provide support to an instrumentality it sponsors, the Fund
will invest in the securities issued by such an instrumentality only when
Keystone determines under standards established by the Board of Trustees that
the credit risk with respect to the instrumentality does not make its securities
unsuitable investments. While the Fund may invest in such instruments, United
States government securities do not include international agencies or
instrumentalities in which the United States government, its agencies or
instrumentalities participate, such as the World Bank, Asian Development Bank or
the InterAmerican Development Bank, or issues insured by the Federal Deposit
Insurance Corporation.
CORPORATE BOND RATINGS
S&P CORPORATE BOND RATINGS
An S&P corporate bond rating is a current assessment of the
creditworthiness of an obligor, including obligors outside the U.S., with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees. Ratings of foreign obligors
do not take into account currency exchange and related uncertainties. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable.
The ratings are based, in varying degrees, on the following considerations:
a. Likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "A" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
5. BB, B, CCC, CC AND C - Debt rated BB, B, CCC, CC AND C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
B. MOODY'S CORPORATE BOND RATINGS
Moody's ratings are as follows:
1. Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
2. Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
3. A - Bonds which are rated A possess many favorable invest attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
4. Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
5. Ba - Bonds which are rated Ba are judged to have speculative elements.
Their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
6. B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principle payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
COMMON AND PREFERRED STOCK RATINGS
A. S&P'S EARNINGS AND DIVIDEND RANKINGS FOR COMMON STOCKS
Because the investment process involves assessment of various factors, such
as product and industry position, corporate resources and financial policy, with
results that make some common stocks more highly esteemed than others, S&P
believes that earnings and dividend performance is the end result of the
interplay of these factors and that, over the long run, the record of this
performance has a considerable bearing on relative quality. S&P rankings,
however, do not reflect all of the factors, tangible or intangible, that bear on
stock quality.
Growth and stability of earnings and dividends are deemed key elements in
establishing S&P earnings and dividend rankings for common stocks, which
capsulize the nature of this record in a single symbol.
S&P has established a computerized scoring system based on pershare
earnings and dividend records of the most recent ten years, a period deemed long
enough to measure a company's performance under varying economic conditions. S&P
measures growth, stability within the trend line and cyclicality. The ranking
system also makes allowances for company size, since large companies have
certain inherent advantages over small ones. From these scores for earnings and
dividends are determined.
The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample which
is reviewed and sometimes modified with the following ladder of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A Above Average B Lower
S&P believes its rankings are not a forecast of future market price
performance, but are basically an appraisal of past performance of earnings and
dividends, and relative current standing.
B. MOODY'S COMMON STOCK RANKINGS
Moody's presents a concise statement of the important characteristics of a
company and an evaluation of the grade (quality) of its common stock. Data
presented includes: (a) capsule stock information which reveals short and long
term growth and yield afforded by the indicated dividend, based on a recent
price; (b) a long term price chart which shows patterns of monthly stock price
movements and monthly trading volumes; (c) a breakdown of a company's capital
account which aids in determining the degree of conservatism or financial
leverage in a company's balance sheet; (d) interim earnings for the current year
to date, plus three previous years; (e) dividend information; (f) company
background; (g) recent corporate developments; (h) prospects for a company in
the immediate future and the next few years; and (i) a ten year comparative
statistical analysis.
This information provides investors with information on what a company
does, how it has performed in the past, how it is performing currently and what
its future performance prospects appear to be.
These characteristics are then evaluated and result in a grading, or
indication of quality. The grade is based on an analysis of each company's
financial strength, stability of earnings and record of dividend payments. Other
considerations include conservativeness of capitalization, depth and caliber of
management, accounting practices, technological capabilities and industry
position Evaluation is represented by the following grades:
(1) High Grade
(2) Investment Grade
(3) Medium Grade
(4) Speculative Grade
C. MOODY'S PREFERRED STOCK RATINGS
Preferred stock ratings and their definitions are as follows:
1. aaa: An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
2. aa: An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance that
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
3. a: An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater then in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
4. baa: An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be questionable
over any great length of time.
5. ba: An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and
asset protection may be very moderate and not well safeguarded during
adverse periods. Uncertainty of position characterizes preferred stocks
in this class.
6. b: An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
7. caa: An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate
the future status of payments.
8. ca: An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
9. c: This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category, the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
<PAGE>
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS
The Portfolio writes only covered options. Options written by the
Portfolio will normally have expiration dates of not more than nine months from
the date written. The exercise price of the options may be below, equal to, or
above the current market values of the underlying securities at the times the
options are written.
Unless the option has been exercised, the Portfolio may close out an
option it has written by effecting a closing purchase transaction, whereby it
purchases an option covering the same underlying security and having the same
exercise price and expiration date ("of the same series") as the one it has
written. If the Portfolio desires to sell a particular security on which it has
written a call option, it will effect a closing purchase transaction prior to or
concurrently with the sale of the security. If the Portfolio is able to enter
into a closing purchase transaction, the Portfolio will realize a profit (or
loss) from such transaction if the cost of such transaction is less (or more)
than the premium received from the writing of the option.
An option position may be closed out only in a secondary market for an
option of the same series. Although the Portfolio will generally write only
those options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market will exist for any particular option
at any particular time, and for some options no secondary market may exist. In
such event it might not be possible to effect a closing transaction in a
particular option. If the Portfolio as a covered call option writer is unable to
effect a closing purchase transaction, it will not be able to sell the
underlying securities until the option expires or it delivers the underlying
securities upon exercise.
Because the Portfolio intends to qualify as a regulated investment
company under the Internal Revenue Code, the extent to which the Portfolio may
write covered call options and enter into so-called "straddle" transactions
involving put and call options may be limited.
Many options are traded on registered securities exchanges. Options
traded on such exchanges are issued by the Options Clearing Corporation ("OCC"),
a clearing corporation which assumes responsibility for the completion of
options transactions.
PURCHASING PUT AND CALL OPTIONS
The Portfolio can close out a put option it has purchased by effecting
a closing sale transaction; for examle, the Portfolio may close out a put option
it has purchased by selling a put option. If, however, a secondary market does
not exist at a time the Portfolio wishes to effect a closing sale transaction,
the Portfolio will have to exercise the option to realize any profit. In
addition, in a transaction in which the Portfolio does not own the security
underlying a put option it has purchased, the Portfolio would be required, in
the absence of a secondary market, to purchase the underlying security before it
could exercise the option. In each such instance, the Portfolio would incur
additional transaction costs.
The Portfolio may also purchase call options for the purpose of
offsetting previously written call options of the same series.
The Portfolio will not purchase a put option if, as a result of such
purchase, more than 10% of its total assets would be invested in premiums for
such options. The Portfolio's ability to purchase put and call options may be
limited by the Internal Revenue Code's requirements for qualification as a
regulated investment company.
OPTION WRITING AND RELATED RISKS
The Portfolio may write covered call and put options. A call option
gives the purchaser of the option the right to buy, and the writer the
obligation to sell, the underlying security at the exercise price during the
option period. Conversely, a put option gives the purchaser the right to sell,
and the writer the obligation to buy, the underlying security at the exercise
price during the option period.
So long as the obligation of the writer continues, the writer may be
assigned an exercise notice by the broker/dealer through whom the option was
sold. The exercise notice would require the writer to deliver, in the case of a
call, or take delivery of, in the case of a put, the underlying security against
payment of the exercise price. This obligation terminates upon expiration of the
option, or at such earlier time that the writer effects a closing purchase
transaction by purchasing an option of the same series as the one previously
sold. Once an option has been exercised, the writer may not execute a closing
purchase transaction. For options traded on national securities exchanges
(Exchanges), to secure the obligation to deliver the underlying security in the
case of a call option, the writer of the option is required to deposit in escrow
the underlying security or other assets in accordance with the rules of the OCC,
an institution created to interpose itself between buyers and sellers of
options. Technically, the OCC assumes the order side of every purchase and sale
transaction on an Exchange and, by doing so, gives its guarantee to the
transaction.
The principal reason for writing options on a securities portfolio is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the underlying securities alone. In return for the premium,
the covered call option writer has given up the opportunity for profit from a
price increase in the underlying security above the exercise price plus the
premium so long as the option remains open but retains the risk of loss should
the price of the security decline. Conversely, the put option writer gains a
profit, in the form of a premium, so long as the price of the underlying
security remains above the exercise price less the premium but assumes an
obligation to purchase the underlying security from the buyer of the put option
at the exercise price, even though the security may fall below the exercise
price, at any time during the option period. If an option expires, the writer
realizes a gain in the amount of the premium. Such a gain may, in the case of a
covered call option, be offset by a decline in the market value of the
underlying security during the option period. If a call option is exercised, the
writer realizes a gain or loss from the sale of the underlying security. If a
put option is exercised, the writer must fulfill his obligation to purchase the
underlying security at the exercise price, which will usually exceed the then
market value of the underlying security. In addition, the premium received paid
for the put effectively reduces the cost of the underlying security, thus
increasing the yield otherwise available from such securities.
Because the Portfolio can write only covered options, it may at times
be unable to write additional options unless it sells a portion of its portfolio
holdings to obtain new securities against which it can write options. This may
result in higher portfolio turnover and correspondingly greater brokerage
commissions and other transaction costs.
To the extent that a secondary market is available, the covered option
writer may close out options it has written prior to the assignment of an
exercise notice by purchasing, in a closing purchase transaction, an option of
the same series as the option previously written. If the cost of such a closing
purchase, plus transaction costs, is greater than the premium received upon
writing the original option, the writer will incur a loss in the transaction
OPTIONS TRADING MARKETS
Options which the Portfolio will trade are generally listed on
Exchanges. Exchanges on which such options currently are traded are the Chicago
Board Options Exchange and the New York, American, Pacific and Philadelphia
Stock Exchanges. 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
Portfolio. 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 Portfolio is
subject to the investment restrictions described in the Fund's prospectus and in
the statement of additional information.
The staff of the Commission currently is of the view that the premiums
which the Portfolio pays for the purchase of unlisted options, and the value of
securities used to cover unlisted options written by the Portfolio are
considered to be invested in illiquid securities or assets for the purpose of
calculating whether the Fund is in compliance with its fundamental investment
restriction prohibiting it from investing more than 10% of its total assets
(taken at current value) in any combination of illiquid assets and securities.
The Portfolio intends to request that the Commission staff reconsider its
current view. It is the intention of the Fund to comply with the staff's current
position and the outcome of such reconsideration.
SPECIAL CONSIDERATIONS APPLICABLE TO OPTIONS
ON TREASURY BONDS AND NOTES. Because trading interest in U.S. Treasury
bonds and notes tends to center on the most recently auctioned issues, new
series of options with expirations to replace expiring options on particular
issues will not be introduced indefinitely. Instead, the expirations introduced
at the commencement of options trading on a particular issue will be allowed to
run their course, with the possible addition of a limited number of new
expirations as the original ones expire. Options trading on each series of bonds
or notes will thus be phased out as new options are listed on the more recent
issues, and a full range of expiration dates will not ordinarily be available
for every series on which options are traded.
ON TREASURY BILLS. Because the deliverable U.S. Treasury bill changes
from week to week, writers of U.S. Treasury bill call options cannot provide in
advance for their potential exercise settlement obligations by acquiring and
holding the underlying security. However, if the Portfolio holds a long position
in U.S. Treasury bills with a principal amount corresponding to the option
contract size, the Portfolio may be hedged from a risk standpoint. In addition,
the Portfolio will maintain in a segregated account with its Custodian liquid
assets maturing no later than those which would be deliverable in the event of
an assignment of an exercise notice to ensure that it can meet its open option
obligations.
ON GNMA CERTIFICATES. Options on GNMA certificates are not currently
traded on any Exchange. However, the Portfolio may purchase and write such
options in the over the counter market or, should they commence trading, on any
Exchange.
Since the remaining principal balance of GNMA certificates declines
each month as a result of mortgage payments, the Portfolio, as a writer of a
covered GNMA call holding GNMA certificates as "cover" to satisfy its delivery
obligation in the event of assignment of an exercise notice, may find that its
GNMA certificates no longer have a sufficient remaining principal balance for
this purpose. Should this occur, the Portfolio will enter into a closing
purchase transaction or will purchase additional GNMA certificates from the same
pool (if obtainable) or replacement GNMA certificates in the cash market in
order to remain covered.
A GNMA certificate held by the Portfolio to cover an option position in
any but the nearest expiration month may cease to present cover for the option
in the event of a decline in the GNMA coupon rate at which new pools are
originated under the FHA/VA loan ceiling in effect at any given time. Should
this occur, the Portfolio will no longer be covered, and the Portfolio will
either enter into a closing purchase transaction or replace the GNMA certificate
with a certificate which represents cover. When the Portfolio closes its
position or replaces the GNMA certificate, it may realize an unanticipated loss
and incur transaction costs.
RISKS PERTAINING TO THE SECONDARY MARKET. An option position may be
closed out only in a secondary market for an option of the same series. Although
the Portfolio will generally purchase or write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market will exist for any particular option at any particular
time, and for some options no secondary market may exist. In such event, it
might not be possible to effect closing transactions in particular options, with
the result that the Portfolio would have to exercise its options in order to
realize any profit and may incur transaction costs in connection therewith. If
the Portfolio as a covered call option writer is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise.
Reasons for the absence of a liquid secondary market include the
following: (i) insufficient trading interest in certain options; (ii)
restrictions imposed on transactions; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options or
underlying securities; (iv) interruption of the normal operations on an Exchange
or by a broker; (v) inadequacy of facilities of an Exchange or a broker to
handle current trading volume; or (vi) a decision by one or more Exchanges or
brokers to discontinue the trading of options (or a particular class or series
of options), in which event the secondary market in that class or series of
options would cease to exist, although outstanding options that had been issued
as a result of trades would generally continue to be exercisable in accordance
with their terms.
The hours of trading for options on U.S. government securities may not
conform to the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS
The Portfolio intends to engage in currency and other financial futures
contracts as a hedge against changes in prevailing levels of interest or
currency exchange rates, to seek relative stability of principal and to
establish more definitely the effective return on securities held or intended to
be acquired to the Portfolio or as a hedge against changes in the prices of
securities or currencies held by the Portfolio or to be acquired by the
Portfolio. The Portfolio's hedging may include sales of futures as an offset
against the effect of expected increases in interest or currency exchange rates
or securities prices and purchases of futures as an offset against the effect of
expected declines in interest or currency exchange rates.
For example, when the Portfolio anticipates a significant market or
market sector advance, the Portfolio will purchase a stock index futures
contract as a hedge against not participating in such advance at a time when the
Portfolio is not fully invested. The purchase of a futures contract serves as a
temporary substitute for the purchase of individual securities which may then be
purchased in an orderly fashion. As such purchases are made, an equivalent
amount of index based futures contracts would be terminated by offsetting sales.
In contrast, the Portfolio would sell stock index futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Portfolio's portfolio. To the extent
that the Portfolio's changes in value in correlation with a given index, the
sale of futures contracts on that index would substantially reduce the risk to
the Portfolio of a market decline or change in interest rates, and, by so doing,
provide an alternative to the liquidation of the Portfolio's securities
positions and the resulting transaction costs.
The Fund intends to engage on behalf of the Portfolio in options
transactions which are related to currency and other financial futures contracts
for the hedging purposes and in connection with the hedging strategies described
above.
Although techniques other than sales and purchases of futures contracts
and related options transactions could be used to reduce the Portfolio's
exposure to interest rate and/or market fluctuations, the Fund may be able to
hedge its exposure more effectively and perhaps at a lower cost through using
futures contracts and related options transactions. While the Portfolio does not
intend to take delivery of the instruments underlying futures contracts its
Portfolio holds, the Portfolio does not intend to engage in such futures
contracts for speculation.
FUTURES CONTRACTS
Futures contracts are transactions in the commodities markets rather
than in the securities markets. A futures contract creates an obligation by the
seller to deliver to the buyer the commodity specified in the contract at a
specified future time for a specified price. The futures contract creates an
obligation by the buyer to accept delivery from the seller of the commodity
specified at the specified future time for the specified price. In contrast, a
spot transaction creates an immediate obligation for the seller to deliver and
the buyer to accept delivery of and pay for an identified commodity. In general,
futures contracts involve transactions in fungible goods such as wheat, coffee
and soybeans. However, in the last decade an increasing number of futures
contracts have been developed which specify currencies, financial instruments or
financially based indexes as the underlying commodity.
U.S. futures contracts are traded only on national futures exchanges
and are standardized as to maturity date and underlying financial instrument.
The principal financial futures exchanges in the United States are The Board of
Trade of the City of Chicago, the Chicago Mercantile Exchange, the International
Monetary Market (a division of the Chicago Mercantile Exchange), the New York
Futures Exchange and the Kansas City Board of Trade. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant (Broker) effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC") and National Futures Association ("NFA").
INTEREST RATE FUTURES CONTRACTS
The sale of an interest rate futures contract creates an obligation by
the Portfolio, as seller, to deliver the type of financial instrument specified
in the contract at a specified future time for a specified price. The purchase
of an interest rate futures contract creates an obligation by the Portfolio, as
purchaser, to accept delivery of the type of financial instrument specified at a
specified future time for a specified price. The specific securities delivered
or accepted, respectively, at settlement date, are not determined until at or
near that date. The determination is in accordance with the rules of the
exchange on which the futures contract sale or purchase was made.
Currently interest rate futures contracts can be purchased or sold on
90-day U.S. Treasury bills, U.S. Treasury bonds, U.S. Treasury notes with
maturities between 6 1/2 and 10 years, GNMA certificates, 90-day domestic bank
certificates of deposit, 90-day commercial paper, and 90-day Eurodollar
certificates of deposit. It is expected that futures contracts trading in
additional financial instruments will be authorized. The standard contract size
is $100,000 for futures contracts in U.S. Treasury bonds, U.S. Treasury notes
and GNMA certificates, and $1,000,000 for the other designated contracts. While
U.S. Treasury bonds, U.S. Treasury bills and U.S. Treasury notes are backed by
the full faith and credit of the U.S. government and GNMA certificates are
guaranteed by a U.S. government agency, the futures contracts in U.S. government
securities are not obligations of the U.S. Treasury.
INDEX BASED FUTURES CONTRACTS
STOCK INDEX FUTURES CONTRACTS
A stock index assigns relative values to the common stocks included in
the index. The index fluctuates with changes in the market values of the common
stocks so included. A stock index futures contract is a bilateral agreement by
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the closing value of the
stock index on the expiration date of the contract and the price at which the
futures contract is originally made. No physical delivery of the underlying
stocks in the index is made.
Currently, stock index futures contracts can be purchased or sold on
the Standard and Poor's Corporation ("S&P") Index of 500 Stocks, the S&P Index
of 100 Stocks, the New York Stock Exchange Composite Index, the Value Line Index
and the Major Market Index. It is expected that futures contracts trading in
additional stock indices will be authorized. The standard contract size is $500
times the value of the index.
The Fund does not believe that differences between existing stock
indices will create any differences in the price movements of the stock index
futures contracts in relation to the movements in such indices. However, such
differences in the indices may result in differences in correlation of the
futures with movements in the value of the securities being hedged.
OTHER INDEX BASED FUTURES CONTRACTS
It is expected that bond index and other financially based index
futures contracts will be developed in the future. It is anticipated that such
index-based futures contracts will be structured in the same way as stock index
futures contracts but will be measured by changes in interest rates, related
indexes or other measures, such as the consumer price index. In the event that
such futures contracts are developed the Portfolio will sell interest rate index
and other index based futures contracts to hedge against changes which are
expected to affect the Portfolio's portfolio.
The purchase or sale of a futures contract differs from the purchase or
sale of a security, in that no price or premium is paid or received. Instead, to
initiate trading an amount of cash, cash equivalents, money market instruments,
or U.S. Treasury bills equal to approximately 1 1/2% (up to 5%) of the cotract
amount must be deposited by the Fund on behalf of the Portfolio with the Broker.
This amount is known as initial margin. The nature of initial margin in futures
transactions is different from that of margin in security transactions. Futures
contract margin does not involve the borrowing of funds by the customer to
finance the transactions. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Portfolio upon termination of the futures contract assuming all contractual
obligations have been satisfied. The margin required for a particular futures
contract is set by the exchange on which the contract is traded, and may be
significantly modified from time to time by the exchange during the term of the
contract.
Subsequent payments, called variation margin, to the Broker and from
the Broker, are made on a daily basis as the value of the underlying instrument
or index fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as mark-to-market. For example, when the
Portfolio has purchased a futures contract and the price of the underlying
financial instrument or index has risen, that position will have increased in
value and the Portfolio will receive from the Broker a variation margin payment
equal to that increase in value. Conversely, where the Portfolio has purchased a
futures contract and the price of the underlying financial instrument or index
has declined, the position would be less valuable and the Portfolio would be
required to make a variation margin payment to the Broker. At any time prior to
expiration of the futures contract, the Portfolio may elect to close the
position. A final determination of variation margin is then made, additional
cash is required to be paid to or released by the Broker, and the Portfolio
realizes a loss or gain.
The Fund on behalf of the Portfolio intends to enter into arrangements
with its custodian and with Brokers to enable its initial margin and any
variation margin to be held in a segregated account by its custodian on behalf
of the Broker.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of financial instruments and index based futures
contracts call for the delivery of cash equal to the difference between the
closing value of the index on the expiration date of the contract and the price
at which the futures contract is originally made, in most cases such futures
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out a futures contract sale is effected by an offsetting
transaction in which the Portfolio enters into a futures contract purchase for
the same aggregate amount of the specific type of financial instrument or index
and same delivery date. If the price in the sale exceeds the price in the
offsetting purchase, the Portfolio is paid the difference and thus realizes a
gain. If the offsetting purchase price exceeds the sale price, the Portfolio
pays the difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by an offsetting transaction in which the
Portfolio enters into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Portfolio realizes a gain. If the purchase price
exceeds the offsetting sale price the Fund realizes a loss. The amount of the
Portfolio's gain or loss on any transaction is reduced or increased,
respectively, by the amount of any transaction costs incurred by the Portfolio.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one contract of September U.S. Treasury bills on an
exchange may be fulfilled at any time before delivery of the contract is
required (i.e. on a specified date in September, the "delivery month") by the
purchase of one contract of September U.S. Treasury bills on the same exchange.
In such instance the difference between the price at which the futures contract
was sold and the price paid for the offsetting purchase after allowance for
transaction costs, represents the profit or loss to the Portfolio.
There can be no assurance, however, that the Portfolio will be able to
enter into an offsetting transaction with respect to a particular contract at a
particular time. If the Portfolio is not able to enter into an offsetting
transaction, the Portfolio 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.
OPTIONS ON CURRENCY AND OTHER FINANCIAL FUTURES
The Portfolio intends to purchase call and put options on currency and
other financial futures contracts and sell such options to terminate an existing
position. Options on currency and other financial futures are similar to options
on stocks except that an option on a currency and other financial futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put) rather than to purchase or sell
stock, at a specified exercise price at any time during the period of the
option. Upon exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by delivery
of the accumulated balance in the writer's futures margin account. This amount
represents the amount by which the market price of the futures contract at
exercise exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. If an option is
exercised the last trading day prior to the expiration date of the option, the
settlement will be made entirely in cash equal to the difference between the
exercise price of the option and value of the commodity.
The Portfolio intends to use options on currency and other financial
futures contracts in connection with hedging strategies. In the future the
Portfolio may use such options for other purposes.
PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS.
The purchase of protective put options on currency and other financial
futures contracts is analagous to the purchase of protective puts on individual
stocks, where an absolute level of protection is sought below which no
additional economic loss would be incurred by the Portfolio. Put options may be
purchased to hedge a portfolio of stocks or debt instruments or a position in
the futures contract upon which the put option is based.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS.
The purchase of a call option on a currency and other financial futures
contract represents a means of obtaining temporary exposure to market
appreciation at limited risk. It is analogous to the purchase of a call option
on an individual stock, which can be used as a substitute for a position in the
stock itself. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the underlying
financial instrument or index itself, purchase of a call option may be less
risky than the ownership of the interest rate or index based futures contract or
the underlying securities Call options on currency and other financial futures
contracts may be purchased to hedge against an interest rate increase or a
market advance when the Portfolio is not fully invested.
USE OF NEW INVESTMENT TECHNIQUES INVOLVING CURRENCY AND OTHER FINANCIAL FUTURES
CONTRACTS OR RELATED OPTIONS
The Portfolio may employ new investment techniques involving currency
and other financial futures contracts and related options. The Portfolio intends
to take advantage of new techniques in these areas which may be developed from
time to time and which are consistent with the Portfolio's investment objective.
The Portfolio believes that no additional techniques have been identified for
employment by the Portfolio in the foreseeable future other than those described
above.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND RELATED OPTIONS ON
SUCH FUTURES CONTRACTS
The Portfolio will not enter into a futures contract if, as a result
thereof, more than 5% of the Portfolio's total assets (taken at market value at
the time of entering into the contract) would be committed to margin deposits on
such futures contracts.
The Portfolio intends that its futures contracts and related options
transactions will be entered into for traditional hedging purposes. That is,
futures contracts will be sold to protect against a decline in the price of
securities that the Portfolio owns, or futures contracts will be purchased to
protect the Portfolio against an increase in the price of securities it intends
to purchase. The Portfolio does not intend to enter into futures contracts for
speculation.
In instances involving the purchase of futures contracts by the
Portfolio, an amount of cash and cash equivalents, equal to the market value of
the futures contracts will be deposited in a segregated account with the Fund's
custodian and/or in a margin account with a Broker to collateralize the position
and thereby insure that the use of such futures is unleveraged.
FEDERAL INCOME TAX TREATMENT
For federal income tax purposes, the Portfolio is required to recognize
as income for each taxable year its net unrealized gains and losses on futures
contracts as of the end of the year as well as those actually realized during
the year. Any gain or loss recognized with respect to a futures contract is
considered to be 60% long term and 40% short term, without regard to the holding
period of the contract. In the case of a futures transaction classified as a
"mixed straddle," the recognition of losses may be deferred to a later taxable
year. The federal income tax treatment of gains or losses from transactions in
options on futures is unclear.
In order for the Portfolio to qualify for federal income tax treatment
as a regulated investment company, at least 90% of its gross income for a
taxable year must be derived from qualifying income. Any net gain realized from
the closing out of futures contracts, for purposes of the 90% requirement, will
be qualifying income. In addition, gains realized on the sale or other
disposition of securities held for less than three months must be limited to
less than 30% of the Portfolio's annual gross income. The Tax Reform Act of 1986
added a provision which effectively treats both positions in certain hedging
transactions as a single transaction for the purpose of the 30% requirement. The
provision provides that, in the case of any "designated hedge" increases and
decreases in the value of positions of the hedge are to be netted for the
purposes of the 30% requirement. However, in certain situations, in order to
avoid realizing a gain within a three month period, the Portfolio may be
required to defer the closing out of a contract beyond the time when it would
otherwise be advantageous to do so.
RISKS OF FUTURES CONTRACTS
Currency and other financial futures contracts prices are volatile and
are influenced, among other things, by changes in stock prices, market
conditions, prevailing interest rates and anticipation of future stock prices,
market movements or interest rate changes, all of which in turn are affected by
economic conditions, such as government fiscal and monetary policies and
actions, and national and international political and economic events.
At best, the correlation between changes in prices of futures contracts
and of the securities being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances, such as variations in
speculative market demand for futures contracts and for securities, including
technical influences in futures contracts trading; differences between the
securities being hedged and the financial instruments and indexes underlying the
standard futures contracts available for trading, in such respects as interest
rate levels, maturities and creditworthiness of issuers, or identities of
securities comprising the index and those in the Portfolio. In addition futures
contract transactions involve the remote risk that a party would not be able to
fulfill its obligations under the contract and that the amount of the obligation
will be beyond the ability of the clearing broker to satisfy. A decision of
whether, when and how to hedge involves the exercise of skill and judgement, and
even a well conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Because of the low margin deposits required, futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out, and a 15% decrease would result in a loss equal to 150% of the
original margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the Portfolio would presumably have sustained comparable losses if,
instead of entering into the futures contract, it had invested in the underlying
financial instrument. Furthermore, in order to be certain that the Portfolio has
sufficient assets to satisfy its obligations under a futures contract, the
Portfolio will establish a segregated account in connection with its futures
contracts which will hold cash or cash equivalents equal in value to the current
value of the underlying instruments or indices less the margins on deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
RISKS OF OPTIONS ON FUTURES CONTRACTS
In addition to the risks described above for currency and other
financial futures contracts, there are several special risks relating to options
on futures contracts. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. The Portfolio will not purchase
options on any futures contract unless and until it believes that the market for
such options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with the futures contacts.
Compared to the use of futures contracts, the purchase of options on such
futures involves less potential risk to the Portfolio because the maximum amount
at risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to the Portfolio, even though the use of a futures contract
would not, such as when there is no movement in the level of the futures
contract.
FOREIGN CURRENCY TRANSACTIONS
The Portfolio may invest in securities of foreign issuers. When the
Portfolio invests in foreign securities they usually will be denominated in
foreign currencies and the Portfolio temporarily may hold funds in foreign
currencies. Thus, the value of a Portfolio share will be affected by changes in
exchange rates.
FORWARD CURRENCY EXCHANGE CONTRACTS
As one way of managing exchange rate risk, the Portfolio may engage in
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). Under the contract, the exchange rate for the
transaction (the amount of currency the Portfolio will deliver or receive when
the contract is completed) is fixed when the Portfolio enters into the contract.
The Portfolio usually will enter into these contracts to stabilize the U.S.
dollar value of a security it has agreed to buy or sell. The Portfolio also may
use these contracts to hedge the U.S. dollar value of a security it already
owns, particularly if the Portfolio expects a decrease in the value of the
currency in which the foreign security is denominated. Although the Portfolio
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
Portfolio's investments denominated in foreign currencies will depend on the
relative strength of those currencies and the U.S. dollar, and the Portfolio may
be affected favorably or unfavorably by changes in the exchange rates or
exchange control regulations between foreign currencies and the dollar. Changes
in foreign currency exchange rates also may affect the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and gains, if any, to be distributed to shareholders by the
Portfolio.
CURRENCY FUTURES CONTRACTS
Currency futures contracts are bilateral agreements under which two
parties agree to take or make delivery of a specified amount of a currency at a
specified future time for a specified price. Trading of currency futures
contracts in the United States is regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission (CFTC) and National Futures Association
(NFA). Currently the only national futures exchange on which currency futures
are traded is the International Monetary Market of the Chicago Mercantile
Exchange. Foreign currency futures trading is conducted in the same manner and
subject to the same regulations as trading in interest rate and index based
futures. The Portfolio intends to only engage in currency futures contracts for
hedging purposes, and not for speculation. The hedging strategies which will be
used by the Fund in connection with foreign currency futures contracts are
similar to those described above for forward foreign currency exchange
contracts.
Currently currency futures contracts for the British Pound Sterling,
Canadian Dollar, Dutch Guilder, Deutsche Mark, Japanese Yen, Mexican Peso, Swiss
Franc, and French Franc can be purchased or sold for U.S. dollars through the
International Monetary Market It is expected that futures contracts trading in
additional currencies will be authorized. The standard contract sizes are
L125,000 for the Pound, 125,000 for the Guilder, Mark and Swiss Francs,
C$100,000 for the Canadian Dollar, Y12,500,000 for the Yen, and 1,000,000 for
the Peso. In contrast to Forward Currency Exchange Contracts which can be traded
at any time, only four value dates per year are available, the third Wednesday
of March, June, September and December.
FOREIGN CURRENCY OPTIONS TRANSACTIONS
Foreign currency options (as opposed to futures) are traded in a
variety of currencies in both the United States and Europe. On the Philadelphia
Stock Exchange, for example, contracts for half the size of the corresponding
futures contracts on the Chicago Board - Options Exchange are traded with up to
nine months maturity in marks, sterling, yen, Swiss Francs, and Canadian
dollars. Options can be exercised at any time during the contract life, and
require a deposit subject to normal margin requirements. Since a futures
contract must be exercised, the Fund must continually make up the margin
balance. As a result, a wrong price move could result in the Portfolio losing
more than the original investment, as it cannot walk away from the futures
contract as it can an option contract.
The Portfolio will purchase call and put options and sell such options
to terminate an existing position. Options on foreign currency are similar to
options on stocks except that an option on an interest rate and/or index based
future contract gives the purchaser the right, in return for the premium paid,
to purchase or sell foreign currency, rather than to purchase or sell stock, at
a specified exercise price at any time during the period of the option.
The Portfolio intends to use foreign currency option transactions in
connection with hedging strategies.
PURCHASE OF PUT OPTIONS ON FOREIGN CURRENCIES.
The purchase of protective put options on a foreign currency is
analagous to the purchase of protective puts on individual stocks, where an
absolute level of protection is sought below which no additional economic loss
would be incurred by the Portfolio. Put options may be purchased to hedge a
portfolio of foreign stocks or foreign debt instruments or a position in the
foreign currency upon which the put option is based.
PURCHASE OF CALL OPTIONS ON FOREIGN CURRENCIES.
The purchase of a call option on foreign currency represents a means of
obtaining temporary exposure to market appreciation at limited risk. It is
analogous to the purchase of a call option on an individual stock, which can be
used as a substitute for a position in the stock itself. Depending on the
pricing of the option compared to either the foreign currency upon which it is
based, or upon the price of the foreign stock or foreign debt instruments,
purchase of a call option may be less risky than the ownership of the foreign
currency or the foreign securities. The Portfolio would purchase a call option
on a foreign currency to hedge against an increase in the foreign currency or a
foreign market advance when the Portfolio is not fully invested.
The Portfolio may employ new investment techniques involving forward
foreign currency exchange contracts, foreign currency futures contracts and
options on foreign currencies in order to take advantage of new techniques in
these areas which may be developed from time to time and which are consistent
with the Portfolio's investment objective. The Portfolio believes that no
additional techniques have been identified for employment by the Portfolio in
the foreseeable future other than those described above.
CURRENCY TRADING RISKS
Currency exchange trading may involve significant risks. The four major
types of risk the Portfolio faces are exchange rate risk, interest rate risk,
credit risk and country risk.
EXCHANGE RATE RISK
Exchange rate risk results from the movement up and down of foreign
currency values in response to shifting market supply and demand. When the
Portfolio buys or sells a foreign currency, an exposure called an open position
is created. Until the time that position can be "covered" by selling or buying
an equivalent amount of the same currency, the Fund is exposed to the risk that
the exchange rate might move against it. Since exchange rate changes can readily
move in one direction, a position carried overnight or over a number of days
involves greater risk than one carried a few minutes or hours. Techniques such
as foreign currency forward and futures contracts and options on foreign
currency are intended to be used by the Portfolio to reduce exchange rate risk.
MATURITY GAPS AND INTEREST RATE RISK
Interest rate risk arises whenever there are mismatches or gaps in the
maturity structure of the Portfolio's foreign exchange currency holdings, which
is the total of its outstanding spot and forward or futures contracts.
Foreign currency transactions often involve borrowing short term and
lending longer term to benefit from the normal tendency of interest rates to be
higher for longer maturities. However in foreign exchange trading, while the
maturity pattern of interest rates for one currency is important, it is the
differential between interest rates for two currencies that is decisive.
CREDIT RISK
Whenever the Portfolio enters into a foreign exchange contract, it
faces a risk, however small, that the counterparty will not perform under the
contract. As a result there is a credit risk, although no extension of "credit"
is intended. To limit credit risk, the Fund intends to evaluate the
creditworthiness of each other party. The Fund does not intend to trade more
than 5% of its net assets under foreign exchange contracts with one party.
Credit risk exists because the Portfolio's counterparty may be unable
or unwilling to fulfill its contractual obligations as a result of bankruptcy or
insolvency or when foreign exchange controls prohibit payment. In any foreign
exchange transaction, each party agrees to deliver a certain amount of currency
to the other on a particular date. In establishing its hedges a Portfolio relies
on each contract being completed. If the contract is not performed, then the
Portfolio's hedge is eliminated, and the Portfolio is exposed to any changes in
exchange rates since the contract was originated. To put itself in the same
position it would have been in had the contract been performed, the Portfolio
must arrange a new transaction. However, the new transaction may have to be
arranged at an adverse exchange rate. The trustee for a bankrupt company may
elect to perform those contracts which are advantageous to the company but
disclaim those contracts which are disadvantageous, resulting in losses to the
Portfolio.
Another form of credit risk stems from the time zone differences
between the U.S. and foreign nations. If the Portfolio sells sterling it
generally must pay pounds to a counterparty earlier in the day than it will be
credited with dollars in New York. In the intervening hours, the buyer can go
into bankruptcy or can be declared insolvent. Thus, the dollars may never be
credited to the Portfolio.
COUNTRY RISK
At one time or another, virtually every country has interfered with
international transactions in its currency. Interference has taken the form of
regulation of the local exchange market, restrictions on foreign investment by
residents, or limits on inflows of investment funds from abroad. Governments
take such measures, for example, to improve control over the domestic banking
system, or to influence the pattern of receipts and payments between residents
and foreigners. In those cases, restrictions on the exchange market or on
international transactions are intended to affect the level or movement of the
exchange rate. Occasionally a serious foreign exchange shortage may lead to
payments interruptions or debt servicing delays, as well as interference in the
exchange market. It has become increasingly difficult to distinguish foreign
exchange or credit risk from country risk.
Changes in regulations or restrictions usually do have an important
exchange market impact. Most disruptive are changes in rules which interfere
with the normal payments mechanism. If government regulations change and a
counterparty is either forbidden to perform or is required to do something
extra, then the Portfolio might be left with an unintended open position or an
unintended maturity mismatch. Dealing with such unintended long or short
positions could result in unanticipated costs to the Portfolio.
Other changes in official regulations influence international
investment transactions. If one of the factors affecting the buying or selling
of a currency changes, the exchange rate is likely to respond. Changes in such
controls often are unpredictable and can create a significant exchange rate
response.
Many major countries have moved toward liberalization of exchange and
payments restrictions in recent years, or accepted the principle that
restrictions should be relaxed. A few industrial countries have moved in the
other direction. Important liberalizations were carried out by Switzerland, the
United Kingdom, and Japan. They dismantled mechanisms for restricting either
foreign exchange inflows (Switzerland), outflows (Britain), or elements of both
(Japan). By contrast, France and Mexico have recently tightened foreign exchange
controls.
Overall, many exchange markets are still heavily restricted. Several
countries limit access to the forward market to companies financing documented
export or import transactions in an effort to insulate the market from purely
speculative activities. Some of these countries permit local traders to enter
into forward contracts with residents but prohibit certain forward transactions
with nonresidents. By comparison, other countries have strict controls on
exchange transactions by residents, but permit free exchange transactions
between local traders and nonresidents. A few countries have established tiered
markets, funneling commercial transactions through one market and financial
transactions through another. Outside the major industrial countries, relatively
free foreign exchange markets are rare and controls on foreign currency
transactions are extensive.
Another aspect of country risk has to do with the possibility that the
Portfolio may be dealing with a foreign trader whose home country is facing a
payments problem. Even though the foreign trader intends to perform on its
foreign exchange contracts, the contracts are tied to other external liabilities
the country has incurred. As a result performance may be delayed, and can result
in unanticipated cost to the Portfolio. This aspect of country risk is a major
element in the Portfolio's credit judgment as to with whom it will deal and in
what amounts.
<PAGE>
EXHIBIT A
CLASS OF OPTIONS. Options covering the same underlying security.
CLEARING CORPORATION. The Options Clearing Corporation, Trans Canada
Options, Inc., The European Options Clearing Corporation B.V., or the London
Options Clearing House.
CLOSING PURCHASE TRANSACTION. A transaction in which an investor who is
obligated as a writer of an option or seller of a futures contract terminates
his obligation by purchasing on an Exchange an option of the same series as the
option previously written or futures contract identical to the futures contract
previously sold, as the case may be. (Such a purchase does not result in the
ownership of an option or futures contract.)
CLOSING SALE TRANSACTION. A transaction in which an investor who is the
holder or buyer of an outstanding option or futures contract liquidates his
position as a holder or seller by selling an option of the same series as the
option previously purchased or futures contract identical to the futures
contract previously purchased. (Such sale does not result in the investor
assuming the obligations of a writer or seller).
COVERED CALL OPTION WRITER. A writer of a call option who, so long as
he remains obligated as a writer, owns the shares of the underlying security or
holds on a share for share basis a call on the same security where the exercise
price of the call held is equal to or less than the exercise price of the call
written, or,if greater than the exercise price of the call written, the
difference is maintained by the writer in cash, U.S. Treasury bills, or other
high grade, short term obligations in a segregated account with the writer's
broker or custodian.
COVERED PUT OPTION WRITER. A writer of a put option who, so long as he
remains obligated as a writer, has deposited Treasury bills with a value equal
to or greater than the exercise price with a securities depository and has
pledged them to the Options Clearing Corporation for the account of the
brokerdealer carrying the writer's position or to a broker-dealer or if the
writer holds on a share for share basis a put on the same security as the put
written where the exercise price of the put held is equal to or greater than the
exercise price of the put written, or, if less than the exercise price of the
put written, the difference is maintained by the writer in cash, U.S. Treasury
bills, or other high grade, short term obligations in a segregated account with
the writer's broker or custodian.
SECURITIES EXCHANGE. A securities exchange on which call and put
options are traded. The U.S. Exchanges are as follows: The Chicago Board Options
Exchange, American Stock Exchange, New York Stock Exchange, Philadelphia Stock
Exchange and Pacific Stock Exchange. The foreign securities exchanges in Canada
are the Toronto Stock Exchange and the Montreal Stock Exchange, in the
Netherlands, the European Options Exchange, and in the United Kingdom, the Stock
Exchange (London).
Those issuers whose common stocks have been approved by the Exchanges
as underlying securities for option transactions are published in various
financial publications.
COMMODITIES EXCHANGE. A commodities exchange on which futures contracts
are traded which is regulated by exchange rules that have been approved by the
Commodity Futures Trading Commission. The U.S. exchanges are as follows: The
Chicago Board of Trade of the City of Chicago; Chicago Mercantile Exchange,
International Monetary Market, (a division of the Chicago Mercantile Exchange);
the Kansas City Board of Trade and the New York Futures Exchange.
EXERCISE PRICE. The price per unit at which the holder of a call option
may purchase the underlying security upon exercise or the holder of a put option
may sell the underlying security upon exercise.
EXPIRATION DATE. The latest date when an option may be exercised or a
futures contract must be completed according to its terms.
HEDGING. An action taken by an investor to neutralize an investment
risk by taking an investment position which will move in the opposite direction
as the risk being hedged so that a loss (or gain) on one will tend to be offset
by a gain (or loss) on the other.
OPTION. Unless the context otherwise requires, the term "option" means
either a call or put option issued by a Clearing Corporation, as defined above.
A call option gives a holder the right to buy from a Clearing Corporation or
broker the number of shares of the underlying security covered by the option at
the stated exercise price by the filing of an exercise notice prior to the
expiration time of the option. A put option gives a holder the right to sell to
a Clearing Corporation a broker the number of shares of the underlying security
covered by the put at the stated exercise price by the filing of an exercise
notice prior to the expiration time of the option.
An option position may be closed out only in a secondary market for an
option of the same series. Although the Portfolio will generally write only
those options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market will exist for any particular option
at any particular time, and for some options no secondary market may exist. In
such event it might not be possible to effect a closing transaction in a
particular option. If the Portfolio as a covered call option writer is unable to
effect a closing purchase transaction, it will not be able to sell the
underlying securities until the option expires or it delivers the underlying
securities upon exercise.
OPTION PERIOD. The time during which an option may be exercised,
generally from the date the option is written through its expiration date.
PREMIUM. The price of an option agreed upon between the buyer and
writer or their agents.
SERIES OF OPTIONS. Options covering the same underlying security and
having the same exercise price and expiration date.
STOCK INDEX. A stock index assigns relative values to the common stocks
included in the index, and the index fluctuates with changes in the market
values of the common stocks so included.
INDEX BASED FUTURES CONTRACT. An index based futures contract is a
bilateral agreement pursuant to which a party, agrees to buy or deliver at
settlement an amount of cash equal to $500 times the difference between the
closing value of an index on the expiration date and the price at which the
futures contract is originally struck. Index based futures are traded on
Commodities Exchanges. Currently index based stock index futures contracts can
be purchased or sold with respect to the Standard & Poor's Corporation (S&P) 500
Stock Index and S&P 100 Stock Index on the Chicago Mercantile Exchange, the New
York Stock Exchange Composite Index on the New York Futures Exchange and the
value Line Stock Index and major market index on the Kansas City Board of Trade.
UNDERLYING SECURITY. The security subject to being purchased upon the
exercise of a call option or subject to being sold upon the exercise of a put
option.
<PAGE>
Keystone America Global Opportunities Fund
SCHEDULE OF INVESTMENTS--September 30, 1994
<TABLE>
<CAPTION>
Number Market
of Shares Value
<S> <C> <C>
UNITED STATES (40.6%)
ADVERTISING AND
PUBLISHING (0.1%)
United International
Hldgs, Inc. (a) 15,100 $ 224,613
AMUSEMENTS (1.5%)
Autotote Corp. (a) 100,000 1,887,500
Hollywood Casino Corp (a) 88,250 595,687
Hollywood Park, Inc. New
(a) 96,000 1,404,000
3,887,187
AUTOMOTIVE (1.6%)
Exide Corp. 87,700 4,154,788
BUILDING MATERIALS (0.8%)
Centex Construction
Products, Inc. (a) 62,000 775,000
National Gypsum Co. (a) 35,000 1,338,750
2,113,750
CAPITAL GOODS (1.9%)
Agco Corp. 60,000 3,007,500
DT Industries, Inc. 125,000 1,875,000
4,882,500
CONSUMER GOODS (0.9%)
Blyth Industries (a) 71,700 1,900,050
Duracraft Corp. (a) 9,200 313,950
2,214,000
DRUGS (1.8%)
Health Management
Associates,
Inc. (a) 99,750 2,456,344
Mariner Health Group,
Inc. (a) 100,000 2,087,500
4,543,844
ELECTRONICS PRODUCTS
(6.9%)
Alliance Semiconductor
Corp. (a) 100,000 2,250,000
Electroglas, Inc. (a) 80,000 3,960,000
KLA Instruments Corp. (a) 65,000 3,225,625
Microchip Technology,
Inc. (a) 90,000 3,521,250
Teradyne, Inc. (a) 150,000 4,406,250
17,363,125
FINANCE (0.5%)
Independent Bank Corp. 200,000 $ 1,162,500
OFFICE AND BUSINESS
EQUIPMENT (6.3%)
EMC Corp. (a) 300,000 6,037,500
Integrated Silicon
Systems, Inc. (a) 100,000 2,900,000
Parametric Technology
Corp. (a) 120,000 3,960,000
Radius, Inc. (a) 95,000 825,312
Viewlogic Systems, Inc.
(a) 109,500 2,121,563
15,844,375
OIL SERVICES (3.3%)
Dual Drilling Co. (a) 200,000 2,337,500
Energy Service, Inc. (a) 125,000 1,859,376
Global Marine, Inc. (a) 453,600 1,927,800
Noble Drilling Corp. (a) 300,000 2,231,250
8,355,926
RETAIL (5.8%)
Best Buy Co., Inc. (a) 120,000 4,695,000
Michael's Stores, Inc.
(a) 100,000 4,125,000
Petsmart, Inc. (a) 125,000 4,734,375
Tractor Supply Co. (a) 37,500 1,040,625
14,595,000
SERVICES (1.0%)
CIDCO, Inc. (a) 100,000 2,637,500
SOFTWARE SERVICES (5.1%)
Business Objects S.A. 44,000 1,265,000
Digidesign, Inc. (a) 50,000 993,750
Infosoft International,
Inc. (a) 70,100 1,918,989
LEGENT Corp. (a) 100,000 2,662,500
Netmanage, Inc. (a) 160,000 3,340,000
Synopsys, Inc. (a) 60,100 2,734,550
12,914,789
TELECOMMUNICATIONS (2.7%)
3Com Corp. (a) 100,000 3,750,000
Cascade Communications
Corp. (a) 7,000 329,875
Chipcom Corp. (a) 50,000 2,668,750
6,748,625
See Notes to Schedule of Investments.
<PAGE>
SCHEDULE OF INVESTMENTS--September 30, 1994
Number Market
of Shares Value
TRANSPORTATION (0.4%)
Trism, Inc. (a) 75,000 $ 1,134,375
TOTAL UNITED STATES
(Cost--$81,804,317) 102,776,897
FOREIGN (52.1%)
AUSTRALIA (0.9%)
ADVERTISING AND
PUBLISHING (0.3%)
West Australia News 300,000 821,674
West Australian
Newspapers (a) 42,857 17,449
839,123
CAPITAL GOODS (0.1%)
Elders Australia (a) 200,000 251,684
METALS AND MINING (0.4%)
Delta Gold Nl (a) 450,000 926,049
OIL (0.1%)
Oil Search Ltd. 300,000 215,412
2,232,268
CANADA (0.9%)
SOFTWARE SERVICES (0.9%)
Fulcrum Technologies,
Inc. (a) 200,000 2,400,000
CHILE (0.2%)
FINANCE (0.1%)
BCO Credito Invers 38,393 163,874
PAPER AND PACKAGING
(0.1%)
Compania Manufactuers De
Papeles Y Cartones S.A.
(a) 17,201 221,141
SERVICES (0.0%)
A.S.P. Provida S.A. 9,070 157,529
542,544
FINLAND (1.3%)
CAPITAL GOODS (1.3%)
Benefon Oyvappa S.I. 9,140 3,194,030
FRANCE (3.0%)
ADVERTISING AND
PUBLISHING (0.5%)
Fillipacchi Medias 7,354 $ 1,345,422
AUTOMOTIVE (0.5%)
Norbert Dentressan (a) 20,150 1,209,799
CAPITAL GOODS (0.4%)
Sylea (a) 14,000 1,115,453
ELECTRONICS PRODUCTS
(0.4%)
Faiveley S.A. (a) 4,525 231,269
Ugc Droits Audio Visuel 18,000 706,882
938,151
INSURANCE (0.3%)
Cardif S.A. 1,616 243,781
Union Assured Federal 4,000 430,473
674,254
RETAIL (0.2%)
Comptoirs Modernes 1,655 424,960
TEXTILES & APPAREL (0.7%)
Chaine Et Trame 9,434 1,104,329
Icbt Groupe 14,793 726,174
1,830,503
7,538,542
GERMANY (1.4%)
BUILDING MATERIALS (1.0%)
Plettac A.G. 4,050 2,113,044
Plettac A.G. (a) 4,050 53,478
Weru A.G. 500 404,831
2,571,353
CONSUMER GOODS (0.1%)
Fielmann Vertwaltung K.G.
(a) 9,000 298,551
INSURANCE (0.3%)
Marschollek
Lautenschlager und
Partner, A.G. 1,500 796,135
3,666,039
<PAGE>
Keystone America Global Opportunities Fund
SCHEDULE OF INVESTMENTS--September 30, 1994
Number Market
of Shares Value
HONG KONG (1.8%)
AMUSEMENTS (0.4%)
Cdl Hotels International 2,500,000 $ 1,080,597
BUILDING MATERIALS (0.4%)
Tai Cheung Hldgs. 726,000 1,000,608
CONSUMER GOODS (0.2%)
World Houseware (a) 1,459,200 562,741
FINANCE (0.3%)
Wing Hang Bank Ltd. 300,000 825,008
RETAIL (0.4%)
Cafe De Coral 1,250,000 464,269
Dickson Concepts
International 700,000 525,417
989,686
SERVICES (0.1%)
Pico Far East Holding 1,200,000 136,660
Pico Far East Holding,
Warrant (a) 240,000 4,504
141,164
TEXTILES & APPAREL (0.0%)
High Fashion
International 316,000 49,073
4,648,877
HUNGARY (0.2%)
DRUGS (0.2%)
Egis Gyogyszergyar (a) 20,000 473,964
JAPAN (17.4%)
AMUSEMENTS (0.7%)
Goldwin, Inc. 150,000 1,786,075
BUILDING MATERIALS (2.6%)
Daiwa Rakuda Indiana 80,000 1,695,257
Hibiya Engineering 199,000 2,751,060
Kokoku Housing Co. 47,000 569,122
Max Co., Ltd. 65,000 1,528,254
6,543,693
CAPITAL GOODS (1.3%)
Kanamoto Co., Ltd. (a) 110,000 3,318,870
CONSUMER GOODS (1.3%)
Daiwa Industries 130,000 $ 1,613,522
Sekido Rysuchoshoten Co.
(a) 130,000 1,574,168
3,187,690
DIVERSIFIED COMPANIES
(0.7%)
Takuma Co. 100,000 1,836,529
ELECTRONICS PRODUCTS
(0.6%)
Aucnet, Inc. 25,000 1,659,939
FINANCE (3.0%)
Nichiei Co. 66,000 4,582,038
Shokoh Fund (a) 13,000 3,004,037
7,586,075
FOODS (1.8%)
MOS Food Services 81,000 3,171,342
Yoshinoya D+C Co. (a) 120 1,525,731
4,697,073
OFFICE AND BUSINESS
EQUIPMENT (0.6%)
Riso Kagaku Corp. 12,500 1,463,169
RESTAURANTS (1.1%)
Ohsho Food Service 85,000 2,676,085
RETAIL (2.7%)
Mini Stop 112,000 3,447,023
Paltac Corp. 70,000 1,299,697
Tsutsumi Jewelry 19,700 2,027,649
6,774,369
SERVICES (0.8%)
Techno Ryowa 70,000 1,984,864
SOFTWARE SERVICES (0.2%)
Capcom Co. 24,000 520,686
44,035,117
MALAYSIA (2.8%)
AIR TRANSPORTATION (0.2%)
Malaysian Helicopt 146,000 452,779
<PAGE>
Keystone America Global Opportunities Fund
SCHEDULE OF INVESTMENTS--September 30, 1994
Number Market
of Shares Value
BUILDING MATERIALS (2.5%)
Ho Hup Construction Co. 140,000 $ 589,819
Hume Industries(m)Bhd 288,000 1,224,576
Leader University Hldgs. 246,000 1,410,649
Nylex(Malaysia) Bhd 750,000 1,726,156
Tech Resources Industries
Bhd (a) 365,000 1,495,026
6,446,226
FINANCE (0.0%)
Mbf Capital Bhd 100,000 133,411
SERVICES (0.1%)
Road Builder 30,000 195,436
7,227,852
MEXICO (1.4%)
ADVERTISING AND
PUBLISHING (1.2%)
Grupo Iusacell S.A. De
C.V. (a) 99,310 2,954,473
RETAIL (0.2%)
Farmacias Benavice 141,000 552,127
3,506,600
NETHERLANDS (2.0%)
DRUGS (0.3%)
Gist Brocades N.V. 30,000 770,911
FINANCE (0.3%)
Wegener 10,000 678,356
FOODS (0.5%)
Van Melle International
(a) 21,420 1,366,841
RETAIL (0.9%)
Hagemeyer (a) 27,000 2,171,486
4,987,594
NORWAY (1.0%)
ADVERTISING AND PUBLISHING (0.5%)
Schibsted 100,000 1,148,545
BUILDING MATERIALS (0.3%)
Veidekke 38,000 671,457
DIVERSIFIED COMPANIES
(0.2%)
Simrad 43,100 $ 621,952
2,441,954
PERU (2.4%)
FINANCE (0.5%)
Banco De Credito 570,213 1,216,251
FOODS (0.8%)
La Fabril (a) 926,879 1,993,555
TELECOMMUNICATIONS (1.1%)
Compania Peruana de
Telepfonos (a) 1,026,260 1,561,600
Tele 2000 (a) 438,193 1,311,074
2,872,674
6,082,480
SINGAPORE (0.4%)
DIVERSIFIED COMPANIES
(0.3%)
Natsteel Ltd. 375,000 814,228
ELECTRONICS PRODUCTS
(0.1%)
Venture Manufacturing (a) 120,000 294,538
1,108,766
SPAIN (3.1%)
AMUSEMENTS (0.7%)
Azkoyen S.A. 25,650 1,795,101
BUILDING MATERIALS (0.3%)
Zardoya Otis 6,000 688,180
CONSUMER GOODS (0.3%)
Tableros Defibras (a) 60,000 718,507
RETAIL (0.8%)
Cortefiel S.A. (a) 65,000 2,072,317
SERVICES (0.3%)
Estacion Subterran 50,078 882,012
UTILITIES (0.7%)
Hidroel Cantabrico 60,450 1,793,287
7,949,404
<PAGE>
Keystone America Global Opportunities Fund
SCHEDULE OF INVESTMENTS--September 30, 1994
Number Market
of Shares Value
SWEDEN (2.1%)
AUTOMOTIVE (0.2%)
Autoliv A.B. (a) 20,750 $ 623,497
CAPITAL GOODS (0.5%)
Hoganas A.G. (a) 90,000 1,346,154
FINANCE (0.5%)
Finnveden Invest A.B. (a) 1,435,000 1,293,570
METALS AND MINING (0.3%)
Celsius Industriar A.B. 28,000 624,466
SERVICES (0.2%)
Securitas A.B. 16,000 427,350
TRANSPORTATION (0.4%)
ASG 73,100 956,704
5,271,741
SWITZERLAND (1.6%)
CONSUMER GOODS (0.4%)
Phoenix Meccano 2,750 875,728
FINANCE (0.2%)
Baer Holdings A.G. 478 441,802
FOODS (0.2%)
Hero 1,000 489,320
PAPER AND PACKAGING
(0.4%)
Sig Schw Indiana H.G.
A.G. 510 1,006,136
RETAIL (0.4%)
Magazine Zum Globus 1,700 1,122,330
3,935,316
THAILAND (0.1%)
FINANCE (0.1%)
Phatra Thanakit Co.,
Subright (a) 24,000 228,709
Phatra Thanakit Co. 6,000 59,580
288,289
288,289
UNITED KINGDOM (7.8%)
ADVERTISING AND
PUBLISHING (0.8%)
Cia Group (a) 945,000 $ 2,038,497
Hodder Headline PLC. 20,000 108,644
2,147,141
BUILDING MATERIALS (1.3%)
Barratt Development PLC. 350,000 925,838
Berkeley Group PLC. 250,000 1,529,287
Halma PLC. 220,332 742,419
3,197,544
CAPITAL GOODS (0.5%)
Critchley 170,000 1,177,767
CHEMICALS (0.5%)
Kalon Group 500,000 1,247,835
CONSUMER GOODS (0.9%)
Chamberlain Phipps Hldgs.
(a) 920,000 2,346,717
DIVERSIFIED COMPANIES
(0.3%)
Tt Group 120,000 674,539
DRUGS (0.5%)
Medeva (a) 600,000 1,388,758
ELECTRICAL PRODUCTS
(0.3%)
Blick 108,888 717,519
FINANCE (0.7%)
3i Group (a) 335,000 1,722,209
FOODS (0.3%)
Devro International 200,000 689,655
NATURAL GAS (0.2%)
Polypipe 210,000 459,613
PAPER AND PACKAGING
(0.2%)
Jarvis Porter Group 100,000 436,152
<PAGE>
Keystone America Global Opportunities Fund
SCHEDULE OF INVESTMENTS--September 30, 1994
Number Market
of Shares Value
RETAIL (0.5%)
Brown(n) Group 180,000 $ 708,550
Greggs 40,000 678,948
1,387,498
SERVICES (0.8%)
Compass Group 197,368 997,561
Serco Group 125,000 580,617
Takare PLC. (a) 154,000 514,061
2,092,239
TELECOMMUNICATIONS (0.0%)
Blenheim Group 40,000 151,158
19,836,344
VENEZUELA (0.3%)
FOODS (0.3%)
Mavesa S.A. 112,000 672,000
TOTAL FOREIGN
(Cost--$127,766,000) 132,039,721
</TABLE>
<TABLE>
<CAPTION>
MATURITY MARKET
VALUE VALUE
<S> <C> <C>
SHORT-TERM INVESTMENT
(6.2%)
REPURCHASE AGREEMENT
(6.2%)
Goldman Sachs, 4.875%
Purchased 9/30/94
(collateralized by
$23,492,000 FNMA
4.976% due 2/1/32)
Maturing 10/3/94
(Cost--$15,691,000) $15,697,374 $15,691,000
TOTAL INVESTMENTS
(Cost-- $225,261,317) 250,507,618
FOREIGN CURRENCY
HOLDINGS (0.5%)
(Cost--$1,245,816) 1,270,330
OTHER ASSETS AND
LIABILITIES--NET
(0.6%) 1,573,816
NET ASSETS (100%) $253,351,764
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
(a) Non-income-producing security.
(b) The cost of investments for federal income tax purposes is $226,509,358.
Gross unrealized appreciation and depreciation of investments and foreign
currency holdings, based on identified tax cost, at September 30, 1994 are as
follows:
Gross unrealized appreciation................................. $35,891,166
Gross unrealized depreciation ............................... (10,622,576)
$25,268,590
<PAGE>
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
March 16, 1988
(Commencement of
Year Ended September 30, Operations) to
September 30,
1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period $ 18.02 $ 11.69 $ 12.89 $ 9.89 $11.17 $ 9.77 $10.00
Income from investment operations
Investment income (deficit)--net (0.04) (0.14) (0.08) 0.17 0.19 0.09 0.05
Net gains (losses) on investment
and foreign currency related
transactions 1.60 6.47 0.23 3.06 (1.27) 1.66 (0.28)
Total from investment
operations 1.56 6.33 0.15 3.23 (1.08) 1.75 (0.23)
Less distributions
Dividends from investment
income--net 0 0 0 (0.23) (0.12) (0.09) 0
Distributions from capital gains (0.16) 0 (1.35) 0 (0.08) (0.26) 0
Total distributions (0.16) 0 (1.35) (0.23) (0.20) (0.35) 0
Net asset value: End of period $ 19.42 $ 18.02 $ 11.69 $12.89 $ 9.89 $11.17 $ 9.77
Total return (c) 8.74% 54.15% 1.81% 32.71% (9.65%) 16.94% (1.20%)(d)
Ratios/supplemental data
Ratios to average net assets:
Operating and management
expenses 2.01% 2.84% 2.50%(a) 2.03%(a) 2.00%(a) 2.00%(a) 1.50%(a)(b)
Net investment income (loss) (0.86%) (1.72%) (0.69%) 1.49% 1.80% 0.86% 1.42%(a)(b)
Portfolio turnover rate 32% 64% 75% 134% 51% 13% 19%
Net assets, end of period
(thousands) $71,122 $29,942 $10,859 $2,159 $1,519 $1,378 $1,082
</TABLE>
(a) The "Ratio of net operating and management expenses to average net
assets" would have been 3.67%, 7.77%, 10.39%, 13.06% and 5.54% for the years
ended September 30, 1992, 1991, 1990, 1989 and the period March 16, 1988
(Commencement of Operations) to September 30, 1988, respectively.
(b) Annualized for the period March 16, 1988 (Commencement of Operations) to
September 30, 1988.
(c) Excluding applicable sales charges.
(d) Annualized total return from March 16, 1988 (Commencement of Operations)
to September 30, 1988 is (2.20%).
See Notes to Financial Statements.
<PAGE>
Keystone America Global Opportunities Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
(Date of Initial
Year Ended Public Offering) to
September 30, 1994 September 30, 1993
<S> <C> <C>
Net asset value: Beginning of period $ 17.95 $ 14.04
Income from investment operations
Keystone America Global Opportunities Fund
Investment income (deficit)--net (0.15) (0.04)
Net gains (losses) on investment and foreign currency related transactions 1.56 3.95
Total from investment operations 1.41 3.91
Less distributions
Dividends from investment income--net 0 0
Distributions from capital gains (0.16) 0
Total distributions (0.16) 0
Net asset value: End of Period $ 19.20 $ 17.95
Total return (c) 7.93% 27.85%(b)
Ratios/supplemental data
Ratios to average net assets:
Operating and management expenses 2.83% 3.35%(a)
Net investment income loss (1.61%) (1.86%)(a)
Portfolio turnover rate 32% 64%
Net assets, end of period (thousands) $131,695 $15,534
</TABLE>
(a) Annualized for the period February 1, 1993 (Date of Initial Public
Offering) to September 30, 1993.
(b) Annualized total return for the period February 1, 1993 (Date of Initial
Public Offering) to September 30, 1993 is 42.01%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Keystone America Global Opportunities Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
(Date of Initial
Year Ended Public Offering) to
September 30, 1994 September 30, 1993
<S> <C> <C>
Net asset value: Beginning of period $ 17.99 $14.04
Income from investment operations
Keystone America Global Opportunities Fund
Investment income (deficit)--net (0.15) (0.04)
Net gains (losses) on investment and foreign currency related transactions 1.58 3.99
Total from investment operations 1.43 3.95
Less distributions
Dividends from investment income--net 0 0
Distributions from capital gains (0.16) 0
Total distributions (0.16) 0
Net asset value: End of period $ 19.26 $17.99
Total return (c) 8.02% 28.13%(b)
Ratios/supplemental data
Ratios to average net assets:
Operating and management expenses 2.85% 3.04%(a)
Net investment income (loss) (1.62%) (1.55%)(a)
Portfolio turnover rate 32% 64%
Net assets, end of period (thousands) $50,535 $6,217
</TABLE>
(a) Annualized for the period February 1, 1993 (Date of Initial Public
Offering) to September 30, 1993.
(b) Annualized total return for the period February 1, 1993 (Date of Initial
Public Offering) to September 30, 1993 is 42.43%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Keystone America Global Opportunities Fund
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1994
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments at market value
(identified cost--$225,261,317) (Note 1) $250,507,618
Foreign currency holdings (identified cost--1,245,816)
(Note 1) 1,270,330
Total investments and foreign currency holdings 251,777,948
Cash 434
Receivable for:
Forward foreign currency exchange contracts (Note 6) 17,000,000
Investments sold 177,813
Fund shares sold 3,686,191
Dividends and interest 195,177
Foreign tax 75,706
Payable to Investment Adviser (Note 4) 682
Prepaid Expenses 1,192
Total assets 272,915,143
Liabilities:
Payable for:
Forward foreign currency exchange contracts (Note 6) 17,170,137
Investments purchased 2,039,298
Fund shares redeemed 248,890
Foreign taxes to be withheld 26,614
Capital gain distribution 372
Accrued reimbursable expenses (Note 4) 3,201
Other accrued expenses 74,867
Total liabilities 19,563,379
Net assets $253,351,764
Net assets represented by:
Paid-in capital $231,140,837
Distributions in excess of investment income--net (180,181)
Accumulated realized gains (losses) on investments and
foreign currency related transactions--net (2,712,600)
Net unrealized appreciation on investments and other
assets and liabilities 25,273,845
Net unrealized depreciation on forward foreign currency
exchange contracts (170,137)
Total net assets $253,351,764
Net asset value and redemption price per share (Note 2):
Class A Shares ($19.42 on 3,661,273 shares outstanding) $71,121,631
Class B Shares ($19.20 on 6,857,155 shares outstanding) 131,695,234
Class C Shares ($19.26 on 2,623,256 shares outstanding) 50,534,899
$253,351,764
Offering price per share:
Class A Shares (including sales charge of 5.75%) (Note 2) $20.60
Class B Shares $19.20
Class C Shares $19.26
</TABLE>
STATEMENT OF OPERATIONS
Year Ended September 30, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
Investment income (Note 1):
Dividends (net of foreign withholding taxes of $187,469) $1,226,872
Interest 499,703
Other income 26,977
Total income 1,753,552
Expenses (Notes 2 and 4):
Management fee $1,618,327
Transfer agent fees 742,785
Accounting 22,519
Auditing and legal 18,748
Custodian fees 232,080
Printing 25,414
Distribution Plan expenses 1,197,732
Registration fees 80,046
Miscellaneous expenses 7,069
Total expenses 3,944,720
Loss from operations (2,191,168)
Realized and unrealized gain (loss) on investment
and foreign currency related transactions--net
(Notes 1 and 3):
Realized gain (loss) on investment transactions:
Proceeds from sales 51,888,255
Cost of investments sold 55,101,696
Realized loss on investment transactions--net (3,213,441)
Realized loss on foreign currency related
transactions (196,262)
Realized loss on investment and foreign currency
related transactions--net (3,409,703)
Net unrealized appreciation (depreciation)
on investments and foreign currency holdings:
Beginning of period 7,839,848
End of period 25,273,845
17,433,997
Net unrealized appreciation (depreciation)
on forward foreign currency exchange contracts:
Beginning of period 0
End of period (170,137)
(170,137)
Increase (decrease) in unrealized appreciation
or depreciation--net 17,263,860
Net gain on investment and foreign currency
related transactions 13,854,157
Net increase in net assets resulting from
operations $11,662,989
</TABLE>
See Notes to Financial Statements.
<PAGE>
Keystone America Global Opportunities Fund
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended September 30,
1994 1993
<S> <C> <C>
Operations:
Investment income (loss) from operations--net $ (2,191,168) $ (306,800)
Realized gain (loss) on investment and foreign currency related transactions--net (3,409,703) 845,009
Increase (decrease) in unrealized appreciation or depreciation--net 17,263,860 7,703,507
Net increase in net assets resulting from operations 11,662,989 8,241,716
Distributions to shareholders from (Notes 1 and 5):
Realized gain from investment transactions--net--Class A Shares (326,668) 0
Realized gain from investment transactions--net--Class B Shares (244,277) 0
Realized gain from investment transactions--net--Class C Shares (83,063) 0
Total distributions to shareholders (654,008) 0
Capital share transactions (Note 2)
Proceeds from shares sold--Class A Shares 51,373,426 18,842,690
Proceeds from shares sold--Class B Shares 121,266,409 14,590,573
Proceeds from shares sold--Class C Shares 49,422,917 5,916,518
Payments for shares redeemed--Class A Shares (14,654,789) (6,532,906)
Payments for shares redeemed--Class B Shares (10,376,196) (108,370)
Payments for shares redeemed--Class C Shares (6,924,492) (116,819)
Net asset value of shares issued in reinvestment of:
Capital Gain Distributions--Class A Shares 274,341 0
Capital Gain Distributions--Class B Shares 200,189 0
Capital Gain Distributions--Class C Shares 68,432 0
Net increase in net assets resulting from capital share transactions 190,650,237 32,591,686
Total increase in net assets 201,659,218 40,833,402
Net assets:
Beginning of year 51,692,546 10,859,144
End of year [including distributions in excess of investment income--net as
follows: September, 1994 ($180,181) and September, 1993 $0] $253,351,764 $51,692,546
</TABLE>
See Notes to Financial Statements.
<PAGE>
Keystone America Global Opportunities Fund
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone America Global Opportunities Fund (the "Fund") is a Massachusetts
Business Trust. The Fund was organized on June 17, 1987 and had no operations
prior to March 16, 1988. It is registered under the Investment Company Act of
1940 as a diversified open-end investment company. Keystone Custodian Funds,
Inc. ("Keystone") provides investment advisory services to the Fund pursuant
to an Investment Advisory and Management Agreement.
The Fund offers three classes of shares. Class A shares are offered at a
public offering price which includes a maximum sales charge of 5.75% payable
at the time of purchase. Class B shares are sold subject to a contingent
deferred sales charge payable upon redemption which decreases depending on
how long the shares have been held. Class C shares are sold subject to a
contingent deferred sales charge payable upon redemption 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.
Keystone is a wholly-owned subsidiary of Keystone Group, Inc. ("KGI"), a
Delaware corporation. KGI is privately owned by an investor group consisting
of current and former members of management. Keystone has retained Credit
Lyonnais International Asset Management North America ("CLIAM"), an
international portfolio management firm, to provide the Fund with
sub-advisory services, subject to the supervision of the Fund's Board
of Trustees and 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 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 purchased with maturities of sixty days or less, are
valued at amortized cost (original purchase price 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).
Investments denominated in foreign currencies 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 Board of Trustees, which determines valuations for
normal, institutional-size trading units of such securities using methods
based on market transactions for comparable securities and various
relationships between securities which 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
<PAGE>
Keystone America Global Opportunities Fund
of a stock index, cash at a set price on a future date. Upon entering into a
futures contract, the Fund is required to deposit with a broker an amount
("initial margin") equal to a certain percentage of the purchase price indicated
in the futures contract. Subsequent payments ("variation margin") are made or
received by the Fund each day, as the value of the underlying instrument or
index fluctuates, and are recorded for book purposes as unrealized gains or
losses by the Fund. For federal 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 September 30, 1993 the Fund used the accounting
practice known as equalization by which a portion of the proceeds from sales
and costs of redemptions 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 October 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, and which generally will be maintained at
101% of the repurchase price. The Fund monitors the value of collateral on a
daily basis, and if the value of the collateral falls below required levels,
the Fund intends to seek additional collateral from the seller or terminate
the repurchase agreement. If the seller defaults, the Fund would suffer a
loss to the extent that the proceeds from the sale of the underlying
securities were less than the repurchase price. Any 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.
F. In connection with portfolio purchases and sales of securities denominated
in a foreign currency, the Fund may enter into forward foreign currency
exchange contracts ("contracts"). Additionally, from time to time the Fund
may enter into contracts to hedge certain foreign currency assets. Contracts
<PAGE>
are recorded at market value and marked-to-market daily. Realized gains and
losses arising from such transactions are included in net realized gain (loss)
on foreign currency related transactions. The Fund is subject to the credit risk
that the other party will not complete the obligations of the contract.
G. The Fund distributes net income 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 October 1, 1993 the Fund adopted Statement of Position
93-2: Determination, Disclosure, and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions by Investment
Companies. As a result of this statement, the Fund changed the 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 September
30, 1993: a decrease in net realized gains (losses) on investment
transactions of $345,871 and increases in distributions in excess of
investment income--net and paid-in capital of $332,999 and $12,872,
respectively, to reflect adoption of the statement.
The significant differences between financial statement amounts available
for distribution and distributions made in accordance with income tax
regulations are due to differences in the treatment of net operating losses
and income from passive foreign investment companies.
(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 September 30,
1994 1993
<S> <C> <C>
Shares sold 2,770,072 1,164,647
Shares redeemed (785,508) (431,882)
Shares issued in
reinvestment of
distributions from
realized gains--net 15,404 -0-
Net increase 1,999,968 732,765
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
Year February 1, 1993
Ended (Date of Initial
September 30, Public Offering) to
1994 September 30, 1993
<S> <C> <C>
Shares sold 6,542,500 872,263
Shares redeemed (562,130) (6,770)
Shares issued in
reinvestment of
distributions from
realized gains--net 11,292 -0-
Net increase 5,991,662 865,493
</TABLE>
<TABLE>
<CAPTION>
Class C Shares
Year February 1, 1993
Ended (Date of Initial
September 30, Public Offering) to
1994 September 30, 1993
<S> <C> <C>
Shares sold 2,647,913 352,454
Shares redeemed (373,983) (6,974)
Shares issued in
reinvestment of
distributions from
realized gains--net 3,846 -0-
Net increase 2,277,776 345,480
</TABLE>
<PAGE>
Keystone America Global Opportunities Fund
The Fund bears some of the costs of selling its shares under Distribution
Plans adopted with respect to its Class A, Class B and Class C shares.
The Class A Distribution Plan provides for payments which are currently
limited to 0.25% annually of the average daily net asset value of Class A
shares to pay expenses of the distribution of Class A shares. Amounts paid by
the Fund to KDI under the Class A Distribution Plan are currently used to pay
others, such as dealers, service fees at an annual rate of up to 0.25% of the
average net asset value of shares sold by such others and remaining
outstanding on the books of the Fund for specific periods.
The Class B Distribution Plan 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) (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 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
for 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) a commission at an annual rate of
0.75% (subject to applicable limitations imposed by the rules of the National
Association of Securities Dealers, Inc.) and service fees at an annual rate of
0.25%, respectively, of the average net asset value of each share sold by such
others and remaining outstanding on the books of the Fund for specified periods,
beginning approximately 15 months after purchase.
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 September 30, 1994 for Class B and Class C shares were $3,003,410
and $213,323, respectively.
For the year ended September 30, 1994, the Fund paid KDI $136,945, $774,646
and $286,141 pursuant to the Fund's Class A, Class B and Class C Distribution
Plans, respectively.
Presently, the Fund's class-specific expenses are limited to Distribution
Plan expenses incurred by a class of shares.
(3.) Securities Transactions
Purchases and sales of investment securities (including proceeds received at
maturity) for the year ended September 30, 1994 were as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
<S> <C> <C>
Portfolio securities $ 223,022,776 $ 51,888,255
Short-term investments 3,141,106,000 3,131,864,000
$3,364,128,776 $3,183,752,255
</TABLE>
(4.) Investment Management and Transactions with Affiliates
Under the terms of the Investment Advisory and Management Agreement between
Keystone and the Fund
<PAGE>
dated August 7, 1991, Keystone receives a management fee calculated by
applying percentage rates starting at 1.00% and declining, as net assets
increase, to 0.75% of the net assets of the Fund. For the year ended
September 30, 1994, the Fund paid or accrued, investment management and
administrative services fees of $1,618,327 which represented 1.00% of the
Fund's average net assets on an annualized basis. Of such amount, $809,164
was paid or accrued to Keystone and $809,163 was paid or accrued to CLIAM for
its services as subadviser.
During the year ended September 30, 1994, the Fund paid or accrued to KIRC
$22,520 as reimbursement for certain accounting and printing services and
$742,785 for transfer agent fees.
The Fund is subject to certain state annual expense limits, the most
restrictive of which is as follows: 2.5% of the first $30 million of Fund
assets, 2.0% of the next $70 million of Fund assets, and 1.5% of Fund assets
over $100 million.
Keystone voluntarily agreed to reimburse all expenses including the
management fee incurred by the Fund in excess of 2.5% through December 31,
1992. Keystone reserves the right at any time to make a redetermination of
whether to reinstate the expense limit and, if so, at what rate. However,
Keystone would not be required to make such reimbursement to an extent which
would result in the Fund's inability to qualify as a regulated investment
company under provisions of the Internal Revenue Code.
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. Currently, the Independent Trustees of
the Fund receive no compensation for their services.
(5.) Distributions to Shareholders
The Fund intends to distribute to its shareholders dividends from net
investment income annually and all net realized long-term capital gains, if
any, annually. Any taxable distribution which is declared in December and
paid before the next February 1 will be taxable to shareholders in the year
declared.
(6.) Forward Foreign Currency Exchange Contracts
At September 30, 1994, the Fund had entered into the following forward
foreign currency exchange contract that obligates the Fund to deliver
currencies at specified future dates. The net unrealized depreciation of
$170,137 on these contracts is included in the accompanying financial
statements. The terms of the open contract are as follows:
<TABLE>
<CAPTION>
Exchange Currency to U.S. $ value Currency to U.S. $ value
date be delivered at 9/30/94 be received at 9/30/94
<S> <C> <C> <C> <C>
11/07/94 1,696,974,000 $17,170,137 17,000,000 $17,000,000
Japanese Yen U.S. $
$17,170,137 $17,000,000
</TABLE>
<PAGE>
Keystone America Global Opportunities Fund
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone America Global Opportunities Fund
We have audited the accompanying statement of assets and liabilities of
Keystone America Global Opportunities Fund, including the schedule of
investments, as of September 30, 1994, and the related statement of
operations for the year then ended, the statements of changes in net asset
for each of the years in the two-year period then ended, and the financial
highlights for each of the years in the six-year period then ended and the
period from March 16, 1988 (Commencement of Operations) to September 30, 1988
for Class A shares, and for the year ended September 30, 1994 and the period
from February 1, 1993 (Date of Initial Public Offering) to September 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 September 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 Global Opportunities Fund as of September 30, 1994, the
results of its operations for the year then ended, the changes in its net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the periods stated in the first paragraph
above in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
November 12, 1994
