<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1997
File Nos. 33-66566
and 811-7914
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. _6_ [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. _7_ [X]
KEYSTONE FUND OF THE AMERICAS
(Exact name of Registrant as specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116
(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
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)(1)
[ ] 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 October 31, 1996 was filed on December 10, 1996.
<PAGE>
KEYSTONE FUND OF THE AMERICAS
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 6
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 6 to Registration Statement No. 33-66566/
811-7914 consists of the following pages, items of information and documents:
The Facing Sheet
The Contents Page
The Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C
PART C - OTHER INFORMATION - ITEM 24(a) and (b)
Financial Statements
Exhibit Listing
PART C - OTHER INFORMATION - ITEMS 25-32 - AND SIGNATURE PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections of Investment Adviser
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE FUND OF THE AMERICAS
Cross-Reference Sheet required by Rules 404 and 495 under the Securities Act of
1933.
Items in
Part A of
Form N-1A Prospectus Caption
1 Cover Page
2 Expense Information
3 Financial Highlights
Performance Data
4 Additional Investment Information
Cover Page
The Fund
Investment Objectives and Policies
Investment Restrictions
Risk Factors
5 Fund Management and Expenses
5A Not Applicable
6 Alternative Sales Options
Dividends and Taxes
The Fund
Fund Shares
Shareholder Services
7 Alternative Sales Options
Distribution Plans and Agreements
How to Buy Shares
Pricing Shares
Shareholder Services
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 Appendix
The Fund
Investment Restrictions
14 Trustees and Officers
15 Additional Information
16 Investment Adviser
Principal Underwriter
Distribution Plans
Sales Charges
Service Providers
17 Brokerage
18 Declaration of Trust
The Fund
19 Valuation of Securities
Distribution Plans
Sales Charges
20 Distributions and Taxes
21 Principal Underwriter
22 Standardized Total Return and Yield Quotations
23 Financial Statements
<PAGE>
KEYSTONE FUND OF THE AMERICAS
PART A
PROSPECTUS
<PAGE>
KEYSTONE FUND OF THE AMERICAS
PROSPECTUS FEBRUARY 28, 1997
Keystone Fund of the Americas (the "Fund") is a mutual fund whose primary
objective is 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). As a secondary objective
the Fund seeks current income.
Under normal circumstances, the Fund invests at least 65% of its assets in
securities of issuers in Latin America. The Fund normally intends to invest a
majority of its total assets in equity securities. While the Fund focuses on
equity securities, the Fund may invest a portion of its assets in debt
securities issued by Latin American or North American public or private issuers
with any rating or that are unrated.
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 "Expense Information,"
"Alternative Sales Options," "Contingent Deferred Sales Charge and Waiver of
Sales Charges," "Distribution Plans and Agreements" 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 February 28, 1997, which has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
prospectus. For a free copy, write to the address or call the telephone number
provided on this page.
KEYSTONE FUND OF THE AMERICAS
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SHARES ARE NOT INSURED OR OTHERWISE PROTECTED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENT AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
TABLE OF CONTENTS Page
Expense Information 2
Financial Highlights 3
The Fund 6
Investment Objectives and Policies 6
Investment Restrictions 7
Risk Factors 8
Pricing Shares 11
Dividends and Taxes 12
Fund Management and Expenses 13
Distribution Plans and Agreements 15
How to Buy Shares 18
Alternative Sales Options 19
Contingent Deferred Sales Charge and Waiver of Sales Charges 22
How to Redeem Shares 22
Shareholder Services 24
Performance Data 26
Fund Shares 26
Additional Information 27
Additional Investment Information (i)
Exhibit A A-1
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
KEYSTONE FUND OF THE AMERICAS
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"; "Distribution Plans and Agreements"; and
"Shareholder Services."
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
FRONT-END BACK-END LEVEL LOAD
LOAD OPTION LOAD OPTION(1) OPTION(2)
----------- ----------- ---------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases ......... 4.75%(3) None None
(as a percentage of offering price)
Deferred Sales Charge ............................. 0.00%(4) 5.00% in the first year 1.00% in the first
(as a percentage of the original purchase price declining to 1.00% in year and 0.00%
or redemption proceeds, as applicable) the sixth year and thereafter
0.00% thereafter
ANNUAL FUND OPERATING EXPENSES(5)
(as a percentage of average net assets)
Management Fees ................................... 0.75% 0.75% 0.75%
12b-1 Fees ........................................ 0.25% 1.00%(6) 1.00%(6)
Other Expenses .................................... 0.83% 0.84% 0.84%
---- ---- ----
Total Fund Operating Expenses ..................... 1.83% 2.59% 2.59%
==== ==== ====
<CAPTION>
EXAMPLES(7) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
You would pay the following expenses on a $1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the end of each period:
<S> <C> <C> <C> <C>
Class A .................................................................. $65 $102 $142 $252
Class B .................................................................. $76 $111 $158 $265
Class C .................................................................. $36 $ 81 $138 $292
You would pay the following expenses on a $1,000 investment, assuming no
redemption at the end of each period:
Class A .................................................................. $65 $102 $142 $252
Class B .................................................................. $26 $ 81 $138 $265
Class C .................................................................. $26 $ 81 $138 $292
</TABLE>
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ----------
(1) Class B shares purchased after January 1, 1997, convert tax free to Class A
shares after seven 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 Evergreen Keystone Distributor,
Inc., 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 made after January 1, 1997, in the amount of
$1,000,000 or more are not subject to a sales charge at the time of
purchase, but may be subject to a contingent deferred sales charge. See
"Class A Shares" and "Contingent Deferred Sales Charge and Waiver of Sales
Charges" for an explanation of the charge.
(5) Expense ratios are for the Fund's fiscal year ended October 31, 1996. Total
Fund Operating Expenses include indirectly paid expenses.
(6) Long-term shareholders may pay more than the equivalent of the maximum
front-end sales charges permitted by the National Association of Securities
Dealers, Inc. ("NASD").
(7) The Securities and Exchange Commission requires use of a 5% annual return
figure for purposes of this example. Actual return for the Fund may be
greater or less than 5%.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE FUND OF THE AMERICAS
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.
YEAR ENDED OCTOBER 31,
----------------------------------
1996 1995 1994
-------- ------- -------
NET ASSET VALUE BEGINNING OF YEAR ....... $ 9.86 $ 10.55 $ 10.00
-------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................... 0.39 0.44 0.21
Net realized and unrealized gains (loss)
on investments and foreign
currency related transactions ......... 1.24 (0.81) 0.50
-------- ------- -------
Total from investment operations ........ 1.63 (0.37) 0.71
-------- ------- -------
LESS DISTRIBUTIONS FROM
Net investment income ................... (0.31) (0.30) (0.10)
In excess of net investment income ...... (0.05) 0.00 (0.01)
Net realized gain on investments ........ 0.00 (0.02) (0.05)
-------- ------- -------
Total distributions ..................... (0.36) (0.32) (0.16)
-------- ------- -------
NET ASSET VALUE END OF YEAR ............. $ 11.13 $ 9.86 $ 10.55
======== ======= =======
TOTAL RETURN (a) ........................ 16.74% (3.35%) 7.21%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses ........................ 1.83%(b) 1.86%(b) 1.79%
Net investment income ................. 3.05% 4.02% 2.45%
Portfolio turnover rate ................. 112% 57% 104%
Average commissions rate paid ........... $0.0005 N/A N/A
NET ASSETS, END OF YEAR (THOUSANDS) ..... $11,021 $14,333 $23,880
(a) Excluding applicable sales charges.
(b) The expense ratio includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratio would have been 1.81% and 1.84% for the
years ended October 31, 1996 and 1995, respectively.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE FUND OF THE AMERICAS
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.
YEAR ENDED OCTOBER 31,
-----------------------------------
1996 1995 1994
-------- ------- --------
NET ASSET VALUE BEGINNING OF YEAR ...... $ 9.76 $ 10.49 $ 10.00
-------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .................. 0.23 0.32 0.14
Net realized and unrealized gain (loss)
on investments and foreign
currency related transactions ........ 1.30 (0.75) 0.50
-------- ------- --------
Total from investment operations ....... 1.53 (0.43) 0.64
-------- ------- --------
LESS DISTRIBUTIONS FROM
Net investment income .................. (0.27) (0.28) (0.09)
In excess of net investment income ..... (0.04) 0.00 (0.01)
Net realized gain on investments ....... 0.00 (0.02) (0.05)
-------- ------- --------
Total distributions .................... (0.31) (0.30) (0.15)
-------- ------- --------
NET ASSET VALUE END OF YEAR ............ $ 10.98 $ 9.76 $ 10.49
======== ======= ========
TOTAL RETURN (a) ....................... 15.82% (4.00%) 6.48%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses ....................... 2.59%(b) 2.61%(b) 2.54%
Net investment income ................ 2.30% 3.27% 1.70%
Portfolio turnover rate ................ 112% 57% 104%
Average commissions rate paid .......... $0.0005 N/A N/A
-------- ------- --------
NET ASSETS, END OF YEAR (THOUSANDS) .... $79,026 $97,165 $148,769
(a) Excluding applicable sales charges.
(b) The expense ratio includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratio would have been 2.58% and 2.59% for the
years ended October 31, 1996 and 1995, respectively.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE FUND OF THE AMERICAS
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.
YEAR ENDED OCTOBER 31,
----------------------------------
1996 1995 1994
-------- ------- -------
NET ASSET VALUE BEGINNING OF YEAR ....... $ 9.77 $ 10.50 $ 10.00
-------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ................... 0.23 0.32 0.14
Net realized and unrealized gain (loss)
on investments and foreign
currency related transactions ......... 1.30 (0.75) 0.51
-------- ------- -------
Total from investment operations ........ 1.53 (0.43) 0.65
-------- ------- -------
LESS DISTRIBUTIONS FROM
Net investment income ................... (0.27) (0.28) (0.09)
In excess of net investment income ...... (0.04) 0.00 (0.01)
Net realized gain on investments ........ 0.00 (0.02) (0.05)
-------- ------- -------
Total distributions ..................... (0.31) (0.30) (0.15)
-------- ------- -------
NET ASSET VALUE END OF YEAR ............. $ 10.99 $ 9.77 $ 10.50
======== ======= =======
TOTAL RETURN (a) ........................ 15.80% (4.00%) 6.58%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses ........................ 2.59%(b) 2.61%(b) 2.54%
Net investment income ................. 2.26% 3.27% 1.74%
Portfolio turnover rate ................. 112% 57% 104%
Average commissions rate paid ........... $0.0005 N/A N/A
NET ASSETS, END OF YEAR (THOUSANDS) ..... $ 8,791 $11,242 $17,740
(a) Excluding applicable sales charges.
(b) The expense ratio includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratio would have been 2.58% and 2.59% for the
years ended October 31, 1996 and 1995, respectively.
<PAGE>
THE FUND
The Fund is an open-end, diversified management investment company, commonly
known as a mutual fund. The Fund was formed as a Massachusetts business trust on
June 16, 1993. The Fund is one of more than thirty funds advised and managed by
Keystone Investment Management Company ("Keystone"), the Fund's investment
adviser.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The Fund's primary objective is long term growth of capital through
investments in equity and fixed income securities of North America (the United
States and Canada) and Latin America (Mexico and countries in South and Central
America). As a secondary objective, the Fund seeks current income.
The Fund's investment objectives are fundamental and may not be changed
without the vote of a majority of the Fund's outstanding shares, as defined in
the Investment Company Act of 1940 ("1940 Act"), which means the lesser of (1)
67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (2) more than 50% of the outstanding
shares (a "1940 Act Majority").
Of course, there can be no assurance that the Fund will achieve its investment
objectives since there is uncertainty in every investment.
PRINCIPAL INVESTMENTS
Under normal circumstances, the Fund invests at least 65% of its assets in
securities of issuers in Latin America. The Fund normally intends to invest a
majority of its total assets in equity securities. The Fund ordinarily maintains
investments in at least three Latin American countries. For the purposes of this
prospectus, the Fund deems Latin America to include Argentina, Belize, Bolivia,
Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras,
Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela. An issuer is
deemed to be in Latin America if it is organized under the laws of a country
within that region; its principal securities trading market is in that region;
it derives at least 50% of its revenues or profits from goods produced or sold,
investments made, or services performed in that region; or it has at least 50%
of its assets located in the region.
Under normal circumstances, the Fund invests at least 20% of its assets in
securities of issuers in the United States ("U.S.") and Canada. Such investments
will be chosen on the basis of their fundamental investment merits and because
of their ability to benefit from increasing real economic growth in Latin
America. Such selections will be made from among companies that (1) have
manufacturing/marketing operations in Latin America; (2) export to Latin
America; (3) manufacture intermediate goods that are then used in final products
that are exported to or sold in Latin America; (4) have a direct investment in a
Latin American company; and/or (5) may benefit from increasing Latin American
standards of living and freer trade as evidenced by increased tourism to the
U.S. (such as members of the airline, hotel and entertainment industries).
The equity securities in which the Fund may invest include common stock,
preferred stock (convertible or non-convertible), warrants or rights convertible
into common or preferred stock and partly paid stock.
While the Fund focuses on equity securities, the Fund may invest a portion of
its assets in debt securities issued by Latin American or North American public
or private issuers with any rating or that are unrated. The Fund has authority
to invest up to 49% of its total assets in below investment grade debt
securities, i.e., BBB or lower by S&P or BAA or lower by Moody's. The Fund may
also purchase Brady Bonds, which are bonds issued in exchange for restructured
sovereign debt of certain Latin American countries and collateralized by U.S.
government securities and denominated in U.S. dollars.
OTHER ELIGIBLE INVESTMENTS
When market conditions warrant, the Fund may adopt a defensive position by
investing, without limit, in securities of foreign and domestic public or
private issuers in any industry or money market instruments issued by foreign or
domestic public or private issuers. Such money market instruments, which must
mature within one year of their purchase, consist of short-term debt obligations
issued by foreign corporations, partnerships, or governments or any of their
political subdivisions, agencies or instrumentalities; U.S. government
securities; instruments, including certificates of deposit, demand and time
deposits and bankers' acceptances, of banks that are members of the Federal
Deposit Insurance Corporation and have at least $1 billion in assets as of the
date of their most recently published financial statements, including U.S.
branches of foreign banks and foreign branches of U.S. banks; and prime
commercial paper, including master demand notes. When the Fund invests for
defensive purposes, it seeks to limit the loss of principal and is not pursuing
its investment objective.
The Fund may (1) invest in a variety of short-term instruments, including
repurchase agreements, for the purpose of investing cash balances held by the
Fund; (2) purchase or sell foreign currency forward exchange contracts to manage
currency exposure; (3) purchase options on currency; (4) write covered call and
put options on any security in which it may invest; (5) purchase and sell
futures contracts and put and call options on futures contracts, for hedging
purposes; (6) purchase securities on a when-issued, partly paid, or forward
commitment basis; and (7) engage in the lending of portfolio securities.
The Fund is authorized to enter into forward currency exchange contracts if,
as a result, no more than 75% of the value of the investing portfolio would be
committed to the consummation of such contracts; provided, however, that the
Fund has satisfied the requirements imposed by the Securities and Exchange
Commission under the 1940 Act.
The Fund may invest in restricted securities, including securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933 (the "1933
Act"). Generally, Rule 144A establishes a safe harbor from the registration
requirements of the 1933 Act for resale by large institutional investors of
securities not publicly traded in the U.S. The Fund may purchase Rule 144A
securities when such securities present an attractive investment opportunity and
otherwise meet the Fund's selection criteria. The Board of Trustees has adopted
guidelines and procedures pursuant to which Keystone determines the liquidity of
the Fund's Rule 144A securities. The Board of Trustees monitors Keystone's
implementation of such guidelines and procedures.
At the present time, the Fund cannot accurately predict exactly how the market
for Rule 144A securities will develop. A Rule 144A security that was readily
marketable upon purchase may subsequently become illiquid. In such an event, the
Board of Trustees will consider what action, if any, is appropriate.
For further information about the types of investments and investment
techniques available to the Fund, including the associated risks, see the
sections of this prospectus entitled "Risk Factors" and "Additional Investment
Information" and the statement of additional information.
INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental investment restrictions summarized below,
which may not be changed without the vote of a 1940 Act Majority of the Fund's
outstanding shares. These restrictions and certain other fundamental and
nonfundamental restrictions are set forth in detail in the statement of
additional information.
Generally, the Fund may not do the following: (1) invest more than 5% of its
total assets in the securities of any one issuer (other than U.S. government
securities), provided that up to 25% of its total assets may be invested in
securities issued or guaranteed by any single foreign government and up to 10%
of its total assets in securities issued or guaranteed by any single
multinational agency limited in the aggregate to 25% of its total assets; and
(2) borrow money except from banks for temporary or emergency purposes in
aggregate amounts up to one-third of the value of its total assets.
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 total assets.
RISK FACTORS
Like any investment, your investment in the Fund involves an element of risk.
Before you invest in the Fund, you should carefully evaluate your ability to
assume the risks your investment in the Fund poses. YOU CAN LOSE MONEY BY
INVESTING IN THE FUND. YOUR INVESTMENT IS NOT GUARANTEED. A DECREASE IN THE
VALUE OF THE FUND'S PORTFOLIO SECURITIES CAN RESULT IN A DECREASE IN THE VALUE
OF YOUR INVESTMENT.
Certain risks related to the Fund are discussed below. To the extent not
discussed in this section, specific risks attendant to individual securities or
investment practices are discussed in "Additional Investment Information" and in
the statement of additional information.
FUND RISKS. By itself, the Fund does not constitute a balanced investment
plan. The Fund stresses providing long term growth of capital by investing
principally in equity and debt securities of issuers located in North and Latin
America. The yield of the Fund's securities will fluctuate with changing market
conditions. The Fund makes most sense for those investors who can afford to ride
out changes in the stock market.
Investing in common stocks, particularly those having growth characteristics,
frequently involves greater risks (and possibly greater rewards) than investing
in other types of securities. Common stock prices tend to be more volatile and
companies having growth characteristics may sometimes be unproven.
Should the Fund need to raise cash to meet a large number of redemptions, it
may have to sell portfolio securities at a time when it would be disadvantageous
to do so.
FOREIGN RISK. Investing in securities of foreign issuers generally involves
more risk than investing in a portfolio consisting solely of securities of
domestic issuers for the following reasons: publicly available information on
issuers and securities may be scarce; many foreign countries do not follow the
same accounting, auditing, and financial reporting standards as are used in the
U.S.; market trading volumes may be smaller, resulting in less liquidity and
more price volatility compared to U.S. securities of comparable quality; there
may be less regulation of securities trading and its participants; the
possibility may exist for expropriation, confiscatory taxation, nationalization,
establishment of exchange controls, political or social instability or negative
diplomatic developments; and dividend or interest withholding may be imposed at
the source.
Investing in securities of issuers in emerging markets countries involves
exposure to economic systems that are generally less mature and political
systems that are generally less stable than those of developed countries. In
addition, investing in companies in emerging markets countries may also involve
exposure to national policies that may restrict investment by foreigners and
undeveloped legal systems governing private and foreign investments and private
property. The typically small size of the markets for securities issued by
companies in emerging markets countries and the possibility of a low or
nonexistent volume of trading in those securities may also result in a lack of
liquidity and in price volatility of those securities. These risks are carefully
considered by Keystone prior to the purchase of these securities.
Fluctuations in foreign exchange rates impose an additional level of risk,
possibly affecting the value of the Fund's foreign investments and earnings, as
well as gains and losses realized through trades, and the unrealized
appreciation or depreciation of investments. The Fund may also incur costs when
it shifts assets from one country to another.
BELOW-INVESTMENT GRADE BONDS. The Fund seeks to maximize investment return to
its shareholders over time from a combination of many factors, including high
current income and capital appreciation from investing in high yielding, high
risk bonds and other similar securities commonly referred to as "junk bonds."
Realizing this objective involves risks that are greater than the risks of
investing in higher quality debt securities and may result in greater upward and
downward movements in the net asset value per share of the Fund. These risks
should be carefully considered by investors. These risks are discussed in
greater detail below and include risks from interest rate fluctuations; changes
in credit status, including weaker overall credit condition of issuers and risks
of default; industry, market and economic risk; volatility of price resulting
from broad and rapid changes in the value of underlying securities; and greater
price variability and credit risks of certain high yield, high risk securities
such as zero coupon bonds and PIKs.
While investment in the Fund provides opportunities to maximize return over
time, investors should be aware of the following risks associated with below-
investment grade bonds:
(1) Securities rated BB or lower by S&P or BA or lower by Moody's are
considered predominantly speculative with respect to the ability of the issuer
to meet principal and interest payments.
(2) The lower ratings of certain securities held by the Fund reflect a greater
possibility that adverse changes in the financial condition of the issuer or in
general economic conditions, or both, or an unanticipated rise in interest rates
may impair the ability of the issuer to make payments of interest and principal,
especially if the issuer is highly leveraged. Such issuer's ability to meet its
debt obligations may also be adversely affected by specific corporate
developments, the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. Also, an economic
downturn or an increase in interest rates may increase the potential for default
by the issuers of these securities.
(3) The value of certain securities held by the Fund may be more susceptible
to real or perceived adverse economic, company or industry conditions and
publicity than is the case for higher quality securities.
(4) The values of certain securities, like those of other fixed income
securities, fluctuate in response to changes in interest rates. When interest
rates decline, the value of a portfolio invested in bonds can be expected to
rise. Conversely, when interest rates rise, the value of a portfolio invested in
bonds can be expected to decline. For example, in the case of an investment in a
fixed-income security, if interest rates increase after the security is
purchased, the security, if sold prior to maturity, may return less than its
cost. The prices of below investment grade bonds, however, are generally less
sensitive to interest rate changes than the prices of higher-rated bonds; below
investment grade bonds are more sensitive to adverse or positive economic
changes or individual corporate developments.
(5) The secondary market for certain securities held by the Fund may be less
liquid at certain times than the secondary market for higher quality debt
securities, which may have an adverse effect on market price and the Fund's
ability to dispose of particular issues and may also make it more difficult for
the Fund to obtain accurate market quotations for purposes of valuing its
assets.
(6) Zero coupon bonds and PIKs involve additional special considerations. Zero
coupon bonds do not require the periodic payment of interest. PIK bonds are debt
obligations that provide that the issuer may, at its option, pay interest on
such bonds in cash or in the form of additional debt obligations. Such
investments may experience greater fluctuation in value due to changes in
interest rates than debt obligations that pay interest currently. Even though
these investments do not pay current interest in cash, the Fund is nonetheless
required by tax laws to accrue interest income on such investments and to
distribute such amounts at least annually to shareholders. Thus, the Fund could
be required at times to liquidate investments in order to fulfill its intention
to distribute substantially all of its net income as dividends.
The generous income sought by the Fund is ordinarily associated with
securities in the lower rating categories of the recognized rating agencies or
with securities that are unrated. Such securities are generally rated BB or
lower by S&P or BA or lower by Moody's. The Fund may invest in securities that
are rated as low as D by S&P and C- by Moody's. For a description of these
rating categories see "Additional Investment Information." The Fund intends to
invest in D rated debt only in cases when, in Keystone's judgment, there is a
distinct prospect of improvement in the issuer's financial position as a result
of the completion of reorganization or otherwise. The Fund may also invest in
unrated securities which, in Keystone's judgment, offer comparable yields and
risks to those of securities that are rated, as well as in non-investment
quality zero coupon bonds or PIK securities.
Since the Fund takes an aggressive approach to investing, Keystone tries to
maximize the return by controlling risk through diversification, credit
analysis, review of sector and industry trends, interest rate forecasts and
economic analysis. Keystone's analysis of securities focuses on factors such as
interest or dividend coverage, asset values, earnings prospects and the quality
of management of the company. In making investment recommendations, Keystone
also considers current income, potential for capital appreciation, maturity
structure, quality guidelines, coupon structure, average yield, percentage of
zeros and PIKs, percentage of non-accruing items and yield to maturity. Keystone
considers the ratings of Moody's and S&P assigned to various securities, but
does not rely solely on such ratings because (1) Moody's and S&P assigned
ratings are based largely on historical financial data and may not accurately
reflect the current financial outlook of companies, and (2) there can be large
differences among the current financial conditions of issuers within the same
rating category.
Income and yields on high yield, high risk securities, as on all securities,
will fluctuate over time.
The following table shows the weighted average percentages of the Fund's
assets invested at the end of each month from November 1, 1995 until fiscal year
ended October 31, 1996 in securities assigned to the various rating categories
by S&P and in unrated securities determined by Keystone to be of comparable
quality. Since the percentages in this table are based on month-end averages
throughout the Fund's fiscal year, they do not reflect the Fund's holdings at
any one point in time. The percentages in each category may be higher or lower
on any day than those shown in the table.
*UNRATED SECURITIES
RATED OF COMPARABLE
SECURITIES QUALITY AS
AS PERCENTAGE OF PERCENTAGE OF
RATING FUND'S ASSETS FUND'S ASSETS
- ---- ----------------- -------------------
AAA 0% 0%
AA 0% 0%
A 0% 0%
BBB 0% 0%
BB 11.89% 2.21%
B 1.15% 10.31%
CCC 0% 0%
CC 0% 0%
C 0% 0%
CA 0% 0%
Unrated* 12.52%
U.S. governments, cash, equities and others 74.44%
-------
TOTAL 100.00%
-------
GENERAL. Past performance should not be considered representative of results
for any future period of time. Moreover, should many shareholders change from
this Fund to some other investment at about the same time, the Fund might have
to sell portfolio securities at a time when it would be disadvantageous to do so
and at a lower price than if such securities were held to maturity.
PRICING SHARES
The Fund computes its net asset value as of the close of trading (currently
4:00 p.m. eastern time) on each day that the New York Stock Exchange (the
"Exchange") is open. However, the Fund does not compute its net asset value on
days when changes in the value of the Fund's securities do not affect the
current net asset value of its shares. The Exchange currently is closed on
weekends, New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value per share of the Fund is arrived at by determining the value of the Fund's
assets, subtracting its liabilities and dividing the result by the number of its
shares outstanding.
Current values for the Fund's North American securities are determined as
follows:
1. securities that are traded on a national securities exchange or on the
over-the-counter National Market System ("NMS") are valued on the basis of the
last sales price on the exchange where primarily traded or NMS prior to the
time of the valuation, provided that a sale has occurred and that this price
reflects current market value according to procedures established by the Board
of Trustees;
2. securities traded in the over-the-counter market, other than NMS, for
which market quotations are readily available, are valued at the mean of the
bid and asked prices at the time of valuation;
3. short-term investments maturing more than sixty days for which market
quotations are readily available are valued at current market value; where
market quotations are not available, such instruments are valued at fair value
as determined by the Board of Trustees;
4. short-term investments maturing in sixty days or less (including all
master demand notes) are valued at amortized cost (original purchase cost as
adjusted for amortization of premium or accretion of discount), which, when
combined with accrued interest, approximates market;
5. short-term investments maturing in more than sixty days when purchased
which are held on the sixtieth day prior to maturity are valued at amortized
cost (market value on the sixtieth day adjusted for amortization of premium or
accretion of discount), which, when combined with accrued interest,
approximates market; and
6. the following are valued at prices deemed in good faith to be fair under
procedures established by the Board of Trustees: (a) securities, including
restricted securities, for which complete quotations are not readily
available, (b) listed securities or those on NMS if, in the Fund's opinion,
the last sales price does not reflect a current market value or if no sale
occurred, and (c) other assets.
Each Latin American country in which the Fund buys equity securities has at
least one stock exchange. Many of the equity securities in which the Fund
invests are traded on these exchanges and have readily available market
quotations. The Fund may participate in direct purchases from a Latin American
government of equity securities resulting from the privatization of government
owned entities. In such purchases, the government accepts the highest bid from a
group of purchasers (including the Fund) for the entire interest in the entity.
The initial value of the Fund's investment is its pro rata share of the
successful bid; thereafter, market quotations may not be readily available.
Foreign securities for which market quotations are not readily available are
valued on the basis of valuations provided by a pricing service, approved by the
Fund's Board of Trustees, which uses information with respect to transactions in
such securities, quotations from broker-dealers, market transactions in
comparable securities and various relationships between securities and yield to
maturity in determining value.
DIVIDENDS AND TAXES
The Fund has qualified and intends to qualify in the future as a regulated
investment company (a "RIC") under the Internal Revenue Code (the "Code"). The
Fund qualifies if, among other things, it distributes to its shareholders at
least 90% of its net investment income for its fiscal year. The Fund also
intends to make timely distributions, if necessary, sufficient in amount to
avoid the nondeductible 4% excise tax imposed on a RIC to the extent that it
fails to distribute, with respect to each calendar year, at least 98% of its
ordinary income for such calendar year and 98% of its net capital gains for the
one-year period ending October 31 of such calendar year.
If the Fund qualifies as a RIC and if it distributes all of its net investment
income and net capital gains, if any, to shareholders, it will be relieved of
any federal income tax liability.
The Fund will make distributions from its net investment income quarterly, and
net capital gains, if any, annually.
Because Class A shares bear most of the costs of distribution of such shares
through payment of a front end sales charge, while Class B and Class C shares
bear such expenses through a higher annual distribution fee, expenses
attributable to Class B shares and Class C shares will generally be higher than
those attributable to Class A shares, and income distributions paid by the Fund
with respect to Class A shares will generally be greater than those paid with
respect to Class B and Class C shares.
Shareholders receive Fund distributions in the form of additional shares of
that class of shares upon which the distribution is based or, at the
shareholder's option, in cash. Fund distributions in the form of additional
shares are made at net asset value without the imposition of a sales charge.
Dividends and distributions are taxable whether they are received in cash or
in shares. Income dividends and net short-term gains dividends are taxable as
ordinary income, and net long-term gains dividends are taxable as capital gains
regardless of how long the Fund's shares are held. If Fund shares held for less
than six months are sold at a loss, however, such loss will be treated for tax
purposes as a long-term capital loss to the extent of any long-term capital
gains dividends received. Any taxable dividend declared in October, November or
December to shareholders of record in such month and paid by the following
January 31 will be includable in the taxable income of the shareholder as if
paid on December 31 of the year in which the dividend was declared.
The Fund advises its shareholders annually as to the federal tax status of all
distributions made during the year.
If more than 50% of the value of the Fund's total assets at the end of a
fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both actual dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on the Fund's investments.
The shareholder will be entitled, however, to take the amount of his share of
such foreign taxes withheld as a credit against his United States income tax, or
to treat his share of the foreign tax withheld as an itemized deduction from his
gross income, if that should be to his advantage. In substance, this policy
enables the shareholder to benefit from the same foreign tax credit or deduction
that he would have received if he had been the individual owner of foreign
securities and had paid foreign income tax on the income therefrom. As in the
case of individuals receiving income directly from foreign sources, the above
described tax credit and deductions are subject to certain limitations.
FUND MANAGEMENT AND EXPENSES
BOARD OF TRUSTEES
Under Massachusetts law, the Fund's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the Fund.
Subject to the authority of the Fund's Board of Trustees, Keystone provides
investment advice, management and administrative services to the Fund.
INVESTMENT ADVISER
Keystone has provided investment advisory and management services to
investment companies and private accounts since 1932. Keystone is a wholly-owned
subsidiary of First Union Keystone, Inc. ("First Union Keystone"). First Union
Keystone provides accounting, bookkeeping, legal, personnel and general
corporate services to Keystone, its affiliates, and the Keystone Families of
Funds. Both Keystone and Keystone are located at 200 Berkeley Street, Boston,
Massachusetts 02116-5034.
On December 11, 1996, First Union Keystone succeeded to the business of a
corporation under different ownership. First Union Keystone is a wholly owned
subsidiary of First Union National Bank of North Carolina ("FUNB"). FUNB is a
subsidiary of First Union Corporation ("First Union"), the sixth largest bank
holding company in the U.S. based on total assets as of December 31, 1996.
First Union is headquartered in Charlotte, North Carolina, and had $140
billion in consolidated assets as of December 31, 1996. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the U.S. The Capital Management Group of FUNB and
Evergreen Asset Management Corp., wholly-owned subsidiaries of FUNB, manage or
otherwise oversee the investment of over $60 billion in assets as of December
31, 1996, belonging to a wide range of clients, including the Evergreen Family
of Funds.
Pursuant to its Investment Advisory and Management Agreement with the Fund
(the "Advisory Agreement"), Keystone manages the investment and reinvestment of
the Fund's assets, supervises the operation of the Fund and provides all
necessary office space, facilities and equipment.
The Fund 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
- ------------------------------------------------------------------------------
0.75% of the first $200,000,000, plus
0.65% of the next $200,000,000, plus
0.55% of the next $200,000,000, plus
0.45% of amounts over $600,000,000.
Keystone's fee is computed as of the close of business on each business day and
payable monthly.
A management fee of 0.75% is higher than that paid by most other investment
companies. However, the Fund's fee structure is comparable to that of other
global and international funds subject to the higher costs involved in managing
a portfolio of predominantly international securities.
The Advisory Agreement continues in effect for two years from its effective
date and, thereafter, from year to year only so long as such continuance is
specifically approved at least annually by the Fund's Board of Trustees or by
vote of shareholders of the Fund. In either case, the terms of the Advisory
Agreement and continuance thereof must be approved by the vote of a majority of
Independent Trustees (Trustees who are not "interested persons" of the Fund, as
defined in the 1940 Act), 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 may be terminated
by a vote of shareholders of the Fund. The Advisory Agreement will terminate
automatically upon its "assignment," as that term is defined in the 1940 Act.
PRINCIPAL UNDERWRITER
Evergreen Keystone Distributor, Inc. (formerly Evergreen Funds Distributor,
Inc.) ("EKD"), a subsidiary of The BISYS Group, Inc. ("BISYS"), which is not
affiliated with First Union, is now the Fund's principal underwriter (the
"Principal Underwriter"). EKD replaced Evergreen Keystone Investment Services,
Inc. (formerly, Keystone Investment Distributors Company) ("EKIS") as the Fund's
principal underwriter. EKIS may no longer act as principal underwriter of the
Fund due to regulatory restrictions imposed by the Glass-Steagall Act upon
national banks such as FUNB and their affiliates, that prohibit such entities
from acting as the underwriters or distributors of mutual fund shares. While
EKIS may no longer act as principal underwriter of the Fund as discussed above,
EKIS may continue to receive compensation from the Fund or the Principal
Underwriter in respect of underwriting and distribution services performed prior
to the termination of EKIS as principal underwriter. In addition, EKIS may also
be compensated by the Principal Underwriter for the provision of certain
marketing support services to the Principal Underwriter at an annual rate of up
to .75% of the average daily net assets of the Fund, subject to certain
restrictions. EKD is located at 125 W. 55th Street, New York, New York 10019.
SUB-ADMINISTRATOR
BISYS provides officers and certain administrative services to the Fund
pursuant to a sub-administrator agreement. For its services under that
agreement, BISYS receives a fee from Keystone at the maximum annual rate of .01%
of the average daily net assets of the Fund. BISYS is located at 3435 Stelzer
Road, Columbus, OH 43219.
PORTFOLIO MANAGERS
Antonio T. Docal and Francis X. Claro have been the Fund's co-portfolio
managers since September 1996. Mr. Docal is a Keystone Vice President and
portfolio manager with more than ten years of experience in international trade
and mergers and acquisitions for the Latin American region. He joined Keystone
in 1994. From 1987 to 1994, Mr. Docal was a Vice President and Principal with
Docal Associates, Inc., an import/export firm in Woodbridge, CT. Mr. Claro is a
Keystone Vice President and portfolio manager with more than six years of
experience in international finance and consulting. Prior to joining Keystone in
1994, Mr. Claro was a portfolio manager at the InterAmerican Investment Corp. in
New York.
FUND EXPENSES
The Fund will pay all of its expenses. In addition to the investment advisory
and distribution plan fees discussed in this prospectus, the principal expenses
that the Fund is expected to pay include, but are not limited to, fees and
expenses of its Independent Trustees; transfer, dividend disbursing, and
shareholder servicing agent expenses; custodian expenses; fees of its
independent auditors; fees of legal counsel to the Fund and its Independent
Trustees; fees payable to government agencies, including registration and
qualification fees attributable to the Fund and its shares under federal and
state securities laws; and certain extraordinary expenses. In addition, each
class will pay all of the expenses attributable to it. Such expenses are
currently limited to Distribution Plan expenses. The Fund also pays its
brokerage commissions, interest charges, and taxes.
For the fiscal year ended October 31, 1996, the Fund paid or accrued to
Keystone investment management and advisory fees of $831,618 (0.75% of the
Fund's average daily net asset value on an annualized basis).
For the fiscal year ended October 31, 1996, the Fund paid or accrued $486,695
to Evergreen Keystone Service Company (formerly, Keystone Investor Resource
Center, Inc.) ("EKSC") for services rendered as the Fund's transfer agent and
dividend disbursing agent and $26,012 to Keystone for certain accounting
services. EKSC, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, is a wholly-owned subsidiary of Keystone.
For the fiscal year ended October 31, 1996, the Fund's Class A, Class B and
Class C shares paid 1.83%, 2.59% and 2.59%, respectively, of their respective
average class net assets in expenses (including indirectly paid expenses).
SECURITIES TRANSACTIONS
Under policies established by the Fund's Board of Trustees, the Fund's
advisers select broker-dealers to execute transactions subject to the receipt of
best execution. When selecting broker-dealers to execute portfolio transactions,
the Fund's advisers may consider the number of shares of the Fund sold by such
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 rate for the fiscal years ended October 31, 1996
and 1995 were 112% and 57%, respectively. High portfolio turnover may involve
correspondingly greater brokerage commissions and other transaction costs, which
would be borne directly by the Fund, as well as additional gains and/or losses
to shareholders. For further information on the tax consequences of such
realized gains/losses, see the "Dividends and Taxes" section of this prospectus.
For further information about brokerage and distributions, see the statement of
additional information.
CODE OF ETHICS
The Fund has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
DISTRIBUTION PLANS AND AGREEMENTS
CLASS A DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class A shares
(the "Class A Distribution Plan") that provides for expenditures by the Fund
currently limited to 0.25% annually of the average daily net asset value of
Class A shares, in connection with the distribution of Class A shares. Payments
under the Class A Distribution Plan are currently made to the Principal
Underwriter (which 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 recipient and outstanding on the books
of the Fund for specified periods.
CLASS B DISTRIBUTION PLANS
The Fund has adopted Distribution Plans with respect to its Class B shares
(the "Class B Distribution Plans") that provide for expenditures by the Fund at
an annual rate of up to 1.00% of the average daily net asset value of Class B
shares to pay expenses of the distribution of Class B shares. Payments under the
Class B Distribution Plans are currently made to the Principal Underwriter
(which may reallow all or part to others, such as broker-dealers) and to EKIS,
the predecessor to the Principal Underwriter, (1) as commissions for Class B
shares sold, (2) as shareholder service fees and (3) as interest. Amounts paid
or accrued to the Principal Underwriter or EKIS 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 4.00% of the price paid for each Class B share sold. The
broker-dealer or other party will also receive service fees at an annual rate of
0.25% of the value of Class B shares maintained by the recipient and outstanding
on the books of the Fund for specified periods. See "Distribution Plans
Generally" below.
CLASS C DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to Class C shares (the
"Class C Distribution Plan") that provides for expenditures by the Fund at an
annual rate of up to 1.00% of the average daily net asset value of Class C
shares to pay expenses of the distribution of Class C shares. Payments under the
Class C Distribution Plan are currently made to the Principal Underwriter (which
may reallow all or part to others, such as dealers) and to EKIS, the predecessor
to the Principal Underwriter, (1) as commissions for Class C shares sold, (2) as
shareholder service fees, and (3) as interest. Amounts paid or accrued to the
Principal Underwriter or EKIS 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, and, beginning approximately fifteen months
after purchase, a commission at an annual rate of 0.75% (subject to NASD rules
- -- see "Distribution Plans Generally") plus service fees which are paid at the
annual rate of 0.25%, respectively, of the value of Class C shares maintained by
the recipient and outstanding on the books of the Fund for specified periods.
See "Distribution Plans Generally" below.
DISTRIBUTION PLANS GENERALLY
As discussed above, the Fund bears some of the costs of selling its shares
under Distribution Plans adopted with respect to its Class A, Class B and Class
C shares pursuant to Rule 12b-1 under the 1940 Act.
The NASD limits the amount that the Fund may pay annually in distribution
costs for the sale of its shares and shareholder service fees. The NASD limits
annual expenditures to 1% of the aggregate average daily net asset value of its
shares, of which 0.75% may be used to pay 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 contingent deferred sales charges
("CDSCs") paid by shareholders to the Principal Underwriter) remaining unpaid
from time to time.
In connection with financing its distribution costs, including commission
advances to broker-dealers and others, EKIS, the predecessor to the Principal
Underwriter, 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 beginning approximately June 1, 1995 through 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.
The financing of payments made by the Principal Underwriter to compensate
broker-dealers or other persons for distributing shares of the Fund will be
provided by FUNB or its affiliates.
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 and EKIS will ask the Independent Trustees to take whatever action
they deem appropriate under the circumstances with respect to payment of
Advances (as defined below).
Unpaid distribution costs at October 31, 1996 were: $7,003,825 for Class B
shares purchased prior to June 1, 1995 (8.9% of net class assets for such Class
B shares); $171,095 for Class B shares purchased on or after June 1, 1995 (0.2%
of net class assets for such Class B shares); and $1,178,844 for Class C shares
(1.34% of net class assets).
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.
DISTRIBUTION AGREEMENTS
The Fund has entered into principal underwriting agreements with the Principal
Underwriter (each a "Distribution Agreement") with respect to each class.
Pursuant to the Distribution Agreements, the Fund will compensate the Principal
Underwriter for its services as distributor at an annual rate that may not
exceed .25 of 1% of the Fund's average daily net assets attributable to Class A
shares, .75 of 1% of the Fund's average daily net assets attributable to the
Class B shares, subject to certain restrictions, and .75 of 1% of the Fund's
average daily net assets attributable to the Class C shares.
The Fund may also make payments under its Distribution Plans, in amounts of up
to .25 of 1% of its average daily net assets on an annual basis, attributable to
Class A, B and C shares, respectively, to compensate organizations, which may
include, among others, the Principal Underwriter and Keystone or their
respective affiliates, for services rendered to shareholders and/or the
maintenance of shareholder accounts.
The Fund may not pay any distribution or servicing fees during any fiscal
period in excess of NASD limits. Since the Principal Underwriter's compensation
under the Distribution Agreements is not directly tied to the expenses incurred
by the Principal Underwriter, the amount of compensation received by it under
the Distribution Agreements during any year may, subject to certain conditions,
be more than its actual expenses and may result in a profit to the Principal
Underwriter. Distribution expenses incurred by the Principal Underwriter in one
fiscal year that exceed the level of compensation paid to the Principal
Underwriter for that year may be paid from distribution fees received from a
Fund in subsequent fiscal years.
The Principal Underwriter intends, but is not obligated, to continue to pay or
accrue distribution charges incurred in connection with the Class B Distribution
Plans that exceed current annual payments permitted to be received by the
Principal Underwriter from the Fund ("Advances"). The Principal Underwriter
intends to seek full reimbursement for Advances from the Fund (together with
annual interest thereon at the prime rate plus one percent) at such time in the
future as, and to the extent that, payment thereof by the Fund would be within
the permitted limits. If the Fund's Independent Trustees authorize such
payments, the effect would be to extend the period of time during which the Fund
incurs the maximum amount of costs allowed by a Distribution Plan.
In states where the Principal Underwriter is not registered as a
broker-dealer, shares of the Fund will only be sold through other broker-dealers
or other financial institutions that are registered.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
The Principal Underwriter may, from time to time, provide promotional
incentives, including reallowance of up to the entire sales charge, to certain
broker-dealers whose representatives have sold or are expected to sell
significant amounts of Fund shares. In addition, broker-dealers may, from time
to time, receive additional cash payments. The Principal Underwriter may also
provide written information to those broker-dealers with whom it has dealer
agreements that relates to sales incentive campaigns conducted by such
broker-dealers for their representatives as well as financial assistance in
connection with pre-approved seminars, conferences and advertising. No such
programs or additional compensation will be offered to the extent they are
prohibited by the laws of any state or any self-regulatory agency such as the
NASD. Broker-dealers to whom substantially the entire sales charge on Class A
shares is reallowed may be deemed to be underwriters as that term is defined
under the 1933 Act.
The Principal Underwriter may, at its own expense, pay concessions in addition
to those described above to broker-dealers including, from time to time, to
First Union Brokerage Services, Inc., an affiliate of Keystone, that satisfy
certain criteria established from time to time by the Principal Underwriter.
These conditions relate to increasing sales of shares of the Keystone funds over
specified periods and certain other factors. Such payments may, depending on the
broker-dealer's satisfaction of the required conditions, be periodic and may be
up to 1.00% of the value of shares sold by such broker-dealer.
The Principal Underwriter may also pay a transaction fee (up to the level of
payments allowed to dealers for the sale of shares, as described above) to banks
and other financial services firms that facilitate transactions in shares of the
Fund for their clients.
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 laws.
EFFECTS OF BANKING LAWS
The Glass-Steagall Act currently limits the ability of depository institutions
(such as a commercial bank or a savings and loan association) to become an
underwriter or distributor of securities. In the event the Glass- Steagall Act
is deemed to prohibit depository institutions from accepting payments under the
arrangement described above, or should Congress relax current restrictions on
depository institutions, the Board of Trustees will consider what action, if
any, is appropriate.
The Glass-Steagall Act and other banking laws and regulations also presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Fund. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. Keystone
and its affiliates, since they are direct or indirect subsidiaries of FUNB, are
subject to and in compliance with the aforementioned laws and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could prevent Keystone or its affiliates from
performing the services required under the investment advisory contract or from
acting as agent in connection with the purchase of shares of a fund by its
customers. In such event, it is expected that the Trustees would identify, and
call upon each Fund's shareholders to approve, a new investment adviser. If this
were to occur, it is not anticipated that the shareholders of any Fund would
suffer any adverse financial consequences.
HOW TO BUY SHARES
You may purchase shares of the Fund from any broker-dealer that has a selling
agreement with the Principal Underwriter. In addition, you may purchase shares
of the Fund by mailing to the Fund, c/o Evergreen Keystone Service Company, P.O.
Box 2121, Boston, Massachusetts 02106-2121, a completed account application and
a check payable to the Fund. You may also telephone 1-800-343-2898 to obtain the
number of an account to which you can wire or electronically transfer funds and
then send in a completed account application. Subsequent investments in any
amount may be made by check, by wiring Federal funds, by direct deposit or by
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 the close of its business day will be confirmed at the
offering price effective as of the close of the Exchange on that day.
Broker-dealers and other financial services firms are obligated to transmit
orders promptly.
Orders for 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.
The initial purchase must be at least $1,000. There is no minimum amount for
subsequent purchases.
The Fund reserves the right to withdraw all or any part of the offering made
by this prospectus, including the right to suspend sales, and to reject purchase
orders.
Shareholder inquiries should be directed to EKSC by calling toll free 1-800-
343-2898 or writing to EKSC or to the firm from which you received this
prospectus.
ALTERNATIVE SALES OPTIONS
This prospectus provides information regarding the Class A, B, and C shares
offered by the Fund:
CLASS A SHARES -- FRONT-END LOAD OPTION
With certain exceptions Class A shares are sold with a sales charge at the
time of purchase. Class A shares are not subject to a CDSC when they are
redeemed except as follows: Class A shares purchased after January 1, 1997, in
an amount equal to or exceeding $1 million, without a front-end sales charge,
will be subject to a CDSC during the month of purchase and the 12-month period
following the month of purchase.
CLASS B SHARES -- BACK-END LOAD OPTION
Class B shares purchased after January 1, 1997, are sold without a sales
charge at the time of purchase, but are, with certain exceptions, subject to a
CDSC if redeemed during the month of purchase and the 72-month period following
the month of purchase. Class B shares purchased after January 1, 1997, that have
been outstanding for seven years after the month of purchase will automatically
convert to Class A shares without the imposition of a front-end sales charge or
exchange fee.
CLASS C SHARES -- LEVEL LOAD OPTION
Class C shares purchased after January 1, 1997, are sold without a sales
charge at the time of purchase, but are subject to a CDSC if they are redeemed
during the month of purchase and the 12-month period following the month of
purchase. Class C shares are available only through dealers who have entered
into special distribution agreements with the Principal Underwriter.
Each class of shares, pursuant to its Distribution Plan, pays an annual
service fee of 0.25% of the Fund's average daily net assets attributable to that
class. In addition to the 0.25% service fee, the Class B and C Distribution
Plans provide for the payment of an annual distribution fee of up to 0.75% of
the average daily net assets attributable to their respective classes. As a
result, income distributions paid by the Fund with respect to Class B and Class
C shares will generally be less than those paid with respect to Class A shares.
Investors who would rather pay the entire cost of distribution at the time of
investment, rather than spreading such cost over time, might consider Class A
shares. Other investors might consider Class B or Class C shares (in which case,
100% of the purchase price is invested immediately), depending on the amount of
the purchase and the intended length of investment.
The Fund will not normally accept any purchase of Class B shares in the amount
of $250,000 or more and will not normally accept any purchase of Class C shares
in the amount of $500,000 or more.
CLASS A SHARES
Class A shares are currently offered at the public offering price, which is
equal to net asset value plus an initial sales charge as follows:
AS A % OF CONCESSION TO
AS A % OF NET AMOUNT DEALERS AS A % OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED* OFFERING PRICE
- --------------------------------------------------------------------------------
Less than $50,000 .................. 4.75% 4.99% 4.25%
$50,000 but less than $100,000 ..... 4.50% 4.71% 4.25%
$100,000 but less than $250,000 .... 3.75% 3.90% 3.25%
$250,000 but less than $500,000 .... 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000 .. 2.00% 2.04% 1.75%
- ----------
*Rounded to the nearest one-hundredth percent.
----------------------------------------------
Purchases of the Fund's Class A shares made after January 1, 1997, (i) in the
amount of $1 million or more; (ii) 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"), or a TSA plan sponsored by a public
educational entity having 5,000 or more eligible employees (an "Educational TSA
Plan"); or (iii) by (a) institutional investors, which may include bank trust
departments and registered investment advisers; (b) investment advisers,
consultants or financial planners who place trades for their own accounts or the
accounts of their clients and who charge such clients a management, consulting,
advisory or other fee; (c) clients of investment advisers or financial planners
who place trades for their own accounts if the accounts are linked to the master
account of such investment advisers or financial planners on the books of the
broker-dealer through whom shares are purchased; (d) institutional clients of
broker-dealers, including retirement and deferred compensation plans and the
trusts used to fund these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer; and (e) employees of FUNB and its
affiliates, EKD and any broker-dealer with whom EKD has entered into an
agreement to sell shares of the Fund, and members of the immediate families of
such employees, will be at net asset value without the imposition of a front-end
sales charge. Certain broker-dealers or other financial institutions may impose
a fee on transactions in shares of the Funds.
With respect to purchases of the Fund's Class A shares made after January 1,
1997, in the amount of $1 million or more, the Principal Underwriter will pay
broker-dealers or others concessions at the following rate: 1.00% of the
investment amount up to $2,999,999; plus 0.50% of the investment amount between
$3,000,000 and $4,999,999; plus 0.25% of the investment amount over $4,999,999.
With respect to purchases of the Fund's Class A shares made after January 1,
1997, by Qualifying Plans and Educational TSA Plans, the Principal Underwriter
will pay broker-dealers and others concessions at the rate of 0.50% of the net
asset value of the shares purchased. These payments are subject to reclaim in
the event the shares are redeemed within twelve months after purchase.
Purchases of the Fund's Class A shares made after January 1, 1997, in the
amount of $1 million or more, are subject to a CDSC of 1.00% upon redemption
during the month of purchase and the 12-month period following the month of
purchase.
The sales charge is paid to the Principal Underwriter, which in turn normally
reallows a portion to your broker-dealer. In addition, your broker-dealer
currently will be paid periodic service fees at an annual rate of up to 0.25% of
the 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 30
days 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.
Upon prior notification to the Principal Underwriter, Class A shares may be
purchased at net asset value by clients of registered representatives within 30
days 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 being offered on a calendar month-by-month basis and may be
modified or terminated in the future.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales
charge. With respect to shares purchased after January 1, 1997, the Fund, with
certain exceptions, imposes a CDSC on Class B shares redeemed as follows:
CDSC
REDEMPTION TIMING IMPOSED
- ----------------- -------
Month of purchase and the first twelve-month
period following the month of purchase ............. 5.00%
Second twelve-month period following the month
of purchase ........................................ 4.00%
Third twelve-month period following the month
of purchase ........................................ 3.00%
Fourth twelve-month period following the month
of purchase ........................................ 3.00%
Fifth twelve-month period following the month
of purchase ........................................ 2.00%
Sixth twelve-month period following the month
of purchase ........................................ 1.00%
No CDSC is imposed on amounts redeemed thereafter.
When imposed, the CDSC is deducted from the redemption proceeds otherwise
payable to you. The CDSC is retained by the Principal Underwriter or its
predecessor. Amounts received by the Principal Underwriter or its predecessor
under the Class B Distribution Plans are reduced by CDSCs retained by the
Principal Underwriter or its predecessor. See "Contingent Deferred Sales Charge
and Waiver of Sales Charges" below.
Class B shares purchased after January 1, 1997, that have been outstanding for
seven years after 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. (Conversion of Class B shares
represented by stock certificates will require the return of the stock
certificates to EKSC.) The Class B shares so converted will no longer be subject
to the higher distribution expenses and other expenses, if any, 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, 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
interest of such Class B shareholders.
CLASS C SHARES
Class C shares are offered only through broker-dealers who have special
distribution agreements with the Principal Underwriter. Class C shares are
offered at net asset value, without an initial sales charge. With certain
exceptions, the Fund imposes a CDSC of 1.00% on shares redeemed during the month
of purchase and the 12-month period following the month 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 or its predecessor. See "Contingent Deferred Sales Charge
and Waiver of Sales Charges" 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.
With respect to shares purchased after January 1, 1997, no CDSC is imposed
when you redeem amounts derived from (1) increases in the value of shares
redeemed above the net cost of such shares; (2) certain shares with respect to
which the Fund did not pay a commission on issuance, including shares acquired
through reinvestment of dividend income and capital gains distributions; (3)
certain Class A shares held for more than 12 months after the month of purchase;
(4) Class B shares held for more than 72 months after the month of purchase; or
(5) Class C shares held for more than one year after the month of purchase. 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 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 the Systematic Income Plan of up to 1.0% 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 may also 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, First Union Keystone, Keystone, the
Principal Underwriter and certain of their affiliates, and to members of the
immediate families of such persons; 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.
HOW TO REDEEM SHARES
You may redeem Fund shares for cash at their net redemption value by writing
to the Fund, c/o EKSC, and presenting a properly endorsed share certificate (if
certificates have been issued) to the Fund. Your signature(s) on the written
order and certificates must be guaranteed as described below. In order to redeem
by telephone or to engage in telephone transactions generally, you must complete
the authorization in your account application. Proceeds for shares redeemed on
telephone order will be deposited by wire or EFT only to the bank account
designated in your account application.
You may also redeem your shares through your broker-dealer. The Principal
Underwriter, acting as agent for the Fund, stands ready to repurchase Fund
shares upon orders from broker-dealers and will calculate the net asset value on
the same terms as those orders for the purchase of shares received from
broker-dealers and described under "How to Buy Shares." If the Principal
Underwriter has received proper documentation, it will pay the redemption
proceeds, less any applicable CDSC, to the broker-dealer placing the order
within seven days thereafter. The Principal Underwriter charges no fee for this
service. Your broker-dealer, however, may charge a service fee.
The redemption value equals the net asset value per share adjusted for
fractions of a cent and may be more or less than your cost depending upon
changes in the value of the Fund's portfolio securities between purchase and
redemption. A CDSC may be imposed by the Fund at the time of redemption of
certain shares as explained in "How to Buy Shares." 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 15 days or more.
Any delay may be avoided by purchasing shares either with a certified check, by
Federal Reserve or bank wire of funds, by direct deposit or by EFT. Although the
mailing of a redemption check or the wiring or EFT of redemption proceeds may be
delayed, the redemption value will be determined and the redemption processed in
the ordinary course of business upon receipt of proper documentation. In such a
case, after the redemption and prior to the release of the proceeds, no
appreciation or depreciation will occur in the value of the redeemed shares, and
no interest will be paid on the redemption proceeds. If the payment of a
redemption has been delayed, the check will be mailed or the proceeds wired or
sent EFT promptly after good payment has been collected.
The Fund computes the amount due you at the close of the Exchange at the end
of the day on which it has received all proper documentation from you. Payment
of the amount due on redemption, 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 EKSC'S POLICIES. The Fund or EKSC may waive this
requirement or may require additional documents in certain cases. Currently, the
requirement for a signature guarantee has been waived on redemptions of $50,000
or less when the account address of record has been the same for a minimum
period of 30 days. The Fund and EKSC reserve the right to withdraw this waiver
at any time.
If the Fund receives a redemption order, but you have not clearly indicated
the amount of money or number of shares involved, the Fund cannot execute 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 REDEMPTIONS
Under ordinary circumstances, you may redeem up to $50,000 from your account
by telephone by calling toll free 1-800-343-2898. As mentioned above, to engage
in telephone transactions generally, you must complete the appropriate sections
of the Fund's application.
In order to insure that instructions received by EKSC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation of
your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days.
If you cannot reach the Fund by telephone, you should follow the procedures
for redeeming by mail or through a broker-dealer as set forth herein.
SMALL ACCOUNTS
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem your account if its value has fallen below $1,000, the current
minimum investment level, as a result of your redemptions (but not as a result
of market action). You will be notified in writing and allowed 60 days to
increase the value of your account to the minimum investment level. No CDSCs 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, EKSC, nor the Principal
Underwriter assumes responsibility for the authenticity of any instructions
received by any of them from a shareholder, over the Keystone Automated Response
Line ("KARL"), or by telephone. EKSC will employ reasonable procedures to
confirm that instructions received over KARL or by telephone are genuine.
Neither the Fund, EKSC, nor the Principal Underwriter will be liable when
following instructions received over KARL or by telephone that EKSC reasonably
believes to be genuine.
The Fund may temporarily suspend the right to redeem its shares when (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission so orders.
SHAREHOLDER SERVICES
Details on all shareholder services may be obtained from EKSC by writing or by
calling toll free 1-800-343-2898.
KEYSTONE AUTOMATED RESPONSE LINE
KARL offers you specific fund account information and price and yield
quotations as well as the ability to do account transactions, including
investments, exchanges and redemptions. You may access KARL by dialing toll free
1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a week.
EXCHANGES
If you have obtained the appropriate prospectus, you may exchange shares of
the Fund for shares of certain other Keystone America Funds and Keystone Liquid
Trust ("KLT") as follows:
Class A shares may be exchanged for Class A shares of other Keystone America
Funds and Class A shares of KLT;
Class B shares may be exchanged for the same type of Class B shares of other
Keystone America Funds and the same type of Class B shares of KLT; and
Class C shares may be exchanged for Class C shares of other Keystone America
Funds and Class C shares of KLT.
The exchange of Class B shares and Class C shares will not be subject to a
CDSC. However, if the shares being tendered for exchange are
(1) Class A shares acquired without a front-end sales charge,
(2) Class B shares that have been held for less than 72 months after the month
of purchase, or
(3) Class C shares that have been held for less than one year after the month
of purchase,
and are still subject to a CDSC, such charge will carry over to the shares being
acquired in the exchange transaction.
You may exchange shares for another Keystone fund by calling or writing to
EKSC or by 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 charge for
exchanges upon notice to shareholders pursuant to applicable law.
Orders to exchange a certain class of shares of the Fund for the corresponding
class of shares of KLT will be executed by redeeming the shares of the Fund and
purchasing the corresponding class of shares of KLT at the net asset value of
such shares next determined after the proceeds from such redemption become
available, which may be up to seven days after such redemption. In all other
cases, orders for exchanges received by the Fund prior to 4:00 p.m. eastern time
on any day the Fund is open for business will be executed at the respective net
asset values determined as of the close of business that day. Orders for
exchanges received after 4:00 p.m. eastern time on any business day will be
executed at the respective net asset values determined at the close of the next
business day.
An excessive number of exchanges may be disadvantageous to the Fund.
Therefore, the Fund, in addition to its right to reject any exchange, reserves
the right to terminate the exchange privilege of any shareholder who makes more
than five exchanges of shares of the funds in a year or three in a calendar
quarter.
An exchange order must comply with the requirements for a redemption or
repurchase order and must specify the dollar value or number of shares to be
exchanged. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is available only in states where shares of the fund
being acquired may legally be sold.
AUTOMATIC INVESTMENT PLAN
With a Keystone Automatic Investment Plan, you can automatically transfer as
little as $25 per month or $75 per quarter from your bank account or 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 to or call EKSC. Please
include your account numbers. Termination may take up to 30 days.
RETIREMENT PLANS
The Fund has various retirement plans available to you, including Individual
Retirement Accounts (IRAs); Rollover IRAs; Simplified Employee Pension Plans
(SEPs); Salary Reduction Plans (SARSEPs); Tax Sheltered Annuity Plans; 403(b)
(7) Plans; 401(k) Plans; Keogh Plans; Corporate Profit-Sharing Plans; and Money
Purchase Plans. For details, including fees and application forms, call toll
free 1-800-247-4075 or write to EKSC.
SYSTEMATIC INCOME PLAN
Under a Systematic Income Plan, if your account has a value of at least
$10,000, you may arrange for regular monthly or quarterly fixed withdrawal
payments. Each payment must be at least $75 and may be as much as 1.0% per month
or 3.0% per quarter of the total net asset value of the Fund shares in your
account when the Systematic Income Plan was opened. Fixed withdrawal payments
are not subject to a CDSC. 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 selected fund's net asset value is relatively low and fewer
shares being purchased when the fund's net asset value is relatively high and
may result in a lower average cost per share than a less systematic investment
approach.
Prior to participating in dollar cost averaging, you must establish an account
in a Keystone America Fund or a money market fund managed or advised by
Keystone. You should designate on the application (1) the dollar amount of each
monthly or quarterly investment you wish to make and (2) the fund in which the
investment is to be made. Thereafter, on the first day of the designated month,
an amount equal to the specified monthly or quarterly investment will
automatically be redeemed from your initial account and invested in shares of
the designated fund.
If you are a Class A investor and paid a sales charge on your initial
purchase, the shares purchased will be eligible for Rights of Accumulation and
the sales charge applicable to the purchase will be determined accordingly. In
addition, the value of shares purchased will be included in the total amount
required to fulfill a Letter of Intent. If a sales charge was not paid on the
initial purchase, a sales charge will be imposed at the time of subsequent
purchases, and the value of shares purchased will become eligible for Rights of
Accumulation and Letters of Intent. See Exhibit A -- "Reduced Sales Charges" at
the back of the prospectus.
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. See Exhibit A --
"Reduced Sales Charges" at the back of the prospectus.
OTHER SERVICES
Under certain circumstances, you may, within 30 days after a redemption,
reinstate your account in the same class of shares that you redeemed at current
net asset value.
PERFORMANCE DATA
From time to time the Fund may advertise "total return" and "current yield."
ALL DATA IS BASED ON HISTORICAL RESULTS. PAST PERFORMANCE SHOULD NOT BE
CONSIDERED REPRESENTATIVE OF RESULTS FOR ANY FUTURE PERIOD OF TIME. Total return
and yield are computed separately for each class of shares of the Fund. Total
return refers to average annual compounded rates of return over specified
periods determined by comparing the initial amount invested in a particular
class to the ending redeemable value of that amount. The resulting equation
assumes reinvestment of all dividends and distributions and deduction of the
maximum sales charge or applicable contingent deferred sales charge and all
recurring charges, if any, applicable to all shareholder accounts.
Current yield quotations represent the yield on an investment for a stated
30-day period computed by dividing net investment income earned per share during
the base period by the maximum offering price per share on the last day of the
base period.
The Fund may also include comparative performance data for each class of
shares in advertising or marketing the Fund's shares, such as data from Lipper
Analytical Services, Inc., Morningstar, Inc., Standard & Poor's Corporation,
Ibbotson Associates or other industry publications.
FUND SHARES
The Fund issues Class A, B and C shares, which participate proportionately
based on their relative net asset values in dividends and distributions and have
equal voting, liquidation and other rights except that (1) expenses related to
the distribution of each series or class of shares or other expenses that the
Board of Trustees may designate as series or class expenses from time to time,
are borne solely by each series or class; (2) each series or class of shares has
exclusive voting rights with respect to its Distribution Plan; (3) each series
or class has different exchange privileges; and (4) each series or class has a
different designation. When issued and paid for, the shares will be fully paid
and nonassessable by the Fund. Shares may be exchanged as explained under
"Shareholder Services," but will have no other preference, conversion, exchange
or preemptive rights. Shares are redeemable, transferable and freely assignable
as collateral. The Fund is authorized to issue additional 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 series or class. The Fund does not have
annual meetings. The Fund will have special meetings from time to time as
required under its Declaration of Trust and under the 1940 Act. As provided in
the Declaration of Trust of the Fund, shareholders have the right to remove
Trustees by an affirmative vote of two-thirds of the outstanding shares. A
special meeting of the shareholders will be held when 10% of the outstanding
shares request a meeting for the purpose of removing a Trustee. As prescribed by
Section 16(c) of the 1940 Act, shareholders may be eligible for shareholder
communication assistance in connection with the special meeting.
Under Massachusetts law it is possible that a Fund shareholder may be held
personally liable for the Fund's obligations. 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.
CORPORATE BOND RATINGS
Higher yields are usually available on securities that are lower rated or that
are unrated. Bonds rated Baa by Moody's are considered as medium grade
obligations which are neither highly protected nor poorly secured. Debt rated
BBB by S&P is regarded as having an adequate capacity to pay interest and repay
principal, although adverse economic conditions are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories. Lower rated securities are usually defined as
Baa or lower by Moody's or BBB or lower by S&P. The Fund may purchase unrated
securities, which are not necessarily of lower quality than rated securities but
may not be attractive to as many buyers. Debt rated BB, B, CCC, CC and C by S&P
is regarded, on balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposure to adverse
conditions. Debt rated C1 by S&P is debt (income bonds) on which no interest is
being paid. Debt rated D by S&P is in default and payment of interest and/or
repayment of principal is in arrears. The Fund intends to invest in D-rated debt
only in cases where in Keystone's judgment there is a distinct prospect of
improvement in the issuer's financial position as a result of the completion of
reorganization or otherwise. Bonds which are rated Caa by Moody's are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca by
Moody's represent obligations which are speculative in a high degree. Such
issues are often in default or have other market shortcomings. Bonds which are
rated C by Moody's are the lowest rated class of bonds, and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
OBLIGATIONS OF FOREIGN BRANCHES OF UNITED STATES BANKS
The obligations of foreign branches of U.S. banks may be general obligations
of the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by government regulation. Payment of interest
and principal upon these obligations may also be affected by governmental action
in the country of domicile of the branch (generally referred to as sovereign
risk). In addition, evidences of ownership of such securities may be held
outside the U.S., and the Fund may be subject to the risks associated with the
holding of such property overseas. Examples of governmental actions would be the
imposition of currency controls, interest limitations, withholding taxes,
seizure of assets or the declaration of a moratorium. Various provisions of
federal law governing domestic branches do not apply to foreign branches of
domestic banks.
OBLIGATIONS OF UNITED STATES BRANCHES OF FOREIGN BANKS
Obligations of U.S. branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by federal and state regulation as well as by
governmental action in the country in which the foreign bank has its head
office. In addition, there may be less publicly available information about a
U.S. branch of a foreign bank than about a domestic bank.
MASTER DEMAND NOTES
Master demand notes are unsecured obligations that permit the investment of
fluctuating amounts by the Fund at varying rates of interest pursuant to direct
arrangements between the Fund, as lender, and the issuer, as borrower. Master
demand notes may permit daily fluctuations in the interest rate and daily
changes in the amounts borrowed. The Fund has the right to increase the amount
under the note at any time up to the full amount provided by the note agreement
or to decrease the amount. The borrower may repay up to the full amount of the
note without penalty. Notes purchased by the Fund permit the Fund to demand
payment of principal and accrued interest at any time (on not more than seven
days notice) and to resell the note at any time to a third party. Notes acquired
by the Fund may have maturities of more than one year, provided that (1) the
Fund is entitled to payment of principal and accrued interest upon not more than
seven days notice, and (2) the rate of interest on such notes is adjusted
automatically at periodic intervals, which normally will not exceed 31 days, but
may extend up to one year. The notes are deemed to have a maturity equal to the
longer of the period remaining to the next interest rate adjustment or the
demand notice period. Because these types of notes are direct lending
arrangements between the lender and borrower, such instruments are not normally
traded and there is no secondary market for these notes, although they are
redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. In
connection with master demand note arrangements, Keystone considers, under
standards established by the Board of Trustees, earning power, cash flow and
other liquidity ratios of the borrower and will monitor the ability of the
borrower to pay principal and interest on demand. These notes are not typically
rated by credit rating agencies. Unless rated, the Fund will invest in them only
if at the time of an investment the issuer meets the criteria established for
commercial paper.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements; i.e., the Fund purchases a
security subject to the Fund's obligation to resell and the seller's obligation
to repurchase that security at an agreed upon price and date, such date usually
being not more than seven days from the date of purchase. The resale price is
based on the purchase price plus an agreed upon current market rate of interest
that (for purposes of the transaction) is generally unrelated to the coupon rate
or maturity of the purchased security. A repurchase agreement imposes an
obligation on the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security. The value of the
underlying security is at least equal to the amount of the agreed upon resale
price and marked to market daily to cover such amount. The Fund may enter into
such agreements only with respect to U.S. government and foreign government
securities, which may be denominated in U.S. or foreign currencies. The Fund may
enter into such repurchase agreements with foreign banks and securities dealers
approved in advance by the Fund's Trustees. Whether a repurchase agreement is
the purchase and sale of a security or a collateralized loan has not been
definitively established. This might become an issue in the event of the
bankruptcy of the other party to the transaction. It does not presently appear
possible to eliminate all risks involved in repurchase agreements. These risks
include the possibility of an increase in the market value of the underlying
securities or inability of the repurchaser to perform its obligation to
repurchase coupled with an uncovered decline in the market value of the
collateral, including the underlying securities, as well as delay and costs to
the Fund in connection with enforcement or bankruptcy proceedings. Therefore, it
is the policy of the Fund to enter into repurchase agreements only with large,
well-capitalized banks that are members of the Federal Reserve System and with
primary dealers in U.S. government securities (as designated by the Federal
Reserve Board) whose creditworthiness has been reviewed and found satisfactory
by the Fund's advisers.
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.
FOREIGN SECURITIES
The Fund may invest in securities principally traded in securities markets
outside the United States. While investment in foreign securities is intended to
reduce risk by providing further diversification, such investments involve
sovereign risk in addition to the credit and market risks normally associated
with domestic securities. Foreign investments may be affected favorably or
unfavorably by changes in currency rates and exchange control regulations. There
may be less publicly available information about a foreign company, particularly
emerging market country companies, than about a U.S. company, and foreign
companies may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies.
Securities of some foreign companies are less liquid or more volatile than
securities of U.S. companies, and foreign brokerage commissions and custodian
fees are generally higher than in the United States. Investments in foreign
securities may also be subject to other risks different from those affecting
U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, imposition of withholding taxes on
dividend or interest payments and currency blockage (which would prevent cash
from being brought back to the United States).
ZERO COUPON BONDS
A zero coupon (interest) "stripped" bond represents ownership in serially
maturing interest or principal payments on specific underlying notes and bonds,
including coupons relating to such notes and bonds. The interest and principal
payments are direct obligations of the issuer. These bonds mature on the payment
dates of the interest or principal which they represent. Each zero coupon bond
entitles the holder to receive a single payment at maturity. There are no
periodic interest payments on a zero coupon bond. Zero coupon bonds are offered
at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the rights and
privileges of owners of the underlying coupon obligations or principal
obligations. Owners of zero coupon bonds have the right upon default on the
underlying coupon obligations or principal obligations to proceed directly and
individally against the issuer and are not required to act in concert with other
holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon bonds
(either initially or in the secondary market) is treated as if the buyer had
purchased a corporate obligation issued on the purchase date with an original
issue discount equal to the excess of the amount payable at maturity over the
purchase price. The purchaser is required to take into income each year as
ordinary income an allocaable portion of such discounts determined on a
"constant yield" method. Any such income increases the holder's tax basis for
the zero coupon bond, and any gain or loss on a sale of the zero coupon bonds
relative to the holder's basis, as so adjusted, is a capital gain or loss. If
the holder owns zero coupon bonds representing separate interests in the coupon
(interest) payments and the principal payments from the same underlying issue of
securities, a special basis allocation rule (requiring the aggregate basis to be
allocated among the items sold and retained based on their relative fair market
values at the time of sale) may apply to determine the gain or loss on a sale of
any such zero coupon bonds.
SHORT SALES
The Fund may make short sales of securities "against the box." A short sale
involves the borrowing of a security, which must eventually be returned to the
lender. A short sale is "against the box" if, at all times when the short
position is open, the Fund owns the securities sold short or owns an equal
amount of securities convertible into, or exchangeable without further
consideration for, securities identical to the securities sold short. Short
sales against the box are used to defer recognition of gains or losses or in
order to receive a portion of the interest earned by the executing broker from
the proceeds of such sale. The proceeds of a short sale are held by the broker
until the settlement date when the Fund delivers the convertible security to
close out its short position. Although prior to such delivery the Fund will have
to pay an amount equal to any dividends paid on the securities sold short, the
Fund will receive the dividends from the securities convertible into the
securities sold short, plus a portion of the interest earned from the proceeds
of the short sale. The Fund will not make short sales of securities subject to
outstanding call options written by it. The Fund will segregate the securities
sold short or appropriate convertible securities in a special account with the
Fund's custodian in connection with its short sales "against the box."
PAYMENT-IN-KIND SECURITIES
Payment-in-kind securities pay interest in either cash or additional
securities, at the issuer's option, for a specified period. The issuer's option
to pay in additional securities typically ranges from one to six years compared
to an average maturity for all PIK securities of eleven years. Call protection
and sinking fund features are comparable to those offered on traditional debt
issues.
PIKs, like zero coupon bonds, are designed to give the issuer flexibility in
managing cash flow. Several PIKs are senior debt. In other cases, where PIKs are
subordinated, most senior lenders view them as equity equivalents.
An advantage of PIKs for the issuer -- as with zero coupon securities -- is
that interest payments are automatically compounded (reinvested) at the stated
coupon rate, which is not the case with cash-paying securities. However, PIKs
are gaining popularity over zeros since interest payments in additional
securities can be monetized and are more tangible than accretion of a discount.
As a group, PIK bonds trade flat (i.e., without accrued interest). Their price
is expected to reflect an amount representing accreted interest since the last
payment. PIKs generally trade at higher yields than comparable cash- paying
securities of the same issuer. Their premium yield is the result of the lesser
desirability of non-cash interest, the more limited audience for non-cash paying
securities, and the fact that many PIKs have been issued to equity investors who
do not normally own or hold such securities.
Calculating the true yield on a PIK security requires a discounted cash flow
analysis if the security (ex interest) is trading at a premium or a discount
because the realizable value of additional payments is equal to the current
market value of the underlying security, not par.
Regardless of whether PIK securities are senior or deeply subordinated,
issuers are highly motivated to retire them because they are usually their most
costly form of capital.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. These securities, which include
bonds, debentures, corporate notes, preferred stocks and other securities, are
securities which the holder can convert into common stock. Convertible
securities rank senior to common stock in a corporation's capital structure and,
therefore, entail less risk than that corporation's common stock. The value of a
convertible security is a function of its investment value (its market worth
without a conversion privilege) and its conversion value (its market worth if
exchanged). If a convertible security's investment value is greater than its
conversion value, its price primarily will reflect its investment value and will
tend to vary inversely with interest rates. (The issuer's creditworthiness and
other factors also may affect its value.) If a convertible security's conversion
value is greater than its investment value, its price will tend to be higher
than its conversion value, and it will tend to fluctuate directly with the price
of the underlying equity security.
LOANS OF SECURITIES
The Fund may lend its securities to broker-dealers or other institutional
borrowers for use in connection with such borrowers' short sales, arbitrages or
other securities transactions. Such loan transactions afford the Fund an
opportunity to continue to earn income on the securities loaned and at the same
time to earn income on the collateral held by it to secure the loan. Loans of
portfolio securities will be made (if at all) in strict conformity with
applicable federal and state rules and regulations. There may be delays in
recovery of loaned securities or even a loss of rights in collateral should the
borrower fail financially. Therefore, loans will be made only to firms deemed by
the Fund's advisers to be of good standing and will not be made unless, in the
judgment of the advisers, the consideration to be earned from such loans
justifies the risk.
The Fund understands that it is the current view of the staff of the SEC that
the Fund is permitted to engage in loan transactions only if it meets the
following conditions: (1) the Fund must receive 100% collateral in the form of
cash or cash equivalents, e.g., U.S. Treasury bills or notes, from the borrower;
(2) the borrower must increase the collateral whenever the market value of the
securities (determined on a daily basis) exceeds the value of the collateral;
(3) the Fund must be able to terminate the loan, after notice, at any time; (4)
the Fund must receive reasonable interest on the loan or a flat fee from the
borrower, as well as amounts equivalent to any dividends, interest or other
distributions on the securities loaned and any increase in the securities'
market values; (5) the Fund may pay only reasonable custodian fees in connection
with the loan; and (6) voting rights on the securities loaned may pass to the
borrower; however, if a material event affecting the securities occurs, the Fund
must be able to terminate the loan and vote proxies or enter into an alternative
arrangement with the borrower to enable the Fund to vote proxies. Excluding
items (1) and (2), these procedures may be amended from time to time, as
regulatory policies may permit, by the Fund's Board of Trustees without
shareholder approval. Such loans may not exceed 25% of the Fund's total assets.
DERIVATIVES
The Fund may use derivatives in furtherance of its investment objective.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. These assets, rates
and indices may include bonds, stocks, mortgages, commodities, interest rates,
currency exchange rates, bond indices and stock indices. Derivatives can be used
to earn income or protect against risk, or both. For example, one party with
unwanted risk may agree to pass that risk to another party who is willing to
accept the risk, the second party being motivated, for example, by the desire
either to earn income in the form of a fee or premium from the first party, or
to reduce its own unwanted risk by attempting to pass all or part of that risk
to the first party.
Derivatives can be used by investors such as the Fund to earn income and
enhance returns, to hedge or adjust the risk profile of the portfolio, and
either in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. The Fund is permitted to use derivatives for one
or more of these purposes, although the Fund generally uses derivatives
primarily as direct investments in order to enhance yields and broaden portfolio
diversification. Each of these uses entails greater risk than if derivatives
were used solely for hedging purposes. The Fund uses futures contracts and
related options for hedging purposes. Derivatives are a valuable tool which,
when used properly, can provide significant benefit to Fund shareholders.
Keystone is not an aggressive user of derivatives with respect to the Fund.
However, the Fund may take positions in those derivatives that are within its
investment policies if, in Keystone's judgement, this represents an effective
response to current or anticipated market conditions. Keystone's use of
derivatives is subject to continuous risk assessment and control from the
standpoint of the Fund's investment objectives and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments -- options, futures,
forwards and swaps -- from which virtually any type of derivative transaction
can be created. Further information regarding options and futures is provided
later in this section and is provided in the Fund's statement of additional
information. The Fund does not presently engage in the use of swaps.
While the judicious use of derivatives by experienced investment managers such
as Keystone can be beneficial, derivatives also involve risks different from,
and, in certain cases, greater than, the risks presented by more traditional
investments.
Following is a general discussion of important risk factors and issues
concerning the use of derivatives that investors should understand before
investing in the Fund.
o Market Risk -- This is the general risk attendant to all investments that the
value of a particular investment will decline or otherwise change in a way
detrimental to the Fund's interest.
o Management Risk -- Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument, but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use and
complexity of derivatives require the maintenance of adequate controls to
monitor the transactions entered into, the ability to assess the risk that a
derivative adds to the Fund's portfolio and the ability to forecast price,
interest rate or currency exchange rate movements correctly.
o Credit Risk -- This is the risk that a loss may be sustained by the Fund as a
result of the failure of another party to a derivative (usually referred to
as a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the
issuer or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there is no
similar clearing agency guarantee. Therefore, the Fund considers the
creditworthiness of each counterparty to a privately negotiated derivative in
evaluating potential credit risk.
o Liquidity Risk -- Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.
o Leverage Risk -- Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss generally is
related to a notional principal amount, even if the parties have not made any
initial investment. Certain derivatives have the potential for unlimited
loss, regardless of the size of the initial investment.
o Other Risk -- Other risks in using derivatives include the risk of mispricing
or improper valuation and the inability of derivatives to correlate perfectly
with underlying assets, rates and indices. Many derivatives; in particular,
privately negotiated derivatives, are complex and often valued subjectively.
Improper valuations can result in increased cash payment requirements to
counterparties or a loss of value to a Fund. Derivatives do not always
perfectly or even highly correlate or track the value of the assets, rates or
indices they are designed to closely track. Consequently, the Fund's use of
derivatives may not always be an effective means of, and sometimes could be
counterproductive to, furthering the Fund's investment objective.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS. The Fund may write (i.e., sell) covered call and put
options. No more than 25% of the Fund's net assets will be subject to covered
options. By writing a call option, the Fund becomes obligated during the term of
the option to deliver the securities underlying the option upon payment of the
exercise price. By writing a put option, the Fund becomes obligated during the
term of the option to purchase the securities underlying the option at the
exercise price if the option is exercised.
The Fund may only write "covered" options. This means that so long as the Fund
is obligated as the writer of a call option it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills. If
the Fund has written options against all of its securities which are eligible
for writing options, the Fund may be unable to write additional options unless
it sells a portion of its portfolio holdings to obtain new securities against
which it can write options. If this were to occur, higher portfolio turnover
and, correspondingly, greater brokerage commissions and other transaction costs
may result. The Fund does not expect, however, that this will occur.
The Fund will be considered "covered" with respect to a put option it writes
if, so long as it is obligated as the writer of the put option, it deposits and
maintains liquid assets having a value equal to or greater than the exercise
price of the option with the Fund's custodian in a segregated account.
The principal reason for writing call or put options is to obtain, through a
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Fund receives a premium from writing a call or
put option which it retains whether or not the option is exercised. By writing a
call option, the Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option, the Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.
PURCHASING OPTIONS. The Fund may purchase call or put options for the purpose
of offsetting previously written put or call options of the same series.
The Fund would normally purchase call options to hedge against an increase in
the market value of the Fund's securities. The purchase of a call option would
entitle the Fund, in return for the premium paid, to purchase specified
securities at a specified price, upon exercise of the option, during the option
period. The Fund would ordinarily realize a gain if, during the option period,
the value of such securities exceeds the sum of the exercise price, the premium
paid and transaction costs; otherwise the Fund would realize a loss on the
purchase of the call option.
The Fund may purchase put or call options; including purchasing put or call
options for the purpose of offsetting previously written put or call options of
the same series. If the Fund is unable to effect a closing purchase transaction
with respect to covered options it has written, the Fund will not be able to
sell the underlying securities until the options expire or are exercised.
The Fund would normally purchase put options to hedge against a decline in the
market value of securities in its portfolio (protective puts). The Fund will not
engage in such transactions for speculation. The purchase of a put option would
entitle the Fund, in exchange for the premium paid, to sell specified securities
at a specified price, upon exercise of the option, during the option period.
Gains and losses on the purchase of protective put options would tend to be
offset by countervailing changes in the value of underlying portfolio
securities. The Fund would ordinarily realize a gain if, during the option
period, the value of the underlying securities declined below the exercise price
sufficiently to cover the premium and transaction costs; otherwise the Fund
would realize a loss on the purchase of the put option.
The Fund may purchase put and call options on securities indices for the same
purposes as the purchase of options on securities. Currently, only options on
stock indices are traded and only on national exchanges. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security. The
Fund's purchases of securities index options is subject to the risk that the
value of its portfolio securities may not change as much as an index because the
Fund's investments generally cannot match exactly the composition of an index.
An option position may be closed out only in a secondary market for an option
of the same series. Although the Fund will generally write only those options
for which there appears to be an active secondary market, there is no assurance
that a liquid secondary market will exist for any particular option at any
particular time, and for some options no secondary market may exist. In such
event it might not be possible to effect a closing transaction in a particular
option.
Options on some securities are relatively new, and it is impossible to predict
the amount of trading interest that will exist in such options. There can be no
assurance that viable markets will develop or continue. The failure of such
markets to develop or continue could significantly impair the Fund's ability to
use such options to achieve its investment objective.
OPTIONS TRADING MARKETS
Options in which the Fund will trade are generally listed on national
securities exchanges. Exchanges on which such options currently are traded
include the Chicago Board Options Exchange and the New York, American, Pacific
and Philadelphia Stock Exchanges. Options on some securities may not be listed
on any Exchange but traded in the over-the-counter market. Options traded in the
over-the-counter market involve the additional risk that securities dealers
participating in such transactions could fail to meet their obligations to the
Fund. The use of options traded in the over-the-counter market may be subject to
limitations imposed by certain state securities authorities.
The staff of the Securities and Exchange Commission is of the view that the
premiums which the Fund pays for the purchase of unlisted options and the value
of securities used to cover unlisted options written by the Fund are considered
to be invested in illiquid securities or assets for the purpose of calculating
whether the Fund is in compliance with its fundamental investment restriction
prohibiting it from investing more than 10% of its total assets in any
combination of illiquid assets and securities. The Fund currently complies with
the position taken by the Securities and Exchange Commission staff that the
premiums which the Fund pays for the purchase of unlisted options and the value
of securities used to cover unlisted options written by the Fund are considered
to be invested in illiquid securities or assets.
FUTURES TRANSACTIONS
The Fund may enter into futures contracts for the purchase or sale of
securities or currencies or futures contracts based on securities indices and
may write options on such contracts. The Fund intends to enter into such
contracts and related options for hedging purposes. The Fund may enter into
other types of futures contracts that may become available and relate to the
securities held by the Fund. A futures contract is an agreement to buy or sell
securities or currencies at a specified price during a designated month. The
Fund does not make payment or deliver securities upon entering into a futures
contract. Instead, it puts down a margin deposit, which is adjusted to reflect
changes in the value of the contract and which continues until the contract is
terminated.
The Fund may sell or purchase futures contracts. When a futures contract is
sold by the Fund, the value of the contract will tend to rise when the value of
the underlying securities or currencies declines and to fall when the value of
such securities or currencies increases. Thus, the Fund would sell futures
contracts in order to offset a possible decline in the value of its securities
or currencies. If a futures contract were purchased by the Fund, the value of
the contract would tend to rise when the value of the underlying securities or
currencies increased and to fall when the value of such securities or currencies
declined. The Fund intends to purchase futures contracts in order to fix what is
believed by its advisers to be a favorable price and rate of return for
securities or favorable exchange rate for currencies the Fund intends to
purchase.
The Fund also may purchase put and call options on securities and currency
futures contracts for hedging purposes. A put option purchased by the Fund would
give it the right to assume a position as the seller of a futures contract. A
call option purchased by the Fund would give it the right to assume a position
as the purchaser of a futures contract. The purchase of an option on a futures
contract requires the Fund to pay a premium. In exchange for the premium, the
Fund becomes entitled to exercise the benefits, if any, provided by the futures
contract, but is not required to take any action under the contract. If the
option cannot be exercised profitably before it expires, the Fund's loss will be
limited to the amount of the premium and any transaction costs.
In addition, the Fund may write (sell) put and call options on futures
contracts for hedging purposes. The writing of a put option on a futures
contract generates a premium, which may partially offset an increase in the
price of securities that the Fund intends to purchase. However, the Fund becomes
obligated to purchase a futures contract, which may have a value lower than the
exercise price. Conversely, the writing of a call option on a futures contract
generates a premium which may partially offset a decline in the value of the
Fund's assets. By writing a call option, the Fund becomes obligated, in exchange
for the premium, to sell a futures contract, which may have a value higher than
the exercise price.
The Fund may enter into closing purchase and sale transactions in order to
terminate a futures contract and may sell put and call options for the purpose
of closing out its options positions. The Fund's ability to enter into closing
transactions depends on the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. As a result, there can be no
assurance that the Fund will be able to enter into an offsetting transaction
with respect to a particular contract at a particular time. If the Fund is not
able to enter into an offsetting transaction, the Fund will continue to be
required to maintain the margin deposits on the contract and to complete the
contract according to its terms, in which case it would continue to bear market
risk on the transaction.
Although futures and options transactions are intended to enable the Fund to
manage market, interest rate or exchange rate risk, unanticipated changes in
interest rates, exchange rates or market prices could result in poorer
performance than if it had not entered into these transactions. Even if the
Fund's advisers correctly predict interest or exchange rate movements, a hedge
could be unsuccessful if changes in the value of the Fund's futures position did
not correspond to changes in the value of its investments. This lack of
correlation between the Fund's futures and securities or currencies positions
may be caused by differences between the futures and securities or currencies
markets or by differences between the securities or currencies underlying the
Fund's futures position and the securities or currencies held by or to be
purchased for the Fund. In addition, futures contracts transactions involve the
remote risk that a party participating in a transaction will not be able to
fulfill its obligations and the amount of the obligation will exceed the ability
of the clearing broker to satisfy. The advisers will attempt to minimize these
risks through careful selection and monitoring of the Fund's futures and options
positions.
The Fund does not intend to use futures transactions for speculation or
leverage. The Fund may not purchase or sell futures contracts or options on
futures, except for closing purchase or sale transactions, if immediately
thereafter the sum of margin deposits on the Fund's outstanding futures and
options positions and premiums paid for outstanding options on futures would
exceed 5% of the market value of the Fund's total assets. The Fund will not
change these policies without supplementing the information contained in its
prospectus and statement of additional information.
FOREIGN CURRENCY TRANSACTIONS
The Fund may invest in securities of foreign issuers. When the Fund invests in
foreign securities they usually will be denominated in foreign currencies, and
the Fund temporarily may hold funds in foreign currencies. Thus, the value of
Fund shares will be affected by changes in exchange rates.
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, the Fund may enter into forward currency exchange
contracts (agreements to purchase or sell currencies at a specified price and
date). The exchange rate for the transaction (the amount of currency the Fund
will deliver and receive when the contract is completed) is fixed when the Fund
enters into the contract. The Fund usually will enter into these contracts to
stabilize the U.S. dollar value of a security it has agreed to buy or sell. The
Fund intends to use these contracts to hedge the U.S. dollar value of a security
it already owns, particularly if the Fund expects a decrease in the value of the
currency in which the foreign security is denominated. Although the Fund will
attempt to benefit from using forward contracts, the success of its hedging
strategy will depend on its advisers' abilities to predict accurately the future
exchange rates between foreign currencies and the U.S. dollar. The value of the
Fund's investments denominated in foreign currencies will depend on the relative
strength of those currencies and the U.S. dollar, and the Fund may be affected
favorably or unfavorably by changes in the exchange rates or exchange control
regulations between foreign currencies and the dollar. Changes in foreign
currency exchange rates also may affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed to shareholders by the Fund. The
Fund may also purchase and sell options related to foreign currencies in
connection with hedging strategies.
"WHEN ISSUED" AND "FORWARD COMMITMENT" TRANSACTIONS
The Fund may purchase newly issued securities on a when issued and delayed
delivery basis and may purchase or sell securities on a forward commitment
basis. When issued or delayed delivery transactions arise when securities are
purchased 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. A forward commitment
transaction is an agreement by the Fund to purchase or sell securities at a
specified future date. When the Fund engages in these transactions, the Fund
relies on the buyer or seller, as the case may be, to consummate the sale.
Failure to do so may result in the Fund missing the opportunity to obtain a
price or yield considered to be advantageous. When issued and delayed delivery
transactions and forward commitment transactions may be expected to occur a
month or more before delivery is due. However, no payment or delivery is made by
the Fund until it receives payment or delivery from the other party to the
transaction. A separate account of liquid assets equal to the value of purchase
commitments will be maintained until payment is made.
<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 Internal Revenue Code; a pension, profit-sharing or other employee benefit
plan whether or not qualified under Section 401 of the Internal Revenue Code; or
other organized groups of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some purpose
other than the purchase of redeemable securities of a registered investment
company at a discount. In order to qualify for a lower sales charge, all orders
from an organized group will have to be placed through a single investment
dealer or other firm and identified as originating from a qualifying purchaser.
CONCURRENT PURCHASES
For purposes of qualifying for a reduced sales charge, a Purchaser may combine
concurrent direct purchases of Class A shares of two or more of the "Eligible
Funds," as defined below. For example, if a Purchaser concurrently invested
$75,000 in one of the other "Eligible Funds" and $75,000 in the Fund, the sales
charge would be that applicable to a $150,000 purchase, i.e., 3.75% of the
offering price, as indicated in the Sales Charge Schedule in the prospectus.
RIGHT OF ACCUMULATION
In calculating the sales charge applicable to current purchases of the Fund's
Class A shares, a Purchaser is entitled to accumulate current purchases with the
current value of previously purchased Class A shares of the Fund and Class A
shares of certain other eligible funds that are still held in (or exchanged for
shares of and are still held in) the same or another eligible fund ("Eligible
Fund(s)"). The Eligible Funds are the Keystone America Funds and Keystone Liquid
Trust.
For example, if a Purchaser held shares valued at $99,999 and purchased an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales charge of 3.75% of the offering price as indicated in the Sales
Charge schedule. EKSC 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 EKSC, 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 EKSC 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, EKSC 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 EKSC. 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 EKSC 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 EKSC 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 Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Tax Free Fund
Pennsylvania Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Omega Fund
Fund of the Americas
Global Resources and Development Fund
Small Company Growth Fund II
---------------------------------------
- ---------------------------------
Evergreen Keystone
[logo] FUNDS [logo]
- ---------------------------------
Evergreen Keystone Distributor, Inc.
125 W. 55th Street
New York, New York 10019
FOA-P 2/97 [recycle logo]
12M
540105
---------------------------------------
KEYSTONE
[graphic omitted]
FUND OF THE
AMERICAS
---------------------------------------
---------------------------------
Evergreen Keystone
[logo] FUNDS [logo]
---------------------------------
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE FUND OF THE AMERICAS
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
KEYSTONE FUND OF THE AMERICAS
STATEMENT OF ADDITIONAL INFORMATION
February 28, 1997
This statement of additional information (the "SAI") is not a
prospectus, but relates to, and should be read in conjunction with, the
prospectus of Keystone Fund of the Americas (the "Fund") dated February 28,
1997. You may obtain a copy of the prospectus from the Fund's principal
underwriter, Evergreen Keystone Distributor, Inc. or your broker-dealer. See
"Service Providers" below.
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TABLE OF CONTENTS
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Page
The Fund .................................................2
Service Providers.........................................2
Investment Restrictions...................................3
Distributions and Taxes...................................4
Valuation of Securities...................................5
Brokerage.................................................5
Sales Charges.............................................7
Distribution Plans.......................................10
Trustees and Officers....................................12
Investment Adviser.......................................16
Principal Underwriter....................................17
Sub-administrator........................................18
Declaration of Trust.....................................18
Expenses ................................................20
Standardized Total Return and Yield Quotations...........21
Financial Statements.....................................21
Additional Information...................................22
Appendix................................................A-1
18469
<PAGE>
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THE FUND
- -------------------------------------------------------------------------------
The Fund is an open-end, diversified management investment company
commonly known as a mutual fund. The Fund's primary investment objective is long
term growth of capital through investments in equity and fixed income securities
of North America (the United States and Canada) and Latin America (Mexico and
countries in South and Central America). As a secondary investment objective,
the Fund seeks current income.
Certain information about the Fund is contained in its prospectus. This
statement of additional information provides additional information about the
Fund that may be of interest to some investors.
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SERVICE PROVIDERS
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<TABLE>
<S> <C>
Service Provider
- ----------------------------------------- -----------------------------------------------------------------------
Investment adviser (referred to Keystone Investment Management Company, 200 Berkeley
in this SAI as "Keystone") Street, Boston, Massachusetts 02116. (Keystone is a
wholly-owned subsidiary of First Union Keystone, Inc.
(formerly, Keystone Investments, Inc.) ("First Union
Keystone"), also located at 200 Berkeley Street, Boston,
Massachusetts 02116.)
Principal underwriter ( referred Evergreen Keystone Distributor, Inc. (formerly, Evergreen
to in this SAI as "EKD") Funds Distributor, Inc.), 125 W. 55th Street, New York,
New York 10019.
Marketing services agent and Evergreen Keystone Investment Service, Inc. (formerly,
predecessor to EKD (referred to Keystone Investment Distributors Company), 200 Berkeley
in this SAI as "EKIS") Street, Boston, Massachusetts 02116.
Sub-administrator (referred to in The BISYS Group, Inc., 3435 Stelzer Road, Columbus, Ohio
this SAI as "BISYS") 43219.
Transfer and dividend Evergreen Keystone Services Company (formerly, Keystone
disbursing agent (referred to in Investor Resource Center, Inc.), 200 Berkeley Street,
this SAI as "EKSC") Boston, Massachusetts 02116. (EKSC is a wholly-owned
subsidiary of Keystone.)
Independent auditors KPMG Peat Marwick LLP, 99 High Street, Boston,
Massachusetts 02110, Certified Public Accountants.
Custodian State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110.
</TABLE>
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INVESTMENT RESTRICTIONS
- -------------------------------------------------------------------------------
Fundamental 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 shares, as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). Unless otherwise stated, all references to Fund assets are in
terms of current market value.
The Fund may not do the following:
(1) issue senior securities, except as appropriate to evidence
indebtedness which the Fund is permitted to incur pursuant to Investment
Restriction (2) and except for shares of any additional series or portfolios
which may be established by the Trustees;
(2) borrow money, except from a bank for temporary or emergency
purposes (not for leveraging or investment) and may not borrow money in an
amount exceeding one-third of the value of its total assets (less liabilities
other than borrowings); any borrowings that come to exceed one-third of the
Fund's total assets by reason of a decline in net assets will be reduced within
three days to the extent necessary to comply with the one-third limitation; the
Fund will not purchase securities while borrowings in excess of 5% of its total
assets are outstanding;
(3) underwrite securities issued by others, except to the extent that
it may be deemed an underwriter in connection with the disposition of restricted
securities;
(4) invest in real estate or mortgages (but may invest in real estate
investment trusts or companies whose business involves the purchase or sale of
real estate or mortgages except real estate limited partnerships) or commodities
or commodity contracts, except futures contracts and options on futures
contracts, including but not limited to contracts for the future delivery of
securities or currency, contracts based on securities indices and forward
foreign currency exchange contracts;
(5) invest 25% or more of its total assets (taken at market value) in
securities of issuers in a particular industry or group of related industries,
including a foreign government, except United States ("U.S.") government
securities;
(6) make loans, except (a) through the purchase of a portion of an
issue of publicly distributed debt securities in accordance with its investment
objectives, policies and restrictions, and (b) by entering into; loan
transactions and; repurchase agreements with respect to its securities if, as a
result thereof, not more than 25% of the Fund's total assets (taken at current
value) would be subject to loan transactions;
(7) pledge, mortgage or hypothecate its assets, except that the Fund
may pledge not more than one-third of its total assets (taken at current value)
to secure borrowings made in accordance with Investment Restriction (2) above,
and provided that the Fund may make initial and variation margin payments in
connection with purchases or sales of futures contracts or of options on futures
contracts; and
(8) purchase securities of any one issuer if as a result more than 10%
of the outstanding voting securities of such issuer would be held by the Fund,
or invest more than 5% of the Fund's total assets (taken at market value) in the
securities of any one issuer, except securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities, provided that the Fund
may invest up to 25% of its total assets in securities issued or guaranteed by
any single foreign
2
<PAGE>
government and up to 10% of its total assets in securities issued or guaranteed
by any single multinational agency limited in the aggregate to 25% of its total
assets.
Non-fundamental Investment Restrictions
With respect to illiquid securities, the Fund intends to follow the
policies of the Securities and Exchange Commission. Currently, the Fund will not
invest more than 15% of its net assets in illiquid securities. Also, the Fund
will treat securities as illiquid if it may not sell or dispose of the security
in the ordinary course of business within seven days at approximately the value
at which the Fund has valued such securities on its books.
- -------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
- -------------------------------------------------------------------------------
You will ordinarily receive distributions in 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 how long you have held the 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. Since the Fund's
income distributions are largely derived from interest on bonds, they are not to
any significant degree eligible for the corporate 70% dividends received
deduction. Distributions designated by the Fund as capital gains are not
eligible for the corporate 70% dividends received deduction
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.
If more than 50% of the value of the Fund's total assets at the end of
a fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to the Fund's shareholders, a
shareholder will be required to include in his gross income both actual
dividends and the amount the Fund advises him is his pro rata portion of income
taxes withheld by foreign governments from interest and dividends paid on the
Fund's investments. The shareholder will be entitled, however, to take the
amount of his share of such foreign taxes withheld as a credit against his
United States income tax, or to treat his share of the foreign tax withheld as
an itemized deduction from his gross income, if that should be to his advantage.
In substance, this policy enables the shareholder to benefit from the same
foreign tax credit or deduction that he would
3
<PAGE>
have received if he had been the individual owner of foreign securities and had
paid foreign income tax on the income therefrom. As in the case of individuals
receiving income directly from foreign sources, the above described tax credit
and deductions are subject to certain limitations.
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VALUATION OF SECURITIES
- -------------------------------------------------------------------------------
Current values for the Fund's securities are determined as follows:
(1) securities that are traded on a national securities exchange or the
over-the-counter National Market System ("NMS") are valued on the basis of the
last sales price on the exchange where primarily traded or NMS prior to the time
of the valuation, provided that a sale has occurred and that this price reflects
current market value according to procedures established by the Board of
Trustees;
(2) securities traded in the over-the-counter market, other than on
NMS, for which market quotations are readily available, are valued at the mean
of the bid and asked prices at the time of valuation;
(3) short-term investments maturing in sixty days or less are valued at
amortized cost (original purchase cost as adjusted for amortization of premium
or accretion of discount) which, when combined with accrued interest,
approximates market;
(4) short-term investments maturing in more than sixty days when
purchased which are held on the sixtieth day prior to maturity are valued at
amortized cost (market value on the sixtieth day adjusted for amortization of
premium or accretion of discount) which, when combined with accrued interest,
approximates market;
(4) short-term investments maturing in more than sixty day for which
market quotations are readily available, are valued at current market value;
where market quotations are not available, such instruments are valued at fair
value as determined by the Board of Trustees; and
(5) the following are valued at prices deemed in good faith to be fair
under procedures established by the Board of Trustees: (a) securities, including
restricted securities, for which complete quotations are not readily available,
(b) listed securities or those on NMS if, in the Fund's opinion; the last sales
price does not reflect a current market value or if no sale occurred; and (c)
other assets.
Foreign securities are valued on the basis of valuations provided by a
pricing service, approved by the Fund's Board of Trustees, which uses
information with respect to transactions in such securities, quotations from
broker-dealers, market transactions in comparable securities and various
relationships between securities and yield to maturity in determining value.
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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
4
<PAGE>
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
("research services").
The Fund's management weighs these considerations in determining the
overall reasonableness of the brokerage commissions paid.
The Fund considers the receipt of research services by the Fund or
Keystone to be in addition to, and not instead of, the services Keystone is
required to perform under the Advisory Agreement (as defined below). Keystone
believes that it cannot determine or practically allocate the cost, value and
specific application of such research services between the Fund and its other
clients, who may indirectly benefit from the availability of such services.
Similarly, the Fund may indirectly benefit from information made available from
transactions effected for Keystone's other clients. The Advisory Agreement also
permits Keystone to pay higher brokerage commissions for brokerage and research
services in accordance with Section 28(e) of the Securities Exchange Act of
1934; if Keystone does 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 when
selecting of broker-dealers to execute portfolio transactions, subject to the
requirements of best execution described above.
Brokerage Commissions
The Fund expects that its purchases and sales of equity securities
usually will be effected through brokerage transactions for which commissions
are payable. The Fund expects that purchases and sales of debt securities for
the Fund usually will be principal transactions. Such debt securities are
normally purchased directly from the issuer or from an underwriter or market
maker for the securities. There usually will be no brokerage commissions paid by
the Fund for such purchases. Purchases from underwriters will include the
underwriting commission or concession, and purchases from dealers serving as
market makers will include a dealer's mark up or reflect a dealer's mark down.
Where transactions are made in the over-the-counter market, the Fund will deal
with primary market makers unless more favorable prices are otherwise
obtainable.
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
5
<PAGE>
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, EKD, 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.
- -------------------------------------------------------------------------------
SALES CHARGES
- -------------------------------------------------------------------------------
The Fund offers three classes of shares that differ primarily with
respect to sales charges and distribution fees. As described below, depending
upon the class of shares that you purchase, the Fund will impose a sales charge
when you purchase Fund shares, a contingent deferred sales charge (a "CDSC")
when you redeem Fund shares or no sales charges at all. The Fund charges a CDSC
as reimbursement for certain expenses, such as commissions or shareholder
servicing fees, that it has incurred in connection with the sale of its shares
(see "Distribution Plans"). If imposed, the Fund deducts CDSCs from the
redemption proceeds you would otherwise receive. CDSCs attributable to your
shares are, to the extent permitted by the National Association of Securities
Dealers, Inc. ("NASD"), paid to EKD or its predecessor. See the prospectus for
additional information on a particular class.
Class Distinctions
Class A Shares
With certain exceptions, when you purchase Class A shares after January
1, 1997, you will pay a maximum sales charge of 4.75%, payable at the time of
purchase. (The prospectus contains a complete table of applicable sales charges
and a discussion of sales charge reductions or waivers that may apply to
purchases.) If you purchase Class A shares in the amount of $1 million or more,
without an initial sales charge, the Fund will charge a CDSC of 1.00% if you
redeem during the month of your purchase and the 12-month period following the
month of your purchase. See "Calculation of Contingent Deferred Sales Charge"
below.
Class B Shares
The Fund offers Class B shares at net asset value (without an initial
sales charge). With respect to Class B shares purchased after January 1, 1997,
the Fund charges a CDSC on shares redeemed as follows:
6
<PAGE>
Redemption Timing CDSC Rate
Month of purchase and the first twelve-month
period following the month of purchase.............5.00%
Second twelve-month
period following the month of purchase.............4.00%
Third twelve-month
period following the month of purchase.............3.00%
Fourth twelve-month
period following the month of purchase.............3.00%
Fifth twelve-month
period following the month of purchase.............2.00%
Sixth twelve-month
period following the month of purchase.............1.00%
Thereafter..............................................0.00%
Class B shares purchased after January 1, 1997, that have been
outstanding for seven years after the month of purchase, will automatically
convert to Class A shares 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 certificate to EKSC.) See "Calculation of
Contingent Deferred Sales Charge" below.
Class C Shares
Class C shares are available only through broker-dealers who have
entered into special distribution agreements with EKD. The Fund offers Class C
shares at net asset value (without an initial sales charge). With certain
exceptions, however, the Fund will charge a CDSC of 1.00%, if you redeem shares
purchased after January 1, 1997, during the month of your purchase and the 12-
month period following the month of your purchase. See "Calculation of
Contingent Deferred Sales Charge" below.
Calculation of Contingent Deferred Sales Charge
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 cost of such shares. Upon request for redemption, the
Fund will redeem shares not subject to the CDSC first. Thereafter, the Fund will
redeem shares held the longest first.
Shares That Are Not Subject to a Sales Charge or CDSC
Exchanges
The Fund does not charge a CDSC when you exchange your shares for the
shares of the same class of another Keystone America Fund. However, if you are
exchanging shares that are still subject to a CDSC, the CDSC will carry over to
the shares you acquire by the exchange. Moreover, the Fund will compute any
future CDSC based upon the date you originally purchased the shares you tendered
for exchange.
Waiver of Sales Charges
The Fund may sell its shares at net asset value without an initial
sales charge to:
(1) purchases of shares in the amount of $1 million or more;
(2) a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1 tax
sheltered annuity or TSA plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan") or
a TSA
7
<PAGE>
plan sponsored by a public educational entity having 5,000 or
more eligible employees (an "Educational TSA Plan");
(3) institutional investors, which may include bank trust
departments and registered investment advisers;
(4) investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their
clients and who charge such clients a management, consulting,
advisory or other fee;
(5) clients of investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to
the master account of such investment advisers or financial
planners on the books of the broker-dealer through whom shares
are purchased;
(6) institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer;
(7) employees of First Union National Bank of North Carolina
("FUNB") and its affiliates, EKD and any broker-dealer with
whom EKD has entered into an agreement to sell shares of the
Fund, and members of the immediate families of such employees;
(8) certain Directors, Trustees, officers employees of the Fund,
Keystone, EKD or their affiliates and to the immediate
families of such persons; or
(9) a bank or trust company in a single account in the name of
such bank or trust company as trustee if the initial
investment in shares of the Fund or any fund in the Keystone
Families of Funds purchased pursuant to this waiver is at
least $500,000 and any commission paid at the time of such
purchase is not more than 1% of the amount invested.
With respect to items 8 and 9 above, the Fund will only sell shares to
these parties upon the purchasers written assurance that he or she is buying the
shares for investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. In addition, the Fund will not
charge a CDSC on redemptions by such purchasers.
Waiver of CDSCs
With respect to shares purchased after January 1, 1997, the Fund does
not impose a CDSC when the shares you are redeeming represent:
(1) an increase in the value of the shares you redeem above the
net cost of such shares;
(2) certain shares for which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions;
(3) shares that are in the accounts of a shareholder who has died
or become disabled;
(4) a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security
Act of 1974 ("ERISA");
(5) automatic withdrawals from the ERISA plan of a shareholder who
is at least 59 1/2 years old;
(6) shares in an account that we have closed because the account
has an aggregate net asset value of less than $1,000;
8
<PAGE>
(7) automatic withdrawals under a Systematic Income Plan of up to
1.0% per month of your initial account balance;
(8) withdrawals consisting of loan proceeds to a retirement plan
participant;
(9) financial hardship withdrawals made by a retirement plan
participant;
(10) withdrawals consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan; or
(11) a redemption by an individual participant in a Qualifying Plan
that purchased Class C shares (this waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially
all of its assets).
- -------------------------------------------------------------------------------
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 (a "Distribution Plan").
The Fund's Class A, B, and C Distribution Plans have been approved by
the Fund's Board of Trustees, including a majority of the Trustees who are not
interested persons of the Fund, as defined in the 1940 Act, and who have no
direct or indirect financial interest in the Distribution Plans or any agreement
related thereto (the "Independent Trustees").
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 1.00% 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 Distribution Plan, plus interest at
the prime rate plus 1% on such amounts (less any CDSCs paid by shareholders to
EKD) 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, which is currently limited 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 EKD to
enable EKD to pay or to have paid to others who sell Class A shares a service or
other fee, at any such intervals as EKD may determine, in respect of Class A
shares maintained by any such recipient 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 net asset value of Class A shares maintained
by such others and outstanding on the books of the Fund for specified periods.
9
<PAGE>
Class B Distribution Plans
The Class B Distribution Plans 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 EKD and/or its predecessor. Payments are
made to EKD (1) to enable EKD to pay to others (broker-dealers) commissions in
respect of Class B shares sold since inception of a Distribution Plan; (2) to
enableEKD to pay or to have paid to others a service fee, at such intervals as
EKD may determine, in respect of Class B shares maintained by any such recipient
and outstanding on the books of the Fund for specified periods; and (3) as
interest.
EKD generally reallows to broker-dealers or others a commission equal
to 4.00% of the price paid for each Class B share sold. The broker-dealer or
other party may also receive service fees at an annual rate of 0.25% of the
average daily net asset value of such Class B share maintained by the recipient
and outstanding on the books of the Fund for specified periods.
EKD intends, but is not obligated, to continue to pay or accrue
distribution charges incurred in connection with the Class B Distribution Plans
that exceed current annual payments permitted to be received by EKD from the
Fund ("Advances"). EKD intends to seek full reimbursement of such Advances 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 reimbursements of Advances, the effect would be to extend the
period of time during which the Fund incurs the maximum amount of costs allowed
by the Class B Distribution Plans.
In connection with financing its distribution costs, including
commission advances to broker-dealers and others, EKIS, the predecessor to EKD,
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 beginning approximately June 1, 1995 through 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 Plans, the Fund may be subject to adverse
distribution consequences.
The financing of payments made by EKD to compensate broker-dealers or
other persons for distributing shares of the Fund will be provided by FUNB or
its affiliates.
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 EKD and/or its predecessor. Payments are
made to EKD (1) to enable EKD to pay to others (broker-dealers) commissions in
respect of Class C shares sold since inception of the Distribution Plan; (2) to
enable EKD to pay or to have paid to others a service fee, at such intervals as
EKD may determine, in respect of Class C shares maintained by any such recipient
and outstanding on the books of the Fund for specified periods; and (3) as
interest.
EKD 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,
broker-dealers 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%,
respectively, of the average daily net asset value of each Class C share
maintained by the recipient and outstanding on the books of the Fund for
specified periods.
10
<PAGE>
Distribution Plans - General
The total amounts paid by the Fund under the foregoing arrangements may
not exceed the maximum Distribution Plan limits specified above. The amounts and
purposes of expenditures under a Distribution Plan must be reported to the
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 such Distribution Plan
as stated above.
Each of the Distribution Plans may be terminated at any time by a vote
of the Independent Trustees, or by vote of a majority of the outstanding voting
shares of the respective class of Fund shares. If the Class B Distribution Plan
is terminated, EKD and EKIS will ask the Independent Trustees to take whatever
action they deem appropriate under the circumstances with respect to payment of
such Advances.
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 votes of
the majority of both (1) the Fund's Trustees and (2) the Independent Trustees
cast in person at a meeting called for the purpose of voting on each amendment.
While a Distribution Plan is in effect, the Fund will be required to
commit the selection and nomination of candidates for Independent Trustees to
the discretion of the Independent Trustees.
The Independent Trustees of the Fund have determined that the sales of
the Fund's shares resulting from payments under the Distribution Plans have
benefited the Fund.
- -------------------------------------------------------------------------------
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:
<TABLE>
<S> <C>
FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Professor, Finance Department,
George Washington University; President, Amling & Company
(investment advice); and former Member, Board of Advisers, Credito
Emilano (banking).
LAURENCE B. ASHKIN: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Trustee or Director of all the funds
in the Evergreen Family of Funds other than Evergreen
Investment Trust; real estate developer and construction
consultant; and President of Centrum Equities and Centrum
Properties, Inc.
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Investment Counselor to Appleton
Partners, Inc.; former Director, Executive Vice President and
Treasurer, State Street Research and Management Company
11
<PAGE>
(investment advice); and former Managing Director, Seaward Management
Corporation (investment advice).
*FOSTER BAM: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Trustee or Director of all the funds
in the Evergreen Family of Funds other than Evergreen
Investment Trust; Partner in the law firm of Cummings &
Lockwood; Director, Symmetrix, Inc. (sulphur company) and Pet
Practice, Inc. (veterinary services); and former Director,
Chartwell Group Ltd. (Manufacturer of office furnishings and
accessories), Waste Disposal Equipment Acquisition Corporation
and Rehabilitation Corporation of America (rehabilitation
hospitals).
*GEORGE S. BISSELL: Chairman of the Board, Chief Executive Officer and Trustee of
the Fund; Chairman of the Board, Chief Executive Officer and
Trustee or Director of all other funds in the Keystone Families of
Funds; 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, Director
and Chief Executive Officer of Keystone Investments, Inc.
("Keystone Investments").
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families 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 Families 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 Families 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 (educa-
tion); former Chairman of the Board, Director, and Executive Vice
President, The London Harness Company; former Managing Part
ner, 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.
JAMES S. HOWELL: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Chairman and Trustee or Director of all
the funds in the Evergreen Family of Funds; former Chairman of
the Distribution Foundation for the Carolinas; and former Vice
President of Lance Inc. (food manufacturing).
LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families 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
12
<PAGE>
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 Families of Funds; Chairman and Of Counsel, Keyser,
Crowley & Meub, P.C.; Member, Governor's (VT) Council of Eco
nomic 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, Proctor Bank and Green Mountain Bank.
GERALD M. MCDONNELL: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Trustee or Director of all the funds
in the Evergreen Family of Funds; and Sales Representative with
Nucor-Yamoto, Inc. (steel producer).
THOMAS L. MCVERRY: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Trustee or Director of all the funds
in the Evergreen Family of Funds; former Vice President and
Director of Rexham Corporation; and former Director of Carolina
Cooperative Federal Credit Union.
*WILLIAM WALT PETTIT: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Trustee or Director of all the funds
in the Evergreen Family of Funds; and Partner in the law firm of
Holcomb and Pettit, P.A.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families 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.
RUSSELL A. SALTON, III MD: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Trustee or Director of all the funds
in the Evergreen Family of Funds; Medical Director, U.S. Health
Care/Aetna Health Services; and former Managed Health Care
Consultant; former President, Primary Physician Care.
MICHAEL S. SCOFIELD: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Trustee or Director of all the funds
in the Evergreen Family of Funds; and Attorney, Law Offices of
Michael S. Scofield.
RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Chairman, Environmental
Warranty, Inc. (insurance agency); Executive Consultant, Drake
Beam Morin, Inc. (executive outplacement); Director of Connect
icut 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 Families 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.
JOHN J. PILEGGI: President and Treasurer of the Fund; President and Treasurer of
all other funds in the Keystone Families of Funds; President and
Treasurer of all the funds in the Evergreen Family of Funds;
Senior Managing Director, Furman Selz LLC since 1992;
Managing Director from 1984 to 1992; Consultant to BISYS Fund
Services since 1996; 230 Park Avenue, Suite 910, New York, New
York.
GEORGE O. MARTINEZ: Secretary of the Fund; Secretary of all other funds in the
Keystone Families of Funds; Secretary of all the funds in the
Evergreen Family of Funds; Senior Vice President and Director of
Administration and Regulatory Services, BISYS Fund Services
since 1995; Vice President/Assistant General Counsel, Alliance
Capital Management from 1988 to 1995; 3435 Stelzer Road,
Columbus, Ohio.
</TABLE>
* This Trustee may be considered an "interested person" of the Fund within the
meaning of the 1940 Act.
During the fiscal year ended October 31, 1996, no Trustee affiliated
with Keystone or any officer received any direct remuneration from the Fund.
During the same period, the unaffiliated Trustees, as a group, received $7,305
for expenses incurred. Annual retainers and meeting fees paid by all funds in
the Keystone Families of Funds (which includes more than thirty mutual funds)
for the fiscal year ended October 31, 1996 totaled approximately $411,000. As of
January 31, 1997, the Trustees and officers beneficially owned less than 1.0% of
the Fund's then outstanding Class A, Class B and Class C shares, respectively.
Except as set forth above, the address of all of the Fund's Trustees
and the address of the Fund is 200 Berkeley Street, Boston, Massachusetts
02116-5034.
- -------------------------------------------------------------------------------
INVESTMENT ADVISER
- -------------------------------------------------------------------------------
Subject to the general supervision of the Fund's Board of Trustees,
Keystone provides investment advice, management and administrative services to
the Fund.
13
<PAGE>
On December 11, 1996, Keystone Investments, the predecessor corporation
to First Union Keystone and indirectly each subsidiary of Keystone Investments,
including Keystone, were acquired (the "Acquisition") by FUNB, a wholly-owned
subsidiary of First Union. Keystone Investments was acquired by FUNB by merger
into a wholly-owned subsidiary of FUNB, which entity then succeeded to the
business of the predecessor corporation. Contemporaneously with the Acquisition,
the Fund entered into a new investment advisory agreement with Keystone and into
a principal underwriting agreement with EKD, an indirect, wholly-owned
subsidiary of BISYS. The new investment advisory agreement (the "Advisory
Agreement") was approved by the shareholders of the Fund on December 9, 1996,
and became effective on December 11, 1996.
First Union Keystone and each of its subsidiaries, including Keystone,
are now indirectly owned by First Union. First Union is headquartered in
Charlotte, North Carolina, and had $140 billion in consolidated assets as of
December 31, 1996. First Union and its subsidiaries provide a broad range of
financial services to individuals and businesses throughout the United States.
The Capital Management Group of FUNB and Evergreen Asset Management Corp.,
wholly-owned subsidiaries of FUNB, manage or otherwise oversee the investment of
over $60 billion in assets as of December 31, 1996, belonging to a wide range of
clients, including the Evergreen Family of Funds.
Pursuant to the Advisory Agreement and subject to the supervision of
the Fund's Board of Trustees, Keystone furnishes to the Fund investment
advisory, management and administrative services, office facilities, and
equipment in connection with its services for managing the investment and
reinvestment of the Fund's assets. Keystone pays for all of the expenses
incurred in connection with the provision of its services.
The Fund pays for all charges and expenses, other than those
specifically referred to as being borne by Keystone, including, but not limited
to, (1) custodian charges and expenses; (2) bookkeeping and auditors' charges
and expenses; (3) transfer agent charges and expenses; (4) fees and expenses of
Independent Trustees; (5) brokerage commissions, brokers' fees and expenses; (6)
issue and transfer taxes; (7) costs and expenses under the Distribution Plan;
(8) taxes and trust fees payable to governmental agencies; (9) the cost of share
certificates; (10) fees and expenses of the registration and qualification of
the Fund and its shares with the SEC or under state or other securities laws;
(11) expenses of preparing, printing and mailing prospectuses, statements of
additional information, notices, reports and proxy materials to shareholders of
the Fund; (12) expenses of shareholders' and Trustees' meetings; (13) charges
and expenses of legal counsel for the Fund and for the Independent Trustees of
the Fund on matters relating to the Fund; (14) charges and expenses of filing
annual and other reports with the SEC and other authorities, and all
extraordinary charges and expenses of the Fund.
The Fund pays Keystone a fee for its services at the annual rate of:
Management Aggregate Net Asset Value
Fee of the Shares of the Fund
- --------------------------------------------------------------------------
0.75% of the first $ 200,000,000, plus
0.65% of the next $ 200,000,000, plus
0.55% of the next $ 200,000,000, plus
0.45% of amounts over $ 600,000,000.
Keystone's fee is computed as of the close of business each business day and
payable monthly.
Under the Advisory Agreement, any liability of Keystone in connection
with rendering services thereunder is limited to situations involving its
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties.
14
<PAGE>
The Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Fund or by a vote of a majority of the
Fund's outstanding shares (as defined in the 1940 Act). In either case, the
terms of the Advisory Agreement and continuance thereof must be approved by the
vote of a majority of the Independent Trustees cast in person at a meeting
called for the purpose of voting on such approval. The Advisory Agreement may be
terminated, without penalty, on 60 days' written notice by the Fund's Board of
Trustees or by a vote of a majority of outstanding shares. The Advisory
Agreement will terminate automatically upon its "assignment" as that term is
defined in the 1940 Act.
- -------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER
- -------------------------------------------------------------------------------
The Fund has entered into Principal Underwriting Agreements (each an
"Underwriting Agreement") with EKD with respect to each class. EKD, which is not
affiliated with First Union, replaced EKIS as the Fund's principal underwriter.
EKIS may no longer act as principal underwriter of the Fund due to regulatory
restrictions imposed by the Glass-Steagall Act upon national banks such as FUNB
and their affiliates, that prohibit such entities from acting as the
underwriters of mutual fund shares. While EKIS may no longer act as principal
underwriter of the Fund as discussed above, EKIS may continue to receive
compensation from the Fund or EKD in respect of underwriting and distribution
services performed prior to the termination of EKIS as principal underwriter. In
addition, EKIS may also be compensated by EKD for the provision of certain
marketing support services to EKD at an annual rate of up to .75% of the average
daily net assets of the Fund, subject to certain restrictions.
EKD, as agent, has agreed to use its best efforts to find purchasers
for the shares. EKD may retain and employ representatives to promote
distribution of the shares and may obtain orders from broker-dealers, and
others, acting as principals, for sales of shares to them. The Underwriting
Agreements provide that EKD will bear the expense of preparing, printing, and
distributing advertising and sales literature and prospectuses used by it. EKD
or EKIS, its predecessor, may receive payments from the Fund pursuant to the
Fund's Distribution Plans.
All subscriptions and sales of shares by EKD are at the public offering
price of the shares, which is determined in accordance with the provisions of
the Fund's Declaration of Trust, By-Laws, current prospectuses and statement of
additional information. All orders are subject to acceptance by the Fund and the
Fund reserves the right, in its sole discretion, to reject any order received.
Under the Underwriting 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 the registration of its shares with the SEC and
auditing and filing fees in connection with the registration of its shares under
the various state "blue-sky" laws.
EKD has agreed that it will, in all respects, duly conform with all
state and federal laws applicable to the sale of the shares. EKD 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 EKD or any other person for whose acts EKD is responsible or is
alleged to be responsible, unless such misrepresentation or omission was made in
reliance upon written information furnished by the Fund.
15
<PAGE>
Each Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (i) by a vote of a
majority of the Fund's Independent Trustees, and (ii) by vote of a majority of
the Fund's Trustees, in each case, cast in person at a meeting called for that
purpose.
Each Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. Each Underwriting Agreement will
terminate automatically upon its "assignment," as that term is defined in the
1940 Act.
From time to time, if, in EKD's judgment, it could benefit the sales of
Fund shares, EKD may provide to selected broker-dealers promotional materials
and selling aids, including, but not limited to, personal computers, related
software, and Fund data files.
- -------------------------------------------------------------------------------
SUB-ADMINISTRATOR
- -------------------------------------------------------------------------------
BISYS provides officers and certain administrative services to the Fund
pursuant to a sub-administration agreement. For its services under that
agreement BISYS will receive from Keystone an annual fee at the maximum annual
rate of .01% of the average daily net assets of the Fund.
- -------------------------------------------------------------------------------
DECLARATION OF TRUST
- -------------------------------------------------------------------------------
Massachusetts Business Trust
The Fund is a Massachusetts business trust established under a
Declaration of Trust dated June 16, 1993. The Fund is similar in most respects
to a business corporation. The principal distinction between the Fund and a
corporation relates to the shareholder liability described below. A copy of the
Declaration of Trust (the "Declaration of Trust") is filed as an exhibit to the
Registration Statement of which this statement of additional information is a
part. This summary is qualified in its entirety by reference to the Declaration
of Trust.
Description of Shares
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of classes of shares. Each share of the Fund
represents an equal proportionate interest with each other share of that class.
Upon liquidation, shares are entitled to a pro rata share of the Fund based on
the relative net assets of each class. Shareholders have no preemptive or
conversion rights. Shares are redeemable and transferable. The Fund is
authorized to issue additional classes or series of shares. Generally, the Fund
currently issues three classes of shares, but may issue additional classes or
series of shares.
Shareholder Liability
Pursuant to certain decisions of the Supreme Judicial Court of
Massachusetts, shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. If the Fund were held to be a partnership, the possibility of
16
<PAGE>
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 the Fund's 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. Classes of
shares of the Fund have equal voting rights except that each class of shares has
exclusive voting rights with respect to its respective Distribution Plan. No
amendment may be made to the Declaration of Trust that adversely affects any
class of shares without the approval of a majority of the shares of that class.
Shares have non-cumulative voting rights, which means that the holders of more
than 50% of the shares voting for the election of Trustees can elect 100% of the
Trustees to be elected at a meeting and, in such event, the holders of the
remaining 50% or less of the shares voting will not be able to elect any
Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, or unless 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 the election of Trustees.
Except as set forth above, the Trustees shall continue to hold office
indefinitely, unless otherwise required by law, and may appoint successor
Trustees. A Trustee may be removed from or cease to hold office (as the case may
be) (1) at any time by two-thirds vote of the remaining Trustees; (2) when such
Trustee becomes mentally or physically incapacitated; or (3) at a special
meeting of shareholders by a two-thirds vote of the outstanding shares. Any
Trustee may voluntarily resign from office.
Limitation of Trustees' Liability
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
- -------------------------------------------------------------------------------
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."
17
<PAGE>
Fee Paid to Keystone for
Fiscal Period Services Rendered under the Percentage of Fund
Ended October 31, Advisory Agreement Average Net Assets
- ------------------ ---------------------------- ------------------
1996 $831,618 0.75%
1995 $1,099,920 0.75%
1994 $1,141,378 0.75%
Distribution Plan Expenses
Listed below are the amounts paid by each class of shares under its
respective Distribution Plan to EKIS for the fiscal year ended October 31, 1996.
For more information, see "Distribution Plans."
Class B Shares Sold Class B Shares Sold on
Class A Shares Prior to June 1, 1995 or after June 1, 1995 Class C Shares
- -------------- --------------------- ---------------------- --------------
$29,525 $864,140 $22,648 $94,357
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 EKIS. For more information, see
"Principal Underwriter" and "Sales Charges."
Aggregate Dollar Amount of
Underwriting Commissions
Fiscal Year Ended Aggregate Dollar Amount of Retained by the Principal
October 31, Underwriting Commissions Underwriter
- ----------------- --------------------------- --------------------------
1996 $1,172,200 $1,020,432
1995 $1,719,539 $1,451,551
1994 $2,664,133 $(5,083,350)
Brokerage Commissions
For the Fiscal Period Aggregate Dollar Amount of
Ended October 31, Brokerage Commissions Paid
- ---------------------------- -----------------------------------------
1996 $1,083,046
1995 $531,521
1994 $1,037,477
18
<PAGE>
- -------------------------------------------------------------------------------
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
- -------------------------------------------------------------------------------
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment, all dividends and distributions are added and the maximum sales
charge and all recurring fees charged to all shareholder accounts are deducted.
The ending redeemable value assumes a complete redemption at the end of the
relevant periods.
The average annual total return figures for Class A, Class B, and Class
C shares for the fiscal year ended October 31, 1996 were 10.03%, 11.82%, and
15.80%, respectively (including applicable sales charges). The average annual
total return figures for Class A, Class B, and Class C shares for the life of
the Fund (November 1, 1993 through October 31, 1996) were 4.47%, 4.89%, and
5.82%, respectively (including applicable sales charges).
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.
- -------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The following financial statements of the Fund are incorporated by
reference herein from the Fund's Annual Report, as filed with the SEC:
Schedule of Investments as of October 31, 1996;
Financial Highlights for each of the years in the three-year period
ended October 31, 1996;
Statement of Assets and Liabilities as of October 31, 1996;
Statement of Operations for the year ended October 31, 1996;
Statements of Changes in Net Assets for each of the years in the two-
year period ended October 31, 1996;
Notes to Financial Statements; and
Independent Auditors' Report dated November 29, 1996.
Copies of the Fund's Annual Report will be furnished upon request and
without charge. Requests may be made in writing to EKSC, P.O. Box 2121, Boston,
Massachusetts 02106-2121, or by calling EKSC toll free at 1-800-343-2898.
19
<PAGE>
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
Redemptions in Kind
If conditions arise that would make it undesirable for the Fund to pay
for all redemptions in cash, the Fund may authorized payment to be made in
portfolio securities or other property. The Fund has obligated itself, however,
under the 1940 Act, to redeem for cash all shares presented for redemption by
any one shareholder up to the lesser of $250,000 or 1% of the Fund's net assets
in any 90-day period. Securities delivered in payment of redemptions would be
valued at the same value assigned to them in computing the net asset value per
share and would, to the extent permitted by law, be readily marketable.
Shareholders receiving such securities would incur brokerage costs upon the
securities' sale.
General
To the best of the Fund's knowledge, as of January 31, 1997, the
following was the only shareholder of record who owned 5% or more of the Fund's
outstanding shares:
Percent
Class of Fund
MLPF&S for the Sole Benefit of its Customers A 40.274%
Attn: Fund Administration B 47.737%
4800 Deer Lake Drive East, 3rd Floor C 48.152%
Jacksonville, Florida 32246-6484
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, statement of additional information or in supplemental sales
literature issued by the Fund or EKD, 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 Fund's 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 16 different investment companies in the Keystone
America Fund Family, which offers a range of choices to serve shareholder needs.
In addition to the Fund, the Keystone America Fund Family consists 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 Capital Preservation and Income Fund - Seeks high current income,
consistent with low volatility of principal, by investing in adjustable rate
securities issued by the U.S. government, its agencies or instrumentalities.
20
<PAGE>
Keystone Fund for Total Return - Seeks total return from a combination of
capital growth and income from dividend paying common stocks, preferred stocks,
convertible bonds, other fixed-income securities and foreign securities (up to
50%).
Keystone Global Opportunities Fund - Seeks long-term capital growth from foreign
and domestic securities.
Keystone Global Resources and Development Fund - Seeks long-term capital growth
by investing primarily in equity securities.
Keystone Government Securities Fund - Seeks income and capital preservation from
U.S. government securities.
Keystone America Hartwell Emerging Growth Fund, Inc. - Seeks capital
appreciation by investment primarily in small and medium-sized companies in a
relatively early stage of development that are principally traded in the
over-the-counter market.
Keystone 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 Small Company Growth Fund II - Seeks long term growth of capital,
primarily through investments in equity securities of companies with small
market capitalization.
Keystone State Tax Free Fund - A mutual fund consisting of 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 State Tax Free Fund - Series II - A mutual fund consisting of two
separate series of shares investing in different portfolio securities which
seeks the highest possible current income, exempt from federal income taxes and
applicable state taxes.
Keystone Strategic Income Fund - Seeks high yield and capital appreciation
potential from corporate bonds, discount bonds, convertible bonds, preferred
stock and foreign bonds (up to 25%).
Keystone Tax Free Income Fund - Seeks income exempt from federal income taxes
and capital preservation from the four highest grades of municipal bonds.
Keystone World Bond Fund - Seeks total return from interest income, capital
gains and losses and currency exchange gains and losses from investment in debt
securities denominated in U.S. and foreign currencies.
21
<PAGE>
A-1
APPENDIX
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of one
year or less such as bank certificates of deposit, bankers' acceptances,
commercial paper (including variable rate master demand notes), and obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
some of which may be subject to repurchase agreements.
Commercial Paper
Commercial paper, including commercial paper of foreign issuers, will
consist of issues rated at the time of purchase A-1 by S&P, or Prime-1 by
Moody's; or, if not rated, will be issued by companies which have an outstanding
debt issue rated at the time of purchase Aaa, Aa or A by Moody's, or AAA, AA or
A by S&P, or will be determined by Keystone to be of comparable quality.
A. S&P Ratings
An S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. The top category is as follows:
1. A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
a. A-1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
B. Moody's Ratings
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designation, judged to be investment
grade, to indicate the relative repayment capacity of rated issuers.
1. The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are deemed
to have a superior capacity for repayment of short term promissory obligations.
Repayment capacity of Prime-1 issuers is normally evidenced by the following
characteristics:
1) leading market positions in well-established industries;
2) high rates of return on funds employed;
3) conservative capitalization structures with moderate reliance on
debt and ample asset protection;
<PAGE>
A-2
4) broad margins in earnings coverage of fixed financial charges and
high internal cash generation; and
5) well established access to a range of financial markets and assured
sources of alternate liquidity.
In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.
U.S. Certificates of Deposit
U.S. certificates of deposit are receipts issued by a U.S. bank in
exchange for the deposit of funds. The issuer agrees to pay the amount deposited
plus interest to the bearer of the receipt on the date specified on the
certificate. The certificate usually can be traded in the secondary market prior
to maturity.
U.S. certificates of deposit will be limited to U.S. dollar-denominated
certificates of U.S. banks, including their branches abroad, which are members
of the Federal Reserve System or the Federal Deposit Insurance Corporation, and
of U.S. branches of foreign banks, each of which have total assets at the time
of purchase in excess of $1 billion.
United States Government Securities
Securities issued or guaranteed by the U.S. government include a variety
of Treasury securities that differ only in their interest rates, maturities and
dates of issuance and securities issued by the Government National Mortgage
Association ("GNMA"). Treasury bills have maturities of one year or less.
Treasury notes have maturities of one to ten years and Treasury bonds generally
have maturities of greater than ten years at the date of issuance. GNMA
securities include GNMA mortgage pass-through certificates. Such securities are
supported by the full faith and credit of the U.S.
Securities issued or guaranteed by U.S. government agencies or
instrumentalities include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime
Administration, The Tennessee Valley Authority, District of Columbia Armory
Board and Federal National Mortgage Association.
Some obligations of U.S. government agencies and instrumentalities,
such as securities of Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the Treasury. Others, such as bonds issued by the Federal
National Mortgage Association, a private corporation, are supported only by the
credit of the instrumentality. Because the U.S. government is not obligated by
law to provide support to an instrumentality it sponsors, the Fund will invest
in the securities issued by such an instrumentality only when Keystone
determines under standards established by the Board of Trustees that the credit
risk with respect to the instrumentality does not make its securities unsuitable
investments. While the Fund may invest in such instruments, U.S. government
securities do not include international agencies or instrumentalities in which
the U.S. government, its agencies or instrumentalities participate, such as the
World Bank, Asian Development Bank or the Interamerican Development Bank, or
issues insured by the Federal Deposit Insurance Corporation.
<PAGE>
A-3
CORPORATE BOND RATINGS
A. S&P Corporate Bond Ratings
An S&P corporate bond rating is a current assessment of the
creditworthiness of an obligor, including obligors outside the U.S., with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees. Ratings of foreign obligors
do not take into account currency exchange and related uncertainties. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable.
The ratings are based, in varying degrees, on the following
considerations:
a. Likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "A" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
5. BB, B, CCC, CC and C - Debt rated BB, B, CCC, CC and C is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
B. Moody's Corporate Bond Ratings
Moody's ratings are as follows:
1. Aaa - Bonds that rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
<PAGE>
A-4
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
2. Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
3. A - Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
4. Baa - Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
5. Ba - Bonds that are rated Ba are judged to have speculative elements.
Their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
6. B - Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
COMMON AND PREFERRED STOCK RATINGS
S&P's Earnings and Dividend Rankings for Common Stocks
Because the investment process involves assessment of various factors,
such as product and industry position, corporate resources and financial policy,
with results that make some common stocks more highly esteemed than others, S&P
believes that earnings and dividend performance is the end result of the
interplay of these factors and that, over the long run, the record of this
performance has a considerable bearing on relative quality. S&P rankings,
however, do not reflect all of the factors, tangible or intangible, that bear on
stock quality.
Growth and stability of earnings and dividends are deemed key elements
in establishing S&P earnings and dividend rankings for common stocks, which
capsulize the nature of this record in a single symbol.
S&P has established a computerized scoring system based on per-share
earnings and dividend records of the most recent ten years, a period deemed long
enough to measure a company's performance under varying economic conditions. S&P
measures growth, stability within the trend line and cyclicality.
<PAGE>
A-5
The ranking system also makes allowances for company size, since large companies
have certain inherent advantages over small ones. From these scores for earnings
and dividends are determined.
The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample which
is reviewed and sometimes modified with the following ladder of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower
S&P believes its rankings are not a forecast of future market price
performance, but are basically an appraisal of past performance of earnings and
dividends, and relative current standing.
Moody's Common Stock Rankings
Moody's presents a concise statement of the important characteristics of
a company and an evaluation of the grade (quality) of its common stock. Data
presented includes: (a) capsule stock information which reveals short and long
term growth and yield afforded by the indicated dividend, based on a recent
price; (b) a long term price chart which shows patterns of monthly stock price
movements and monthly trading volumes; (c) a breakdown of a company's capital
account which aids in determining the degree of conservatism or financial
leverage in a company's balance sheet; (d) interim earnings for the current year
to date, plus three previous years; (e) dividend information; (f) company
background; (g) recent corporate developments; (h) prospects for a company in
the immediate future and the next few years; and (i) a ten year comparative
statistical analysis.
This information provides investors with information on what a company
does, how it has performed in the past, how it is performing currently and what
its future performance prospects appear to be.
These characteristics are then evaluated and result in a grading, or
indication of quality. The grade is based on an analysis of each company's
financial strength, stability of earnings and record of dividend payments. Other
considerations include conservativeness of capitalization, depth and caliber of
management, accounting practices, technological capabilities and industry
position. Evaluation is represented by the following grades:
(1) High Grade
(2) Investment Grade
(3) Medium Grade
(4) Speculative Grade
Moody's Preferred Stock Ratings
Preferred stock ratings and their definitions are as follows:
1. aaa: An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
2. aa: An issue that is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
<PAGE>
A-6
3. a: An issue that is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater then in the
"aaa" and "aa" classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
4. baa: An issue that is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
5. ba: An issue that is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
6. b: An issue that is rated "b" generally lacks the characteristics of
a desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
7. caa: An issue that is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payments.
8. ca: An issue that is rated "ca" is speculative in a high degree and
is likely to be in arrears on dividends with little likelihood of eventual
payments.
9. c: This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category, the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
OPTIONS TRANSACTIONS
Writing Covered Options
The Fund writes only covered options. Options written by the Fund will
normally have expiraton dates of not more than nine months from the date
written. The exercise price of the options may be below, equal to, or above the
current market values of the underlying securities at the times the options are
written.
Unless the option has been exercised, the Fund may close out an option
it has written by effecting a closing purchase transaction, whereby it purchases
an option covering the same underlying security and having the same exercise
price and expiration date ("of the same series") as the one it has written. If
the Fund desires to sell a particular security on which it has written a call
option, it will effect a closing purchase transaction prior to or concurrently
with the sale of the security. If the Fund is able to enter into a closing
purchase transaction, the Fund will realize a profit (or loss) from such
transaction if the cost of such transaction is less (or more) than the premium
received from the writing of the option.
An option position may be closed out only in a secondary market for an
option of the same series. Although the Fund will generally write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular option at
any particular time, and for some options no secondary market may exist. In such
event it might not be possible to effect a closing transaction in a particular
option. If the Fund as a covered call option writer
<PAGE>
A-7
is unable to effect a closing purchase transaction, it will not be able to sell
the underlying securities until the option expires or it delivers the underlying
securities upon exercise.
Because the Fund intends to qualify as a regulated investment company
under the Internal Revenue Code, the extent to which the Fund may write covered
call options and enter into so-called "straddle" transactions involving put and
call options may be limited.
Many options are traded on registered securities exchanges. Options
traded on such exchanges are issued by the Options Clearing Corporation ("OCC"),
a clearing corporation which assumes responsi bility for the completion of
options transactions.
Option Writing and Related Risks
The Fund may write covered call and put options with respect to up to
25% of its net assets. A call option gives the purchaser of the option the right
to buy, and the writer the obligation to sell, the underlying security at the
exercise price during the option period. Conversely, a put option gives the
purchaser the right to sell, and the writer the obligation to buy, the
underlying security at the exercise price during the option period.
So long as the obligation of the writer continues, the writer may be
assigned an exercise notice by the broker-dealer through whom the option was
sold. The exercise notice would require the writer to deliver, in the case of a
call, or take delivery of, in the case of a put, the underlying security against
payment of the exercise price. This obligation terminates upon expiration of the
option, or at such earlier time as the writer effects a closing purchase
transaction by purchasing an option of the same series as the one previously
sold. Once an option has been exercised, the writer may not execute a closing
purchase transaction. For options traded on national securities exchanges
("Exchanges"), to secure the obligation to deliver the underlying security in
the case of a call option, the writer of the option is required to deposit in
escrow the underlying security or other assets in accordance with the rules of
the OCC, an institution created to interpose itself between buyers and sellers
of options. Technically, the OCC assumes the order side of every purchase and
sale transaction on an Exchange and, by doing so, gives its guarantee to the
transaction.
The principal reason for writing options on a securities portfolio is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the underlying securities alone. In return for the premium,
the covered call option writer has given up the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
the option remains open, but retains the risk of loss should the price of the
security decline. Conversely, the put option writer gains a profit, in the form
of a premium, so long as the price of the underlying security remains above the
exercise price, but assumes an obligation to purchase the underlying security
from the buyer of the put option at the exercise price, even though the price of
the security may fall below the exercise price, at any time during the option
period. If an option expires, the writer realizes a gain in the amount of the
premium. Such a gain may, in the case of a covered call option, be offset by a
decline in the market value of the underlying security during the option period.
If a call option is exercised, the writer realizes a gain or loss from the sale
of the underlying security. If a put option is exercised, the writer must
fulfill his obligation to purchase the underlying security at the exercise
price, which will usually exceed the then market value of the underlying
security. In addition, the premium paid for the put effectively increases the
cost of the underlying security, thus reducing the yield otherwise available
from such securities.
Because the Fund can write only covered options, it may at times be
unable to write additional options unless it sells a portion of its portfolio
holdings to obtain new securities against which it can write options. This may
result in higher portfolio turnover and correspondingly greater brokerage
commissions and other transaction costs.
<PAGE>
A-8
To the extent that a secondary market is available the covered option
writer may close out options it has written prior to the assignment of an
exercise notice by purchasing, on a closing purchase transaction, an option of
the same series as the option previously written. If the cost of such a closing
purchase, plus transaction costs, is greater than the premium received upon
writing the original option, the writer will incur a loss in the transaction.
Purchasing Put and Call Options
The Fund can close out a put option it has purchased by effecting a
closing sale transaction; for example, the Fund may close out a put option it
has purchased by selling a put option. If, however, a secondary market does not
exist at a time the Fund wishes to effect a closing sale transaction, the Fund
will have to exercise the option to realize any profit. In addition, in a
transaction in which the Fund does not own the security underlying a put option
it has purchased, the Fund would be required, in the absence of a secondary
market, to purchase the underlying security before it could exercise the option.
In each such instance, the Fund would incur additional transaction costs. The
Fund may also purchase call options for the purpose of offsetting previously
written call options of the same series.
The Fund would normally purchase call options in anticipation of an
increase in the market value of securities of the type in which the Fund may
invest. The purchase of a call option would entitle the Fund, in return for the
premium paid, to purchase specified securities at a specified price during the
option period. The Fund would ordinarily realize a gain if, during the option
period, the value of such securities exceeded the sum of the exercise price, the
premium paid and transaction costs; otherwise the Fund would realize a loss on
the purchase of the call option.
The Fund would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Fund, in exchange for the premium paid, to sell
specified securities at a specified price during the option period. The purchase
of protective puts is designed merely to offset or hedge against a decline in
the market value of the Fund's securities. Gains and losses on the purchase of
protective put options would tend to be offset by countervailing changes in the
value of underlying portfolio securities. Put options may also be purchased by
the Fund for the purpose of affirmatively benefitting from a decline in the
price of securities which the Fund does not own. The Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
securities decreased below the exercise price sufficiently to cover the premium
and transaction costs; otherwise the Fund would realize a loss on the purchase
of the put option.
The Fund may purchase put and call options on securities indices for
the same purposes as the purchase of options on securities. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. In addition, securities index options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security.
Options Trading Markets
Options in which the Fund will trade are generally listed on Exchanges.
Exchanges on which such options currently are traded include the Chicago Board
Options Exchange and the New York, American, Pacific, and Philadelphia Stock
Exchanges. Options on some securities may not be listed on any Exchange but
traded in the over-the-counter market. Options traded in the over-the-counter
market involve the additional risk that securities dealers participating in such
transactions would fail to meet their obligations to the Fund. The use of
options traded in the over-the-counter market may be subject to limitations
imposed by certain state securities authorities. In addition to the limits on
its use of options
<PAGE>
A-9
discussed herein, the Fund is subject to the investment restrictions described
in the prospectus and the statement of additional information.
The staff of the Commission currently is of the view that the premiums
which the Fund pays for the purchase of unlisted options, and the value of
securities used to cover unlisted options written by the Fund are considered to
be invested in illiquid securities or assets for the purpose of calculating
whether the Fund is in compliance with its fundamental investment restriction
prohibiting it from investing more than 10% of its total assets (taken at
current value) in any combination of illiquid assets and securities. The Fund
intends to request that the Commission staff reconsider its current view. It is
the intention of the Fund to comply with the staff's current position and the
outcome of such reconsideration.
Special Considerations Applicable to Options
On Treasury Bonds and Notes. Because trading interest in U.S. Treasury
bonds and notes tends to center on the most recently auctioned issues, new
series of options with expirations to replace expiring options on particular
issues will not be introduced indefinitely. Instead, the expirations introduced
at the commencement of options trading on a particular issue will be allowed to
run their course, with the possible addition of a limited number of new
expirations as the original ones expire. Options trading on each series of bonds
or notes will thus be phased out as new options are listed on the more recent
issues, and a full range of expiration dates will not ordinarily be available
for every series on which options are traded.
On Treasury Bills. Because the deliverable U.S. Treasury bill changes
from week to week, writers of U.S. Treasury bill call options cannot provide in
advance for their potential exercise settlement obligations by acquiring and
holding the underlying security. However, if the Fund holds a long position in
U.S. Treasury bills with a principal amount corrresponding to the option
contract size, the Fund may be hedged from a risk standpoint. In addition, the
Fund will maintain in a segregated account with the Fund's Custodian liquid
assets maturing no later than those which would be deliverable in the event of
an assignment of an exercise notice to ensure that it can meet its open option
obligations.
On GNMA Certificates. Options on GNMA certificates are not currently
traded on any Exchange. However, the Fund may purchase and write such options in
the over the counter market or, should they commence trading, on any Exchange.
Since the remaining principal balance of GNMA certificates declines
each month as a result of mortgage payments, the Fund, as a writer of a covered
GNMA call holding GNMA certificates as "cover" to satisfy its delivery
obligation in the event of assignment of an exercise notice, may find that its
GNMA certificates no longer have a sufficient remaining principal balance for
this purpose. Should this occur, the Fund will enter into a closing purchase
transaction or will purchase additional GNMA certificates from the same pool (if
obtainable) or replacement GNMA certificates in the cash market in order to
remain covered.
A GNMA certificate held by the Fund to cover an option position in any
but the nearest expiration month may cease to present cover for the option in
the event of a decline in the GNMA coupon rate at which new pools are originated
under the Federal Housing Administration/Veterans Administration ("FHA/VA") loan
ceiling in effect at any given time. Should this occur, the Fund will no longer
be covered, and the Fund will either enter into a closing purchase transaction
or replace the GNMA certificate with a certificate which represents cover. When
the Fund closes its position or replaces the GNMA certificate, it may realize an
unanticipated loss and incur transaction costs.
Risks Pertaining to the Secondary Market. An option position may be
closed out only in a secondary market for an option of the same series. Although
the Fund will generally purchase or write only those options for which there
appears to be an active secondary market, there is no assurance that a liquid
secondary market will exist for any particular option at any particular time,
and for some options
<PAGE>
A-10
no secondary market may exist. In such event, it might not be possible to effect
closing transactions in particular options, with the result that the Fund would
have to exercise its options in order to realize any profit and might incur
transaction costs in connection therewith. If the Fund as a covered call option
writer is unable to effect a closing purchase transaction in a secondary market,
it will not be able to sell the underlying security until the option expires or
it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market include the
following: (i) insufficient trading interest in certain options; (ii)
restrictions imposed on transactions (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options or
underlying securities; (iv) interruption of the normal operations on an Exchange
or by a broker; (v) inadequacy of the facilities of an Exchange, the OCC or a
broker to handle current trading volume; or (vi) a decision by one or more
Exchanges or a broker to discontinue the trading of options (or a particular
class or series of options), in which event the secondary market in that class
or series of options would cease to exist, although outstanding options that had
been issued as a result of trades would generally continue to be exercisable in
accordance with their terms.
The hours of trading for options on U.S. government securities may not
conform to the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS
The Fund intends to enter into currency and other financial futures
contracts as a hedge against changes in prevailing levels of interest or
currency exchange rates to seek relative stability of principal and to establish
more definitely the effective return on securities held or intended to be
acquired by the Fund or as a hedge against changes in the prices of securities
or currencies held by the Fund or to be acquired by the Fund. The Fund's hedging
may include sales of futures as an offset against the effect of expected
increases in interest or currency exchange rates or securities prices and
purchases of futures as an offset against the effect of expected declines in
interest or currency exchange rates.
The Fund intends to engage in options transactions that related to
currency and other financial futures contracts for hedging purposes and in
connection with the hedging strategies described above.
Although techniques other than sales and purchases of futures contracts
and related options transactions could be used to reduce the Fund's exposure to
interest rate and/or market fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Fund does not intend to
take delivery of the instruments underlying futures contracts it holds, the Fund
does not intend to engage in such futures con tracts 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
<PAGE>
A-11
decade an increasing number of futures contracts have been developed that
specify currencies, financial instruments or financially based indexes as the
underlying commodity.
U.S. futures contracts are traded only on national futures exchanges
and are standardized as to maturity date and underlying financial instrument.
The principal financial futures exchanges in the U.S. 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 undercontract 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").
Options on Currency and Other Financial Futures
The Fund intends to purchase call and put options on currency and other
financial futures contracts and sell such options. Options on currency and other
financial futures contracts are similar to options on stocks except that an
option on a currency or other financial futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) rather than to purchase or sell stock, currency or other
financial instruments at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account. This amount represents the amount by which the market price of
the futures contract at exercise exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. If an option is exercised the last trading day prior to the expiration
date of the option, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and value of the futures
contract.
The Fund intends to use options on currency and other financial futures
contracts in connection with hedging strategies. In the future, the Fund may use
such options for other purposes.
Purchase of Put Options on Futures Contracts
The purchase of protective put options on financial futures contracts
is analagous to the purchase of protective puts on individual stocks, where an
absolute level of protection is sought below which no additional economic loss
would be incurred by the 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 currency and other 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, the purchase of a call option may be less
risky than the ownership of the interest rate or index based futures contract or
the underlying securi ties. Call options on currency or other financial futures
contracts may be purchased to hedge against an interest rate increase or a
market advance when the Fund is not fully invested.
<PAGE>
A-12
Use of New Investment Techniques Involving Currency and Other Financial Futures
Contracts or Related Options
The Fund may employ new investment techniques involving currency and
other financial futures contracts and related options. The Fund intends to take
advantage of new techniques in these areas which may be developed from time to
time and which are consistent with the Fund's investment objective. The Fund
believes that no additional techniques have been identified for employment by
the Fund in the foreseeable future other than those described above.
Limitations on Purchase and Sale of Futures Contracts and Related Options on
Such Futures Contracts
The Fund will not enter into a futures contract if, as a result thereof,
more than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to margin deposits on such
futures contracts and premiums on options 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 or sale of futures contracts by the
Fund, an amount of cash and cash equivalents or securities equal to the market
value of the futures contracts will be deposited in a seg regated account with
the Fund's custodian. In addition, in the case of a purchase, the Fund may be
required to make a deposit to a margin account with a Broker to collateralize
the position, and in the case of a sale, the Fund may be required to make daily
deposits to the buyer's margin account. The Fund would make such deposits in
order to insure that that the use of such futures is unleveraged.
Federal Income Tax Treatment
For federal income tax purposes, the Fund is required to recognize as
income for each taxable year its net unrealized gains and losses on futures
contracts as of the end of the year as well as those actually realized during
the year. Any gain or loss recognized with respect to a futures contract is
considered to be 60% long term and 40% short term, without regard to the holding
period of the contract. In the case of a futures transaction classified as a
"mixed straddle," the recognition of losses may be deferred to a later taxable
year. The federal income tax treatment of gains or losses from transactions in
options on futures is unclear.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income. Any net gain realized
from the closing out of futures contracts, for purposes of the 90% requirement,
will be qualifying income. In addition, gains realized on the sale or other
disposition of securities held for less than three months must be limited to
less than 30% of the Fund's annual gross in come. The 1986 Tax Act added a
provision which effectively treats both positions in certain hedging
transactions as a single transaction for the purpose of the 30% requirement. The
provision provides that, in the case of any "designated hedge," increases and
decreases in the value of positions of the hedge are to be netted for the
purposes of the 30% requirement. However, in certain situations, in order to
avoid realizing a gain within a three month period, the Fund may be required to
defer the closing out of a contract beyond the time when it would otherwise be
advantageous to do so.
Risks of Futures Contracts
Currency and other financial futures contracts prices are volatile and
are influenced, among other things, by changes in stock prices, market
conditions, prevailing interest rates and anticipation of future
<PAGE>
A-13
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
techni cal influences in futures contracts trading; differences between the
securities being hedged and the financial instruments and indexes underlying the
standard futures contracts available for trading, in such respects as interest
rate levels, maturities and creditworthiness of issuers, or identities of
securities comprising the index and those in the Fund's portfolio. 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 de posit. 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 currency and other
financial futures contracts, there are several special risks relating to options
on futures contracts. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular option 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 circum stances 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.
<PAGE>
A-14
FOREIGN CURRENCY TRANSACTIONS
The Fund may invest in securities of foreign issuers. When the Fund
invests in foreign securities they usually will be denominated in foreign
currencies and the Fund temporarily may hold funds in foreign currencies. Thus,
the Fund's share value will be affected by changes in exchange rates.
Forward Currency Contracts
As one way of managing exchange rate risk, the Fund may engage in
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). Under the contract, the exchange rate for the
transaction (the amount of currency the Fund will deliver or receive when the
contract is completed) is fixed when the Fund enters into the contract. The Fund
usually will enter into these contracts to stabilize the U.S. dollar value of a
security it has agreed to buy or sell. The Fund also may use these contracts to
hedge the U.S. dollar value of a security it already owns, particularly if the
Fund expects a decrease in the value of the currency in which the foreign
security is denominated. Although the Fund will attempt to benefit from using
forward contracts, the success of its hedging strategy will depend on Keystone's
ability to predict accurately the future exchange rates between foreign
currencies and the U.S. dollar. The value of the Fund's investments denominated
in foreign currencies will depend on the relative strength of those currencies
and the U.S. dollar, and the Fund may be affected favorably or unfavorably by
changes in the exchange rates or exchange control regulations between foreign
currencies and the dollar. Changes in foreign currency exchange rates also may
affect the value of dividends and interest earned, gains and losses realized on
the sale of securities and net investment income and gains, if any, to be
distributed to shareholders by the Fund.
Currency Futures Contracts
Currency futures contracts are bilateral agreements under which two
parties agree to take or make delivery of a specified amount of a currency at a
specified future time for a specified price. Trading of currency futures
contracts in the U.S. is regulated under the Commodity Exchange Act by the CFTC
and NFA. Currently the only national futures exchange on which currency futures
are traded is the International Monetary Market of the Chicago Mercantile
Exchange. Foreign currency futures trading is conducted in the same manner and
subject to the same regulations as trading in interest rate and index based
futures. The Fund intends to only engage in currency futures contracts for
hedging purposes, and not for speculation. The Fund may engage in currency
futures contracts for other purposes if authorized to do so by the Board. The
hedging strategies which will be used by the Fund in connection with foreign
currency futures contracts are similar to those described above for forward
foreign currency exchange contracts.
Currently currency futures contracts for the British Pound Sterling,
Canadian Dollar, Dutch Guilder, Deutsche Mark, Japanese Yen, Mexican Peso, Swiss
Franc and French Franc can be purchased or sold for U.S. dollars through the
International Monetary Market. It is expected that futures contracts trading in
additional currencies will be authorized. The standard contract sizes are
L125,000 for the Pound, 125,000 for the Guilder, Mark, Swiss and French Francs,
C$100,000 for the Canadian Dollar, Y12,500,000 for the Yen, and 1,000,000 for
the Peso. In contrast to Forward Currency Exchange Contracts which can be traded
at any time, only four value dates per year are available, the third Wednesday
of March, June, September and December.
Foreign Currency Options Transactions
Foreign currency options (as opposed to futures) are traded in a variety
of currencies in both the U.S. and Europe. On the Philadelphia Stock Exchange,
for example, contracts for half the size of the corresponding futures contracts
on the Chicago Board Options Exchange are traded with up to nine
<PAGE>
A-15
months maturity in marks, sterling, yen, Swiss francs and Canadian dollars.
Options can be exercised at any time during the contract life and require a
deposit subject to normal margin requirements. Since a futures contract must be
exercised, the Fund must continually make up the margin balance. As a result, a
wrong price move could result in the Fund losing more than the original
investment as it cannot walk away from the futures contract as it can an option
contract.
The Fund will purchase call and put options and sell such options to
terminate an existing position. Options on foreign currency are similar to
options on stocks except that an option on an interest rate and/or index based
futures contract gives the purchaser the right, in return for the premium paid,
to purchase or sell foreign currency, rather than to purchase or sell stock, at
a specified exercise price at any time during the period of the option.
The Fund intends to use foreign currency option transactions in
connection with hedging strategies.
Purchase of Put Options on Foreign Currencies
The purchase of protective put options on a foreign currency is
analagous to the purchase of protective puts on individual stocks, where an
absolute level of protection is sought below which no additional economic loss
would be incurred by the Fund. Put options may be purchased to hedge a portfolio
of foreign stocks or foreign debt instruments or a position in the foreign
currency upon which the put option is based.
Purchase of Call Options on Foreign Currencies
The purchase of a call option on foreign currency represents a means of
obtaining temporary exposure to market appreciation at limited risk. It is
analogous to the purchase of a call option on an individual stock which can be
used as a substitute for a position in the stock itself. Depending on the
pricing of the option compared to either the foreign currency upon which it is
based, or upon the price of the foreign stock or foreign debt instruments, the
purchase of a call option may be less risky than the ownership of the foreign
currency or the foreign securities. The Fund would purchase a call option on a
foreign currency to hedge against an increase in the foreign currency or a
foreign market advance when the Fund is not fully invested.
The Fund may employ new investment techniques involving forward foreign
currency exchange contracts, foreign currency futures contracts and options on
foreign currencies in order to take advantage of new techniques in these areas
which may be developed from time to time and which are consistent with the
Fund's investment objective. The Fund believes that no additional techniques
have been identified for employment by the Fund in the foreseeable future other
than those described above.
Currency Trading Risks
Currency exchange trading may involve significant risks. The four major
types of risk the Fund faces are exchange rate risk, interest rate risk, credit
risk and country risk.
Exchange Rate Risk
Exchange rate risk results from the movement up and down of foreign
currency values in response to shifting market supply and demand. When the Fund
buys or sells a foreign currency, an exponsure called an open position is
created. Until the time that position can be "covered" by selling or buying an
equivalent amount of the same currency, the Fund is exposed to the risk that the
exchange rate might move against it. Since exchange rate changes can readily
move in one direction, a position carried overnight or over a number of days
involves greater risk than one carried a few minutes or hours. Techniques such
as foreign currency forward and futures contracts and options on foreign
currency are intended to be used by the Fund to reduce exchange rate risk.
<PAGE>
A-16
Maturity Gaps and Interest Rate Risk
Interest rate risk arises whenever there are mismatches or gaps in the
maturity structure of the Fund's foreign exchange currency holdings, which is
the total of its outstanding spot and forward or futures contracts.
Foreign currency transactions often involve borrowing short term and
lending longer term to benefit from the normal tendency of interest rates to be
higher for longer maturities. However in foreign exchange trading, while the
maturity pattern of interest rates for one currency is important, it is the
differential between interest rates for two currencies that is decisive.
Credit Risk
Whenever the Fund enters into a foreign exchange contract, it faces a
risk, however small, that the counterparty will not perform under the contract.
As a result there is a credit risk, although no extension of "credit" is
intended. To limit credit risk, the Fund intends to evaluate the
creditworth-iness of each other party.
Credit risk exists because the Fund's counterparty may be unable or
unwilling to fulfill its contractual obligations as a result of bankruptcy or
insolvency or when foreign exchange controls prohibit payment. In any foreign
exchange transaction, each party agrees to deliver a certain amount of currency
to the other on a particular date. In establishing its hedges a Fund relies on
each contract being completed. If the contract is not performed, then the Fund's
hedge is eliminated, and the Fund is exposed to any changes in exchange rates
since the contract was originated. To put itself in the same position it would
have been in had the contract been performed, the Fund must arrange a new
transaction. However, the new transaction may have to be arranged at an adverse
exchange rate. The trustee for a bankrupt company may elect to perform those
contracts which are advantageous to the company but disclaim those contracts
which are disadvantageous, resulting in losses to the Fund.
Another form of credit risk stems from the time zone differences between
the U.S. and foreign nations. If the Fund sells sterling it generally must pay
pounds to a counterparty earlier in the day than it will be credited with
dollars in New York. In the intervening hours, the buyer can go into bankruptcy
or can be declared insolvent. Thus, the dollars may never be credited to the
Fund.
Country Risk
At one time or another, virtually every country has interfered with
international transactions in its currency. Interference has taken the form of
regulation of the local exchange market, restrictions on foreign investment by
residents or limits on inflows of investment funds from abroad. Governments take
such measures for example to improve control over the domestic banking system or
to influence the pattern of receipts and payments between residents and
foreigners. In those cases, restrictions on the exchange market or on
international transactions are intended to affect the level or movement of the
exchange rate. Occasionally a serious foreign exchange shortage may lead to
payment interruptions or debt servicing delays, as well as interference in the
exchange market. It has become increasingly difficult to distinguish foreign
exchange or credit risk from country risk.
Changes in regulations or restrictions usually do have an important
exchange market impact. Most disruptive are changes in rules which interfere
with the normal payments mechanism. If government regulations change and a
counterparty is either forbidden to perform or is required to do something
extra, then the Fund might be left with an unintended open position or an
unintended maturity mismatch. Dealing with such unintended long or short
positions could result in unanticipated costs to the Fund.
Other changes in official regulations influence international investment
transactions. If one of the factors affecting the buying or selling of a
currency changes, the exchange rate is likely to respond. Changes in such
controls often are unpredictable and can create a significant exchange rate
response.
<PAGE>
A-17
Many major countries have moved toward liberalization of exchange and
payments restrictions in recent years or accepted the principle that
restrictions should be relaxed. A few industrial countries have moved in the
other direction. Important liberalizations were carried out by Switzerland, the
United Kingdom and Japan. They dismantled mechanisms for restricting either
foreign exchange inflows (Switzerland), outflows (Britain) or elements of both
(Japan). By contrast, France and Mexico have recently tightened foreign exchange
controls.
Overall, many exchange markets are still heavily restricted. Several
countries limit access to the forward market to companies financing documented
export or import transactions in an effort to insulate the market from purely
speculative activities. Some of these countries permit local traders to enter
into forward contracts with residents but prohibit certain forward transactions
with nonresidents. By comparison, other countries have strict controls on
exchange transactions by residents, but permit free exchange transactions
between local traders and non-residents. A few countries have established tiered
markets, funneling commercial transactions through one market and financial
transactions through another. Outside the major industrial countries, relatively
free foreign exchange markets are rare and controls on foreign currency
transactions are extensive.
Another aspect of country risk has to do with the possibility that the
Fund may be dealing with a foreign trader whose home country is facing a
payments problem. Even though the foreign trader intends to perform on its
foreign exchange contracts, the contracts are tied to other external liabilities
the country has incurred. As a result performance may be delayed, and can result
in unanticipated cost to the Fund. This aspect of country risk is a major
element in the Fund's credit judgment as to with whom it will deal and in what
amounts.
<PAGE>
KEYSTONE FUND OF THE AMERICAS
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
ITEM 24(A).
The audited Financial Statements listed below are incorporated by reference to
Registrant's Annual Report dated October 31, 1995:
Schedule of Investments October 31, 1996
Financial Highlights
Class A Shares For each of the years in the three-year
period ended October 31, 1996
Class B Shares For each of the years in the three-year
period ended October 31, 1996
Class C Shares For each of the years in the three-year
period ended October 31, 1996
Statement of Assets and Liabilities October 31, 1996
Statement of Operations Year ended October 31, 1996
Statements of Changes in Net Assets For each of the years in the two-year
period ended October 31, 1996
Notes to Financial Statements
Independent Auditors' Report November 29, 1996
<PAGE>
(24)(B) EXHIBITS
(1) Registrant's Declaration of Trust (the "Declaration of Trust") (1).
(2) (a) Registrant's By-Laws ("Bylaws") (1).
(b) Amendment to By-Laws (2).
(3) Not applicable.
(4) (a) Declaration of Trust, Articles III, V, VI and VIII (1).
(b) Bylaws, Article 2, Section 2.5 (1).
(5) Investment Advisory and Management Agreement between the Registrant
and Keystone Investment Management Company (the "Advisory
Agreement") (2).
(6) (a) Class A and C Principal Underwriting Agreement between the Registrant
and Evergreen Keystone Distributors, Inc.("EKD")(the "Class A and
C Underwriting Agreement")(3).
(b) Form of Class B-2 Principal Underwriting Agreement between the
Registrant and Evergreen Keystone Distributors, Inc.("EKD")(the
"Class B-2 Underwriting Agreement")(2).
(c) Form of Dealer Agreement used by EKD (2).
(7) Not applicable.
(8) Custodian, Fund Accounting and Recordkeeping Agreement, between
Registrant and State Street Bank and Trust Company, as amended (1)
(9) (a) Form of Marketing Services Agreement between EKD and Evergreen
Keystone Investment Services, Inc. ("EKIS") (2).
(b) Form of Sub-Administrator Agreement between Keystone Investment
Management Company and Furman Selz LLC (2).
(c) Form of Principal Underwriting Agreements with EKIS (each a
"Continuation Agreement") (2).
(10) Opinion and conset of counsel (2).
(11) Consent to use of Independent Auditors' Report (3).
(12) Not applicable.
(13) Subscription Agreement (4).
(14) Model plans used in the establishment of retirement plans (5).
(15) Registrant's Class A, B and C Distribution Plans (1).
(16) Performance data schedules (3).
(17) Financial data schedules (3).
(18) Multiple Class Plan (3).
(19) Powers of Attorney (3).
- ----------
(1) Filed with Post-Effective Amendment No. 4 ("Post-Effective Amendment
No. 4") to Registrant's Registration Statement No. 33-66566/811-7914 (the
"Registration Statement") and incorporated by reference herein.
(2) Filed with Post-Effective Amendment No. 5 ("Post-Effective Amendment
No. 5") to the Registration Statement and incorporated by reference
herein.
(3) Filed herewith.
(4) Filed with the Registration Statement and incorporated by reference herein.
(5) Filed with Post-Effective Amendment No. 66 to the Registration Statement of
Keystone Balanced Fund (K-1) (File No. 2-10527) 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 January 31, 1997
- -------------- -------------------------------
Shares of beneficial
interest without par value
Class A 1,452
Class B 7,075
Class C 617
ITEM 27. INDEMNIFICATION
Provisions for the indemnification of the Registrant's Trustees and
officers are contained in Article VIII of Declaration of Trust, a copy of which
was filed with Post-Effective Amendment No. 4.
Provisions for the indemnification of EKD, the Registrant's principal
underwriter, are contained in Section 9 of the Class B-2 Underwriting
Agreement, copy of the form of which were filed with Post-Effective Amendment 5.
Provisions for the indemnification of EKD are contained in Section 10 of
the Class A and C Underwriting Agreement, a copy of which is filed herewith.
Provisions for the indemnification of EKIS are contained in Section 5 of
the Class A and C Continuation Agreement, a copy of the form of which was filed
with Post-Effective Amendment No. 5.
Provisions for the indemnification of EKIS are contained in Section 9 of
the Class B Continuation Agreements, a copies of the forms of which were filed
with Post-Effective Amendment No. 5.
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 Post-Effective Amendment No. 5.
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.
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 First Union Keystone
Investments, 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:
Evergreen Keystone Investment Services, Inc.
Evergreen Keystone Service Company
Boston Children's Services Associates
Middlesex School
Middlebury College
Formerly:
Chairman of the Board,
Chief Executive Officer,
President and Director:
Keystone Management, Inc.
Keystone Software, Inc.
Trustee or Director:
Neworld Bank
Robert Van Partners, Inc.
Fiduciary Investment Company, Inc.
Barbara J. Colvin Director Chief Operating Officer
Evergreen Keystone Investment Services, Inc.
Senior Vice President
First Union Corporation
William M. Ennis II Director President
Evergreen Keystone Investment Services, Inc.
Senior Vice President
First Union Corporation
Donald McMullen Director Executive Vice President
First Union Corporation
Philip M. Byrne Senior Vice Senior Vice President:
President First Union Keystone Investments, Inc.
Formerly:
President and Director:
Keystone Institutional Company, Inc.
Herbert L. Senior Vice None
Bishop, Jr. President
Donald C. Dates Senior Vice None
President
Gilman Gunn Senior Vice None
President
Edward F. Chief Operating Officer Director, Senior Vice President
Godfrey Chief Financial Officer and Treasurer:
First Union Keystone Investments, Inc.
Evergreen Keystone Investment Services, Inc.
Formerly:
Treasurer:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Treasurer and Director:
Hartwell Keystone Advisers, Inc.
James R. McCall President None
Rosemary D. Senior Vice General Counsel, Senior Vice President and Secretary:
Van Antwerp President, First Union Keystone Investments, Inc.
General Counsel Senior Vice President, General Counsel and Director:
and Secretary Evergreen Keystone Service Company
Evergreen Keystone Investment Services, Inc.
Formerly:
Senior Vice President and General Counsel:
Keystone Institutional Company, Inc.
Senior Vice President, General Counsel and Director:
Fiduciary Investment Company, Inc.
Senior Vice President, General Counsel, Director and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
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:
First Union Keystone Investments, Inc.
Evergreen Keystone Investment Services, 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.
Vice President:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
John D. Rogol Vice President Vice President and
Controller:
First Union Keystone Investments, Inc.
Evergreem Keystone Investment Services, Inc.
Formerly:
Controller:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
John Addeo Vice President None
Andrew Baldassarre Vice President None
David Benhaim Vice President None
Donald Bisson Vice President None
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
Betsy Hutchings Senior Vice None
President
Walter T. Senior Vice None
McCormick President
George F. Wilkins Senior Vice None
President
Andrew G. Baldassare 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
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
Peter Willis Vice President None
Richard A. Wisentaner Vice President None
Cheryle E. Wanble Vice President None
Walter Zagrobski Vice President None
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITER
(a) Evergreen Funds Distributor, Inc., which acts as Registrant's
principal underwriter, also acts as principal underwriter for the
following entities:
Keystone Quality 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 Balanced Fund II
Keystone Capital Preservation and Income Fund
Keystone Fund for Total Return
Keystone Global Opportunities Fund
Keystone Global Resources and Development Fund
Keystone Government Securities Fund
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone Institutional Adjustable Rate Fund
Keystone Institutional Trust
Keystone Intermediate Term Bond Fund
Keystone International Fund Inc.
Keystone Liquid Trust
Keystone Omega Fund
Keystone Precious Metals Holdings, Inc.
Keystone Small Company Growth Fund II
Keystone State Tax Free Fund
Keystone State Tax Free Fund - Series II
Keystone Strategic Income Fund
Keystone Tax Free Fund
Keystone Tax Free Income Fund
Keystone World Bond Fund
Evergreen Trust
The Evergreen Equity Trust
The Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
The Evergreen Total Return Fund
The Evergreen American Retirement Trust
The Evergreen Foundation Trust
The Evergreen Municipal Trust
The Evergreen Money Market Fund
Evergreen Investment Trust
Evergreen Lexicon Trust
Evergreen Tax Free Trust
Evergreen Variable Trust
<PAGE>
(b) Information with respect to each officer and director of
Registrant's principal underwriter follows.
POSITION WITH POSITION WITH
NAME DIRECTOR REGISTRANT
- --------------- ------------------ ---------------
Robert A. Hering* President None
Michael C. Petrycki* Vice President None
Gordon M. Forrester* Vice President None
Lawrence Wagner* Vice President,
Chief Financial Officer None
Steven D. Blecher* Vice President,
Treasurer, Secretary None
Elizabeth Q. Solazzo* Assistant Secretary None
Thalia M. Cody* Assistant Secretary None
* Located at 230 Park Avenue, New York, New York 10169
ITEM 29(C). - Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
First Union 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, Registrant hereby undertakes to furnish a
copy of its latest annual report to shareholders to each person to whom a copy
of Registrant's prospectus is delivered.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for the effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston, in The
Commonwealth of Massachusetts, on the 28th day of February 1997.
KEYSTONE FUND OF THE AMERICAS
By: /s/ Geroge S. Bissell
-----------------------------
George S. Bissell
Cheif Executive Officer
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 28th day of January 1997.
<TABLE>
<S> <C> <C>
/s/ George S. Bissell /s/ Charles F. Chapin
- ------------------------ ------------------------- -------------------------
George S. Bissell Charles F. Chapin* William Walt Pettit
Chairman of the Board of Trustees Trustee Trustee
and Chief Executive Officer
/s/ John J. Pileggi /s/ K. Dun Gifford /s/ David M. Richardson
- ------------------------- ------------------------- -------------------------
John J. Pileggi K. Dun Gifford* David M. Richardson*
President amd Treasurer (Principal Trustee Trustee
Financial and Accounting Officer)
/s/ Frederick Amling
- ------------------------- ------------------------- -------------------------
Frederick Amling* James S. Howell Russell A. Salton, III MD
Trustee Trustee Trustee
/s/ Laurence B. Ashkin /s/ Leroy Keith, Jr.
- ------------------------- ------------------------- -------------------------
Laurence B. Ashkin Leroy Keith, Jr.* Michael S. Scofield
Trustee Trustee Trustee
/s/ Charles A. Austin, III /s/ F. Ray Keyser, Jr. /s/ Richard J. Shima
- ------------------------- ------------------------- -------------------------
Charles A. Austin, III* F. Ray Keyser, Jr.* Richard J. Shima*
Trustee Trustee Trustee
/s/ Andrew J. Simons
- ------------------------- ------------------------- -------------------------
Foster Bam Gerald M. McDonell Andrew J. Simons*
Trustee Trustee Trustee
/s/ Edwin D. Campbell
- ------------------------- -------------------------
Edwin D. Campbell* Thomas L. McVerry
Trustee Trustee
</TABLE>
*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
Page Number
In Sequential
Exhibit Number Exhibit Numbering System
1 Declaration of Trust (1)
2 (a) By-Laws (1)
(b) Amendment to By-Laws (2)
4 (a) Declaration of Trust (1)
(b) By-Laws (1)
5 Advisory Agreement (2)
6 (a) Class A and C Underwriting Agreement (3)
(b) Class B-2 Underwriting Agreement (2)
(c) Form of Dealer Agreement (2)
8 Custodian, Fund Accounting and Recordkeeping Agreement(1)
9 (a) Form of Marketing Services Agreement (2)
(b) Form of Sub-Administrator Agreement (2)
(c) Form of Continuation Agreements (2)
10 Opinion and Consent of Counsel (2)
11 Independent Auditors' Consent (3)
13 Subscription Agreement (4)
14 Model Retirement Plans (5)
15 Distribution Plans (1)
16 Performance Data Schedules (3)
17 Financial Data Schedules (3)
18 Multiple Class Plan (3)
19 Powers of Attorney (3)
- ----------------------------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 4.
(2) Incorporated herein by reference to Post-Effective Amendment No. 5.
(3) Filed herewith.
(4) Incorporated herein by reference to the Registration Statement.
(5) Incorporated herein by reference to Post-Effective Amendment No. 66 to
Registration Statement No. 2-10527.
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE AMERICA FUND FAMILY
CLASS A AND C SHARES
AGREEMENT effective this 1st day of January, 1997 by and between each
of the parties listed on Exhibit A attached hereto and made a part hereof, each
for itself and not jointly (each a "Fund"), and Evergreen Keystone Distributor,
Inc., a Delaware corporation ("Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal
underwriter of the Class A and Class C shares of beneficial interest of the Fund
("Shares") as an independent contractor upon the terms and conditions
hereinafter set forth. Except as the Fund may from time to time agree, Principal
Underwriter will act as agent for the Fund and not as principal.
2. Principal Underwriter will use its best efforts to find purchasers
for the Shares, to promote distribution of the Shares and may obtain orders from
brokers, dealers or other persons for sales of Shares to them. No such broker,
dealer or other person shall have any authority to act as agent for the Fund;
such broker, dealer or other person shall act only as principal in the sale of
Shares.
3. Sales of Shares by Principal Underwriter shall be at the applicable
public offering price determined in the manner set forth in the prospectus
and/or statement of additional information of the Fund current at the time of
the Fund's acceptance of the order for Shares; provided that Principal
Underwriter also shall have the right to sell Shares at net asset value, if such
sale is permissible under and consistent with applicable statutes, rules,
regulations and orders. All orders shall be subject to acceptance by the Fund,
and the Fund reserves the right in its sole discretion to reject any order
received. The Fund shall not be liable to anyone for failure to accept any
order.
4. On all sales of Shares, the Fund shall receive the current net asset
value, and Principal Underwriter shall be entitled to receive commission
payments for sales of the Class A and C Shares (as set forth on Exhibit B
attached hereto and made a part hereof) sold on or after December 11, 1996 and
as set forth in the then current prospectus and/or statement of additional
information of the Fund and to receive the sales charges, including contingent
deferred sales charges, as set forth in the then current prospectus and/or
statement of additional information of the Fund for Shares sold on or after
December 11, 1996. In accordance with the assignment made between Evergreen
Keystone Investment Services, Inc. ("EKIS") and Principal Underwriter dated
December 11, 1996, Principal Underwriter is to be entitled to receive commission
payments for sales of the Class A and C Shares sold on or after December 1, 1996
but before December 11, 1996 by EKIS as set forth in the then current prospectus
and/or statement of additional information of the Fund and to receive the sales
charges, including contingent deferred sales charges, as set forth in the then
current prospectus and/or statement of additional information
18918
<PAGE>
2
of the Fund for Shares sold on or after December 1, 1996 but before December 11,
1996. For purposes of this Principal Underwriting Agreement, all Shares sold
after December 1, 1996 and for which the Principal Underwriter may receive
commissions and contingent deferred sales charges shall be deemed
"Post-Acquisition Shares." The determination of which shares of the Fund are
Post-Acquisition Shares shall be made in accordance with Schedule I attached to
the Principal Underwriting Agreement between each Fund which is a party to this
Agreement and EKIS dated December 11, 1996 and shall be the same as the
"Post-distributor Shares" defined therein, calculated as though the Distributor
Last Sale Cut-Off Date, as such term is defined in Schedule I, was November 30,
1996. Principal Underwriter may reallow all or a part of such commissions and
the sales charges to such brokers, dealers or other persons as Principal
Underwriter may determine.
5. The payment provisions of this Agreement shall be applicable to the
extent necessary to enable the Fund to comply with the obligation of the Fund to
pay Principal Underwriter in accordance with this Agreement in respect of Class
C Shares and shall remain in effect so long as any payments are required to be
made by the Fund pursuant to the irrevocable payment instruction under the
Master Sale Agreement between Principal Underwriter and Mutual Fund Funding
1994-1 dated as of December 6, 1996 (the "Master Sale Agreement").
6. Payment to the Fund for Shares shall be in New York or Boston
Clearing House funds received by Principal Underwriter within three (3) business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such ten-day period, the Fund reserves the right,
without further notice, forthwith to cancel its acceptance of any such order.
The Fund shall pay such issue taxes as may be required by law in connection with
the issue of the Shares.
7. Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the Shares any representations concerning the Shares
except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information will be supplied by the Fund to Principal Underwriter in
reasonable quantities upon request.
8. Principal Underwriter agrees to comply with the Business
Conduct Rules of the National Association of Securities Dealers, Inc.
9. The Fund appoints Principal Underwriter as its agent to accept
orders for redemptions and repurchases of Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
10. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in
18918
<PAGE>
3
connection therewith) which the Principal Underwriter, its officers, Directors
or any such controlling person may incur under the 1933 Act, under any other
statute, at common law or otherwise, arising out of or based upon
a) any untrue statement or alleged untrue statement of a
material fact contained in the Fund's registration statement, pros
pectus or statement of additional information (including amendments
and supplements thereto), or
b) any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement, prospectus
or statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or
omission made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
11. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers, Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Trustees or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's registration
statement, prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
12. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by Principal
Underwriter for the purpose of qualifying the Shares for sale under the
so-called "blue sky" laws of any state or for registering Shares under the
18918
<PAGE>
4
1933 Act or the Fund under the Investment Company Act of 1940 ("1940 Act").
Principal Underwriter shall bear the expense of preparing, printing and
distributing advertising, sales literature, prospectuses and statements of
additional information. The Fund shall bear the expense of registering Shares
under the 1933 Act and the Fund under the 1940 Act, qualifying Shares for sale
under the so-called "blue sky" laws of any state, the preparation and printing
of prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to shareholders of the Fund and the direct expenses of the issue of
Shares.
13. To the extent required by the Fund's 12b-1 Plans, Principal
Underwriter shall provide to the Board of Trustees of the Fund in connection
with such 12b-1 Plans, not less than quarterly, a written report of the amounts
expended pursuant to such 12b-1 Plans and the purposes for which such
expenditures were made.
14. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire on June
30, 1998. This Agreement shall continue in effect after such term if its
continuance is specifically approved by a majority of the Trustees of the Fund
and a majority of the 12b-1 Trustees referred to in the 12b-1 Plans of the Fund
("Rule 12b-1 Trustees") at least annually in accordance with the 1940 Act and
the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of any Rule 12b-1 Trustees or by a vote of
a majority of the Fund's outstanding Shares on not more than sixty (60) days
written notice to any other party to the Agreement; and shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
15. This Agreement shall be construed in accordance with the laws
of The Commonwealth of Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against, the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
18918
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE BALANCED FUND II KEYSTONE
CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE FUND OF THE AMERICAS
KEYSTONE GLOBAL OPPORTUNITIES FUND
KEYSTONE GLOBAL RESOURCES AND
DEVELOPMENT FUND KEYSTONE GOVERNMENT
SECURITIES FUND KEYSTONE
INTERMEDIATE TERM BOND FUND KEYSTONE
LIQUID TRUST KEYSTONE OMEGA FUND
KEYSTONE SMALL COMPANY GROWTH FUND
II KEYSTONE STATE TAX FREE FUND
FLORIDA TAX FREE FUND
MASSACHUSETTS TAX FREE FUND
NEW YORK TAX FREE FUND
PENNSYLVANIA TAX FREE FUND
KEYSTONE STATE TAX FREE FUND SERIES
II
CALIFORNIA TAX FREE FUND
MISSOURI TAX FREE FUND
KEYSTONE STRATEGIC INCOME FUND
KEYSTONE TAX FREE INCOME FUND
KEYSTONE WORLD BOND FUND
each for itself and not jointly
By: /s/ George Bissell
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
By: /s/ J. David Huber
6
18918
<PAGE>
EXHIBIT A
TO
PRINCIPAL UNDERWRITING AGREEMENT
BETWEEN
KEYSTONE AMERICA FUND FAMILY
AND
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
DATED
JANUARY 1, 1997
KEYSTONE BALANCED FUND II KEYSTONE CAPITAL
PRESERVATION AND INCOME FUND KEYSTONE FUND FOR TOTAL
RETURN KEYSTONE FUND OF THE AMERICAS KEYSTONE GLOBAL
OPPORTUNITIES FUND KEYSTONE GLOBAL RESOURCES AND
DEVELOPMENT FUND KEYSTONE GOVERNMENT SECURITIES FUND
KEYSTONE INTERMEDIATE TERM BOND FUND KEYSTONE LIQUID
TRUST KEYSTONE OMEGA FUND KEYSTONE SMALL COMPANY
GROWTH FUND II KEYSTONE STATE TAX FREE FUND
FLORIDA TAX FREE FUND
MASSACHUSETTS TAX FREE FUND
NEW YORK TAX FREE FUND
PENNSYLVANIA TAX FREE FUND
KEYSTONE STATE TAX FREE FUND-SERIES II
CALIFORNIA TAX FREE FUND
MISSOURI TAX FREE FUND
KEYSTONE STRATEGIC INCOME FUND
KEYSTONE TAX FREE INCOME FUND
KEYSTONE WORLD BOND FUND
18919
<PAGE>
EXHIBIT B
TO
PRINCIPAL UNDERWRITING AGREEMENT
BETWEEN
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
AND
KEYSTONE AMERICA FUND FAMILY
DATED
JANUARY 1, 1997
Schedule of Commissions
Class A Shares Up to 0.25% annually of the average
daily net asset value of Class A shares
of a Fund
Class C Shares Up to 1.00% annually of the average
daily net asset value of Class C shares
of a Fund, consisting of commissions at
the annual rate of 0.75% of the average
daily net asset value of a Fund and
service fees of 0.25% of the average
daily net asset value of a Fund
18920
The Trustees and Shareholders
Keystone Fund of the Americas
We consent to the use of our report dated November 29, 1996 incorporated by
reference herein and to the references to our firm under the caption "Financial
Highlights" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
February 28, 1997
<TABLE>
<CAPTION>
KFOA CLASS A MTD YTD ONE YEAR THREE YEAR THREE YEAR
31-Oct-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
5.75% LOAD 6.15% 10.03% 14.01% 4.47%
no load 0.09% 12.63% 16.74% 20.97% 6.55%
Beg dates 30-Sep-96 29-Dec-95 31-Oct-95 01-Nov-93 01-Nov-93
Beg Value (LOAD) 12,824 11,396 10,994 10,610 10,610
Beg Value (no load) 12,086 10,741 10,362 10,000 10,000
End Value 12,097 12,097 12,097 12,097 12,097
TIME 3
<CAPTION>
KFOA CLASS A FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
31-Oct-96 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
5.75% LOAD 14.01% 4.47% 14.01% 4.47%
no load 20.97% 6.55% 20.97% 6.55%
Beg dates 01-Nov-93 01-Nov-93 01-Nov-93 01-Nov-93
Beg Value (LOAD) 10,610 10,610 10,610 10,610
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value 12,097 12,097 12,097 12,097
TIME 3 3
</TABLE>
<TABLE>
<CAPTION>
KFOA-B MTD YTD ONE YEAR THREE YEAR THREE YEAR
31-Oct-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A 6.76% 11.82% 15.38% 4.89%
W/O CDSC 0.00% 11.76% 15.82% 18.38% 5.79%
Beg dates 30-Sep-96 29-Dec-95 31-Oct-95 01-Nov-93 01-Nov-93
Beg Value (no load) 11,838 10,593 10,222 10,000 10,000
End Value (W/O CDSC) 11,838 11,838 11,838 11,838 11,838
End Value (with cdsc) 11,309 11,430 11,538 11,538
beg nav 10.98 10.04 9.76 10.00 10
end nav 10.98 10.98 10.98 10.98 10.98
shares originally purchased 1,078.19 1,055.08 1,047.32 1,000.00 1,000.00
5% cdsc thru 31-Oct-94
TIME 4% cdsc thru 31-Oct-95 3
INCEPTION DATE 01-Nov-93 3% cdsc effe 31-Oct-97
2% cdsc effe 31-Oct-98
1% cdsc effe 31-Oct-99
<CAPTION>
KFOA-B FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
31-Oct-96 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc NA NA NA NA
W/O CDSC NA NA NA NA
Beg dates 01-Nov-93 01-Nov-93 01-Nov-93 01-Nov-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 11,838 11,838 11,838 11,838
End Value (with cdsc) 11,738 11,738 11,838 11838.4843452
beg nav 10.00 10 10.00 10
end nav 10.98 10.98 10.98 10.98
shares originally purchased 1,000.00 1,000.00 1,000.00 1,000.00
TIME 3 3
INCEPTION DATE 31-Dec-96
</TABLE>
<TABLE>
<CAPTION>
KFOA-C MTD YTD ONE YEAR THREE YEAR THREE YEAR
31-Oct-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A 10.86% 15.80% 18.49% 5.82%
W/O CDSC 0.00% 11.86% 15.80% 18.49% 5.82%
Beg dates 30-Sep-96 29-Dec-95 31-Oct-95 01-Nov-93 01-Nov-93
Beg Value (no load) 11,849 10,593 10,232 10,000 10,000
End Value (W/O CDSC) 11,849 11,849 11,849 11,849 11,849
End Value (with cdsc) 11,743 11,849 11,849 11,849
beg nav 10.99 10.04 9.77 10.00 10
end nav 10.99 10.99 10.99 10.99 10.99
shares originally purchased 1,078.15 1,055.06 1,047.29 1,000.00 1,000.00
TIME 3
INCEPTION DATE 01-Nov-93 1% cdsc effe 01-Jan-96
<CAPTION>
KFOA-C FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
31-Oct-96 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc 18.49% 5.82% NA NA
W/O CDSC 18.49% 5.82% NA NA
Beg dates 01-Nov-93 01-Nov-93 01-Nov-93 01-Nov-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 11,849 11,849 11,849 11,849
End Value (with cdsc) 11,849 11848.8979872 11,849 11848.8979872
beg nav 10.00 10 10.00 10
end nav 10.99 10.99 10.99 10.99
shares originally purchased 1,000.00 1,000.00 1,000.00 1,000.00
TIME 3 3
INCEPTION DATE 31-Dec-96
1% cdsc thru date^
</TABLE>
MULTIPLE CLASS PLAN FOR KEYSTONE FUND OF THE AMERICAS
Keystone Fund of the Americas (the "Fund") currently offers three classes
of shares with the following class provisions and current offering and exchange
characteristics. Additional classes of shares (such classes being shares having
characteristics referred to in Rule 18f-3 under the Investment Company Act of
1940, as amended (the "1940 Act")), when created, may have characteristics that
differ from those described.
I. CLASSES
A. Class A Shares
1. Class A Shares have a distribution plan adopted pursuant to Rule 12b-1
under the 1940 Act (a "12b-1 Distribution Plan") and/or a shareholder services
plan. The plans provide for annual payments of distribution and/or shareholder
services fees that are based on a percentage of average daily net assets of
Class A shares, as described in the Fund's current prospectus.
2. Class A Shares are offered with a front-end sales load, except that
purchases of Class A Shares made under certain circumstances may not be subject
to a front-end sales load or a contingent deferred sales charge ("CDSC"), as
described in the Fund's current prospectus.
3. Shareholders may exchange Class A Shares of the Fund for Class A Shares
of any other fund described in the Fund's prospectus.
B. Class B Shares
1. Class B Shares have adopted a 12b-1 Distribution Plan and/or a
shareholder services plan. The plans provide for annual payments of distribution
and/or shareholder services fees that are based on a percentage of average daily
net assets of Class B shares, as described in the Fund's current prospectus.
2. Class B Shares are offered at net asset value without a front-end sales
load, but may be subject to a CDSC as described in the Fund's current
prospectus.
3. Class B Shares automatically convert to Class A Shares without a sales
load or exchange fee after designated periods.
4. Shareholders may exchange Class B Shares of the Fund for Class B Shares
of any other fund described in the Fund's prospectus.
C. Class C Shares
1. Class C Shares have adopted a 12b-1 Distribution Plan and/or a
shareholder services plan. The plans provide for annual payments of distribution
and/or shareholder services fees that are based on a percentage of average daily
net assets of Class C shares, as described in the Fund's current prospectus.
2. Class C Shares are offered at net asset value without a front-end sales
load, but may be subject to a CDSC as described in the Fund's current
prospectus.
3. Shareholders may exchange Class C Shares of the Fund for Class C Shares
of any other fund described in the Fund's prospectus.
II. CLASS EXPENSES
Each class bears the expenses of its 12b-1 Distribution Plan and/or
shareholder services plan. There currently are no other class specific expenses.
III. EXPENSE ALLOCATION METHOD
All income, realized and unrealized capital gains and losses and expenses
not assigned to a class will be allocated to each class based on the relative
net asset value of each class.
IV. VOTING RIGHTS
A. Each class will have exclusive voting rights on any matter submitted to
its shareholders that relates solely to its class arrangement.
B. Each class will have separate voting rights on any matter submitted to
shareholders where the interests of one class differ from the interests of any
other class.
C. In all other respects, each class has the same rights and obligations as
each other class.
V. EXPENSE WAIVERS OR REIMBURSEMENTS
Any expense waivers or reimbursements will be in compliance with Rule 18f-3
issued under the 1940 Act.
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/ George S. Bissell
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Frederick Amling
Frederick Amling
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles A. Austin III
Charles A. Austin III
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Edwin D. Campbell
Edwin D. Campbell
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles F. Chapin
Charles F. Chapin
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ K. Dun Gifford
K. Dun Gifford
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Leroy Keith, Jr.
Leroy Keith, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ F. Ray Keyser,Jr.
F. Ray Keyser, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ David M. Richardson
David M. Richardson
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Richard J. Shima
Richard J. Shima
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Andrew J. Simons
Andrew J. Simons
Director/Trustee
Dated: December 14, 1994
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<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>
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<NUMBER> 101
<NAME> KEYSTONE FUND OF THE AMERICAS CLASS A
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<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> KEYSTONE FUND OF THE AMERICAS CLASS B
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<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> KEYSTONE FUND OF THE AMERICAS CLASS C
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