<PAGE>
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION DECEMBER 5, 1996.
File Nos. 33-38946
and 811-6278
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ---
Post-Effective Amendment No. 7 X
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 8 X
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:(617) 210-3200
Rosemary D. Van Antwerp, Esq., 200 Berkeley Street,
Boston, MA 02116-5034
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485.
_X_ on December 10, 1996 pursuant to paragraph (b).
___ 60 days after filing pursuant to paragraph (a)(1).
___ on (date) pursuant to paragraph (a)(1).
___ 75 days after filing pursuant to paragraph (a)(2).
___ on (date) pursuant to paragraph (a)(2) of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has elected to register an indefinite number of its securities under the
Securities Act of 1933. A Rule 24f-2 Notice for Registrant's most recent fiscal
year ended September 30, 1996 was filed on November 27, 1996.
<PAGE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Offering Registration
Registered Registered Per Unit* Price ** Fee
- --------------------------------------------------------------------------
Shares
Without 3,139,141 $9.87 $329,993 $100
Par Value
- --------------------------------------------------------------------------
*Computed under Rule 457(d) on the basis of the offering price per share at the
close of business on November 26, 1996.
** The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940. 3,105,707 shares of the
Fund were redeemed during its fiscal year ended September 30, 1996. Of such
shares, none were used for a reduction pursuant to Rule 24f-2(c).
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 7
TO
REGISTRATION STATEMENT
This Post-Effective Amendment No. 7 to Registration
Statement No. 33-38946/811-6278 consists of
the following pages, items of information, and documents:
The Facing Sheet
The Contents Page
The Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C - OTHER INFORMATION - ITEMS 24(a) and 24(b)
Financial Statements
Independent Auditors' Report
Listing of Exhibits
PART C - OTHER INFORMATION - ITEMS 25-32 and SIGNATURES PAGES
Numbers of Holders of Securities
Indemnification
Business and Other Connections with Investment Manager
Principal Underwriter
Locations of Accounts and Records
Management Services
Undertakings
Signatures
Exhibits (Including Powers of Attorney)
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
Cross-Reference Sheet pursuant to Rules 404 and 495 under the Securities Act of
1933.
Items in
Part A of
Form N-1A Prospectus Caption
- --------- ------------------
1 Cover Page
2 Fee Table
3 Financial Highlights
Performance Data
4 Cover Page
The Fund
Investment Restrictions
Investment Objective and Policies
Risk Factors
Additional Investment Information
5 Fund Management and Expenses
Additional Information
5A Not applicable
6 The Fund
Dividends and Taxes
Fund Shares
Shareholder Services
7 Pricing Shares
How to Buy Shares
Alternative Sales Options
Distribution Plans
Shareholder Services
Exhibit A
Calculations of Contingent Deferred Sales
Charge and Waiver of Sales Charges
8 How to Redeem Shares
9 Not applicable
Items in
Part B of
Form N-1A Statement of Additional Information Caption
- --------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 Not applicable
13 Investment Policies
Investment Restrictions
Appendix
14 Trustees and Officers
15 Additional Information
16 Investment Adviser
Principal Underwriter
Distribution Plans
Expenses
Additional Information
17 Brokerage
18 The Fund
Declaration of Trust
19 Valuation of Securities
Sales Charges
20 Distributions and Taxes
21 Principal Underwriter
22 Standardized Total Return and Yield Quotations
23 Financial Statements
<PAGE>
KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND
PART A
PROSPECTUS
<PAGE>
KEYSTONE CAPITAL PRESERVATION
AND INCOME FUND
PROSPECTUS DECEMBER 10, 1996
Keystone Capital Preservation and Income Fund (the "Fund") is a mutual fund
that seeks a high level of current income consistent with low volatility of
principal by investing under ordinary circumstances at least 65% of its assets
in adjustable rate securities issued or guaranteed by the United States ("U.S.")
government, its agencies or instrumentalities, such as adjustable rate mortgage
securities, loan pools and collateralized mortgage obligations. The Fund does
not attempt to maintain a constant price per share. The Fund does, however,
follow a strategy that seeks to minimize changes in its net asset value per
share by investing primarily in adjustable rate securities whose interest rates
are periodically reset when market rates change. The Fund seeks to maintain a
relatively stable net asset value while providing high current income relative
to high quality, short-term investment alternatives.
The Fund offers Class, A, B and C shares. Information on share classes and
their fee and sales charge structures may be found in the "Fee Table," "How to
Buy Shares," "Alternative Sales Options," "Contingent Deferred Sales Charge
and Waiver of Sales Charges," "Distribution Plans," and "Fund Shares" sections
of this prospectus.
This prospectus concisely states information about the Fund that you should
know before investing. Please read it and retain it for future reference.
Additional information about the Fund is contained in a statement of
additional information dated December 10, 1996, 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 CAPITAL PRESERVATION
AND INCOME FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
TABLE OF CONTENTS
Page
Fee Table 2
Financial Highlights 3
The Fund 6
Investment Objective and Policies 6
Investment Restrictions 9
Risk Factors 10
Pricing Shares 11
Dividends and Taxes 12
Fund Management and Expenses 12
How to Buy Shares 15
Alternative Sales Options 16
Contingent Deferred Sales Charge and Waiver of Sales Charges 19
Distribution Plans 21
How to Redeem Shares 22
Shareholder Services 23
Performance Data 26
Fund Shares 26
Additional Information 27
Additional Investment Information (i)
Exhibit A A-1
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FEE TABLE
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in each class of shares of the Fund will
bear directly or indirectly. For more complete descriptions of the various
costs and expenses, see the following sections of this prospectus: "Fund
Management and Expenses"; "How to Buy Shares"; "Alternative Sales Options";
"Contingent Deferred Sales Charge and Waiver of Sales Charges"; "Distribution
Plans"; and "Shareholder Services."
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
FRONT-END BACK-END LEVEL LOAD
SHAREHOLDER TRANSACTION EXPENSES LOAD OPTION LOAD OPTION(1) OPTION(2)
-------------- -------------- --------------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases ............ 3.00%(3) None None
(as a percentage of offering price)
Deferred Sales Load ................................ 0.00%(4) 3.00% in the first 12 1.00% in the first
(as a percentage of the lesser of original month period declining year and 0.00%
purchase price or redemption proceeds, to 1.00% in the fourth thereafter
as applicable) 12 month period and
0.00% thereafter
Exchange Fee (per exchange)(5) ..................... $10.00 $10.00 $10.00
ANNUAL FUND OPERATING EXPENSES(6)
After Expense Reimbursements
(as a percentage of average net assets)
Management Fees .................................... 0.64% 0.64% 0.64%
12b-1 Fees ......................................... 0.23% 1.00%(7) 1.00%(7)
Other Expenses ..................................... 0.03% 0.01% 0.01%
----- ----- -----
Total Fund Operating Expenses ...................... 0.90% 1.65% 1.65%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLES(8) 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 ..................................................................... $39 $58 $78 $137
Class B ..................................................................... $47 $72 $90 $157
Class C ..................................................................... $27 $52 $90 $195
You would pay the following expenses on the same investment, assuming
no redemption at the end of each period:
Class A ..................................................................... $39 $58 $78 $137
Class B ..................................................................... $17 $52 $90 $157
Class C ..................................................................... $17 $52 $90 $195
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ----------
(1) Class B shares purchased on or after June 1, 1995 convert to Class A
shares after six years. See "Class B Shares" for more information.
(2) Class C shares are available only through broker-dealers who have entered
into special distribution agreements with Keystone Investment Distributors
Company, the Fund's principal underwriter.
(3) The sales charge applied to purchases of Class A shares declines as the
amount invested increases. See "Class A Shares."
(4) Purchases of Class A shares in the amount of $1,000,000 or more and/or
purchases made by certain qualifying retirement or other plans are not
subject to a sales charge, but may be subject to a contingent deferred
sales charge. See the "Class A Shares" and "Contingent Deferred Sales
Charge and Waiver of Sales Charges" sections of this prospectus for an
explanation of the charge.
(5) There is no fee for exchange orders received by the Fund directly from an
individual shareholder over the Keystone Automated Response Line ("KARL").
(For a description of KARL, see "Shareholder Services.")
(6) Expense ratios are estimated for the Fund's fiscal year ending September
30, 1997 after giving effect to the reimbursement by Keystone Investment
Management Company ("Keystone") of expenses in accordance with certain
voluntary expense limitations. Currently, Keystone has voluntarily limited
annual expenses of the Fund's Class A, B and C shares to 0.90%, 1.65% and
1.65% of average net class assets, respectively. Keystone intends to
continue the foregoing expense limitations on a calendar month-by-month
basis and may modify or terminate them in the future. The estimated
expense ratios above assume the extension of the limitations until
September 30, 1997, which Keystone is under no obligation to do. Absent
voluntary expense limits, expense ratios for the Fund's Class A, B and C
shares are estimated to be 1.31%, 2.10% and 2.10, of average net assets
for the fiscal year ending September 30, 1997, respectively. Total Fund
Operating Expenses will include indirectly paid expenses.
(7) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by rules adopted by the National
Association of Securities Dealers, Inc. ("NASD").
(8) The Securities and Exchange Commission requires use of a 5% annual return
figure for purposes of this example. Actual return for the Fund may be
greater or less than 5%.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are incorporated by reference into the statement of
additional information. Additional information about the Fund's performance is
contained in its Annual Report, which will be made available upon request and
without charge.
DECEMBER 30, 1994
(DATE OF INITIAL
PUBLIC OFFERING)
YEAR ENDED TO
SEPTEMBER 30, 1996(d) SEPTEMBER 30, 1995
--------------------- ------------------
NET ASSET VALUE BEGINNING OF YEAR ... $9.68 $9.51
----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............... 0.61 0.46
Net realized and unrealized gain on
investments ......................... 0.01 0.14
----- -----
Total from investment operations .... 0.62 0.60
----- -----
LESS DISTRIBUTIONS FROM:
Net investment income ............... (0.53) (0.42)
In excess of net investment income .. 0 (0.01)
Tax basis return of capital ......... (0.03) 0
----- -----
Total distributions ................. (0.56) (0.43)
----- -----
NET ASSET VALUE END OF YEAR ......... $9.74 $9.68
===== =====
TOTAL RETURN (a) .................... 6.56% 6.36%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses (b) ................ 0.91% 0.86%(c)
Total expenses excluding
reimbursement ................... 1.33% 1.27%(c)
Net investment income ............. 6.31% 6.37%(c)
Portfolio turnover rate ............. 74% 67%
NET ASSETS END OF YEAR (THOUSANDS) .. $22,684 $19,293
- ----------
(a) Excluding applicable sales charges.
(b) Ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratios would
have been 0.90% for the year ended September 30, 1996 and 0.82%
(annualized) for the period December 30, 1994 (Date of Initial Public
Offering) to September 30, 1995.
(c) Annualized.
(d) Calculation based on average shares outstanding.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are incorporated by reference into the statement of
additional information. Additional information about the Fund's performance is
contained in its Annual Report, which will be made available upon request and
without charge.
<TABLE>
<CAPTION>
JULY 1, 1991
YEAR ENDED SEPTEMBER 30, (COMMENCEMENT OF
------------------------------------------------------------------------ OPERATIONS) TO
1996(d) 1995 1994 1993 1992 SEPTEMBER 30, 1991
------- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR $9.68 $9.62 $9.91 $9.88 $10.06 $10.00
----- ----- ----- ----- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............ 0.55 0.52 0.47 0.45 0.58 0.18
Net realized and unrealized
gain (loss) on investments ..... 0.01 0.03 (0.41) (0.05) (0.21) 0.06
----- ----- ----- ----- ------ ------
Total from investment operations . 0.56 0.55 0.06 0.40 0.37 0.24
----- ----- ----- ----- ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ............ (0.46) (0.48) (0.34) (0.37) (0.55) (0.18)
In excess of net investment
income ......................... 0 (0.01) (0.01) 0 0 0
Tax basis return of capital ...... (0.03) 0 0 0 0 0
----- ----- ----- ----- ------ ------
Total distributions .............. (0.49) (0.49) (0.35) (0.37) (0.55) (0.18)
----- ----- ----- ----- ------ ------
NET ASSET VALUE END OF YEAR ...... $9.75 $9.68 $9.62 $9.91 $ 9.88 $10.06
===== ===== ===== ===== ====== ======
TOTAL RETURN (a) ................. 5.90% 5.81% 0.58% 4.16% 3.71% 2.43%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses ................. 1.63%(b) 1.53%(b) 1.50% 1.50% 1.36% 1.19%(c)
Total expenses excluding
reimbursement ................ 2.09% 2.09% 1.93% 1.94% 2.03% 3.19%(c)
Net investment income .......... 5.63% 5.46% 4.05% 4.44% 5.50% 6.42%(c)
Portfolio turnover rate .......... 74% 67% 34% 60% 41% 2%
NET ASSETS END OF YEAR(THOUSANDS). $44,096 $62,998 $95,761 $144,725 $186,742 $25,769
- ----------
(a) Excluding applicable sales charges.
(b) Ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratios would
have been 1.62% and 1.50% for the years ended September 30, 1996 and 1995,
respectively.
(c) Annualized.
(d) Calculation based on average shares outstanding.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are incorporated by reference into the statement of
additional information. Additional information about the Fund's performance is
contained in its Annual Report, which will be made available upon request and
without charge.
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
YEAR ENDED SEPTEMBER 30, (DATE OF INITIAL
------------------------------------------------ PUBLIC OFFERING) TO
1996(d) 1995 1994 SEPTEMBER 30, 1993
------- ---- ---- ------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR ................. $ 9.67 $ 9.60 $ 9.90 $ 9.82
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................. 0.54 0.52 0.40 0.23
Net realized and unrealized gain (loss) on
investments ..................................... 0.02 0.04 (0.35) 0.09
------ ------ ------ ------
Total from investment operations .................. 0.56 0.56 0.05 0.32
------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ............................. (0.46) (0.48) (0.34) (0.24)
In excess of net investment income ................ 0 (0.01) (0.01) 0
Tax basis return of capital ....................... (0.03) 0 0 0
------ ------ ------ ------
Total distributions ............................... (0.49) (0.49) (0.35) (0.24)
------ ------ ------ ------
NET ASSET VALUE END OF YEAR ....................... $ 9.74 $ 9.67 $ 9.60 $ 9.90
====== ====== ====== ======
TOTAL RETURN (a) .................................. 5.91% 5.93% 0.48% 3.28%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses .................................. 1.64%(b) 1.53%(b) 1.50% 1.50%(c)
Total expenses excluding reimbursement .......... 2.09% 2.08% 1.94% 1.67%(c)
Net investment income ........................... 5.60% 5.51% 4.08% 2.91%(c)
Portfolio turnover rate ........................... 74% 67% 34% 60%
NET ASSET END OF YEAR (THOUSANDS) ................. $4,152 $2,755 $2,874 $2,077
- ----------
(a) Excluding applicable sales charges.
(b) Ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratios would
have been 1.62% and 1.50% for the years ended September 30, 1996 and 1995,
respectively.
(c) Annualized.
(d) Calculations based on average shares outstanding.
</TABLE>
<PAGE>
THE FUND
The Fund is a diversified, open-end management investment company, commonly
known as a mutual fund. The Fund was formed as a Massachusetts business trust
on December 19, 1990. The Fund is one of more than thirty funds advised by
Keystone Investment Management Company ("Keystone"), the Fund's investment
adviser.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income, consistent with low
volatility of principal. The investment objective of the Fund is fundamental
and may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting shares (as defined in the Investment Company Act of
1940 (the "1940 Act"), which means the lesser of (1) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (2) more than 50% of the outstanding shares).
Any investment involves risk, and there is no assurance that the Fund will
achieve its investment objective.
PRINCIPAL INVESTMENTS
Under ordinary circumstances, the Fund pursues its investment objective by
investing at least 65% of its assets in loan pool securities ("Loan Pool(s)") or
in mortgage securities or other securities collateralized by, or representing an
interest in, a pool of mortgages (collectively, "Mortgage Securities") that have
interest rates that reset at periodic intervals and are issued or guaranteed by
the U.S. government, its agencies or instrumentalities.
The Fund does not attempt to maintain a constant price per share. However,
the Fund does follow a strategy that seeks to minimize changes in its net
asset value per share by investing primarily in adjustable rate securities,
whose interest rates are periodically reset when market rates change. The
average dollar weighted reset period of adjustable rate securities held by the
Fund will not exceed one year. The Fund seeks to provide a relatively stable
net asset value while providing high current income relative to high quality,
short-term investment alternatives.
INVESTMENT POLICIES AND APPROACH
Keystone believes that, by investing primarily in Mortgage Securities and Loan
Pools with adjustable rates of interest that are issued or guaranteed by the
U.S. government, its agencies or instrumentalities, the Fund will achieve a less
volatile net asset value per share than is characteristic of mutual funds that
invest primarily in U.S. government securities paying a fixed-rate of interest.
Unlike fixed rate mortgages and loans, adjustable rate mortgage securities
("ARMS") and adjustable rate Loan Pools ("AR Loan Pools") allow the Fund to
participate in increases in interest rates through periodic adjustments in the
coupons of the underlying mortgages or loans, resulting in both higher current
yields and lower price fluctuations in the Fund's net asset value per share.
The Fund is also affected by decreases in interest rates through periodic
decreases in the coupons of the underlying mortgages or loans resulting in
lower income to the Fund. This downward adjustment results in lower price
fluctuations in the net asset value per share in a decreasing interest rate
environment. As the interest rates on the mortgages or loans underlying the
Fund's investments are reset periodically, coupons of portfolio securities
will gradually align themselves to reflect changes in market rates and should
cause the net asset value per share of the Fund to fluctuate less dramatically
than it would if the Fund invested in more traditional long-term, fixed-rate
mortgages.
The portion of the Fund that is not invested in ARMS and AR Loan Pools is
intended to add incremental yield from changes in market rates without
materially increasing the volatility of the net asset value per share. As a
result, the overall impact on the Fund of this portion of the Fund's
portfolio is expected to be neutral in terms of price risk.
For example, the Fund may invest in GNMA, FNMA and FHLMC (each as
hereinafter defined) fixed rate Mortgage Securities. The expected price
behavior of fixed rate GNMA, FNMA and FHLMC Mortgage Securities is like that
of other fixed rate debt securities in that their principal value rises as
market interest rates fall and declines as market interest rates rise. For
further information, see "Other Permitted Investments."
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.
PERMITTED INVESTMENTS
LOAN POOL SECURITIES
A loan pool security is an interest in a pool of loans which generally
includes working capital loans, equipment loans and real estate loans. Most
Loan Pools consist of pass-through securities, which means that they provide
investors with payments consisting of both interest and principal as loans in
the underlying loan pool are paid off by the borrower. The Fund will invest
only in Loan Pools that are issued or guaranteed by the U.S. government, its
agencies or instrumentalities. Such Loan Pools are called "modified pass-
throughs," since the holder does not bear the risk of default on the
underlying loan.
Currently, the dominant issuer and guarantor of Loan Pools issued or
guaranteed by the U.S. government, its agencies or instrumentalities is the
Small Business Administration ("SBA"). The SBA creates Loan Pools from pools
of SBA guaranteed portions of loans ("SBA Loan Pools"). SBA Loan Pools have a
guarantee of timely payment of both principal and interest and are backed by
the full faith and credit of the U.S. government.
AR Loan Pools are pass-through Loan Pools collateralized by loans with
adjustable rather than fixed interest rates, which means that there are
periodic adjustments in their coupons subject to limitations or "caps" on the
maximum and minimum interest that is charged to the borrower during the life
of the loan or to maximum and minimum changes to that interest rate during a
given period. The AR Loan Pools in which the Fund invests are primarily SBA
Loan Pools and are actively traded in the secondary market.
MORTGAGE SECURITIES
Most Mortgage Securities are also "modified pass-through" securities. The
dominant issuers or guarantors of Mortgage Securities today are the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC").
The Mortgage Securities either issued or guaranteed by GNMA, FNMA or FHLMC
are called "pass-through" Mortgage Securities because a pro rata share of both
regular interest and principal payments (less GNMA's, FNMA's or FHLMC's fees
and any applicable loan servicing fees) as well as unscheduled early
prepayments on the underlying mortgage pool are passed through monthly to the
holder of the Mortgage Securities (i.e., the Fund). The principal and interest
on GNMA securities are guaranteed by GNMA and backed by the full faith and
credit of the U.S. government. FNMA guarantees full and timely payment of all
interest and principal. FHLMC guarantees timely payment of interest and the
ultimate collection of principal. Mortgage Securities from FNMA and FHLMC are
not backed by the full faith and credit of the U.S. government and are
supported only by the credit of FNMA and FHLMC. Although their close
relationship with the U.S. government is believed to make them high quality
securities with minimal credit risks, the U.S. government is not obligated by
law to support either FNMA or FHLMC. Historically, however, there have been no
defaults in any FNMA or FHLMC issues.
Adjustable rate mortgages are an increasingly important form of residential
financing. Generally, adjustable rate mortgages are mortgages that have a
specified maturity date and amortize in a manner similar to that of a fixed
rate mortgage. As a result, in periods of declining interest rates there is a
reasonable likelihood that adjustable rate mortgages will behave like fixed
rate mortgages in that current levels of prepayments of principal on the
underlying mortgages could accelerate. However, one difference between
adjustable rate mortgages and fixed rate mortgages is that for certain types
of adjustable rate mortgages the rate of amortization of principal as well as
interest payments can and does change in accordance with movements in a
particular, pre-specified, published interest rate index. The amount of
interest due a holder of an adjustable rate mortgage is calculated by adding a
specified additional amount (margin) to the index, subject to limitations or
"caps" on the maximum and minimum interest that is charged to the mortgagor
during the life of the mortgage or to maximum and minimum changes to that
interest rate during a given period. It is these special characteristics,
unique to the adjustable rate mortgages underlying the ARMS in which the Fund
invests, that are believed to make ARMS attractive investments in seeking to
accomplish the Fund's objective. For further information, see "Prepayments" in
the section on "Risk Factors."
COLLATERALIZED MORTGAGE OBLIGATIONS
The Fund may also invest in fixed rate and adjustable rate collateralized
mortgage obligations ("CMOs"), including CMOs with rates that move inversely
to market rates that are issued by and guaranteed as to principal and interest
by the U.S. government, its agencies or instrumentalities. The principal
governmental issuer of CMOs is FNMA. In addition, FHLMC issues a significant
number of CMOs. The Fund will not invest in CMOs that are issued by private
issuers. CMOs are debt obligations collateralized by Mortgage Securities in
which the payment of the principal and interest is supported by the credit of,
or guaranteed by, the U.S. government or an agency or instrumentality of the
U.S. government. The secondary market for such CMOs is actively traded.
CMOs are structured by redirecting the total payment of principal and
interest on the underlying Mortgage Securities used as collateral to create
classes with different interest rates, maturities and payment schedules.
Instead of interest and principal payments on the underlying Mortgage
Securities being passed through or paid pro rata to each holder (e.g., the
Fund), each class of a CMO is paid from and secured by a separate priority
payment of the cash flow generated by the pledged Mortgage Securities.
Most CMO issues have at least four classes. Classes with an earlier maturity
receive priority on payments to assure the early maturity. After the first
class is redeemed, excess cash flow not necessary to pay interest on the
remaining classes is directed to the repayment of the next maturing class
until that class is fully redeemed. This process continues until all classes
of the CMO issue have been paid in full. Among the CMO classes available are
floating (adjustable) rate classes, which have characteristics similar to
ARMS, and inverse floating rate classes whose coupons vary inversely with the
rate of some market index. The Fund may purchase any class of CMO other than
the residual (final) class.
An inverse floating rate CMO, i.e., an "inverse floater," bears an interest
rate that resets in the opposite direction of the change in a specified interest
rate index. As market interest rates rise, the interest rate on the inverse
floater goes down, and vice versa. Inverse floaters tend to exhibit greater
price volatility than fixed-rate bonds of similar maturity and credit quality.
The interest rates on inverse floaters may be significantly reduced, even to
zero, if interest rates rise. Moreover, the secondary market for inverse
floaters may be limited in rising interest rate environments.
GENERAL
Except as described above, the Fund does not currently intend to invest in
derivative Mortgage Securities, including residual interests in Mortgage
Securities.
OTHER PERMITTED INVESTMENTS
The Fund may invest up to 35% of its assets under ordinary circumstances and
up to 100% of its assets for temporary defensive purposes in certain
instruments other than ARMS, adjustable rate CMOs or AR Loan Pools.
Specifically, the Fund may so invest in the following instruments: obligations
of the U.S. government, its agencies or instrumentalities, including the
Federal Home Loan Banks, FNMA, GNMA, Bank for Cooperatives (including Central
Bank for Cooperatives), Federal Land Banks, Federal Intermediate Credit Banks,
Tennessee Valley Authority, Export-Import Bank of the United States, Commodity
Credit Corporation, Federal Financing Bank, The Student Loan Marketing
Association, FHLMC, SBA or the National Credit Union Administration. The Fund
may assume a temporary defensive position, for example, upon Keystone's
determination that market conditions so warrant. When the Fund invests for
temporary defensive purposes, it may not be pursuing its investment objective.
Although the securities described in this section are all issued or
guaranteed by the U.S. government, its agencies or instrumentalities, the
value of these securities, like those of other fixed income securities,
fluctuates in response to changes in interest rates. When interest rates
decline, the value of these securities can be expected to rise. Conversely,
when interest rates rise, the value of these securities can be expected to
decline. The corresponding increase or decrease in the value of fixed rate
securities generally becomes more significant for instruments with longer
remaining maturities or expected remaining lives.
INVESTMENT TECHNIQUES
The Fund may enter into repurchase and reverse repurchase agreements and
interest rate swap agreements. The Fund may also purchase and sell securities
or rights to interest payments on a when issued or delayed delivery basis. The
Fund will not, without thirty days prior notice to shareholders, enter into
interest rate swap contracts or financial futures contracts and related
options transactions. The Fund may employ new investment techniques related to
any of its investment policies.
For further information about the types of investments and investment
techniques available to the Fund, including the associated risks, see the
"Risk Factors" and "Additional Investment Information" sections of this
prospectus and the statement of additional information.
ADDITIONAL INFORMATION
An investment in the Fund may be a permissible investment for national
banks, federal credit unions and some state savings and loan associations. Any
financial institution considering an investment in the Fund should refer to
the applicable laws and regulations governing its operations in order to
determine if the Fund is a permissible investment.
INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental restrictions summarized below, which
may not be changed without the approval of a 1940 Act majority of the Fund's
outstanding shares. These restrictions and certain other fundamental and
nonfundamental restrictions are set forth in the statement of additional
information. Unless otherwise stated, all references to the Fund's assets are
in terms of current market value.
Generally, the Fund may not do the following:
(1) with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in the securities of any one issuer; this
limitation does not apply to investments in securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities;
(2) borrow money or enter into reverse repurchase agreements, except that
the Fund may (a) enter into reverse repurchase agreements or (b) borrow
money from banks for temporary or emergency purposes in aggregate amounts up
to one-third of the value of its net assets; provided that, while borrowings
from banks (not including reverse repurchase agreements) exceed 5% of the
Fund's net assets, any such borrowings will be repaid before additional
investments are made.
RISK FACTORS
Like any investment, your investment in the Fund involves an element of
risk. Before you buy shares of the Fund, you should carefully evaluate your
ability to assume the risks your investment in the Fund poses.
By itself the Fund does not constitute a balanced investment program. You
should take into account your own investment objectives as well as your other
investments when considering an investment in the Fund.
Certain risks related to the Fund are discussed below. In addition to the
risks discussed in this section, specific risks attendant to individual
securities or investment practices are discussed in "Additional Investment
Information" and the statement of additional information.
Should the Fund need to raise cash to meet a large number of redemptions it
might have to sell portfolio securities at a time when it would be
disadvantageous to do so.
PREPAYMENTS
The Mortgage Securities and Loan Pools in which the Fund principally invests
differ from conventional bonds in that principal is repaid over the life of
the investment rather than at maturity. As a result, the holder of the
investment (i.e., the Fund) receives monthly scheduled payments of principal
and interest and may receive unscheduled principal payments representing
prepayments on the underlying mortgages or loans. When the holder reinvests
the payments and any unscheduled prepayments of principal it receives, it may
receive a rate of interest that is higher or lower than the rate on the
existing investment.
RESETS
The Fund invests in AR Loan Pools, ARMS and adjustable rate CMOs that hold
securities whose interest rates are readjusted at intervals of up to three
years (generally one year or less) to an increment over some predetermined
interest rate index.
The Fund's net asset value per share could vary to the extent that current
interest rates on Loan Pools or Mortgage Securities are different from market
interest rates during periods between coupon reset dates. During periods of
rising or falling interest rates, changes in the coupon rate lag behind
changes in the market rate, possibly resulting in a net asset value per share
which is slightly lower or higher, as the case may be, until the coupon resets
to market rates. Shareholders could lose some of their principal if they sold
their shares of the Fund during periods of rising interest rates before the
interest rates on the underlying mortgages or loans were adjusted to reflect
current market rates. During periods of extreme fluctuations in interest
rates, the Fund's net asset value per share will fluctuate as well.
CAPS AND FLOORS
The Fund invests in AR Loan Pools, ARMS and adjustable rate CMOs whose
underlying securities will frequently have caps and floors that limit the
maximum amount by which the loan rate to the borrower may change up or down
per reset or adjustment interval and over the life of the loan.
The Fund will not benefit from increases in interest rates to the extent
that interest rates rise to the point where they cause the current coupon of
loans or mortgages held as investments to reach their maximum allowable annual
or lifetime reset limits (cap rates). An increase in interest rates above cap
rate would cause such mortgages or loans to "cap out" and to behave more like
long-term fixed rate debt securities. Conversely, the Fund will not benefit
from decreases in interest rates to the extent that prepayments increase. In
addition, when interest rates decline, the Fund's income will be reduced when
the interest rate on an underlying adjustable rate mortgage is reduced.
ADDITIONAL FACTORS
In an environment where interest rates on short-term fixed-rate debt
securities are rising faster than interest rates in long-term fixed-rate debt
securities, the market value of Mortgage Securities will typically under-
perform other fixed-rate debt securities. In addition, because of the reset
risk described above, the Fund's investments may not perform as expected.
ARMS and AR Loan Pools may be less effective as a means of "locking in"
long-term interest rates than fixed rate debt securities, since their market
values generally vary inversely with changes in market interest rates (i.e.,
of ARMS and AR Loan Pools will generally vary inversely with changes in market
interest rates, declining when interest rates rise and rising when interest
rates decline. However, the Market Value of ARMS and AR Loan Pools is less
likely to decline than that of fixed-rate debt securities of comparable
maturities during periods of rapidly rising rates. In addition ARMS and AR
Loan Pools have less potential than fixed-rate debt securities for capital
appreciation due to their adjustable rate features and the likelihood of
increased prepayments of mortgages or loans as interest rates decline.
If ARMS and AR Loan Pools are purchased at a premium, mortgage foreclosures
or loan defaults and unscheduled principal prepayments may result in some loss
of the holder's principal investment to the extent of the premium paid over
the face value of the security. On the other hand, if ARMS and AR Loan Pools
are purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal will increase current and total returns
and will accelerate the recognition of income, which, when distributed to
shareholders, will be taxable as ordinary income.
While the securities in which the Fund may invest are issued or guaranteed
by the U.S. government, its agencies or instrumentalities, the market value of
such securities is not guaranteed.
For further information about the risks associated with the Fund's
investments and investment techniques, see "Additional Investment Information"
and the statement of additional information.
PRICING SHARES
The net asset value of a Fund share is computed each day on which the New
York Stock Exchange (the "Exchange") is open as of the close of trading on the
Exchange (currently 4:00 p.m. eastern time for the purpose of pricing Fund
shares) except on days when changes in the value of the Fund's portfolio
securities do not affect the current net asset value of its shares. The
Exchange is currently closed on weekends, New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The net asset value per share of the Fund is arrived at by
determining the value of the Fund's assets, subtracting its liabilities and
dividing the result by the number of its shares outstanding.
The Fund values most of its securities at the mean of the bid and asked
price at the time of valuation and values other securities at fair value
according to procedures established by the Board of Trustees, including
valuing certain of its fixed rate Mortgage Securities and Loan Pools 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
Mortgage Securities and Loan Pools, quotations from dealers, market
transactions in comparable securities and various relationships between
securities in determining value.
Current values for the Fund's portfolio securities are determined as
follows:
(1) Short-term investments with initial or remaining 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.
(2) Short-term investments with greater than sixty days to maturity for
which market quotations are readily available are valued at current market
value; Short-term investments maturing in more than 60 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.
(3) All other investments are valued at market value or, where market
quotations are not readily available, at fair value as determined in good
faith in accordance with procedures established by the Fund's Board of
Trustees.
DIVIDENDS AND TAXES
The Fund has qualified and intends to continue to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund qualifies if, among other things, it distributes to its
shareholders at least 90% of its net investment income for its fiscal year.
The Fund also intends to make timely distributions, if necessary, sufficient
in amount to avoid the nondeductible 4% excise tax imposed on a regulated
investment company when it fails to distribute, with respect to each calendar
year, at least 98% of its ordinary income for such calendar year and 98% of
its net capital gains for the one-year period ending on October 31 of such
calendar year.
If the Fund qualifies as a regulated investment company, and if it
distributes substantially all of its net investment income and net capital
gains, if any, to shareholders, it will be relieved of any federal income tax
liability.
The Fund will make distributions from net investment income monthly and net
realized capital gains, if any, annually. Shareholders receive Fund
distributions in the form of additional shares of that class of shares upon
which the distribution is based or, at the shareholder's option, in cash. Fund
distributions in the form of additional shares are made at net asset value
without the imposition of a sales charge.
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 and Class C shares will generally be higher than those
of Class A shares and income distributions paid by the Fund with respect to
Class A shares will generally be greater than those paid with respect to Class
B and Class C shares.
Since none of the Fund's income will consist of corporate dividends, no
distributions will qualify for the corporate dividends received deduction.
Dividends and distributions are taxable whether received in cash or in
shares. Income dividends and net short-term gains distributions are taxable as
ordinary income. Net long-term capital gains are taxable as capital gains
regardless of how long the Fund's shares are held. If Fund shares are held for
less than six months, however, and are sold at a loss, such loss will be
treated as a long-term capital loss for tax purposes to the extent of any
long-term capital gains dividends received. Any distribution 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 shareholders as of December 31 of the year in which such distribution was
declared.
FUND MANAGEMENT AND EXPENSES
BOARD OF TRUSTEES
Under Massachusetts law, the Fund's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the
Fund. Subject to the general supervision of the Fund's Board of Trustees,
Keystone serves as investment adviser to the Fund and is responsible for the
overall management of the Fund's business and affairs.
INVESTMENT ADVISER
Keystone has provided investment advisory and management services to
investment companies and private accounts since 1932. Keystone is a wholly-
owned subsidiary of Keystone Investments, Inc. ("Keystone Investments"). Both
Keystone and Keystone Investments are located at 200 Berkeley Street, Boston,
Massachusetts 02116-5034.
Keystone Investments is a private corporation predominantly owned by current
and former members of management 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, Ralph J. Spuehler, Jr. and Rosemary D. Van
Antwerp. Keystone Investments provides accounting, bookkeeping, legal,
personnel and general corporate services to Keystone, its affiliates and the
Keystone Investments Family of Funds.
Pursuant to its Investment Advisory and Management Agreement with the Fund,
(the "Advisory Agreement"), Keystone provides investment advisory and
management services to the Fund.
The Fund currently pays Keystone a fee for its services at the annual rate
set forth below:
Aggregate Net Asset
Management Value of the Shares
Fee of the Fund
- ------------------------------------------------------------------------------
2% of Gross Dividend and
Interest Income
plus
0.50% of the first $100,000,000, plus
0.45% of the next $100,000,000, plus
0.40% of the next $100,000,000, plus
0.35% of the next $100,000,000, plus
0.30% of the next $100,000,000, plus
0.25% of amounts over $500,000,000
computed as of the close of business each business day and payable daily.
During the fiscal year ended September 30, 1996, the Fund paid or accrued to
Keystone investment management and administrative services fees of $493,147,
which represented 0.64% of the Fund's average net assets.
The Advisory Agreement continues in effect from year to year only so long as
such continuance is specifically approved at least annually by (i) the Board
of Trustees or by vote of a majority of the outstanding shares of the Fund and
(ii) the vote of a majority of the Independent Trustees (Trustees who are not
interested persons of the Fund, as defined in the 1940 Act, and who have no
direct or indirect financial interest in the Distribution Plans or any
agreement related thereto) cast in person at a meeting called for the purpose
of voting on such approval.
The Advisory Agreement may be terminated, without penalty, on 60 days
written notice by the Fund or Keystone or by a vote of shareholders of the
Fund. The Advisory Agreement will terminate automatically upon its
"assignment," as defined in the 1940 Act.
Keystone Investments has recently entered into an Agreement and Plan of
Acquisition and Merger with First Union Corporation ("First Union"), pursuant
to which Keystone Investments will be merged with and into a subsidiary of
First Union National Bank of North Carolina ("FUNB-NC") (the "Merger"). The
surviving corporation will assume the name "Keystone Investments, Inc."
Subject to a number of conditions being met, it is currently anticipated that
the Merger will take place on or around December 11, 1996. Thereafter,
Keystone Investments, Inc. would be a subsidiary of FUNB-NC.
If consummated, the proposed Merger will be deemed to cause an assignment,
within the meaning of the 1940 Act, of the Advisory Agreement. Consequently,
the completion of the Merger is contingent upon, among other things, the
approval of the Fund's shareholders of a new investment advisory and
management agreement between the Fund and Keystone (the "New Advisory
Agreement"). The Fund's Trustees have approved the terms of the New Advisory
Agreement, subject to the approval of shareholders and the completion of the
Merger, and have called a special meeting of shareholders to obtain their
approval of, among other things, the New Advisory Agreement. The meeting is
expected to be held in December 1996. The proposed New Advisory Agreement has
terms, including fees payable thereunder, that are substantively identical to
those in the current agreement.
In addition to an assignment of the Fund's Advisory Agreement, the Merger,
if consummated, will also be deemed to cause an assignment, as defined by the
1940 Act, of the Principal Underwriting Agreement between the Fund and
Keystone Investment Distributors Company, its principal underwriter (the
"Principal Underwriter"). As a result, the Fund's Trustees have approved the
following agreements, subject to the Merger's completion: (i) a principal
underwriting agreement between Evergreen Funds Distributor, Inc. ("EFD") and
the Fund; (ii) a marketing services agreement between the Principal
Underwriter and EFD with respect to the Fund; and (iii) a subadministration
agreement between Keystone and Furman Selz LLC with respect to the Fund. EFD
is a wholly-owned subsidiary of Furman Selz LLC. It is currently anticipated
that on or about January 2, 1997, Furman Selz LLC will transfer EFD, and
Furman Selz's related services, to BISYS Group, Inc. ("BISYS") (the
"Transfer"). The Fund's Trustees have also approved, subject to completion of
the Transfer: (i) a new principal underwriting agreement with EFD and the
Fund; (ii) a new marketing services agreement between the Principal
Underwriter and EFD with respect to the Fund; and (iii) a subadministration
agreement between Keytone and BISYS with respect to the Fund. The terms of
such agreements will be substantively identical to the terms of the agreements
to be executed upon completion of the Merger.
The Fund has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
PORTFOLIO MANAGER
Christopher P. Conkey has been the Fund's portfolio manager since 1991. Mr.
Conkey is a Keystone Senior Vice President and Group Leader for the high grade
fixed income area. Mr. Conkey joined Keystone as a fixed income portfolio
manager in January, 1988.
FUND EXPENSES
The Fund pays all of its expenses. In addition to the investment advisory
and management fee discussed above, the principal expenses that the Fund is
expected to pay include, but are not limited to, transfer, dividend
disbursing and shareholder servicing agent costs and expenses; custodian costs
and expenses; fees of its Independent Trustees, its independent auditors, its
legal counsel, and legal counsel to its Board of Trustees; fees payable to
government agencies, including registration and qualification fees of the Fund
and its shares under federal and state securities laws and certain
extraordinary expenses. In addition, each class will pay all of the expenses
attributable to it. Such expenses are currently limited to Distribution Plan
expenses. The Fund also pays its brokerage commissions, interest charges and
taxes.
In connection with the expense limits in effect for the fiscal year ended
September 30, 1996, Keystone reimbursed the Fund $82,098, $244,938, and
$13,980 for Class A, Class B and Class C shares, respectively. Keystone has
voluntarily limited annual expenses of each of the Fund's Class A, B and C
shares to 0.90%, 1.65% and 1.65%, respectively, of average daily net assets.
Keystone currently intends to continue the foregoing expense limitations on a
calendar month-by-month basis. Keystone, from time to time, will make
determinations whether to continue these expense limits and, if so, at what
rates. Keystone will not be required to reimburse the Fund for amounts in
excess of an expense limit if such reimbursement would result in the Fund's
inability to qualify as a regulated investment company under provisions of
the Code.
For the fiscal year ended September 30, 1996, after expense reimbursements,
but including indirect expenses, the Fund's Class A, Class B and Class C shares
each paid 0.91%, 1.63% and 1.64%, respectively, of its average net
assets in expenses.
During the fiscal year ended September 30, 1996, the Fund paid or accrued
$139,248 to Keystone Investor Resource Center, Inc. ("KIRC") for its services
as the Fund's transfer and dividend disbursing agent. During the same year,
the Fund paid or accrued $24,176 to Keystone Investments for certain
accounting services. KIRC, a wholly-owned subsidiary of Keystone, is located
at 200 Berkeley Street, Boston, Massachusetts, 02116-5034.
SECURITIES TRANSACTIONS
Under policies established by the Fund's Board of Trustees, Keystone selects
broker-dealers to execute transactions subject to the receipt of best
execution. When selecting broker-dealers to execute portfolio transactions for
the Fund, Keystone may consider the number of shares of the Fund sold by the
broker-dealer. In addition, broker-dealers executing portfolio transactions
may, from time to time, be affiliated with the Fund, Keystone, the Principal
Underwriter or their affiliates. The Fund may pay higher commissions to
broker-dealers that provide research services. Keystone may use these services
in advising the Fund as well as in advising its other clients.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rates for the fiscal years ended September 30,
1996 and 1995 were 74% and 67%, respectively. High portfolio turnover may
involve correspondingly greater brokerage commissions and other transaction
costs, which will be borne directly by the Fund, as well as additional
realized gains and/or losses. 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 the Principal Underwriter. The Principal Underwriter, a
wholly-owned subsidiary of Keystone, is located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034. See "Fund Management and Expenses" for more
information on how the proposed First Union Merger will affect the Fund's
underwriting arrangements.
In addition, you may purchase 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.
You may also telephone 1-800-343-2898 to obtain the number of an account to
which you can wire or electronically transfer funds and send in a completed
account application. Subsequent investments in the Fund's shares in any amount
may be made by check, by wiring Federal funds, by direct deposit or by an
electronic funds transfer ("EFT").
Orders for the purchase of shares of the Fund will be confirmed at the
public offering price, which is equal to the net asset value per share next
determined after receipt of the order in proper form by the Principal
Underwriter (generally as of the close of the Exchange on that day) plus, in
the case of Class A shares, the applicable sales charge. Orders received by
broker-dealers or other firms prior to the close of the Exchange and received
by the Principal Underwriter prior to its close of its business day will be
confirmed at the offering price effective as of the close of trading on the
Exchange on that day. Broker-dealers and other financial services firms are
obligated to transmit orders promptly.
Orders for shares received other than as stated above will receive the
public offering price, which is equal to the net asset value per share next
determined (generally the next business day's offering price) plus, in the
case of Class A shares, the applicable sales charge.
The Fund reserves the right to determine the net asset value more frequently
than once a day if deemed desirable.
Your initial purchase amount must be at least $1,000. There is no minimum
amount for subsequent purchases.
The Fund reserves the right to withdraw all or any part of the offering made
by this prospectus and to reject purchase orders.
Shareholder inquiries should be directed to KIRC by calling toll free
1-800-343-2898 or writing to KIRC or to the firm from which you received this
prospectus.
ALTERNATIVE SALES OPTIONS
The Fund offers Class A, B and C 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 contingent deferred sales charge (a "CDSC") when
they are redeemed except as follows: Class A shares purchased (1) in an amount
equal to or exceeding $1,000,000 or (2) by a corporate qualified or certain
other qualified retirement plan or a non-qualified deferred compensation plan
or a Title I tax sheltered annuity or TSA plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan"), in either case
without a front-end sales charge, will be subject to a CDSC for the 24-month
period following the date of purchase.
CLASS B SHARES -- BACK-END LOAD OPTION
Class B shares are sold without a sales charge at the time of purchase, but
are, with certain exceptions, subject to a CDSC if they are redeemed. Class B
shares purchased on or after June 1, 1995 are subject to a CDSC if redeemed
during the 48-month period commencing with and including the month of
purchase. Class B shares purchased prior to June 1, 1995 are subject to a CDSC
if redeemed during the four calendar years following purchase. Class B shares
purchased on or after June 1, 1995 that have been outstanding for six years
from and including 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
exchange 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 CDSC if they are redeemed within one year after the date of
purchase. Class C shares are available only through broker-dealers who have
entered into special distribution agreements with the Principal Underwriter.
Each class of shares, pursuant to its Distribution Plan, pays an annual
service fee of 0.25% of the Fund's average daily net assets attributable to
that class. In addition to the 0.25% service fee, the Class B and C
Distribution Plans provide for the payment of an annual distribution fee of up
to 0.75% of the average daily net assets attributable to their respective
classes. As a result, income distributions paid by the Fund with respect to
Class B and Class C shares will generally be less than those paid with respect
to Class A shares.
Investors who would rather pay the entire cost of distribution at the time
of investment, rather than spreading the cost over time, might consider Class
A shares. Other investors might consider Class B or Class C shares (in which
case 100% of the purchase price is invested immediately), depending on the
amount of the purchase and the intended length of investment.
The Fund will not normally accept any purchase of Class B shares in the
amount of $250,000 or more and will not normally accept any purchase of Class
C shares in the amount of $1,000,000 or more.
----------------------------------------------
CLASS A SHARES
Class A shares are offered at net asset value plus an initial sales charge
as follows:
<TABLE>
<CAPTION>
AS A % OF CONCESSION TO
AS A % OF NET AMOUNT DEALERS AS A % OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED* OFFERING PRICE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 .......................................... 3.00% 3.09% 3.00%
$100,000 but less than $250,000 ............................. 2.50% 2.56% 2.50%
$250,000 but less than $500,000 ............................. 1.50% 1.52% 1.50%
$500,000 but less than $1,000,000 ........................... 1.00% 1.01% 1.00%
</TABLE>
- ----------
*Rounded to the nearest one-hundredth percent.
----------------------------------------------
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 or a tax
sheltered annuity plan sponsored by a public educational entity having 5,000
or more eligible employees (an "Educational TSA 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:
0.50% of the investment amount up to $4,999,999, plus 0.25% of the investment
amount over $4,999,999.
With the exception of Class A shares acquired by an Educational TSA Plan in
an NAV Purchase, as described above, Class A shares acquired in an NAV
Purchase are subject to a CDSC of 0.50% upon redemption during the 24-month
period commencing on the date the shares were originally purchased. Class A
shares acquired by an Educational TSA Plan in an NAV Purchase are not subject
to a CDSC.
The CDSC 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 and outstanding on the books of the Fund for specified periods.
Upon written notice to broker-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 that are offered in connection with certain fee based programs, such as
wrap accounts sponsored or managed by broker-dealers, investment advisers or
others 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 when
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 CDSC with respect
to the redemption proceeds.
In addition, 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 when 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 CDSC with respect to the redemption proceeds.This
special net asset value purchase is currently offered only on a month-by-month
basis and may be modified or terminated in the future.
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, which are
currently limited to 0.25% annually of the average daily net asset value of
Class A shares, to pay expenses associated with the distribution of Class A
shares. Payments under the Class A Distribution Plan are currently made to the
Principal Underwriter (who may reallow all or part to others, such as broker-
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 and 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 CDSC in accordance with the following
schedule:
CDSC
REDEMPTION TIMING IMPOSED
- ----------------- -------
First twelve-month period .................... 3.00%
Second twelve-month period ................... 3.00%
Third twelve-month period .................... 2.00%
Fourth twelve-month period ................... 1.00%
No CDSC is imposed on amounts redeemed thereafter.
With respect to Class B shares purchased prior to June 1, 1995, the Fund,
with certain exceptions, imposes a CDSC 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 CDSC is imposed on amounts redeemed thereafter.
When imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to you. The CDSC is retained by the Principal
Underwriter. Amounts received by the Principal Underwriter under the Class B
Distribution Plans are reduced by CDSCs retained by the Principal Underwriter.
See "Contingent Deferred Sales Charge and Waiver of Sales Charges" below.
Class B shares purchased on or after June 1, 1995 that have been outstanding
for six years from and including 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.
(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
or exchanged will no longer be subject to the higher expenses, borne by Class
B shares. Because the net asset value per share of Class A shares may be
higher or lower than that of the Class B shares at the time of conversion or
exchange, 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 such Class B
shareholders.
In addition to the exchange privileges described in the section of the
prospectus entitled "Exchanges," Class B shares purchased prior to June 1,
1995 that have been outstanding during seven calendar years, as a general
matter, may be exchanged for Class A shares of the Fund without imposition of
a front end sales charge.
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 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 broker-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 broker-dealers or others a
commission equal to 2.75% 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-dealer 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 shares maintained by the recipient and outstanding on the
books of the Fund for specified periods. See "Distribution Plans" below.
CLASS C SHARES
Class C shares are offered only through broker-dealers who have entered into
special distribution agreements with the Principal Underwriter. Class C shares
are offered at net asset value, without an initial sales charge. With certain
exceptions, the Fund may impose a CDSC of 1.00% on shares redeemed within one
year after the date of purchase. No CDSC is imposed on amounts redeemed
thereafter. If imposed, the CDSC is deducted from the redemption proceeds
otherwise payable to you. The CDSC is retained by the Principal Underwriter.
See "Contingent Deferred Sales Charge and Waiver of Sales Charges" below.
CLASS C DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class C shares
(the "Class C Distribution Plan") that provides for expenditures at an annual
rate of up to 1.00% of the average daily net asset value of Class C shares to
pay expenses of the distribution of Class C shares. Payments under the Class C
Distribution Plan are currently made to the Principal Underwriter (which may
reallow all or part to others, such as broker-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 broker-dealers 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 the broker-dealer or other party will receive a
commission at an annual rate of 0.75% (subject to NASD rules -- see
"Distribution Plans") plus service fees at an annual rate of 0.25%,
respectively, of the average daily net asset value of each Class C share
maintained by such recipients and outstanding on the books of the Fund for
specified periods. See "Distribution Plans" below.
CONTINGENT DEFERRED SALES CHARGE
AND WAIVER OF SALES CHARGES
Any CDSC 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 CDSC is imposed when you redeem amounts derived from (1) increases in the
value of your account above the net cost of such shares due to increases in
the net asset value per share of the Fund; (2) certain shares with respect to
which the Fund did not pay a commission on issuance, including shares acquired
through reinvestment of dividend income and capital gains distributions; (3)
certain Class A shares held for more than 24 months; (4) Class B shares held
during more than four consecutive calendar years or more than 48 months, as
the case may be; or (5) Class C shares held for more than one year. Upon
request for redemption, shares not subject to the CDSC will be redeemed first.
Thereafter, shares held the longest will be the first to be redeemed.
With respect to Class A shares purchased by a Qualifying Plan at net asset
value or Class C shares purchased by a Qualifying Plan, no CDSC will be
imposed on any redemptions made specifically by an individual participant in
the Qualifying Plan. This waiver is not available in the event a Qualifying
Plan (as a whole) redeems substantially all of its assets.
In addition, no CDSC 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 Systematic Income Plan of up
to 1.5% 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.
The Fund also may sell Class A, Class B or Class C shares at net asset value
without any initial sales charge or a CDSC to certain Directors, Trustees,
officers and employees of the Fund, 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. See the statement of additional information for details.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
From time to time, the Principal Underwriter may provide promotional
incentives, including reallowance of up to the entire sales charge, to certain
broker-dealers whose representatives have sold or are expected to sell
significant amounts of Fund shares. In addition, from time to time, broker-
dealers may receive additional cash payments. The Principal Underwriter may
provide written information to broker-dealers with whom it has dealer
agreements that relates to sales incentive campaigns conducted by such broker-
dealers for their representatives as well as financial assistance in
connection with pre-approved seminars, conferences and advertising. No such
programs or additional compensation will be offered to the extent they are
prohibited by the laws of any state or any self-regulatory agency such as the
NASD.
The Principal Underwriter may, at its own expense, pay concessions in
addition to those described above to broker-dealers that satisfy certain
criteria established from time to time by the Principal Underwriter. These
conditions relate to increasing sales of shares of Keystone funds over
specified periods and certain other factors. Such payments may, depending on
the broker-dealer's satisfaction of the required conditions, be periodic and
may be up to 0.25% of the value of shares sold by such broker-dealers.
Commencing November 1, 1996 through December 31, 1996 (the "Offering Period"),
the Principal Underwriter, or any successor entity to the Principal Underwriter,
will pay to First Union Brokerage Services, Inc. ("First Union Brokerage"), a
wholly-owned subsidiary of FUNB-NC, an additional concession equal to 0.50% of
the public offering price of any class of Fund shares sold by First Union
Brokerage during the Offering Period.
The Principal Underwriter may also pay a transaction fee (up to the level of
payments allowed broker-dealers for sale of shares as described above) to
banks or other financial service 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 broker-dealers pursuant to state
law.
DISTRIBUTION PLANS
As described 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 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
the Fund's shares, of which 0.75% may be used to pay 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 CDSCs 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 Fund's Class B
Distribution Plans that exceed current annual payments permitted to be
received by the Principal Underwriter from the Fund ("Advances"). The
Principal Underwriter intends to seek full payment of such Advances from the
Fund (together with annual interest thereon at the prime rate plus 1.0%) 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 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.
In connection with financing its distribution costs, including commission
advances to broker-dealers and others, the Principal Underwriter has sold to a
financial institution substantially all of its 12b-1 fee collection rights and
CDSC collection rights in respect of Class B shares sold during the period
commencing approximately June 1, 1995 and terminating on November 30, 1996.
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 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. 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 Advances.
For Class B shares sold prior to June 1, 1995, unreimbursed distribution
expenses at September 30, 1996 were $8,838,066 (20.04% of Class B net assets
at September 30, 1996). For Class B shares sold on or after June 1, 1995
unreimbursed distribution expenses at September 30, 1996 were $93,772 (0.21%
of Class B net assets at September 30, 1996). Unreimbursed Class C
distribution expenses at September 30, 1996 were $520,103 (12.53% of Class C
net assets at September 30, 1996).
Broker-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 shares for cash at their net redemption value by writing to
the Fund, c/o KIRC, and presenting a properly endorsed share certificate (if
certificates have been issued) to the Fund. Your signature(s) on the written
order and certificates must be guaranteed as described below. In order to
redeem by telephone, or to engage in telephone transactions generally, you
must have completed the authorization in your account application.
You may also redeem your shares through your broker-dealer. The Principal
Underwriter, acting as agent for the Fund, stands ready to repurchase the
Fund's shares upon orders from broker-dealers at the redemption value
described above computed on the day the Principal Underwriter receives the
order. If the Principal Underwriter has received proper documentation, it will
pay the redemption proceeds, less any applicable CDSC to the broker-dealer
placing the order within seven days thereafter. The Principal Underwriter
charges no fees for this service. Your broker-dealer, however, may do so.
The redemption value equals the net asset value adjusted for fractions of a
cent and may be more or less than your cost depending upon changes in the
value of the Fund's portfolio securities between purchase and redemption. A
CDSC may be imposed by the Fund at the time of redemption of certain shares as
explained in "Alternative Sales Options." If imposed, the CDSC 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 with a
certified check, by Federal Reserve or bank wire of funds, by direct deposit
or by EFT. Although the mailing of a redemption check or the wiring or EFT of
redemption proceeds may be delayed, the redemption value will be determined
and the redemption processed in the ordinary course of business upon receipt
of proper documentation. In such a case, after the redemption and prior to the
release of the proceeds, no appreciation or depreciation will occur in the
value of the redeemed shares, and no interest will be paid on the redemption
proceeds. If the payment of a redemption has been delayed, the check will be
mailed or the proceeds wired or sent EFT promptly after good payment has been
collected.
The Fund computes the redemption value at the close of the Exchange at the
end of the day on which it has received all proper documentation from you.
Payment of the amount due on redemption, less any applicable CDSC (as
described above), will be made within seven days thereafter except as
discussed herein.
For your protection, SIGNATURES ON CERTIFICATES, STOCK POWERS AND ALL
WRITTEN ORDERS OR AUTHORIZATIONS MUST BE GUARANTEED BY A U.S. STOCK EXCHANGE
MEMBER, A BANK OR OTHER PERSONS ELIGIBLE TO GUARANTEE SIGNATURES UNDER THE
SECURITIES EXCHANGE ACT OF 1934 AND KIRC'S POLICIES. The Fund and KIRC may
waive this requirement or require additional documents in certain cases.
Currently, the requirement for a signature guarantee has been waived on
redemptions of $50,000 or less where the account address of record has been
the same for a minimum period of 30 days. The Fund and KIRC reserve the right
to withdraw this waiver at any time.
If the Fund receives a redemption or repurchase 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. As mentioned above, to
engage in telephone transactions generally, you must complete the appropriate
section of the Fund's application.
In order to insure that instructions received by KIRC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation
of your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if
the address and bank account of record have been the same for a minimum period
of 30 days.
If you cannot reach the Fund by telephone, you should follow the procedures
for redeeming by mail or through a broker-dealer as set forth above.
SMALL ACCOUNTS
Because of the high cost of maintaining small accounts, the Fund reserves
the right to redeem shares in your account if its value has fallen to less
than $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 the account to the
minimum investment level. No contingent deferred sales charges are applied to
such redemptions.
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 by writing to KIRC 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 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 for 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
CDSC. However, if the shares being tendered for exchange are
(1) Class A shares acquired in an NAV purchase or otherwise without a front-
end sales charge, or
(2) Class B shares that have been held for less than 48 months or four
years, as the case may be, or
(3) Class C shares that have been held for less than one year,
and are still subject to a CDSC, such charge will carry over to the shares
being acquired in the exchange transaction.
You may exchange your shares for another Keystone Fund for a $10 fee by
calling or by writing to Keystone. The exchange fee is waived for individual
investors who make an exchange using KARL. As noted above, if the shares being
tendered for exchange are still subject to a CDSC, such charge will carry over
to the shares being acquired in the exchange transaction. The Fund reserves
the right to terminate this exchange offer or to change its terms, including
the right to change the service charge 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 determined after the proceeds from such redemption
become available, which may be up to seven days after such redemption. In
all other cases, orders for exchanges received by the Fund prior to 4:00
p.m. eastern time on any day the funds are open for business will be executed
at the respective net asset values determined as of the close of business
that day. Orders for exchanges received after 4:00 p.m. eastern time on any
business day will be executed at the respective net asset values determined at
the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Fund.
Therefore, the Fund, in addition to its right to reject any exchange,
reserves the right to terminate the exchange privilege of any shareholder who
makes more than five exchanges of shares of the funds in a year or three in a
calendar quarter.
An exchange order must comply with the requirements for a redemption or
repurchase order and must specify the dollar value or number of shares to be
exchanged. 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.
CHECKWRITING
If requested, the Fund will establish a checking account for each class of
shares held by you with State Street Bank and Trust Company (the "Bank").
Checks may be drawn for $500 or more payable to anyone. When a check is
presented to the Bank for payment, it will cause the Fund to redeem at the net
asset value next determined a sufficient number of your shares to cover the
check. You receive the daily dividends declared on the shares redeemed to
cover your check through the day the Bank instructs the Fund to redeem them.
There is currently no charge to you for this checking account. A redemption by
check constitutes a sale for federal tax purposes and may result in a taxable
event for the shareholder.
Amounts redeemed by check will be subject to the contingent deferred sales
charge if applicable.
AUTOMATIC INVESTMENT PLAN
With a Keystone Automatic Investment Plan, you can automatically transfer as
little as $100 per month or quarter from your bank account or KLT to the
Keystone fund of your choice. Your bank account will be debited for each
transfer. You will receive confirmation with your next account statement.
To establish or terminate an Automatic Investment Plan or to change the
amount or schedule of your automatic investments, you may write or call KIRC.
Please include your account numbers. Termination may take up to 30 days.
RETIREMENT PLANS
The Fund has various retirement plans available to investors, including
Individual Retirement Accounts (IRAs); Rollover IRAs; Simplified Employee
Pension Plans (SEPs); Salary Reduction Plans (SARSEPs); Tax Sheltered Annuity
Plans; 403(b)(7) Plans; 401(k) Plans; Keogh Plans; Corporate Profit-Sharing
Plans and Money Purchase Pension Plans. For details, including fees and
application forms, call toll free 1-800-247-4075 or write to KIRC.
SYSTEMATIC INCOME PLAN
Under a Systematic Income Plan, 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 Systematic Income Plan is
opened. 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 a Systematic Income 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 net asset value of the selected class is
relatively low and fewer shares being purchased when the fund's net asset
value is relatively high, which may cause a lower average cost per share than
a less systematic investment approach.
Prior to participating in dollar cost averaging, you must have established
an account in a Keystone America Fund or a money market fund managed or
advised by Keystone. You should designate on the application the dollar amount
of each monthly or quarterly investment (minimum $100) you wish to make and
the fund in which the investment is to be made. Thereafter, on the first day
of the designated month an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and
invested in shares of the designated fund.
If you are a Class A investor and paid a sales charge on your initial
purchase, the shares purchased will be eligible for Rights of Accumulation and
the sales charge applicable to the purchase will be determined accordingly. In
addition, the value of shares purchased will be included in the total amount
required to fulfill a Letter of Intent. If a sales charge was not paid on the
initial purchase, a sales charge will be imposed at the time of subsequent
purchases and the value of shares purchased will become eligible for Rights of
Accumulation and Letters of Intent.
TWO DIMENSIONAL INVESTING
You may elect to have income and capital gains distributions from any class
of 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 per share.
PERFORMANCE DATA
From time to time, the Fund may advertise "total return" and "current
yield." ALL DATA IS BASED ON HISTORICAL RESULTS. PAST PERFORMANCE SHOULD NOT
BE CONSIDERED REPRESENTATIVE OF RESULTS FOR ANY FUTURE PERIOD OF TIME. Total
return and 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 CDSC and all recurring charges, if
any, applicable to all shareholder accounts. The exchange fee is not included
in the calculation.
Current yield quotations represent the yield on an investment for a stated
30-day period computed by dividing net investment income earned per share
during the base period by the maximum offering price per share on the last day
of the base period.
The Fund may also include comparative performance data for each class of
shares when advertising or marketing the Fund's shares, such as data from
Lipper Analytical Services, Inc., Morningstar, Inc. Standard & Poor's
Corporation, Ibbotson Associates, or other industry publications.
FUND SHARES
The Fund issues Class A, B and C shares that participate in dividends and
distributions and have equal voting, liquidation and other rights except that
(1) expenses related to the distribution of each class of shares, or other
expenses that the Fund's Board of Trustees may designate as class expenses
from time to time are borne solely by each class; (2) each class of shares
has exclusive voting rights with respect to its Distribution Plan; (3) each
class has different exchange privileges; and (4) each class 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 transferable, redeemable and freely
assignable as collateral. The Fund is authorized to issue additional series or
classes of shares.
Shareholders are entitled to one vote for each full share owned and
fractional votes for fractional shares. Shares of the Fund vote together
except when required by law to vote separately by class. The Fund does not
have annual meetings. The Fund will have special meetings, from time to time
as required under its Declaration of Trust and under the 1940 Act. As provided
in the Fund's Declaration of Trust, shareholders have the right to remove
Trustees by an affirmative vote of two-thirds of the outstanding shares. A
special meeting of the shareholders will be held when holders of 10% of the
outstanding shares request a meeting. Shareholders may be eligible for
shareholder communication assistance in connection with the special meeting.
Under Massachusetts law, it is possible that a Fund shareholder may be held
personally liable for the Fund's obligations. The Fund's Declaration of Trust
provides, however, that shareholders shall not be subject to any personal
liability for the Fund's obligations and provides indemnification from Fund
assets for any shareholder held personally liable for the Fund's obligations.
Disclaimers of such liability are included in each Fund agreement.
ADDITIONAL INFORMATION
When the Fund determines from its records that more than one account in the
Fund is registered in the name of a shareholder or shareholders having the
same address, upon notice to those shareholders, the Fund intends, when an
annual report or a semi-annual report of the Fund is required to be furnished,
to mail one copy of such report to that address.
Except as otherwise stated in this prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
The Fund may engage in the following investment practices to the extent
described in the prospectus and the statement of additional information.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers
in U.S. government securities or other financial institutions believed by
Keystone to be creditworthy. Such persons must be registered as U.S.
government securities dealers with an appropriate regulatory organization.
Under such agreements, the bank, primary dealer or other financial institution
agrees to repurchase the security at a mutually agreed upon date and price,
thereby determining the yield during the term of the agreement. This results
in a fixed rate of return insulated from market fluctuations during such
period. Under a repurchase agreement, the seller must maintain the value of
the securities subject to the agreement at not less than the repurchase price,
such value will be determined on a daily basis by marking the underlying
securities to their market value. Although the securities subject to the
repurchase agreement might bear maturities exceeding a year, the Fund only
intends to enter into repurchase agreements that provide for settlement within
a year and usually within seven days. Securities subject to repurchase
agreements will be held by the Fund's custodian or in the Federal Reserve book
entry system. The Fund does not bear the risk of a decline in the value of the
underlying security unless the seller defaults under its repurchase
obligation. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying securities and losses including (1) possible declines in the value
of the underlying securities during the period while the Fund seeks to enforce
its rights thereto; (2) possible subnormal levels of income and lack of access
to income during this period; and (3) expenses of enforcing its rights. The
Board of Trustees of the Fund has established procedures to evaluate the
creditworthiness of each party with whom the Fund enters into repurchase
agreements by setting guidelines and standards of review for Keystone and
monitoring Keystone's actions with regard to repurchase agreements.
REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Fund would sell securities and
agree to repurchase them at a mutually agreed upon date and price. The Fund
intends to enter into reverse repurchase agreements to avoid otherwise having
to sell securities during unfavorable market conditions in order to meet
redemptions. At the time the Fund enters into a reverse repurchase agreement,
it will establish a segregated account with the Fund's custodian containing
liquid assets having a value not less than the repurchase price (including
accrued interest) and will subsequently monitor the account to ensure such
value is maintained. Reverse repurchase agreements involve the risk that the
market value of the securities that the Fund is obligated to repurchase may
decline below the repurchase price.
"WHEN ISSUED" SECURITIES
The Fund may also purchase and sell securities on a when issued or delayed
delivery basis. When issued and delayed delivery transactions arise when
securities or rights to interest on securities are purchased or sold by the
Fund with payment and delivery taking place in the future in order to secure
what is considered to be an advantageous price and yield to the Fund at the
time of entering into the transaction. When the Fund engages in when issued
or delayed delivery transactions, the Fund relies on the buyer or seller, as
the case may be, to consummate the sale. Failure to do so may result in the
Fund missing the opportunity to obtain a price or yield considered to be
advantageous. When issued and delayed delivery transactions may be expected to
occur a month or more before delivery is due. No payment or delivery is made
by the Fund, however, until it receives payment or delivery from the other
party to the transaction. A separate account of liquid assets equal to the
value of such purchase commitments will be maintained until payment is made.
When issued or 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 Fund does not accrue any income
on such securities prior to their delivery. To the extent the Fund engages in
when issued or delayed delivery transactions, it will do so consistent with
its investment objective and policies and not for the purpose of investment
leverage. The Fund does not currently intend to invest more than 5% of its
assets in when issued or delayed delivery transactions.
LOANS OF SECURITIES TO BROKER-DEALERS
The Fund may lend securities to broker-dealers pursuant to agreements
requiring that the loans be continuously secured by cash or securities of the
U.S. government, its agencies or instrumentalities, or any combination of cash
and such securities, as collateral equal at all times in value to at least the
market value of the securities loaned. Such securities loans will not be made
with respect to the Fund if as a result the aggregate of all outstanding
securities loans exceeds 15% of the value of the Fund's total assets taken at
their current value. The Fund continues to receive interest or dividends on
the securities loaned and simultaneously earns interest on the investment of
the cash loan collateral in U.S. Treasury notes, certificates of deposit,
other high-grade, short-term obligations or interest bearing cash equivalents.
Although voting rights attendant to securities loaned pass to the borrower,
such loans may be called at any time and will be called so that the securities
may be voted by the Fund if, in the opinion of the Fund, a material event
affecting the investment is to occur. There may be risks of delay in receiving
additional collateral or in recovering the securities loaned or even loss of
rights in the collateral should the borrower of the securities fail
financially. Loans may only be made, however, to borrowers deemed to be of
good standing, under standards approved by the Board of Trustees, when the
income to be earned from the loan justifies the attendant risks.
<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. Only Class A shares
subject to an initial or deferred sales charge are eligible for inclusion in
reduced sales charge programs.
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 Code; a pension, profit-sharing or other employee benefit plan
whether or not qualified under Section 401 of the 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., 2.50%
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 of Fund shares, the sales charge for the $5,000 purchase
would be at the next lower sales charge of 2.50% 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
*
Balanced Fund II
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California 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
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Omega Fund
Fund of the Americas
Global Resources and Development Fund
Small Company Growth Fund II
- -----------------------------------------
[Logo] KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5034
CP&I-P 1/96 [Recycle Logo]
7M
--------------------------------------------
KEYSTONE
CAPITAL
PRESERVATION AND
INCOME FUND
--------------------------------------------
[Logo]
PROSPECTUS AND
APPLICATION
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
Dated December 10, 1996
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
Capital Preservation and Income Fund (the "Fund") dated December 10, 1996. A
copy of the prospectus may be obtained from the Fund's principal underwriter,
Keystone Investment Distributors Company (the "Principal Underwriter")or your
broker-dealer. The Principal Underwriter is located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
TABLE OF CONTENTS
Page
The Fund 2
Investment Policies 2
Investment Restrictions 3
Distributions and Taxes 5
Brokerage 6
Valuation of Securities 8
Sales Charges 8
Distribution Plans 12
Trustees and Officers 15
Investment Adviser 19
Expenses 21
Principal Underwriter 23
Declaration of Trust 25
Standardized Total Return and Yield Quotations 26
Financial Statements 28
Additional Information 28
Appendix A-1
<PAGE>
THE FUND
The Fund is an open-end diversified management investment company
commonly known as a mutual fund. The Fund was formed as Massachusetts business
trust on December 19, 1990. The Fund is one of more than thirty funds advised by
Keystone Investment Management Company ("Keystone"), the Fund's investment
adviser.
Certain information about the Fund is contained in its prospectus. This
statement of additional information provides additional information about the
Fund.
INVESTMENT POLICIES
The following information supplements that in the prospectus:
MORTGAGE SECURITIES
The Government National Mortgage Association ("GNMA") creates mortgage
securities ("Mortgage Securities") from pools of government-guaranteed or
insured Federal Housing Authority ("FHA") or Veterans Administration ("VA")
mortgages originated by mortgage bankers, commercial banks, and savings and loan
associations. The Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC") issue Mortgage Securities from pools of
conventional and federally insured and/or guaranteed residential mortgages
obtained from various entities, including savings and loan associations, savings
banks, commercial banks, credit unions, and mortgage bankers.
ADDITIONAL CHARACTERISTICS OF THE FUND'S MORGAGE SECURITIES INVESTMENTS
ADJUSTABLE RATE MORTGAGES
Adjustable Rate Mortgage Securities ("ARMs") are pass-through Mortgage
Securities collateralized by mortgages with adjustable rather than fixed
interest rates. The ARMs in which the Fund invests are issued primarily by GNMA,
FNMA and FHLMC and are actively traded in the secondary market. The underlying
mortgages that collateralize ARMs issued by GNMA are fully guaranteed by the FHA
or the VA, while those collateralizing ARMs issued by FHLMC or FNMA are
typically conventional residential mortgages conforming to standard underwriting
size and maturity constraints.
RESET CHARACTERISTICS OF THE FUND'S LOAN POOLS AND MORTGAGE SECURITIES
The Fund invests in loan pool securities, ARMs and collateralized
mortgage obligations ("CMOs") whose interest rates are generally readjusted at
intervals of three years or less to an increment over some predetermined
interest rate index. There are various categories of indices, including (1)
those based on United States ("U.S.") Treasury securities; (2) those derived
from a calculated measure, such as a cost of funds index; or (3) a moving
average of mortgage rates. Commonly utilized indices include the one-year,
three-year and five-year constant maturity Treasury rates; the three-month
Treasury Bill rate; the 180-day Treasury Bill rate; rates on longer-term
Treasury securities; the 11th District Federal Home Loan Bank Cost of Funds; the
National Median Cost of Funds; the one-month, three-month, six-month or one year
London Interbank Offered Rate ("LIBOR"); the prime rate of a specific bank; or
commercial paper rates. Some indices, such as the one-year constant maturity
Treasury rate, closely mirror changes in market interest rate levels. Others,
such as the 11th District Home Loan Bank Cost of Funds Index, tend to lag behind
changes in market rate levels and tend to be somewhat less volatile.
INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding voting shares (as defined in the Investment Company Act of 1940 (the
"1940 Act") as the lesser of (1) 67% of the shares represented at a meeting at
which more than 50% of the outstanding shares are represented or (2) more than
50% of the outstanding shares). Unless otherwise stated, all references to the
assets of the Fund are in terms of current market value.
The Fund may not do any of the following:
(1) with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in the securities of any one issuer; this limitation
does not apply to investments in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities;
(2) 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;
(3) pledge more than 15% of its net assets to secure indebtedness (the
purchase or sale of securities on a "when issued" basis or collateral
arrangement with respect to the writing of options on securities are not deemed
to be a pledge of assets);
(4) borrow money or enter into reverse repurchase agreements, except
that the Fund may enter into reverse repurchase agreements or borrow money from
banks for temporary or emergency purposes in aggregate amounts up to one-third
of the value of the Fund's net assets; provided that, while borrowings from
banks (not including reverse repurchase agreements) exceed 5% of the Fund's net
assets, any such excess borrowings will be repaid before additional investments
are made;
(5) make loans, except that the Fund may purchase or hold debt
securities consistent with its investment objective, lend portfolio securities
valued at not more than 15% of its total assets to broker-dealers, and enter
into repurchase agreements;
(6) 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;
(7) 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;
(8) 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;
(9) purchase securities of other investment companies, except as part
of a merger, consolidation, purchase of assets or similar transaction;
(10) purchase or sell commodities or commodity contracts or real
estate, except that it may purchase and sell securities secured by real estate
and securities of companies which invest in real estate, and may engage in
financial futures contracts and related options transactions; and
(11) underwrite securities of other issuers, except that the Fund may
purchase securities from the issuer or others and dispose of such securities in
a manner consistent with its investment objective.
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 the investment on its
books and (2) limiting its holdings of such securities to 15% of its net assets.
If a percentage limit is satisfied at the time of investment or
borrowing, a later increase or decrease resulting from a change in asset value
is not a violation of the limit.
DISTRIBUTIONS AND TAXES
The Fund intends to distribute its net investment income
monthly and its net realized capital gains, if any, annually. You will receive
distributions as shares, unless you elect before the record date to receive them
as cash. Unless the Fund receives instructions to the contrary, it will assume
that you wish to receive that distribution and future gains and income
distributions in shares. Your instructions continue in effect until changed in
writing. If you have not opted to receive cash, the Fund will determine the
number of shares that you should receive based on its net asset value per share
as computed at the close of business on the ex-dividend date after adjustment
for the distribution. The Fund will mail your account statement and/or check to
you within seven days after it pays the distribution.
Capital gains distributions that reduce the net asset value of your
shares below your cost are, to the extent of the reduction, a return of your
investment. Since distributions of capital gains depend upon profits realized
from the sale of the Fund's portfolio securities, they may or may not occur.
Distributions are taxable whether you receive them in cash or
additional shares. Long-term capital gains distributions are taxable as such
regardless of (1) how long you have held the shares or (2) whether you receive
them in cash or in additional shares. If, however, you hold the Fund's shares
for less than six months and redeem them at a loss, you will recognize a
long-term capital loss to the extent of the long-term capital gain distribution
received in connection with such shares.
The Fund intends to distribute only such net capital gains and income
as it has predetermined, to the best of its ability, to be taxable as ordinary
income. The Fund distributes its net investment income on a federal income tax
basis, not based on distributable income as computed on our books.
The Fund will advise you annually as to the federal income tax status
of your distributions. These comments relating to the taxation of dividends and
distributions paid on the Fund's shares relate solely to federal income
taxation. Your dividends and distributions may also be subject to state and
local taxes.
BROKERAGE
Selection of Brokers
In effecting transactions in portfolio securities for the Fund,
Keystone seeks the best execution of orders at the most favorable prices.
Keystone determines whether a broker has provided the Fund with best execution
and price in the execution of a securities transaction by evaluating, among
other things:
1. overall direct net economic result to the Fund;
2. the efficiency with which the transaction is effected;
3. the broker's ability to effect the transaction where a large
block is involved;
4. the broker's readiness to execute potentially difficult transactions
in the future;
5. the financial strength and stability of the broker; and
6. the receipt of research services, such as analyses and
reports concerning issuers, industries, securities, economic factors
and trends and other statistical and factual information.
The Fund's management weighs these considerations in determining the
overall reasonableness of the brokerage commissions paid.
Should the Fund or Keystone receive research and other statistical and
factual information from a broker, the Fund would consider such services to be
in addition to, and not in lieu of, the services Keystone is required to perform
under the Advisory Agreement. Keystone believes that the cost, value and
specific application of such information are indeterminable and cannot be
practically allocated between the Fund and its other clients 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 Keystone's other clients. Under the Advisory Agreement, Keystone is
permitted to pay higher brokerage commissions for brokerage and research
services in accordance with Section 28(e) of the Securities Exchange Act of
1934. In the event Keystone follows such a practice, it will do so on a basis
that is fair and equitable to the Fund.
Neither the Fund nor Keystone intends on placing securities
transactions with any particular broker-dealer. The Fund's Board of Trustees has
determined, however, that the Fund may consider sales of Fund shares as a factor
in the selection of broker-dealers to execute portfolio transactions, subject to
the requirements of best execution described above.
Brokerage Commissions.
The Fund expects to purchase and sell its Mortgage Securities and
short-term instruments through principal transactions. The Fund's Mortgage
Securities and short-term instruments are normally purchased directly from the
issuer or from an underwriter or market maker for the securities. In general,
the Fund will not pay brokerage commissions for such purchases. Purchases from
underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
General Brokerage Policies
In order to take advantage of the availability of lower purchase
prices, the Fund may participate, if and when practicable, in group bidding for
the direct purchase from an issuer of certain securities.
Keystone makes investment decisions for the Fund independently from
those of its other clients. It may frequently develop, however, that Keystone
will make the same investment decision for more than one client. Simultaneous
transactions are inevitable when the same security is suitable for the
investment objective of more than one account. When two or more of its clients
are engaged in the purchase or sale of the same security, Keystone will allocate
the transactions according to a formula that is equitable to each of its
clients. Although, in some cases, this system could have a detrimental effect on
the price or volume of the Fund's securities, the Fund believes that in other
cases its ability to participate in volume transactions will produce better
executions.
The Fund does not purchase portfolio securities from or sell portfolio
securities to Keystone, the Principal Underwriter, or any of their affiliated
persons, as defined in the 1940 Act.
The Board of Trustees will, from time to time, review the Fund's
brokerage policy. Because of the possibility of further regulatory developments
affecting the securities exchanges and brokerage practices generally, the Board
of Trustees may change, modify or eliminate any of the foregoing practices.
VALUATION OF SECURITIES
Current values for the Fund's portfolio securities are determined in
the following manner:
(1) short-term investments with remaining maturities of sixty
days or less when purchased are valued at amortized cost (original purchase cost
as adjusted for amortization of premium or accretion of discount), which, when
combined with accrued interest, approximates market;
(3) all other securities for which market quotations are readily
available are valued at market value, which is deemed to be the mean of the bid
and asked prices at the time of valuation;
(4) securities, including restricted securities and other assets, for
which market quotations are not readily available are valued at prices deemed in
good faith to be fair under procedures established by the Board of Trustees.
The Fund believes that reliable market quotations are generally not
readily available for purposes of valuing Mortgage Securities. As a result,
depending on the particular Mortgage Securities owned by the Fund, it is likely
that most of the valuations for such obligations will be based upon their fair
value determined under procedures approved by the Board of Trustees. The Fund's
Board of Trustees has authorized the use of a pricing service to determine the
fair value of the Fund's Mortgage Securities and certain other securities.
SALES CHARGES
General
The Fund offers Class A, B and C shares. Class A shares are offered
with a maximum front-end sales charge of 3.00% 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 ("CDSC") payable upon redemption
during the 48- month period commencing with and including the month of purchase.
Class B shares purchased prior to June 1, 1995 are sold without an initial sales
charge and are subject to a CDSC payable upon redemption within three calendar
years after the year of purchase ("Back-End Load Option"). Class B shares
purchased on or after June 1, 1995 that have been outstanding for six years from
and including the month of purchase will automatically convert to Class A shares
without the imposition of a front-end sales charge. Class B shares purchased
prior to June 1, 1995 may be exchanged for Class A shares as described in the
prospectus. (Conversion of Class B shares represented by stock certificates will
require the return of stock certificates to Keystone Investor Resource Center,
Inc., the Fund's transfer and dividend disbursing agent ("KIRC").) Class C
shares are sold without an initial sales charge and are subject to a CDSC
payable upon redemption within one year after purchase ("Level Load Option").
Class C shares are available only through broker-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 Fund and a
description of applicable CDSC.
Contingent Deferred Sales Charges
In order to reimburse the Fund for certain expenses relating to the
sale of its shares (see "Distribution Plans"), a CDSC is imposed at the time of
redemption of certain Fund shares as described below. If imposed, the CDSC is
deducted from the redemption proceeds otherwise payable to you and retained by
the Principal Underwriter. See "Calculation of Contingent Deferred Sales Charge"
below.
Class A Shares
With certain exceptions, purchases of Class A shares made (1) in an
amount equal to or exceeding $1,000,000 and/or (2) by a corporate or certain
other qualified retirement plan or a non-qualified deferred compensation plan or
a Title I tax-sheltered annuity or TSA Plan sponsored by an organization having
100 or more eligible employees (a "Qualifying Plan"), in either case without a
front-end sales charge, will be subject to a CDSC of 0.50% during the 24-month
period following the date of purchase.
Class B Shares
With respect to Class B shares purchased on or after June 1, 1995, the
Fund, with certain exceptions, will impose a CDSC on Class B shares redeemed
during succeeding twelve-month periods as follows: 3.00% during the first
period; 3.00% during the second period; 2.00% during the third period; and 1.00%
during the fourth period. No CDSC is imposed on amounts redeemed thereafter.
With respect to Class B shares purchased prior to June 1, 1995, the
Fund, with certain exceptions, will impose a CDSC 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 CDSC is imposed on amounts redeemed thereafter.
Amounts received by the Principal Underwriter under the Class B
Distribution Plans are reduced by CDSCs retained by the Principal Underwriter.
Class C Shares
With certain exceptions, the Fund will impose a CDSC of 1.00% on Class
C shares redeemed within one year after the date of purchase. No CDSC is imposed
on amounts redeemed thereafter.
Calculation of Contingent Deferred Sales Charge
Any CDSC is 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 CDSC is imposed when you redeem amounts derived from (1) increases
in the value of your account above the net cost of such shares due to increases
in the net asset value per share of the Fund; (2) certain shares with respect to
which the Fund did not pay a commission on issuance, including shares acquired
through reinvestment of dividend income and capital gains distributions; (3)
certain Class A shares held for more than 24 months; (4) Class B shares held
during more than four consecutive calendar years or more than 48 months, as the
case may be; or (5) Class C shares held for more than one year.
Upon request for redemption, shares not subject to the CDSC will be
redeemed first. Thereafter, shares held the longest will be the first to be
redeemed. There is no CDSC imposed when the shares of a class are exchanged for
the shares of the same class of another fund in the Keystone America Fund
Family. Moreover, for the purpose of any future CDSC, when shares of one such
class of a fund have been exchanged for shares of another such class of a fund,
the date of purchase of the shares being acquired by exchange is deemed to be
the date shares being tendered for exchange were originally purchased.
Waiver of Sales Charges
Shares of the Fund 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 or a CDSC to (1) Directors, Trustees,
officers, full-time employees and sales representatives of the Fund, Keystone
Management, Inc. ("Keystone Management"), Keystone, Keystone Investments, Inc.
("Keystone Investments"), Harbor Capital Management Company, Inc., their
subsidiaries and the Principal Underwriter, who have been such for not less than
ninety days; (2) the pension and profit-sharing plans established by such
companies and their affiliates, for the benefit of their Directors, Trustees,
officers, full-time employees and sales representatives; or (3) registered
representatives of a firm that has a dealer agreement with the Principal
Underwriter; provided all such sales are made upon the written assurance of the
purchaser that the purchase is made for investment purposes and that the
securities will not be resold except through redemption by the Fund.
No initial sales charge or CDSC is imposed on Fund shares purchased by
a bank or trust company in a single account in the name of such bank or trust
company as trustee, if the initial investment in shares of the Fund and any
other Fund in the Keystone Investments Family of Funds is at least $500,000 in
the aggregate 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 CDSC will be
imposed on any redemptions made specifically by an individual participant in the
Qualifying Plan. This waiver is not available in the event a Qualifying Plan, as
a whole, redeems substantially all of its assets.
In addition, no CDSC 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 qualified
plans if the shareholder is at least 59 1/2 years old; (4) involuntary
redemptions of accounts with a net asset value of less than $1,000; (5)
automatic withdrawals under a Systematic Income Plan of up to 1.5% 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.
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.
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. The Fund bears some of
the costs of selling its classes of shares under individual Distribution Plans
adopted pursuant to Rule 12b-1 for each class of shares (a "Distribution Plan").
The National Association of Securities Dealers, Inc. ("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 CDSCs paid by shareholders to the Principal Underwriter) remaining unpaid
from time to time.
Class A Distribution Plan
The Class A Distribution Plan provides that the Fund may expend daily
amounts at an annual rate, currently limited to up to 0.25% of the Fund's
average daily net asset value attributable to Class A shares, to finance any
activity that is primarily intended to result in the sale of Class A shares,
including, without limitation, expenditures consisting of payments to the
Principal Underwriter to enable the Principal Underwriter to pay or to have paid
to others (broker-dealers) who sell Class A shares a service or other fee, at
such intervals as the Principal Underwriter any determine, in respect of Class A
shares maintained by such recipients and outstanding on the books of the Fund
for specified periods.
Amounts paid by the Fund under the Class A Distribution Plan are
currently used to pay others, such as broker-dealers, service fees at an annual
rate of up to 0.25% of the average daily net asset value of Class A shares
maintained by such recipients and outstanding on the books of the Fund for
specified periods.
Class B Distribution Plans
The Fund has adopted Distribution Plans for its Class B shares that provide
that the Fund may expend daily amounts at an annual rate of up to 1.00% of the
Fund's average daily net asset value attributable to Class B shares to finance
any activity that is primarily intended to result in the sale of Class B shares,
including, without limitation, expenditures consisting of payments to the
Principal Underwriter (1) to enable the Principal Underwriter to pay to others
(broker-dealers) commissions in respect of Class B 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 B shares maintained by any such
recipients and outstanding on the books of the Fund for specified periods.
The Principal Underwriter generally reallows to broker-dealers or
others a commission equal to 2.75% 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-dealer 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 such recipient and outstanding on the books of the
Fund for specified periods.
The Principal Underwriter intends, but is not obligated, to continue to
pay or accrue distribution charges incurred in connection with each Class B
Distribution Plan that exceed current annual payments permitted to be received
by the Principal Underwriter from the Fund ("Advances"). The Principal
Underwriter intends to seek full payment of such charges from the Fund (together
with annual interest thereon at the prime rate plus 1%) 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
Advances, 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.
In connection with financing its distribution costs, including
commission advances to broker-dealers and others, the Principal Underwriter has
sold to a financial institution substantially all of its 12b-1 fee collection
rights and CDSC collection rights in respect of Class B shares sold during the
period commencing approximately June 1, 1995 and ending November 30, 1996. 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
adverse distribution consequences.
Class C Distribution Plan
The Class C Distribution Plan provides that the Fund may expend daily
amounts at an annual rate of up to 1.00% of the Fund's average daily net asset
value attributable to Class C shares to finance any activity that is primarily
intended to result in the sale of Class C shares, including, without limitation,
expenditures consisting of payments to the Principal Underwriter (1) to enable
the Principal Underwriter to pay to others (broker-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 and outstanding on the books of
the Fund for specified periods.
The Principal Underwriter generally reallows to broker-dealers 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 such
recipients and outstanding on the books of the Fund for specified periods.
Distribution Plans - General
The total amounts paid by the Fund under the foregoing arrangements may
not exceed the maximum Distribution Plan limit specified above, and the amounts
and purposes of expenditures under a Distribution Plan must be reported to the
Independent Trustees quarterly. The Independent Trustees may require or approve
changes in the implementation or operation of a Distribution Plan and may also
require that total expenditures by the Fund under a Distribution Plan be kept
within limits lower than the maximum amount permitted by the Distribution Plan
as stated above.
Any change in a Distribution Plan that would materially increase the
distribution expenses of the Fund provided for in a Distribution Plan requires
shareholder approval. Otherwise, a Distribution Plan may be amended by the
Trustees, including the Independent Trustees.
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.
A Distribution Plan 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 of the Fund. 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 Advances.
The Independent Trustees of the Fund have determined that the sales of
the Fund's shares resulting from payments under the Distribution Plans are
expected to benefit the Fund.
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 and Chief Executive Officer of
Keystone Investments, Keystone, Keystone Management and Keystone
Software, Inc. ("Keystone Software"); President, Chief Executive
Officer and Trustee or Director of all other funds in the Keystone
Investments Family of Funds; Chairman of the Board and Director of
Keystone Institutional Company, Inc. ("Keystone Institutional")and
Keystone Fixed Income Advisers ("KFIA"); Director and President of
Keystone Asset Corporation, Keystone Capital Corporation and Keystone
Trust Company; Director of the Principal Underwriter, KIRC, and
Fiduciary Investment Company, Inc. ("FICO"); Director of Boston
Children's Services Association; Trustee of Anatolia College, Middlesex
School, and Middlebury College; Member, Board of Governors, New England
Medical Center; former Director and President of Hartwell Keystone
Advisers, Inc. ("Hartwell Keystone"); former Director and Vice
President, Robert Van Partners, Inc.; and former Trustee of Neworld
Bank.
FREDERICKAMLING: Trustee of the Fund; Trustee or Director of all other funds in
the Keystone Investments Family of Funds; Professor, Finance
Department, George Washington University; President, Amling & Company
(investment advice); and former Member, Board of Advisers, Credito
Emilano (banking).
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Family of Funds; Investment Counselor
to Appleton Partners, Inc.; and former Managing Director, Seaward
Management Corporation (investment advice).
*GEORGE S. BISSELL: Chairman of the Board and Trustee of the Fund; Chairman of
the Board and Trustee or Director of all other funds in the Keystone
Investments Family of Funds; Director of Keystone Investments; Chairman
of the Board and Trustee of Anatolia College; Trustee of University
Hospital (and Chairman of its Investment Committee); former Director
and Chairman of the Board of Hartwell Keystone; and former Chairman of
the Board and Chief Executive Officer of Keystone Investments.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Family of Funds; Principal, Padanaram
Associates, Inc.; and former Executive Director, Coalition of Essential
Schools, Brown University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all other funds
in the Keystone Investments Family of Funds; and former Director,
Peoples Bank (Charlotte, NC).
K. DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Family of Funds; Trustee, Treasurer,
and Chairman of the Finance Committee, Cambridge College; Chairman
Emeritus and Director, American Institute of Food and Wine; Chairman
and President, Oldways Preservation and Exchange Trust (education);
Former Chairman of the Board, Director, and Executive Vice President,
The London Harness Company; former Managing Partner, Roscommon Capital
Corp.; former Chief Executive Officer, Gifford Gifts of Fine Foods;
former Chairman, Gifford, Drescher & Associates (environmental
consulting); and former Director, Keystone Investments and Keystone.
LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other funds
in the Keystone Investments Family of Funds; Chairman of the Board and
Chief Executive Officer, Carson Products Company; 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.
F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Family of Funds; Chairman and Of
Counsel, Keyser, Crowley, Meub, Layden, Kulig & Sullivan P.C.; Member,
Governor's (VT) Council of Economic Advisers; Chairman of the Board and
Director, Central Vermont Public Service Corporation and Lahey
Hitchcock Clinic; Director, Vermont Yankee Nuclear Power Corporation,
Grand Trunk Corporation, Grand Trunk Western Railroad, Union Mutual
Fire Insurance Company, New England Guaranty Insurance Company, Inc.,
and the Investment Company Institute; former Director and President,
Associated Industries of Vermont; former Director of Keystone, Central
Vermont Railway, Inc., S.K.I. Ltd., and Arrow Financial Corp.; and
former Director and Chairman of the Board, Hitchcock Clinic, Proctor
Bank, and Green Mountain Bank.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Family of Funds; Vice Chair and
former 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 funds
in the Keystone Investments Family of Funds; Chairman, Environmental
Warranty, Inc. (insurance agency); Executive Consultant, Drake Beam
Morin, Inc. (executive outplacement); Director of Connecticut Natural
Gas Corporation, Hartford Hospital, Old State House Association,
Middlesex Mutual Assurance Company, and Enhance Financial Services,
Inc.; Chairman, Board of Trustees, Hartford Graduate Center; Trustee,
Greater Hartford YMCA; former Director, Vice Chairman and Chief
Investment Officer, The Travelers Corporation; former Trustee,
Kingswood-Oxford School; and former Managing Director and Consultant,
Russell Miller, Inc.
ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other funds
in the Keystone Investments Family of Funds; Partner, Farrell, Fritz,
Caemmerer, Cleary, Barnosky & Armentano, P.C.; Adjunct Professor of Law
and former Associate Dean, St. John's University School of Law; Adjunct
Professor of Law, Touro College School of Law; and former President,
Nassau County Bar Association.
EDWARD F. GODFREY: Senior Vice President of the Fund; Senior Vice President of
all other funds in the Keystone Investments Family of Funds; Director,
Senior Vice President, Chief Financial Officer, and Treasurer of
Keystone Investments, the Principal Underwriter, Keystone Asset
Corporation, Keystone Capital Corporation, and Keystone Trust Company;
Treasurer of Keystone Institutional and FICO; Treasurer and Director of
Keystone Management and Keystone Software; Vice President and Treasurer
of KFIA; Director of KIRC; former Treasurer and Director of Hartwell
Keystone; and former Treasurer of Robert Van Partners, Inc.
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of
all other funds in the Keystone Investments Family of Funds; and
President of Keystone.
J. KEVIN KENELY: Treasurer of the Fund; Treasurer of all other funds in
the Keystone Investments Family of Funds; Vice President and former
Controller of Keystone Investments, Keystone, the Principal
Underwriter, FICO, and Keystone Software; and former Controller of
Keystone Asset Corporation and Keystone Capital Corporation.
CHRISTOPHER P. CONKEY: Vice President of the Fund; Vice President of certain
other funds in the Keystone Investments Family of Funds; and Senior
Vice President of Keystone.
ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Fund; Senior
Vice President and Secretary of all other funds in the Keystone
Investments Family of 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; 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; and former Senior Vice President and
Secretary of Hartwell Keystone and Robert Van Partners, Inc.
* This Trustee may be considered an "interested person" of the Fund within the
meaning of the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" of the Fund 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, 1996, no Trustee or any
officer received any direct remuneration from the Fund. For the year ended
December 31, 1995, aggregate compensation received by Independent Trustees on a
complex wide basis (approximately 31 mutual funds) was $450,716. On November 21,
1996, the Trustees and officers of the Fund as a group owned less than 1.0% of
the Fund's then outstanding shares.
The address of all the Fund's Trustees and officers is 200 Berkeley
Street, Boston, Massachusetts 02116-5034.
INVESTMENT ADVISER
Subject to the general supervision of the Fund's Board of Trustees,
Keystone serves as investment adviser to the Fund and is responsible for the
overall management of the Fund's business and affairs. Keystone has provided
investment advisory and management services to investment companies and private
accounts since 1932. Keystone is a wholly-owned subsidiary of Keystone
Investments. Both Keystone and Keystone Investments are located at 200 Berkeley
Street, Boston, Massachusetts 02116-5034.
Keystone Investments is a private corporation predominantly owned by
current and former members of management 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, Ralph J. Spuehler, Jr. and Rosemary D.
Van Antwerp. Keystone Investments provides accounting, bookkeeping, legal,
personnel and general corporate services to Keystone, its affiliates and the
Keystone Investments Family of Funds.
Pursuant to an Investment Advisory and Management Agreement between the
Fund and Keystone (the "Advisory Agreement"), 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 (i) office space and
all necessary office facilities, equipment and personnel in connection with its
services under the Advisory Agreement and (ii) 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, (i) custodian charges and expenses;
(ii) bookkeeping and auditors' charges and expenses; (iii) transfer agent
charges and expenses; (iv) fees of Independent Trustees; (v) brokerage
commissions, brokers' fees and expenses and issue and transfer taxes; (vi) costs
and expenses under the Distribution Plans; (vii) taxes and trust fees payable to
governmental agencies; (viii) the cost of share certificates; (ix) fees and
expenses of the registration and qualification of the Fund and its shares with
the Securities and Exchange Commission (the "Commission") or under state or
other securities laws; (x) expenses of preparing, printing and mailing
prospectuses, statements of additional information, notices, reports and proxy
materials to shareholders of the Fund; (xi) expenses of shareholders' and
Trustees' meetings; (xii) charges and expenses of legal counsel for the Fund and
for the Independent Trustees on matters relating to the Fund; (xiii) charges and
expenses of filing annual and other reports with the Commission and other
authorities; and (xiv) all extraordinary charges and expenses of the Fund.
The Fund pays Keystone a fee for its services to the Fund at the annual
rate set forth below:
Annual Aggregate Net Asset
Management Value of the Shares
Fee of the Fund
2.00% of Gross Dividend and
Interest Income plus
0.50% of the first $ 100,000,000, plus
0.45% of the next $ 100,000,000, plus
0.40% of the next $ 100,000,000, plus
0.35% of the next $ 100,000,000, plus
0.30% of the next $ 100,000,000, plus
0.25% of amounts over $ 500,000,000
computed as of the close of business each business day and payable daily.
Currently, Keystone has voluntarily agreed to limit annual expenses of
each of the Fund's Class A, B and C shares to 0.90%, 1.65%, and 1.65% of average
net class assets, respectively. Keystone intends to continue the foregoing
expense limitations on a calendar month-by-month basis. Keystone will
periodically evaluate the foregoing expense limitations and may modify or
terminate them in the future.
In accordance with voluntary expense limitations in place during the
fiscal year ended September 30, 1996, Keystone reimbursed the Fund $82,098,
$244,938, and $13,980 for Class A, B and C shares, respectively. Keystone does
not intend to seek repayment for these amounts. Keystone will not be required to
reimburse the Fund for amounts in excess of an expense limit if such
reimbursement would result in the Fund's inability to qualify as a regulated
investment company under the provisions of the Internal Revenue Code of 1986, as
amended.
The Advisory Agreement continues in effect if approved at least
annually (i) by the Board of Trustees of the Fund or by a vote of a majority of
the outstanding shares, and (ii) 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 of the Fund. The Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Keystone Investments has recently entered into an Agreement and Plan of
Acquisition and Merger with First Union Corporation ("First Union"), pursuant to
which Keystone Investments will be merged with and into a wholly-owned
subsidiary of First Union National Bank of North Carolina ("FUNB-NC")(the
"Merger"). The surviving corporation will assume the name "Keystone Investments,
Inc." Subject to a number of conditions being met, it is currently anticipated
that the Merger will take place on or around December 11, 1996. Thereafter,
Keystone Investments, Inc. would be a subsidiary of FUNB-NC.
If consummated, the proposed Merger will be deemed to cause an
assignment, within the meaning of the 1940 Act, of the Advisory Agreement.
Consequently, the completion of the Merger is contingent upon, among other
things, the approval of the Fund's shareholders of a new investment advisory and
management agreement between the Fund and Keystone (the "New Advisory
Agreement"). The Fund's Trustees have approved the terms of the New Advisory
Agreement, subject to the approval of shareholders and the completion of the
Merger, and have called a special meeting of shareholders to obtain their
approval of, among other things, the New Advisory Agreement. The meeting is
expected to be held in December 1996. The proposed New Advisory Agreement has
terms, including fees payable thereunder, that are substantively identical to
those in the current agreement.
EXPENSES
Investment Advisory Fees
For each of the Fund's last three fiscal years, the table below lists the total
dollar amounts paid by the Fund to Keystone for services rendered under the
Advisory Agreement. For more information, see " Investment Adviser."
<TABLE>
<CAPTION>
<S> <C> <C>
Fiscal Year Fee Paid to Keystone for
Ended Services Rendered under Percentage of Fund
September 30, the Advisory Agreement Average Net Assets
- ------------------------- ---------------------------------------- ------------------------------------
1996 $493,147 0.64%
1995 $605,247 0.64%
1994 $735,254 0.60%
</TABLE>
Distribution Plan Expenses
Listed below are the amounts paid by each class of shares under its respective
Distribution Plan to the Principal Underwriter for the fiscal year ended
September 30, 1996. For more information, see "Distribution Plans."
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class B Shares Class B Shares Sold
Class A Sold Prior to June on or after June 1, Class C
Shares 1, 1995 1995 Shares
- ---------------------- ----------------------------- ------------------------------ ----------------------
$46,809 $520,801 $12,568 $30,755
</TABLE>
Underwriting Commissions
For each of the Fund's last three fiscal years, the table below lists the
aggregate dollar amounts of underwriting commissions (front-end sales charges,
plus distribution fees, plus CDSCs) paid with respect to the public distribution
of the Fund's shares. The table also indicates the aggregate dollar amount of
underwriting commissions retained by the Principal Underwriter. For more
information, see "Principal Underwriter" and "Sales Charges."
<TABLE>
<CAPTION>
<S> <C> <C>
Aggregate Dollar Amount of
Underwriting Commissions
Fiscal Year Aggregate Dollar Amount Retained by the Principal
Ended September of Underwriting Underwriter
30, Commissions
- -------------------------- ---------------------------------------- -----------------------------------------
1996 $ 490,274 $ 397,085
1995 $ 750,634 $ 629,974
1994 $1,592,678 $1,463,079
</TABLE>
Brokerage Commissions
The Fund paid no brokerage commissions for the fiscal years ended October 31,
1996, 1995 and 1994.
PRINCIPAL UNDERWRITER
The Fund has entered into Principal Underwriting Agreements (the
"Underwriting Agreements") with the Principal Underwriter, a Delaware
corporation and wholly-owned subsidiary of Keystone.
The Principal Underwriter, as agent, has agreed to use its best efforts
to find purchasers for the shares. 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 to them. No such representative or broker-dealer 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 which is in accordance with the provisions
of the Declaration of Trust, By-Laws, the current prospectus and statement of
additional information of the Fund. 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 Agreements, the Fund is not liable to anyone
for failure to accept any order.
The Fund has agreed, under the Underwriting Agreements, to pay all
expenses in connection with registration of Fund shares with the Commission and
auditing and filing fees in connection with registration of such shares under
the various state "blue-sky" laws.
From time to time, if in the Principal Underwriter's judgment it could
benefit the sales of Fund's shares, the Principal Underwriter may provide to
selected broker-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 Fund's
shares. The Principal Underwriter has also agreed that it 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, action, suit or proceeding to which any of them may
be a party that arises out of or is alleged to arise out of any
misrepresentation or omission to state a material fact on the part of the
Principal Underwriter or any other person for whose acts the Principal
Underwriter is responsible or is alleged to be responsible, unless such
misrepresentation or omission was made in reliance upon written information
furnished by the Fund.
The Underwriting Agreements provide that they will remain in effect as
long as their terms and continuance are approved at least annually (i) by a
majority of the Fund's Independent Trustees cast in person at a meeting called
for that purpose, and (ii) by vote of a majority of Trustees of the Fund.
The Underwriting Agreements may be terminated, without penalty, on 60
days' written notice by a majority of the Fund's Independent Trustees or by a
vote of a majority of outstanding shares of the Fund. The Underwriting
Agreements will terminate automatically upon their "assignment" as that term is
defined in the 1940 Act.
In addition to an assignment of the Fund's Advisory Agreement, the
Merger, if consummated, will also be deemed to cause an assignment, as defined
by the 1940 Act, of the Underwriting Agreements. As a result, the Fund's
Trustees have approved the following agreements, subject to the Merger's
completion: (i) a principal underwriting agreement between Evergreen Funds
Distributor, Inc. ("EFD") and the Fund; (ii) a marketing services agreement
between the Principal Underwriter and EFD with respect to the Fund; and (iii) a
subadministration agreement between Keystone and Furman Selz LLC with respect to
the Fund. EFD is a wholly-owned subsidiary of Furman Selz LLC. It is currently
anticipated that on or about January 2, 1997, Furman Selz LLC will transfer EFD,
and Furman Selz LLC's related services, to BISYS Group, Inc. ("BISYS") (the
"Transfer"). The Fund's Trustees have also approved, subject to completion of
the Transfer, (i) a new principal underwriting agreement between EFD and the
Fund; (ii) a new marketing services agreement between the Principal Underwriter
and EFD with respect to the Fund; and (iii) a subadministration agreement
between Keystone and BISYS with respect to the Fund. The terms of such
agreements will be substantively identical to the terms of the agreements to be
executed upon completion of the Merger.
DECLARATION OF TRUST
MASSACHUSETTS BUSINESS TRUST
The Fund is a Massachusetts business trust established under a
Declaration of Trust dated December 19, 1990. 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 on file as an
exhibit to the Fund's Registration Statement. This summary is qualified in its
entirety by reference to the Declaration of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest classes of Fund 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 offers Class
A, B and C shares but may issue additional classes or series of shares.
SHAREHOLDER LIABILITY
Pursuant to certain decisions of the Massachusetts courts, shareholders
of a Massachusetts business trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The possibility of the
shareholders incurring financial loss for that reason appears remote because the
Fund's Declaration of Trust (1) contains an express disclaimer of shareholder
liability for obligations of the Fund; (2) requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Fund or the Trustees; and (3) provides for indemnification out
of Fund property for any shareholder held personally liable for the obligations
of the Fund.
VOTING RIGHTS
Under the terms of 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 of shares has exclusive voting
rights with respect to its respective Distribution Plan. No amendment may be
made to the Declaration of Trust that adversely affects any class of shares
without the approval of a majority of the shares of that class. Shares have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of the Trustees to
be elected at a meeting and, in such event, the holders of the remaining 50% or
less of the shares voting will not be able to elect any Trustees.
After the initial meeting to elect Trustees no further meetings of
shareholders for the purpose of electing Trustees will be held unless required
by law or 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 Fund's outstanding shares.
Any Trustee may voluntarily resign from office.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only
for his own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person; provided, however, that
nothing in the Declaration of Trust shall protect a Trustee against any
liability for his willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties.
The Trustees have absolute and exclusive control over the management
and disposition of all assets of the Fund and may perform such acts as in their
sole judgment and discretion are necessary and proper for conducting the
business and affairs of the Fund or promoting the interests of the Fund and the
shareholders.
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
The average annual rate of return of Class A for the fiscal year ended
September 30, 1996 was 3.36%. The average annual rate of return for Class A
shares for the period December 30, 1994 (date of initial public offering)
through the fiscal period ended September 30, 1996 was 5.55% (including any
applicable sales charge).
The average annual rates of return for Class B and Class C shares for
the fiscal year ended September 30, 1996 were 2.90% and 5.91%, respectively
(including any applicable sales charge). The average annual rate of return for
Class B shares for the five years ended September 30, 1996 was 4.01%. The
average annual rate of return for Class B shares for the period from July 1,
1991 (commencement of operations) through September 30, 1995 was 4.29%
(including any applicable sales charge). The average annual rate of return for
Class C shares for the period from February 1, 1993 (date of initial public
offering) through September 30, 1996 was 4.24% (including any applicable sales
charge).
Current yield quotations as they may appear from time to time in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of the Fund, computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the base period. Such yield will include
income from sources other than municipal obligations, if any.
The Fund's current yields for Class A, Class B and Class C for the
30-day period ended September 30, 1996 were 5.58%, 5.03% and 4.98%,
respectively.
Any given yield or total return quotation should not be considered
representative of the Fund's yield or total return for any future period.
The Fund may also include comparative performance information in
advertising or marketing the Fund's yield or total return for any future period.
FINANCIAL STATEMENTS
The following financial statements of the Fund are incorporated by
reference herein to the Fund's Annual Report, as filed with the Commission:
Schedule of Investments as of September 30, 1996;
Statement of Assets and Liabilities as of September 30, 1996;
Statement of Operations for the year ended September 30, 1996;
Statements of Changes in Net Assets for each of the years in the two-
year period ended September 30, 1996;
Financial Highlights for the year ended September 30, 1996, and
the period from December 30, 1994 (Date of Initial Public Offering)
to September 30, 1995 for Class A shares;
Financial Highlights for each of the years in the five-year period
ended September 30, 1996, and for the period from July 1, 1991
(Commencement of Operations) to September 30, 1991 for Class B shares;
Financial Highlights for each of the years in the three-year period
ended September 30, 1996, and for the period from February 1, 1993
(Date of Initial Public Offering) to September 30, 1993 for Class C
shares;
Notes to Financial Statements; and
Independent Auditors' Report dated November 1, 1996.
A copy of the Fund's Annual Report will be furnished upon request and
without charge. Requests may be made in writing to KIRC, P.O. Box 2121, Boston,
Massachusetts 02106-2121 or by calling KIRC toll free at 1-800-343-2898.
ADDITIONAL INFORMATION
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is custodian of all securities and cash of the Fund. State
Street 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, 99 High Street, Boston, Massachusetts 02110,
Certified Public Accountants, are the independent auditors for the Fund.
KIRC, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034
is a wholly-owned subsidiary of Keystone.
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.
As of November 21, 1996, Smith Barney Inc., 00154924733, 388 Greenwich
Street, New York, NY 10013-2375 owned of record 29.859% of the Fund's
outstanding Class A shares; and MLPF &S for the Sole Benefit of its Customers,
Attn: Fund Administration, 4800 Deer Lake Dr, E 3rd FL, Jacksonville, FL
32246-6484, owned of record 11.166% of the Fund's outstanding Class A shares.
As of November 21, 1996, Merrill Lynch Pierce, Fenner & Smith for Sole
Benefit of its Customers, Attn: Fund Administration, 4800 Deer Lake Dr, E 3rd
FL, Jacksonville, FL 32246-6484, owned of record 13.957% of the Fund's
outstanding Class B shares.
As of November 21, 1996, MLPF & S for the Sole Benefit Of its
Customers, Attn: Fund Administration, 4800 Deer Lake Dr., E 3rd FL,
Jacksonville, FL 32246-6486, owned of record 16.460% of the Fund's outstanding
Class C shares; and Smith Barney Inc., 00154925325, 388 Greenwich Street, New
York, NY 10013-2375 owned of record 15.479% of the Fund's outstanding Class C
shares.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, statement of additional information or in supplemental sales
literature issued by the Fund or the Principal Underwriter, and no person is
entitled to rely on any information or representation not contained therein.
The Fund's prospectus and statement of additional information omit
certain information contained in the registration statement filed with the
Commission, which may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fee prescribed by the rules and regulations
promulgated by the Commission.
The Fund is one of approximately 16 different investment companies in
the Keystone America Fund Family. The Keystone America Funds offer a range of
choices to serve shareholder needs. In addition to the Fund, the Keystone
America Funds consist of the following funds having the various investment
objectives described below:
Keystone Balanced Fund II - Seeks current income and capital appreciation
consistent with the preservation of capital.
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 Fund For Total Return - Seeks total return from a combination of
capital growth and income from dividend paying quality common stocks, preferred
stocks, convertible bonds, other fixed-income securities and foreign securities
(up to 50%).
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 Global Opportunities Fund - Seeks long-term capital growth from foreign
and domestic securities.
Keystone Global Resources and Development Fund - (Formerly Keystone Strategic
Development Fund.) Seeks long-term capital growth by investing primarily in
equity securities of foreign and domestic companies involved in the natural
resources and energy industries.
Keystone Government Securities Fund - Seeks income and capital preservation
from U.S. government securities.
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 currently offering four 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 Small Company Growth Fund II - Seeks long-term growth of capital by
investing primarily in equity securiteis with small market capitalizations.
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.
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.
This Appendix is solely intended to provide additional investment
information and is qualified in its entirety by the information and language
contained in the Fund's prospectus.
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. government include (i) a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance and (ii) securities issued by GNMA. Treasury
bills have maturities of one year or less. Treasury notes have maturities of one
to ten years Treasury bonds generally have maturities of greater than ten years
at the date of issuance. GNMA securities include GNMA mortgage pass-through
certificates. Such securities are supported by the full faith and credit of the
U.S. government.
Securities issued or guaranteed by U.S. government agencies or
instrumentalities include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the U.S.,
Small Business Administration, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, FHLMC, Federal Intermediate Credit Banks,
Federal Land Banks, Maritime Administration, The Tennessee Valley Authority,
District of Columbia Armory Board and FNMA.
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 FNMA, a
private corporation, are supported only by the credit of the instrumentality.
The U.S. government is not obligated by law to provide support to an
instrumentality it sponsors. U.S. government securities held by the Fund do not
include international agencies or instrumentalities in which the U.S.
government, its agencies or instrumentalities participate, such as the World
Bank, Asian Development Bank or the Inter-American Development Bank, or issues
insured by the Federal Deposit Insurance Corporation.
FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS
The Fund intends to enter into financial futures contracts as a hedge
against changes in prevailing levels of interest rates to seek relative
stability of principal and to establish more definitely the effective return on
securities held or intended to be acquired by the Fund or as a hedge against
changes in the prices of securities held by the Fund or to be acquired by the
Fund. The Fund's hedging may include sales of futures as an offset against the
effect of expected increases in interest rates or securities prices and
purchases of futures as an offset against the effect of expected declines in
interest rates.
For example, when the Fund anticipates a significant change in interest
rates, it will purchase a financial futures contract as a hedge against not
participating in such change in interest rates at a time when the Fund is not
fully invested. The purchase of a futures contract serves as a temporary
substitute for the purchase of individual securities which may then be purchased
in an orderly fashion. As such purchases are made, an equivalent amount of
financial futures contracts would be terminated by offsetting sales. In
contrast, the Fund would sell financial futures contracts in anticipation of or
in a general interest rate decline that may adversely affect the market value of
the Fund's portfolio. To the extent that the Fund's portfolio changes in value
in correlation with a given index, the sale of futures contracts on that index
would substantially reduce the risk to the portfolio of a change in interest
rates, and, by doing so, provide an alternative to the liquidation of the Fund's
securities positions and the resulting transaction costs.
The Fund intends to engage in options transactions which are related to
financial futures contracts for hedging purposes and in connection with the
hedging strategies described above.
Although techniques other than sales and purchases of futures contracts
and related options transactions could be used to reduce the Fund's exposure to
interest rate and/or market fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Fund does not intend to
take delivery of the instruments underlying futures contracts it holds, the Fund
does not intend to engage in such futures contracts for speculation.
FUTURES CONTRACTS
Futures contracts are transactions in the commodities markets rather
than in the securities markets. A futures contract creates an obligation by the
seller to deliver to the buyer the commodity specified in the contract at a
specified future time for a specified price. The futures contract creates an
obligation by the buyer to accept delivery from the seller of the commodity
specified at the specified future time for the specified price. In contrast, a
spot transaction creates an immediate obligation for the seller to deliver and
the buyer to accept delivery of and pay for an identified commodity. In general,
futures contracts involve transactions in fungible goods such as wheat, coffee
and soybeans. However, in the last decade an increasing number of futures
contracts have been developed which specify financial instruments or finan
cially based indexes as the underlying commodity.
U.S. futures contracts are traded only on national futures exchanges
and are standardized as to maturity date and underlying financial instrument.
The principal financial futures exchanges in the United States are The Board of
Trade of the City of Chicago, the Chicago Mercantile Exchange, the International
Monetary Market (a division of the Chicago Mercantile Exchange), the New York
Futures Exchange and the Kansas City Board of Trade. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant ("Broker") effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC") and National Futures Association ("NFA").
INTEREST RATE FUTURES CONTRACTS
The sale of an interest rate futures contract creates an obligation by
the Fund, as seller, to deliver the type of financial instrument specified in
the contract at a specified future time for a specified price. The purchase of
an interest rate futures contract creates an obligation by the Fund, as
purchaser, to accept delivery of the type of financial instrument specified at a
specified future time for a specified price. The specific securities delivered
or accepted, respectively, at settlement date, are not determined until at or
near that date. The determination is in accordance with the rules of the
exchange on which the futures contract sale or purchase was made.
Currently interest rate futures contracts can be purchased or sold on
90-day U.S. Treasury bills, U.S. Treasury bonds, U.S. Treasury notes with
maturities between 6 1/2 and 10 years, Government National Mortgage Association
("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, OTHER THAN STOCK INDEX BASED
It is expected that bond index and other financially based index
futures contracts will be developed in the future. It is anticipated that such
index based futures contracts will be structured in the same way as stock index
futures contracts but will be measured by changes in interest rates, related
indexes or other measures, such as the consumer price index. In the event that
such futures contracts are developed the Fund will sell interest rate index and
other index based futures contracts to hedge against changes which are expected
to affect the Fund's portfolio.
The purchase or sale of a futures contract differs from the purchase or
sale of a security, in that no price or premium is paid or received. Instead, to
initiate trading an amount of cash, cash equivalents, money market instruments,
or U.S. Treasury bills equal to approximately 1 1/2% (up to 5%) of the contract
amount must be deposited by the Fund with the Broker. This amount is known as
initial margin. The nature of initial margin in futures transactions is
different from that of margin in security transactions. Futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. The margin required for a particular futures contract is set by
the exchange on which the contract is traded and may be significantly modified
from time to time by the exchange during the term of the contract.
Subsequent payments, called variation margin, to the Broker and from
the Broker, are made on a daily basis as the value of the underlying instrument
or index fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as mark-to-market. For example, when the
Fund has purchased a futures contract and the price of the underlying financial
instrument or index has risen, that position will have increased in value, and
the Fund will receive from the Broker a variation margin payment equal to that
increase in value. Conversely, where the Fund has purchased a futures contract
and the price of the underlying financial instrument or index has declined, the
position would be less valuable and the Fund would be required to make a
variation margin payment to the Broker. At any time prior to expiration of the
futures contract, the Fund may elect to close the position. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the Broker, and the Fund realizes a loss or gain.
The Fund intends to enter into arrangements with its custodian and with
Brokers to enable the initial margin of the Fund and any variation margin to be
held in a segregated account by its custodian on behalf of the Broker.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of financial instruments, and index based futures
contracts call for the delivery of cash equal to the difference between the
closing value of the index on the expiration date of the contract and the price
at which the futures contract is originally made, in most cases such futures
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out a futures contract sale is effected by an offsetting
transaction in which the Fund enters into a futures contract purchase for the
same aggregate amount of the specific type of financial instrument or index and
same delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the difference
and realizes a loss. Similarly, the closing out of a futures contract purchase
is effected by an offsetting transaction in which the Fund enters into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain. If the purchase price exceeds the offsetting sale price the
Fund realizes a loss. The amount of the Fund's gain or loss on any transaction
is reduced or increased, respectively, by the amount of any transaction costs
incurred by the Fund.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one contract of September U.S. Treasury bills on an
exchange may be fulfilled at any time before delivery of the contract is
required (i.e. on a specified date in September, the "delivery month") by the
purchase of one contract of September U.S. Treasury bills on the same exchange.
In such instance the difference between the price at which the futures contract
was sold and the price paid for the offsetting purchase, after allowance for
transaction costs, represents the profit or loss to the Fund.
There can be no assurance, however, that the Fund will be able to enter
into an offsetting transaction with respect to a particular contract at a
particular time. If the Fund is not able to enter into an offsetting
transaction, the Fund will continue to be required to maintain the margin
deposits on the contract and to complete the contract according to its terms.
OPTIONS ON FINANCIAL FUTURES
The Fund intends to purchase call and put options on financial futures
contracts and sell such options to terminate an existing position. Options on
futures are similar to options on stocks except that an option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put) rather than to purchase or sell
stock at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account. This amount
represents the amount by which the market price of the futures contract at
exercise exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. If an option is
exercised the last trading day prior to the expiration date of the option, the
settlement will be made entirely in cash equal to the difference between the
exercise price of the option and value of the futures contract.
The Fund intends to use options on financial futures contracts in
connection with hedging strategies. In the future, when permitted by applicable
law, the Fund may use such options for other purposes.
PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS
The purchase of protective put options on financial futures contracts
is analogous to the purchase of protective puts on individual stocks, where an
absolute level of protection is sought below which no additional economic loss
would be incurred by the Fund. Put options may be purchased to hedge a portfolio
of stocks or debt instruments or a position in the futures contract upon which
the put option is based.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS
The purchase of call options on financial futures contracts represents
a means of obtaining temporary exposure to market appreciation at limited risk.
It is analogous to the purchase of a call option on an individual stock, which
can be used as a substitute for a position in the stock itself. Depending on the
pricing of the option compared to either the futures contract upon which it is
based, or upon the price of the underlying financial instrument or index itself,
purchase of a call option may be less risky than the ownership of the interest
rate or index based futures contract or the underlying securities. Call options
on commodity futures contracts may be purchased to hedge against an interest
rate increase or a market advance when the Fund is not fully invested.
USE OF NEW INVESTMENT TECHNIQUES INVOLVING FINANCIAL FUTURES CONTRACTS OR
RELATED OPTIONS
The Fund may employ new investment techniques involving financial
futures contracts and related options. The Fund intends to take advantage of new
techniques in these areas which may be developed from time to time and which are
consistent with the Fund's investment objective. The Fund believes that no
additional techniques have been identified for employment by the Fund in the
foreseeable future other than those described above.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND RELATED OPTIONS
ON SUCH FUTURES CONTRACTS
The Fund will not enter into a futures contract if, as a result
thereof, more than 5% of the Fund's total assets (taken at market value at the
time of entering into the contract) would be committed to margin deposits on
such futures contracts.
The Fund intends that its futures contracts and related options
transactions will be entered into for traditional hedging purposes. That is,
futures contracts will be sold to protect against a decline in the price of
securities that the Fund owns, or futures contracts will be purchased to protect
the Fund against an increase in the price of securities it intends to purchase.
The Fund does not intend to enter into futures contracts for speculation.
In instances involving the purchase of futures contracts by the Fund,
an amount of cash and cash equivalents, equal to the market value of the futures
contracts will be deposited in a segregated account with the Fund's custodian
and/or in a margin account with a Broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
FEDERAL INCOME TAX TREATMENT
For federal income tax purposes, the Fund is required to recognize as
income for each taxable year its net unrealized gains and losses on futures
contracts as of the end of the year as well as those actually realized during
the year. Any gain or loss recognized with respect to a futures contract or
option is considered to be 60% long term and 40% short term, without regard to
the holding period of the contract. In the case of a futures transaction
classified as a "mixed straddle," the recognition of losses may be deferred to a
later taxable year. The federal income tax treatment of gains or losses from
transactions in options on futures is unclear.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income. Any net gain realized
from the closing out of futures contracts, for purposes of the 90% requirement,
will be qualifying income. In addition, gains realized on the sale or other
disposition of securities held for less than three months must be limited to
less than 30% of the Fund's annual gross income. The 1986 Tax Act added a
provision which effectively treats both positions in certain hedging
transactions as a single transaction for the purpose of the 30% requirement. The
provision provides that, in the case of any "designated hedge," increases and
decreases in the value of positions of the hedge are to be netted for the
purposes of the 30% requirement. However, in certain situations, in order to
avoid realizing a gain within a three month period, the Fund may be required to
defer the closing out of a contract beyond the time when it would otherwise be
advantageous to do so.
RISKS OF FUTURES CONTRACTS
Financial futures contracts prices are volatile and are influenced,
among other things, by changes in stock prices, market conditions, prevailing
interest rates and anticipation of future stock prices, market movements or
interest rate changes, all of which in turn are affected by economic conditions,
such as government fiscal and monetary policies and actions, and national and
international political and economic events.
At best, the correlation between changes in prices of futures contracts
and of the securities being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances, such as variations in
speculative market demand for futures contracts and for securities, including
technical influences in futures contracts trading; differences between the
securities being hedged and the financial instruments and indexes underlying the
standard futures contracts available for trading, in such respects as interest
rate levels, maturities and credit-worthiness of issuers, or identities of
securities comprising the index and those in the Fund's portfolio. In addition
futures contract transactions involve the remote risk that a party be unable to
fulfill its obligations and that the amount of the obligation will be beyond the
ability of the clearing broker to satisfy. A decision of whether, when and how
to hedge involves the exercise of skill and judgment, and even a well conceived
hedge may be unsuccessful to some degree because of market behavior or
unexpected interest rate trends.
Because of the low margin deposits required, futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out, and a 15% decrease would result in a loss equal to 150% of the
original margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable losses if, instead
of entering into the futures contract, it had invested in the underlying
financial instrument. Furthermore, in order to be certain that the Fund has
sufficient assets to satisfy its obligations under a futures contract, the Fund
will establish a segregated account in connection with its futures contracts
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 financial futures
contracts, there are several special risks relating to options on futures
contracts. The ability to establish and close out positions on such options will
be subject to the development and maintenance of a liquid secondary market.
There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. The Fund will not purchase
options on any futures contract unless and until it believes that the market for
such options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with the futures contracts.
Compared to the use of futures contracts, the purchase of options on such
futures involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to the Fund, even though the use of a futures contract would
not, such as when there is no movement in the level of the futures contract.
KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24(a) Financial Statements
The following financial statements are hereby incorporated by reference from
Registrant's Annual Report, as filed with the Securities and Exchange
Commission on November 25, 1996:
Schedule of Investments September 30, 1996
Financial Highlights
Class A Shares For the year ended September 30,
1996, and the period
from December 30, 1994 (Date of
Initial Public Offering) to
September 30, 1995
Class B Shares For each of the years in the
five-year period ended September 30,
1996, and the period from July 1,
1991 (Commencement of Operations) to
September 30, 1991
Class C Shares For each of the years in the
three-year period ended
September 30, 1996, and the period
from February 1, 1993 (Date of
Initial Public Offering) to
September 30, 1993
Statement of Assets and Liabilities September 30, 1996
Statement of Operations Year ended
September 30, 1996
Statements of Changes in Net Assets Two years ended
September 30, 1996
Notes to Financial Statements
Independent Auditors' Report November 1, 1996
<PAGE>
Item (24)(b). Exhibits
1. Registrant's Declaration of Trust, as amended (the "Declaration of
Trust")(1)
2. Registrant's By-Laws(1)
A copy of an Amendment to Registrant's By-Laws(2)
3. Not applicable
4. (a) The Declaration of Trust, Articles III, V, VI and VIII(1)
(b) Registrant's By-Laws, as amended, Article 2, Section 2.5(1)
5. Investment Advisory and Management Agreement between Registrant and
Keystone Investment Management Company (the "Advisory Agreement")(1)
6. (a) Principal Underwriting Agreements, as amended,
between Registrant and Keystone Investment Distributors Company
(the "Underwriting Agreements")(1)
(b) Form of Dealer Agreement used by Keystone Investment Distributors
Company(1)
7. Not applicable
8. Custodian, Fund Accounting and Recordkeeping Agreement between Registrant
and State Street Bank and Trust Company (1)
9. Not applicable
10. Opinion and consent of counsel(2)
11. Consent as to the use of the Independent Auditors' Report(2)
12. Not applicable
13. Subscription Agreement between Registrant and Keystone Investment
Management Company(3)
14. Model plans used in the establishment of retirement plans in connection
with which the Registrant offers its securities(4)
15. Registrant's Class A, Class B and Class C Distribution Plans(1)
16. Schedules for computation of total return and current yield quotations(2)
17. Financial Data Schedules(2)
18. Not applicable
19. Powers of Attorney (2)
- ------------------------
(1) Filed with Post-Effective Amendment No. 6 ("Post-Effective Amendment No.
6") to Registration Statement 811-6278/33-38946 (the "Registration
Statement") and incorporated by reference herein.
(2) Filed herewith.
(3) Filed with the Registration Statement and incorporated by reference herein.
(4) Filed with Post-Effective Amendment No. 66 to Registration Statement No.
2-10527/811-96 and incorporated by reference herein.
<PAGE>
Item 25. Persons Controlled by or Under Common Control With Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record
Title of Class Holders as of 1996
-------------- --------------------------------
Shares of Beneficial
Interest, without par
value
Class A
Class B
Class C
Item 27. Indemnification
Provisions for the indemnification of the Registrant's Trustees and
officers are contained in Article VIII of the Declaration of Trust, a copy of
which was filed with Post-Effective Amendment No. 6 and incorporated by
reference herein.
Provisions for the indemnification of Keystone Investment Distributors
Company, Registrant's principal underwriter, are contained in Sections 9 of the
Principal Underwriting Agreementsy, copies of which were filed with
Post-Effective Amendment No. 6 and are incorporated by reference herein.
Provisions for the indemnification of Keystone Investment Management
Company, Registrant's investment adviser, are contained in Section 6 of the
Advisory Agreement, a copy of which was filed with Post-Effective Amendment No.
6 and is incorporated by reference herein.
Item 28. Businesses and Other Connections of Investment Adviser
The following table lists the names of the various officers and
directors of Keystone Investment Management Company, Registrant's investment
adviser, and their respective positions. For each named individual, the table
lists, for at least the past two fiscal years, (i) any other organizations
(excluding investment advisory clients) with which the officer and/or director
has had or has substantial involvement; and (ii) positions held with such
organizations.
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF
KEYSTONE INVESTMENT MANAGEMENT COMPANY
<TABLE>
<CAPTION>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
<S> <C> <C>
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer,and Keystone Investments, Inc.
Director Keystone Management, Inc.
Keystone Software, Inc.
Keystone Asset Corporation
Keystone Capital Corporation
Chairman of the Board and Director:
Keystone Fixed Income Advisers, Inc.
Keystone Institutional Company, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment Company, Inc.
Keystone Investment Distributors Company
Keystone Investor Resource Center, Inc.
Boston Children's Services Associates
Middlesex School
Middlebury College
Former Trustee or Director:
Neworld Bank
Robert Van Partners, Inc.
Philip M. Byrne Director President and Director:
Keystone Institutional Company, Inc.
Senior Vice President:
Keystone Investments, Inc.
Herbert L. Senior Vice None
Bishop, Jr. President
Donald C. Dates Senior Vice None
President
Gilman Gunn Senior Vice None
President
Edward F. Director, Director, Senior Vice President
Godfrey Senior Vice President, President, Chief Financial Officer and Treasurer:
Treasurer and Keystone Investments, Inc.
Chief Financial Officer Keystone Investment Distributors Company
Treasurer:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Former Treasurer and Director:
Hartwell Keystone Advisers, Inc.
James R. McCall Director and None
President
Ralph J. Director President and Director:
Spuehler, Jr. Keystone Investment Distributors Company
Senior Vice President and Director:
Keystone Investments, Inc.
Chairman and Director:
Keystone Investor Resource Center, Inc.
Keystone Management, Inc.
Formerly President:
Keystone Management, Inc.
Formerly Treasurer:
Keystone Investments, Inc.
Keystone Investment Management Company
Keystone America Hartwell Growth Fund, Inc.
Rosemary D. Senior Vice General Counsel, Senior Vice President and Secretary:
Van Antwerp President, Keystone Investments, Inc.
General Counsel Senior Vice President and General Counsel:
and Secretary Keystone Institutional Company, Inc.
Senior Vice President, General Counsel and Director:
Keystone Investor Resource Center, Inc.
Fiduciary Investment Company, Inc.
Keystone Investment Distributors Company
Senior Vice President, General Counsel, Director and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Former Senior Vice President and Secretary:
Hartwell Keystone Advisers, Inc.
Vice President and Secretary:
Keystone Fixed Income Advisers, Inc.
J. Kevin Kenely Vice President Vice President:
Keystone Investments, Inc.
Keystone Investment Distributors Company
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Institutional Company, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Formerly Controller:
Keystone Investments, Inc.
Keystone Investment Management Company
Keystone Investment Distributors Company
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
John D. Rogol Vice President Vice President and
Controller:
Keystone Investments, Inc.
Keystone Investment Distributors Company
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Robert K. Vice President None
Baumback
Betsy A. Blacher Senior Vice None
President
Francis X. Claro Vice President None
Kristine R. Vice President None
Cloyes
Christopher P. Senior Vice None
Conkey President
J. Gary Craven Senior Vice None
President
Richard Cryan Senior Vice None
President
Maureen E. Senior Vice None
Cullinane President
Walter T. Senior Vice None
McCormick President
George F. Wilkins Senior Vice None
President
John F. Addeo Vice President None
Andrew G. Baldassare Vice President None
David S. Benhaim Vice President None
Donald M. Bisson Vice President None
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Dana E. Erikson Vice President None
Sami J. Karam Vice President None
George J. Kimball Vice President None
JoAnn L. Lyndon Vice President None
John C. Vice President None
Madden, Jr.
Eleanor H. Marsh Vice President None
James D. Medredeff Vice President None
Stanley M. Niksa Vice President None
Jonathan A. Noonan Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
William H. Vice President None
Parsons
Joyce W. Petkovich Vice President None
Daniel A. Rabasco Vice President None
Harlen R. Sanderling Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
Mary J. Willis Vice President None
Peter Willis Vice President None
Richard A. Wisentaner Vice President None
Cheryle E. Wanble Vice President None
Walter Zagrobski Vice President None
Joseph J. Asst. Vice President None
Decristofaro
</TABLE>
<PAGE>
Item 29. Principal Underwriter
(a) Keystone Investment Distributors Company, which acts as Registrant's
principal underwriter, also acts as principal underwriter for the
following entities:
Keystone Quality Bond Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone High Income Bond Fund (B-4)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Mid-Cap Growth Fund (S-3)
Keystone Small Company Growth Fund (S-4)
Keystone Fund for Total Return
Keystone Global Opportunities Fund
Keystone Government Securities Fund
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone Intermediate Term Bond Fund
Keystone Liquid Trust
Keystone Omega Fund
Keystone Strategic Income Fund
Keystone State Tax Free Fund
Keystone State Tax Free Fund - Series II
Keystone Tax Free Income Fund
Keystone World Bond Fund
Keystone Fund of the Americas
Keystone International Fund Inc.
Keystone Precious Metals Holdings, Inc.
Keystone Global Resources and Development Fund
Keystone Tax Free Fund
Keystone Small Company Growth Fund II
Keystone Balanced Fund II
Keystone Emerging Markets Fund
(b) Information with respect to each officer and director of Registrant's
acting principal underwriter:
Positions with
Keystone Investment Positions with
Name Distributors Company Registrant
- ---- -------------------- --------------
Ralph J. Spuehler* Director, President None
Edward F. Godfrey* Director, Senior Vice Senior Vice
President, Treasurer President
and Chief Financial
Officer
Rosemary D. Van Antwerp* Director, Senior Vice Senior Vice
President, General President
Counsel and Secretary and Secretary
Albert H. Elfner, III* Director President
Charles W. Carr* Senior Vice President None
Peter M. Delehanty* Senior Vice President None
J. Kevin Kenely* Vice President None
John D. Rogol* Vice President and None
Controller
C. Kenneth Molander Divisional Vice None
8 King Edward Drive President
Londenderry, NH 03053
William L. Carey, Jr. Regional Manager and None
4 Treble Lane Vice President
Malvern, PA 19355
John W. Crites Regional Manager and None
2769 Oakland Circle W. Vice President
Aurora, CO 80014
<PAGE>
Item 29(b) (continued)
Positions with
Keystone Investment Positions with
Name Distributors Company Registrant
- ---- -------------------- --------------
Richard J. Fish Regional Manager and None
309 West 90th Street Vice President
New York, NY 10024
Michael E. Gathings Regional Vice None
245 Wicklawn Way President
Roswell, GA 30076
Paul D. Graffy Regional Manager and None
15509 Janas Drive Vice President
Lockport, IL 60441
Robert G. Holz, Jr. Regional Manager and None
313 Meadowcrest Drive President
Richardson, Texas 75080
Todd L. Kobrin Regional Manager and None
20 Iron Gate Vice President
Metuchen, NJ 08840
Ralph H. Johnson Regional Manager and None
345 Masters Court, #2 Vice President
Walnut Creek, CA 94598
Paul J. McIntyre Regional Manager and None
118 Main Center #203 Vice President
Northville, MI 48167
Robert P. Muligan* Regional Manager and None
Vice President
Alan V. Niemi Regional Manager and None
3511 Grant Street Vice President
Lee's Summit, MO 64064
Matthew D. Twomey Regional Vice None
9627 Sparrow Court President
Ellicott City, MD 21042
Raymond P. Ajemian* Manager and None
Vice President
Jonathan I. Cohen* Vice President None
Michael S. Festa* Vice President None
Russell A. Haskell* Vice President None
<PAGE>
Item 29(b) (continued)
Positions with
Keystone Investment Positions with
Name Distributors Company Registrant
- ---- -------------------- --------------
Jeffrey M. Landes Vice President None
Joan M. Balchunas* Assistant Vice None
President
Julie A. Robinson Vice President None
John M. McAllister* Vice President None
Thomas J. Gainey* Assistant Vice None
President
Lyman Jackson* Assistant Vice None
President
Eric S. Jeppson* Assistant Vice None
President
Mark Minnucci* Assistant Vice None
President
Ashley M. Norwood* Assistant Vice None
President
*Located at 200 Berkeley Street, Boston, Massachusetts 02116-5034
Item 29(c). - Not applicable
Item 30. Location of Accounts and Records
Keystone Investments, Inc.
200 Berkeley Street
Boston, Massachusetts 02116-5034
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, Massachusetts 02171
Iron Mountain
3431 Sharp Slot Road
Swansea, Massachusetts 02277
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Upon request and without charge, the Registrant hereby undertakes to
furnish each person to whom a copy of the Registrant's prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this amendment to its registration statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, and in The
Commonwealth of Massachusetts, on the 5th day of December, 1996.
KEYSTONE CAPITAL PRESERVATION
AND INCOME FUND
By: /s/ Rosemary D. Van Antwerp
----------------------------
Rosemary D. Van Antwerp
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 5th day of December, 1996.
SIGNATURES TITLE
- ---------- -----
/s/ George S. Bissell Chairman of the Board and Trustee
- -------------------------
George S. Bissell*
/s/ Albert H. Elfner, III President, Chief Executive Officer
- ------------------------- and Trustee
Albert H. Elfner, III*
/s/ J. Kevin Kenely Treasurer (Principal Accounting
- ------------------------- and Financial Officer)
J. Kevin Kenely*
*By: /s/ James M. Wall
----------------------------
James M. Wall**
Attorney-in-Fact
<PAGE>
SIGNATURES TITLE
- ---------- -----
/s/ Frederick Amling Trustee
- --------------------------
Frederick Amling*
/s/ Charles A. Austin, III Trustee
- --------------------------
Charles A. Austin, III*
/s/ Edwin D. Campbell Trustee
- --------------------------
Edwin D. Campbell*
/s/ Charles F. Chapin Trustee
- --------------------------
Charles F. Chapin*
/s/ K. Dun Gifford Trustee
- --------------------------
K. Dun Gifford*
/s/ Leroy Keith, Jr. Trustee
- --------------------------
Leroy Keith, Jr.*
/s/ F. Ray Keyser, Jr. Trustee
- --------------------------
F. Ray Keyser, Jr.*
/s/ David M. Richardson Trustee
- --------------------------
David M. Richardson*
/s/ Richard J. Shima Trustee
- --------------------------
Richard J. Shima*
/s/ Andrew J. Simons Trustee
- --------------------------
Andrew J. Simons*
*By: /s/ James M. Wall
----------------------------
James M. Wall**
Attorney-in-Fact
**James M. Wall, by signing his name hereto, does hereby sign this document on
behalf of each of the above-named individuals pursuant to powers of attorney
duly executed by such persons and attached hereto as Exhibit 24(b)(19).
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
- -------------- ------
1 Declaration of Trust(1)
2 By-Laws(1)
Amendment to By-Laws(2)
5 Advisory Agreement(1)
6(a) Underwriting Agreements(1)
(b) Dealers Agreement(1)
8 Custodian, Fund Accounting and
Recordkeeping Agreement(1)
10 Opinion and Consent of Counsel(2)
11 Independent Auditors' Consent(2)
13 Subscription Agreement(3)
14 Model Retirement Plans(4)
15 Class A, B and C Distribution Plans(1)
16 Performance Data Schedules(2)
17 Financial Data Schedule (filed as
Exhibit 27) (2)
19 Powers of Attorney(2)
- ----------------------------------
(1) Incorporated by reference herein to Post-Effective Amendment No. 6
to the Registration Statement.
(2) Filed herewith.
(3) Incorporated by reference to the Registration Statement.
(4) Incorporated by reference herein to Post-Effective Amendment No. 66
to Registration Statement No. 2-10527/811-96.
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
Revised Article 4, Section 4.1 of the By-Laws as adopted by the Board
of Trustees on June 19, 1996:
4.1 Term. A Trustee shall serve until his or her death, retirement, resignation
or removal from office or until his or her successor is elected and qualifies. A
Trustee holding office shall automatically retire on December 31 of the year in
which he or she reaches the age of seventy-five.
Dated: September 13, 1996
December 5, 1996
Keystone Capital Preservation and Income Fund
200 Berkeley Street
Boston, Massachusetts 02116-5034
Gentlemen:
I am Senior Vice President of and General Counsel to Keystone
Investment Management Company, investment adviser to Keystone Capital
Preservation Fund (the "Fund"). You have asked for my opinion with respect to
the proposed issuance of 3,139,141 additional shares of the Fund.
To my knowledge, a Prospectus is on file with the Securities and
Exchange Commission (the "Commission") as part of Post-Effective Amendment No. 6
to the Fund's Registration Statement, which covers the public offering and sale
of the Fund shares currently registered with the Commission.
In my opinion, such additional shares, if issued and sold in accordance
with the Fund's Declaration of Trust ("Declaration of Trust") and offering
Prospectus, will be legally issued, fully paid, and nonassessable by the Fund,
entitling the holders thereof to the rights set forth in the Declaration of
Trust and subject to the limitations set forth therein.
My opinion is based upon my examination of the Fund's Declaration of
Trust and By-Laws; a review of the minutes of the Fund's Board of Trustees
authorizing the issuance of such additional shares; and the Fund's Prospectus.
In my examination of such documents, I have assumed the genuineness of all
signatures and the conformity of copies to originals.
I hereby consent to the use of this opinion in connection with
Post-Effective Amendment No. 7 to the Fund's Registration Statement, which
covers the registration of such additional
shares.
Very truly yours,
/s/Rosemary D. Van Antwerp
Rosemary D. Van Antwerp
Senior Vice President and
General Counsel
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Keystone Capital Preservation and Income Fund
We consent to the use of our report dated November 1, 1996 incorporated
by reference herein and to the reference to our firm under the caption
"FINANCIAL HIGHLIGHTS" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
December 6, 1996
<TABLE>
<CAPTION>
KACPI CLASS A MTD YTD ONE YEAR THREE YEAR THREE YEAR FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
30-Sep-96 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3.00% LOAD 1.54% 3.36% 9.93% 5.55% 9.93% 5.55% 9.93% 5.55%
no load 0.58% 4.68% 6.56% 13.33% 7.40% 13.33% 7.40% 13.33% 7.40%
Beg dates 08/31/96 12/29/96 09/29/96 12/30/04 12/30/94 12/30/94 12/30/94 12/30/94 12/30/94
Beg Value (LOAD) 11,617 11,162 10,965 10,309 10,309 10,309 10,309 10,309 10,309
Beg Value (no load) 11,268 10,827 10,636 10,000 10,000 10,000 10,000 10,000 10,000
End Value 11,333 11,333 11,333 11,333 11,333 11,333 11,333 11,333 11,333
TIME 1.75277775 1.75277775 1.75277775
INCEPTION DATE 30-Dec-94
</TABLE>
<TABLE>
<CAPTION>
KACPI2-B MTD YTD ONE YEAR THREE YEAR THREE YEAR FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
30-Sep-96 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
with cdsc N/A 1.20% 2.90% 11.72% 3.76% 21.75% 4.01% 24.70% 4.29%
W/O CDSC 0.62% 4.20% 5.90% 12.71% 4.07% 21.75% 4.01% 24.70% 4.29%
Beg dates 08/30/96 12/29/96 09/29/95 09/30/93 09/30/93 09/30/91 09/30/91 07/01/91 07/01/91
Beg Value (no load) 12,394 11,968 11,776 11,065 11,065 10,243 10,243 10,000 10,000
End Value (W/O CDSC) 12,470 12,470 12,470 12,470 12,470 12,470 12,470 12,470 12,470
End Value (with cdsc) 12,111 12,117 12,362 12,362 12,470 12470.4367245 12,470 12470.4367245
beg nav 9.73 9.71 9.68 9.91 9.91 10.06 10.06 10.00 10
end nav 9.75 9.75 9.75 9.75 9.75 9.75 9.75 9.75 9.75
shares originally pu 1,273.77 1,232.52 1,216.51 1,116.50 1,116.50 1,018.18 1,018.18 1,000.00 1,000.00
</TABLE>
<TABLE>
<CAPTION>
3% cdsc thru 30-Jun-92
TIME 3% cdsc thru 30-Jun-93 3 5.000 5.25
INCEPTION DATE 01-Jul-91 2% cdsc effe 30-Jun-94 31-Dec-94
1% cdsc effe 30-Jun-95
KACPI-C MTD YTD ONE YEAR THREE YEAR THREE YEAR FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
30-Sep-96 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
with cdsc N/A 3.21% 5.91% 12.72% 4.07% 16.43% 4.24% NA NA
W/O CDSC 0.72% 4.21% 5.91% 12.72% 4.07% 16.43% 4.24% NA NA
Beg dates 08/30/96 12/30/95 09/29/95 09/30/93 09/30/93 02/01/93 02/01/93 02/01/93 02/01/93
Beg Value (no load) 11,559 11,173 10,993 10,328 10,328 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 11,643 11,643 11,643 11,643 11,643 11,643 11,643 11,643 11,643
End Value (with cdsc) 11,531 11,643 11,643 11,643 11,643 11642.5956996 11,643 11642.5956996
beg nav 9.71 9.70 9.67 9.90 9.9 9.82 9.82 9.82 9.82
end nav 9.74 9.74 9.74 9.74 9.74 9.74 9.74 9.74 9.74
shares originally pu 1,190.43 1,151.83 1,136.84 1,043.27 1,043.27 1,018.33 1,018.33 1,018.33 1,018.33
3 3.6666666667 3.6666666667
INCEPTION DATE 01-Feb-93 1% cdsc effe 01-Jan-96 31-Dec-96
1% cdsc thru date^
Compound Return Time Period: BEGINNING Dec-95
Through Sep-96
</TABLE>
<TABLE>
<CAPTION>
SEC STANDARDIZED ADVERTISING YIELD
Cap Preservation Income Fund CLASS A PHASE II-ROLLING
A
PRICING DATE 09/26/96
TOTAL INCOME FOR PERIOD 123,144.65
TOTAL EXPENSES FOR PERIOD 16,804.56
30 DAY YTM 5.58033% AVERAGE SHARES OUTSTANDING 301,681.87
LAST PRICE DURING PERIOD 10.05
PRICE ST VARIABLE LONG TERM GAIN/LOSS AMORT TOTAL DIV ADJUSTED DAILY DAILY
DATE INCOME INCOME INCOME INCOME FACTOR INCOME EXPENSES SHARES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
08/28/96 133.26 14,310.03 14,443.29 31.6027871 4,564.48 564.10 2,355,276.425
08/29/96 827.98 12,745.15 13,573.13 31.6886204 4,301.14 548.07 2,358,011.015
08/30/96 696.08 13,615.69 14,311.77 31.1799481 4,462.40 548.49 2,291,220.498
08/31/96 696.08 13,615.69 14,311.77 31.1799481 4,462.40 548.49 2,291,220.498
09/01/96 696.08 13,615.69 14,311.77 31.1799481 4,462.40 548.49 2,291,220.498
09/02/96 696.08 13,615.69 14,311.77 31.1799481 4,462.40 548.49 2,291,220.498
09/03/96 0.00 14,123.62 14,123.62 31.2729301 4,416.87 546.55 2,300,301.671
09/04/96 58.93 14,123.65 14,182.58 31.2875765 4,437.39 548.85 2,294,777.646
09/05/96 42.07 14,123.49 14,165.56 31.3150554 4,435.95 548.91 2,293,322.184
09/06/96 125.62 14,123.49 14,249.11 31.0546559 4,425.01 548.09 2,293,268.756
09/07/96 125.62 14,123.49 14,249.11 31.0546559 4,425.01 548.09 2,293,268.756
09/08/96 125.62 14,123.49 14,249.11 31.0546559 4,425.01 548.09 2,293,268.756
09/09/96 115.77 14,123.69 14,239.46 31.0550136 4,422.07 548.13 2,290,980.764
09/10/96 104.58 14,123.51 14,228.09 31.0741302 4,421.26 547.52 2,290,246.656
09/11/96 98.44 14,123.52 14,221.96 31.0202521 4,411.69 550.63 2,284,344.703
09/12/96 55.03 13,553.83 13,608.86 30.9044682 4,205.75 549.99 2,266,830.041
09/13/96 65.09 13,847.22 13,912.31 31.2834029 4,352.24 550.08 2,297,212.103
09/14/96 65.09 13,847.22 13,912.31 31.2834029 4,352.24 550.08 2,297,212.103
09/15/96 65.09 13,847.22 13,912.31 31.2834029 4,352.24 550.08 2,297,212.103
09/16/96 128.65 14,030.32 14,158.97 31.3947168 4,445.17 550.33 2,297,309.639
09/17/96 145.37 13,246.50 13,391.87 31.4236757 4,208.22 550.40 2,300,605.096
09/18/96 (447.19) 14,875.04 14,427.85 31.4283424 4,534.43 688.42 2,300,362.983
09/19/96 (459.68) 14,796.74 14,337.06 31.4345814 4,506.79 688.44 2,297,729.934
09/20/96 (202.28) 14,384.92 14,182.64 31.6002198 4,481.75 554.94 2,307,936.874
09/21/96 (202.28) 14,384.92 14,182.64 31.6002198 4,481.75 554.94 2,307,936.874
09/22/96 (202.28) 14,384.92 14,182.64 31.6002198 4,481.75 554.94 2,307,936.874
09/23/96 (202.82) 14,384.89 14,182.07 31.6009126 4,481.66 554.72 2,308,039.581
09/24/96 5.62 14,113.54 14,119.16 31.7026353 4,476.15 554.69 2,317,341.429
09/25/96 83.98 12,418.22 12,502.20 31.7962211 3,975.23 555.12 2,317,341.429
09/26/96 77.15 15,307.99 -30243.23 (14,858.09) 31.8089225 (4,726.20) 556.42 2,317,499.768
3,516.75 420,053.38 (30,243.23) 0.00 393,326.90 940.3454712 3,144.65 16,804.56 2,301,681.872
</TABLE>
DAILY ACCUMULATED ACCUMULATED ACCUMULATED
PRICE INCOME EXPENSES SHARES
10.04 4,564.48 564.10 2,355,276.425
10.04 8,865.62 1,112.17 4,713,287.440
10.03 13,328.02 1,660.66 7,004,507.938
10.03 17,790.42 2,209.14 9,295,728.436
10.03 22,252.82 2,757.63 11,586,948.934
10.03 26,715.22 3,306.11 13,878,169.432
10.03 31,132.09 3,852.66 16,178,471.103
10.03 35,569.48 4,401.51 18,473,248.749
10.03 40,005.43 4,950.42 20,766,570.933
10.03 44,430.44 5,498.51 23,059,839.689
10.03 48,855.45 6,046.61 25,353,108.445
10.03 53,280.46 6,594.70 27,646,377.201
10.04 57,702.53 7,142.83 29,937,357.965
10.03 62,123.79 7,690.35 32,227,604.621
10.03 66,535.48 8,240.98 34,511,949.324
10.04 70,741.23 8,790.97 36,778,779.365
10.04 75,093.47 9,341.05 39,075,991.468
10.04 79,445.71 9,891.13 41,373,203.571
10.04 83,797.95 10,441.21 43,670,415.674
10.04 88,243.12 10,991.54 45,967,725.313
10.04 92,451.34 11,541.94 48,268,330.409
10.04 96,985.77 12,230.36 50,568,693.392
10.03 101,492.56 12,918.80 52,866,423.326
10.04 105,974.31 13,473.74 55,174,360.200
10.04 110,456.06 14,028.67 57,482,297.074
10.04 114,937.81 14,583.61 59,790,233.948
10.03 119,419.47 15,138.33 62,098,273.529
10.04 123,895.62 15,693.02 64,415,614.958
10.04 127,870.85 16,248.14 66,732,956.387
10.05 123,144.65 16,804.56 69,050,456.155
<TABLE>
<CAPTION>
STATE STREET BANK & TRUST COMPANY SEC STANDARDIZED ADVERTISING YIELD
4251 Cap Preservation Income Fund CLASS B PHASE II-ROLLING
B
PRICING DATE 09/26/96
TOTAL INCOME FOR PERIOD 248,523.60
TOTAL EXPENSES FOR PERIOD 61,005.30
30 DAY YTM 5.03210% AVERAGE SHARES OUTSTANDING 4,634,236.70
LAST PRICE DURING PERIOD 9.75
PRICE ST VARIABLE LONG TERM GAIN/LOSS TOTAL DIV ADJUSTED DAILY DAILY
DATE INCOME INCOME INCOME FACTOR INCOME EXPENSES SHARES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
08/28/96 133.26 0.00 14,310.03 0.00 0.00 14,443.29 63.452782 9,164.67 2,070.84 4,728,136.909
08/29/96 827.98 0.00 12,745.15 0.00 0.00 13,573.13 63.359290 8,599.84 2,070.53 4,713,873.236
08/30/96 696.08 0.00 13,615.69 0.00 0.00 14,311.77 63.968705 9,155.05 2,063.64 4,699,860.974
08/31/96 696.08 0.00 13,615.69 0.00 0.00 14,311.77 63.968705 9,155.05 2,063.64 4,699,860.974
09/01/96 696.08 0.00 13,615.69 0.00 0.00 14,311.77 63.968705 9,155.05 2,063.64 4,699,860.974
09/02/96 696.08 0.00 13,615.69 0.00 0.00 14,311.77 63.968705 9,155.05 2,063.64 4,699,860.974
09/03/96 0.00 0.00 14,123.62 0.00 0.00 14,123.62 63.861389 9,019.54 2,055.22 4,696,595.401
09/04/96 58.93 0.00 14,123.65 0.00 0.00 14,182.58 63.828857 9,052.58 2,057.49 4,680,733.574
09/05/96 42.07 0.00 14,123.49 0.00 0.00 14,165.56 63.794813 9,036.89 2,048.51 4,671,148.027
09/06/96 125.62 0.00 14,123.49 0.00 0.00 14,249.11 63.186947 9,003.58 2,045.13 4,665,316.121
09/07/96 125.62 0.00 14,123.49 0.00 0.00 14,249.11 63.186947 9,003.58 2,045.13 4,665,316.121
09/08/96 125.62 0.00 14,123.49 0.00 0.00 14,249.11 63.186947 9,003.58 2,045.13 4,665,316.121
09/09/96 115.77 0.00 14,123.69 0.00 0.00 14,239.46 63.180751 8,996.60 2,045.42 4,660,127.229
09/10/96 104.58 0.00 14,123.51 0.00 0.00 14,228.09 63.156230 8,985.93 2,045.00 4,653,956.446
09/11/96 98.44 0.00 14,123.52 0.00 0.00 14,221.96 63.194769 8,987.53 2,037.11 4,652,867.866
09/12/96 55.03 0.00 13,553.83 0.00 0.00 13,608.86 63.287499 8,612.71 2,032.44 4,641,287.156
09/13/96 65.09 0.00 13,847.22 0.00 0.00 13,912.31 62.919446 8,753.55 2,024.36 4,619,498.563
09/14/96 65.09 0.00 13,847.22 0.00 0.00 13,912.31 62.919446 8,753.55 2,024.36 4,619,498.563
09/15/96 65.09 0.00 13,847.22 0.00 0.00 13,912.31 62.919446 8,753.55 2,024.36 4,619,498.563
09/16/96 128.65 0.00 14,030.32 0.00 0.00 14,158.97 62.781020 8,889.15 2,020.79 4,593,159.748
09/17/96 145.37 0.00 13,246.50 0.00 0.00 13,391.87 62.755039 8,404.07 2,017.84 4,593,598.442
09/18/96 (447.19) 0.00 14,875.04 0.00 0.00 14,427.85 62.750621 9,053.57 2,012.99 4,591,807.233
09/19/96 (459.68) 0.00 14,796.74 0.00 0.00 14,337.06 62.722054 8,992.50 2,011.45 4,583,515.964
09/20/96 (202.28) 0.00 14,384.92 0.00 0.00 14,182.64 62.551132 8,871.40 2,010.43 4,566,884.154
09/21/96 (202.28) 0.00 14,384.92 0.00 0.00 14,182.64 62.551132 8,871.40 2,010.43 4,566,884.154
09/22/96 (202.28) 0.00 14,384.92 0.00 0.00 14,182.64 62.551132 8,871.40 2,010.43 4,566,884.154
09/23/96 (202.82) 0.00 14,384.89 0.00 0.00 14,182.07 62.550182 8,870.91 2,003.92 4,566,894.763
09/24/96 5.62 0.00 14,113.54 0.00 0.00 14,119.16 62.453179 8,817.86 1,994.33 4,563,494.763
09/25/96 83.98 0.00 12,418.22 0.00 0.00 12,502.20 62.342330 7,794.16 1,995.16 4,541,974.195
09/26/96 77.15 0.00 15,307.99 (30,243.23) 0.00 (14,858.09) 62.327670 (9,260.70) 1,991.92 4,539,389.712
3,516.75 0.00 420,053.38 (30,243.23) 0.00 393,326.90 1893.64582 8,523.60 61,005.30 4,634,236.702
</TABLE>
DAILY ACCUMULATED ACCUMULATED ACCUMULATED
PRICE INCOME EXPENSES SHARES
9.74 9,164.67 2,070.84 4,728,136.909
9.74 17,764.51 4,141.37 9,442,010.145
9.73 26,919.56 6,205.01 14,141,871.119
9.73 36,074.61 8,268.66 18,841,732.093
9.73 45,229.66 10,332.30 23,541,593.067
9.73 54,384.71 12,395.94 28,241,454.041
9.73 63,404.25 14,451.16 32,938,049.442
9.73 72,456.83 16,508.65 37,618,783.016
9.73 81,493.72 18,557.16 42,289,931.043
9.74 90,497.30 20,602.29 46,955,247.164
9.74 99,500.88 22,647.41 51,620,563.285
9.74 108,504.46 24,692.54 56,285,879.406
9.74 117,501.06 26,737.96 60,946,006.635
9.74 126,486.99 28,782.96 65,599,963.081
9.74 135,474.52 30,820.07 70,252,830.947
9.74 144,087.23 32,852.51 74,894,118.103
9.74 152,840.78 34,876.87 79,513,616.666
9.74 161,594.33 36,901.24 84,133,115.229
9.74 170,347.88 38,925.60 88,752,613.792
9.74 179,237.03 40,946.39 93,345,773.540
9.74 187,641.10 42,964.23 97,939,371.982
9.74 196,694.67 44,977.22 102,531,179.215
9.74 205,687.17 46,988.67 107,114,695.179
9.74 214,558.57 48,999.10 111,681,579.333
9.74 223,429.97 51,009.54 116,248,463.487
9.74 232,301.37 53,019.97 120,815,347.641
9.74 241,172.28 55,023.89 125,382,242.404
9.74 249,990.14 57,018.22 129,945,737.167
9.75 257,784.30 59,013.38 134,487,711.362
9.75 248,523.60 61,005.30 139,027,101.074
<TABLE>
<CAPTION>
STATE STREET BANK & TRUST COMPANY SEC STANDARDIZED ADVERTISING YIELD
4251 Cap Preservation Income Fund CLASS C PHASE II-ROLLING
C
PRICING DATE 09/26/96
TOTAL INCOME FOR PERIOD 21,658.65
TOTAL EXPENSES FOR PERIOD 5,398.13
30 DAY YTM 4.98045% AVERAGE SHARES OUTSTANDING 406,814.31
LAST PRICE DURING PERIOD 9.73
PRICE ST FIXED LONG TERM GAIN/LOSS TOTAL DIV ADJUSTED DAILY DAILY
DATE INCOME INCOME INCOME FACTOR INCOME EXPENSES SHARES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
08/28/96 133.26 0.00 14,310.03 0.00 0.00 0.00 14,443.29 4.94443040 714.14 161.67 368,950.902
08/29/96 827.98 0.00 12,745.15 0.00 0.00 0.00 13,573.13 4.95208913 672.15 161.82 368,950.902
08/30/96 696.08 0.00 13,615.69 0.00 0.00 0.00 14,311.77 4.85134669 694.31 161.73 356,937.828
08/31/96 696.08 0.00 13,615.69 0.00 0.00 0.00 14,311.77 4.85134669 694.31 161.73 356,937.828
09/01/96 696.08 0.00 13,615.69 0.00 0.00 0.00 14,311.77 4.85134669 694.31 161.73 356,937.828
09/02/96 696.08 0.00 13,615.69 0.00 0.00 0.00 14,311.77 4.85134669 694.31 161.73 356,937.828
09/03/96 0.00 0.00 14,123.62 0.00 0.00 0.00 14,123.62 4.86568029 687.21 156.31 358,342.749
09/04/96 58.93 0.00 14,123.65 0.00 0.00 0.00 14,182.58 4.88356568 692.62 157.02 358,628.749
09/05/96 42.07 0.00 14,123.49 0.00 0.00 0.00 14,165.56 4.89013096 692.71 186.56 358,628.749
09/06/96 125.62 0.00 14,123.49 0.00 0.00 0.00 14,249.11 5.75839615 820.52 186.53 425,838.842
09/07/96 125.62 0.00 14,123.49 0.00 0.00 0.00 14,249.11 5.75839615 820.52 186.53 425,838.842
09/08/96 125.62 0.00 14,123.49 0.00 0.00 0.00 14,249.11 5.75839615 820.52 186.53 425,838.842
09/09/96 115.77 0.00 14,123.69 0.00 0.00 0.00 14,239.46 5.76423452 820.80 186.59 425,838.842
09/10/96 104.58 0.00 14,123.51 0.00 0.00 0.00 14,228.09 5.76963941 820.91 186.65 425,838.842
09/11/96 98.44 0.00 14,123.52 0.00 0.00 0.00 14,221.96 5.78497813 822.74 186.60 426,610.447
09/12/96 55.03 0.00 13,553.83 0.00 0.00 0.00 13,608.86 5.80803242 790.41 186.93 426,618.549
09/13/96 65.09 0.00 13,847.22 0.00 0.00 0.00 13,912.31 5.79715065 806.52 187.00 426,298.382
09/14/96 65.09 0.00 13,847.22 0.00 0.00 0.00 13,912.31 5.79715065 806.52 187.00 426,298.382
09/15/96 65.09 0.00 13,847.22 0.00 0.00 0.00 13,912.31 5.79715065 806.52 187.00 426,298.382
09/16/96 128.65 0.00 14,030.32 0.00 0.00 0.00 14,158.97 5.82426244 824.66 186.96 426,789.472
09/17/96 145.37 0.00 13,246.50 0.00 0.00 0.00 13,391.87 5.82128477 779.58 187.20 426,789.472
09/18/96 (447.19) 0.00 14,875.04 0.00 0.00 0.00 14,427.85 5.82103638 839.85 186.93 426,634.908
09/19/96 (459.68) 0.00 14,796.74 0.00 0.00 0.00 14,337.06 5.84336365 837.77 186.88 427,692.621
09/20/96 (202.28) 0.00 14,384.92 0.00 0.00 0.00 14,182.64 5.84864778 829.49 187.44 427,692.621
09/21/96 (202.28) 0.00 14,384.92 0.00 0.00 0.00 14,182.64 5.84864778 829.49 187.44 427,692.621
09/22/96 (202.28) 0.00 14,384.92 0.00 0.00 0.00 14,182.64 5.84864778 829.49 187.44 427,692.621
09/23/96 (202.82) 0.00 14,384.89 0.00 0.00 0.00 14,182.07 5.84890509 829.50 187.49 427,718.341
09/24/96 5.62 0.00 14,113.54 0.00 0.00 0.00 14,119.16 5.84418485 825.15 187.46 427,718.341
09/25/96 83.98 0.00 12,418.22 0.00 0.00 0.00 12,502.20 5.86144806 732.81 187.62 427,718.341
09/26/96 77.15 0.00 15,307.99 (30,243.23) 0.00 0.00 (14,858.09) 5.86340197 871.19) 187.64 427,718.341
3,516.75 0.00 420,053.38 (30,243.23) 0.00 0.00 393,326.90 166.0086321,658.65 5,398.13 406,814.314
</TABLE>
DAILY ACCUMULATED ACCUMULATED ACCUMULATED
PRICE INCOME EXPENSES SHARES
9.73 714.14 161.67 368,950.902
9.72 1,386.29 323.49 737,901.804
9.71 2,080.60 485.22 1,094,839.632
9.71 2,774.91 646.95 1,451,777.460
9.71 3,469.22 808.67 1,808,715.288
9.71 4,163.53 970.40 2,165,653.116
9.72 4,850.74 1,126.71 2,523,995.865
9.72 5,543.36 1,283.73 2,882,624.614
9.72 6,236.07 1,470.29 3,241,253.363
9.72 7,056.59 1,656.82 3,667,092.205
9.72 7,877.11 1,843.35 4,092,931.047
9.72 8,697.63 2,029.88 4,518,769.889
9.72 9,518.43 2,216.47 4,944,608.731
9.72 10,339.34 2,403.12 5,370,447.573
9.72 11,162.08 2,589.72 5,797,058.020
9.72 11,952.49 2,776.65 6,223,676.569
9.73 12,759.01 2,963.65 6,649,974.951
9.73 13,565.53 3,150.64 7,076,273.333
9.73 14,372.05 3,337.64 7,502,571.715
9.73 15,196.71 3,524.60 7,929,361.187
9.72 15,976.29 3,711.80 8,356,150.659
9.72 16,816.14 3,898.73 8,782,785.567
9.72 17,653.91 4,085.61 9,210,478.188
9.72 18,483.40 4,273.05 9,638,170.809
9.72 19,312.89 4,460.48 10,065,863.430
9.72 20,142.38 4,647.92 10,493,556.051
9.72 20,971.88 4,835.41 10,921,274.392
9.73 21,797.03 5,022.87 11,348,992.733
9.73 22,529.84 5,210.49 11,776,711.074
9.73 21,658.65 5,398.13 12,204,429.415
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> CAPITAL PRESERVATION & INCOME FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 70,007,734
<INVESTMENTS-AT-VALUE> 70,270,622
<RECEIVABLES> 1,012,844
<ASSETS-OTHER> 4,969
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 71,288,435
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 356,144
<TOTAL-LIABILITIES> 356,144
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,917,349
<SHARES-COMMON-STOCK> 2,328,385
<SHARES-COMMON-PRIOR> 1,843,253
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (10,103)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (537,461)
<ACCUM-APPREC-OR-DEPREC> 314,523
<NET-ASSETS> 22,684,308
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,435,073
<OTHER-INCOME> 0
<EXPENSES-NET> (178,916)
<NET-INVESTMENT-INCOME> 1,256,157
<REALIZED-GAINS-CURRENT> (137,301)
<APPREC-INCREASE-CURRENT> 160,977
<NET-CHANGE-FROM-OPS> 1,279,833
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,089,444)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (52,292)
<NUMBER-OF-SHARES-SOLD> 808,295
<NUMBER-OF-SHARES-REDEEMED> (563,085)
<SHARES-REINVESTED> 89,475
<NET-CHANGE-IN-ASSETS> 3,391,098
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (34,740)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (128,039)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (261,014)
<AVERAGE-NET-ASSETS> 19,920,863
<PER-SHARE-NAV-BEGIN> 9.68
<PER-SHARE-NII> 0.61
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> (0.53)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> (0.03)
<PER-SHARE-NAV-END> 9.74
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> CAPITAL PRESERVATION & INCOME FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 70,007,734
<INVESTMENTS-AT-VALUE> 70,270,622
<RECEIVABLES> 1,012,844
<ASSETS-OTHER> 4,969
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 71,288,435
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 356,144
<TOTAL-LIABILITIES> 356,144
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 50,942,646
<SHARES-COMMON-STOCK> 4,522,486
<SHARES-COMMON-PRIOR> 5,467,884
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (260,940)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (6,537,370)
<ACCUM-APPREC-OR-DEPREC> (48,158)
<NET-ASSETS> 44,096,178
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,878,822
<OTHER-INCOME> 0
<EXPENSES-NET> (865,393)
<NET-INVESTMENT-INCOME> 3,013,429
<REALIZED-GAINS-CURRENT> (391,655)
<APPREC-INCREASE-CURRENT> 461,857
<NET-CHANGE-FROM-OPS> 3,083,631
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,568,398)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (123,279)
<NUMBER-OF-SHARES-SOLD> 282,004
<NUMBER-OF-SHARES-REDEEMED> (2,455,640)
<SHARES-REINVESTED> 187,040
<NET-CHANGE-IN-ASSETS> (18,901,743)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (341,670)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (345,234)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (1,110,331)
<AVERAGE-NET-ASSETS> 53,477,373
<PER-SHARE-NAV-BEGIN> 9.68
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> (0.03)
<PER-SHARE-NAV-END> 9.75
<EXPENSE-RATIO> 1.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 103
<NAME> CAPITAL PRESERVATION & INCOME FUND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 70,007,734
<INVESTMENTS-AT-VALUE> 70,270,622
<RECEIVABLES> 1,012,844
<ASSETS-OTHER> 4,969
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 71,288,435
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 356,144
<TOTAL-LIABILITIES> 356,144
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,264,467
<SHARES-COMMON-STOCK> 426,166
<SHARES-COMMON-PRIOR> 300,426
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (34,765)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (74,420)
<ACCUM-APPREC-OR-DEPREC> (3,477)
<NET-ASSETS> 4,151,805
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 222,738
<OTHER-INCOME> 0
<EXPENSES-NET> (50,065)
<NET-INVESTMENT-INCOME> 172,673
<REALIZED-GAINS-CURRENT> (20,821)
<APPREC-INCREASE-CURRENT> 25,476
<NET-CHANGE-FROM-OPS> 177,328
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (147,748)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (7,092)
<NUMBER-OF-SHARES-SOLD> 215,390
<NUMBER-OF-SHARES-REDEEMED> (86,982)
<SHARES-REINVESTED> 12,718
<NET-CHANGE-IN-ASSETS> 1,396,752
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (38,707)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (19,874)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (64,045)
<AVERAGE-NET-ASSETS> 3,082,037
<PER-SHARE-NAV-BEGIN> 9.67
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.02
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> (0.03)
<PER-SHARE-NAV-END> 9.74
<EXPENSE-RATIO> 1.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 99.19
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/ George S. Bissell
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chief Executive Officer and for
which Keystone Custodian Funds, Inc. serves as Adviser or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and in my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Director/Trustee,
President and Chief
Executive Officer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Rosemary D. Van Antwerp, Jean S.
Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T. Murphy, each of
them singly, my true and lawful attorneys, with full power to them and each of
them to sign for me and in my name in the capacity indicated below any and all
registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5,
N-1 and N-1A, as amended from time to time, and any and all amendments thereto
to be filed with the Securities and Exchange Commission for the purpose of
registering from time to time all investment companies of which I am now or
hereafter a Director, Trustee or officer and for which Keystone Custodian Funds,
Inc. serves as Adviser or Manager and registering from time to time the shares
of such companies, and generally to do all such things in my name and in my
behalf to enable such investment companies to comply with the provisions of the
Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ J. Kevin Kenely
J. Kevin Kenely
Treasurer
Dated: December 15, 1995
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Frederick Amling
Frederick Amling
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles A. Austin III
Charles A. Austin III
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Edwin D. Campbell
Edwin D. Campbell
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles F. Chapin
Charles F. Chapin
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ K. Dun Gifford
K. Dun Gifford
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Leroy Keith, Jr.
Leroy Keith, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ F. Ray Keyser,Jr.
F. Ray Keyser, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ David M. Richardson
David M. Richardson
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Richard J. Shima
Richard J. Shima
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Andrew J. Simons
Andrew J. Simons
Director/Trustee
Dated: December 14, 1994
