<PAGE>
As Filed With the Securities and Exchange Commission on April 12, 1995
File Nos. 33-82520
and 811-8694
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. 1 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 2 [X]
KEYSTONE STRATEGIC DEVELOPMENT FUND
(formerly Keystone Pan Pacific Resources Fund)
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(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 338-3200
Rosemary D. Van Antwerp, Esq., 200 Berkeley Street,
Boston, MA 02116-5034
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b) of Rule 485.
on (date) pursuant to paragraph (b) of Rule 485.
60 days after filing pursuant to paragraph (a)(i) of Rule 485.
on (date) pursuant to paragraph (a)(i) of Rule 485.
75 days after filing pursuant to paragraph (a)(ii) of Rule 485.
on (date) pursuant to paragraph (a)(ii) of Rule 485.
Registrant has registered an indefinite number or amount of its
securities under the Securities Act of 1933 pursuant to Rule 24f-2,
and Registrant will file a Rule 24f-2 Notice under the Investment
Company Act of 1940 within two months after the close of its fiscal
year ended March 31, 1995.
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KEYSTONE STRATEGIC DEVELOPMENT FUND
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT
This Post-Effective Amendment No. 1 to Registration Statement consists of
the following pages and documents:
The Facing Sheet
The Contents Page
The Cross-Reference Sheet
PART A
Prospectus
(Filed with Pre-Effective Amendment No. 1 to Registration Statement
No. 33-82520/811-8694 and is incorporated by reference herein.)
PART B
Statement of Additional Information
PART C
PART C - OTHER INFORMATION - ITEMS 24 (a) and (b)
Financial Statements
Report of Independent Auditors
(Filed with Pre-Effective Amendment No. 1 to Registration Statement
No. 33-82520/811-8694 and is incorporated by reference herein.)
Exhibit Listing
PART C - OTHER INFORMATION - ITEMS 25-32- AND SIGNATURE PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE STRATEGIC DEVELOPMENT FUND
Cross-Reference Sheet pursuant to Rule 495 under the Securities Act
of 1933.
Items in
Part A of
Form N-1A Prospectus Caption
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(Filed with Pre-Effective Amendment No. 1 to Registration Statement No.
33-82520/811-8694 and is incorporated by reference herein.)
1 Cover Page
2 Fee Table
3 Not Applicable
4 Cover Page
The Fund
Investment Objective and Strategies
Investment Restrictions
Risk Factors
5 Fund Management and Expenses
5A Not Applicable
6 The Fund
Dividends and Taxes
Fund Shares
Shareholder Services
Pricing Shares
7 How to Buy Shares
Alternative Sales Options
Distribution Plans
Pricing Shares
Shareholder Services
8 How to Redeem Shares
Contingent Deferred Sales Charge
and Waiver of Sales Charge
9 Not Applicable
Items in
Part B of
Form N-1A Statement of Additional Information Caption
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10 Cover Page
11 Table of Contents
<PAGE>
KEYSTONE STRATEGIC DEVELOPMENT FUND
Cross-Reference Sheet continued.
Items in
Part B of
Form N-1A Statement of Additional Information Caption
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12 Not Applicable
13 The Fund
Investment Restrictions
Appendix
14 Trustees and Officers
15 Additional Information
16 Investment Adviser and SubAdviser
Principal Underwriter
Distribution Plans
Additional Information
17 Brokerage
18 The Fund
Declaration of Trust
19 Valuation of Securities
Sales Charges
20 Dividends and Taxes
21 Principal Underwriter
22 Standardized Total Return and Yield Quotations
23 Financial Statements (Unaudited)
<PAGE>
KEYSTONE STRATEGIC DEVELOPMENT FUND
PART A
PROSPECTUS
(Filed with Pre-Effective Amendment No. 1 to Registration
Statement No. 33-82520/811-8694 and is incorporated by reference
herein.)
<PAGE>
KEYSTONE STRATEGIC DEVELOPMENT FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
KEYSTONE STRATEGIC DEVELOPMENT FUND
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 7, 1994
SUPPLEMENTED APRIL 12, 1995
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
Strategic Development Fund (the "Fund") dated October 7, 1994. A copy of the
prospectus may be obtained from Keystone Distributors, Inc. ("KDI"), the Fund's
principal underwriter ("Principal Underwriter"), 200 Berkeley Street, Boston,
Massachusetts 02116-5034.
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TABLE OF CONTENTS
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Page
The Fund 2
Investment Restrictions 2
Dividends and Taxes 5
Valuation of Securities 6
Brokerage 7
Sales Charges 9
Distribution Plans 11
Trustees and Officers 14
Fund Expenses 18
Investment Adviser and SubAdviser 19
Principal Underwriter 21
Declaration of Trust 22
Standardized Total Return
and Yield Quotations 24
Additional Information 24
Appendix A-1
Financial Statements (Unaudited) F-1
<PAGE>
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THE FUND
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The Fund is an open-end, diversified management investment company
commonly known as a mutual fund. The Fund seeks long term capital growth by
investing primarily in equity securities.
The Fund was formed as a Massachusetts business trust on July 27, 1994.
The Fund is managed and advised by Keystone Custodian Funds, Inc. ("Keystone").
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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INVESTMENT RESTRICTIONS
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The Fund has adopted various fundamental and non-fundamental investment
restrictions and policies. These restrictions and policies are described below.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions,
which may not be changed without the vote of a majority (as defined in the
Investment Company Act of 1940 ("1940 Act")) of the Fund's outstanding Class A,
B, and C shares. Unless otherwise stated, all references to Fund assets are in
terms of current market value.
The Fund may not do the following:
(1) with respect to 75% of its total assets, invest more than 5% of the
value of its total assets, determined at market or other fair value at the time
of purchase, in the securities of any one issuer, or invest in more than 10% of
the outstanding voting securities of any one issuer, all as determined
immediately after such investment; provided that these limitations do not apply
to investments in securities issued or guaranteed by the United States ("U.S.")
government or its agencies or instrumentalities;
(2) invest more than 25% of the value of its total assets in the
securities of issuers in any one industry other than securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities;
(3) borrow money, except that the Fund may (a) borrow from any bank,
provided that, immediately after any such borrowing there is asset coverage of
at least 300% for all borrowings; (b) borrow for temporary purposes only and in
an amount not exceeding 5% of the value of the Fund's total assets, computed at
the time of borrowing; or (c) enter into reverse repurchase agreements, provided
that, immediately after entering into any such agreements, there is asset
coverage of at least 300% of all bank borrowings and reverse repurchase
agreements;
(4) issue senior securities, except that the Fund may (a) make
permitted borrowings of money; (b) enter into firm commitment agreements and
collateral arrangements with respect to the writing of options on securities and
engage in permitted transactions in futures and options thereon and forward
contracts; and (c) issue shares of any additional permitted classes or series;
(5) invest in real estate or commodities, except that the Fund may (a)
invest in securities directly or indirectly secured by real estate and interests
therein and securities of companies that invest in real estate and interests
therein, including mortgages and other liens; and (b) enter into financial
futures contracts and options thereon for hedging purposes and enter into
forward contracts; or
(6) make loans, except that the Fund may make, purchase, or hold
publicly and nonpublicly offered debt securities (including convertible
securities) and other debt investments, including loans, consistent with its
investment objective; (b) lend its portfolio securities to broker-dealers; and
(c) enter into repurchase agreements.
OTHER FUNDAMENTAL POLICIES
Notwithstanding any other investment policy or restriction, the Fund
may invest all of its assets in the securities of a single open-end management
investment company with substantially the same fundamental investment
objectives, policies and restrictions as the Fund.
NONFUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund may not do the following:
(1) borrow money except for temporary or emergency purposes (not for
leveraging or investment), and it will not purchase any security while
borrowings representing more than 5% of its total assets are outstanding;
(2) (a) sell securities short (except by selling futures contracts or
writing covered options), unless it owns, or by virtue of ownership of other
securities has the right to obtain without additional consideration securities
identical in kind and amount to the securities sold short; or (b) purchase
securities on margin, except for such short-term credits as are necessary for
the clearance of transactions, and provided that the Fund may make initial and
variation so-called "margin" payments in connection with purchases or sales of
futures contracts or of options on futures contracts or forwards or other
similar instruments;
(3) 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 its investment restrictions on
borrowings, 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 or forwards or other similar instruments;
(4) purchase the securities of any other investment company, except by
purchase in the open market subject only to customary broker's commissions and
provided that any such purchase will not result in duplication of sales charges
or management fees, and except in connection with any merger, consolidation, or
reorganization;
(5) invest in oil, gas, or other mineral leases or development programs
(except the Fund may invest in companies that own or invest in such interests);
or
(6) invest in real estate limited partnerships.
NONFUNDAMENTAL RESTRICTIONS ON OPTIONS AND WARRANTS
The Fund may not do the following:
(1) write covered options, unless the securities underlying such
options are listed on a national securities exchange and the options are issued
by the Options Clearing Corporation; provided, however, that the securities
underlying such options may be traded on an automated quotations system
("NASDAQ") of the National Association of Securities Dealers, Inc. ("NASD") if
and to the extent permitted by applicable state regulations; or
(2) purchase warrants, valued at the lower of cost or market, in excess
of 5% of the value of the Fund's net assets; included within that amount, but
not to exceed 2% of the value of the Fund's net assets, may be warrants that are
not listed on the New York or American Stock Exchanges; warrants acquired by the
Fund at any time in units or attached to securities are not subject to this
restriction.
OTHER NONFUNDAMENTAL POLICIES
The Fund intends to follow the policies of the Securities and Exchange
Commission as they are adopted from time to time with respect to illiquid
securities, including (1) treating as illiquid securities that may not be
disposed of in the ordinary course of business within seven days at
approximately the value at which the Fund has valued the investment on its
books; and (2) limiting its holdings of such securities to 15% of its net
assets. The purchase of restricted securities is not to be deemed engaging in
underwriting.
In order to permit the sale of Fund shares in certain states or foreign
countries, the Fund may make commitments more restrictive than the investment
restrictions described above. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund, it may revoke the commitment by
terminating sales of its shares in the state or country involved.
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DIVIDENDS AND TAXES
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The Fund intends to distribute annually dividends from its net
investment income, if any, on an annual basis. The Fund will, at least annually,
distribute all net realized long-term capital gains, if any. The Fund will make
distributions in shares or, at the option of the shareholder, in cash.
Shareholders who have not opted, prior to the record date for any distribution,
to receive cash will have the number of such shares determined on the basis of
net asset value per share computed at the end of the day on the record date
after adjustment for the distribution. Net asset value is used in computing the
number of shares in both gains and income distribution reinvestments. Account
statements and/or checks as appropriate will be mailed to shareholders within
seven days after the Fund pays the distribution. Unless the Fund receives
instructions to the contrary from a shareholder before the record date, it will
assume that the shareholder wishes to receive that distribution and future gains
and income distributions in shares. Instructions continue in effect until
changed in writing.
Distributed long-term capital gains are taxable as such to the
shareholder whether received in cash or in additional Fund shares and regardless
of the period of time Fund shares have been held by the shareholder. However, if
such shares are held less than six months and redeemed at a loss, the
shareholder will recognize a long term capital loss on such shares to the extent
of the distribution received in connection with such shares. If the net asset
value of the Fund's shares is reduced below a shareholder's cost by a capital
gains distribution, such distribution, to the extent of the reduction, would be
a return of investment reducing the shareholder's federal tax basis for such
shares, though taxable as stated above. Since distributions of capital gains
depend upon profits actually realized from the sale of securities by the Fund,
they may or may not occur. The foregoing comments relating to the taxation of
dividends and distributions paid on the Fund's shares relate solely to federal
income taxation; such dividends and distributions may also be subject to state
and local taxes.
When the Fund makes a distribution, it intends to distribute only the
Fund's net capital gains and such income as has been pre-determined to the best
of the Fund's ability to be taxable as ordinary income. Therefore, net
investment income distributions will not be made on the basis of distributable
income as computed on the books of the Fund, but will be made on a federal
income tax basis. Shareholders of the Fund will be advised annually of the
federal income tax status of distributions.
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 cash 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
such foreign taxes withheld as a credit against his U.S. income tax, or to treat
the foreign tax withheld as an itemized deduction from his gross income, if that
should be to his advantage. In substance, this policy enables the shareholder to
benefit from the same foreign tax credit or deduction that he would have
received if he had been the individual owner of foreign securities and had paid
foreign income tax on the income therefrom. As in the case of individuals
receiving income directly from foreign sources, the above described tax credit
and deductions are subject to certain limitations.
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VALUATION OF SECURITIES
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Current values for the Fund's securities are generally 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) instruments having maturities of more than sixty day for which
market quotations are readily available, are valued at current market value;
where market quotations are not available, such instruments are valued at fair
value as determined by the Board of Trustees;
(4) instruments purchased with maturities of sixty days or less
(including all master demand notes) are valued at amortized cost (original
purchase cost as adjusted for amortization of premium or accretion of discount),
which, when combined with accrued interest, approximates market; instruments
maturing in more than sixty days when purchased that are held on the sixtieth
day prior to maturity are valued at amortized cost (market value on the sixtieth
day adjusted for amortization of premium or accretion of discount), which, when
combined with accrued interest, approximates market; and which, in either case,
reflects fair value as determined by the Board of Trustees; and
(5) the following securities are valued at prices deemed in good faith
to be fair under procedures established by the Board of Trustees: (a)
securities, including restricted securities, for which complete quotations are
not readily available; (b) listed securities or those on NMS if, in the Fund's
opinion, the last sales price does not reflect a current market value or if no
sale occurred; and (c) other assets.
Foreign securities 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.
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BROKERAGE
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In effecting transactions in securities for the Fund, the Fund seeks
best execution of orders at the most favorable prices. The determination of what
may constitute best execution and price in the execution of a securities
transaction by a broker involves a number of considerations, including, without
limitation, the overall direct net economic result to the Fund (involving both
price paid or received and any commissions and other costs paid), the efficiency
with which the transaction is effected, the ability to effect the transaction at
all where a large block is involved, the availability of the broker to stand
ready to execute potentially difficult transactions in the future and the
financial strength and stability of the broker. Such considerations are weighed
by management in determining the overall reasonableness of brokerage commissions
paid.
Subject to the foregoing, a factor in the selection of brokers is the
receipt of research services, such as analyses and reports concerning issuers,
industries, securities, economic factors and trends as well as other statistical
and factual information (including related computer services and equipment). Any
such research and other statistical and factual information provided by brokers
to the Fund or Keystone are considered to be in addition to and not in lieu of
services required to be performed by Keystone under its Investment Advisory and
Management Agreement with the Fund. The cost, value and specific application of
such information are indeterminable and cannot be practically allocated among
the Fund and other clients of Keystone who may indirectly benefit from the
availability of such information. Similarly, the Fund may indirectly benefit
from information made available as a result of transactions effected for such
other clients. Under its Investment Advisory and Management Agreement with the
Fund, Keystone is permitted to pay higher brokerage commissions for brokerage
and research services in accordance with Section 28(e) of the Securities
Exchange Act of 1934. In the event Keystone does follow such a practice, it will
do so on a basis that is fair and equitable to the Fund.
The Fund expects that its purchases and sales of equity securities
usually will be effected through brokerage transactions for which commissions
are payable. Purchases and sales of debt securities 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. When the Fund trades in the over-the-counter
market, it will deal with primary market makers unless more favorable prices are
otherwise obtainable.
The Fund may participate, if and when practicable, in group bidding for
the direct purchase from an issuer of certain securities, thereby taking
advantage of the lower purchase price available to such a group.
Neither Keystone nor the Fund has any intention of placing the Fund's
securities transactions with any particular broker-dealer or group thereof. The
Fund's Board of Trustees has determined, however, that the Fund may follow a
policy of considering sales of shares of the Fund as a factor in the selection
of broker-dealers to execute portfolio transactions, subject to the requirements
of best execution, described above.
In addition, securities for the Fund will not be purchased from or sold
to Keystone, KDI, or any of their affiliated persons except in accordance with
the 1940 Act and rules and regulations issued thereunder.
Investment decisions for the Fund are made independently from those of
the other funds and investment accounts managed by Keystone. It may frequently
develop, however, that the same investment decision is made for more than one
fund. Simultaneous transactions are inevitable when the same security is
suitable for the investment objective of more than one account. When two or more
funds or accounts are engaged in the purchase or sale of the same security, the
transactions are allocated as to amount in accordance with a formula that is
equitable to each fund or account. It is recognized that in some cases this
system could have a detrimental effect on the price or volume of the security as
far as the Fund is concerned. In other cases, however, it is believed that the
ability of the Fund to participate in volume transactions will produce better
executions for the Fund. It is the opinion of the Fund's Board of Trustees that
the desirability of retaining Keystone as the Fund's investment adviser
outweighs any disadvantages that may result from exposure to simultaneous
transactions.
The Fund's policy with respect to brokerage is and will be reviewed by
the Fund's Board of Trustees from time to time. Because of the possibility of
further regulatory developments affecting the securities exchanges and brokerage
practices generally, the foregoing practices may be changed, modified or
eliminated.
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SALES CHARGES
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GENERAL
The Fund offers three classes of shares. Class A shares are offered
with a maximum sales charge of 5.75% payable at the time of purchase ("Front End
Load Option"). Class B shares are sold subject to a contingent deferred sales
charge payable upon redemption within three calendar years after the year of
purchase ("Back End Load Option"). Class B shares that have been outstanding
during seven calendar years will automatically convert to Class A shares,
without imposition of a front end sales charge. (Conversion of Class B shares
represented by stock certificates will require the return of the stock
certificates to Keystone Investor Resource Center, Inc., the Fund's transfer and
dividend disbursing agent ("KIRC").) Class C shares are sold subject to a
contingent deferred sales charge payable upon redemption within one year after
the date of purchase ("Level Load Option"). Class C shares are available only
through dealers who have entered into special distribution agreements with KDI,
the Fund's Principal Underwriter. The prospectus contains a general description
of how investors may buy shares of the Fund, including a table of applicable
sales charges for Class A shares, a discussion of reduced sales charges that may
apply to subsequent purchases, and a description of applicable contingent
deferred sales charges.
CONTINGENT DEFERRED SALES CHARGES
In order to pay KDI for the sale of its shares (see "Distribution
Plans"), a contingent deferred sales charge may be imposed at the time of
redemption of certain Fund shares, as follows:
CLASS A SHARES
With certain exceptions, purchases of Class A shares in the amount of
$1,000,000 on which no sales charge has been paid will be subject to a
contingent deferred sales charge of 0.25% upon redemption during the one year
period commencing on the date the shares were originally purchased. KDI retains
the contingent deferred sales charge. See "Calculation of Contingent Deferred
Sales Charge" below.
CLASS B SHARES
With certain exceptions, the Fund may impose a deferred sales charge of
3.00% on shares redeemed during the calendar year of purchase and during the
first calendar year after the year of purchase; 2.00% on shares redeemed during
the second calendar year after the year of purchase; and 1.00% on shares
redeemed during the third calendar year after the year of purchase. No deferred
sales charge is imposed on amounts redeemed thereafter. If imposed, the deferred
sales charge is deducted from the redemption proceeds otherwise payable to you.
KDI retains the deferred sales charge. See "Calculation of Contingent Deferred
Sales Charge" below.
CLASS C SHARES
With certain exceptions, the Fund may impose a deferred sales charge of
1.00% on shares redeemed within one year after the date of purchase. No deferred
sales charge is imposed on amounts redeemed thereafter. If imposed, the deferred
sales charge is deducted from the redemption proceeds otherwise payable to you.
KDI retains the deferred sales charge. See "Calculation of Contingent Deferred
Sales Charge" below.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE
Any contingent deferred sales charge imposed upon the redemption of
Class A, B, or C shares is a percentage of the lesser of (1) the net asset value
of the shares redeemed or (2) the net cost of such shares. No contingent
deferred sales charge is imposed when you redeem amounts derived from (1)
increases in the value of your account above the net cost of such shares due to
increases in the net asset value per share of the Fund; (2) certain shares with
respect to which the Fund did not pay a commission on issuance, including shares
acquired through reinvestment of dividend income and capital gains
distributions; (3) Class C shares and certain Class A shares held during more
than one year; or (4) Class B shares held during more than four consecutive
calendar years. Upon request for redemption, shares not subject to the
contingent deferred sales charge will be redeemed first. Thereafter, shares held
the longest will be the first to be redeemed. There is no contingent deferred
sales charge when the shares of a class are exchanged for the shares of the same
class of another Keystone America Fund. Moreover, when shares of one such class
of a fund have been exchanged for shares of another such class of a fund, the
calendar year of the purchase of the shares of the fund exchanged into is
assumed to be the year shares tendered for exchange were originally purchased.
REDEMPTION OF SHARES
The Fund has obligated itself to redeem for cash all shares presented
for redemption by any one shareholder in any 90-day period up to the lesser of
$250,000 or 1% of the Fund's net assets.
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DISTRIBUTION PLANS
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Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund, to use their assets to bear expenses of distributing their shares if they
comply with various conditions, including adoption of a distribution plan
containing certain provisions set forth in Rule 12b-1. On July 17, 1994, the
Fund's Board of Trustees, including a majority of the Trustees who are not
interested persons of the Fund as defined in the 1940 Act ("Independent
Trustees") and a majority of the Trustees who have no direct or indirect
financial interest in the Fund's Class A, B, and C Distribution Plans or any
agreement related thereto (the "Rule 12b-1 Trustees," who are the same as the
Independent Trustees) approved the Fund's Class A, B, and C Distribution Plans.
The NASD currently limits the amount that a Fund may pay annually in
distribution costs for sale of its shares and shareholder service fees. The NASD
limits annual expenditures to 1% of the aggregate average daily net asset value
of the Fund's shares, of which 0.75% may be used to pay such distribution costs
and 0.25% may be used to pay shareholder service fees. The NASD also limits the
aggregate amount that the Fund may pay for such distribution costs to 6.25% of
gross share sales since the inception of the 12b-1 Plan, plus interest at the
prime rate plus 1% on such amounts (less any contingent deferred sales charges
paid by shareholders to KDI).
CLASS A DISTRIBUTION PLAN. The Class A Distribution Plan provides that the Fund
may expend daily amounts at a maximum annual rate of 0.35% (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 a Principal Underwriter (currently KDI) to enable the Principal
Underwriter to retain or pay to others who sell Class A shares a service or
other fee, at such intervals as the Principal Underwriter may determine, in
respect of Class A shares maintained by such recipients that remain outstanding
during the period in respect of which such fee is or has been paid.
Amounts paid by the Fund under the Class A Distribution Plan are used
to pay KDI and others, such as dealers, service fees at an annual rate of up to
0.25% of the average net asset value of Class A shares maintained by such
recipients that remain outstanding on the books of the Fund for specified
periods.
CLASS B DISTRIBUTION PLAN. The Class B Distribution Plan provides that the Fund
may expend daily amounts at a maximum annual rate of up to 1.00% of the Fund's
average daily net asset value attributable to Class B shares to finance any
activity that is primarily intended to result in the sale of Class B shares,
including, without limitation, expenditures consisting of payments to a
Principal Underwriter (currently KDI) to enable the Principal Underwriter (1) to
retain or pay to others (dealers) commissions in respect of Class B shares sold
since the inception of the Distribution Plan; and (2) to retain or pay or to
have paid to others (dealers) a service fee, at such intervals as the Principal
Underwriter may determine, in respect of Class B shares maintained by such
recipients and outstanding on the books of the Fund during the period in respect
of which such fee is or has been paid.
Amounts paid by the Fund under the Class B Distribution Plan are
generally used (1) to retain or pay KDI and others (dealers) a commission
normally equal to 3.00% of the value of KDI and each Class B share sold; and/or
(2) to pay KDI or others (dealers) service fees at an annual rate of 0.25% of
the average net asset value of Class B shares maintained by such recipients and
outstanding on the books of the Fund for specified periods.
KDI intends, but is not obligated, to continue to pay or accrue
distribution charges incurred in connection with the Class B Distribution Plan
that exceed current annual payments permitted to be received by KDI from the
Fund. KDI intends to seek full payment of such charges from the Fund (together
with annual interest thereon at the prime rate plus one percent) at such time in
the future as, and to the extent that, payment thereof by the Fund would be
within the permitted limits.
CLASS C DISTRIBUTION PLAN. The Class C Distribution Plan provides that the Fund
may expend daily amounts at a maximum annual rate of up to 1.00% of the Fund's
average daily net asset value attributable to Class C shares to finance any
activity that is primarily intended to result in the sale of Class C shares,
including, without limitation, expenditures consisting of payments to a
Principal Underwriter of the Fund (currently KDI) to enable the Principal
Underwriter to pay to others (dealers) commissions in respect of Class C shares
of the Fund sold since the inception of the Distribution Plan; and (2) to enable
the Principal Underwriter to pay or to have paid to others a service fee, at
such intervals as the Principal Underwriter may determine, in respect of Class C
shares maintained by such recipients and outstanding on the books of the Fund
for specified periods.
Amounts paid by the Fund under the Class C Distribution Plan are
currently used to pay KDI or others (dealers) (1) a commission normally equal to
1.00% of the value each share sold, such payment to consist of a commission in
the amount of 0.75% of such value plus the first year's service fee in advance
in the amount of 0.25% of such value; and (2) beginning approximately 15 months
after purchase, a commission at an annual rate of 0.75% (subject to applicable
NASD limitations) plus service fees at an annual rate of 0.25%, respectively, of
the average daily net asset value of each Class C share maintained by such
recipients and outstanding on the books of the Fund for specified periods.
GENERAL INFORMATION
Whether any expenditure under a Distribution Plan is subject to a state
expense limit will depend upon the nature of the expenditure and the terms of
the state law, regulation or order imposing the limit. A portion of the Fund's
Distribution Plan expenses may be includable in the Fund's total operating
expenses for purposes of determining compliance with state expense limits.
A Distribution Plan may be terminated at any time by a vote of a
majority of the Fund's Rule 12b-1 Trustees or by vote of a majority of the
outstanding voting shares of the respective class of Fund shares. After the
termination of the Class B Distribution Plan, however, KDI would be entitled to
receive payment, at the annual rate of 1.00% of the average daily net asset
value of Class B shares, as compensation for its services that had been earned
at any time during which the Class B Distribution Plan was in effect. Any change
in a Distribution Plan that would materially increase the distribution expenses
of the Fund provided for in a Distribution Plan requires shareholder approval.
Otherwise, a Distribution Plan may be amended by the Trustees, including the
Fund's Rule 12b-1 Trustees.
While a Distribution Plan is in effect, the Fund will be required to
commit the selection and nomination of candidates for Independent Trustees to
the discretion of the Independent Trustees.
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 Rule
12b-1 Trustees quarterly. The Rule 12b-1 Trustees may require or approve changes
in the implementation or operation of a Distribution Plan and may also require
that total expenditures by the Fund under a Distribution Plan be kept within
limits lower than the maximum amount permitted by a Distribution Plan as stated
above.
The Fund's Independent Trustees have determined that the sales of the
Fund's shares resulting from payments under the Distribution Plans are expected
to benefit the Fund.
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TRUSTEES AND OFFICERS
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Trustees and officers of the Fund, their principal occupations and some
of their affiliations over the last five years are as follows:
*ALBERT H. ELFNER, III: President, Trustee and Chief Executive Officer of the
Fund; Chairman of the Board, President, Director and Chief Executive
Officer of Keystone Group, Inc. ("Keystone Group"), President and Trustee
or Director of Keystone America Capital Preservation and Income Fund,
Keystone America Intermediate Term Bond Fund, Keystone America Strategic
Income Fund, Keystone America World Bond Fund, Keystone Tax Free Income
Fund, Keystone America Sate Tax Free Fund, Keystone America State Tax Free
Fund - Series II, Keystone America Fund For Total Return, Keystone America
Global Opportunities Fund, Keystone America Hartwell Emerging Growth Fund,
Inc., Keystone America Hartwell Growth Fund, Inc., Keystone America Omega
Fund, Inc., Keystone Fund of the Americas - Luxembourg and Keystone Fund
For The Americas - U.S., Keystone Strategic Development Fund (collectively,
"Keystone America Funds"); Keystone Custodian Funds, Series B- 1, B-2, B-4,
K-1, K-2, S-1, S-3, and S-4; Keystone International Fund, Keystone Precious
Metals Holdings, Inc., Keystone Tax Free Fund, Keystone Tax Exempt Trust,
Keystone Liquid Trust (collectively, "Keystone Custodian Funds"); Keystone
Institutional Adjustable Rate Fund and Master Reserves Trust (all such
funds, collectively, "Keystone Group Funds"); Director, Chairman of the
Board, Chief Executive Officer and Vice Chairman of Keystone Custodian
Funds, Inc. ("Keystone"); Chairman of the Board and Director of Keystone
Investment Management Corporation ("KIMCO") and Keystone Fixed Income
Advisors ("KFIA"); Director, Chairman of the Board, Chief Executive Officer
and President of Keystone Man- agement,Inc. ("Keystone Management"),
Keystone Software Inc. ("Keystone Software"); Director and President of
Hartwell Keystone Advisers, Inc. ("Hartwell Keystone"), Keystone Asset
Corporation, Keystone Capital Corporation, and Keystone Trust Company;
Director of Keystone Distributors, Inc. ("KDI"), Keystone Investor Resource
Center, Inc. ("KIRC"), and Fiduciary Investment Company, Inc. ("FICO");
Director and Vice President of Robert Van Partners, Inc.; Director of
Boston Children's Services Association and Trustee of Anatolia College,
Middlesex School, and Middlebury College; Member, Board of Governors, New
England Medical Center and New World Bank.
FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other Keystone
Group Funds; Professor, Finance Department, George Washington University;
President, Amling & Company (investment advice); Member, Board of Advisers,
Credito Emilano (banking); and former Economics and Financial Consultant,
Riggs National Bank.
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; Investment Counselor to Appleton Partners, Inc.;
former Managing Director, Seaward Management Corporation (investment
advice); and former Director, Executive Vice President and Treasurer, State
Street Research & Management Company (investment advice).
*GEORGE S. BISSELL: Chairman of the Board and Trustee of the Fund; Director of
Keystone Group; Chairman of the Board and Trustee or Director of all other
Keystone Group Funds; Director and Chairman of the Board of Hartwell
Keystone; Chairman of the Board and Trustee of Anatolia College; Trustee of
University Hospital (and Chairman of its Investment Committee); former
Chairman of the Board and Chief Executive Officer of Keystone Group; and
former Chief Executive Officer of the Fund.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; Executive Director, Coalition of Essential Schools,
Brown University and former Executive Vice President, National Alliance of
Business; former Vice President, Educational Testing Services; and former
Dean, School of Business, Adelphi University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; former Group Vice President, Textron Corp.; and
former Director, Peoples Bank (Charlotte, N.C).
LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other Keystone
Group Funds; Director of Phoenix Total Return Fund and Equifax, Inc.;
Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio Fund and The
Phoenix Big Edge Series Fund; and former President, Morehouse College.
K. DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other Keystone
Group Funds; Chairman of the Board, Director and Executive Vice President,
The London Harness Company; Managing Partner, Roscommon Capital Corp.;
Trustee, Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chief Executive Officer, Gifford Gifts of Fine
Foods; Chairman, Gifford, Drescher & Associates (environmental consulting);
President, Oldways Preservation and Exchange Trust (education); and former
Director, Keystone Group and Keystone.
F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; Of Counsel, Keyser, Crowley & Meub, P.C.; Member,
Governor's (VT) Council of Economic Advisers; Chairman of the Board and
Director, Central Vermont Public Service Corporation and Hitchcock Clinic;
Director, Vermont Yankee Nuclear Power Corporation, Vermont Electric Power
Company, Inc., Grand Trunk Corporation, Central Vermont Railway, Inc.,
S.K.I. Ltd., Sherburne Corporation, Union Mutual Fire Insurance Company,
New England Guaranty Insurance Company, Inc. and the Investment Company
Institute; former Governor of Vermont; former Director and President,
Associated Industries of Vermont; former Chairman and President, Vermont
Marble Company; former Director of Keystone; and former Director and
Chairman of the Board, Green Mountain Bank.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; Executive Vice President, DHR International, Inc.
(executive recruitment); former Senior Vice President, Boyden International
Inc. (executive recruit- ment); and Director, Commerce and Industry
Association of New Jersey, 411 International, Inc. and J & M Cumming Paper
Co.
RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other Keystone
Group Funds; Chairman, Environmental Warranty, Inc., and Consultant, Drake
Beam Morin, Inc. (executive outplacement); Director of Connecticut Natural
Gas Corporation, Trust Company of Connecticut, Hartford Hospital, Old State
House Association and Enhanced Financial Services, Inc.; Member, Georgetown
College Board of Advisors; Chairman, Board of Trustees, Hartford Graduate
Center; Trustee, Kingswood- Oxford School and Greater Hartford YMCA; former
Director, Executive Vice President and Vice Chairman of The Travelers
Corporation; and former Managing Director of Russell Miller, Inc.
ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other Keystone
Group Funds; Partner, Farrell, Fritz, Caemmerer, Cleary, Barnosky &
Armentano, P.C.; President, Nassau County Bar Association; and former
Associate Dean and Professor of Law, St. John's University School of Law.
EDWARD F. GODFREY: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Group Funds; Senior Vice President, Chief Financial
Officer and Treasurer of Keystone Group, KDI, Keystone Asset Corporation,
Keystone Capital Corporation, Keystone Trust Company; Treasurer of KIMCO,
Robert Van Partners, Inc., and FICO; Treasurer and Director of Keystone
Management, Keystone Software, Inc., and Hartwell Keystone; Vice President
and Treasurer of KFIA; and Director of KIRC.
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of all
other Keystone Group Funds; and President of Keystone.
KEVIN J. MORRISSEY: Treasurer of the Fund; Treasurer of all other Keystone Group
Funds; Vice President of Keystone Group; Assistant Treasurer of FICO and
Keystone; and former Vice President and Treasurer of KIRC.
ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Fund; Senior
Vice President and Secretary of all other Keystone Group Funds; Senior Vice
President, General Counsel and Secretary of Keystone; Senior Vice, General
Counsel, Secretary and Director of KDI, Keystone Management, and Keystone
Software; Senior Vice President and General Counsel of KIMCO; Senior Vice
President, General Counsel and Director of FICO and KIRC; Senior Vice
President and Secretary of Hartwell Keystone and Robert Van Partners, Inc.;
Vice President and Secretary of KFIA; Senior Vice President, General
Counsel and Secretary of Keystone Group, Keystone Asset Corporation,
Keystone Capital Corporation and Keystone Trust Company.
* This Trustee may be considered an "interested person" within the meaning of
the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Group and several of its
affiliates, including Keystone, KDI and KIRC. Mr. Elfner and Mr. Bissell both
own shares of Keystone Group. Mr. Elfner is Chairman of the Board, Chief
Executive Officer and Director of Keystone Group. Mr. Bissell is a Director of
Keystone Group.
The address of all Trustees, officers and Advisory Board members of the
Fund and the address of the Fund is 200 Berkeley Street, Boston, Massachusetts
02116-5034.
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FUND EXPENSES
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In addition to its investment advisory and management fee, the Fund
assumes and pays its direct expenses and all other expenses, including, without
limitation, the following: (1) all charges and expenses of any custodian or
depository appointed by the Fund for the safekeeping of the Fund's cash,
securities and other property; (2) all charges and expenses for bookkeeping and
auditors; (3) all charges and expenses of any transfer agents and registrars
appointed by the Fund; (4) all fees of all Trustees of the Fund who are not
affiliated with Keystone or any of its affiliates; (5) all brokers' fees,
expenses and commissions and issue and transfer taxes chargeable to the Fund in
connection with transactions involving securities and other property to which
the Fund is a party; (6) all costs and expenses of distribution of its shares
incurred pursuant to a Distribution Plan or Plans adopted under Rule 12b-1
issued under the 1940 Act; (7) all taxes and corporate fees payable by the Fund
to federal, state or other governmental agencies; (8) all costs of certificates
representing shares of the Fund; (9) all fees and expenses involved in
registering and maintaining registrations of the Fund and of its shares with the
Securities and Exchange Commission (the "SEC" or "Commission") and registering
or qualifying its shares under state or other securities laws, including the
preparation and printing of prospectuses for filing with the Commission and
other authorities; (10) expenses of preparing, printing and mailing prospectuses
to shareholders of the Fund; (11) all expenses of shareholders' and Trustees'
meetings and of preparing, printing and mailing notices, reports and proxy
materials to shareholders of the Fund; (12) all charges and expenses of legal
counsel for the Fund and for Trustees of the Fund in connection with legal
matters relating to the Fund including, without limitation, legal services
rendered in connection with the Fund's existence, business trust and financial
structure and relations with its shareholders, registrations and qualifications
of securities under federal, state and other laws, issues of securities,
expenses which the Fund has assumed, whether customary or not, and extraordinary
matters; (13) all charges and expenses of filing annual and other reports with
the Commission; and (14) all extraordinary expenses and charges of the Fund. In
the event Keystone provides any of these services or pays any of these expenses,
the Fund will promptly reimburse Keystone therefor.
The Fund is subject to certain state annual expense limitations, the
most restrictive of which is set forth below:
2.5% of the first $30 million of Fund average net assets; 2.0% of the
next $70 million of Fund average net assets; and 1.5% of Fund average
net assets over $100 million.
Capital charges and certain expenses, including a portion of the Fund's
distribution plan fees, are not included in the calculation of the state expense
limitation. This limitation may be modified or eliminated in the future. See
"Distribution Plans - General Information."
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INVESTMENT ADVISER AND SUBADVISER
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INVESTMENT ADVISER
Keystone, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, and organized in 1932, has been retained by the Fund under an
Investment Advisory and Management Agreement (the "Advisory Agreement") dated
September 21, 1994, to provide investment advice and, in general, to manage the
investment and reinvestment of the assets of the Fund.
Keystone is a wholly-owned subsidiary of Keystone Group, which is
located at 200 Berkeley Street, Boston, Massachusetts 02116- 5034. Keystone
Group is a corporation privately owned by current and former members of
management and employees of Keystone and its affiliates. The shares of Keystone
Group common stock beneficially owned by management and Keystone employees are
held in a number of voting trusts, the trustees of which are George S. Bissell,
Albert H. Elfner, III, Edward F. Godfrey, and Ralph J. Spuehler, Jr.
Keystone Group provides accounting, bookkeeping, legal, personnel and
general corporate services to Keystone, its affiliates and the Keystone Group of
Mutual Funds.
The overall supervision and management of the Fund rests with its Board
of Trustees. Pursuant to the Advisory Agreement, Keystone furnishes to the Fund
investment advisory, management and administrative services, office facilities,
equipment and personnel in connection with its services for managing the
investment and reinvestment of the Fund's assets, and pays (or causes to be
paid) the compensation of all officers and employees of the Fund.
As compensation for its services to the Fund, Keystone is entitled to a
fee at the annual rate of 1.00% of the aggregate net asset value of shares of
the Fund computed as of the close of business on each business day.
All expenses (other than those specifically referred to as being borne
by Keystone) incurred in the operation of the Fund, and any public offering of
its shares, are borne by the Fund. To the extent that Keystone provides certain
of such services, the Fund promptly reimburses Keystone therefor. The fee
charged to the Fund is higher than that charged to most other investment
companies with different investment objectives and policies. The Fund's fee
structure is comparable, however, to that of other global and international
funds that are subject to the higher costs involved in managing a fund of
predominantly international securities.
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.
The Advisory Agreement continues in effect until September 21, 1996, 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 a
majority of the outstanding shares. In either case, the terms of the Advisory
Agreement and continuance thereof must be approved by the vote of a majority of
Independent Trustees in person at a meeting called for the purpose of voting on
such approval. The Advisory Agreement may be terminated, without penalty, on 60
days' written notice by the Fund or Keystone or may be terminated by a vote of
the Fund's shareholders. The Advisory Agreement will terminate automatically
upon its assignment.
SUBADVISER
Keystone has entered into a SubInvestment Advisory Agreement with
EquitiLink International Management Limited ("EquitiLink"), located at Union
House, Union Street, St. Helier, Jersey, Channel Islands. Under the terms of the
SubInvestment Advisory Agreement, EquitiLink provides Keystone with investment
research and advice. In addition, subject to the supervision of the Board of
Trustees and Keystone, EquitiLink may provide investment supervision and furnish
an investment program for such assets of the Fund as Keystone may designate from
time to time.
EquitiLink receives a monthly fee equal to (1) for services rendered in
a non-discretionary capacity, 20% of Keystone's net fee for such month; plus (2)
10% of Keystone's net fee for such month on that portion of the Fund's assets
for which EquitiLink provided services in a discretionary capacity.
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PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Fund has entered into a Principal Underwriting Agreement dated
September 21, 1994 (the "Underwriting Agreement") with KDI, a wholly-owned
subsidiary of Keystone.
KDI, as agent, currently has the right to obtain subscriptions for and
to sell shares of the Fund to the public. In so doing, KDI may retain and employ
representatives to promote distribution of the shares and may obtain orders from
brokers, dealers or others, acting as principals, for sales of shares. No such
representative, dealer or broker has any authority to act as agent for the Fund.
KDI has not undertaken to buy or to find purchasers for any specific number of
shares. KDI may receive payments from the Fund pursuant to the Fund's
Distribution Plans.
All subscriptions and sales of shares by KDI are at the offering price
of the shares, such price being in accordance with the provisions of the Fund's
Declaration of Trust, By-Laws, the current prospectus and statement of
additional information. All orders are subject to acceptance by the Fund, and
the Fund reserves the right, in its sole discretion, to reject any order
received. Under the Underwriting Agreement, the Fund is not liable to anyone for
failure to accept any order.
The Fund has agreed under the Underwriting Agreement to pay all expenses
in connection with registration of its shares with the SEC as well as auditing
and filing fees in connection with registration of its shares under the various
state "blue-sky" laws. KDI assumes the cost of sales literature and preparation
of prospectuses used by it and certain other expenses.
From time to time, if in KDI's judgment it could benefit the sales of
Fund shares, KDI may use its discretion in providing to selected dealers
promotional materials and selling aids, including, but not limited to, personal
computers, related software and Fund data files.
KDI has agreed that it will, in all respects, duly conform with all
state and federal laws applicable to the sale of the shares and will indemnify
and hold harmless the Fund, and each person who has been, is or may be a Trustee
or officer of the Fund, against expenses reasonably incurred by any of them in
connection with any claim or in connection with any action, suit or proceeding
to which any of them may be a party, that arises out of or is alleged to arise
out of any misrepresentation or omission to state a material fact, on the part
of KDI or any other person for whose acts KDI is responsible or is alleged to be
responsible, unless such misrepresentation or omission was made in reliance upon
written information furnished by the Fund.
The Underwriting Agreement will remain in effect until September 21,
1996, and thereafter so long as its terms and continuance are approved by a
majority of the Fund's Independent Trustees at least annually at a meeting
called for that purpose and if its continuance is approved annually by vote of a
majority of Trustees or by vote of a majority of the outstanding shares.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Fund's Board of Trustees or by a vote of a majority
of outstanding shares. The Underwriting Agreement will terminate automatically
upon its "assignment" as that term is defined in the 1940 Act.
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DECLARATION OF TRUST
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MASSACHUSETTS BUSINESS TRUST
The Fund is a Massachusetts business trust established under a
Declaration of Trust dated July 27, 1994. 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 Agreement authorizes the issuance of an
unlimited number of shares of beneficial interest as classes of shares, each of
which represents an equal proportionate interest in the Fund with each other
share of that class. Upon liquidation, shares are entitled to a pro rata share
of the Fund based on the relative net assets of each class. Shareholders have no
preemptive or conversion rights. Shares are redeemable and transferable. The
Fund is authorized to issue additional classes or series of shares. 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 for certain obligations of the trust.
The possibility of the shareholders being held liable appears remote because the
Fund's Declaration of Trust contains an express disclaimer of shareholder
liability for obligations of the Fund and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Fund or the Trustees. Accordingly, shareholders will not be
liable for obligations thereunder if this procedure is followed leaving only the
unlikely possibility of shareholder liability for tort liability incurred by the
Fund. In addition, the Declaration of Trust provides for indemnification out of
the Fund's property for any shareholder held personally liable for the
obligations of the Fund. The Declaration of Trust also provides that the Fund
will, upon request, assume the defense of any claim made against any shareholder
of the Fund for any act or obligation of the Fund and satisfy any judgment
thereon from the assets 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 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.
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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.
Current yield quotations as they may appear from time to time in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of the Fund, computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the base period. The Fund presently does not
intend to advertise current yield.
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ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian (the "Custodian") of all securities and
cash of the Fund. The Custodian performs no investment management functions for
the Fund, but, in addition to its custodial services, is responsible for
accounting and related recordkeeping on behalf of the Fund.
KPMG Peat Marwick LLP, Certified Public Accountants, are the independent
auditors for the Fund.
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142, is a
wholly-owned subsidiary of Keystone and acts as transfer agent and dividend
disbursing agent for the Fund.
As of March 31, 1995, Merrill Lynch Pierce Fenner & Shuths, Attn: Book
Entry, 4800 Deer Lake Dr. E 3rd FL, Jacksonville, FL 32246-6468 owned of record
15.72% of the Fund's outstanding Class A shares.
As of March 31, 1995, Merrill Lynch Pierce Fenner & Shuths, Attn: Book
Entry, 4800 Deer Lake Dr. E 3rd FL, Jacksonville, FL 32246-6468 owned of record
49.41% of the Fund's outstanding Class B shares.
As of March 31, 1995, the following shareholders owned 5% or more of
the outstanding Class C shares of the Fund: Paine Webber FBO, Carolyn P. Dayani
TTEE, Carolyn P. Dayani REV TRUST, 5225 E. Dessert Vista Rd., Paradise Valley,
AZ 85253-3301 owned 6.45%; Paine Webber for the benefit of Carol T. Miller, 118
West 119th St., Kansas City , MO 64145-1065 owned 5.28%.
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, statement of additional information or in supplemental sales
literature issued by the Fund or KDI, and no person is entitled to rely on any
information or representation not contained therein.
The Fund's prospectus and statement of additional information omit
certain information contained in the 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 15 different investment companies in the family of
Keystone America Funds. The Keystone America Funds offer a range of choices to
serve shareholder needs. In addition to the Fund, the Keystone America Fund
Family includes the following funds:
KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND - Seeks high current
income, consistent with low volatility of principal, by investing in adjustable
rate securities issued by the U.S. government, its agencies or
instrumentalities.
KEYSTONE AMERICA FUND FOR TOTAL RETURN - Seeks above-average income, dividend
growth and capital appreciation potential from quality common stocks, preferred
stocks, convertible bonds, other fixed-income securities and foreign securities
(up to 25%). Keystone America Hartwell Emerging Growth Fund, Inc. - Seeks
capital appreciation by investment primarily in small and medium-sized companies
in a relatively early stage of development that are principally traded in the
over-the-counter market.
KEYSTONE AMERICA 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 AMERICA HARTWELL GROWTH FUND, INC. - Seeks capital appreciation by
investment in securities selected for their long- term growth prospects.
KEYSTONE AMERICA INTERMEDIATE TERM BOND FUND - Seeks income, capital
preservation and price appreciation potential from investment grade corporate
bonds.
KEYSTONE AMERICA GLOBAL OPPORTUNITIES FUND - Seeks long-term capital growth from
foreign and domestic securities.
KEYSTONE AMERICA OMEGA FUND, INC. - Seeks maximum capital growth from common
stocks and securities convertible into common stocks.
KEYSTONE AMERICA STATE TAX FREE FUND - A mutual fund consisting of five separate
series of shares investing in different portfolio securities which seeks the
highest possible current income, exempt from federal income taxes and applicable
state taxes.
KEYSTONE AMERICA STATE TAX FREE FUND - SERIES II - A mutual fund consisting of
two separate series of shares investing in different portfolio securities which
seeks the highest possible current income, exempt from federal income taxes and
applicable state taxes.
KEYSTONE AMERICA STRATEGIC INCOME FUND - Seeks high yield and capital
appreciation potential from corporate bonds, discount bonds, convertible bonds,
preferred stock and foreign bonds (up to 25%).
KEYSTONE AMERICA TAX FREE INCOME FUND - Seeks income exempt from federal income
taxes and capital preservation from the four highest grades of municipal bonds.
KEYSTONE AMERICA WORLD BOND FUND - Seeks current income by investing primarily
in a non-diversified portfolio consisting of debt securities denominated in U.S.
and foreign currencies. The Portfolio seeks capital appreciation as a secondary
objective.
KEYSTONE FUND OF THE AMERICAS - Seeks long-term growth of capital through
investments in equity and debt securities in North America (the United States
and Canada) and Latin America (Mexico and countries in South and Central
America).
KEYSTONE STRATEGIC DEVELOPMENT FUND - Seeks long-term capital growth by
investing primarily in equity securities.
<PAGE>
APPENDIX
This Appendix provides additional information about the various securities
in which the Fund may invest and investment techniques that the Fund may employ.
Specifically, the Appendix provides a more detailed explanation of (i) stock and
corporate bond ratings, (ii) high yield, high risk bonds, (iii) money market
instruments, and (iv) derivative instruments.
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. 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: (i) capsule stock information which reveals short and long
term growth and yield afforded by the indicated dividend, based on a recent
price; (ii) a long term price chart which shows patterns of monthly stock price
movements and monthly trading volumes; (iii) 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; (iv) interim earnings for the current
year to date, plus three previous years; (v) dividend information; (vi) company
background; (vii) recent corporate developments; (viii) prospects for a company
in the immediate future and the next few years; and (ix) 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 that 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.
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.
CORPORATE BOND RATINGS
S&P CORPORATE BOND RATINGS
An S&P corporate bond rating is a current assessment of the
creditworthiness of an obligor, including obligors outside the U.S., with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees. Ratings of foreign obligors
do not take into account currency exchange and related uncertainties. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable.
The ratings are based, in varying degrees, on the following considerations:
1. 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;
2. Nature of and provisions of the obligation; and
3. 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.
MOODY'S CORPORATE BOND RATINGS
Moody's ratings are as follows:
1. Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
2. Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
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.
Keystone considers the ratings of Moody's and S&P assigned to various
securities, but does not rely solely on ratings assigned by Moody's and S&P
because (i) 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 (ii) there can be large differences among the current financial
conditions of issuers within the same rating category.
BELOW INVESTMENT GRADE BONDS
Prior to the 1980's, corporate bonds were primarily issued to finance
growth and development. Below investment grade bonds were predominantly bonds
that often traded at discounts from par because the company's credit ratings had
been downgraded. The rapid growth of the noninvestment grade sector of the bond
market during the 1980s was largely attributable to the issuance of such bonds
to finance corporate reorganizations. This growth paralleled a long economic
expansion. An economic downturn could severely disrupt the market for high
yield, high risk bonds and adversely affect the value of outstanding bonds and
the ability of issuers to repay principal and interest.
In addition, investors should be aware of the following risks relating to
high yield, high risk debt securities:
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, or 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. However, the prices of these bonds are
generally less sensitive to interest rate changes than higher-rated bonds, but
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.
For example, 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.
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.
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.
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:
(a) leading market positions in well-established industries;
(b) high rates of return on funds employed;
(c) conservative capitalization structures with moderate reliance on
debt and ample asset protection;
(d) broad margins in earnings coverage of fixed financial charges and
high internal cash generation; and
(e) 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.
DERIVATIVE INSTRUMENTS
Derivatives have been variously defined to include forwards, futures,
options, mortgage-backed securities, other asset-backed securities and
structured securities, such as interest rate swaps, equity swaps, index swaps,
currency swaps and caps and floors. These basic vehicles can also be combined to
create more complex products, called hybrid derivatives. The following
discussion addresses options, futures, foreign currency transactions,
mortgage-backed and other asset-backed securities, structured securities, swaps,
caps, and floors.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS
The Fund writes only covered options. Options written by the Fund will
normally have expiration dates of not more than nine months from the date
written. The exercise price of the options may be below, equal to, or above the
current market values of the underlying securities at the times the options are
written.
Unless the option has been exercised, the 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 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 responsibility for the completion of options
transactions.
OPTION WRITING AND RELATED RISKS
The Fund may write covered call and put options. A call option gives the
purchaser of the option the right to buy, and the writer the obligation to sell,
the underlying security at the exercise price during the option period.
Conversely, a put option gives the purchaser the right to sell, and the writer
the obligation to buy, the underlying security at the exercise price during the
option period.
So long as the obligation of the writer continues, the writer may be
assigned an exercise notice by the broker-dealer through whom the option was
sold. The exercise notice would require the writer to deliver, in the case of a
call, or take delivery of, in the case of a put, the underlying security against
payment of the exercise price. This obligation terminates upon expiration of the
option, or at such earlier time 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.
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 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 the Fund's
compliance with its policies pertaining to illiquid securities.
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 corresponding 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 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 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 are related to
currency and other financial futures contracts for hedging purposes and in
connection with the hedging strategies described above.
Although techniques other than sales and purchases of futures contracts and
related options transactions could be used to reduce the Fund's exposure to
interest rate and/or market fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Fund does not intend to
take delivery of the instruments underlying futures contracts it holds, the Fund
does not intend to enter into such futures contracts for speculation.
FUTURES CONTRACTS
Futures contracts are transactions in the commodities markets rather than
in the securities markets. A futures contract creates an obligation by the
seller to deliver to the buyer the commodity specified in the contract at a
specified future time for a specified price. The futures contract creates an
obligation by the buyer to accept delivery from the seller of the commodity
specified at the specified future time for the specified price. In contrast, a
spot transaction creates an immediate obligation for the seller to deliver and
the buyer to accept delivery of and pay for an identified commodity. In general,
futures contracts involve transactions in fungible goods such as wheat, coffee
and soybeans. However, in the last decade an increasing number of futures
contracts have been developed which specify currencies, financial instruments or
financially based indexes as the underlying commodity.
U.S. futures contracts are traded only on national futures exchanges and
are standardized as to maturity date and underlying financial instrument. The
principal financial futures exchanges in the 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 under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant ("Broker") effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC") and National Futures Association ("NFA").
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
analogous to the purchase of protective puts on individual stocks, where an
absolute level of protection is sought below which no additional economic loss
would be incurred by the Fund. Put options may be purchased to hedge a portfolio
of stocks or debt instruments or a position in the futures contract upon which
the put option is based.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS
The purchase of call options on 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 securities. 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.
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 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 segregated 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 the use of such futures is unleveraged.
FEDERAL INCOME TAX TREATMENT
For federal income tax purposes, the Fund is required to recognize as
income for each taxable year its net unrealized gains and losses on futures
contracts as of the end of the year as well as those actually realized during
the year. Any gain or loss recognized with respect to a futures contract is
considered to be 60% long term and 40% short term, without regard to the holding
period of the contract. In the case of a futures transaction classified as a
"mixed straddle," the recognition of losses may be deferred to a later taxable
year. The federal income tax treatment of gains or losses from transactions in
options on futures is unclear.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income. Any net gain realized
from the closing out of futures contracts, for purposes of the 90% requirement,
will be qualifying income. In addition, gains realized on the sale or other
disposition of securities held for less than three months must be limited to
less than 30% of the Fund's annual gross income. The Internal Revenue Code
effectively treats both positions in certain hedging transactions as a single
transaction for the purpose of the 30% requirement. The provision provides that,
in the case of any "designated hedge," increases and decreases in the value of
positions of the hedge are to be netted for the purposes of the 30% requirement.
However, in certain situations, in order to avoid realizing a gain within a
three month period, the Fund may be required to defer the closing out of a
contract beyond the time when it would otherwise be advantageous to do so.
RISKS OF FUTURES CONTRACTS
Currency and other financial futures contracts prices are volatile and are
influenced, among other things, by changes in stock prices, market conditions,
prevailing interest rates and anticipation of future stock prices, market
movements or interest rate changes, all of which in turn are affected by
economic conditions, such as government fiscal and monetary policies and
actions, and national and international political and economic events.
At best, the correlation between changes in prices of futures contracts and
of the securities being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances, such as variations in
speculative market demand for futures contracts and for securities, including
technical influences in futures contracts trading; differences between the
securities being hedged and the financial instruments and indexes underlying the
standard futures contracts available for trading, in such respects as interest
rate levels, maturities and 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 normally
involves an extremely high degree of leverage. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss, as well as gain, to the investor. For example, if at the time of purchase,
10% of the value of the futures contract is deposited as margin, a 10% decrease
in the value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out, and a 15% decrease would result in a loss equal to 150% of the
original margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable losses if, instead
of entering into the futures contract, it had invested in the underlying
financial instrument. 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 circumstances when the use of an option on a futures contract would
result in a loss to the Fund, even though the use of a futures contract would
not, such as when there is no movement in the level of the futures contract.
FOREIGN CURRENCY TRANSACTIONS
The Fund may invest in securities of foreign issuers. When the Fund invests
in foreign securities they usually will be denominated in foreign currencies and
the Fund temporarily may hold funds in foreign currencies. Thus, the 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 months maturity in
marks, sterling, yen, Swiss francs and Canadian dollars. Options can be
exercised at any time during the contract life and require a deposit subject to
normal margin requirements. Since a futures contract must be exercised, the Fund
must continually make up the margin balance. As a result, a wrong price move
could result in the Fund losing more than the original investment as it cannot
walk away from the futures contract as it can an option contract.
The Fund will purchase call and put options and sell such options to
terminate an existing position. Options on foreign currency are similar to
options on stocks except that an option on an interest rate and/or index based
futures contract gives the purchaser the right, in return for the premium paid,
to purchase or sell foreign currency, rather than to purchase or sell stock, at
a specified exercise price at any time during the period of the option.
The Fund intends to use foreign currency option transactions in connection
with hedging strategies.
PURCHASE OF PUT OPTIONS ON FOREIGN CURRENCIES
The purchase of protective put options on a foreign currency is analogous
to the purchase of protective puts on individual stocks, where an absolute level
of protection is sought below which no additional economic loss would be
incurred by the Fund. Put options may be purchased to hedge a portfolio of
foreign stocks or foreign debt instruments or a position in the foreign currency
upon which the put option is based.
PURCHASE OF CALL OPTIONS ON FOREIGN CURRENCIES
The purchase of a call option on foreign currency represents a means of
obtaining temporary exposure to market appreciation at limited risk. It is
analogous to the purchase of a call option on an individual stock which can be
used as a substitute for a position in the stock itself. Depending on the
pricing of the option compared to either the foreign currency upon which it is
based, or upon the price of the foreign stock or foreign debt instruments, 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 exposure called an open position is
created. Until the time that position can be "covered" by selling or buying an
equivalent amount of the same currency, the Fund is exposed to the risk that the
exchange rate might move against it. Since exchange rate changes can readily
move in one direction, a position carried overnight or over a number of days
involves greater risk than one carried a few minutes or hours. Techniques such
as foreign currency forward and futures contracts and options on foreign
currency are intended to be used by the Fund to reduce exchange rate risk.
MATURITY GAPS AND INTEREST RATE RISK
Interest rate risk arises whenever there are mismatches or gaps in the
maturity structure of the Fund's foreign exchange currency holdings, which is
the total of its outstanding spot and forward or futures contracts.
Foreign currency transactions often involve borrowing short term and
lending longer term to benefit from the normal tendency of interest rates to be
higher for longer maturities. However in foreign exchange trading, while the
maturity pattern of interest rates for one currency is important, it is the
differential between interest rates for two currencies that is decisive.
CREDIT RISK
Whenever the Fund enters into a foreign exchange contract, it faces a risk,
however small, that the counterparty will not perform under the contract. As a
result there is a credit risk, although no extension of "credit" is intended. To
limit credit risk, the Fund intends to evaluate the creditworthiness of each
other party.
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.
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.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Fund, if permitted by its investment policies, may also invest in fixed rate
and adjustable rate collateralized mortgage obligations ("CMOs"), including CMOs
with rates that move inversely to market rates that are issued by and guaranteed
as to principal and interest by the U.S. government, its agencies or
instrumentalities. The principal governmental issuer of CMOs is FNMA. In
addition, FHLMC issues a significant number of CMOs. The Fund, if permitted to
invest in CMOs, will not invest in CMOs that are issued by private issuers. CMOs
are debt obligations collateralized by Mortgage Securities in which the payment
of the principal and interest is supported by the credit of, or guaranteed by,
the U.S. government or an agency or instrumentality of the U.S. government. The
secondary market for CMOs is actively traded.
CMOs are structured by redirecting the total payment of principal and interest
on the underlying Mortgage Securities used as collateral to create classes with
different interest rates, maturities and payment schedules. Instead of interest
and principal payments on the underlying Mortgage Securities being passed
through or paid pro rata to each holder (e.g., the Fund), each class of a CMO is
paid from and secured by a separate priority payment of the cash flow generated
by the pledged Mortgage Securities.
Most CMO issues have at least four classes. Classes with an earlier maturity
receive priority on payments to assure the early maturity. After the first class
is redeemed, excess cash flow not necessary to pay interest on the remaining
classes is directed to the repayment of the next maturing class until that class
is fully redeemed. This process continues until all classes of the CMO issue
have been paid in full. Among the CMO classes available are floating
(adjustable) rate classes, which have characteristics similar to ARMS, and
inverse floating rate classes whose coupons vary inversely with the rate of some
market index. The Fund, if allowed to purchase CMOs, may purchase any class of
CMO other than the residual (final) class.
INTEREST-RATE SWAP CONTRACTS
Interest rate swaps are OTC agreements between parties and counterparties
to make periodic payments to each other for a stated time, generally entered
into for the purpose of changing the nature or amount of interest being received
on debt securities held by one or both parties. The calculation of these
payments is based on an agreed-upon amount called the "notional amount." The
notional amount is not typically exchanged in swaps (except in currency swaps).
The periodic payments may be fixed or floating. Floating payments change
(positively or inversely) with fluctuations in interest or currency rates or
equity or commodity prices, depending on the swap contract's terms. Swaps may be
used to hedge against adverse changes in interest rates, for instance. Thus, if
permitted by its investment policies, the Fund may have a portfolio of debt
instruments (ARM's, for instance) the floating interest rates of which adjust
frequently because they are tied positively to changes in market interest rates.
The Fund would then be exposed to interest rate risk because a decline in
interest rates would reduce the interest receipts on its portfolio. If the
investment adviser believed interest rates would decline, the Fund, if permitted
by its investment policies, could enter into an interest rate swap with another
financial institution to hedge the interest rate risk. In the swap contract, the
Fund would agree to make payments based on a floating interest rate in exchange
for receiving payments based on a fixed interest rate. Thereafter, if interest
rates declined, the Fund's fixed rate receipts on the swap would offset the
reduction in its portfolio receipts. If interest rates rose, the higher rates
the Fund could obtain from new portfolio investments (assuming sale of existing
investments) would offset the higher rates it paid under the swap agreement.
EQUITY SWAP CONTRACTS
The counterparty to an equity swap contract would typically be a bank,
investment banking firm or broker/dealer. For example, the counterparty would
generally agree to pay the Fund the amount, if any, by which the notional amount
of the equity swap contract would have increased in value if such notional
amount had been invested in the stocks comprising the S&P 500 Index in
proportion to the composition of the Index, plus the dividends that would have
been received on those stocks. The Fund would agree to pay to the counterparty a
floating rate of interest (typically the London Inter Bank Offered Rate) on the
notional amount of the equity swap contract plus the amount, if any, by which
that notional amount would have decreased in value had it been invested in such
index stocks. Therefore, the return to the Fund on any equity swap contract
should be the gain or loss on the notional amount plus dividends on the stocks
comprising the S&P 500 Index less the interest paid by the Fund on the notional
amount. If permitted by its investment policies, the Fund will only enter into
equity swap contracts on a net basis, i.e., the two parties' obligations are
netted out, with the Fund paying or receiving, as the case may be, only the net
amount of any payments. Payments under equity swap contracts may be made at the
conclusion of the contract or periodically during its term.
If permitted by its investment policies, the Fund may also from time to
time enter into the opposite side of equity swap contracts (i.e., where the Fund
is obligated to pay the increase (net of interest) or received the decrease
(plus interest) on the contract) to reduce the amount of the Fund's equity
market exposure consistent with the Fund's investment objective(s) and policies.
These positions are sometimes referred to as "reverse equity swap contracts."
Equity swap contracts will not be used to leverage the Fund. Since the
Commission considers equity swap contracts and reverse equity swap contracts to
be illiquid securities, the Fund will not invest in equity swap contracts or
reverse equity swap contracts if the total value of such investments together
with that of all other illiquid securities that the Fund owns would exceed the
Fund's limitations on investments in illiquid securities.
The Fund does not believe that its obligations under equity swap contracts
or reverse equity swap contracts are senior securities and, accordingly, the
Fund will not treat them as being subject to its borrowing restrictions.
However, the net amount of the excess, if any, of the Fund's obligations over
its respective entitlement with respect to each equity swap contract and each
reverse equity swap contract will be accrued on a daily basis and an amount of
cash, U. S. Government Securities or other liquid high quality debt securities
having an aggregate market value at lease equal to the accrued excess will be
maintained in a segregated account by the Fund's Custodian.
CURRENCY SWAPS, INDEX SWAPS AND CAPS AND FLOORS
A currency swap is an agreement to exchange cash flows on a notional amount
of two or more currencies based on the relative value differential among them.
An index swap is an agreement to swap cash flows on a notional amount based on
changes in the values of reference indices. The purchase of an interest rate cap
entitles the purchaser, to the extent that a specified index exceeds an
agree-upon interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser to receive payments of interest on
a notional principal amount from the party selling such interest rate floor. If
permitted by the Fund's investment policies, the investment adviser expects to
enter into these types of transactions on behalf of the Fund primarily to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities the Fund
anticipates purchasing at a later date rather than for speculative purposes.
Accordingly, if permitted by the Fund's investment policies, the Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors unless it owns securities or other instruments
providing the income stream the Fund may be obligated to pay. Caps and floors
require segregation of assets with a value equal to the Fund's net obligation,
if any.
SPECIAL RISKS OF SWAPS, CAPS AND FLOORS
As with futures, options, forward contracts, and mortgage backed and other
asset-backed securities, the use of swap, cap and floor contracts exposes the
Fund to additional investment risk and transaction costs. These risks include
operational risk, market risk and credit risk.
Operational risk includes, among others, the risks that the investment
adviser will incorrectly analyze market conditions or will not employ
appropriate strategies and monitoring with respect to these instruments or will
be forced to defer closing out certain hedged positions to avoid adverse tax
consequences.
Market risk includes, among others, the risks of imperfect correlations
between the expected values of the contracts, or their underlying bases, and
movements in the prices of the securities or currencies being hedged, and the
possible absence of a liquid secondary market for any particular instrument at
any time. The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. As a result, the swap market
has become relatively more illiquid. Nevertheless, a secondary market for swaps
is never assured, and caps and floors, which are more recent innovations for
which standardized documentation has not yet been fully developed, are much less
liquid than swaps.
Credit risk is primarily the risk that counterparties may be financially
unable to fulfill their contracts on a timely basis, if at all. If there is a
default by the counterparty to any such contract, the Fund will be limited to
contractual remedies pursuant to the agreements related to the transaction.
There is no assurance that contract counterparties will be able to meet contract
obligations or that, in the event of default, the Fund will succeed in pursuing
contractual remedies. The Fund thus assumes the risk that it may be delayed in
or prevented from obtaining payments owed to it pursuant to such contracts. The
Fund will closely monitor the credit of swap counterparties in order to minimize
this risk. The Fund will not enter into any equity swap contract or reverse
equity swap contract unless, at the time of entering into such transaction, the
unsecured senior debt of the counterparty is rated at least A by Moody's or S&P.
<PAGE>
KEYSTONE STRATEGIC DEVELOPMENT FUND
SCHEDULE OF INVESTMENTS -- February 28, 1995
(Unaudited)
Number Market
of Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS (67.8%)
ARGENTINA (2.1%)
Oil (2.1%)
YPF S.A. - CDA 23,920 $ 446,063
- --------------------------------------------------------------------------------
AUSTRALIA (16.3%)
Oil (2.4%)
Woodside Petroleum 135,800 506,342
- --------------------------------------------------------------------------------
Iron and Steel (4.3%)
Broken Hill Proprietary Co. Ltd. 32,474 448,364
CRA Limited 35,400 451,648
- --------------------------------------------------------------------------------
900,012
- --------------------------------------------------------------------------------
Metals and mining (9.5%)
First Resources Development Fund 600,000 283,520
First Resources Development Fund, options 600,000 28,795
MIM Holdings Limited 337,000 517,543
QNI Limited 150,000 208,210
Savage Resources 664,000 397,106
Western Mining Corp. 102,200 547,823
- --------------------------------------------------------------------------------
1,982,997
- --------------------------------------------------------------------------------
BRAZIL (0.8%)
Telecommunications (0.8%)
Telecomunicacoes Brasileiras S.A. 5,900 173,313
- --------------------------------------------------------------------------------
CANADA (11.2%)
Oil (3.5%)
Arakis Energy Corporation 37,200 237,150
Canadian Occidental Petroleum Ltd. 20,950 488,573
- --------------------------------------------------------------------------------
725,723
- --------------------------------------------------------------------------------
Metals and mining (6.0%)
Alcan Aluminum Ltd. 15,200 369,475
Inco Ltd. 17,300 463,969
Potash Corp. of Saskatchewan, Inc. 11,500 414,663
- --------------------------------------------------------------------------------
1,248,107
- --------------------------------------------------------------------------------
Precious metals (1.7%)
TVX Gold Inc. 53,200 348,342
- --------------------------------------------------------------------------------
FRANCE (3.6%)
Oil (2.6%)
Total S.A. 9,775 540,737
- --------------------------------------------------------------------------------
Oil Service (1.0%)
Coflexip 23,920 199,803
- --------------------------------------------------------------------------------
INDONESIA (2.4%)
Chemicals (2.4%)
Pt. Tri Polyta Indonesia 20,400 489,600
- --------------------------------------------------------------------------------
JAPAN (3.0%)
Metals and mining (3.0%)
Sumitomo Metal Industries, Ltd. 219,000 628,209
- --------------------------------------------------------------------------------
<PAGE>
KEYSTONE STRATEGIC DEVELOPMENT FUND
SCHEDULE OF INVESTMENTS - February 28, 1995 (continued)
Number Market
of Shares Value
- --------------------------------------------------------------------------------
KOREA (2.1 %)
Utilities (2.1%)
Korea Electric Power Corp. 23,100 433,125
- --------------------------------------------------------------------------------
MEXICO (1.7%)
Precious metals (0.5%)
Industrias Penoles S.A. de C.V. 50,000 99,916
- --------------------------------------------------------------------------------
Telephone Utilities (1.2%)
Telefonos De Mexico 8,900 245,863
- --------------------------------------------------------------------------------
NEW ZEALAND (1.3%)
Paper and Packaging (1.3%)
Fletcher Challenge 4,000 10,012
Fletcher Challenge 108,500 270,236
- --------------------------------------------------------------------------------
280,248
- --------------------------------------------------------------------------------
SWEDEN (1.4%)
Electrical Products (1.4%)
Asea AB, Series B 3,996 301,005
- --------------------------------------------------------------------------------
UNITED KINGDOM (4.0%)
Iron and Steel (1.0%)
British Steel PLC 83,000 209,636
- --------------------------------------------------------------------------------
Metals and mining(3.0%)
RTZ Corp. 37,800 430.974
- --------------------------------------------------------------------------------
Oil (1.0%)
Lasmo 76,400 185,707
- --------------------------------------------------------------------------------
UNITED STATES (17.9%)
Capital Goods (8.1%)
AGCO Corp. 21,000 543,375
Caterpillar Inc. 11,400 588,525
CBI Industries Inc. 14,100 341,925
Fluor Corp 4,600 224,250
- --------------------------------------------------------------------------------
1,698,075
- --------------------------------------------------------------------------------
Metals and mining (1.4%)
Phelps Dodge Corp. 5,400 294,300
- --------------------------------------------------------------------------------
Precious metals (3.0%)
Homestake Mining Co. 23,000 356,500
Santa Fe Pacific Gold Corp. 24,000 261,000
- --------------------------------------------------------------------------------
617,500
- --------------------------------------------------------------------------------
Natural Gas (1.8%)
Enron Global Power & Pipelines 16,000 374,000
- --------------------------------------------------------------------------------
Oil Services (2.0%)
Schlumberger, Ltd. 7,200 409,500
- --------------------------------------------------------------------------------
Paper & Packaging (1.6%)
Weyerhaeuser Co. 8,400 342,300
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost -$12,220,164) 14,111,397
- --------------------------------------------------------------------------------
PREFERRED STOCKS (1.8%)
BRAZIL (1.8%)
Iron and Steel (1.8%)
- --------------------------------------------------------------------------------
Vale do Rio Doce Navegacao S.A. 2,586,000 377,030
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (Cost - $476,972) 377,030
================================================================================
Maturity Market
Value Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (30.4%)
REPURCHASE AGREEMENT (30.4.%)
Investments in repurchase agreements,
in a joint trading account, 6.06%, maturing 3/1/95 6,336,000 6,336,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost - $22,467,308) 20,824,427
================================================================================
FOREIGN CURRENCY HOLDINGS (0.0%)
(Cost -- $1,922) 1,937
OTHER ASSETS AND LIABILITIES - NET (0.00%) 4,454
- --------------------------------------------------------------------------------
NET ASSETS (100.0%) $20,830,818
- --------------------------------------------------------------------------------
NOTES TO SCHEDULE OF INVESTMENTS
(a) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio.
<PAGE>
KEYSTONE STRATEGIC DEVELOPMENT FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------- ------------------- ------------------
OCTOBER 18, 1994 OCTOBER 18, 1994 OCTOBER 18, 1994
(DATE OF INITIAL (DATE OF INITIAL (DATE OF INITIAL
PUBLIC OFFERING) TO PUBLIC OFFERING) TO PUBLIC OFFERING) TO
FEBRUARY 28 1995 FEBRUARY 28 1995 FEBRUARY 28, 1995
------------------- ------------------- --------------------
<S> <C> <C> <C>
NET ASSET VALUE: BEGINNING OF YEAR $10.00 $ 10.00 $ 10.00
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Investment income-net (0.010) (0.025) (0.035)
Net gains/losses on investment and foreign
currency related transactions (1.260) (1.275) (1.265)
- ---------------------------------------------------------------------------------------------
Total income from investment operations (1.270) (1.300) (1.300)
- ---------------------------------------------------------------------------------------------
NET ASSET VALUE: END OF YEAR $ 8.73 $ 8.70 $ 8.70
- ---------------------------------------------------------------------------------------------
TOTAL RETURN<F1> (12.70%) (13.00%) (13.00%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Operating and management expenses<F2><F3> 2.87% 3.63% 3.72%
Investment income-net<F2> (0.32%) (1.05%) (1.17%)
Portfolio turnover rate 16% 16% 16%
NET ASSETS, END OF PERIOD (THOUSANDS) $ 4,768 $14,717 $ 1,345
- ---------------------------------------------------------------------------------------------
<FN>
<F1> Excluding applicable sales charges.
<F2> Annualized
<F3> Figures are net of expense reimbursement by Keystone in connection with
mandatory state expense limitations. Before expense reimbursement the
"ratio of operating and management expenses to average net assets" would
have been 2.99% for class A, 3.75% for class B and 3.77% for class C (on
an annualized basis) for the period October 18, 1994 to February 28, 1995.
</TABLE>
See Notes to Financial Statements
<PAGE>
KEYSTONE STRATEGIC DEVELOPMENT FUND
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
ASSETS:
Investments at market value (identified cost--
$16,129,386)(Note 1) $ 14,488,427
Repurchase Agreements (identified cost--6,336,000) (Note 1) 6,336,000
Foreign currency holdings (identified cost -- 1,922) (Note 1) 1,937
Cash 724
Receivable for:
Foreign currency sold 2,587,233
Dividends and interest 25,380
Fund shares sold 56,781
Miscellaneous 6,674
Deferred organization expense (Note 1) 44,402
Prepaid expenses 29,824
- --------------------------------------------------------------------------------
Total assets 23,577,382
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for:
Investments purchased 97,259
Currency purchased 2,583,516
Fund shares redeemed 2,000
Foreign taxes withheld 1,508
Other accrued expenses 62,281
Total liabilities 2,746,564
- --------------------------------------------------------------------------------
NET ASSETS $ 20,830,818
- --------------------------------------------------------------------------------
NET ASSETS REPRESENTED BY:
Paid-in-capital $ 23,208,094
Accumulated distributions in excess of investment income-net (52,737)
Accumulated realized losses on investment and foreign
currency related transactions-net (687,101)
Net unrealized depreciation on investments and
foreign currency related transactions (1,637,438)
- --------------------------------------------------------------------------------
Total net assets $ 20,830,818
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE AND REDEMPTION PRICE PER SHARE (NOTE 2):
Class A Shares $8.73 546,511 shares outstanding) $ 4,768,473
Class B Shares $8.70 1,691,340 shares outstanding) 14,717,338
Class C Shares $8.70 154,604 shares outstanding) 1,345,007
- --------------------------------------------------------------------------------
$20,830,818
- --------------------------------------------------------------------------------
OFFERING PRICE PER SHARE:
Class A Shares (including sales charges of 5.75%) (Note 2) $9.26
- --------------------------------------------------------------------------------
Class B Shares $8.70
- --------------------------------------------------------------------------------
Class C Shares $8.70
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<PAGE>
KEYSTONE STRATEGIC DEVELOPMENT FUND
STATEMENT OF OPERATIONS (Unaudited)
PERIOD FROM OCTOBER 13, 1994 (COMMENCEMENT OF OPERATIONS) TO FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1):
Interest $114,312
Dividends (net of foreign withholding taxes of $15,313) 25,693
- --------------------------------------------------------------------------------
Total income 140,005
- --------------------------------------------------------------------------------
EXPENSES (NOTES 1, 2 AND 4):
Management fee $57,970
Shareholder services 13,382
Accounting 10,160
Auditing and legal 23,045
Custodian fees 21,668
Printing 14,971
Distribution Plan and Service fee expenses 47,818
Registration fees 6,777
Amortization of organization expense 3,097
Miscellaneous expenses 526
- --------------------------------------------------------------------------------
Total expenses 199,414
Less: Reimbursement from Investment Advisor (Note 4) (6,672)
- --------------------------------------------------------------------------------
Net expenses 192,742
Investment income-net (52,737)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND
FOREIGN CURRENCY RELATED TRANSACTIONS-NET:
Realized loss on:
Investments (453,473)
Foreign currency related transactions (233,628)
- --------------------------------------------------------------------------------
Realized loss on investment and foreign currency
related transactions -- net (687,101)
- --------------------------------------------------------------------------------
Unrealized appreciation (depreciation) on investments
and foreign currency related transactions-net:
Beginning of year 0
End of year (1,637,438)
- --------------------------------------------------------------------------------
(1,637,438)
Net change in unrealized appreciation or depreciation (1,637,438)
- --------------------------------------------------------------------------------
Net loss on investment and foreign currency
related transactions (2,324,539)
- --------------------------------------------------------------------------------
Net decrease in net assets resulting from operations ($2,377,276)
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<PAGE>
KEYSTONE STRATEGIC DEVELOPMENT FUND
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
PERIOD FROM OCTOBER 10, 1994
(COMMENCEMENT OF OPERATIONS)
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
OPERATIONS:
Investment income (loss)-net (Note 1) ($52,737)
Realized loss on investment and foreign currency related
transactions-net (Notes 1 and 3) (687,101)
Net change in unrealized appreciation or depreciation on
investments and foreign currency related transactions (1,637,438)
- --------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (2,377,276)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 2):
Proceeds from shares sold - Class A Shares 5,657,416
Proceeds from shares sold - Class B Shares 17,080,204
Proceeds from shares sold - Class C Shares 1,567,360
Payments for shares redeemed - Class A Shares (374,862)
Payments for shares redeemed - Class B Shares (746,238)
Payments for shares redeemed - Class C Shares (75,786)
- --------------------------------------------------------------------------------
Net increase in net assets resulting from
capital share transactions 23,108,094
- --------------------------------------------------------------------------------
Total increase in net assets 20,730,818
NET ASSETS:
Beginning of year 100,000
- --------------------------------------------------------------------------------
End of year $20,830,818
- --------------------------------------------------------------------------------
See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1.) SIGNIFICANT ACCOUNTING POLICIES
Keystone Strategic Development Fund (the "Fund") is a Massachusetts business
trust for which Keystone Custodian Funds, Inc. ("Keystone") is the investment
adviser. The Fund is registered under the Investment Company Act of 1940 as a
diversified, open-end investment company.
The Fund currently offers Class A, Class B and Class C shares. Class A shares
are offered at a public offering price which includes a maximum sales charge of
5.75% payable at the time of purchase. Class B shares are sold subject to a
contingent deferred sales charge payable upon redemption which decreases
depending on how long the shares have been held. Class C shares are sold subject
to a contingent deferred sales charge payable upon redemption within one year of
purchase. Class C shares are available only through dealers who have entered
into special distribution agreements with Keystone Distributors, Inc. ("KDI"),
the Fund's principal underwriter.
Equitilink International Management Limited ("EIML"), acts as sub- advisor to
the Fund. Subject to the supervision of the Fund's Board of Trustees and
Keystone, EIML provides investment supervision and furnishes an investment
program for certain assets of the Fund, as well as providing research and advice
concerning the purchase and sale of securities by the Fund.
Keystone is a wholly-owned subsidiary of Keystone Group, Inc. ("KGI"), a
Delaware corporation. KGI is privately owned by an investor group consisting of
members of current and former management of Keystone. Keystone Investor Resource
Center, Inc. ("KIRC"), a wholly-owned subsidiary of Keystone, is the Fund's
transfer agent.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Investments, including American Depository Receipts ("ADRs"), are usually
valued at the closing sales price or, in the absence of sales and for
over-the-counter securities, the mean of bid and asked quotations. Management
values the following securities at prices it deems in good faith to be fair: (a)
securities (including restricted securities) for which complete quotations are
not readily available and (b) listed securities if, in the opinion of
management, the last sales price does not reflect a current value or if no sale
occurred. ADRs, which are certificates representing shares of foreign securities
deposited in domestic and foreign banks, are traded and valued in United States
dollars. Those securities traded in foreign currency amounts are translated into
United States dollars as follows: market value of investments, assets, and
liabilities at the daily rate of exchange; and purchases and sales of
investments, income, and expenses at the rate of exchange prevailing on the
respective dates of such transactions.
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. Short-term investments maturing in more than sixty days for which market
quotations are readily available are valued at current market value. Short-term
investments maturing in more than sixty days when purchased which are held on
the sixtieth day prior to maturity are valued at amortized cost (market value on
the sixtieth day adjusted for amortization of premium or accretion of discount)
which, when combined with accrued interest, approximates market. Investments
denominated in a foreign currency are adjusted daily to reflect changes in
exchange rates.
B. The Fund enters into currency and other financial futures contracts as a
hedge against changes in interest or currency exchange rates. A futures contract
is an agreement between two parties to buy and sell a specific amount of a
commodity, security, financial instrument, or, in the case of a stock index,
cash at a set price on a future date. Upon entering into a futures contract the
Fund is required to deposit with a broker an amount ("initial margin") equal to
a certain percentage of the purchase price indicated in the futures contract.
Subsequent payments ("variation margin") are made or received by the Fund each
day, as the value of the underlying instrument or index fluctuates, and are
recorded for book purposes as unrealized gains or losses by the Fund. For
federal tax purposes, any futures contracts which remain open at fiscal year-end
are marked-to-market and the resultant net gain or loss is included in federal
taxable income. In addition to market risk, the Fund is subject to the credit
risk that the other party will not complete the obligations of the contract.
C. Securities transactions are accounted for on the trade date. Realized gains
and losses are recorded on the identified cost basis. Interest income is
recorded on the accrual basis and dividend income is recorded on the ex-dividend
date.
D. The Fund has qualified, and intends to qualify in the future, as a regulated
investment company under the Internal Revenue Code of 1986, as amended
("Internal Revenue Code"). Thus, the Fund expects to be relieved of any federal
income tax liability by distributing all of its net taxable investment income
and net taxable capital gains, if any, to its shareholders. The Fund intends to
avoid excise tax liability by making the required distributions under the
Internal Revenue Code.
E. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed upon
date and price) the repurchase price of the securities will generally equal the
amount paid by the Fund plus a negotiated interest amount. The seller under the
repurchase agreement will be required to provide securities ("collateral") to
the Fund whose value will be maintained at an amount not less than the
repurchase price, and which generally will be maintained at 101% of the
repurchase price. The Fund monitors the value of collateral on a daily basis,
and if the value of the collateral falls below required levels, the Fund intends
to seek additional collateral from the seller or terminate the repurchase
agreement. If the seller defaults, the Fund would suffer a loss to the extent
that the proceeds from the sale of the underlying securities were less than the
repurchase price. Any such loss would be increased by any cost incurred on
disposing of such securities. If bankruptcy proceedings are commenced against
the seller under the repurchase agreement, the realization on the collateral may
be delayed or limited. Repurchase agreements entered into by the Fund will be
limited to transactions with dealers or domestic banks believed to present
minimal credit risks, and the Fund will take constructive receipt of all
securities underlying repurchase agreements until such agreements expire.
Pursuant to an exemptive order issued by the Securities and Exchange Commission,
the Fund, along with certain other Keystone funds, may transfer uninvested cash
balances into a joint trading account. These balances are invested in one or
more repurchase agreements that are collateralized by U.S. Treasury and/or
Federal Agency obligations.
F. In connection with portfolio purchases and sales of securities denominated in
a foreign currency, the Fund may enter into forward foreign currency exchange
contracts ("contracts"). Additionally, from time to time the Fund may enter into
contracts to hedge certain foreign currency assets. Contracts are recorded at
market value and marked-to-market daily. Realized gains and losses arising from
such transactions are included in net realized gain (loss) on foreign currency
related transactions. In addition to market risk, the Fund is subject to the
credit risk that the other party will not complete the obligations of the
contract.
G. The Fund distributes net investment income and net capital gains, if any, to
shareholders annually. Distributions to shareholders are determined in
accordance with income tax regulations, and are recorded on the ex-dividend
date. Distributions from taxable net investment income and net capital gains can
exceed book basis net investment income and net capital gains.
(2) CAPITAL SHARE TRANSACTIONS
The Trust Agreement authorizes the issuance of an unlimited number
of shares of beneficial interest without par value. Transactions
in shares of the Fund were as follows:
Class A Shares
-------------------
October 17, 1994
(Date of Initial
Public Offering) to
February 28, 1995
-------------------
Shares sold 586,733
Shares redeemed (40,222)
Shares issued in reinvestment
of distributions from net
investment income and in
excess of net investment
income -0-
---------
Net increase (decrease) 546,511
=========
Class B Shares
-------------------
October 17, 1994
(Date of Initial
Public Offering) to
February 28, 1995
-------------------
Shares sold 1,772,194
Shares redeemed (80,854)
Shares issued in reinvestment
of distributions from net
investment income and in
excess of net investment
income -0-
---------
Net increase (decrease) 1,691,340
=========
Class C Shares
-------------------
October 17, 1994
(Date of Initial
Public Offering) to
February 28, 1995
-------------------
Shares sold 163,295
Shares redeemed (8,691)
Shares issued in reinvestment
of distributions from net
investment income and in
excess of net investment
income -0-
---------
Net increase (decrease) 154,604
=========
<PAGE>
The Fund bears some of the costs of selling its shares under a Distribution Plan
adopted with respect to its Class A, Class B and Class C shares pursuant to Rule
12b-1 under the Investment Company Act of 1940 ("1940 Act").
The Class A Distribution Plan provides for payments which are currently limited
to 0.25% annually of the average daily net asset value of Class A shares to pay
expenses of the distribution of Class A shares. Amounts paid by the Fund to KDI
under the Class A distribution Plan are currently used to pay others, such as
dealers, service fees at an annual rate of up to 0.25% of the average net asset
value of shares sold by such and remaining outstanding on the books of the Fund
for specified periods.
The Class B Distribution Plan provides for payments at an annual rate of up to
1.00% of the average daily net asset value of Class B shares to pay expenses of
the distribution of Class B shares. Amounts paid by the Fund under the Class B
Distribution Plan are currently used to pay others (dealers) (i) a commission at
the time of purchase normally equal to 3.00% of the value of each share sold;
and/or (ii) service fees at an annual rate of 0.25% of the average net asset
value of shares sold by such others and remaining outstanding on the books of
the Fund for specified periods.
The Class C Distribution Plan provides for payments at an annual rate of up to
1.00% of the average daily net asset value of Class C shares to pay expenses for
the distribution of Class C shares. Amounts paid by the Fund under the Class C
Distribution Plan are currently used to pay others (dealers) (i) a payment at
the time of purchase of 1.00% of the value of each share sold, such payment to
consist of a commission in the amount of 0.75% and the first year's service fee
in advance in the amount of 0.25%; and (ii) beginning approximately 15 months
after purchase, a commission at an annual rate of 0.75% (subject to applicable
limitations imposed by the rules of the National Association of Securities
Dealers, Inc.) and service fees at an annual rate of 0.25%, respectively, of the
average net asset value of each share sold by such others and remaining
outstanding on the books of the Fund for specified periods.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class. However, after the termination of any Distribution
Plan, at the discretion of the Board of Trustees, payments to KDI may continue
as compensation for its services which have been earned while the Distribution
Plan was in effect.
For the period from October 17, 1994 to February 28, 1995, the Fund paid KDI
$3,384, $39,897 and $4,537 under its Class A, Class B and Class C Distribution
Plans, respectively.
Under a Rule of the NASD, the maximum uncollected amounts for which KDI may seek
payment from the Fund under its Distribution Plans are $619,476 and $9,573,
respectively, for Class B and Class C, as of February 28, 1995.
Presently, the Fund's class-specific expenses are limited to Distribution Plan
expenses incurred by a class of shares.
(3.) SECURITIES TRANSACTIONS
For the period ended February 28, 1995, purchases and sales of investment
securities were as follows:
Cost of Proceeds
Purchases from Sales
Portfolio securities.......$ 17,720,453 $ 912,871
Short-term investments..... 466,815,000 460,479,000
-------------- --------------
$ 484,535,453 $ 461,391,871
============== ==============
(4.) INVESTMENT MANAGEMENT AND TRANSACTIONS WITH AFFILIATES
Under the terms of the Investment Advisory and Management Agreement between KCF
and the Fund, dated September 21, 1994, KCF provides investment management and
administrative services to the Fund. In return, KCF is paid a management fee at
the annual rate of 1.00% of the aggregate net asset value of the Fund. KCF has
entered into a Sub-Investment Advisory Agreement with EIML, dated September 21,
1994, under which EIML provides investment research and advice to the Fund in
both a non-discretionary and a discretionary capacity. For its services EIML
receives a monthly fee equal to; (1) for services rendered in a
non-discretionary capacity, 20% of Keystone's net fee for such month; plus (2)
for services rendered in a discretionary capacity, 10% of Keystone's net fee for
such month.
During the period ended February 28, 1995, the Fund paid or accrued to KCF
investment management and administrative service fee of $57,970, which
represented 4.11% of the Fund's average net assets on an annualized basis.
Keystone paid or accrued a sub-advisory fee of $9,710 to EIML for the period
ended February 28, 1995.
The Fund is subject to certain state annual expense limits, the most restrictive
of which is as follows: 2.5% of the first $30 million of Fund Assets, 2.0% of
the next $70 million of Fund assets, and 1.5% of Fund assets over $100 million.
Pursuant to such limitations, KCF reimbursed the Fund $6,672 during the period
ended February 28, 1995.
During the period from October 17, 1994 to February 28, 1995, the Fund paid or
accrued to KIRC $10,160 as reimbursement for certain accounting, tax and
printing services and $13,382 for transfer agent fees.
Certain officers and/or Directors of Keystone are also officers and/or Trustees
of the Fund. Officers of Keystone and affiliated Trustees receive no
compensation directly from the Fund. Currently, the Independent Trustees of the
Fund receive no compensation for their services.
(5.) FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
At February 28, 1995, the Fund had entered into the following currency exchange
contracts that obligate the Fund to deliver currencies at specified future
dates. The unrealized appreciation of $3,543 on these contracts is included in
the accompanying financial statements. The terms of the open contracts are as
follows:
Exchange Currency to U.S. $ value Currency to U.S. $ value
date be delivered as of 2/28/95 be received as of 2/28/95
5/10/95 3,361,415 $ 2,486,257 2,489,800 $ 2,489,800
Australian $ U.S. $
(6.) DISTRIBUTIONS TO SHAREHOLDERS
The Fund intends to distribute to its shareholders dividends from net investment
income and net realized long-term capital gains, if any, annually. Any taxable
distribution which is declared in December and paid in the following fiscal year
will be taxable to shareholders in the year declared.
<PAGE>
KEYSTONE STRATEGIC DEVELOPMENT FUND
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24(a). Financial Statements:
All financial statements listed below are included in Registrant's
Statement of Additional Information.
Statement of Investments* For the period October 13, 1994 (commencement
of operations) through February 28, 1995
Financial Highlights For the period October 13, 1994 (commencement
of operations) through February 28, 1995
Statement of Assets and For the period October 13, 1994 (commencement
Liabilities* of operations) through February 28, 1995
Statement of Operations* For the period October 13, 1994 (commencement
of operations) through February 28, 1995
Statement of Change in For the period October 13, 1994 (commencement
Net Assets* of operations) through February 28, 1995
Notes to Financial Statements* For the period October 13, 1994 (commencement
of operations) through February 28, 1995
SUPPORTING SCHEDULES
All other schedules are omitted as the required information is
inapplicable.
________________
* Unaudited
<PAGE>
(24)(b) Exhibits
(1) (i) A copy of the Registrant's Declaration of Trust was
filed with Registration Statement No. 33-82520/811-
8694 as Exhibit 24(b)(1), and is incorporated by
reference herein.
(ii) A copy of the Registrant's First Supplemental
Declaration of Trust was filed with Pre-Effective
Amendment No. 1 to Registration Statement No. 33-
82520/811-8694 as Exhibit 24(b)(1), and is
incorporated by reference herein.
(2) A copy of the Registrant's current By-Laws was filed with
Pre-Effective Amendment No. 1 to Registration Statement No.
33-82520/811-8694 as Exhibit 24(b)(2), and is incorporated by
reference herein.
(3) Not applicable.
(4) A copy of the specimen share certificate will be filed by
Amendment.
(5) (i) A copy of the form of Investment Advisory and
Management Agreement between Registrant and Keystone
Custodian Funds, Inc. was filed with Pre-Effective
Amendment No. 1 to Registration Statement No. 33-
82520/811-8694 as Exhibit 24(b)(5), and is
incorporated by reference herein.
(ii) A copy of the form of SubInvestment Advisory
Agreement between Registrant and EquitiLink
International Management Limited was filed with Pre-
Effective Amendement No. 1 to Registration Statement
No. 33-82520/811-8694 as Exhibit 24(b)(5), and is
incorporated by reference herein.
(6) (i) A copy of the form of Principal Underwriting
Agreement between Registrant and Keystone
Distributors, Inc. was filed with Pre-Effective
Amendment No. 1 to Registration Statement No. 33-
82520/811-8694 as Exhibit 24(b)(6), and is
incorporated by reference herein.
(ii) A copy of the form of Dealer Agreement used by
Keystone Distributors, Inc. was filed with
Registration Statement No. 33-82520/811-8694 as
Exhibit 24(b)(6), and is incorporated by reference
herein.
(7) Not applicable.
(8) A copy of the form of Custody Agreement between Regis- trant
and State Street Bank and Trust Company was filed with
Pre-Effective Amendment No.1 to Registration Statement No.
33-82520/811-8694 as Exhibit 24(b)(8), and is incorporated by
reference herein.
<PAGE>
(24)(b) Exhibits continued.
(9) Not applicable.
(10) Opinion of counsel on the legality of the shares being
registered was filed with Registration Statement No. 33-
82520/811-8694 as Exhibit 24(b)(10), and is incorporated by
reference herein.
(11) Consent as to use of Report of Registrant's independent
auditors was filed with Pre-Effective Amendment No. 1 to
Registration Statement No. 33-82520/811-8694 as Exhibit
24(b)(11), and is incorporated by reference herein.
(12) Not applicable.
(13) A copy of the Subscription Agreement between Registrant and
Keystone Distributors, Inc. was filed with Registration
Statement No. 33-82520/811-8694 as Exhibit 24(b)(13), and is
incorporated by reference herein.
(14) Copies of model plans used in the establishment of retirement
plans in connection with which the Registrant will offer its
securities were filed with Post-Effective Amendment No. 66 to
the Registration Statement of Keystone Custodian Fund, Series
K-1 (File No. 2-10527) as Exhibit 1(b)(14), and are
incorporated by reference herein.
(15) A copy of the form of each of Registrant's Class A, Class B
and Class C Distribution Plans was filed with Pre- Effective
Amendment No. 1 to Registration Statement No.
33-82520/811-8694 as Exhibit 24(b)(15), and is incorporated by
reference herein.
(16) Not applicable.
(17) Not applicable.
(18) Powers of Attorney are filed herewith.
Item 25. Persons Controlled by or Under Common Control With Registrant
Not applicable.
<PAGE>
Item 26. Number of Holders of Securities
Number of Record
Title of Class Holders as of March 31, 1995
Shares of Beneficial 541,983.341
Interest-Class A, without
par value
Shares of Beneficial 1,631,448.784
Interest-Class B, without
par value
Shares of Beneficial 155,019.712
Interest-Class C, without
par value
Item 27. Indemnification
Provisions for the indemnification of the Registrant's Trustees and
officers are contained in Article VIII of Registrant's Declaration of Trust, a
copy of the form of which was filed with Registration Statement No.
33-82520/811-8694 as Exhibit 24(b)(1) and is incorporated by reference herein.
Provisions for the indemnification of Keystone Distributors, Inc.,
the Registrant's Principal Underwriter, are contained in Section 9 of the
Principal Underwriting Agreement between the Registrant and Keystone
Distributors, Inc., a copy of the form of which was filed with Registration
Statement No. 33-82520/811-8694 as Exhibit 24(b)(6) and is incorporated by
reference herein.
Provisions for the indemnification of Keystone Custodian Funds, Inc.,
Registrant's investment adviser, are contained in Section 6 of the Investment
Advisory and Management Agreement between Registrant and Keystone Custodian
Funds, Inc., a copy of the form of which was filed with Registration Statement
No. 33- 82520/811-8694 as Exhibit 24(b)(5) and is incorporated by reference
herein.
Item 28. Businesses and Other Connections of Investment Adviser
The following table lists the names of the various officers and
directors of Keystone Custodian Funds, Inc., the Registrant's
investment adviser, and their respective positions. For each named
individual, the table lists, for at least the past two fiscal years,
(i) any other organizations (excluding investment advisory clients)
with which the officer and/or director has had or has substantial
involvement; and (ii) positions held with such organizations.
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF KEYSTONE CUSTODIAN FUNDS, INC.
<TABLE>
<CAPTION>
Position with
Name Keystone Custodian Funds, Inc. Other Business Affiliations
- ----- ------------------------------ ----------------------------
<S> <C> <C>
Albert H. Elfner, III Chairman of the Board, Chief Chairman of the Board,
Chief Executive Officer, Vice Chief Executive Officer,
Chairman and Director President and Director:
Keystone Group, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Keystone Asset Corporation
Keystone Capital Corp.
Chairman of the Board and Director:
Keystone Fixed Income Advisers, Inc.
Keystone Investment Management Corporation
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment Company, Inc.
Keystone Distributors, Inc.
Keystone Investor Resource Center, Inc.
Robert Van Partners, Inc.
Boston Children's Services Associates
Fiduciary Investment Company, Inc.
Middlesex School
Middlebury College
Formerly Trustee:
Neworld Bank
Philip M. Byrne Director President and Director:
Keystone Investment Management Corporation
Senior Vice President:
Keystone Group, Inc.
Herbert L. Bishop, Jr. Senior Vice President None
Donald C. Dates Senior Vice President None
Gilman Gunn Senior Vice President None
Edward F. Godfrey Director, Director, Senior Vice Chief Financial Treasurer:
Senior Vice Keystone Group, Inc
President, Keystone Distributors, Inc.
Treasurer and Treasurer: .
Chief Financial Keystone Investment Management Corporation
Officer Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Treasurer and Director:
Hartwell Keystone Advisers, Inc.
James R. McCall Director and President None
Ralph J. Spuehler, Jr. Director President and Director:
Keystone Distributors,Inc.
Senior Vice President and Director:
Keystone Group, Inc.
Treasurer:
Hartwell Emerging Growth Fund, Inc.
Hartwell Growth Fund,Inc.
Director:
Keystone Investor Resource Center, Inc.
Keystone Management, Inc.
Formerly President:
Keystone Management, Inc.
Formerly Treasurer:
The Kent Funds
Keystone Group, Inc.
Keystone Custodian Funds, Inc.
Rosemary D. Van Antwerp Senior Vice President, General Counsel, Senior Vice President and Secretary:
General Counsel Keystone Group, Inc.
and Secretary Senior Vice President and General Counsel:
Keystone Investment Management Corporation
Senior Vice President, General Counsel and Director:
Keystone Investor Resource Center, Inc.
Fiduciary Investment Company, Inc.
Keystone Distributors, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Senior Vice President and Secretary:
Hartwell Keystone Advisers, Inc.
Vice President and Secretary:
Keystone Fixed Income Advisers, Inc.
Formerly Assistant Secretary:
The Kent Funds
Harry Barr Vice President None
Robert K. Baumback Vice President None
Betsy A. Blacher Vice President None
Francis X. Claro Vice President None
Kristine R. Cloyes Vice President None
Christopher P. Conkey Vice President None
Richard Cryan Vice President None
Maureen E. Cullinane Vice President None
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Christopher R. Ely Vice President None
Roland Gillis Vice President None
Robert L. Hockett Vice President None
Sami J. Karam Vice President None
Donald M. Keller Vice President None
George J. Kimball Vice President None
JoAnn L. Lydon Vice President None
John C. Madden, Jr. Vice President None
Stephen A. Marks Vice President None
Eleanor H. Marsh Vice President None
Walter T. McCormick Vice President None
Barbara McCue Vice President None
Stanley M. Niksa Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
William H. Parsons Vice President None
Daniel A. Rabasco Vice President None
David L. Smith Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
Marcia Waterman Vice President None
J. Kevin Kenely Vice President None
Joseph J. Decristofaro Vice President None
Jean Susan Loewenberg Assistant Secretary Vice President and Counsel:
Keystone Group, Inc.
Vice President and Secretary:
Keystone Trust Company
Secretary:
Keystone Investor Resource Center, Inc.
Assistant Secretary:
Keystone Asset Corporation
Keystone Capital Corporation
Keystone Distributors, Inc.
Keystone Fixed Income Advisers, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Hartwell Keystone Advisers, Inc.
Clerk:
Keystone Investment Management Corporation
Fiduciary Investment Company, Inc.
Assistant Secretary:
Hartwell Keystone Advisers, Inc.
Keystone Distributors, Inc.
Colleen L. Mette Assistant Secretary Assistant Secretary:
Keystone Distributors, Inc.
Keystone Group, Inc.
Kevin J. Morrissey Assistant Treasurer Vice President:
Keystone Group, Inc.
Assistant Treasurer:
Fiduciary Investment Company, Inc.
Formerly Assistant Treasurer:
The Kent Funds
</TABLE>
<PAGE>
Item 29. Principal Underwriters
Keystone Distributors, Inc., which acts as Registrant's principal
underwriter, also acts as principal underwriter for the following
entities:
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone America Hartwell Growth Fund, Inc.
Keystone Custodian Fund, Series B-1
Keystone Custodian Fund, Series B-2
Keystone Custodian Fund, Series B-4
Keystone Custodian Fund, Series K-1
Keystone Custodian Fund, Series K-2
Keystone Custodian Fund, Series S-1
Keystone Custodian Fund, Series S-3
Keystone Custodian Fund, Series S-4
Keystone America Capital Preservation and Income Fund
Keystone America Global Opportunities Fund
Keystone America Government Securities Fund
Keystone America Intermediate Term Bond Fund
Keystone America Omega Fund, Inc.
Keystone America State Tax Free Fund
Keystone America Strategic Income Fund
Keystone America Tax Free Income Fund
Keystone America World Bond Fund
Keystone Fund of the Americas
Keystone Tax Free Fund
Keystone Tax Exempt Trust
Keystone Liquid Trust
Keystone International Fund Inc.
Keystone Precious Metals Holdings, Inc.
(b) For information with respect to each officer and director of
Registrant's acting principal underwriter, see the following pages:
<PAGE>
Item 29(b) (continued).
Position and
Name and Principal Position and Offices with Offices with
Business Address Keystone Distributors, Inc. the Fund
- ------------------ --------------------------- -------------
Ralph J. Spuehler* Director, President None
Edward F. Godfrey* Director, Senior Vice Senior Vice
President, Treasurer President
and Chief Financial
Officer
Rosemary D. Van Antwerp Director, Senior Vice Senior Vice
President, General Counsel President
and Secretary
Albert H. Elfner, III* Director President
Charles W. Carr* Senior Vice President None
Peter M. Delehanty* Senior Vice President None
J. Kevin Kenely* Vice President and None
Controller
Frank O. Gebhardt Divisional Vice None
2626 Hopeton President
San Antonio, TX 78230
C. Kenneth Molander Divisional Vice None
8 King Edward Drive President
Londenderry, NH 03053
David S. Ashe Regional Manager and None
32415 Beaconsfield Vice President
Birmingham, MI 48025
David E. Achzet Regional Vice President None
60 Lawn Avenue -
Greenway 27
Stamford, CT 06902
William L. Carey, Jr. Regional Manager and None
4 Treble Lane Vice President
Malvern, PA 19355
John W. Crites Regional Manager and None
2769 Oakland Circle W. Vice President
Aurora, CO 80014
Richard J. Fish Regional Vice President None
309 West 90th Street
New York, NY 10024
Michael E. Gathings Regional Manager and None
245 Wicklawn Way Vice President
Roswell, GA 30076
Robert G. Holz, Jr. Regional Manager and None
313 Meadowcrest Drive Vice President
Richardson, Texas 75080
Todd L. Kobrin Regional Manager and None
20 Iron Gate Vice President
Metuchen, NJ 08840
Ralph H. Johnson Regional Manager and None
345 Masters Court, #2 Vice President
Walnut Creek, CA 94598
Paul J. McIntyre Regional Manager and None
Vice President
Dale M. Pelletier Regional Manager and None
464 Winnetka Ave. Vice President
Winnetka, IL 60093
Juliana Perkins Regional Manager and None
2348 West Adrian Street Vice President
Newbury Park, CA 91320
Matthew D. Twomey Regional Manager and None
9627 Sparrow Court Vice President
Ellicott City, MD 21042
Mitchell I. Weiser Regional Manager and None
7031 Ventura Court Vice President
Parkland, FL 33067
Welden L. Evans Regional Banking Officer None
490 Huntcliff Green and Vice President
Atlanta, GA 30350
Russell A. Haskell* Vice President None
Robert J. Matson* Vice President None
John M. McAllister* Vice President None
Gregg A. Mahalich Vice President None
14952 Richards Drive W.
Minnetonka, MN 55345
Burton Robbins Vice President None
1586 Folkstone Terrace
Westlake Village, CA
91361
Thomas E. Ryan, III* Vice President None
Peter Willis* Vice President None
Raymond P. Ajemian* Manager and Vice President None
Joan M. Balchunas* Assistant Vice President None
Thomas J. Gainey* Assistant Vice President None
Eric S. Jeppson* Assistant Vice President None
Julie A. Robinson* Assistant Vice President None
Peter M. Sullivan Assistant Vice President None
21445 Southeast 35th Way
Issaquah, WA 98027
Jean S. Loewenberg* Assistant Secretary Assistant
Secretary
Colleen L. Mette* Assistant Secretary Assistant
Secretary
Dorothy E. Bourassa* Assistant Secretary Assistant
Secretary
* Located at 200 Berkeley Street, Boston, Massachusetts 02116-5034
Item 29(c). - Not applicable
Item 30. Location of Accounts and Records
200 Berkeley Street
Boston, Massachusetts 02116-5034
Keystone Investor Resource Center, Inc.
101 Main Street
Cambridge, Massachusetts 02142
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, Massachusetts 02171
Data Vault Inc.
3431 Sharp Slot Road
Swansea, Massachusetts 02777
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Registrant hereby undertakes to furnish each person to whom a
copy of Registrant's prospectus is delivered with a copy of
Registrant's latest annual report to shareholders upon request and
without charge.
<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) and 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 12th day of April, 1995.
KEYSTONE STRATEGIC DEVELOPMENT FUND
By:/s/George S. Bissell
-------------------------
George S. Bissell*
Chairman of the Board
*By:/s/Melina M. T. Murphy
-------------------------
Melina M. T. Murphy**
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the ____ day of April, 1995.
SIGNATURES TITLE
- ---------- ------
/s/George S. Bissell Trustee and Chairman of the Board
George S. Bissell*
/s/Albert H. Elfner,III Chief Executive Officer, President and
Albert H. Elfner, III* Trustee
/s/Kevin J. Morrissey Treasurer (Principal Financial
Kevin J. Morrissey* and Accounting Officer)
*By/s/Melina M. T. Murphy
----------------------
Melina M. T. Murphy**
Attorney-in-Fact
<PAGE>
SIGNATURES TITLE
- ---------- ------
/s/Frederick Amling Trustee
- ------------------------
Frederick Amling*
/s/Charles A. Austin, III Trustee
- ------------------------
Charles A. Austin, III*
/s/Edwin D. Campbell Trustee
- ------------------------
Edwin D. Campbell*
/s/Charles F. Chapin Trustee
- ------------------------
Charles F. Chapin*
/s/K. Dun Gifford Trustee
- ------------------------
K. Dun Gifford*
/s/Leroy Keith, Jr. Trustee
- ------------------------
Leroy Keith, Jr.*
/s/F. Ray Keyser, Jr. Trustee
- ------------------------
F. Ray Keyser, Jr.*
/s/David M. Richardson Trustee
- ------------------------
David M. Richardson*
/s/Richard J. Shima Trustee
- ------------------------
Richard J. Shima*
/s/Andrew J. Simons Trustee
- ------------------------
Andrew J. Simons*
*By:/s/Melina M. T. Murphy
-------------------------
Melina M. T. Murphy**
Attorney-in-Fact
**Melina M. T. Murphy, by signing her 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)(18).
<PAGE>
INDEX TO EXHIBITS
Page Number
in Sequential
Exhibit Number Exhibit Numbering System
- ------------- ------- ----------------
1 Declaration of Trust1
First Supplemental
Declaration of Trust2
2 By-Laws2
5 Investment Advisory and
Management Agreement2
SubAdvisory Agreement2
6 Principal Underwriting
Agreement2
Dealer Agreement1
8 Custodian, Fund Accounting
and Recordkeeping Agreement2
10 Opinion and Consent of Counsel1
11 Independent Auditor's Consent2
13 Subscription Agreement1
15 Distribution Plans2
18 Powers of Attorney
_____________________
1 Incorporated herein by reference to Registration Statement
No. 33-82520/811-8694.
2 Incorporated herein by reference to Pre-Effective Amendment
No. 1 to Registration Statement No. 33-82520/811-8694.
EXHIBIT 99.24(b)(18)
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/George S. Bissell
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chief Executive Officer and for
which Keystone Custodian Funds, Inc. serves as Adviser or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and in my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Director/Trustee,
President and Chief
Executive Officer
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director, Trustee or officer and for which Keystone
Custodian Funds, Inc. serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and in my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Kevin J. Morrissey
Kevin J. Morrissey
Treasurer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Frederick Amling
Frederick Amling
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles A. Austin III
Charles A. Austin III
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Edwin D. Campbell
Edwin D. Campbell
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles F. Chapin
Charles F. Chapin
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ K. Dun Gifford
K. Dun Gifford
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Leroy Keith, Jr.
Leroy Keith, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ F. Ray Keyser,Jr.
F. Ray Keyser, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ David M. Richardson
David M. Richardson
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Richard J. Shima
Richard J. Shima
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/Andrew J. Simons
Andrew J. Simons
Director/Trustee
Dated: December 14, 1994
