KEYSTONE STRATEGIC DEVELOPMENT FUND
485BPOS, 1995-05-31
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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 31, 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.   2                                   X
                                -------                             ------

                                      and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940     ------
   Amendment No.                  3                                   X
                                -------                             ------
                      KEYSTONE STRATEGIC DEVELOPMENT FUND
                 (formerly Keystone Pan Pacific Resources Fund)
               --------------------------------------------------
               (Exact Name of Registrant as Specified in Charter)

             200 Berkeley Street, Boston, Massachusetts 02116-5034
             -----------------------------------------------------
              (Address of Principal Executive Offices) (Zip Code)

     Registrant's Telephone Number, including Area Code: (617) 338-3200

              Rosemary D. Van Antwerp, Esq., 200 Berkeley Street,
                             Boston, MA 02116-5034
              ---------------------------------------------------
                    (Name and Address of Agent for Service)


  It is proposed that this filing will become effective:

  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 filed a  Declaration  pursuant  to Rule 24f-2 under the
Investment  Company Act of 1940. A Rule 24f-2 Notice for the  Registrant's  last
fiscal year was filed April 26, 1995.
<PAGE>

                      KEYSTONE STRATEGIC DEVELOPMENT FUND

                                  CONTENTS OF

          POST-EFFECTIVE AMENDMENT NO. 2 TO REGISTRATION STATEMENT

     This Post-Effective  Amendment No. 2 to Registration  Statement consists of
the following pages and documents:

                                The Facing Sheet

                               The Contents Page

                           The Cross-Reference Sheet

                                     PART A

                                   Prospectus


                                     PART B

                      Statement of Additional Information

                                     PART C

              PART C - OTHER INFORMATION - ITEMS 24 (a) and 24(b)

                              Financial Statements

                          Independent Auditors' Report

                                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 Required by Rules 404 and 495 under the Securities Act of
1933.

Items in
Part A of
Form N-1A           Prospectus Caption
- ---------           ------------------

    1               Cover Page

    2               Fee Table

    3               Performance Data
                    Financial Highlights

    4               Cover Page
                    The Fund
                    Investment Objective and Strategies
                    Investment Restrictions
                    Risk Factors

    5               Fund Management and Expenses
                    Additional Information

    5A              Not Applicable

    6               The Fund
                    Dividends and Taxes
                    Fund Shares
                    Shareholder Services
                    Pricing Shares

    7               How to Buy Shares
                    Distribution Plans
                    Shareholder Services

    8               How to Redeem Shares
                    
    9               Not Applicable

Items in
Part B of
Form N-1A           Statement of Additional Information Caption
- ---------           -------------------------------------------
   10               Cover Page

   11               Table of Contents

   12               Not Applicable

   13               The Fund
                    Investment Policies
                    Investment Restrictions
                    Brokerage
                    Appendix

   14               Trustees and Officers

   15               Additional Information

   16               Investment Adviser and SubAdviser
                    Principal Underwriter
                    Distribution Plans
                    Sales Charge
                    Additional Information

   17               Brokerage

   18               The Fund
                    Declaration of Trust

   19               Valuation of Securities
                    Distribution Plans

   20               Dividends and Taxes

   21               Principal Underwriter

   22               Standardized Total Return and Yield Quotations

   23               Financial Statements
<PAGE>


                 KEYSTONE STRATEGIC DEVELOPMENT FUND

                              PART A

                            PROSPECTUS
<PAGE>

   
KEYSTONE STRATEGIC DEVELOPMENT FUND
PROSPECTUS MAY 31, 1995

  Keystone  Strategic  Development Fund (the "Fund") is a mutual fund that seeks
long term capital growth by investing primarily in equity securities.

  The Fund offers  three  classes of shares.  Information  on share  classes and
their fee and sales  charge  structures  may be found in the  Fund's  fee table,
"Alternative  Sales  Options,"  "Contingent  Deferred Sales Charge and Waiver of
Sales Charges," "Distribution Plans" and "Fund Shares."
    

  This  prospectus  contains  information  about the Fund that you  should  know
before investing. Please read it and retain it for future reference.

   
  Additional  information  about  the  Fund  is  contained  in  a  statement  of
additional  information  dated  May 31,  1995,  which  has been  filed  with the
Securities and Exchange  Commission and is  incorporated  by reference into this
prospectus.  For a free copy, or for other  information about the Fund, write to
the address or call the telephone number listed below.
    

  SHARES  OF THE FUND ARE NOT  DEPOSITS  OR  OBLIGATIONS  OF, OR  GUARANTEED  OR
ENDORSED  BY,  ANY BANK,  AND SHARES ARE NOT  FEDERALLY  INSURED BY THE  FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.

KEYSTONE STRATEGIC DEVELOPMENT FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898

TABLE OF CONTENTS

   
                                                                            Page
Fee Table                                                                    2
Financial Highlights                                                         3
The Fund                                                                     6
Investment Objective and Strategies                                          6
Investment Restrictions                                                      8
Risk Factors                                                                 8
Pricing Shares                                                              11
Dividends and Taxes                                                         11
Fund Management and Expenses                                                12
How to Buy Shares                                                           14
Alternative Sales Options                                                   15
Contingent Deferred Sales
  Charge and Waiver of Sales Charges                                        18
Distribution Plans                                                          19
How to Redeem Shares                                                        20
Shareholder Services                                                        22
Performance Data                                                            24
Fund Shares                                                                 24
Additional Information                                                      25
Additional Investment Information                                          (i)
Exhibit A                                                                  A-1
    

THESE  SECURITIES  HAVE NOT BEEN APPROVED OR  DISAPPROVED  BY THE SECURITIES AND
EXCHANGE  COMMISSION OR ANY STATE  SECURITIES  COMMISSION NOR HAS THE SECURITIES
AND  EXCHANGE  COMMISSION  OR ANY STATE  SECURITIES  COMMISSION  PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
                                  FEE TABLE
                     KEYSTONE STRATEGIC DEVELOPMENT FUND
   
    The purpose of this fee table is to assist  investors in  understanding  the
costs  and  expenses  that an  investor  in each  class  will bear  directly  or
indirectly.  For more complete  descriptions  of the various costs and expenses,
see the following  sections of this prospectus:  "Fund Management and Expenses";
"How to Buy Shares"; "Distribution Plans" and "Shareholder Services."
    
<TABLE>
<CAPTION>
                                                        CLASS A SHARES     CLASS B SHARES           CLASS C SHARES
                                                          FRONT END           BACK END                LEVEL LOAD
SHAREHOLDER TRANSACTION EXPENSES                         LOAD OPTION       LOAD OPTION<F1>             OPTION<F2>
                                                        --------------     --------------           --------------
<S>                                                      <C>               <C>                        <C>
   
Sales Charge ......................................      5.75%<F3>         None                       None
  (as a percentage of offering price)
Contingent Deferred Sales Charge ..................      0.00%<F4>         3.00% in the first year    1.00% in the first
  (as a percentage of the lesser of cost or market                         declining to 1.00% in      year and 0.00%
  value of shares redeemed)                                                the fourth year and        thereafter
                                                                           0.00% thereafter
Exchange Fee (per exchange)<F5> ...................      $10.00            $10.00                     $10.00
    
ANNUAL FUND OPERATING EXPENSES<F6>
  (as a percentage of average net assets)
Management Fees ...................................      1.00%             1.00%                      1.00%
12b-1 Fees ........................................      0.25%             1.00%<F7>                  1.00%<F7>
Other Expenses ....................................      1.45%             1.47%                      1.49%
                                                         ----              ----                       ----
Total Fund Operating Expenses .....................      2.70%             3.47%                      3.49%
                                                         ====              ====                       ====
<CAPTION>
EXAMPLES<F8>                                                               1 YEAR         3 YEARS        5 YEARS      10 YEARS
                                                                           ------         -------        -------      --------
<S>                                                                        <C>            <C>            <C>          <C>
You would pay the following expenses on a $1,000 investment, 
  assuming (1) 5% annual return [Note: Example numbers to
  appropriately reflect changes in CDSC rates.] and
  (2) redemption at the end of each period:
    Class A ................................................               $83            $137           $192         $343
    Class B ................................................               $65            $127           $180         $375
    Class C ................................................               $45            $107           $181         $377
You would pay the following expenses on a $1,000 investment,
   assuming no redemption at the end of each period:
    Class A ................................................               $83            $137           $192         $343
    Class B ................................................               $35            $107           $180         $375
    Class C ................................................               $35            $107           $181         $377

AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
<FN>
- ---------
   
<F1> Class B shares convert tax free to Class A shares after seven calendar years.
<F2> Class C shares are  available  only  through  dealers who have entered into special  distribution  agreements  with  Keystone
     Investment Distributors Company, the Fund's principal underwriter.
<F3> The sales charge applied to purchases of Class A shares declines as the amount invested increases. See "Class A Shares."
<F4> Purchases of Class A shares in the amount of $1,000,000 or more and/or  purchases  made by certain  qualifying  retirement or
     other plans are not subject to a sales charge,  but may be subject to a contingent  deferred  sales charge.  See the "Class A
     Shares" and "Contingent  Deferred Sales Charge and Waiver of Sales Charges" sections of this prospectus for an explanation of
     the charge.
<F5> There is no fee for exchange orders  received by the Fund directly from a shareholder  over the Keystone  Automated  Response
     Line ("KARL"). (For a description of KARL, see "Shareholder Services.")
<F6> Expense ratios are for the Fund's fiscal year ended March 31, 1995.
<F7> Long term  shareholders  may pay more than the  equivalent of the maximum  front end sales charges  permitted by the National
     Association of Securities Dealers, Inc. ("NASD").
<F8> The Securities and Exchange Commission requires use of a 5% annual return figure for purposes of this example.  Actual return
     for the Fund may be greater or less than 5%.
</TABLE>
    
<PAGE>

                    FINANCIAL HIGHLIGHTS -- CLASS A SHARES
                (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
    The following table contains significant  financial information with respect
to the Fund. The condensed financial  information for the period ended March 31,
1995 has been audited by KPMG Peat Marwick LLP, the Fund's independent auditors.
The table appears in the Fund's Annual Report and should be read in  conjunction
with the Fund's  financial  statements  and related  notes,  which also  appear,
together with the independent auditors' report, in the Fund's Annual Report. The
Fund's financial statements,  related notes and independent auditors' report are
included in the  statement of  additional  information.  Additional  information
about the Fund's  performance  is contained  in its Annual  Report which will be
made available upon request and without charge.


   
                                                           OCTOBER 7, 1994
                                                              (DATE OF
                                                       INITIAL PUBLIC OFFERING)
                                                          TO MARCH 31, 1995
                                                          -----------------
NET ASSET VALUE, BEGINNING OF PERIOD ..................           $10.00
                                                                   -----
Income from investment operations
Investment income (loss)--net .........................           (0.002)
Net gain (loss) on investment and foreign
 currency related transactions ........................           (0.978)
                                                                   -----
  Total income from investment operations .............           (0.980)
                                                                   -----
NET ASSET VALUE, END OF PERIOD ........................           $ 9.02
                                                                   =====
TOTAL RETURN (a)(c) ...................................            (9.80%)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets: (c)
  Operating and management expenses (b) ...............             2.77%
  Investment income (loss)--net (b)....................            (0.07%)
Portfolio turnover rate ...............................               13%
Net assets, end of period (thousands) .................           $4,890
    

(a) Excluding applicable sales charges.
(b) Annualized
(c) For the period from October 17, 1994 (commencement of investment operations)
    to March 31, 1995.
<PAGE>

                    FINANCIAL HIGHLIGHTS -- CLASS B SHARES
                (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

    The following table contains significant  financial information with respect
to the  Fund  and has  been  audited  by  KPMG  Peat  Marwick  LLP,  the  Fund's
independent  auditors.  The table appears in the Fund's Annual Report and should
be read in conjunction with the Fund's  financial  statements and related notes,
which also appear, together with the independent auditors' report, in the Fund's
Annual Report.  The Fund's financial  statements,  related notes and independent
auditors'  report are  included  in the  statement  of  additional  information.
Additional  information about the Fund's  performance is contained in its Annual
Report which will be made available upon request and without charge.

   
                                                              OCTOBER 7, 1994
                                                             (DATE OF INITIAL
                                                              PUBLIC OFFERING)
                                                             TO MARCH 31, 1995
                                                            -------------------
NET ASSET VALUE, BEGINNING OF PERIOD .................          $ 10.00
                                                                 ------
Income from investment operations
Investment income (loss)--net ........................           (0.026)
Net gain (loss) on investment 
  and foreign currency related transactions...........           (0.984)
                                                                 ------
  Total income from investment operations ............           (1.010)
                                                                 ------
NET ASSET VALUE, END OF PERIOD ........................         $  8.99
                                                                 ======
TOTAL RETURN (a)(c)....................................         (10.10%)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets: (c)
  Operating and management expenses (b)................           3.55%
  Investment income (loss)--net (b)....................          (0.80%)
Portfolio turnover rate ...............................             13%
Net assets, end of period (thousands) .................         $14,688
    

(a) Excluding applicable sales charges.
(b) Annualized
(c) For the period from October 17, 1994 (commencement of investment operations)
    to March 31, 1995.

<PAGE>
                    FINANCIAL HIGHLIGHTS -- CLASS C SHARES
                (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

    The following table contains significant  financial information with respect
to the  Fund  and has  been  audited  by  KPMG  Peat  Marwick  LLP,  the  Fund's
independent  auditors.  The table appears in the Fund's Annual Report and should
be read in conjunction with the Fund's  financial  statements and related notes,
which also appear, together with the independent auditors' report, in the Fund's
Annual Report.  The Fund's financial  statements,  related notes and independent
auditors'  report are  included  in the  statement  of  additional  information.
Additional  information about the Fund's  performance is contained in its Annual
Report which will be made available upon request and without charge.

   
                                                              OCTOBER 7, 1994
                                                             (DATE OF INITIAL
                                                            PUBLIC OFFERING) TO
                                                              MARCH 31, 1995
                                                              --------------
NET ASSET VALUE, BEGINNING OF PERIOD ...................           $10.00
                                                                    -----
Income from investment operations
Investment income (loss)--net ..........................           (0.034)
Net gain (loss) on investment and
 foreign currency related transactions .................           (0.976)
                                                                    -----
  Total income from investment operations ..............           (1.010)
                                                                    -----
NET ASSET VALUE, END OF PERIOD .........................           $ 8.99
                                                                    =====
TOTAL RETURN (a)(c).....................................          (10.10%)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets: (c)
  Operating and management expenses (b).................            3.51%
  Investment income (loss)--net (b).....................           (0.93%)
Portfolio turnover rate ................................              13%
Net assets, end of period (thousands) ..................           $1,393
    

(a) Excluding applicable sales charges.
(b) Annualized
(c) For the period from October 17, 1994 (commencement of investment operations)
    to March 31, 1995.
<PAGE>


THE FUND

   
  The Fund is an open-end,  diversified  management  investment company commonly
known as a mutual fund. The Fund was formed as a Massachusetts business trust on
July 27, 1994.  The Fund is one of thirty  funds  managed or advised by Keystone
Investment  Management  Company (formerly named Keystone  Custodian Funds, Inc.)
("Keystone"), the Fund's investment adviser.
    

INVESTMENT OBJECTIVE AND STRATEGIES

   
INVESTMENT OBJECTIVE
  The Fund seeks  long term  capital  growth by  investing  primarily  in equity
securities.

INVESTMENT STRATEGIES
  The Fund  seeks long term  capital  growth  through  the  following  principal
investment strategies:
    

  * Under  ordinary  conditions,  the Fund will invest at least 65% of its total
    assets  in  securities  of  companies  that are  expected  to  benefit  from
    development  in the Pacific  Rim/Pacific  Basin and Latin  America  regions,
    including  companies  that are expected to benefit  from (i)  infrastructure
    development  and  industrialization  in these regions or (ii) changes in the
    demand for or prices of  industrial  materials.

    For example,  the Fund will invest in one or more of the following:  mining,
    construction,  or  transportation  companies or any other company that owns,
    extracts, develops, processes, produces,  distributes,  transports, exports,
    or uses  energy  sources  (such as oil,  gas,  coal,  and  uranium),  forest
    products, real estate,  nonferrous metals,  diversified resources,  precious
    metals, or other industrial materials.

  * Under  ordinary  conditions,  the Fund will invest at least 35% of its total
    assets in securities of asset rich  companies  that own,  extract,  develop,
    process, or produce industrial raw materials.

  * Under  ordinary  conditions,  the Fund will invest at least 65% of its total
    assets in securities  of issuers  located in the  following  countries:  (1)
    Pacific Rim/Pacific Basin countries: Australia, Hong Kong, India, Indonesia,
    Japan, Korea, Malaysia, New Zealand, Papua New Guinea, the People's Republic
    of China, the Philippines,  Russia,  Singapore,  Taiwan,  and Thailand;  (2)
    Latin American countries:  Argentina,  Brazil, Chile, Colombia,  Costa Rica,
    Mexico, Peru, Uruguay, and Venezuela; and (3) the United States ("U.S.") and
    Canada.  In  addition,  the Fund may invest up to 35% of its total assets in
    countries  outside of these regions.  The Fund does not currently  intend to
    invest in the  People's  Republic  of China.  If the Fund  should  invest in
    China,  it  presently  intends to invest  less than 5% of its assets in that
    country.

PRINCIPAL INVESTMENTS AND OTHER POLICIES
  Under  ordinary  conditions,  the Fund  will  invest at least 65% of its total
assets in equity  securities.  The  securities in which the Fund invests will be
denominated in either U.S. or foreign currencies.

EQUITY  SECURITIES.  The Fund  may  invest  in the  following  types  of  equity
securities:  common stock,  preferred stock  (convertible  or  non-convertible),
warrants or rights  convertible  into  common or  preferred  stock,  partly paid
stock, and structured  equity based  securities.  The Fund deems debt securities
convertible into equity securities to be equity securities.

FOREIGN SECURITIES -- IMPORTANT INVESTMENT  POLICIES.  Keystone follows a number
of significant policies when investing in foreign countries. When allocating the
Fund's  investments  among  issuers  located in  different  countries,  Keystone
considers  such  countries'  interest  rate  environments  and general  economic
conditions.  Keystone evaluates the relative values of different currencies on a
basis of technical and political data and such fundamental  economic criteria as
relative inflation rates and trends, projected growth rates, balance of payments
status,  and  economic  policies.  With  respect to foreign  corporate  issuers,
Keystone considers the financial condition of the issuer and market and economic
conditions relevant to its operations. In addition, Keystone considers liquidity
when selecting foreign investments.

OTHER ELIGIBLE INVESTMENTS
  The  Fund  may  invest  up to 35% of its  total  assets  under  normal  market
conditions and up to 100% of its assets for temporary  defensive  purposes (when
Keystone determines that market conditions so warrant) in the following types of
U.S. dollar or foreign currency denominated debt obligations:

    (1)  Variable  and fixed rate debt  obligations  (including  zero coupon and
  payment-in-kind ("PIKs") securities), such as bonds, debentures, notes, loans,
  commercial   paper,   certificates  of  deposit,   warrants,   mortgage-backed
  securities,  debt  securities  convertible  into common stock,  and structured
  notes.  Such debt  obligations  may be issued or guaranteed by U.S. or foreign
  issuers,  including  U.S. or foreign  corporations  or  partnerships,  U.S. or
  foreign  governments  or any of  their  political  subdivisions,  agencies  or
  instrumentalities.

    (2) Money market instruments, such as:
      (a) short  term debt  obligations  issued by  foreign  issuers,  including
    foreign  corporations,  partnerships,  governments or any of their political
    subdivisions, agencies or instrumentalities;
      (b) commercial paper of U.S. issuers,  including master demand notes, that
    at the date of  investment is rated A-1 (the highest grade given by Standard
    & Poor's Corporation  ("S&P")),  Prime-1 (the highest grade given by Moody's
    Investors Service,  Inc.  ("Moody's")) or, if not rated by such services, is
    issued by a company that at the date of investment has an outstanding  issue
    rated A or better by S&P or Moody's;
      (c)   obligations,   including   certificates   of  deposit  and  bankers'
    acceptances,  of banks or  savings  and loan  associations  with at least $1
    billion in assets as of the date of their most recently published  financial
    statements  that are members of the Federal Deposit  Insurance  Corporation,
    including U.S. branches of foreign banks and foreign branches of U.S. banks;
      (d) corporate obligations of U.S. issuers that at the date of investment
    are rated A or better by S&P or Moody's;
      (e) obligations issued or guaranteed by the U.S. government or by any
    agency or instrumentality of the U.S. government; and
      (f)   repurchase   agreements  and  reverse   repurchase   agreements  for
    instruments described in (b), (c), (d), and (e).

  The Fund has the  authority  to invest  up to 25% of its total  assets in debt
obligations  with a rating below  investment grade (i.e., BBB or lower by S&P or
Baa or lower by Moody's)  or which,  if unrated,  are, in  Keystone's  judgment,
determined to be below investment grade;  provided,  however, that the Fund does
not  currently  intend  to  invest  more  than 5% of its  assets  in  such  debt
obligations.

  The Fund will invest its assets in debt obligations for non-defensive purposes
when Keystone  determines  that such  investment  is consistent  with the Fund's
investment  objective of long term capital growth.  For example,  the Fund might
invest in certain debt securities when an anticipated  decline in interest rates
would be  expected  to lead to an  appreciation  in  value  of such  securities.
Alternatively,  the Fund might invest in debt obligations issued in exchange for
restructured  debt of  certain  countries  or other  issuers  that it expects to
appreciate in value.

   
  The Fund intends to follow policies of the Securities and Exchange  Commission
as they are  adopted  from time to time with  respect  to  illiquid  securities,
including,  at this time,  (1) treating as illiquid  securities  that may not be
sold or disposed of in the  ordinary  course of  business  within  seven days at
approximately  the value at which the Fund has  valued  such  securities  on its
books and (2) limiting its holdings of such securities to 15% of net assets.

  The Fund may invest in restricted  securities,  including  securities eligible
for  resale  pursuant  to Rule 144A  under the 1933  Act.  Generally,  Rule 144A
establishes a safe harbor from the registration requirements of the 1933 Act for
resales by large  institutional  investors of securities not publicly  traded in
the U.S. The Fund may purchase Rule 144A securities when such securities present
an attractive  investment  opportunity  and otherwise meet the Fund's  selection
criteria.  Keystone  determines the liquidity of the Fund's Rule 144A securities
in accordanceR with guidelines adopted by the Board of Trustees.

  At the present time, the Fund cannot accurately predict exactly how the market
for Rule 144A  securities  will  develop.  A Rule 144A security that was readily
marketable upon purchase may subsequently become illiquid. In such an event, the
Board of Trustees will consider what action, if any, is appropriate.

  In addition to the securities  described above,  when it deems it appropriate,
the Fund may  invest up to 10% of its total  assets in the  securities  of other
investment  companies.  The Fund  would  invest in  another  investment  company
primarily  to obtain  immediate  access to a  diversified  portfolio  of foreign
securities.  See "Investment Restrictions" in the Fund's statement of additional
information.
    

  When the Fund invests its assets for temporary defensive purposes,  it may not
be pursuing its investment objective.

INVESTMENT TECHNIQUES
  The Fund may purchase or sell foreign  currency,  purchase options on currency
and  purchase or sell  forward  foreign  currency  exchange  contracts to manage
currency exposure. In addition,  the Fund may write covered call and put options
on any  security  in which  the Fund may  invest.  The  Fund  may,  for  hedging
purposes,  purchase  and sell  futures  contracts  and put and call  options  on
futures  contracts.  (Options and futures  contracts are considered  "derivative
instruments.") The Fund may purchase  securities on a when-issued,  partly paid,
or  forward  commitment  basis  and  may  engage  in the  lending  of  portfolio
securities.

  For  further  information  about  the  types  of  investments  and  investment
techniques  available to the Fund,  including the risks associated therewith see
the section of this prospectus entitled "Additional Investment  Information" and
the statement of additional information.

  There  can,  of  course,  be no  assurance  that the  Fund  will  achieve  its
investment objective.

   
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVE
  The Fund's investment  objective is fundamental and may not be changed without
the vote of a majority  (as  defined in the 1940 Act) of the Fund's  outstanding
shares.

INVESTMENT RESTRICTIONS

  The Fund has adopted the fundamental  restrictions set forth below,  which may
not be changed  without  the vote of a majority  (as defined in the 1940 Act) of
the Fund's outstanding shares.  These restrictions and certain other fundamental
restrictions are set forth in the statement of additional information.

  The Fund may not do the following: (1) invest more than 5% of its total assets
in the  securities  of any one issuer (other than U.S.  government  securities),
except that up to 25% of its total assets may be invested without regard to this
limit;  (2) borrow,  except from banks for  temporary or  emergency  purposes in
aggregate  amounts up to one-third of the value of the Fund's net assets  and/or
enter into reverse repurchase agreements; and (3) concentrate its investments in
any particular industry.

RISK FACTORS

  Investing in the Fund  involves the risk common to investing in any  security,
i.e.,  net asset  value will  fluctuate  in  response  to  changes  in  economic
conditions,  interest  rates  and  the  market's  perception  of the  underlying
securities of the Fund.

  Investment   in  equity   securities,   particularly   those   having   growth
characteristics,   frequently  involves  greater  risks  (and  possibly  greater
rewards)  than  investment  in other types of  securities.  The prices of equity
securities tend to be more volatile and companies having growth  characteristics
may sometimes be unproven.

  By itself,  the Fund does not constitute a balanced  investment plan. The Fund
stresses   providing  growth  of  capital  by  investing   primarily  in  equity
securities.  The yield of the Fund's  portfolio  securities  will fluctuate with
changing  market  conditions.  The Fund makes most sense for those investors who
can  afford  to ride out  changes  in the  stock  market  because  it  invests a
substantial portion of its assets in equity securities.

FOREIGN RISK IN GENERAL. Investments in foreign securities may involve more risk
than  investments in securities of domestic  issuers for the following  reasons:
(1) there may be less public information  available about foreign companies than
is available  about U.S.  companies;  (2) foreign  companies  are not  generally
subject to the uniform  accounting,  auditing and financial  reporting standards
and practices applicable to U.S. companies;  (3) foreign stock markets have less
volume than the U.S.  market,  and the securities of some foreign  companies are
much less liquid and much more volatile than the  securities of comparable  U.S.
companies;  (4) foreign  securities  transactions  may involve higher  brokerage
commissions;  (5)  there may be less  government  regulation  of stock  markets,
brokers,  listed companies and banks in foreign  countries than in the U.S.; (6)
the Fund may incur fees on currency  exchanges when it changes  investments from
one country to another;  (7) the Fund's foreign investments could be affected by
expropriation, confiscatory taxation, nationalization, establishment of currency
exchange controls,  political or social instability or diplomatic  developments;
(8)  fluctuations in foreign  exchange rates will affect the value of the Fund's
investments,  the value of  dividends  and  interest  earned,  gains and  losses
realized  on the  sale of  securities,  net  investment  income  and  unrealized
appreciation  or  depreciation  of  investments;  (9) interest and  dividends on
foreign securities may be subject to withholding taxes in a foreign country that
could result in a reduction of net investment income available for distribution;
and (10) to the extent the Fund invests in securities of issuers  located in the
formerly  communist  countries of Eastern  Europe,  there is the risk that those
countries could convert back to a single economic structure.

  Investing  in  securities  of issuers in emerging  market  countries  involves
exposure to  economic  systems  that are  generally  less  mature and  political
systems that are generally less stable than,  those of developed  countries.  In
addition,  investing in companies in emerging market  countries may also involve
exposure to national  policies that may restrict  investment  by foreigners  and
undeveloped legal systems governing private and foreign  investments and private
property. For this purpose,  countries with emerging markets are generally those
where the per capita income is in the low to middle ranges, as determined by the
International  Bank for Resonstruction and Development. The typically small size
of the markets for securities  issued by companies in emerging markets countries
and  the  possibility  of a low  or  nonexistent  volume  of  trading  in  those
securities  may also result in a lack of liquidity  and in price  volatility  of
those  securities.  Furthermore,  investing  in  securities  of companies in the
formerly communist countries of Eastern Europe involve additional risks to those
associated  with  investments in companies in  non-formerly  communist  emerging
markets countries.  Specifically, those countries could convert back to a single
economic system, and the claims of property owners prior to the expropriation by
the communist regime could be settled in favor of the former property owners, in
which case the Fund could lose its entire investment in those countries.
    

LATIN  AMERICA.  The risks of investing in emerging  countries or countries with
limited or developing  capital  markets are heightened for  investments in Latin
America.  The securities  markets of Latin American  countries are substantially
smaller,  less  developed,  less  liquid  and more  volatile  than those of more
developed  countries.  In  particular,  countries  in  Latin  America  may  have
relatively  unstable   governments,   presenting  the  risks  of  expropriation,
confiscation,  nationalization  or the  imposition  of  restrictions  on foreign
ownership  and on  repatriation  of  assets.  The  economies  of Latin  American
countries may be  predominantly  based on only a few  industries,  may be highly
vulnerable to changes in local or global trade  conditions,  and may suffer from
extreme and volatile debt burdens or inflation  rates.  The limited size of many
Latin American  securities  markets and limited  trading volume in issuers could
result in more abrupt or erratic price  movements and limited  marketability  of
securities  traded.  Certain  Latin  American  countries  are among the  largest
debtors to commercial  banks and foreign  governments.  Some of these  countries
have previously defaulted on their sovereign debt.

  Although  there have been  significant  improvements  in some  Latin  American
economies in recent  years,  others  continue to experience  economic  problems,
including high  inflation  rates and high interest  rates.  The emergence of the
Latin American  economies and securities market will require continued  economic
and  fiscal  discipline,  as well as stable  political  and  social  conditions.
Recovery  may  also  be  influenced  by   international   economic   conditions,
particularly  those  in  the  U.S.,  and by  world  prices  for  oil  and  other
commodities, and international trade agreements, such as the North American Free
Trade Agreement.

PACIFIC  RIM/PACIFIC  BASIN.  Countries in the Pacific  Rim/Pacific Basin are in
various stages of economic  development,  some are considered  emerging markets.
Investment  in each has various  risks.  For  instance,  most  countries  in the
Pacific  Rim/Pacific  Basin are heavily  dependent on international  trade. Some
have prosperous  economies,  but are sensitive to world commodity prices. Others
are especially vulnerable to recession in other countries. Some countries in the
Pacific  Rim/Pacific Basin have experienced  rapid growth,  although many suffer
with obsolete financial systems, economic problems, or archaic legal systems. In
addition,  many have  experienced  political and social  uncertainties.  Japan's
economy recently went into recession,  and its stock market declined. The return
of Hong Kong to Chinese dominion will affect the entire region.

LONG TERM NATURE OF THE FUND.  The Fund is designed for long-term  investors who
can accept the risks  entailed in seeking  long-term  growth of capital  through
investment  primarily  in  common  stocks.  The Fund is not  meant to  provide a
vehicle for playing  short-term  swings in the stock  market.  Although the Fund
seeks  to  reduce  risk  by  investing   in  a   diversified   portfolio,   such
diversification does not eliminate all risks. The value of the Fund's securities
will  fluctuate  based  on  market  conditions.   Consistent  with  a  long-term
investment  approach,  investors  in the Fund  should  be  prepared  and able to
maintain or add to their investment  during periods of adverse market conditions
and should not rely on an investment in the Fund for their short-term  financial
needs.

BELOW-INVESTMENT  GRADE  BONDS.  The Fund may  invest up to 25% of its assets in
below investment grade bonds. The Fund currently intends,  however, to invest no
more than 5% of its total assets in below  investment  grade  bonds.  See "Other
Eligible Investments."

  Lower  rated  debt  securities  (sometimes  called  "junk  bonds")  are  often
considered to be  speculative.  Investment in such bonds involves risks that are
greater  than the risks of investing in higher  quality debt  securities.  These
risks include risks from interest rate  fluctuations;  changes in credit status,
including  weaker  overall  credit  condition  of issuers  and risks of default;
industry, market and economic risk; volatility of price resulting from broad and
rapid changes in the value of these  securities;  and greater price  variability
and credit risks of certain high yield securities, such as zero coupon bonds and
PIKs. For further discussion of below investment grade bonds, see the SAI.

   
  Past performance  should not be considered  representative  of results for any
future period of time. Moreover,  should many shareholders change from this Fund
to some other  investment  at about the same  time,  the Fund might have to sell
portfolio  securities at a time when it would be disadvantageous to do so and at
a lower price than if such securities were held to maturity.

  For  additional  information  regarding  the Fund's  investments  in Rule 144A
securities,  see "Investment  Objective and Policies".  For further  information
about the types of investments and investment  techniques available to the Fund,
including the associated risks, see "Additional Investment  Information" and the
statement of additional information.
    

PRICING SHARES

  The net asset value of a share of the Fund is  computed  each day on which the
New York Stock  Exchange (the  "Exchange") is open as of the close of trading on
the Exchange  (currently 4:00 p.m.  Eastern time for the purpose of pricing Fund
shares) except on days when changes in the value of the Fund's securities do not
affect the  current net asset value of its shares.  The  Exchange  currently  is
closed on weekends, New Year's Day, Presidents' Day, Good Friday,  Memorial Day,
Independence  Day, Labor Day,  Thanksgiving Day and Christmas Day. The net asset
value per share of the Fund is arrived at by determining the value of the Fund's
assets, subtracting its liabilities and dividing the result by the number of its
shares outstanding.

  Current values for the Fund's securities are generally determined as follows:

    1.  securities that are traded on a national  securities  exchange or on the
  over-the-counter National Market System ("NMS") are valued on the basis of the
  last sales price on the exchange  where  primarily  traded or NMS prior to the
  time of the  valuation,  provided that a sale has occurred and that this price
  reflects current market value according to procedures established by the Board
  of Trustees;

    2. securities traded in the over-the-counter market, other than NMS, for
  which market quotations are readily available, are valued at the mean of the
  bid and asked prices at the time of valuation;

    3.  instruments  having  maturities of more than sixty days for which market
  quotations  are readily  available are valued at current  market value;  where
  market quotations are not available, such instruments are valued at fair value
  as determined by the Board of Trustees;

   
    4.  instruments  purchased with  maturities of sixty days or less (including
  all master demand notes) are valued at amortized cost (original  purchase cost
  as adjusted for amortization of premium or accretion of discount), which, when
  combined with accrued interest,  approximates market;  instruments maturing in
  more than sixty days when purchased that are held on the sixtieth day prior to
  maturity  are valued at  amortized  cost  (market  value on the  sixtieth  day
  adjusted for  amortization of premium or accretion of discount),  which,  when
  combined with accrued  interest,  approximates  market;  and which,  in either
  case, reflects fair value as determined by the Fund's Board of Trustees; and

    5. the following  securities are valued at prices deemed in good faith to be
  fair under  procedures  established by the Board of Trustees:  (a) securities,
  including restricted securities, for which complete quotations are not readily
  available,  (b) listed  securities or those on NMS if, in the Fund's  opinion,
  the last sales  price does not  reflect a current  market  value or if no sale
  occurred, and (c) other assets. 
    

  Foreign  securities for which market  quotations are not readily available are
valued on the basis of valuations provided by a pricing service, approved by the
Fund's Board of Trustees, which uses information with respect to transactions in
such  securities,   quotations  from  broker-dealers,   market  transactions  in
comparable  securities and various relationships between securities and yield to
maturity in determining value.

   
DIVIDENDS AND TAXES

  The Fund has  qualified  and  intends to qualify in the future as a  regulated
investment  company  under the  Internal  Revenue  Code (the  "Code").  The Fund
qualifies if, among other things,  it distributes to its  shareholders  at least
90% of its net  investment  income for its fiscal year. The Fund also intends to
make  timely  distributions,  if  necessary,  sufficient  in amount to avoid the
nondeductible  4% excise tax  imposed on a regulated  investment  company to the
extent that it fails to distribute, with respect to each calendar year, at least
98% of its  ordinary  income for such  calendar  year and 98% of its net capital
gains for the one-year  period  ending  October 31 of such  calendar  year.  Any
taxable dividend declared in October,  November,  or December to shareholders of
record in such month and paid by the following  January 31 will be includable in
the taxable  income of the  shareholder as if paid on December 31 of the year in
which the dividend was declared. If the Fund qualifies and if it distributes all
of its net investment income and net capital gains, if any, to shareholders,  it
will be  relieved  of any  federal  income  tax  liability.  The Fund  will make
distributions  from its net investment income annually and net capital gains, if
any,  at least  annually.  Because  Class A  shares  bear  most of the  costs of
distribution of such shares through  payment of a front end sales charge,  while
Class  B and  Class  C  shares  bear  such  expenses  through  a  higher  annual
distribution  fee,  expenses  attributable  to Class B shares and Class C shares
will generally be higher, and income distributions paid by the Fund with respect
to Class A shares  will  generally  be greater  than those paid with  respect to
Class B and Class C shares.

  Shareholders  receive Fund  distributions in the form of additional  shares of
that  class  of  shares  upon  which  the  distribution  is  based  or,  at  the
shareholder's  option,  in cash.  Fund  distributions  in the form of additional
shares are made at net asset value  without the  imposition  of a sales  charge.
Dividends and  distributions are taxable whether they are received in cash or in
shares.  Income  dividends  and net  short-term  gains  dividends are taxable as
ordinary income, and net long-term gains dividends  are taxable as capital gains
regardless  of how long the Fund's shares are held. If Fund shares held for less
than six months are sold at a loss,  however,  such loss will be treated for tax
purposes  as a long-term  capital  loss to the extent of any  long-term  capital
gains dividends received.  The Fund advises its shareholders  annually as to the
federal tax status of all distributions made during the year.

  If more  than 50% of the  value of the  Fund's  total  assets  at the end of a
fiscal year is  represented by securities of foreign  corporations  and the Fund
elects to make foreign tax credits available to its shareholders,  a shareholder
will be required to include in his gross  income both actual  dividends  and the
amount the Fund advises him is his pro rata portion of income taxes  withheld by
foreign  governments from interest and dividends paid on the Fund's investments.
The shareholder  will be entitled,  however,  to take the amount of 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.
    

FUND MANAGEMENT AND EXPENSES
BOARD OF TRUSTEES
  Under  Massachusetts  law,  the Fund's  Board of  Trustees  has  absolute  and
exclusive control over the management and disposition of all assets of the Fund.
Subject to the authority of the Fund's Board of Trustees,  Keystone,  the Fund's
investment adviser,  provides  investment advice,  management and administrative
services to the Fund.

   
INVESTMENT ADVISER
  Keystone,  located at 200 Berkeley Street, Boston,  Massachusetts  02116-5034,
has provided investment advisory and management services to investment companies
and private accounts since it was organized in 1932.  Keystone is a wholly-owned
subsidiary  of  Keystone  Investments,  Inc.  (formerly  Keystone  Group,  Inc.)
("Keystone Investments"),  located at 200 Berkeley Street, Boston, Massachusetts
02116-5034.

  Keystone  Investments is a corporation  privately  owned by current and former
members of  management  of Keystone and its  affiliates.  The shares of Keystone
Investments  common stock  beneficially owned by management are held in a number
of voting trusts, the trustees of which are George S. Bissell, Albert H. Elfner,
III, Edward F. Godfrey and Ralph J. Spuehler,  Jr. 
    

  Keystone Investments provides accounting,  bookkeeping,  legal,  personnel and
general  corporate  services  to  Keystone,  its  affiliates  and  the  Keystone
Investments  Family  of Funds.

  Under  its  Investment  Advisory  and  Management   Agreement  (the  "Advisory
Agreement")  with the Fund,  Keystone manages the investment and reinvestment of
the Fund's assets,  supervises the operation of the Fund, provides all necessary
office space,  facilities,  equipment and personnel and arranges, at the request
of the Fund, for its employees to serve as officers or agents of the Fund.

  The Fund pays  Keystone a fee for its  services at the annual rate of 1.00% of
the Fund's average daily aggregate net asset value.

  A  management  fee of 1.00% is higher than that paid by most other  investment
companies.  The Fund's fee structure is  comparable,  however,  to that of other
global and international  funds subject to the higher costs involved in managing
a portfolio of predominantly international securities.

  The Advisory  Agreement  continues in effect until 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  of the  Fund.  In either  case,  the terms of the  Advisory
Agreement and continuance  thereof must be approved by the vote of a majority of
disinterested  Trustees as defined in the 1940 Act (the "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.   The  Advisory  Agreement  will  terminate
automatically upon its assignment.

SUBADVISER
  Keystone has entered into a SubInvestment  Advisory  Agreement with EquitiLink
International  Management Limited ("EquitiLink"),  having its principal place of
business at Union House,  Union Street,  St. Helier,  Jersey,  Channel  Islands.
EquitiLink and its affiliates have provided advisory services to various clients
since 1981. Under the terms of the SubInvestment Advisory Agreement,  EquitiLink
provides Keystone with investment  research and advice. In addition,  subject to
the  supervision  of the Fund's 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.

  In addition  to  continuance  in the same  manner as provided in the  Advisory
Agreement,  the Sub  Investment  Advisory  Agreement may be  terminated  without
penalty upon similar notice by the Fund, Keystone, or EquitiLink.
  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.

   
  The Fund has  adopted  a Code of Ethics  incorporating  policies  on  personal
securities trading as recommended by the Investment Company Institute.
    

PORTFOLIO MANAGER
  John Madden is primarily responsible for the management of the Fund's
portfolio. Mr. Madden is a Keystone Vice President and Senior Portfolio
Manager and has over 27 years of investment experience.

   
FUND EXPENSES
  The Fund will pay all of its expenses.  In addition to the investment advisory
and management  fees discussed  above,  the principal  expenses that the Fund is
expected to pay  include,  but are not  limited  to:  expenses of certain of its
Trustees;   transfer,   dividend  disbursing  and  shareholder  servicing  agent
expenses;  custodian expenses;  fees of its accountants and legal counsel to its
Independent   Trustees;   fees  payable  to   government   agencies,   including
registration and qualification fees of the Fund and its shares under federal and
state securities laws; and certain  extraordinary  expenses.  In addition,  each
class  will  pay all of the  expenses  attributable  to it.  Such  expenses  are
currently  limited  to  Distribution  Plan  expenses.  The  Fund  also  pays its
brokerage commissions, interest charges and taxes.

  For the fiscal year ended March 31, 1995,  the Fund's Class A shares paid,  on
an annualized  basis,  2.77% of Class A average net assets in expenses.  For the
fiscal year ended March 31, 1995, the Fund's Class B and Class C shares paid, on
an annualized basis, 3.55% and 3.51%,  respectively,  of their average class net
assets in expenses.

  During  the  fiscal  year ended  March 31,  1995,  the Fund paid or accrued to
Keystone  Investor  Resource  Center,  Inc.  ("KIRC"),  the Fund's  transfer and
dividend  disbursing  agent,  and  Keystone   Investments  $10,160  for  certain
accounting and printing services and $16,827 for shareholder services. KIRC is a
wholly-owned subsidiary of Keystone.

SECURITIES TRANSACTIONS
  Under  policies  established  by  the  Board  of  Trustees,  Keystone  selects
broker-dealers to execute transactions subject to the receipt of best execution.
When selecting  broker-dealers to execute  portfolio  transactions for the Fund,
Keystone  may consider as a factor the number of shares of the Fund sold by such
broker-dealer. In addition, broker-dealers executing portfolio transactions may,
from time to time, be affiliated with the Fund,  Keystone,  the Fund's principal
underwriter or their affiliates.
    

  The Fund may pay higher  commissions to  broker-dealers  that provide research
services.  Keystone  may use these  services in advising  the Fund as well as in
advising its other clients.

   
PORTFOLIO TURNOVER
  The Fund's  portfolio  turnover  rate for the fiscal year ended March 31, 1995
was 13.0%. High portfolio turnover may involve correspondingly greater brokerage
commissions  and other  transaction  costs,  which will be borne directly by the
Fund as well as  additional  gains and/or  losses to  shareholders.  For further
information  about brokerage and  distribution,  see the statement of additional
information.
    

HOW TO BUY SHARES

   
  You may purchase shares of the Fund from any broker-dealer  that has a selling
agreement  with Keystone  Investment  Distributors  Company  (formerly  Keystone
Distributors,   Inc.)  ("the  Principal  Underwriter"),   the  Fund's  principal
underwriter.  The Principal Underwriter,  a wholly-owned subsidiary of Keystone,
is located at 200 Berkeley Street, Boston, Massachusetts 02116- 5034.

  In addition, you may open an account for the purchase of shares of the Fund by
mailing to the Fund c/o Keystone Investor Resource Center,  Inc.,  ("KIRC") P.O.
Box 2121, Boston,  Massachusetts 02106-2121, a completed account application and
a check  payable to the Fund or you may telephone  1-800-343-2898  to obtain the
number of an account to which you can wire or electronically  transfer funds and
then sending in a completed account application.  Subsequent  investments in any
amount may be made by check,  by wiring Federal funds or by an electronic  funds
transfer ("EFT").

  Orders for the purchase of shares of the Fund will be confirmed at an offering
price equal to the net asset value per share next  determined  after  receipt of
the order in proper  form by the  Principal  Underwriter,  the Fund's  principal
underwriter,  (generally  as of the close of the Exchange on that day) plus,  in
the case of Class A  shares,  the front end sales  charge.  Orders  received  by
dealers or other firms prior to the close of the  Exchange  and  received by the
Principal  Underwriter  prior to the close of its business day will be confirmed
at the offering price effective as of the close of the Exchange on that day. The
Fund  reserves the right to determine the net asset value more  frequently  than
once a day if deemed desirable.  Dealers and other financial  services firms are
obligated to transmit orders promptly.

  Orders for shares  received  by  broker-dealers  prior to that day's  close of
trading  on the  Exchange  and  transmitted  to the Fund  prior to its  close of
business  that day will receive the offering  price equal to the net asset value
per share computed at the close of trading on the Exchange on the same day plus,
in the case of Class A shares,  the front end sales charge.  Orders  received by
broker-dealers after that day's close of trading on the Exchange and transmitted
to the Fund prior to the close of business on the next business day will receive
the next business day's offering price.

  Orders for shares  received  directly  by the Fund from you will  receive  the
offering  price equal to the net asset value per share next  computed  after the
Fund receives the purchase order plus, in the case of Class A shares,  the front
end sales charge.
    

  The initial  purchase must be at least $1,000.  There is no minimum amount for
subsequent purchases.
  The Fund  reserves the right to withdraw all or any part of the offering  made
by this prospectus and to reject purchase orders.
  Shareholder inquiries should be directed to KIRC by calling toll free 1-800-
343-2898 or writing to KIRC or to the firm from which this prospectus was
received.

   
ALTERNATIVE SALES OPTIONS
  The Fund offers three classes of shares:

CLASS A SHARES -- FRONT END LOAD OPTION
  Class A shares are sold with a sales charge at the time of  purchase.  Class A
shares are not subject to a deferred sales charge when they are redeemed  except
as follows: Class A shares purchased on or after April 10, 1995 (1) in an amount
equal to or exceeding $1,000,000 or (2) by a corporate qualified retirement plan
or a non-qualified  deferred compensation plan sponsored by a corporation having
100 or more eligible  employees (a "Qualifying  Plan"), in either case without a
front end sales charge,  will be subject to a contingent  deferred  sales charge
for the 24 month period  following the date of purchase.  Certain Class A shares
purchased prior to April 10, 1995 may be subject to a deferred sales charge upon
redemption during the one year period following the date of purchase.

CLASS B SHARES -- BACK END LOAD OPTION
  Class B shares are sold without a sales  charge at the time of  purchase,  but
are subject to a deferred sales charge if they are redeemed  during the calendar
year of purchase or within  three  calendar  years  after the  calendar  year of
purchase. Class B shares will automatically convert to Class A shares at the end
of seven calendar years after the year of purchase.

CLASS C SHARES -- LEVEL LOAD OPTION
  Class C shares are sold without a sales  charge at the time of  purchase,  but
are  subject to a deferred  sales  charge if they are  redeemed  within one year
after the date of purchase.  Class C shares are available  only through  dealers
who have  entered  into  special  distribution  agreements  with  the  Principal
Underwriter.

  Each class of shares, pursuant to its Distribution Plan or other plan, pays an
annual service fee of 0.25% of the Fund's average daily net assets  attributable
to  that  class.  In  addition  to the  0.25%  service  fee,  the  Class B and C
Distribution  Plans provide for the payment of an annual  distribution fee of up
to 0.75% of the average net assets  attributable to their respective classes. As
a result,  income  distributions  paid by the Fund with  respect  to Class B and
Class C shares will  generally  be less than those paid with  respect to Class A
shares.

  Investors who would rather pay the entire cost of  distribution at the time of
investment,  rather than spreading  such cost over time,  might consider Class A
shares.  Other investors might consider Class B or Class C shares, in which case
100% of the purchase price is invested  immediately,  depending on the amount of
the purchase and the intended  length of investment.  The Fund will not normally
accept any purchase of Class B shares in the amount of $250,000 or more and will
not normally  accept any purchase of Class C shares in the amount of  $1,000,000
or more.

                   ---------------------------------------
CLASS A SHARES
  Class A shares are offered at net asset value plus an initial  sales charge as
follows:
<TABLE>
<CAPTION>
                                                                   AS A % OF          CONCESSION TO
                                                   AS A % OF      NET AMOUNT      DEALERS AS A % OF
AMOUNT OF PURCHASE                            OFFERING PRICE       INVESTED<F1>      OFFERING PRICE
- ---------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>                    <C>  
Less than $50,000 ......................               5.75%           6.10%                  5.25%
$50,000 but less than $100,000 .........               4.75%           4.99%                  4.25%
$100,000 but less than $250,000 ........               3.75%           3.90%                  3.25%
$250,000 but less than $500,000 ........               2.50%           2.56%                  2.25%
$500,000 but less than $1,000,000 ......               1.50%           1.52%                  1.50%
<FN>
- ---------
 <F1>Rounded to the nearest one-hundredth percent.
</TABLE>
                   ---------------------------------------

  Purchases  of the  Fund's  Class A shares in the  amount of $1 million or more
and/or  purchases  of Class A shares  made by a  Qualifying  Plan will be at net
asset  value  without the  imposition  of a front-end  sales  charge  (each such
purchase, an "NAV Purchase").
  With respect to NAV  Purchases,  the  Principal  Underwriter  will pay broker/
dealers or others concessions based on (1) the investor's  cumulative  purchases
during the one-year  period  beginning with the date of the initial NAV Purchase
and (2) the investor's  cumulative  purchases  during each  subsequent  one-year
period  beginning  with the first NAV  Purchase  following  the end of the prior
period.  For such  purchases,  concessions  will be paid at the following  rate:
1.00% of the investment  amount up to  $2,999,999;  plus 0.50% of the investment
amount between  $3,000,000 and $4,999,999;  plus 0.25% of the investment  amount
over $4,999,999.

  Class A shares  acquired on or after April 10, 1995 in an NAV  Purchase may be
subject to a contingent  deferred sales charge of 1.00% upon  redemption  during
the 24 month period commencing on the date the shares were originally purchased.
Certain Class A shares purchased without a front-end sales charge prior to April
10,  1995 may be subject to a  contingent  deferred  sales  charge of 0.25% upon
redemption  during the one year period  commencing  on the date such shares were
originally purchased.
  The sales charge is paid to the Principal Underwriter,  which in turn normally
reallows  a portion  to your  broker-dealer.  In  addition,  your  broker-dealer
currently will be paid periodic service fees at an annual rate of up to 0.25% of
the average daily net asset value of Class A shares maintained by such recipient
outstanding on the books of the Fund for specified periods.
  Upon  written  notice to  dealers  with  whom it has  dealer  agreements,  the
Principal Underwriter may reallow up to the full applicable sales charge.
  Initial sales charges may be eliminated for persons  purchasing Class A shares
to be included in a  broker-dealer  managed fee based program (a "wrap account")
with broker dealers who have entered into special  agreements with the Principal
Underwriter.  Initial sales charges may be reduced or eliminated  for persons or
organizations purchasing Class A shares of the Fund alone or in combination with
Class  A  shares  of  other  Keystone  America  Funds.  See  Exhibit  A to  this
prospectus.
  Upon prior  notification to the Principal  Underwriter,  Class A shares may be
purchased at net asset value by clients of registered representatives within six
months after a change in the registered representative's  employment,  where the
amount  invested  represents  redemption  proceeds  from a  registered  open-end
management  investment  company  not  distributed  or managed by Keystone or its
affiliates; and the shareholder either (1) paid a front end sales charge, or (2)
was at some time  subject to, but did not actually  pay, a  contingent  deferred
sales charge with respect to the redemption proceeds.
  In addition,  since January 1, 1995 and through  December 31, 1995  ("offering
period")  and upon prior  notification  to the  Principal  Underwriter,  Class A
shares  may  be  purchased   at  net  asset  value  by  clients  of   registered
representatives  within  six  months  after  the  redemption  of  shares  of any
registered open-end investment company not distributed or managed by Keystone or
its affiliates,  where the amount invested  represents  redemption proceeds from
such unrelated  registered  open-end  investment  company,  and the  shareholder
either (1) paid a front end sales  charge,  or (2) was at some time  subject to,
but did not actually pay, a contingent deferred sales charge with respect to the
redemption proceeds.

CLASS A DISTRIBUTION PLAN
  The Fund has adopted a  Distribution  Plan with  respect to its Class A shares
(the "Class A Distribution  Plan") that provides for  expenditures  by the Fund,
currently  limited to 0.25%  annually  of the  average  daily net asset value of
Class A shares,  in connection with the distribution of Class A shares.  Payment
under  the  Class A  Distribution  Plan  are  currently  made  to the  Principal
Underwriter  (which may  reallow  all or part to others,  such as  dealers),  as
service  fees at an annual  rate of up to 0.25% of the  average  daily net asset
value of Class A shares maintained by the recipients outstanding on the books of
the Fund for specified periods.

CLASS B SHARES
  Class B shares are  offered  at net asset  value,  without  an  initial  sales
charge. With certain exceptions,  the Fund may impose a deferred sales charge of
3.00% on shares  redeemed  during the  calendar  year of purchase  and the first
calendar year after the year of purchase;  2.00% on shares  redeemed  during the
second  calendar year after the year of purchase;  and 1.00% on shares  redeemed
during the third  calendar  year after the year of purchase.  No deferred  sales
charge is imposed on amounts redeemed thereafter. If imposed, the deferred sales
charge is deducted from the redemption  proceeds  otherwise  payable to you. The
deferred sales charge is retained by the Principal Underwriter. Amounts received
by the Principal  Underwriter under the Class B Distribution Plan are reduced by
deferred sales charges  retained by the Principal  Underwriter.  See "Contingent
Deferred Sales Charge and Waiver of Sales Charges" below.
  Class B shares that have been  outstanding  during seven  calendar  years will
automatically  convert  to  Class  A  shares,  which  are  subject  to  a  lower
Distribution  Plan  charge,  without  imposition  of a front end sales charge or
exchange fee.  (Conversion of Class B shares  represented by stock  certificates
will require the return of the stock  certificates  to KIRC.) The Class B shares
so converted  will no longer be subject to the higher  expenses borne by Class B
shares.  Because  the net asset  value  per  share of the Class A shares  may be
higher  or lower  than  that of the  Class B shares  at the time of  conversion,
although the dollar value will be the same,  a  shareholder  may receive more or
less Class A shares than the number of Class B shares  converted.  Under current
law, it is the Fund's  opinion  that such a  conversion  will not  constitute  a
taxable event under federal  income tax law. In the event that this ceases to be
the  case,  the  Board  of  Trustees  will  consider  what  action,  if any,  is
appropriate and in the best interests of the Class B shareholders.

CLASS B DISTRIBUTION PLAN
  The Fund has adopted a  Distribution  Plan with  respect to its Class B shares
("Class B Distribution  Plan") that provides for  expenditures at an annual rate
of up to 1.00% of the average daily net asset value of Class B shares to pay for
the  distribution of Class B shares.  Amounts paid by the Fund under the Class B
Distribution Plan are used to pay the Principal Underwriter and others (dealers)
a  commission  at the time of purchase  normally  equal to 3.00% of the value of
each share sold and/or to pay the Principal  Underwriter and others service fees
at an  annual  rate of 0.25% of the  average  daily  net  asset  value of shares
maintained  by such  recipients  and  outstanding  on the  books of the Fund for
specified periods. See "Distribution Plans" below.

CLASS C SHARES
  Class C shares are offered only through dealers who have special  distribution
agreements  with the  Principal  Underwriter.  Class C shares are offered at net
asset value, without an initial sales charge. With certain exceptions,  the Fund
may impose a deferred sales charge of 1.00% on shares  redeemed  within one year
after the date of  purchase.  No  deferred  sales  charge is  imposed on amounts
redeemed thereafter.  If imposed, the deferred sales charge is deducted from the
redemption  proceeds  otherwise  payable to you.  The  deferred  sales charge is
retained by the Principal  Underwriter.  See "Contingent  Deferred Sales Charges
and Waiver of Sales Charges" below.

CLASS C DISTRIBUTION PLAN
  The Fund has adopted a  Distribution  Plan with  respect to its Class C shares
(the "Class C Distribution  Plan") that provides for expenditures by the Fund at
an annual  rate of up to 1.00% of the  average  daily net asset value of Class C
shares to pay expenses of the distribution of Class C shares. Payments under the
Class C Distribution Plan are currently made to the Principal Underwriter (which
may reallow all or part to others, such as dealers) (1) as commissions for Class
C shares sold and (2) as  shareholder  service fees.  Amounts paid or accrued to
the Principal  Underwriter under (1) and (2) in the aggregate may not exceed the
annual limitation referred to above.

  The Principal Underwriter generally reallows to brokers or others a commission
in the amount of 0.75% of the price paid for each Class C share  sold,  plus the
first year's service fee in advance in the amount of 0.25% of the price paid for
each Class C share sold,  and,  beginning  approximately  fifteen  months  after
purchase,  a commission at an annual rate of 0.75%  (subject to the NASD rule --
see  "Distribution  Plans") plus service fees, which are paid at the annual rate
of 0.25%,  respectively,  of the  average  daily net asset value of each Class C
share  maintained  by the  recipients  outstanding  on the books of the Fund for
specified periods. See "Distribution Plans" below.

CONTINGENT DEFERRED SALES CHARGE AND WAIVER OF SALES CHARGES
  Any  contingent  deferred sales charge imposed upon the redemption of Class A,
Class B or Class C shares  is a  percentage  of the  lesser of (1) the net asset
value of the shares  redeemed or (2) the net asset value at the time of purchase
of such shares.  No contingent  deferred sales charge is imposed when you redeem
amounts  derived from (1)  increases in the value of your account  above the net
cost of such  shares due to  increases  in the net asset value per share of such
shares;  (2)  certain  shares  with  respect  to  which  the  Fund did not pay a
commission  on issuance,  including  shares  acquired  through  reinvestment  of
dividend income and capital gains distributions; (3) certain Class A shares held
for more than one or two years,  as the case may be, from the date of  purchase;
(4) Class B shares held more than four consecutive  calendar years; or (5) Class
C shares held for more than one year from the date of purchase. Upon request for
redemption,  shares not subject to the contingent  deferred sales charge will be
redeemed  first.  Thereafter,  shares held the  longest  will be the first to be
redeemed.
  The Fund may also sell Class A,  Class B or Class C shares at net asset  value
without  any initial  sales  charge or a  contingent  deferred  sales  charge to
certain Directors, Trustees, officers and employees of the Fund and Keystone and
certain of their affiliates, to registered  representatives of firms with dealer
agreements with the Principal  Underwriter and to a bank or trust company acting
as a trustee for a single account.
  With respect to Class A shares  purchased  by a  Qualifying  Plan at net asset
value or Class C shares purchased by a Qualifying  Plan, no contingent  deferred
sales  charge  will  be  imposed  on any  redemptions  made  specifically  by an
individual  participant in the Qualifying  Plan. This waiver is not available in
the  event a  Qualifying  Plan (as a  whole)  redeems  substantially  all of its
assets.

  In addition, no contingent deferred sales charge is imposed on a redemption of
shares of the Fund in the event of (1) death or disability  of the  shareholder;
(2) a lump-sum  distribution  from a 401(k) plan or other benefit plan qualified
under  the  Employee  Retirement  Income  Security  Act of 1974  ("ERISA");  (3)
automatic  withdrawals  from ERISA plans if the  shareholder  is at least 59 1/2
years old; (4) involuntary redemptions of accounts having an aggregate net asset
value  of less  than  $1,000;  (5)  automatic  withdrawals  under  an  automatic
withdrawal plan of up to 1 1/2% per month of the  shareholder's  initial account
balance;  (6)  withdrawals  consisting  of loan  proceeds to a  retirement  plan
participant;  (7)  financial  hardship  withdrawals  made by a  retirement  plan
participant; or (8) withdrawals consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan participant.

ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
  The  Principal  Underwriter  may,  from  time  to  time,  provide  promotional
incentives,  including  reallowance of up to the entire sales charge, to certain
dealers  whose  representatives  have sold or are  expected to sell  significant
amounts of Fund shares.  In addition,  dealers may,  from time to time,  receive
additional  cash payments.  The Principal  Underwriter  may also provide written
information to dealers with whom it has dealer  agreements that relates to sales
incentive campaigns conducted by such dealers for their  representatives as well
as financial  assistance in connection with pre-approved  seminars,  conferences
and advertising.  No such programs or additional compensation will be offered to
the extent they are  prohibited by the laws of any state or any  self-regulatory
agency such as the NASD.  Dealers to whom  substantially the entire sales charge
on Class A shares is reallowed may be deemed to be  underwriters as that term is
defined under the 1933 Act.

  The Principal Underwriter may, at its own expense, pay concessions in addition
to those described above to dealers which satisfy certain  criteria  established
from  time to time by the  Principal  Underwriter.  These  conditions  relate to
increasing  sales of shares of the  Keystone  funds over  specified  periods and
certain other factors. Such payments may, depending on the dealer's satisfaction
of the required  conditions,  be periodic and may be up to 0.25% of the value of
shares sold by such dealer.
    

  The Principal  Underwriter  may also pay a transaction fee (up to the level of
payments allowed to dealers for the sale of shares, as described above) to banks
and other financial services firms that facilitate transactions in shares of the
Fund for their clients.
  The   Glass-Steagall   Act  currently  limits  the  ability  of  a  depository
institution  (such as a commercial  bank or a savings and loan  association)  to
become an underwriter  or  distributor  of  securities.  In the event the Glass-
Steagall  Act is deemed  to  prohibit  depository  institutions  from  accepting
payments under the arrangement described above, or should Congress relax current
restrictions  on  depository  institutions,  the Board of Trustees will consider
what action, if any, is appropriate.
  In  addition,  state  securities  laws on  this  issue  may  differ  from  the
interpretations  of  federal  law  expressed  herein  and  banks  and  financial
institutions may be required to register as dealers pursuant to state law.

DISTRIBUTION PLANS

   
  As  discussed  above,  the Fund bears some of the costs of selling  its shares
under  Distribution Plans adopted with respect to its Class A, Class B and Class
C shares  pursuant to Rule 12b-1 under the 1940 Act.  Payments under the Class A
Distribution  Plan are currently  limited to up to 0.25% annually of the average
daily net asset value of Class A shares.  The Class B Distribution  Plan and the
Class C  Distribution  Plan  provide  for the payment at an annual rate of up to
1.00% of the average daily net asset value of Class B shares and Class C shares,
respectively.
  The NASD limits the amount that a Fund may pay annually in distribution  costs
for the sale of its shares and shareholder  service fees. The NASD limits annual
expenditures to 1% of the aggregate average daily net asset value of its shares,
of which 0.75% may be used to pay such distribution  costs and 0.25% may be used
to pay shareholder  service fees. The NASD also limits the aggregate amount that
the Fund may pay for such distribution costs to 6.25% of gross share sales since
the inception of the 12b-1  Distribution  Plan,  plus interest at the prime rate
plus 1% on such amounts (less any deferred sales charges paid by shareholders to
the Principal Underwriter ), remaining unpaid from time to time.

  The Principal Underwriter intends, but is not obligated, to continue to pay or
accrue distribution charges incurred in connection with the Class B Distribution
Plan that  exceed  current  annual  payments  permitted  to be  received  by the
Principal  Underwriter from the Fund. The Principal  Underwriter intends to seek
full  payment of such  charges  from the Fund  (together  with  annual  interest
thereon at the prime rate plus one  percent)  at such time in the future as, and
to the extent that,  payment  thereof by the Fund would be within the  permitted
limits.
  If the Fund's Independent  Trustees authorize such payments,  the effect would
be to extend the period of time during which the Fund incurs the maximum  amount
of costs allowed by a Distribution  Plan. If a Distribution  Plan is terminated,
the Principal  Underwriter  will ask the  Independent  Trustees to take whatever
action they deem appropriate under the circumstances  with respect to payment of
such amounts.
  Each of the  Distribution  Plans may be  terminated at any time by vote of the
Independent  Trustees or by vote of a majority of the outstanding  voting shares
of the respective class.  Unpaid distribution costs at fiscal year end March 31,
1995 for  Class B and  Class C shares  were  $1,019,751  (6.94% of Class B's net
assets) and $92,883 (6.67% of Class C's net assets), respectively.
  For the year ended March 31,  1995,  the Fund paid the  Principal  Underwriter
$4,457,  $53,006,  and  $5,758  pursuant  to the  Class A,  Class B and  Class C
Distribution Plans, respectively.  The Fund makes no payments in connection with
the sale of its shares other than the fee paid to its Principal Underwriter.
  Dealers or others may receive  different  levels of compensation  depending on
which class of shares they sell.  Payments  pursuant to a Distribution  Plan are
included in the operating expenses of the class.

HOW TO REDEEM SHARES

  You may  redeem  Fund  shares for cash at their net asset  value upon  written
order to the Fund c/o KIRC, and presentation to the Fund of a properly  endorsed
share certificate (if certificates have been issued).  Your signature (s) on the
written order and  certificates  must be guaranteed as described below. In order
to redeem by  telephone or to engage in telephone  transactions  generally,  you
must complete the authorization in your account application. Proceeds for shares
redeemed on  telephonic  order will be deposited by wire or EFT only to the bank
account designated in your account application.
  The redemption  value equals the net asset value per share then determined and
may be more or less than your cost  depending  upon  changes in the value of the
Fund's portfolio securities between purchase and redemption.
  If imposed, the deferred sales charge is deducted from the redemption proceeds
otherwise payable to you.

REDEMPTION OF SHARES IN GENERAL
  At various times,  the Fund may be requested to redeem shares for which it has
not yet received good payment. In such a case, the Fund may delay the mailing of
a  redemption  check or the  wiring or EFT of  redemption  proceeds  until  good
payment has been  collected  for the purchase of such  shares.  This may take 15
days.  Any delay may be avoided by  purchasing  shares  either  with a certified
check or by  Federal  Reserve  or bank  wire of funds  or by EFT.  Although  the
mailing of a redemption check or the wiring or EFT of redemption proceeds may be
delayed, the redemption value will be determined and the redemption processed in
the ordinary course of business upon receipt of proper documentation.  In such a
case,  after  the  redemption  and  prior to the  release  of the  proceeds,  no
appreciation or depreciation will occur in the value of the redeemed shares, and
no  interest  will be paid  on the  redemption  proceeds.  If the  payment  of a
redemption  has been delayed,  the check will be mailed or the proceeds wired or
sent EFT promptly after good payment has been collected.
  The Fund  computes  the amount due you at the close of the Exchange at the end
of the day on which it has received all proper  documentation  from you. Payment
of the amount due on redemption,  less any applicable  contingent deferred sales
charge (as described above), will be made within seven days thereafter except as
discussed herein.
  You  may  also  redeem  your  shares  through  broker-dealers.  The  Principal
Underwriter,  acting as agent  for the Fund,  stands  ready to  repurchase  Fund
shares upon orders from  dealers and will  calculate  the net asset value on the
same  terms  as  those  orders  for  the  purchase  of  shares   received   from
broker-dealers  and  described  under  "How  to Buy  Shares."  If the  Principal
Underwriter  has  received  proper  documentation,  it will  pay the  redemption
proceeds,  less any  applicable  deferred  sales  charge,  to the  broker-dealer
placing  the order  within  seven days  thereafter.  The  Principal  Underwriter
charges  no fee for this  service.  Your  broker-dealer,  however,  may charge a
service fee.
  For your protection,  SIGNATURES ON CERTIFICATES, STOCK POWERS AND ALL WRITTEN
ORDERS OR  AUTHORIZATIONS  MUST BE GUARANTEED BY A U.S. STOCK EXCHANGE MEMBER, A
BANK OR OTHER  PERSONS  ELIGIBLE TO GUARANTEE  SIGNATURES  UNDER THE  SECURITIES
EXCHANGE  ACT OF 1934 AND  KIRC'S  POLICIES.  The Fund or KIRC  may  waive  this
requirement,  but  also may  require  additional  documents  in  certain  cases.
Currently,  the  requirement  for a  signature  guarantee  has  been  waived  on
redemptions  of $50,000 or less when the account  address of record has been the
same for a minimum  period of 30 days.  The Fund and KIRC  reserve  the right to
withdraw this waiver at any time.
  If the Fund receives a redemption  order,  but you have not clearly  indicated
the amount of money or number of shares  involved,  the Fund cannot  execute the
order. In such cases, the Fund will request the missing information from you and
process the order on the day such information is received.

TELEPHONE
  Under ordinary  circumstances,  you may redeem up to $50,000 from your account
by  telephone  by  calling  toll  free  1-800-343-2898.  You must  complete  the
Telephone  Redemptions section of the application to enjoy telephone  redemption
privileges.
  In order to insure that  instructions  received  by KIRC are genuine  when you
initiate a telephone  transaction,  you will be asked to verify certain criteria
specific to your  account.  At the  conclusion of the  transaction,  you will be
given a transaction number confirming your request,  and written confirmation of
your   transaction  will  be  mailed  the  next  business  day.  Your  telephone
instructions will be recorded.  Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days.
  If the redemption proceeds are less than $2,500, they will be mailed by check.
If they are $2,500 or more,  they will be  mailed,  wired or sent by EFT to your
previously  designated bank account as you direct. If you do not specify how you
wish your redemption proceeds to be sent, they will be mailed by check.
  If you cannot reach the Fund by telephone,  you should  follow the  procedures
for redeeming by mail or through a broker as set forth herein.

SMALL ACCOUNTS
  Due to the high cost of  maintaining  small  accounts,  the Fund  reserves the
right to redeem your account if its value has fallen below  $1,000,  the current
minimum  investment  level, as a result of your redemptions (but not as a result
of market  action).  You will be  notified  in  writing  and  allowed 60 days to
increase the value of your account to the minimum  investment level. No deferred
sales charges are applied to such redemptions.

REDEMPTIONS IN KIND
  If conditions arise that would make it undesirable for the Fund to pay for all
redemptions  in cash,  the Fund may  authorize  payment to be made in  portfolio
securities or other property. The Fund has obligated itself,  however, under the
1940 Act to redeem  for cash all  shares  presented  for  redemption  by any one
shareholder  up to the lesser of  $250,000 or 1% of the Fund's net assets in any
90-day period. Securities delivered in payment of redemptions would be valued at
the same value  assigned to them in computing  the net asset value per share and
would,  to the extent  permitted  by law,  be readily  marketable.  Shareholders
receiving such securities would incur brokerage costs upon the securities' sale.

GENERAL
  The Fund  reserves the right at any time to  terminate,  suspend or change the
terms of any redemption  method described in this prospectus,  except redemption
by mail, and to impose fees.
  Except  as  otherwise  noted,   neither  the  Fund,  KIRC  nor  the  Principal
Underwriter  assumes  responsibility  for the  authenticity of any  instructions
received  by any of them  from a  shareholder  in  writing,  over  the  Keystone
Automated  Response Line ("KARL") or by telephone.  KIRC will employ  reasonable
procedures to confirm that  instructions  received over KARL or by telephone are
genuine.  Neither the Fund,  KIRC nor the Principal  Underwriter  will be liable
when  following  instructions  received  over  KARL or by  telephone  that  KIRC
reasonably believes to be genuine.
  The Fund may  temporarily  suspend the right to redeem its shares when (1) the
Exchange is closed,  other than  customary  weekend and  holiday  closings;  (2)
trading on the  Exchange is  restricted;  (3) an  emergency  exists and the Fund
cannot dispose of its  investments or fairly  determine  their value; or (4) the
Securities and Exchange Commission so orders.

SHAREHOLDER SERVICES

  Details on all shareholder services may be obtained from KIRC by writing or by
calling toll free 1-800-343-2898.

KEYSTONE AUTOMATED RESPONSE LINE
  KARL  offers  you  specific  fund  account  information  and  price  and yield
quotations  as  well  as  the  ability  to do  account  transactions,  including
investments, exchanges and redemptions. You may access KARL by dialing toll free
1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a week.

EXCHANGES
  A shareholder who has obtained the appropriate  prospectus may exchange shares
of the Fund for shares of certain  other  Keystone  America  Funds and  Keystone
Liquid Trust ("KLT") as follows:

    Class A shares may be exchanged for Class A shares of other Keystone America
  Funds and Class A shares of KLT;

    Class B shares may be exchanged for Class B shares of other Keystone America
  Funds and Class B shares of KLT; and

    Class C shares may be exchanged for Class C shares of other Keystone America
  Funds and Class C shares of KLT.

The  exchange  of Class B shares  and Class C shares  will not be  subject  to a
contingent  deferred  sales charge.  However,  if the shares being  tendered for
exchange are

  (i)   Class A shares acquired in  an NAV Purchase or otherwise without a front
end sales charge,

  (ii)  Class B shares  that have been held for less than four  years,  or 

  (iii) Class C shares that have been held for less than one year,

and are still subject to a deferred sales charge, such charge will carry over to
the shares being acquired in the exchange transaction.

  You may exchange shares for another  Keystone fund for a $10 fee by calling or
writing to Keystone.  The exchange fee is waived for  individual  investors  who
make an exchange using KARL. Shares purchased by check are eligible for exchange
after 15 days. If the shares being  tendered for exchange are still subject to a
deferred sales charge,  such charge will carry over to the shares being acquired
in the exchange  transaction.  The Fund reserves the right,  after providing the
required notice to  shareholders,  to terminate this exchange offer or to change
its terms, including the right to change the fee for any exchange.

  Orders to exchange a certain class of shares of the Fund for the corresponding
class of shares of KLT will be executed by redeeming  the shares of the Fund and
purchasing  the  corresponding  class of shares of KLT at the net asset value of
such shares next  determined  after the  proceeds  from such  redemption  become
available,  which may be up to seven days after  such  redemption.  In all other
cases,  orders for exchanges  received by the Fund prior to 4:00 p.m. on any day
the Fund is open for  business  will be  executed  at the  respective  net asset
values  determined  as of the close of business  that day.  Orders for exchanges
received  after 4:00 p.m. on any business day will be executed at the respective
net asset values determined at the close of the next business day.

  An  excessive  number  of  exchanges  may  be  disadvantageous  to  the  Fund.
Therefore,  the Fund, in addition to its right to reject any exchange,  reserves
the right to terminate the exchange  privilege of any shareholder who makes more
than five  exchanges  of  shares  of the funds in a year or three in a  calendar
quarter.
  An exchange  order must  comply  with the  requirements  for a  redemption  or
repurchase  order and must  specify  the dollar  value or number of shares to be
exchanged. Exchanges are subject to the minimum initial purchase requirements of
the fund being acquired.  An exchange  constitutes a sale for federal income tax
purposes.
  The exchange  privilege  is available  only in states where shares of the fund
being acquired may legally be sold.

KEYSTONE AMERICA MONEY LINE
  Keystone  America  Money Line  eliminates  the delay of mailing a check or the
expense of wiring  funds.  You must  request  the  service on your  application.
Keystone  America  Money Line allows you to  authorize  electronic  transfers of
money to  purchase  shares in any amount  and to redeem up to  $50,000  worth of
shares.  You can use Keystone  America Money Line like an "electronic  check" to
move  money  between  your bank  account  and your  account in the Fund with one
telephone call. You must allow two business days after the call for the transfer
to take place. For money recently invested, you must allow normal check clearing
time before redemption proceeds are sent to your bank.
  You may also arrange for systematic  monthly or quarterly  investments in your
Keystone America account.  Once proper authorization is given, your bank account
will be debited to purchase  shares in the Fund.  You will receive  confirmation
from the Principal Underwriter for every transaction.
  To change the  amount of a Keystone  America  Money Line or to  terminate  the
service  (which  could take up to 30 days),  you must write to KIRC and  include
account numbers.

RETIREMENT PLANS
  The Fund has  various  pension  and  profit-sharing  plans  available  to you,
including  Individual  Retirement Accounts ("IRAs");  Rollover IRAs;  Simplified
Employee Pension Plans ("SEPs"),  Tax Sheltered  Annuity Plans ("TSAs"),  401(k)
Plans; Keogh Plans;  Corporate  Profit-Sharing Plans, Pension and Target Benefit
Plans; Money Purchase Plans and Salary-Reduction  Plans. For details,  including
fees and application forms, call toll free 1-800-247-4075 or write to KIRC.

AUTOMATIC WITHDRAWAL PLAN
  Under an Automatic  Withdrawal  Plan,  if your account has a value of at least
$10,000,  you may arrange  for regular  monthly or  quarterly  fixed  withdrawal
payments.  Each  payment  must be at  least  $100 and may be as much as 1.5% per
month or 4.5% per  quarter  of the total net asset  value of the Fund  shares in
your account when the  Automatic  Withdrawal  Plan is opened.  Fixed  withdrawal
payments are not subject to a deferred sales charge.  Excessive  withdrawals may
decrease or deplete the value of your account.  Moreover,  because of the effect
of the applicable  sales charge,  a Class A investor  should not make continuous
purchases of the Fund's shares while  participating in the Automatic  Withdrawal
Plan.

DOLLAR COST AVERAGING
  Through  dollar cost averaging you can invest a fixed dollar amount each month
or each quarter in any Keystone  America Fund. This results in more shares being
purchased  when the selected  fund's net asset value is relatively low and fewer
shares being  purchased  when the fund's net asset value is relatively  high and
may result in a lower average cost per share than a less  systematic  investment
approach.
  Prior to participating in dollar cost averaging, you must establish an account
in a  Keystone  America  Fund or a money  market  fund  managed  or  advised  by
Keystone.  You should designate on the application (1) the dollar amount of each
monthly or quarterly investment (minimum $100) you wish to make and (2) the fund
in which  the  investment  is to be made.  Thereafter,  on the  first day of the
designated  month,  an  amount  equal  to the  specified  monthly  or  quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund. If you are a Class A investor and paid a sales
charge on your  initial  purchase,  the shares  purchased  will be eligible  for
Rights of Accumulation  and the sales charge  applicable to the purchase will be
determined  accordingly.  In  addition,  the value of shares  purchased  will be
included in the total amount required to fulfill a Letter of Intent.  If a sales
charge was not paid on the initial  purchase,  a sales charge will be imposed at
the time of subsequent purchases,  and the value of shares purchased will become
eligible for Rights of Accumulation and Letters of Intent.

TWO DIMENSIONAL INVESTING
  You may elect to have income and capital  gains  distributions  from any class
Keystone America Fund Shares you may own automatically  invested to purchase the
same class of shares of any other  Keystone  America  Fund.  You may select this
service on your application and indicate the Keystone America Fund(s) into which
distributions  are to be  invested.  The  value  of  shares  purchased  will  be
ineligible for Rights of Accumulation and Letters of Intent.

OTHER SERVICES
  Under  certain  circumstances,  you may,  within 30 days  after a  redemption,
reinstate  your account in the same class of shares that you redeemed at current
net asset value.

PERFORMANCE DATA

  From time to time the Fund may advertise  "total  return" and "current  yield.
ALL DATA IS BASED ON HISTORICAL  EARNINGS AND IS NOT INTENDED TO INDICATE FUTURE
PERFORMANCE.  Total return and yield are computed  separately  for each class of
shares of the Fund.  Total return refers to average annual  compounded  rates of
return over  specified  periods  determined  by  comparing  the  initial  amount
invested in a particular  class to the ending  redeemable  value of that amount.
The resulting  equation assumes  reinvestment of all dividends and distributions
and  deduction of the maximum  sales charge or  applicable  contingent  deferred
sales charge and all recurring  charges,  if any,  applicable to all shareholder
accounts. The exchange fee is not included in the calculation.
  Current yield  quotations  represent  the yield on an investment  for a stated
30-day period computed by dividing net investment income earned per share during
the base period by the maximum  offering  price per share on the last day of the
base period.
  The Fund may  also  include  comparative  performance  data for each  class of
shares in advertising  or marketing the Fund's shares,  such as data from Lipper
Analytical  Services,  Inc.,  Morningstar,  Inc., Standard & Poor's Corporation,
Ibbotson Associates or other industry publications.

FUND SHARES

  The  Fund  currently  issues  three  classes  of  shares,   which  participate
proportionately  based on their  relative  net  asset  values in  dividends  and
distributions  and have equal voting,  liquidation  and other rights except that
(1)  expenses  related  to the  distribution  of each  class of  shares or other
expenses that the Board of Directors  may designate as class  expenses from time
to time,  are borne solely by each series or class;  (2) each series or class of
shares has exclusive  voting rights with respect to its  Distribution  Plan; (3)
each series or class has different exchange privileges; and (4) each class has a
different  designation.  When issued and paid for, the shares will be fully paid
and  nonassessable  by the Fund.  Shares may be  exchanged  as  explained  under
"Shareholder Services," but will have no other preference,  conversion, exchange
or preemptive rights. Shares are redeemable,  transferable and freely assignable
as  collateral.  The Fund is  authorized  to issue three  additional  classes of
shares.
  Shareholders  of the Fund are  entitled  to one vote for each full share owned
and  fractional  votes for fractional  shares.  Shares of the Fund vote together
except when required by law to vote separately by class.  The Fund does not have
annual  meetings.  The Fund will have special  meetings,  from time to time,  as
required  under its  Declaration of Trust and under the 1940 Act. As provided in
the Fund's Declaration of Trust,  shareholders have the right to remove Trustees
by an  affirmative  vote of  two-thirds  of the  outstanding  shares.  A special
meeting  of the  shareholders  will be held when 10% of the  outstanding  shares
request a meeting for the purpose of removing a Trustee. The Fund is prepared to
assist  shareholders  in  communications  with one  another  for the  purpose of
convening such a meeting as presecribed by Section 16(c) of the 1940 Act.
  Under  Massachusetts  law, it is possible that a Fund  shareholder may be held
personally liable for the Fund's  obligations.  The Fund's  Declaration of Trust
provides,  however,  that  shareholders  shall not be  subject  to any  personal
liability  for the Fund's  obligations  and provides  indemnification  from Fund
assets for any shareholder  held personally  liable for the Fund's  obligations.
Disclaimers of such liability are included in each Fund agreement.

ADDITIONAL INFORMATION

  KIRC, located at 101 Main Street,  Cambridge,  Massachusetts  02142-1519, is a
wholly-owned  subsidiary of Keystone and serves as the Fund's transfer agent and
dividend disbursing agent.
  When the Fund  determines  from its records  that more than one account in the
Fund is registered in the name of a shareholder or shareholders  having the same
address,  upon notice to those  shareholders,  the Fund intends,  when an annual
report or a semi-annual report of the Fund is required to be furnished,  to mail
one copy of such report to that address.
  Except as  otherwise  stated in this  prospectus  or required by law, the Fund
reserves  the right to change the terms of the offer  stated in this  prospectus
without shareholder  approval,  including the right to impose or change fees for
services provided.
    
<PAGE>
                      ADDITIONAL INVESTMENT INFORMATION
   
  The Fund may engage in the following investment practices to the extent
described in the prospectus and the statement of additional information.
    

CORPORATE BOND RATINGS
  Higher yields are usually available on securities that are lower rated or that
are  unrated.  Bonds  rated  Baa by  Moody's  are  considered  as  medium  grade
obligations that are neither highly protected nor poorly secured. Debt rated BBB
by S&P is  regarded as having an adequate  capacity  to pay  interest  and repay
principal,  although  adverse  economic  conditions are more likely to lead to a
weakened  capacity to pay interest and repay principal for debt in this category
than in higher rated  categories.  Lower rated securities are usually defined as
Baa or lower by Moody's or BBB or lower by S&P.  The Fund may  purchase  unrated
securities,  which are not  necessarily of lower quality than rated  securities,
but may not be attractive to as many buyers.  Debt rated BB, B, CCC, CC and C by
S&P is  regarded,  on balance,  as  predominantly  speculative  with  respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation.  BB indicates  the lowest degree of  speculation  and C the highest.
While such debt will likely have some  quality and  protective  characteristics,
these are  outweighed by large  uncertainties  or major risk exposure to adverse
conditions.  Debt rated C1 by S&P is debt (income bonds) on which no interest is
being paid.  Debt rated D by S&P is in default  and  payment of interest  and/or
repayment of principal is in arrears. The Fund intends to invest in D-rated debt
only in cases where,  in Keystone's  judgment,  there is a distinct  prospect of
improvement in the issuer's  financial position as a result of the completion of
reorganization  or  otherwise.  Bonds that are rated Caa by Moody's  are of poor
standing.  Such  issues may be in default  or there may be present  elements  of
danger with respect to principal or interest. Bonds that are rated Ca by Moody's
represent  obligations  that are  speculative in a high degree.  Such issues are
often in default or have other  market  shortcomings.  Bonds that are rated C by
Moody's are the lowest rated class of bonds, and issues so rated can be regarded
as  having  extremely  poor  prospects  of ever  attaining  any real  investment
standing.

ZERO COUPON BONDS
  A zero coupon  "stripped"  bond  represents  ownership  in  serially  maturing
interest or principal payments on specific underlying notes and bonds, including
coupons  relating to such notes and bonds.  The interest and principal  payments
are direct  obligations  of the issuer.  Coupon zero coupon  bonds of any series
mature  periodically  from the date of issue of such series through the maturity
date of the  securities  related to such  series.  Principal  zero coupon  bonds
mature on the date  specified  therein,  which is the final maturity date of the
related  securities.  Each zero  coupon  bond  entitles  the holder to receive a
single payment at maturity.  There are no periodic  interest  payments on a zero
coupon bond. Zero coupon bonds are offered at discounts from their face amounts.
  In general,  owners of zero coupon bonds have substantially all the rights and
privileges  of  owners  of  the  underlying  coupon   obligations  or  principal
obligations.  Owners of zero  coupon  bonds have the right  upon  default on the
underlying coupon  obligations or principal  obligations to proceed directly and
individually  against  the issuer and are not  required  to act in concert  with
other holders of zero coupon bonds.
  For federal income tax purposes, a purchaser of principal zero coupon bonds or
coupon  zero coupon  bonds  (either  initially  or in the  secondary  market) is
treated  as if the buyer had  purchased  a  corporate  obligation  issued on the
purchase date with an original  issue discount equal to the excess of the amount
payable at maturity over the purchase  price.  The purchaser is required to take
into income each year as ordinary income an allocable  portion of such discounts
determined on a "constant yield" method.  Any such income increases the holder's
tax basis for the zero coupon  bond,  and any gain or loss on a sale of the zero
coupon bonds relative to the holder's basis,  as so adjusted,  is a capital gain
or loss.  If the holder owns both  principal  zero coupon  bonds and coupon zero
bonds  representing  interest  in the same  underlying  issue of  securities,  a
special basis  allocation  rule  (requiring the aggregate  basis to be allocated
among the items sold and retained  based on their  relative fair market value at
the time of sale) may apply to determine  the gain or loss on a sale of any such
zero coupon bonds.

PAYMENT-IN-KIND SECURITIES
  PIK  securities pay interest in either cash or additional  securities,  at the
issuer's  option,  for a  specified  period.  The  issuer's  option  to  pay  in
additional  securities  typically  ranges  from one to six years  compared to an
average  maturity for all PIK  securities of eleven years.  Call  protection and
sinking fund  features  are  comparable  to those  offered on  traditional  debt
issues.
  PIKs, like zero coupon bonds,  are designed to give the issuer  flexibility in
managing cash flow. Several PIKs are senior debt. In other cases, where PIKs are
subordinated, most senior lenders view them as equity equivalents.
  An  advantage of PIKs for the issuer -- as with zero coupon  securities  -- is
that interest payments are automatically  compounded  (reinvested) at the stated
coupon rate, which is not the case with cash-paying securities. PIKs are gaining
popularity over zeros, however, since interest payments in additional securities
can be monetized and are more tangible than accretion of a discount.
  As a group, PIK bonds trade flat (i.e., without accrued interest). Their price
is expected to reflect an amount  representing  accreted interest since the last
payment.  PIKs  generally  trade at higher yields than  comparable  cash- paying
securities  of the same issuer.  Their premium yield is the result of the lesser
desirability of non-cash interest, the more limited audience for non-cash paying
securities, and the fact that many PIKs have been issued to equity investors who
do not normally own or hold such securities.
  Calculating  the true yield on a PIK security  requires a discounted cash flow
analysis if the  security  (ex  interest)  is trading at a premium or a discount
because  the  realizable  value of  additional  payments is equal to the current
market value of the underlying security, not par.
  Regardless  of  whether  PIK  securities  are  senior or deeply  subordinated,
issuers are highly  motivated to retire them because they are usually their most
costly form of capital.

REPURCHASE  AGREEMENTS
  The Fund may enter into  repurchase  agreements;  i.e.,  the Fund  purchases a
security subject to the Fund's obligation to resell and the seller's  obligation
to repurchase  that security at an agreed upon price and date, such date usually
being not more than seven days from the date of  purchase.  The resale  price is
based on the purchase  price plus an agreed upon market rate of interest that is
unrelated to the coupon rate or maturity of the purchased security. A repurchase
agreement  imposes an  obligation  on the seller to pay the agreed  upon  price,
which  obligation is in effect secured by the value of the underlying  security.
The value of the  underlying  security  is at least  equal to the  amount of the
agreed upon  resale  price and marked to market  daily.  The Fund may enter into
such  agreements  only with respect to U.S.  government  and foreign  government
securities, which may be denominated in U.S. or foreign currencies. The Fund may
enter into such repurchase  agreements with foreign banks and securities dealers
approved in advance by the Fund's  Trustees.  Whether a repurchase  agreement is
the  purchase  and  sale of a  security  or a  collateralized  loan has not been
definitively  established.  This  might  become  an  issue  in the  event of the
bankruptcy of the other party to the  transaction.  It does not presently appear
possible to eliminate all risks involved in repurchase  agreements.  These risks
include  the  possibility  of a decline  in the market  value of the  underlying
securities, as well as delay and costs to the Fund in connection with bankruptcy
proceedings.  Therefore,  it is the policy of the Fund to enter into  repurchase
agreements  only with  large,  well-capitalized  banks  that are  members of the
Federal  Reserve System and with primary dealers in U.S.  government  securities
(as  designated by the Federal  Reserve Board) whose  creditworthiness  has been
reviewed  and  found  satisfactory  by the Fund.  The  Securities  and  Exchange
Commission deems a repurchase agreement to be, in effect, a loan by the Fund.

   
REVERSE REPURCHASE AGREEMENTS
  Under a reverse repurchase agreement, the Fund would sell securities and agree
to repurchase them at a mutually agreed upon date and price. The Fund intends to
enter into  reverse  repurchase  agreements  to avoid  otherwise  having to sell
securities during unfavorable market conditions in order to meet redemptions. At
the time the Fund enters into a reverse repurchase agreement,  it will establish
a segregated account with the Fund's custodian  containing liquid assets such as
U.S.  government  securities or other high grade debt securities  having a value
not  less  than the  repurchase  price  (including  accrued  interest)  and will
subsequently  monitor the account to ensure  such value is  maintained.  Reverse
repurchase  agreements  involve the risk that the market value of the securities
that the Fund is obligated to repurchase may decline below the repurchase price.
Borrowing and reverse  repurchase  agreements  magnify the potential for gain or
loss on the  portfolio  securities  of the Fund  and,  therefore,  increase  the
possibility  of  fluctuation  in the Fund's net asset value.  Such practices may
constitute  leveraging.  In the event the  buyer of  securities  under a reverse
repurchase  agreement files for bankruptcy or becomes  insolvent,  such buyer or
its trustee or receiver may receive an extension of time to determine whether to
enforce the Fund's obligation to repurchase the securities and the Fund's use of
the proceeds of the reverse  repurchase  agreement may effectively be restricted
pending such determination. The staff of the SEC has taken the position that the
Investment  Company Act of 1940 treats  reverse  repurchase  agreements as being
included in the percentage limit on borrowings imposed on a Fund.

FOREIGN SECURITIES
  The Fund may invest in securities  principally  traded in  securities  markets
outside the United States. While investment in foreign securities is intended to
reduce risk by  providing  further  diversification,  such  investments  involve
sovereign  risk in addition to the credit and market risks  normally  associated
with  domestic  securities.  Foreign  investments  may be affected  favorably or
unfavorably by changes in currency rates and exchange control regulations. There
may be less publicly available information about a foreign company, particularly
emerging  market  country  companies,  than about a U.S.  company,  and  foreign
companies may not be subject to  accounting,  auditing and  financial  reporting
standards and  requirements  comparable to those  applicable to U.S.  companies.
Securities  of some  foreign  companies  are less liquid or more  volatile  than
securities of U.S.  companies,  and foreign brokerage  commissions and custodian
fees are  generally  higher than in the United  States.  Investments  in foreign
securities  may also be subject to other risks  different  from those  affecting
U.S.   investments,   including  local   political  or  economic   developments,
particularly  with respect to companies in the formerly  communist  countries of
Eastern  Europe,  expropriation  or  nationalization  of assets,  imposition  of
withholding  taxes on dividend or interest payments and currency blockage (which
would  prevent cash from being brought back to the United  States).  These risks
are carefully considered by Keystone prior to the purchase of these securities.

CONVERTIBLE SECURITIES
  The Fund may invest in convertible securities. These securities, which include
bonds, debentures,  corporate notes, preferred stocks and other securities,  are
securities that the holder can convert into common stock. Convertible securities
rank senior to common stock in a corporation's capital structure and, therefore,
entail  less  risk  than  that  corporation's  common  stock.  The  value  of  a
convertible  security is a function of its  investment  value (its market  worth
without a conversion  privilege) and its  conversion  value (its market worth if
exchanged).  If a convertible  security's  investment  value is greater than its
conversion value, its price primarily will reflect its investment value and will
tend to vary inversely with interest rates. (The issuer's  creditworthiness  and
other factors also may affect its value.) If a convertible security's conversion
value is greater  than its  investment  value,  its price will tend to be higher
than its conversion value, and it will tend to fluctuate directly with the price
of the underlying equity security.

SHORT SALES
    

  The Fund may make short sales of  securities  "against  the box." A short sale
involves the borrowing of a security,  which must  eventually be returned to the
lender.  A short  sale is  "against  the box" if,  at all  times  when the short
position  is open,  the Fund  owns the  securities  sold  short or owns an equal
amount  of  securities   convertible  into,  or  exchangeable   without  further
consideration  for,  securities  identical to the securities  sold short.  Short
sales  against  the box are used to defer  recognition  of gains or losses or in
order to receive a portion of the interest  earned by the executing  broker from
the  proceeds of such sale.  The proceeds of a short sale are held by the broker
until the  settlement  date when the Fund delivers the  convertible  security to
close out its short position. Although prior to such delivery the Fund will have
to pay an amount equal to any dividends paid on the securities  sold short,  the
Fund  will  receive  the  dividends  from the  securities  convertible  into the
securities  sold short,  plus a portion of the interest earned from the proceeds
of the short sale.  The Fund will not make short sales of securities  subject to
outstanding  call options  written by it. The Fund will segregate the securities
sold short or appropriate  convertible  securities in a special account with the
Fund's custodian in connection with its short sales "against the box."

   
DERIVATIVES
  The Fund may use  derivatives  in  furtherance  of its  investment  objective.
Derivatives are financial  contracts whose value depends on, or is derived from,
the value of an underlying asset,  reference rate or index. These assets, rates,
and indices may include bonds, stocks, mortgages,  commodities,  interest rates,
currency exchange rates, bond indices and stock indices. Derivatives can be used
to earn income or protect  against  risk, or both.  For example,  one party with
unwanted  risk may agree to pass that risk to  another  party who is  willing to
accept the risk, the second party being  motivated,  for example,  by the desire
either to earn income in the form of a fee or premium from the first  party,  or
to reduce its own unwanted  risk by  attempting to pass all or part of that risk
to the first party.
  Derivatives  can be used by  investors  such as the  Fund to earn  income  and
enhance  returns,  to hedge or adjust  the risk  profile of the  portfolio,  and
either in place of more traditional  direct investments or to obtain exposure to
otherwise inaccessible markets. The Fund is permitted to use derivatives for one
or  more of  these  purposes,  although  the  Fund  generally  uses  derivatives
primarily as direct investments in order to enhance yields and broaden portfolio
diversification.  Each of these uses entails  greater  risk than if  derivatives
were used solely for  hedging  purposes.  The Fund uses  futures  contracts  and
related  options for hedging  purposes.  Derivatives  are a valuable tool which,
when used  properly,  can  provide  significant  benefit  to Fund  shareholders.
Keystone is not an  aggressive  user of  derivatives  with  respect to the Fund.
However,  the Fund may take positions in those  derivatives  that are within its
investment  policies if, in Keystone's  judgement,  this represents an effective
response  to  current  or  anticipated  market  conditions.  Keystone's  use  of
derivatives  is subject to  continuous  risk  assessment  and  control  from the
standpoint of the Fund's investment objectives and policies.
  Derivatives  may  be  (1)  standardized,   exchange-traded  contracts  or  (2)
customized, privately negotiated contracts.  Exchange-traded derivatives tend to
be more liquid and  subject to less  credit  risk than those that are  privately
negotiated.
  There are four principal types of derivative instruments -- options,  futures,
forwards and swaps -- from which  virtually any type of  derivative  transaction
can be created.  Further information  regarding options and futures, is provided
later in this  section  and is provided in the Fund's  statement  of  additional
information. The Fund does not presently engage in the use of swaps.
  While the judicious use of derivatives by experienced investment managers such
as Keystone can be beneficial,  derivatives  also involve risks  different from,
and, in certain  cases,  greater than, the risks  presented by more  traditional
investments.  Following is a general  discussion  of important  risk factors and
issues concerning the use of derivatives that investors should understand before
investing in the Fund.

* Market Risk -- This is the general risk attendant to all investments  that the
  value of a particular  investment  will  decline or otherwise  change in a way
  detrimental to the Fund's interest.

* Management Risk -- Derivative products are highly specialized instruments that
  require   investment   techniques  and  risk  analyses  different  from  those
  associated  with  stocks  and  bonds.  The  use of a  derivative  requires  an
  understanding  not  only  of  the  underlying  instrument,  but  also  of  the
  derivative  itself,  without the benefit of observing the  performance  of the
  derivative under all possible market  conditions.  In particular,  the use and
  complexity of  derivatives  require the  maintenance  of adequate  controls to
  monitor the  transactions  entered into, the ability to assess the risk that a
  derivative  adds to the Fund's  portfolio  and the ability to forecast  price,
  interest rate or currency exchange rate movements correctly.

* Credit Risk -- This is the risk that a loss may be  sustained by the Fund as a
  result of the failure of another party to a derivative (usually referred to as
  a  "counterparty")  to comply with the terms of the derivative  contract.  The
  credit  risk for  exchange  traded  derivatives  is  generally  less  than for
  privately  negotiated  derivatives,  since the  clearing  house,  which is the
  issuer  or  counterparty  to  each  exchange-traded  derivative,   provides  a
  guarantee of  performance.  This  guarantee  is  supported by a daily  payment
  system (i.e., margin requirements)  operated by the clearing house in order to
  reduce overall credit risk. For privately negotiated derivatives,  there is no
  similar  clearing  agency  guarantee.   Therefore,   the  Fund  considers  the
  creditworthiness of each counterparty to a privately negotiated  derivative in
  evaluating potential credit risk.

* Liquidity  Risk --  Liquidity  risk exists  when a  particular  instrument  is
  difficult to purchase or sell.  If a derivative  transaction  is  particularly
  large  or if the  relevant  market  is  illiquid  (as is the  case  with  many
  privately  negotiated  derivatives),  it may not be  possible  to  initiate  a
  transaction or liquidate a position at an advantageous price.
    

OPTIONS TRANSACTIONS
  WRITING COVERED OPTIONS.  The Fund may write (i.e., sell) covered call and put
options  for  hedging  purposes.  By  writing a call  option,  the Fund  becomes
obligated during the term of the option to deliver the securities underlying the
option upon payment of the  exercise  price.  By writing a put option,  the Fund
becomes  obligated  during the term of the  option to  purchase  the  securities
underlying the option at the exercise price if the option is exercised.
  The Fund may only write "covered" options. This means that so long as the Fund
is  obligated  as the  writer  of a call  option  it  will  own  the  underlying
securities  subject  to the  option  or,  in the  case of call  options  on U.S.
Treasury bills, the Fund might own  substantially  similar U.S.  Treasury bills.
Such  securities  will be  maintained  in a  segregated  account with the Fund's
custodian.  If the Fund has written options against all of its securities  which
are eligible  for writing  options,  the Fund may be unable to write  additional
options  unless it sells a  portion  of its  portfolio  holdings  to obtain  new
securities  against which it can write  options.  If this were to occur,  higher
portfolio turnover and correspondingly  greater brokerage  commissions and other
transaction costs may result. The Fund does not expect,  however, that this will
occur.
  The Fund will be considered  "covered"  with respect to a put option it writes
if, so long as it is obligated as the writer of the put option,  it deposits and
maintains  liquid  assets  having a value equal to or greater  than the exercise
price of the option with the Fund's custodian in a segregated account.
  The principal  reason for writing call or put options is to obtain,  through a
receipt of  premiums,  a greater  current  return  than would be realized on the
underlying  securities alone. The Fund receives a premium from writing a call or
put option which it retains whether or not the option is exercised. By writing a
call  option,  the Fund  might  lose the  potential  for gain on the  underlying
security while the option is open,  and by writing a put option,  the Fund might
become  obligated to purchase the underlying  security for more than its current
market price upon exercise.
  PURCHASING OPTIONS. The Fund may purchase call and put options. The Fund would
normally  purchase call options to hedge against an increase in the market value
of the Fund's securities.  The purchase of a call option would entitle the Fund,
in return for the premium paid, to purchase specified  securities at a specified
price,  upon exercise of the option,  during the option  period.  The Fund would
ordinarily  realize  a gain if,  during  the  option  period,  the value of such
securities  exceeds  the  sum  of the  exercise  price,  the  premium  paid  and
transaction  costs;  otherwise  the Fund would realize a loss on the purchase of
the call option.
  The Fund may purchase put or call options;  including  purchasing  put or call
options for the purpose of offsetting  previously written put or call options of
the same series. If the Fund is unable to effect a closing purchase  transaction
with  respect to covered  options it has  written,  the Fund will not be able to
sell the underlying securities until the options expire or are exercised.
  The Fund would normally purchase put options to hedge against a decline in the
market value of securities in its portfolio (protective puts). The Fund will not
engage in such transactions for speculation.  The purchase of a put option would
entitle the Fund, in exchange for the premium paid, to sell specified securities
at a specified  price,  upon exercise of the option,  during the option  period.
Gains and losses on the  purchase of  protective  put  options  would tend to be
offset  by  countervailing   changes  in  the  value  of  underlying   portfolio
securities.  The Fund  would  ordinarily  realize a gain if,  during  the option
period, the value of the underlying securities declined below the exercise price
sufficiently  to cover the premium and  transaction  costs;  otherwise  the Fund
would realize a loss on the purchase of the put option.
  The Fund may purchase put and call options on securities  indices for the same
purposes as the purchase of options on  securities.  Currently,  only options on
stock indices are traded and only on national  exchanges.  Options on securities
indices  are  similar to options on  securities,  except  that the  exercise  of
securities  index options requires cash payments and does not involve the actual
purchase  or sale of  securities.  In  addition,  securities  index  options are
designed to reflect  price  fluctuations  in a group of securities or segment of
the securities market rather than price  fluctuations in a single security.  The
Fund's  purchases of  securities  index  options is subject to the risk that the
value of its portfolio securities may not change as much as an index because the
Fund's investments generally cannot match exactly the composition of an index.
  An option position may be closed out only in a secondary  market for an option
of the same series.  Although the Fund will  generally  write only those options
for which there appears to be an active secondary market,  there is no assurance
that a liquid  secondary  market  will  exist for any  particular  option at any
particular  time,  and for some options no secondary  market may exist.  In such
event it might not be possible to effect a closing  transaction  in a particular
option.
  Options on some securities are relatively new, and it is impossible to predict
the amount of trading interest that will exist in such options.  There can be no
assurance  that viable  markets will  develop or  continue.  The failure of such
markets to develop or continue could significantly  impair the Fund's ability to
use such options to achieve its investment objective.
  OPTIONS  TRADING  MARKETS.  Options in which the Fund will trade are generally
listed  on  national  securities  exchanges.  Exchanges  on which  such  options
currently  are traded  include the Chicago  Board  Options  Exchange and the New
York,  American,  Pacific  and  Philadelphia  Stock  Exchanges.  Options on some
securities may not be listed on any Exchange, but traded in the over-the-counter
market.  Options  traded in the  over-the-counter  market involve the additional
risk that securities  dealers  participating in such transactions  could fail to
meet  their  obligations  to  the  Fund.  The  use  of  options  traded  in  the
over-the-counter  market may be subject to limitations  imposed by certain state
securities authorities.
  The Securities  and Exchange  Commission is of the view that the premiums that
the Fund pays for the purchase of unlisted  options and the value of  securities
used to cover unlisted options written by the Fund are considered to be invested
in illiquid securities or assets for the purpose of calculating whether the Fund
is in compliance with its investment policies pertaining to illiquid securities.
The Fund  currently  complies  with the  position  taken by the  Securities  and
Exchange  Commission  that the  premiums  that the Fund pays for the purchase of
unlisted  options and the value of  securities  used to cover  unlisted  options
written by the Fund are  considered  to be invested in  illiquid  securities  or
assets.

FUTURES TRANSACTIONS
  The  Fund  may  enter  into  futures  contracts  for the  purchase  or sale of
securities or currencies or futures  contracts  based on securities  indices and
may  write  options  on such  contracts.  The Fund  intends  to enter  into such
contracts and put and call options  thereon for hedging  purposes.  The Fund may
enter into other types of futures contracts that may become available and relate
to the securities held by the Fund. A futures contract is an agreement to buy or
sell  securities or currencies at a specified  price during a designated  month.
The Fund does not make  payment  or  deliver  securities  upon  entering  into a
futures contract.  Instead, it puts down a margin deposit,  which is adjusted to
reflect  changes  in the value of the  contract  and which  continues  until the
contract is terminated.  The Fund will "cover" its futures contract  obligations
by  maintaining  in a segregated  account with its custodian  the  securities or
currencies  underlying  the  contract  or  liquid  assets,  such as  cash,  U.S.
Government   securities  or  other  appropriate  high  grade  debt  obligations,
sufficient in amount to satisfy the Fund's contract obligations.
  The Fund may sell or purchase  futures  contracts.  When a futures contract is
sold by the Fund,  the value of the contract will tend to rise when the value of
the underlying  securities or currencies  declines and to fall when the value of
such  securities  or  currencies  increases.  Thus,  the Fund would sell futures
contracts in order to offset a possible  decline in the value of its  securities
or  currencies.  If a futures  contract were purchased by the Fund, the value of
the contract would tend to rise when the value of the  underlying  securities or
currencies increased and to fall when the value of such securities or currencies
declined. The Fund intends to purchase futures contracts in order to fix what is
believed by its portfolio manager to be a favorable price and rate of return for
securities  or  favorable  exchange  rate for  currencies  the Fund  intends  to
purchase.
  The Fund also may  purchase put and call  options on  securities  and currency
futures contracts for hedging purposes. A put option purchased by the Fund would
give it the right to assume a position  as the seller of a futures  contract.  A
call option  purchased  by the Fund would give it the right to assume a position
as the purchaser of a futures  contract.  The purchase of an option on a futures
contract  requires the Fund to pay a premium.  In exchange for the premium,  the
Fund becomes entitled to exercise the benefits,  if any, provided by the futures
contract,  but is not  required to take any action  under the  contract.  If the
option cannot be exercised profitably before it expires, the Fund's loss will be
limited to the amount of the premium and any transaction costs.
  The Fund may write  (sell)  put and call  options  on  futures  contracts  for
hedging purposes.  The writing of a put option on a futures contract generates a
premium,  which may partially offset an increase in the price of securities that
the Fund intends to purchase.  However, the Fund becomes obligated to purchase a
futures  contract,  which  may  have a value  lower  than  the  exercise  price.
Conversely,  the  writing of a call  option on a futures  contract  generates  a
premium which may partially  offset a decline in the value of the Fund's assets.
By writing a call  option,  the Fund  becomes  obligated,  in  exchange  for the
premium,  to sell a futures  contract,  which may have a value  higher  than the
exercise price.
  The Fund may enter into  closing  purchase and sale  transactions  in order to
terminate a futures  contract  and may sell put and call options for the purpose
of closing out its options  positions.  The Fund's ability to enter into closing
transactions  depends on the development  and maintenance of a liquid  secondary
market.  There is no assurance that a liquid secondary market will exist for any
particular  contract or at any  particular  time.  As a result,  there can be no
assurance  that the Fund will be able to enter  into an  offsetting  transaction
with respect to a particular  contract at a particular  time. If the Fund is not
able to enter  into an  offsetting  transaction,  the Fund will  continue  to be
required to maintain  the margin  deposits on the  contract  and to complete the
contract  according to its terms, in which case it would continue to bear market
risk on the transaction.
  Although  futures and options  transactions are intended to enable the Fund to
manage  market,  interest rate or exchange rate risk,  unanticipated  changes in
interest  rates,  exchange  rates  or  market  prices  could  result  in  poorer
performance than if it had not entered into these transactions. Even if Keystone
correctly  predicts  interest  or  exchange  rate  movements,  a hedge  could be
unsuccessful  if  changes in the value of the Fund's  futures  position  did not
correspond to changes in the value of its investments.  This lack of correlation
between the Fund's futures and securities or currencies  positions may be caused
by differences  between the futures and  securities or currencies  markets or by
differences  between the securities or currencies  underlying the Fund's futures
position and the  securities  or  currencies  held by or to be purchased for the
Fund. In addition, futures contracts transactions involve the remote risk that a
party participating in a transaction will not be able to fulfill its obligations
and the amount of the obligation  will exceed the ability of the clearing broker
to satisfy.  Keystone  will  attempt to minimize  these  risks  through  careful
selection and monitoring of the Fund's futures and options positions.
  The Fund does not  intend  to use  futures  transactions  for  speculation  or
leverage.

   
"WHEN ISSUED" AND "FORWARD COMMITMENT" TRANSACTIONS
  The Fund may  purchase  newly issued  securities  on a when issued and delayed
delivery  basis and may  purchase  or sell  securities  on a forward  commitment
basis.  When issued or delayed delivery  transactions  arise when securities are
purchased by the Fund with  payment and  delivery  taking place in the future in
order to secure what is considered to be an advantageous  price and yield to the
Fund at the  time  of  entering  into  the  transaction.  A  forward  commitment
transaction  is an  agreement  by the Fund to purchase or sell  securities  at a
specified  future date.  When the Fund engages in these  transactions,  the Fund
relies  on the buyer or  seller,  as the case may be,  to  consummate  the sale.
Failure  to do so may result in the Fund  missing  the  opportunity  to obtain a
price or yield considered to be  advantageous.  When issued and delayed delivery
transactions  and  forward  commitment  transactions  may be expected to occur a
month or more  before  delivery  is due.  No payment or  delivery is made by the
Fund, however, until it receives payment or delivery from the other party to the
transaction.  A separate account of liquid assets equal to the value of purchase
commitments will be maintained until payment is made.

FOREIGN CURRENCY TRANSACTIONS
    

  The Fund may invest in securities of foreign issuers. When the Fund invests in
foreign securities they usually will be denominated in foreign  currencies,  and
the Fund  temporarily may hold funds in foreign  currencies.  Thus, the value of
Fund shares will be affected by changes in exchange rates.
  As one way of managing  exchange  rate risk,  in  addition  to  entering  into
currency futures  contracts,  the Fund may enter into forward currency  exchange
contracts  (agreements to purchase or sell  currencies at a specified  price and
date).  The exchange rate for the  transaction  (the amount of currency the Fund
will deliver and receive when the contract is  completed) is fixed when the Fund
enters into the  contract.  The Fund usually will enter into these  contracts to
stabilize the U.S.  dollar value of a security it has agreed to buy or sell. The
Fund intends to use these contracts to hedge the U.S. dollar value of a security
it already owns, particularly if the Fund expects a decrease in the value of the
currency in which the foreign  security is  denominated.  Although the Fund will
attempt to benefit  from using  forward  contracts,  the  success of its hedging
strategy  will depend on  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. The
Fund may also  purchase  and sell  options  related  to  foreign  currencies  in
connection with hedging strategies.

LOANS OF SECURITIES
  The Fund may lend its  securities  to  broker-dealers  or other  institutional
borrowers for use in connection with such borrowers" short sales,  arbitrages or
other  securities  transactions.  Such  loan  transactions  afford  the  Fund an
opportunity to continue to earn income on the securities  loaned and at the same
time to earn income on the  collateral  held by it to secure the loan.  Loans of
portfolio  securities  will  be  made  (if at all)  in  strict  conformity  with
applicable  federal  and  state  rules and  regulations.  There may be delays in
recovery of loaned  securities or even a loss of rights in collateral should the
borrower fail  financially  and go into default.  Therefore,  loans will be made
only to firms  deemed  by the Fund to be of good  standing  and will not be made
unless,  in the judgment of the Fund, the  consideration  to be earned from such
loans justifies the risk.

   
  The  Fund  understands  that  it is the  current  view of the  Securities  and
Exchange  Commission  that the Fund is permitted to engage in loan  transactions
only if it satisfies  the following  conditions:  (1) the Fund must receive 100%
collateral in the form of cash or cash equivalents, e.g., U.S. Treasury bills or
notes, from the borrower; (2) the borrower must increase the collateral whenever
the market value of the  securities  (determined  on a daily basis)  exceeds the
value of the collateral;  (3) the Fund must be able to terminate the loan, after
notice, at any time; (4) the Fund must receive  reasonable  interest on the loan
or a flat fee from the borrower, as well as amounts equivalent to any dividends,
interest or other distributions on the securities loaned and any increase in the
securities'  market  values,  which  could  result  from the  return  of  loaned
securities;  (5) the Fund may pay only  reasonable  custodian fees in connection
with the loan;  and (6) voting rights on the  securities  loaned may pass to the
borrower; however, if a material event affecting the securities occurs, the Fund
must be able to terminate the loan and vote proxies or enter into an alternative
arrangement  with the  borrower  to enable the Fund to vote  proxies.  Excluding
items  (1) and (2),  these  procedures  may be  amended  from  time to time,  as
regulatory  policies  may  permit,  by the  Fund's  Board  of  Trustees  without
shareholder approval.  The Fund does not presently intend to lend its securities
if, as a result,  the aggregate of all outstanding  securities loans exceeds 15%
of the value of the Fund's total assets taken at their current value.
    
<PAGE>

                                                                       EXHIBIT A

                            REDUCED SALES CHARGES

  Initial  sales   charges  may  be  reduced  or   eliminated   for  persons  or
organizations purchasing Class A shares of the Fund alone or in combination with
Class A shares of other Keystone America Funds.
  For  purposes  of  qualifying  for reduced  sales  charges on  purchases  made
pursuant to Rights of  Accumulation or Letters of Intent,  the term  "Purchaser"
includes the following persons: an individual; an individual,  his or her spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate  or  single  fiduciary   account   established  for  their  benefit;   an
organization  exempt from federal income tax under Section 501 (c)(3) or (13) of
the Internal Revenue Code; a pension,  profit-sharing  or other employee benefit
plan whether or not qualified under Section 401 of the Internal Revenue Code; or
other organized  groups of persons,  whether  incorporated or not,  provided the
organization  has been in existence for at least six months and has some purpose
other than the purchase of  redeemable  securities  of a  registered  investment
company at a discount.  In order to qualify for a lower sales charge, all orders
from an  organized  group  will  have to be placed  through a single  investment
dealer or other firm and identified as originating from a qualifying purchaser.

   
CONCURRENT PURCHASES
  For purposes of qualifying for a reduced sales charge, a Purchaser may combine
concurrent  direct  purchases of Class A shares of two or more of the  "Eligible
Funds" as defined  below.  For  example,  if a Purchaser  concurrently  invested
$75,000 in one of the other "Eligible  Funds" and $75,000 in the Fund, the sales
charge  would be that  applicable  to a $150,000  purchase,  i.e.,  4.75% of the
offering price, as indicated in the Sales Charge Schedule in the prospectus.

RIGHT OF ACCUMULATION
  In calculating the sales charge  applicable to current purchases of the Fund's
Class A shares, a Purchaser is entitled to accumulate current purchases with the
current  value of  previously  purchased  Class A shares of the Fund and Class A
shares of certain other  eligible funds that are still held in (or exchanged for
shares of and are still held in) the same or another  eligible  fund  ("Eligible
Fund(s)"). The Eligible Funds are the Keystone America Funds and Keystone Liquid
Trust.
  For example,  if a Purchaser  held shares  valued at $99,999 and  purchased an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales  charge of 4.75% of the  offering  price as  indicated  in the Sales
Charge  Schedule.  KIRC  must be  notified  at the  time of  purchase  that  the
Purchaser is entitled to a reduced sales charge, which reduction will be granted
subject to confirmation of the Purchaser's  holdings.  The Right of Accumulation
may be modified or discontinued at any time.

LETTER OF INTENT
  A Purchaser  may qualify for a reduced  sales  charge on a purchase of Class A
shares of the Fund alone or in  combination  with purchases of Class A shares of
any of the other  Eligible  Funds by completing  the Letter of Intent section of
the  application.  By  so  doing,  the  Purchaser  agrees  to  invest  within  a
thirteen-month  period a specified  amount which, if invested at one time, would
qualify  for a reduced  sales  charge.  Each  purchase  will be made at a public
offering price applicable to a single transaction of the dollar amount specified
on the application,  as described in this prospectus.  The Letter of Intent does
not  obligate  the  Purchaser  to  purchase,  nor the Fund to sell,  the  amount
indicated.
    

  After the Letter of Intent is received by KIRC,  each  investment made will be
entitled to the sales charge applicable to the level of investment  indicated on
the  application.  The Letter of Intent may be  back-dated  up to ninety days so
that any  investments  made in any of the Eligible  Funds  during the  preceding
ninety-day  period,  valued  at the  Purchaser's  cost,  can be  applied  toward
fulfillment of the Letter of Intent.  However,  there will be no refund of sales
charges  already paid during the ninety-day  period.  No retroactive  adjustment
will be made if purchases  exceed the amount  specified in the Letter of Intent.
Income and capital gains distributions taken in additional shares will not apply
toward completion of the Letter of Intent.

  If total  purchases  made  pursuant  to the Letter of Intent are less than the
amount specified, the Purchaser will be required to remit an amount equal to the
difference  between the sales  charge paid and the sales  charge  applicable  to
purchases  actually made. Out of the initial purchase (or subsequent  purchases,
if necessary) 5% of the dollar amount  specified on the application will be held
in escrow by KIRC in the form of shares  registered in the Purchaser's name. The
escrowed shares will not be available for redemption, transfer or encumbrance by
the Purchaser until the Letter of Intent is completed or the higher sales charge
paid. All income and capital gains distributions on escrowed shares will be paid
to the Purchaser or his order.

   
  When the minimum  investment  specified  in the Letter of Intent is  completed
(either prior to or by the end of the thirteen-month period), the Purchaser will
be notified and the escrowed shares will be released. If the intended investment
is not  completed,  the  Purchaser  will be  asked  to  remit  to the  Principal
Underwriter any difference  between the sales charge on the amount specified and
on the amount actually attained.  If the Purchaser does not within 20 days after
written  request by the Principal  Underwriter or his dealer pay such difference
in sales charge,  KIRC will redeem an appropriate  number of the escrowed shares
in order to realize such difference.  Shares remaining after any such redemption
will be released  by KIRC.  Any  redemptions  made by the  Purchaser  during the
thirteen-month  period will be  subtracted  from the amount of the purchases for
purposes of determining whether the Letter of Intent has been completed.  In the
event of a total  redemption of the account prior to completion of the Letter of
Intent,  the  additional  sales charge due will be deducted from the proceeds of
the redemption and the balance will be forwarded to the Purchaser.
    

  By signing the application, the Purchaser irrevocably constitutes and appoints
KIRC his attorney to surrender for  redemption  any or all escrowed  shares with
full power of substitution.

   
  The Purchaser or his dealer must inform the Principal Underwriter or KIRC that
a Letter of Intent is in effect each time a purchase is made.
    
<PAGE>

   
KEYSTONE AMERICA
FUND FAMILY
    

    *
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Insured Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Pennsylvania Tax Free Fund
Texas Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.

   
Hartwell Growth Fund
Omega Fund
    

Fund of the Americas
Strategic Development Fund

   
[Logo] KEYSTONE
       INVESTMENTS

       Keystone Investment Distributors Company
       200 Berkeley Street
       Boston, Massachusetts 02116-5034

SDP-P 695     [Recycle logo]
14.5M

KEYSTONE
    

STRATEGIC
DEVELOPMENT FUND

[Logo]

PROSPECTUS AND
APPLICATION



<PAGE>

                       KEYSTONE STRATEGIC DEVELOPMENT FUND

                                     PART B

                       STATEMENT OF ADDITIONAL INFORMATION
<PAGE>

                      KEYSTONE STRATEGIC DEVELOPMENT FUND

                      STATEMENT OF ADDITIONAL INFORMATION

                                  May 31, 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 May 31,  1995.  A copy of the
prospectus  may  be  obtained  from  Keystone  Investment  Distributors  Company
(formerly named Keystone Distributors,  Inc.) (the "Principal Underwriter"), the
Fund's  principal  underwriter,   200  Berkeley  Street,  Boston,  Massachusetts
02116-5034.

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                               TABLE OF CONTENTS
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                                                             Page

         The Fund                                              2
         Investment Restrictions                               2
         Distributions and Taxes                               5
         Valuation of Securities                               6
         Brokerage                                             7
         Sales Charges                                         9
         Distribution Plans                                   12
         Trustees and Officers                                15
         Investment Adviser and SubAdviser                    19
         Principal Underwriter                                21
         Declaration of Trust                                 22
         Standardized Total Return
           and Yield Quotations                               24
         Additional Information                               25
         Appendix                                            A-1
         Financial Statements                                F-1
         Independent auditors' Report                        F-12

<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 one of 30 funds advised by Keystone  Investment  Management  Company
(formerly  named Keystone  Custodian  Funds,  Inc.)  ("Keystone").  Keystone has
retained   the  services  of   EquitiLink   International   Management   Limited
("EquitiLink")  to provide  the Fund with  subadvisory  service;  subject to the
supervision of the Fund's Board of Trustees and 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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FUNDAMENTAL INVESTMENT RESTRICTIONS

         The Fund has adopted the fundamental investment  restrictions set forth
below,  which may not be changed  without the vote of a majority  (as defined in
the  Investment  Company  Act of 1940  ("1940  Act")) of the Fund's  outstanding
voting 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.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS

         The Fund has  adopted the  non-fundamental  policies  set forth  below,
which may be changed without shareholder approval.

         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.

         (7) (i) 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 (ii) 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 NON-FUNDAMENTAL 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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                            DISTRIBUTIONS AND TAXES
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         The Fund distributes to its shareholders  dividends from net investment
income and net realized  long-term  and  short-term  capital  gains  annually 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 distributed shares determined on the basis of the Fund's net asset
value  per  share  computed  at the  end of the  day on the  record  date  after
adjustment for the distribution. Net asset value is used in computing the number
of  shares  in  both  gains  and  income  distribution  reinvestments.   Account
statements  and/or checks as appropriate  will be mailed to shareholders  within
seven  days  after  the Fund pays the  distribution.  Unless  the Fund  receives
instructions to the contrary from a shareholder  before the record date, it will
assume that the shareholder wishes to receive that distribution and future gains
and  income  distributions  in shares.  Instructions  continue  in effect  until
changed in writing.

         Distributed  long-term  capital  gains  are  taxable  as  such  to  the
shareholder  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 long term capital gain 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
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. 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  actual
dividends  and the amount the Fund advises him is his pro rata portion of income
taxes  withheld by foreign  governments  from interest and dividends paid on the
Fund's  investments.  The  shareholder  will be entitled,  however,  to take the
amount of 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
- -------------------------------------------------------------------------------

         It is the policy of the Fund.  in effecting  transactions  in portfolio
securities,  to seek best execution of orders at the most favorable prices.  The
determination  of what may constitute  best execution and price in the execution
of a securities  transaction  by a broker  involves a number of  considerations,
including,  without  limitation,  the overall direct net economic  result to the
Fund,  involving both price paid or received and any commissions and other costs
paid, the  efficiency  with which the  transaction  is effected,  the ability to
effect the transaction at all where a large block is involved,  the availability
of the broker to stand ready to execute  potentially  difficult  transactions in
the  future  and the  financial  strength  and  stability  of the  broker.  Such
considerations   are  weighed  by   management   in   determining   the  overall
reasonableness of brokerage commissions paid.

         Subject to the  foregoing,  a factor in the selection of brokers is the
receipt of research services,  such as analyses and reports concerning  issuers,
industries,  securities,  economic factors and trends and other  statistical and
factual  information.  Any such  research  and  other  statistical  and  factual
information  provided by brokers to the Fund or Keystone 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 the 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
follows such a practice,  it will do so on a basis that is fair and equitable to
the Fund.

         The Fund expects that purchases and sales of equity securities  usually
will be  effected  through  brokerage  transactions  for which  commissions  are
payable. Purchases from underwriters will include the underwriting commission or
concession.  Purchases  from  dealers  serving as market  makers will  include a
dealer's mark up or reflect a dealer's mark down. Where transactions are made in
the  over-the-counter  market,  the Fund will deal with  primary  market  makers
unless more favorable prices are otherwise obtainable.

         The Fund may participate, if and when practicable, in group bidding for
the  direct  purchase  from an  issuer of  certain  securities,  thereby  taking
advantage of the lower purchase price available to such a group.

         Neither Keystone nor the Fund intends to place securities  transactions
with any particular broker-dealer or group thereof. The Fund's Board of Trustees
has determined,  however, that the Fund may follow a policy of considering sales
of shares as a factor in the selection of  broker-dealers  to execute  portfolio
transactions,  subject to the  requirements  of best  execution,  including best
price, described above.

         The  policy  of the  Fund  with  respect  to  brokerage  is and will be
reviewed  by the  Fund's  Board of  Trustees  from time to time.  Because of the
possibility  of  further  regulatory   developments   affecting  the  securities
exchanges  and brokerage  practices  generally,  the foregoing  practices may be
changed, modified or eliminated.

         Investment  decisions for the Fund are made  independently  by Keystone
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.

         For the fiscal year ended  March 31,  1995,  the Fund paid  $300,142 in
brokerage commissions.

         In no  instance  are  portfolio  securities  purchased  from or sold to
Keystone,  EquitiLink,  the Principal  Underwriter,  or any of their  affiliated
persons,  as said term is defined  in the  Investment  Company  Act of 1940 (the
"1940 Act") and rules and regulations issued thereunder.

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                                 SALES CHARGES
- -------------------------------------------------------------------------------

GENERAL

         The Fund  offers  three  classes of shares.  Class A shares are offered
with a sales  charge of 5.75%  payable at the time of purchase  ("Front End Load
Option").  Class B shares are sold subject to a contingent deferred sales charge
payable upon redemption  within three calendar years after purchase.  ("Back End
Load Option").  Class B shares which have been outstanding during seven calendar
years will  automatically  convert to Class A shares,  without  imposition  of a
front end  sales  charge.  (Conversion  of Class B shares  represented  by stock
certificates  will  require  the return of the stock  certificates  to  Keystone
Investor Resource Center,  Inc.  ("KIRC").) Class C shares are sold subject to a
contingent  deferred sales charge payable upon redemption  within one year after
purchase  ("Level  Load  Option").  Class C shares are  available  only  through
dealers who have entered into special distribution agreements with the Principal
Underwriter, the Fund's principal underwriter. The Prospectus contains a general
description  of how  investors may buy shares of the Fund, as well as a table of
applicable  sales  charges for Class A shares,  a  discussion  of reduced  sales
charges which may apply to subsequent  purchases and a description of applicable
contingent deferred sales charges.

CONTINGENT DEFERRED SALES CHARGES

         In order to  reimburse  the Fund for certain  expenses  relating to the
sale of its shares (See "Distribution Plan"), a contingent deferred sales charge
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 an  amount
exceeding  $1,000,000 or purchased by a corporate qualified retirement plan or a
non-qualified  deferred  compensation plan having 100 or more eligible employees
(a "Qualifying  Plan"), in either case, without a front-end sales charge will be
subject  to a  contingent  deferred  sales  charge of 1.00%  during the 24 month
period following the date of purchase. The contingent deferred sales charge will
be  retained  by the  Principal  Underwriter.  See  "Calculation  of  Contingent
Deferred Sales Charge" below.

CLASS B SHARES

         With certain exceptions, the Fund may impose a deferred sales charge of
3.00% on shares  redeemed  during the  calendar  year of purchase and during the
first calendar year after  purchase;  2.00% on shares redeemed during the second
calendar  year after  purchase;  and 1.00% on shares  redeemed  during the third
calendar  year after  purchase.  No  deferred  sals charge is imposed on amounts
redeemed thereafter.  If imposed, the deferred sales charge is deducted from the
redemption  proceeds  otherwise  payable to you.  The  deferred  sales charge is
retained by the Principal  Underwriter.  See "Calculation of Contingent Deferred
sales charge" below.

CLASS C SHARES

         With certain exceptions, the Fund may impose a deferred sales charge of
1% on shares  redeemed  within one year after the date of purchase.  No deferred
sales charge is imposed on amounts redeemed thereafter. If imposed, the deferred
sales charge is deducted from the redemption  proceeds otherwise payable to you.
The  deferred  sales  charge  is  retained  by the  Principal  Underwriter.  See
"Calculation of Contingent Deferred Sales Charge" below.

CONTINGENT DEFERRED SALES CHARGE

         Any  contingent  deferred  sales charge  imposed upon the redemption of
Class A, Class B or Class C shares is a percentage  of the lesser of (1) the net
asset  value  of the  shares  redeemed  or (2) the net cost of such  shares.  No
contingent deferred sales charge is imposed when you redeem amounts derived from
(1) increases in the value of your account above the net cost of such shares due
to increases in the net asset value per share of such shares; (2) certain shares
with respect to which the Fund did not pay a commission  on issuance,  including
shares  acquired  through  reinvestment  of dividend  income and  capital  gains
distributions;  (3) certain  Class A shares held for more than one or two years,
as the case may be, from the date of purchase; or (4) Class B shares held during
more than four  consecutive  calendar years; or (5) Class C shares held for more
than one year from the date of purchase. Upon request for redemption, shares not
subject  to the  contingent  deferred  sales  charge  will  be  redeemed  first.
Thereafter,  shares held the longest will be the first to be redeemed.  There is
no contingent deferred sales charge when the shares of a class are exchanged for
the shares of the same class of another  Keystone America Fund.  Moreover,  when
shares of one such  class of a fund have been  exchanged  for  shares of another
such class of a fund,  the  calendar  year of the  purchase of the shares of the
fund exchanged into is assumed to be the year shares  tendered for exchange were
originally purchased.

WAIVER OF SALES CHARGES

         Shares  of the  Fund  may  also be sold,  to the  extent  permitted  by
applicable law, regulations,  interpretations or exemptions,  at net asset value
without the  imposition  of an initial  sales  charge to (1) certain  Directors,
Trustees,  officers,  full-time employees or sales  representatives of the Fund,
Keystone   Management,   Keystone,   Keystone   Investments,   Inc.   ("Keystone
Investments"),  one of their subsidiaries or the Principal  Underwriter who have
been such for not less than ninety days; (2) a pension and  profit-sharing  plan
established by such companies, their subsidiaries and affiliates for the benefit
of  their  Directors,   Trustees,   officers,   full-time  employees  and  sales
representatives;  or (3) a  registered  representative  of a firm  with a dealer
agreement with the Principal Underwriter; provided, however, that all such sales
are made upon the written  assurance  that the  purchase is made for  investment
purposes and that the securities will not be resold except through redemption by
the Fund.

         No initial  sales  charge is charged on purchases of shares of the Fund
by a bank or trust company in a single account in the name of such bank or trust
company as trustee if the initial  investment  in shares of the Fund or any Fund
in the Keystone Investments Family of Funds purchased pursuant to this waiver is
at least  $500,000 and any  commission  paid at the time of such purchase is not
more than 1% of the amount invested.

         If you were an Omega Fund  shareholder of record as of May 1, 1987, you
have the perpetual  right, so long as you remain a Fund  shareholder,  to invest
and  reinvest in  additional  shares of the Fund without  imposition  of a sales
charge or a deferred sales charge. In addition, certain shares held of record as
of April 19, 1989 are not subject to a deferred sales charge.

         With respect to Class A shares  purchased  by a Qualifying  Plan at net
asset value or Class C shares  purchased by a Qualifying  Plan,  no CDSC will be
imposed on any redemptions made specifically by an individual participant in the
Qualifying Plan. This waiver is not available in the event a Qualifying Plan, as
a whole, redeems substantially all of its assets.

         In  addition,  no  contingent  deferred  sales  charge is  imposed on a
redemption  of shares of the Fund in the event of (1) death or disability of the
shareholder; (2) a lump-sum distribution from a benefit plan qualified under the
Employee  Retirement  Income  Security  Act of  1974  ("ERISA");  (3)  automatic
withdrawals  from ERISA plans if the  shareholder  is at least 59 1/2 years old;
(4) involuntary redemptions of an account having an aggregate net asset value of
less than $1,000; (5) automatic  withdrawals under an Automatic  Withdrawal Plan
of up to 1 1/2% per month of the  shareholder's  initial  account  balance;  (6)
withdrawals  consisting of loan proceeds to a retirement plan  participant;  (7)
financial  hardship  withdrawals made by a retirement plan  participant;  or (8)
withdrawals  consisting of returns of excess  contributions  or excess  deferral
amounts made to a retirement plan participant.

REDEMPTION OF SHARES

         The Fund has obligated itself under the 1940 Act to redeem for cash all
shares  presented  for  redemption  by any one  shareholder  up to the lesser of
$250,000 or 1% of the Fund's assets in any 90 day period.

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                               DISTRIBUTION PLANS
- -------------------------------------------------------------------------------

         Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund, to use their assets to bear expenses of distributing  their shares if they
comply  with  various  conditions,  including  adoption of a  distribution  plan
containing certain provisions set forth in Rule 12b-1.

DISTRIBUTION PLANS IN GENERAL

         A rule  adopted by the NASD  limits  the  amount  that the Fund may pay
annually in distribution  costs for sale of its shares and  shareholder  service
fees. The rule limits annual  expenditures to 1% of the aggregate  average daily
net  asset  value  of its  shares,  of  which  0.75%  may be  used  to pay  such
distribution  costs and 0.25% may be used to pay  shareholder  service fees. The
NASD rule  also  limits  the  aggregate  amount  which the Fund may pay for such
distribution  costs to 6.25% of gross  share sales  since the  inception  of the
12b-1 Plan,  plus  interest at the prime rate plus 1% on such amounts  (less any
contingent  deferred  sales  charges  paid  by  shareholders  to  the  Principal
Underwriter).

CLASS A DISTRIBUTION  PLAN. The Class A Distribution Plan provides that the Fund
may expend daily  amounts at an annual rate which is currently  limited to up to
0.25% of the Fund's average daily net asset value attributable to Class A shares
to finance any activity which is primarily intended to result in the sale of its
shares,  including,  without limitation,  expenditures consisting of payments to
the Principal  Underwriter of the Fund (currently the Principal  Underwriter) to
enable the Principal Underwriter to pay or to have paid to others who sell Class
A shares a service or other fee, at such intervals as the Principal  Underwriter
may determine,  in respect of Class A shares  maintained by any such  recipients
outstanding on the books of the Fund for specified periods.

         Amounts  paid by the  Fund  under  the  Class A  Distribution  Plan are
currently used to pay others, such as dealers, service fees at an annual rate of
up to 0.25% of the average net asset value of Class A shares sold by such others
and remaining 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 an annual rate of up to 1.00% of the Fund's  average
daily net asset value  attributable  to Class B shares to finance  any  activity
which is  primarily  intended  to result in the sale of its  shares,  including,
without  limitation,  expenditures  consisting  of  payments  to  the  Principal
Underwriter  of the Fund  (currently  the Principal  Underwriter)  to enable the
Principal Underwriter to pay to others (dealers) commissions in respect of Class
B shares  since  inception  of the  Distribution  Plan;  and (2) to  enable  the
Principal  Underwriter  to pay or to have paid to others a service  fee, at such
intervals as the  Principal  Underwriter  may  determine,  in respect of Class B
shares  maintained by any such  recipients  outstanding on the books of the Fund
for specified periods.

         Amounts  paid by the  Fund  under  the  Class B  Distribution  Plan are
currently used to pay others (dealers) (1) a commission  normally equal to 3.00%
for each share sold;  and/or (2) service  fees at an annual rate of 0.25% of the
average net asset value of shares sold by such others and remaining  outstanding
on the books of the Fund for specified periods.

         The Principal Underwriter 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 the Principal Underwriter from the Fund. The Principal Underwriter intends to
seek full payment of such charges from the Fund (together  with annual  interest
thereon at the prime rate plus one  percent)  at such time in the future as, and
to the extent that,  payment  thereof by the Fund would be within the  permitted
limits.

CLASS C DISTRIBUTION  PLAN. The Class C Distribution Plan provides that the Fund
may expend daily amounts at an annual rate of up to 1.00% of the Fund's  average
daily net asset value  attributable  to Class C shares to finance  any  activity
which is  primarily  intended  to result in the sale of its  shares,  including,
without  limitation,  expenditures  consisting  of  payments  to  the  Principal
Underwriter  of the Fund  (currently  the Principal  Underwriter)  to enable the
Principal Underwriter to pay to others (dealers) commissions in respect of Class
C shares  since  inception  of the  Distribution  Plan;  and (2) to  enable  the
Principal  Underwriter  to pay or to have paid to others a service  fee, at such
intervals as the  Principal  Underwriter  may  determine,  in respect of Class C
shares  maintained by any such  recipients  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 others (dealers) (1) a commission  normally equal to 1.00%
for each share sold; and (2) a commission at an annual rate of 0.85% (subject to
applicable  NASD  limitations)  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.

DISTRIBUTION PLANS - GENERAL

         Whether any expenditure under a Distribution Plan is subject to a state
expense  limit will depend upon the nature of the  expenditure  and the terms of
the state law,  regulation or order  imposing the limit. A portion of the Fund's
Distribution  Plan  expenses may be  includable  in the Fund's  total  operating
expenses for purposes of determining compliance with state expense limits.

         If the Fund's Independent Trustees authorize such payments,  the effect
would be to extend the period of time  during  which the Fund incurs the maximum
amount of costs  allowed by the  Distribution  Plan. If a  Distribution  Plan is
terminated,  the Principal Underwriter will ask the Independent Trustees to take
whatever action they deem appropriate  under the  circumstances  with respect to
payment of such amounts. Each of the Distribution Plans may be terminated at any
time by a vote 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.

         Any change in a Distribution  Plan that would  materially  increase the
distribution  expenses of the Fund  provided for in a  Distribution  Plan may be
amended by the Trustees,  including the Rule 12b-1 Trustees. Unpaid distribution
costs at March 31, 1995 for Class B and Class C shares were $1,019,751  (6.9% of
net class assets) and $92,883 (6.7% of net class assets), respectively.

         While a  Distribution  Plan is in effect,  the Fund will be required to
commit the selection and  nomination of candidates for  Independent  Trustees to
the discretion of the Independent Trustees.

         The total amounts paid by the 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 Independent  Trustees of the Fund have determined that the sales of
the Fund's shares  resulting  from  payments  under the  Distribution  Plans are
expected to benefit the Fund.

         For the fiscal year ended March 31, 1995,  the Fund paid the  Principal
Underwriter  $4,457,  $53,006,  and $5,758  pursuant to the Class A, Class B and
Class  C  Distribution  Plans,  respectively.  These  amounts  were  used to pay
commissions and fees.

- -------------------------------------------------------------------------------
                             TRUSTEES AND OFFICERS
- -------------------------------------------------------------------------------

         Trustees and officers of the Fund, their principal occupations and some
of their affiliations over the last five years are as follows:

*ALBERT H. ELFNER,  III:  President,  Chief Executive Officer and Trustee of the
     Fund;  Chairman  of the  Board,  President,  Director  and Chief  Executive
     Officer of Keystone Investments, Inc. ("Keystone Investments"),  President,
     Chief  Executive  Officer  and  Trustee or  Director of all 30 Funds in the
     Keystone  Investments Family of Funds;  Director and Chairman of the Board,
     Chief Executive Officer and Vice Chairman of Keystone Investment Management
     Company  ("Keystone");  Chairman  of the Board  and  Director  of  Keystone
     Institutional  Company,  Inc.  ("Keystone  Institutional")  (formerly named
     Keystone  Investment  Management  Corporation),  and Keystone  Fixed Income
     Advisors ("KFIA"); Director, Chairman of the Board, Chief Executive Officer
     and  President  of  Keystone  Management,   Inc.  ("Keystone  Management"),
     Keystone  Software Inc.  ("Keystone  Software");  Director and President of
     Hartwell Keystone  Advisers,  Inc.  ("Hartwell  Keystone"),  Keystone Asset
     Corporation,  Keystone  Capital  Corporation,  and Keystone  Trust Company;
     Director  of  Keystone  Investment  Distributors  Company  ("the  Principal
     Underwriter"),  Keystone  Investor  Resource  Center,  Inc.  ("KIRC"),  and
     Fiduciary Investment Company, Inc. ("FICO"); Director and Vice President of
     Robert  Van  Partners,   Inc.;   Director  of  Boston  Children's  Services
     Association;  Trustee of Anatolia College, Middlesex School, and Middlebury
     College;  Member, Board of Governors, New England Medical Center and former
     Trustee of Neworld Bank.

FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other Keystone
     Investments  Funds;  Professor,   Finance  Department,   George  Washington
     University;  President, Amling & Company (investment advice); Member, Board
     of Advisers,  Credito Emilano (banking); and former Economics and Financial
     Consultant, Riggs National Bank.

CHARLES A.  AUSTIN  III:  Trustee of the Fund;  Trustee or Director of all other
     Keystone  Investments  Funds;  Investment  Counselor to Appleton  Partners,
     Inc.; former Managing Director,  Seaward Management Corporation (investment
     advice) and former Director,  Executive Vice President and Treasurer, State
     Street Research & Management Company (investment advice).

*GEORGE S. BISSELL:  Chairman of the Board and Trustee of the Fund;  Director of
     Keystone Investments;  Chairman of the Board and Trustee or Director of all
     other  Keystone  Investments  Funds;  Director and Chairman of the Board of
     Hartwell  Keystone;  Chairman of the Board and Trustee of Anatolia College;
     Trustee of University Hospital (and Chairman of its Investment  Committee);
     former Chairman of the Board and Chief Executive Officer of Keystone Group;
     and former Chief Executive Officer of the Fund.

EDWIN D. AMPBELL: Trustee of the Fund; Trustee or Director of all other Keystone
     Investments  Funds;  Executive  Director,  Coalition of Essential  Schools,
     Brown  University;  Director and former Executive Vice President,  National
     Alliance of Business; former Vice President,  Educational Testing Services;
     and former Dean, School of Business, Adelphi University.

CHARLES F.  CHAPIN:  Trustee  of the  Fund;  Trustee  or  Director  of all other
     Keystone Investments Funds; former Group Vice President, Textron Corp.; and
     former Director, Peoples Bank (Charlotte, N.C).

LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other Keystone
     Investments Funds; Director of Phoenix Total Return Fund and Equifax, Inc.;
     Trustee  of  Phoenix  Series  Fund,  Phoenix  Multi-Portfolio  Fund and The
     Phoenix Big Edge Series Fund; and former President, Morehouse College.

K.   DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other Keystone
     Investments  Funds;  Chairman of the Board,  Director  and  Executive  Vice
     President, The London Harness Company; Managing Partner,  Roscommon Capital
     Corp.; Trustee, Cambridge College; Chairman Emeritus and Director, American
     Institute of Food and Wine; Chief Executive Officer,  Gifford Gifts of Fine
     Foods; Chairman, Gifford, Drescher & Associates (environmental consulting);
     President,  Oldways Preservation and Exchange Trust (education); and former
     Director, Keystone Group and Keystone.

F. RAY KEYSER, JR.:  Trustee of the  Fund;  Trustee  or  Director  of all  other
     Keystone  Investments  Funds;  Of Counsel,  Keyser,  Crowley & Meub,  P.C.;
     Member, Governor's (VT) Council of Economic Advisers; Chairman of the Board
     and Director,  Central  Vermont  Public Service  Corporation  and Hitchcock
     Clinic;  Director,  Vermont  Yankee  Nuclear  Power  Corporation,   Vermont
     Electric Power Company,  Inc.,  Grand Trunk  Corporation,  Central  Vermont
     Railway,  Inc.,  S.K.I.  Ltd.,  Sherburne  Corporation,  Union  Mutual Fire
     Insurance Company,  New England Guaranty  Insurance  Company,  Inc. and the
     Investment Company Institute;  former Governor of Vermont;  former Director
     and  President,  Associated  Industries  of Vermont;  former  Chairman  and
     President,  Vermont Marble Company; former Director of Keystone; and former
     Director and Chairman of the Board, Green Mountain Bank.

DAVID M. RICHARDSON:  Trustee  of the Fund;  Trustee  or  Director  of all other
     Keystone  Investments Funds;  Executive Vice President,  DHR International,
     Inc.  (executive  recruitment);   former  Senior  Vice  President,   Boyden
     International  Inc.  (executive  recruitment);  and Director,  Commerce and
     Industry  Association  of New Jersey,  411  International,  Inc.  and J & M
     Cumming Paper Co.

RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other Keystone
     Investments Funds; Chairman,  Environmental Warranty, Inc., and Consultant,
     Drake Beam Morin, Inc.  (executive  outplacement);  Director of Connecticut
     Natural Gas Corporation,  Trust Company of Connecticut,  Hartford Hospital,
     Old State House Association and Enhanced Financial Services,  Inc.; Member,
     Georgetown College Board of Advisors; Chairman, Board of Trustees, Hartford
     Graduate  Center;  Trustee,  Kingswood-Oxford  School and Greater  Hartford
     YMCA;  former  Director,  Executive Vice President and Vice Chairman of The
     Travelers Corporation; and former Managing Director of Russell Miller, Inc.

ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other Keystone
     Investments Funds; Partner,  Farrell, Fritz, Caemmerer,  Cleary, Barnosky &
     Armentano, P.C.; President, Nassau County Bar Association; former Associate
     Dean and Professor of Law, St. John's University School of Law.

EDWARD F.GODFREY:   Senior Vice President of the Fund;  Senior Vice President of
     all other Keystone  Investments  Funds;  Director,  Senior Vice  President,
     Chief  Financial  Officer  and  Treasurer  of  Keystone  Investments,   the
     Principal  Underwriter,   Keystone  Asset  Corporation,   Keystone  Capital
     Corporation,  Keystone  Trust  Company;  Treasurer  of  KIMCO,  Robert  Van
     Partners,  Inc., and FICO;  Treasurer and Director of Keystone  Management,
     Keystone  Software,   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 Investments Funds; and President of Keystone.

KEVIN J. MORRISSEY:  Treasurer  of the Fund;  Treasurer  of all  other  Keystone
     Investments  Funds;  Vice  President  of  Keystone  Investments;  Assistant
     Treasurer of FICO and Keystone;  and former Vice President and Treasurer of
     KIRC.

ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Fund; Senior
     Vice  President  and  Secretary of all other  Keystone  Investments  Funds;
     Senior Vice President,  General  Counsel and Secretary of Keystone;  Senior
     Vice President,  General  Counsel,  Secretary and Director of the Principal
     Underwriter,   Keystone  Management  and  Keystone  Software,  Senior  Vice
     President  and  General  Counsel of  Keystone  Institutional;  Senior  Vice
     President,  General  Counsel  and  Director  of FICO and KIRC:  Senior Vice
     President and Secretary of Hartwell Keystone and Robert Van Partners,  Inc.
     Vice  President  and  Secretary  of KFIA;  Senior Vice  President,  General
     Counsel and Secretary of Keystone Investments,  Keystone Asset Corporation,
     Keystone Capital Corporation and Keystone Trust Company.

* This Trustee may be considered an  "interested  person"  within the meaning of
the 1940 Act.

         Mr. Elfner and Mr. Bissell are "interested  persons" by virtue of their
positions as officers  and/or  Directors of Keystone  Investments and several of
its  affiliates,  including  Keystone,  the Principal  Underwriter and KIRC. Mr.
Elfner and Mr.  Bissell both own shares of Keystone  Investments.  Mr. Elfner is
Chairman  of the  Board,  Chief  Executive  Officer  and  Director  of  Keystone
Investments. Mr. Bissell is a Director of Keystone Investments.

         During  the fiscal  year ended March 31, 1995,  no  Trustee  affiliated
with Keystone or any officer received [any direct]  remuneration  from the Fund.
During the same period,  the nonaffiliated  Trustees  received no retainers  and
fees.  Annual  retainers  and  meetings  fees paid by all funds in the  Keystone
Investments Family of Funds (which includes 30 mutual funds) for the fiscal year
ended March 31, 1995,  totalled  $541,155.  As of January 31, 1995, the Trustees
and  officers  beneficially  owned  less than 1% of the Fund's then  outstanding
Class A, Class B or Class C shares.

         The address of all the Fund's  Trustees and officers and the address of
the Fund is 200 Berkeley Street, Boston, Massachusetts 02116-5034.

- -------------------------------------------------------------------------------
                       INVESTMENT ADVISER AND SUBADVISER
- -------------------------------------------------------------------------------

INVESTMENT ADVISER

         Subject to the general  supervision  of the Fund's  Board of  Trustees,
Keystone,  located at 200 Berkeley  Street,  Boston,  Massachusetts  02116-5034,
serves as  investment  adviser to the Fund and is  responsible  for the  overall
management of the Fund's business and affairs. Keystone, organized in 1932, is a
wholly-owned subsidiary of Keystone Investments, located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034.

         Keystone  Investments is a corporation  privately  owned by current and
former  members  of  management  and  certain  employees  of  Keystone  and  its
affiliates.  The shares of Keystone  Investments common stock beneficially owned
by management are held in a number of voting  trusts,  the trustees of which are
George S.  Bissell,  Albert H.  Elfner,  III,  Edward  F.  Godfrey  and Ralph J.
Spuehler,  Jr. Keystone  Investments provides  accounting,  bookkeeping,  legal,
personnel and general corporate services to Keystone Management, Keystone, their
affiliates and the Keystone Investments Family of Funds.

         Except as otherwise  noted below,  pursuant to an  Investment  Advisory
Agreement  with  the  Fund  (the  "Advisory  Agreement"),  and  subject  to  the
supervision  of the Fund's  Board of  Trustees,  Keystone  furnishes to the Fund
investment advisory,  management and administrative services, office facilities,
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.

STATE EXPENSE LIMITATIONS

         The Fund is subject to certain  annual state expense  limitations,  the
most restrictive of which is as follows:

         2.5% of the first $30 million of Fund average daily net assets; 2.0% of
         the next $70 million of Fund average daily net assets; and 1.5% of Fund
         average daily 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.

         As a  continuing  condition  of  registration  of  shares  in a  state,
Keystone  Management  has agreed to  reimburse  the Fund  annually  for  certain
operating expenses incurred by the Fund in excess of certain  percentages of the
Fund's average daily net assets. However, Keystone Management is not required to
reimburse  the Fund to the extent that such  reimbursement  would  result in the
Fund's  inability  to  qualify  as a  regulated  investment  company  under  the
provisions  of the Internal  Revenue  Code.  This  condition  may be modified or
eliminated in the future.

- -------------------------------------------------------------------------------
                             PRINCIPAL UNDERWRITER
- -------------------------------------------------------------------------------

         The Fund has  entered  into a  Principal  Underwriting  Agreement  (the
"Underwriting  Agreement")  with Keystone  Investment  Distributors  Company,  a
wholly-owned subsidiary of Keystone.

         The  Principal  Underwriter,  located at 200 Berkeley  Street,  Boston,
Massachusetts, 02116-5034, is a Delaware corporation. The Principal Underwriter,
as agent, currently has the right to obtain subscriptions for and to sell shares
of the Fund to the public. In so doing, the Principal Underwriter may retain and
employ  representatives  to  promote  distribution  of the shares and may obtain
orders  from  brokers,  dealers 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.  The Principal  Underwriter  has not undertaken to buy or to
find purchasers for any specific number of shares. The Principal Underwriter may
receive payments from the Fund pursuant to the Fund's Distribution Plans.

         All subscriptions and sales of shares by the Principal  Underwriter are
at the offering  price of the shares,  such price being in  accordance  with the
provisions of the Fund's Declaration of Trust,  By-Laws,  current prospectus and
statement of additional information. All orders are subject to acceptance by the
Fund,  and the Fund reserves the right,  in its sole  discretion,  to reject any
order  received.  Under the  Underwriting  Agreement,  the Fund is not liable to
anyone for failure to accept any order.

         The  Fund  has  agreed  under  the  Underwriting  Agreement  to pay all
expenses in connection  with  registration  of its shares with the Commission as
well as auditing and filing fees in connection  with  registration of its shares
under the various state "blue-sky" laws.

         From time to time, if in the Principal  Underwriter's judgment it could
benefit  the  sales  of  Fund  shares,  the  Principal  Underwriter  may use its
discretion in providing to selected  dealers  promotional  materials and selling
aids,  including,  but not limited to, personal computers,  related software and
Fund data files.

         The Principal  Underwriter has agreed that it will in all respects duly
conform with all state and federal laws applicable to the sale of the shares and
will  indemnify and hold harmless the Fund,  and each person who has been, is or
may be a Trustee or officer of the Fund, against expenses reasonably incurred by
any of them in connection with any claim or in connection with any action,  suit
or  proceeding  to which  any of them may be a party  that  arises  out of or is
alleged to arise out of any  misrepresentation  or  omission to state a material
fact on the part of the Principal Underwriter or any other person for whose acts
the Principal Underwriter is responsible or is alleged to be responsible, unless
such misrepresentation or omission was made in reliance upon written information
furnished by the Fund.

         The  Underwriting  Agreement will remain in effect until  September 21,
1996,  and  thereafter  as long as its terms and  continuance  are approved by a
majority  of the Fund's  Independent  Trustees  at least  annually  at a meeting
called for that purpose and if its continuance is approved annually by vote of a
majority of Trustees or by vote of a majority of the outstanding shares.

         The Underwriting  Agreement may be terminated,  without penalty,  on 60
days' written  notice by the 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.

- -------------------------------------------------------------------------------
                              DECLARATION OF TRUST
- -------------------------------------------------------------------------------

MASSACHUSETTS BUSINESS TRUST

         The  Fund  is  a  Massachusetts  business  trust  established  under  a
Declaration  of Trust dated July 27, 1994.  The Fund is similar in most respects
to a business  corporation.  The  principal  distinction  between the Fund and a
corporation relates to the shareholder  liability described below. A copy of the
Declaration of Trust (the  "Declaration of Trust") is filed as an exhibit to the
Registration  Statement of which this  statement of additional  information is a
part.  This summary is qualified in its entirety by reference to the Declaration
of Trust.

DESCRIPTION OF SHARES

         The  Declaration  of Trust  Agreement  authorizes  the  issuance  of an
unlimited  number of shares of  beneficial  interest of classes of shares.  Each
share of the Fund  represents  an equal  proportionate  interest with each other
share of that class. Upon  liquidation,  shares are entitled to a pro rata share
of the Fund based on the relative net assets of each class. Shareholders have no
preemptive or conversion  rights.  Shares are redeemable and  transferable.  The
Fund is authorized  to issue  additional  classes or series of shares.  The Fund
currently issues three classes of shares,  but may issue  additional  classes or
series of shares.

SHAREHOLDER LIABILITY

         Pursuant  to  certain  decisions  of  the  Supreme  Judicial  Court  of
Massachusetts, shareholders of a Massachusetts business trust may, under certain
circumstances,  be held personally liable as partners for the obligations of the
trust.  If the  Fund  were  held to be a  partnership,  the  possibility  of the
shareholders'  incurring  financial  loss for that reason appears remote because
(1)  the  Fund's   Declaration  of  Trust  contains  an  express  disclaimer  of
shareholder  liability for  obligations  of the Fund and requires that notice of
such  disclaimer be given in each  agreement,  obligation or instrument  entered
into or executed by the Fund or the Trustees; and (2) because the Declaration of
Trust  provides  for   indemnification  out  of  the  Fund's  property  for  any
shareholder held personally liable for the obligations of the Fund.

VOTING RIGHTS

         Under the  terms of the  Declaration  of Trust,  the Fund does not hold
annual  meetings.  At meetings called for the initial election of Trustees or to
consider  other  matters,  shares are  entitled  to one vote per  share.  Shares
generally  vote  together as one class on all matters.  Classes of shares of the
Fund have equal  voting  rights  except that each class of shares has  exclusive
voting rights with respect to its respective Distribution Plan. No amendment may
be made to the Declaration of Trust which adversely  affects any class of shares
without the  approval  of a majority  of the shares of that  class.  Shares have
non-cumulative  voting rights,  which means that the holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of the Trustees to
be elected at a meeting and, in such event,  the holders of the remaining 50% or
less of the shares voting will not be able to elect any Trustees.

         After the initial meeting as described  above,  no further  meetings of
shareholders for the purpose of electing  Trustees will be held, unless required
by law,  unless  and until  such time as less than a  majority  of the  Trustees
holding  office have been elected by  shareholders,  at which time, the Trustees
then in office will call a shareholders' meeting for 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.

- -------------------------------------------------------------------------------
                 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 deducted and all recurring fees charged to all  shareholder  accounts are
deducted.  The ending redeemable value assumes a complete  redemption at the end
of the relevant periods.

         The Class A, Class B and Class C average  annual total  return  figures
for the period from October 17, 1994  (commencement  of  investment  operations)
until fiscal year end March 31, 1995 were (9.80%)  (including  applicable  sales
charge),  (10.10%)  (including  contingent  deferred  sales charge) and (10.10%)
(including contingent deferred sales charge).

         Current  yield  quotations  as they  may  appear  from  time to time in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of the Fund,  computed by dividing the net
investment  income per share  earned  during the period by the maximum  offering
price per share on the last day of the base period.
<PAGE>

- -------------------------------------------------------------------------------
                             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, One Boston Place,  Boston,  Massachusetts 02108,
Certified Public Accountants, serves as the independent auditors for the Fund.

         KIRC, 101 Main Street,  Cambridge,  Massachusetts 02142, a wholly-owned
subsidiary of Keystone, acts as transfer agent and dividend disbursing agent for
the Fund.

         As of April 28, 1995,  Merrill Lynch Pierce Fenner & Smith,  Attn: Book
Entry, 4800 Deer Lake Dr. E 3rd FL, Jacksonville, FL 32246-6468, owned 33.94% of
the Fund's outstanding Class A shares.

          As of April 28, 1995,  Merrill Lynch Pierce Fenner & Smith, Attn: Book
Entry, 4800 Deer Lake Dr. E 3rd FL, Jacksonville, FL 32246-6468, owned 48.75% of
the Fund's outstanding Class B shares.

          As of April 28, 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,  10040  East  Happy  Valley  Road  #1002,
Scottsdale,  AZ 85255,  owned  6.33%;  Paine  Webber for the benefit of Carol T.
Miller, 118 West 119th St., Kansas City , MO 64145-1065, owned 5.19%.

         Except as otherwise  stated in its  prospectus  or required by law, the
Fund  reserves  the  right to  change  the  terms  of the  offer  stated  in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.

         No  dealer,  salesman  or  other  person  is  authorized  to  give  any
information  or  to  make  any   representation  not  contained  in  the  Fund's
prospectus,  statement  of  additional  information  or  in  supplemental  sales
literature  issued by the Fund or the  Principal  Underwriter,  and no person is
entitled to rely on any information or representation not contained therein.

         The Fund's  prospectus  and  statement of additional  information  omit
certain information  contained in the 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 Keystone
America Family of Funds.  The Keystone America Funds offer a range of choices to
serve  shareholder  needs.  The Keystone America Family of Funds consists of the
following funds having the various investment objectives described below:

KEYSTONE  CAPITAL  PRESERVATION  AND INCOME  FUND - Seeks high  current  income,
consistent  with low  volatility of principal,  by investing in adjustable  rate
securities issued by the U.S. government, its agencies or instrumentalities.

KEYSTONE  FUND FOR TOTAL  RETURN - Seeks  total  return  from a  combination  of
capital growth and income from dividend paying common stocks,  preferred stocks,
convertible bonds,  other fixed-income  securities and foreign securities (up to
50%).

KEYSTONE GLOBAL OPPORTUNITIES FUND - Seeks long-term capital growth from foreign
and domestic securities.

KEYSTONE GOVERNMENT SECURITIES FUND - Seeks income and capital preservation from
U.S. government securities.

KEYSTONE   AMERICA   HARTWELL   EMERGING  GROWTH  FUND,  INC.  -  Seeks  capital
appreciation by investment  primarily in small and  medium-sized  companies in a
relatively  early  stage of  development  that  are  principally  traded  in the
over-the-counter market.

KEYSTONE  HARTWELL  GROWTH FUND - Seeks  capital  appreciation  by investment in
securities selected for their long-term growth prospects.

KEYSTONE  INTERMEDIATE TERM BOND FUND - Seeks income,  capital  preservation and
price appreciation potential from investment grade corporate bonds.

KEYSTONE  OMEGA FUND - Seeks  maximum  capital  growth  from  common  stocks and
securities convertible into common stocks.

KEYSTONE STATE TAX FREE FUND - A mutual fund  consisting of five separate series
of shares  investing in different  portfolio  securities which seeks the highest
possible  current income,  exempt from federal income taxes and applicable state
taxes.

KEYSTONE  STATE  TAX FREE  FUND - Series II - A mutual  fund  consisting  of two
separate  series of shares  investing in different  portfolio  securities  which
seeks the highest possible current income,  exempt from federal income taxes and
applicable state taxes.

KEYSTONE  STRATEGIC  INCOME  FUND - Seeks  high yield and  capital  appreciation
potential from corporate bonds,  discount bonds,  convertible  bonds,  preferred
stock and foreign bonds (up to 25%).

KEYSTONE  TAX FREE INCOME FUND - Seeks income  exempt from federal  income taxes
and capital preservation from the four highest grades of municipal bonds.

KEYSTONE  WORLD BOND FUND - Seeks total  return from  interest  income,  capital
gains and losses and currency  exchange gains and losses from investment in debt
securities denominated in U.S. and foreign currencies.

KEYSTONE  FUND OF THE  AMERICAS  - Seeks  long-term  growth of  capital  through
investments  in equity and debt  securities  in North America (the United States
and  Canada)  and Latin  America  (Mexico  and  countries  in South and  Central
America).

KEYSTONE  STRATEGIC  DEVELOPMENT  FUND  -  Seeks  long-term  capital  growth  by
investing primarily in equity securities.
<PAGE>

                                    APPENDIX


         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>


SCHEDULE OF INVESTMENTS-March 31, 1995 

                                                NUMBER       MARKET 
                                              OF SHARES      VALUE 
COMMON STOCKS (75.9%) 
AUSTRALIA (14.6%) 
Oil (3.0%) 
Woodside Petroleum                               161,800   $  642,788 
Iron and Steel (4.2%) 
Broken Hill Proprietary Co. Ltd.                  32,474      425,592 
CRA Limited                                       35,400      460,825 
                                                              886,417 
Metals and Mining (7.4%) 
MIM Holdings Limited                             341,481      468,056 
QNI Limited (b)                                  150,000      196,804 
Savage Resources (b)                             664,000      360,155 
Western Mining Corp.                             102,200      514,633 
                                                            1,539,648 
TOTAL AUSTRALIA                                             3,068,853 

BOLIVIA (0.1%) 
Utilities (0.1%) 
Compania Bolivia De Energia                          500       12,000 

BRAZIL (2.0%) 
Telecommunications (1.2%) 
Telecomunicacoes Brasilieros S.A.                  9,900      261,113 
Oil (.8%) 
Petrol Brasilieros                             2,310,000      160,594 
TOTAL BRAZIL                                                  421,707 

CANADA (13.1%) 
Oil (4.4%) 
Arakis Energy Corporation (b)                     37,200      268,538 
Canadian Occidental Petroleum Ltd.                25,050      657,985 
                                                              926,523 
Metals and Mining (7.0%) 
Alcan Aluminum Ltd.                               15,200   $  403,331 
Inco Ltd.                                         17,300      480,693 
Potash Corp. of Saskatchewan, Inc.                13,500      598,242 
                                                            1,482,266 
Precious Metals (1.7%) 
TVX Gold, Inc. (b)                                53,200      346,973 
TOTAL CANADA                                                2,755,762 

CHILE (1.7%) 
Utilities (1.7%) 
Enersis S.A.                                      14,300      353,925 

FRANCE (4.3%) 
Oil (3.3%) 
Total S.A.                                        11,525      687,330 
Oil Service (1.0%) 
Coflexip (b)                                       3,920      216,012 
TOTAL FRANCE                                                  903,342 

HONG KONG (.4%) 
Telecommunications (.4%) 
Hong Kong Telecommunication                       50,000       97,323 

INDONESIA (2.2%) 
Chemicals (2.2%) 
P.T. Tri Polyta Indonesia (b)                     20,400      455,175 

JAPAN (3.2%) 
Metals and Mining (3.2%) 
Sumitomo Metal Industries, Ltd. (b)              219,000      670,742 

KOREA (2.3%) 
Utilities (2.3%) 
Korea Electric Power Corp.                        23,100      476,438 

See Notes to Schedule of Investments.
<PAGE> 
                                                NUMBER       MARKET 
                                              OF SHARES      VALUE 
MEXICO (.5%) 
Precious Metals (0.5%) 
Industrias Penoles S.A. de C.V.                   50,000  $   102,278 

NEW ZEALAND (1.3%) 
Paper and Packaging (1.3%) 
Fletcher Challenge                               112,500      266,874 

SWEDEN (1.5%) 
Electrical Products (1.5%) 
Asea AB, Series B                                  3,996      312,217 

UNITED KINGDOM (4.7%) 
Iron and Steel (1.0%) 
British Steel PLC                                 83,000      215,165 
Metals and Mining (2.3%) 
RTZ Corp.                                         37,800      486,892 
Oil (1.4%) 
Lasmo                                            116,400      301,750 
TOTAL UNITED KINGDOM                                        1,003,807 

UNITED STATES (24.0%) 
Capital Goods (10.0%) 
AGCO Corp.                                        23,500      778,438 
Caterpillar Inc.                                  11,400      634,125 
CBI Industries Inc.                               14,100      361,313 
Fluor Corp.                                        6,700      323,275 
                                                            2,097,151 
Metals and Mining (1.5%) 
Phelps Dodge Corp.                                 5,400      307,125 
Precious Metals (6.0%) 
Battle Mountain Gold Co.                          18,300      219,600 
Homestake Mining Co.                              28,600      529,100 
Newmont Mining Corp.                               4,800      205,200 
Santa Fe Pacific Gold 
  Corp. (b)                                       24,000      303,000 
                                                            1,256,900 
Natural Gas (1.8%) 
Enron Global Power & Pipelines                    16,000  $   384,000 
Oil Services (3.1%) 
Triton Energy Corp. (b)                            3,000      114,750 
Schlumberger, Ltd.                                 8,900      530,665 
                                                              645,415 
Paper & Packaging (1.6%) 
Weyerhaeuser Co.                                   8,400      326,550 
TOTAL UNITED STATES                                         5,017,141 

TOTAL COMMON STOCKS 
  (Cost $16,234,126)                                       15,917,584 
PREFERRED STOCKS (1.7%) 
BRAZIL (1.7%) 
Iron and Steel (1.7%) 
Vale do Rio Doce Navegacao S.A.                2,586,000      349,498 
TOTAL PREFERRED STOCKS 
  (Cost $476,972)                                             349,498 

                                                MATURITY 
                                                   VALUE 
REPURCHASE AGREEMENTS (19.6.%) 
Investments in repurchase agreements in a 
  joint trading account, 6.32%, maturing 
  4/3/95 (a)                                  $4,111,699    4,111,000 
TOTAL REPURCHASE AGREEMENTS 
  (Cost $4,111,000)                                         4,111,000 

INVESTMENT COMPANY (1.4%) 
Australia (1.4%) 
First Resources Development Fund (b)             600,000      307,850 


See Notes to Financial Statements.                      (continued on next page)
<PAGE> 



                                            MATURITY     MARKET 
                                              VALUE       VALUE 
TOTAL REGULATED INVESTMENT COMPANY 
  (Cost $464,864)                                        $307,850 
WARRANTS/RIGHTS (0.2%) 
Australia (0.2%) 
First Resources Development Fund, options 
  (b)                                        $600,000      39,580 
TOTAL WARRANTS/RIGHTS 
  (Cost $0)                                                39,580 

                                                         MARKET 
                                                          VALUE 
TOTAL INVESTMENTS 
  (Cost $21,286,962) (c)                              $20,725,512 
FOREIGN CURRENCY HOLDINGS (1.2%)           
  (Cost $250,974)                                         252,015 
OTHER ASSETS AND LIABILITIES - 
  NET (0.00%)                                              (7,054) 
NET ASSETS (100.0%)                                   $20,970,473 

SEE 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 March 31, 1995. 

(b) Non-income-producing security. 

(c) The cost of investments for federal income tax purposes is $21,286,962. 
Gross unrealized appreciation and depreciation of investments and foreign 
currency holdings, based on identified tax cost, at March 31, 1995 are as 
follows: 

 Gross unrealized appreciation  $   745,251 
Gross unrealized depreciation    (1,306,701) 
                                ($   561,450) 

See Notes to Financial Statements. 
                                        
<PAGE> 
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
                                              Period from October 7, 1994 (Date of Initial Public Offering) to March 31, 1995 
                                                   CLASS A SHARES             CLASS B SHARES              CLASS C SHARES 
<S>                                                    <C>                        <C>                         <C>
Net asset value: Beginning of period                   $ 10.00                    $ 10.00                     $ 10.00 
Income from investment operations: 
 Investment income (loss)--net                          (0.002)                    (0.026)                     (0.034) 
 Net gain (loss) on investment and  foreign 
  currency related transactions                         (0.978)                    (0.984)                     (0.976) 
  Total income from investment   operations             (0.980)                    (1.010)                     (1.010) 
Net asset value: End of period                         $  9.02                    $  8.99                     $  8.99 
Total return (a) (c)                                     (9.80%)                   (10.10%)                    (10.10%) 
Ratios/supplemental data 
Ratios to average net assets: (c) 
 Operating and management 
   expenses (b)                                           2.77%                      3.55%                       3.51% 
 Investment income (loss)--net (b)                       (0.07%)                     (.80%)                      (.93%) 
 Portfolio turnover rate                                    13%                        13%                         13% 
Net assets, end of period (thousands)                  $ 4,890                    $14,688                     $ 1,393 
</TABLE>

(a) Excluding applicable sales charges. 

(b) Annualized 

(c) For the period from October 17, 1994 (commencement of investment 
operations) to March 31, 1995. 

See Notes to Financial Statements. 

                                         
<PAGE> 

STATEMENT OF ASSETS AND LIABILITIES-- 
March 31, 1995 

Assets: 
Investments at market value 
  (identified cost--$17,175,962) (Note 1)              $16,614,512 
Repurchase Agreements 
  (identified cost--$4,111,000) (Note 1)                 4,111,000 
  Total Investments 
    (identified cost--$21,286,962)                      20,725,512 
Foreign currency holdings 
  (identified cost--$250,974) (Note 1)                     252,015 
Cash                                                           965 
Receivable for: 
 Forward Foreign Currency Exchange Contracts 
   (Notes 1 and 5)                                       2,591,611 
 Dividends and interest                                     43,993 
 Fund shares sold                                           74,153 
Deferred organization expense (Note 1)                      43,543 
Prepaid expenses                                            25,686 
  Total assets                                          23,757,478 
Liabilities: 
Payable for: 
 Investments purchased                                     113,471 
 Forward Foreign Currency Exchange Contracts 
   (Notes 1 and 5)                                       2,565,812 
 Fund shares redeemed                                       30,930 
Foreign taxes withheld                                       2,458 
Other accrued expenses                                      74,334 
  Total liabilities                                      2,787,005 
Net assets                                             $20,970,473 
Net assets represented by: 
Paid-in-capital (Note 1)                               $22,643,488 
Accumulated net investment income (loss)                   (24,251) 
Accumulated realized losses on investment and 
  foreign currency related transactions--net            (1,112,605) 
Net unrealized depreciation on investments and 
  foreign currency related transactions                   (561,958) 
Net unrealized appreciation on forward foreign 
  currency exchange contracts                               25,799 
  Total net assets                                     $20,970,473 
Net asset value per share: (Note 2) 
Class A Shares ($9.02   542,279 shares outstanding)    $ 4,889,862 
Class B Shares ($8.99 1,634,469 shares outstanding)     14,687,581 
Class C Shares ($8.99   155,020 shares outstanding)      1,393,030 
                                                       $20,970,473 
Offering price per share: 
Class A Shares (including sales charge of 5.75%) 
  (Note 1)                                                   $9.57 
Class B Shares                                               $8.99 
Class C Shares                                               $8.99 



STATEMENT OF OPERATIONS-- 
Period from October 7, 1994 (commencement 
of operations) to March 31, 1995 

 Investment income: (Note 1) 
Interest                                                    $   144,697 
Dividends (net of foreign withholding 
   taxes of $18,517)                                             60,770 
  Total income                                                  205,467 
Expenses: (Notes 1, 2 and 4) 
Management fee                                $    76,591 
Transfer agent fees                                16,827 
Auditing                                           15,592 
Accounting and legal                               20,588 
Custodian fees                                     31,687 
Printing                                           19,467 
Distribution Plan expenses                         63,221 
Registration fees                                  11,649 
Amortization of organization expense                3,957 
Miscellaneous expenses                                528 
  Total expenses                                                260,107 
Investment income (loss)--net                                   (54,640) 
Realized and unrealized gain (loss) on 
   investments and foreign currency related 
   transactions--net: 
Realized loss on: 
 Investment transactions                       (1,112,605) 
 Foreign currency related transactions             (7,935) 
Realized loss on investments and 
   foreign currency related transactions--net                (1,120,540) 
Unrealized appreciation (depreciation) on investments 
   and foreign currency related transactions--net: 
  Beginning of period                                   0 
  End of period                                  (561,958) 
                                                               (561,958) 
Unrealized appreciation (depreciation) on forward 
   foreign currency exchange contracts--net: 
  Beginning of period                                   0 
  End of period                                    25,799 
                                                                 25,799 
Net change in unrealized appreciation (depreciation) 
   on investments, foreign currency related transactions 
  and forward foreign currency exchange contracts              (536,159) 
Net loss on investments, foreign currency related 
   transactions and forward foreign currency 
  exchange contracts                                         (1,656,699) 
Net decrease in net assets resulting from operations        ($ 1,711,339) 

See Notes to Financial Statements 
                                         
<PAGE> 

STATEMENT OF CHANGES IN NET ASSETS 

                                                Period from October 7, 1994 
                                               (commencement of operations) 
                                                     to March 31, 1995 
Operations: 
Investment income (loss)--net                           $   (54,640) 
Realized loss on investment and foreign 
  currency related transactions--net                     (1,120,540) 
Net change in unrealized appreciation 
  (depreciation) on investments, foreign 
  currency related transactions and foreign 
  currency exchange contracts                              (536,159) 
 Net decrease in net assets resulting from 
  operations                                             (1,711,339) 
Capital share transactions: (Note 2) 
Proceeds from shares sold--Class A Shares                 5,752,543 
Proceeds from shares sold--Class B Shares                17,241,435 
Proceeds from shares sold--Class C Shares                 1,573,595 
Payments for shares redeemed--Class A Shares               (506,367) 
Payments for shares redeemed--Class B Shares             (1,400,994) 
Payments for shares redeemed--Class C Shares                (78,400) 
 Net increase in net assets resulting from 
  capital share transactions                             22,581,812 
  Total increase in net assets                           20,870,473 
Net assets: 
Beginning of period                                         100,000 
End of period (including accumulated net 
  investment income (loss) of ($24,251)) 
  (Note 1)                                              $20,970,473 



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 Investment Management Company ("Keystone") (formerly, 
Keystone Custodian Funds, Inc.) 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 three classes of shares. Class A shares are offered 
at a public offering price which includes a maximum sales charge of 5.75% 
payable at the time of purchase. Class B shares are sold subject to a 
contingent deferred sales charge payable upon redemption which decreases 
depending on when the shares were purchased and 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 Investment Distributors Company ("KIDC") (formerly, 
Keystone Distributors, Inc.), 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 Investments, Inc. ("KII") 
(formerly, Keystone Group, Inc.), a Delaware corporation. KII 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. 

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. Those investments traded or denominated in foreign currency amounts are 
translated into United States dollars as follows: market value of investments, 

                                         
<PAGE> 

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. 

C. Securities transactions are accounted for no later than one business day 
after 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 intends to qualify, 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 dis- posing 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 fully collateralized by 
U.S. Treasury and/or Federal Agency obligations. 

F. From time to time the Fund may enter into forward foreign currency exchange 
contracts to hedge certain foreign currency assets. Contracts are recorded at 
market value. Realized gains and losses arising from such transactions are 
included in net realized gain (loss) on foreign currency related transactions. 
The Fund is subject to the credit risk that the other party will not complete 
the obligations of the contract. 

G. The Fund distributes net 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 differ from book basis net investment income and net capital gains. 

The significant differences between financial statement amounts available for 
distribution and distributions made in accordance with income tax regulations 
are due to differences in the treatment of net operating 

                                         
<PAGE> 

losses and unrealized appreciation on foreign currency exchange contracts. 

H. Organization expenses are being amortized to operations over a five-year 
period on a straight-line basis. In the event any of the initial shares are 
redeemed by any holder thereof during the five-year amortization period, 
redemption proceeds will be reduced by any unamortized organization expenses in 
the same proportion as the number of initial shares being redeemed bears to the 
number of initial shares outstanding at the time of redemption. 

(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 
                    Period from October 7, 1994 
                              to March 31, 1995 
Shares sold                   594,548 
Shares redeemed               (55,269) 
Net increase                  539,279 
                                 Class B Shares 
                    Period from October 7, 1994 
                              to March 31, 1995 
Shares sold                 1,787,714 
Shares redeemed              (156,245) 
Net increase                1,631,469 
                                 Class C Shares 
                    Period from October 7, 1994 
                              to March 31, 1995 
Shares sold                   160,011 
Shares redeemed                (8,991) 
Net increase                  151,020 

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 
KIDC 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 (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. 

Effective June 1, 1995, the commission paid will increase to approximately 4% 
of the value of each share sold. In addition, the contingent deferred sales 
charge will be imposed, if applicable, on Class B shares purchased after June 
1, 1995 at rates ranging from a maximum of 5% of amounts redeemed during the 
first 12 months following the date of purchase to 1% of amounts redeemed during 
the sixth twelve month period following the date of purchase. Class B shares 
purchased on or after June 1, 1995 that have been outstanding for eight years 
following the month of purchase will automatically convert to Class A shares 
without a front end sales charge or exchange fee. Class B shares purchased 
prior to June 1, 1995 will retain their existing conversion rights. 

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 

                                         
<PAGE> 

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.) ("NASD Rule") 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 KIDC 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 March 31, 1995, the Fund paid KIDC 
$4,457, $53,006 and $5,758 under its Class A, Class B and Class C Distribution 
Plans, respectively. 

Under the NASD Rule, the maximum uncollected amounts for which KIDC may seek 
payment from the Fund under its Class B and Class C Distribution Plans, are 
$1,019,751 and $92,883, respectively, as of March 31, 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 March 31, 1995, purchases and sales of investment 
securities were as follows: 

                           Cost of        Proceeds 
                          Purchases      from Sales 
Portfolio securities     $ 19,791,336    $  1,502,768 
Short-term investments    594,928,990     590,823,824 
                         $614,720,326    $592,326,592 

(4.) Investment Management and Transactions with Affiliates 

Under the terms of the Investment Advisory and Management Agreement between 
Keystone and the Fund, dated September 21, 1994, Keystone provides investment 
management and administrative services to the Fund. In return, Keystone 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 from Keystone a monthly fee equal to; 
(1) 20% of Keystone's net fee for such month for services rendered in a 
non-discretionary capacity; plus (2) 10% of Keystone's net fee for such month 
for services rendered in a discretionary capacity. 

From October 7, 1994 to March 31, 1995, the Fund paid or accrued to Keystone 
investment management and administrative service fees of $76,591, which 
represented 1.00% of the Fund's average net assets on an annualized basis. From 
October 7, 1994 to March 31, 1995, Keystone paid or accrued to EIML $15,089 for 
services rendered in a non-discretionary capacity. 

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. 

From October 7, 1994 to March 31, 1995, the Fund paid or accrued to KIRC 
$10,160 as reimburse-

                                    
<PAGE> 

ment for certain accounting, tax and printing services and $16,827 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 March 31, 1995, the Fund had entered into the following foreign currency 
exchange contracts that obligate the Fund to deliver currencies at specified 
future dates. The unrealized appreciation of $25,799 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 3/31/95   be received    as of 3/31/95 
April 5, 1995        99,736       $   99,736         62,838       $  101,811 
                       U.S. $                          GBP 
May 10, 1995      3,361,415        2,466,076      2,489,800        2,489,800 
                 Australian $                          U.S. $ 
                                  $2,565,812                      $2,591,611 

(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 October, November or December and 
paid in the following fiscal year will be taxable to shareholders in the year 
declared. 

                                     
<PAGE> 

Keystone Strategic Development Fund 

INDEPENDENT AUDITORS' REPORT 

The Trustees and Shareholders of 
Keystone Strategic Development Fund 

We have audited the accompanying statement of assets and liabilities of 
Keystone Strategic Development Fund including the schedule of investments, as 
of March 31, 1995, and the related statements of operations, changes in net 
assets and financial highlights for the period from October 7, 1994 (date of 
initial public offering) to March 31, 1995. These financial statements and 
financial highlights are the responsibility of the Fund's management. Our 
responsibility is to express an opinion on these financial statements and 
financial highlights based on our audit. 

We conducted our audit in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements and financial 
highlights are free of material misstatement. An audit includes examining, on a 
test basis, evidence supporting the amounts and disclosures in the financial 
statements. Our procedures included confirmation of securities owned as of 
March 31, 1995 by correspondence with the custodian and brokers. An audit also 
includes assessing the accounting principles used and significant estimates 
made by management, as well as evaluating the overall financial statement 
presentation. We believe that our audit provides a reasonable basis for our 
opinion. 

In our opinion, the financial statements and financial highlights referred to 
above present fairly, in all material respects, the financial position of 
Keystone Strategic Development Fund as of March 31, 1995, the results of its 
operations, changes in its net assets and financial highlights for the period 
from October 7, 1994 to March 31, 1995 in conformity with generally accepted 
accounting principles. 

                                                           KPMG PEAT MARWICK LLP

Boston, Massachusetts 
May 5, 1995 

                                     




<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.



Schedule of Investments                     For  the  period   October  7,  1994
                                            (Date of  Initial  Public  Offering)
                                            through March 31, 1995

Financial Highlights                        For  the  period   October  7,  1994
                                            (Date of  Initial  Public  Offering)
                                            through March 31, 1995

Statement of Assets and                     For  the  period   October  7,  1994
Liabilities                                 (Date of  Initial  Public  Offering)
                                            through  March 31, 1995

Statement of Operations                     For  the  period   October  7,  1994
                                            (Date of  Initial  Public  Offering)
                                            through March 31, 1995

Statement of Changes in                     For  the  period   October  7,  1994
Net Assets                                  (Date of  Initial  Public  Offering)
                                            through March 31, 1995

Notes to Financial Statements               For  the  period   October  7,  1994
                                            (Date of  Initial  Public  Offering)
                                            through March 31, 1995

Independent Auditors' Report
Dated May 24, 1995


All other schedules are omitted as the required information is inapplicable.


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  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)       Not applicable.

 (5)       (A) A  copy  of  the  form  of  Investment  Advisory  and  Management
           Agreement  between  Registrant  and  Keystone  Investment  Management
           Company  (formerly  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.

           (B) A copy of the form of SubInvestment  Advisory  Agreement  between
           Registrant and EquitiLink  International Management Limited 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.

 (6)       (A) A copy of the form of Principal  Underwriting  Agreement  between
           Registrant and Keystone  Investment  Distributors  Company  (formerly
           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.

           (B) A  copy  of  the  form  of  Dealer  Agreement  used  by  Keystone
           Investment  Distributors  Company  (formerly  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  Registrant 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>



Item (24)(b) Exhibits (continued).


 (9)       Not applicable.

(10)       An opinion and consent 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 opinion of Registrant's  Independent Auditors is
           filed herewith.

(12)       Not applicable.

(13)       A copy of the Subscription  Agreement between Registrant and Keystone
           Investment Distributors Company 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   Balanced  Fund  (K-1)  (formerly   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  Registration  Statement  No.
           33-82520/811-8694   as  Exhibit  24(b)(15)  and  is  incorporated  by
           reference herein.

(16)       Schedules of computation of total return and schedules of computation
           with total return and yield are filed herewith.

(17)       Financial data schedules are filed herewith as Exhibit 27.

(18)       A copy of the form of  Registrant's  Multiple  Class Plan pursuant to
           Rule 18f-3 is filed herewith.

(19)       Powers of Attorney are filed herewith.

Item 25.   Persons Controlled by or Under Common Control With
           Registrant

           Not applicable.


Item 26.   Number of Holders of Securities

                                                                Number of Record
           Title of Class                           Holders as of April 28, 1995
           --------------                           ----------------------------


           Shares of Beneficial                              540,012.752
           Interest-Class A, without
           par value

           Shares of Beneficial                            1,635,911.695

           Interest-Class B, without
           par value

           Shares of Beneficial                              157,874.044

           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   Invesmtent
           Distributors  Company, the Registrant's  Principal  Underwriter,  are
           contained  in  Section  9 of  the  Principal  Underwriting  Agreement
           between the Registrant and Keystone Investment  Distributors Company,
           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 Investment  Management
           Company,  Registrant's investment adviser, are contained in Section 6
           of  the  Investment   Advisory  and  Management   Agreement   between
           Registrant and Keystone Investment  Management Company, 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 Investment Management Company, 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 INVESTMENT MANAGEMENT COMPANY


<TABLE>
<CAPTION>
                                    Position with
                                    Keystone Invest-
                                    ment Management
Name                                Company                            Other Business Affiliations


<S>                                 <C>                                <C>
Albert H.                           Chairman of                        Chairman of the Board,
Elfner, III                         the Board, Chief                   Chief Executive Officer,
                                    Chief Executive                    President and Director:
                                    Officer, Vice                        Keystone Investments, Inc.
                                    Chairman and                         Keystone Management, Inc.
                                    Director                             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 Investment
                                                                           Distributors Company
                                                                         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 Investments, Inc.
<PAGE>

<CAPTION>
                                    Position with
                                    Keystone Invest-
                                    ment Management
Name                                Company                            Other Business Affiliations

<S>                                 <C>                                <C>
Herbert L.                          Senior Vice                        None
Bishop, Jr.                         President

Donald C. Dates                     Senior Vice                        None
                                    President

Gilman Gunn                         Senior Vice                        None
                                    President

Edward F.                           Director,                          Director, Senior Vice
Godfrey                             Senior Vice                        President, Chief Financial
                                    President,                         Officer and Treasurer:
                                    Treasurer and                        Keystone Investments, Inc.
                                    Chief Financial                      Keystone Investment
                                    Officer                                Distributors Company
                                                                       Treasurer:
                                                                         Keystone Investment
                                                                         Management Corporation
                                                                         Keystone Management, Inc.
                                                                         Keystone Software, Inc.
                                                                         Fiduciary Investment
                                                                           Company, Inc.
                                                                       Treasurer and Director:
                                                                         Hartwell Keystone
                                                                           Advisers, Inc.

James R. McCall                     Director and                       None
                                    President

Ralph J.                            Director                           President and Director:
Spuehler, Jr.                                                            Keystone Invesmtent
                                                                           Distributors Company
                                                                       Senior Vice President and
                                                                       Director:
                                                                         Keystone Investments, Inc.
                                                                       Treasurer:
                                                                         Hartwell Emerging Growth
                                                                           Fund, Inc.
                                                                         Hartwell Growth Fund
                                                                       Director:
                                                                         Keystone Investor
                                                                           Resource Center, Inc.
                                                                         Keystone Management, Inc.
<PAGE>

<CAPTION>
                                    Position with
                                    Keystone Invest-
                                    ment Management
Name                                Company                            Other Business Affiliations

<S>                                 <C>                                <C>
Ralph J.                                                               Formerly President:
Spuehler, Jr. (con't)                                                    Keystone Management, Inc.
                                                                       Formerly Treasurer:
                                                                         The Kent Funds
                                                                         Keystone Investments, Inc.
                                                                         Keystone Investment
                                                                           Management Company

Rosemary D.                         Senior Vice                        General Counsel, Senior Vice
Van Antwerp                         President,                         President and Secretary:
                                    General Counsel                      Keystone Investments, 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 Invesmtent
                                                                           Distributors Company
                                                                         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.                           Vice President                     None
Baumback
<PAGE>
<CAPTION>
                                    Position with
                                    Keystone Invest-
                                    ment Management
Name                                Company                            Other Business Affiliations

<S>                                 <C>                                <C>
Betsy A. Blacher                    Vice President                     None

Francis X. Claro                    Vice President                     None

Kristine R.                         Vice President                     None
Cloyes

Christopher P.                      Vice President                     None
Conkey

Richard Cryan                       Vice President                     None

Maureen E.                          Vice President                     None
Cullinane

George E. Dlugos                    Vice President                     None

Antonio T. Docal                    Vice President                     None

Christopher R.                      Vice President                     None
Ely

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.                             Vice President                     None
Madden, Jr.

Stephen A. Marks                    Vice President                     None

Eleanor H. Marsh                    Vice President                     None

Walter T.                           Vice President                     None
McCormick

Barbara McCue                       Vice President                     None
<PAGE>
<CAPTION>
                                    Position with
                                    Keystone Invest-
                                    ment Management
Name                                Company                            Other Business Affiliations
<S>                                 <C>                                <C>

Stanley  M. Niksa                   Vice President                     None

Robert E. O'Brien                   Vice President                     None

Margery C. Parker                   Vice President                     None

William H.                          Vice President                     None
Parsons

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.                           Vice President                     None
Decristofaro

Jean Susan                          Assistant                          Vice President and
Loewenberg                          Secretary                          Counsel:
                                                                         Keystone Investments, Inc.
                                                                       Vice President and Secretary:
                                                                         Keystone Trust Company
                                                                       Secretary:
                                                                         Keystone Investor
                                                                           Resource Center, Inc.
                                                                       Assistant Secretary:
                                                                         Keystone Asset
                                                                           Corporation
                                                                         Keystone Capital
                                                                           Corporation
                                                                         Keystone Investment
                                                                           Distributors Company
                                                                         Keystone Fixed Income
                                                                           Advisers, Inc.
                                                                         Keystone Management, Inc.
                                                                         Keystone Software, Inc.
                                                                         Hartwell Keystone
                                                                           Advisers, Inc.
<PAGE>

<CAPTION>
                                    Position with
                                    Keystone Invest-
                                    ment Management
Name                                Company                            Other Business Affiliations

<S>                                 <C>                                <C>
Jean Susan                                                             Clerk:
Loewenberg (con't)                                                       Keystone Investment
                                                                           Management Corporation
                                                                         Fiduciary Investment
                                                                           Company, Inc.
                                                                       Assistant Secretary:
                                                                         Hartwell Keystone
                                                                           Advisers, Inc.
                                                                         Keystone Investment
                                                                           Distributors Company

Colleen L.                          Assistant                          Assistant Secretary:
Mette                               Secretary                            Keystone Investment
                                                                           Distributors Company
                                                                         Keystone Investments, Inc.

Kevin J.                            Assistant                          Vice President:
Morrissey                           Treasurer                            Keystone Investments, Inc.
                                                                       Assistant Treasurer:
                                                                         Fiduciary Investment
                                                                           Company, Inc.
                                                                       Formerly Assistant Treasurer:
                                                                         The Kent Funds
</TABLE>
<PAGE>

Item 29.  Principal Underwriters


           Keystone Investment  Distributors Company, which acts as Registrant's
           principal  underwriter,  also acts as principal  underwriter  for the
           following entities:

           Keystone Quality Fund (B-1)
           Keystone Diversified Bond Fund (B-2)
           Keystone High Income Bond Fund (B-4)
           Keystone Balanced Fund (K-1)
           Keystone Strategic Growth Fund (K-2)
           Keystone Growth and Income Fund (S-1)
           Keystone Mid-Cap Growth Fund (S-3)
           Keystone Small Company Growth Fund (S-4)
           Keystone Capital Preservation and Income Fund
           Keystone Fund for Total Return
           Keystone Global Opportunities Fund
           Keystone Government Securities Fund
           Keystone Hartwell Growth Fund
           Keystone America Hartwell Emerging Growth Fund, Inc.
           Keystone Intermediate Term Bond Fund
           Keystone America Omega Fund, Inc.
           Keystone Strategic Income Fund
           Keystone State Tax Free Fund
           Keystone State Tax Free Fund - Series II
           Keystone Tax Free Income Fund
           Keystone World Bond Fund
           Keystone Fund of the Americas
           Keystone Liquid Trust
           Keystone Precious Metals Holdings, Inc.
           Keystone Tax Exempt Trust
           Keystone Tax Free Fund

       (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).

<TABLE>
<CAPTION>
                                            Position and Offices with                            Position and
Name and Principal                          Keystone Investment                                  Offices with
Business Address                            Distributors Company                                 the Fund

<S>                                         <C>                                                  <C>
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
<PAGE>

Item 29(b) (continued)

<CAPTION>
                                            Position and Offices with                            Position and
Name and Principal                          Keystone Investment                                  Offices with
Business Address                            Distributors Company                                 the Fund

<S>                                         <C>                                                  <C>
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
<PAGE>

Item 29(b) (continued)

<CAPTION>
                                            Position and Offices with                            Position and
Name and Principal                          Keystone Investment                                  Offices with
Business Address                            Distributors Company                                 the Fund

<S>                                         <C>                                                  <C>
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
</TABLE>

* Located at 200 Berkeley Street, Boston, Massachusetts 02116-5034

Item 29(c). - Not applicable
<PAGE>

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

           Upon  request and without  charge  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 31st day of May 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 31st day of May, 1995.


SIGNATURES                          TITLE


/s/George S. Bissell              Chairman of the Board and Trustee
- -------------------------
George S. Bissell*

                                  Chief Executive Officer, President and
/s/Albert H. Elfner,III           Trustee
- -------------------------
Albert H. Elfner, III*            

                                  Treasurer (Principal Financial
/s/Kevin J. Morrissey             and Accounting Officer)
- -------------------------
Kevin J. Morrissey*               


                                              *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)(19).
<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 31st day of May 1995.


                                             KEYSTONE STRATEGIC DEVELOPMENT FUND

                                               By:/s/George S. Bissell
                                                  -------------------------
                                                  George S. Bissell*
                                                  Chairman of the Board


                                              *By:
                                                  -------------------------
                                                  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 31st day of May, 1995.


SIGNATURES                     TITLE


/s/George S. Bissell              Chairman of the Board and Trustee
- -------------------------
George S. Bissell*

                                  Chief Executive Officer, President and
/s/Albert H. Elfner,III           Trustee
- -------------------------
Albert H. Elfner, III*            

                                  Treasurer (Principal Financial
/s/Kevin J. Morrissey             and Accounting Officer)
- -------------------------
Kevin J. Morrissey*               



                                              *By:
                                                  -------------------------
                                                  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:
                                                  -------------------------
                                                  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)(19).



<PAGE>



                                                  INDEX TO EXHIBITS

                                                                Page Number
                                                                in Sequential
Exhibit Number              Exhibit                             Numbering System

         1                  Declaration of Trust(1)
                            First Supplemental
                              Declaration of Trust(2)

         2                  By-Laws(2)

         5                  Investment Advisory and
                              Management Agreement(2)

                            SubAdvisory Agreement(2)

         6                  Principal Underwriting
                              Agreement(2)
                            Dealer Agreement(1)

         8                  Custodian, Fund Accounting
                              and Recordkeeping Agreement(2)

         10                 Opinion and Consent of Counsel(1)

         11                 Independent Auditor's Consent

         13                 Subscription Agreement(1)

         14                 Model Retirement Plans(3)

         15                 Class A, B and C Distribution Plans(1)

         16                 Performance Data Schedules

         17                 Financial Data Schedules (filed as Exhibit 27)

         18                 18f-3 Plan

         19                 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.

(3)Incorporated  herein  by  reference  to  Post-Effective  Amendment  No. 66 to
Registration Statement No. 2-10527/811-96 for Keystone Balanced Fund (K-1).

<PAGE>
                        CONSENT OF INDEPENDENT AUDITORS

The Trustees and Shareholders
Keystone Strategic Development Fund

We consent to the use of our report dated May 5, 1995 included herein and to the
references  to  our  firm  under  the  captions  "FINANCIAL  HIGHLIGHTS"  in the
prospectus  and   "ADDITIONAL   INFORMATION"  in  the  statement  of  additional
information.

                                            /s/ KPMG PEAT MARWICK LLP

                                                KPMG PEAT MARWICK LLP
Boston, Massachusetts
May 24, 1995


<PAGE>
                      KEYSTONE STRATEGIC DEVELOPMENT FUND
                       10/17/94 Through 03/31/95
                        $10,000 Single Investment
                            Sales Load: None
                                        5.75%   9,425

<TABLE>
<CAPTION>
               Class A                                      AMOUNT               VALUE      VALUE 
                NAV/        DIVS/                CUMM         OF      SHARE      FROM        FROM       TOTAL
DATE          REINVEST      GAINS      INVST     INVST       DIST     BALANC      INV      DIVS/GAI     VALUE
- ----          --------      -----      -----     -----       ----     ------      ---      --------     -----
<S>             <C>                    <C>      <C>         <C>       <C>       <C>        <C>          <C>
                                       10,000
10/17/94        10.00                  10,000   10,000          0     1,000     10,000            0     10,000
10/31/94        10.03                           10,000          0     1,000     10,030            0     10,030
11/30/94         9.64                           10,000          0     1,000      9,640            0      9,640
12/30/94         9.38                           10,000          0     1,000      9,380            0      9,380
01/31/95         8.81                           10,000          0     1,000      8,810            0      8,810
02/28/95         8.73                           10,000          0     1,000      8,730            0      8,730
03/31/95         9.02                           10,000          0     1,000      9,020            0      9,020
</TABLE>



<TABLE>
<CAPTION>
                                                                 THREE                   FIVE
KASDF  CLASS A                                                    YEAR     THREE         YEAR       FIVE      
              31-Mar-95                              ONE         TOTAL      YEAR         TOTAL      YEAR      TEN YEAR    TEN YEAR
                               MTD        YTD        YEAR        RETURN  COMPOUNDED       RE     COMPOUNDED   TOTAL RE   COMPOUNDED

<S>                      <C>         <C>         <C>          <C>          <C>        <C>         <C>        <C>          <C>
4.75%  LOAD                             -9.37%     -14.99%      -14.99%      -29.98%    -14.99%     -29.98%     -14.99%      -29.98%
no load                       3.32%     -3.84%      -9.80%       -9.80%      -20.26%     -9.80%     -20.26%      -9.80%      -20.26%

Beg dates                28-Feb-95   30-Dec-94   17-Oct-94    17-Oct-94    17-Oct-94  17-Oct-94   17-Oct-94  17-Oct-94    17-Oct-94
Beg Value (LOAD)             9,263       9,952      10,610       10,610       10,610     10,610      10,610      10,610      10,610
Beg Value (no load)          8,730       9,380      10,000       10,000       10,000     10,000      10,000      10,000      10,000
End Value                    9,020       9,020       9,020        9,020        9,020      9,020       9,020       9,020       9,020

TIME                                                                    0.4555555556           0.4555555556            0.4555555556
   
INCEPTION DATE           17-Oct-94

</TABLE>
<PAGE>


                  KEYSTONE STRATEGIC DEVELOPMENT FUND CLASS B

                           10/17/94 Through 03/31/95
                  $10,000 Single Investment No 12b-1 - No CDSC

<TABLE>
<CAPTION>
                                                            AMOUNT              VALUE       VALUE 
                NAV/        DIVS/                CUMM         OF      SHARE      FROM        FROM       TOTAL
DATE          REINVEST      GAINS      INVST     INVST       DIST     BALANC      INV      DIVS/GAI     VALUE
- ----          --------      -----      -----     -----       ----     ------      ---      --------     -----
<S>             <C>         <C>        <C>      <C>          <C>      <C>       <C>        <C>          <C>
                                       10,000
10/17/94        10.00                  10,000   10,000          0     1,000     10,000            0     10,000
10/31/94        10.03                           10,000          0     1,000     10,030            0     10,030
11/30/94         9.63                           10,000          0     1,000      9,630            0      9,630
12/30/94         9.37                           10,000          0     1,000      9,370            0      9,370
01/31/95          8.8                           10,000          0     1,000      8,800            0      8,800
02/28/95          8.7                           10,000          0     1,000      8,700            0      8,700
03/31/95         8.99                           10,000          0     1,000      8,990            0      8,990
</TABLE>



<TABLE>
<CAPTION>
                                                              THREE                      FIVE                 TEN
                                                               YEAR        THREE         YEAR       FIVE      YEAR
                                                  ONE         TOTAL         YEAR         TOTAL      YEAR      TOTAL      TEN YEAR
KASDF-B                      MTD       YTD        YEAR        RETURN     COMPOUNDED      RETURN  COMPOUNDED   RETURN     COMPOUNDED
              31-Mar-95

<S>                    <C>        <C>         <C>           <C>          <C>          <C>         <C>        <C>          <C>
with cdsc                    N/A     -6.93%     -12.80%       -12.80%       -25.96%          NA          NA       NA             NA
W/O CDSC                   3.33%     -4.06%     -10.10%       -10.10%       -20.84%          NA          NA       NA             NA

Beg dates              28-Feb-95  30-Dec-94   17-Oct-94     17-Oct-94     17-Oct-94   17-Oct-94   17-Oct-94  7-Oct-94     17-Oct-94
Beg Value (no load)        8,700      9,370      10,000        10,000        10,000      10,000      10,000    10,000        10,000
End Value (W/O CDSC)       8,990      8,990       8,990         8,990         8,990       8,990       8,990     8,990         8,990
End Value (with cdsc)                 8,720       8,720         8,720         8,720       8,900      8900.1     8,990          8990
beg nav                     8.70       9.37       10.00         10.00            10       10.00          10     10.00            10
end nav                     8.99       8.99        8.99          8.99          8.99        8.99        8.99      8.99          8.99
shares originally
   purhased             1,000.00   1,000.00    1,000.00      1,000.00      1,000.00    1,000.00    1,000.00  1,000.00      1,000.00

                                   3% cdsc thru date=>      31-Dec-95
TIME                               2% cdsc thru date=>      31-Dec-96  0.4555555556            0.4555555556            0.4555555556
INCEPTION DATE        17-Oct-94    1% cdsc effect. date=>   01-Jan-97                31-Dec-96

INCEPTION DATE        17-Oct-94
</TABLE>
<PAGE>

                  KEYSTONE STRATEGIC DEVELOPMENT FUND CLASS C

                              10/17/94 - 03/31/95
                  $10,000 Single Investment No 12b-1 - No CDSC

<TABLE>
<CAPTION>
                                                            AMOUNT              VALUE       VALUE 
                NAV/        DIVS/                CUMM         OF      SHARE      FROM        FROM       TOTAL
DATE          REINVEST      GAINS      INVST     INVST       DIST     BALANC      INV      DIVS/GAI     VALUE
- ----          --------      -----      -----     -----       ----     ------      ---      --------     -----
<S>             <C>         <C>        <C>      <C>          <C>      <C>       <C>        <C>          <C>
                                       10,000
10/17/94        10.00                  10,000   10,000          0     1,000     10,000            0     10,000
10/31/94        10.03                           10,000          0     1,000     10,030            0     10,030
11/30/94         9.63                           10,000          0     1,000      9,630            0      9,630
12/30/94         9.37                           10,000          0     1,000      9,370            0      9,370
01/31/95         8.79                           10,000          0     1,000      8,790            0      8,790
02/28/95          8.7                           10,000          0     1,000      8,700            0      8,700
03/31/95         8.99                           10,000          0     1,000      8,990            0      8,990
</TABLE>



<TABLE>
<CAPTION>
                                                              THREE                      FIVE                 TEN
                                                               YEAR        THREE         YEAR       FIVE      YEAR
                                                  ONE         TOTAL         YEAR         TOTAL      YEAR      TOTAL      TEN YEAR
KASDF-C                       MTD       YTD        YEAR        RETURN     COMPOUNDED      RETURN  COMPOUNDED   RETURN     COMPOUNDED
                31-Mar-95
<S>                       <C>       <C>        <C>           <C>            <C>       <C>         <C>       <C>        <C>      
with cdsc                     N/A      -5.01%    -11.00%       -10.10%        -20.84%      NA       NA          NA        NA
W/O CDSC                      3.33%    -4.06%    -10.10%       -10.10%        -20.84%      NA       NA          NA        NA

Beg dates                 28-Feb-95 30-Dec-94  17-Oct-94     17-Oct-94      17-Oct-94 17-Oct-94   17-Oct-94 7-Oct-94   17-Oct-94
Beg Value (no load)           8,700     9,370     10,000        10,000         10,000    10,000      10,000   10,000     10,000
End Value (W/O CDSC)          8,990     8,990      8,990         8,990          8,990     8,990       8,990    8,990      8,990
End Value (with cdsc)                   8,900      8,900         8,990          8,990     8,990        8990    8,990       8990
beg nav                        8.70      9.37      10.00         10.00             10     10.00          10    10.00         10
end nav                        8.99      8.99       8.99          8.99           8.99      8.99        8.99     8.99       8.99
shares originally purhased 1,000.00  1,000.00   1,000.00      1,000.00       1,000.00  1,000.00    1,000.00 1,000.00   1,000.00


TIME                                                                     0.4555555556          0.4555555556        0.4555555556
INCEPTION DATE             17-Oct-94                         01-Jan-96                31-Dec-96
                                                                             1% cdsc thru date^
INCEPTION DATE             17-Oct-94

</TABLE>
<PAGE>


<PAGE>

                                                            EXHIBIT 99.24(b)(18)



                 MULTIPLE CLASS PLAN FOR KEYSTONE AMERICA FUNDS


         The Keystone  America Fund Family  currently offers a number of classes
of shares with the following class  provisions and current offering and exchange
characteristics.   Additional  classes  of  shares,   when  created,   may  have
characteristics that differ from those described.  References to percentages not
otherwise defined are to percentages of average daily net assets of a class.

         I.       CLASSES

         1.       Class A Shares

                  Keystone America Funds

                  Class A Shares have a  distribution  plan adopted  pursuant to
                  Rule 12b-1  under the  Investment  Company  Act of 1940 ("Rule
                  12b-1")  and/or  a  shareholder  services  plan,  which  plans
                  provide for payments, currently limited to 0.25% annually, for
                  distribution and/or shareholder services fees.

                  Class A Shares are offered with a front-end sales load, except
                  that  purchases  of Class A Shares  made on or after April 10,
                  1995 (a) in an amount equal to or exceeding $1 million  and/or
                  (b)  by  a   corporate   qualified   retirement   plan   or  a
                  non-qualified   deferred  compensation  plan  sponsored  by  a
                  corporation  having  100 or more  eligible  employees  are not
                  subject  to a  front-end  sales  load,  but are  subject  to a
                  contingent  deferred  sales  charge  ("CDSC")  of 1.00%  for a
                  period of 24 months from the date of purchase.

                  Class A Shares  may be  exchanged  for Class A Shares of other
                  Keystone  America Funds and Class A Shares of Keystone  Liquid
                  Trust.  Class A Shares  subject to a CDSC when  exchanged will
                  remain subject to the CDSC after the exchange.

                  Keystone Liquid Trust

                  Class A Shares have a  distribution  plan adopted  pursuant to
                  Rule 12b-1 and/or a  shareholder  services  plan,  which plans
                  provide for payments of up to 0.25% annually for  distribution
                  and/or shareholder services fees.

                  Class A Shares  are  offered  without  a sales  load.  Class A
                  Shares may be  exchanged  for Class A Shares of other funds in
                  the  Keystone  America  Fund Family and shares of funds in the
                  Keystone Fund Family.

         2.       Class B Shares

                  Keystone America Funds (except Keystone Capital
                  Preservation and Income Fund) and Keystone Liquid Trust

                  Class B Shares have  distribution  plans  adopted  pursuant to
                  Rule 12b-1 and may have a  shareholder  services  plan,  which
                  plans,  in the aggregate,  provide for payments of up to 1.00%
                  annually for distribution  and/or  shareholder  services fees.
                  Class B Shares  are  offered  at net  asset  value  without  a
                  front-end  sales  load but with a CDSC,  which is a  declining
                  percentage of the lesser of current net asset value or initial
                  cost.  For Class B shares  purchased on or after June 1, 1995,
                  the CDSC is imposed at rates  ranging  from a maximum of 5% of
                  amounts   redeemed   during  the  first  twelve  month  period
                  following  the month of  purchase  to 1% of  amounts  redeemed
                  during the sixth twelve month  period  following  the month of
                  purchase.

                  The  sub-class of Class B Shares  issued prior to June 1, 1995
                  automatically  convert to Class A Shares seven  calendar years
                  after  purchase  without a sales  load or  exchange  fee.  The
                  sub-class of Class B Shares issued on or after to June 1, 1995
                  automatically  convert to Class A Shares eight years after the
                  month of purchase without a sales load or exchange fee.

                  Class B Shares  may be  exchanged  for the same  sub-class  of
                  Class B Shares of other  Keystone  America  Funds and the same
                  sub-class of Class B Shares of Keystone Liquid Trust.  Class B
                  Shares subject to a CDSC when exchanged will remain subject to
                  the CDSC after the exchange.

                  Keystone Capital Preservation and Income Fund ("CPI")

                  CPI  Class  B  Shares  have  the  same  provisions  and  other
                  characteristics as those described above for Class B Shares of
                  the Keystone America Funds,  except that Class B Shares of CPI
                  (a) are subject to a CDSC, which is a declining  percentage of
                  the lesser of current net asset value or initial cost (for CPI
                  Class B shares purchased on or after June 1, 1995, the CDSC is
                  imposed  at rates  ranging  from a  maximum  of 3% of  amounts
                  redeemed  during the first twelve month period  following  the
                  month of purchase to 1% of amounts redeemed during the fourth
                  twelve   month   period   following   the  month  of  purchase
                  purchased);  and (b) have the  following  special  exchange or
                  conversion  features:  (i) at the  shareholder's  option,  the
                  sub-class  of CPI Class B Shares  issued prior to June 1, 1995
                  may be  exchanged  for CPI  Class A Shares  up to seven  years
                  after purchase and (ii) the sub-class of Class B Shares issued
                  on or after  June 1,  1995  automatically  convert  to Class A
                  Shares eight years after the month of purchase without a sales
                  load or exchange fee.

         3.       Class C Shares

                  Keystone America Funds and Keystone Liquid Trust

                  Class C Shares have a  distribution  plan adopted  pursuant to
                  Rule 12b-1,  and may have a shareholder  services plan,  which
                  plans provide,  in the aggregate,  for payments of up to 1.00%
                  annually for distribution  and/or  shareholder  services fees.
                  Class C Shares are subject to a CDSC, which is a percentage of
                  the  lesser  of  current  net  asset  value  or  initial  cost
                  (currently 1.00% for one year from the date of purchase).

                  Class C Shares  are  offered  at net  asset  value  without  a
                  front-end sales load.

                  Class C Shares  may be  exchanged  for Class C Shares of other
                  Keystone  America  Funds and Keystone  Liquid  Trust.  Class C
                  Shares subject to a CDSC when exchanged will remain subject to
                  the CDSC after the exchange.

         II.      CLASS EXPENSES

                  Each class  bears the  expenses  of its Rule 12b-1 plan and/or
                  shareholder  services plan. There currently are no other class
                  specific expenses.

         III.     EXPENSE ALLOCATION METHODS

                  Daily Distribution Funds

                  All income,  realized and unrealized  capital gains and losses
                  and expenses not assigned to a class will be allocated to each
                  share regardless of class.

                  Non-Daily Distribution Funds

                  All income, realized and unrealized capital gains
                  and losses and expenses not assigned to a class
                  will be  allocated  to each class  based on the  relative  net
                  asset value of each class.

         IV.      VOTING RIGHTS

                  Each class shall have  exclusive  voting  rights on any matter
                  submitted to its shareholders that relates solely to its class
                  arrangement.

                  Each class  shall have  separate  voting  rights on any matter
                  submitted  to  shareholders  where the  interests of one class
                  differ from the interests of any other class.

                  Each  class  has in all other  respects  the same  rights  and
                  obligations as each other class.

         V.       EXPENSE WAIVERS OR REIMBURSEMENTS

                  Any expense waivers or  reimbursements  shall be in compliance
                  with Rule 18f-3  issued  under the  Investment  Company Act of
                  1940.




<PAGE>

<PAGE>

                                                            EXHIBIT 99.24(b)(19)


                               POWER OF ATTORNEY

         I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy,  each of them singly, my true and lawful  attorneys,  with full power to
them and each of them to sign  for me and in my name in the  capacity  indicated
below any and all registration statements,  including, but not limited to, Forms
N-8A,  N-8B-1,  S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments  thereto to be filed with the Securities and Exchange  Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering  from time to time the shares of such companies,  and
generally  to do all such  things in my name and in my  behalf  to  enable  such
investment  companies to comply with the  provisions  of the  Securities  Act of
1933,  as  amended,  the  Investment  Company Act of 1940,  as amended,  and all
requirements   and  regulations  of  the  Securities  and  Exchange   Commission
thereunder,  hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.


                                                       /s/ George S. Bissell
                                                           George S. Bissell
                                                           Director/Trustee,
                                                           Chairman of the Board

Dated: December 14, 1994




<PAGE>

                               POWER OF ATTORNEY

         I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy,  each of them singly, my true and lawful  attorneys,  with full power to
them and each of them to sign  for me and in my name in the  capacity  indicated
below any and all registration statements,  including, but not limited to, Forms
N-8A,  N-8B-1,  S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments  thereto to be filed with the Securities and Exchange  Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chief Executive Officer and for
which  Keystone   Custodian  Funds,  Inc.  serves  as  Adviser  or  Manager  and
registering from time to time the shares of such companies,  and generally to do
all such things in my name and in my behalf to enable such investment  companies
to comply with the  provisions of the  Securities  Act of 1933, as amended,  the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the  Securities  and Exchange  Commission  thereunder,  hereby  ratifying and
confirming my signature as it may be signed by my said  attorneys to any and all
registration statements and amendments thereto.


                                                       /s/ Albert H. Elfner, III
                                                           Albert H. Elfner, III
                                                           Director/Trustee,
                                                           President and Chief
                                                           Executive Officer




<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




<TABLE> <S> <C>


<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER>          101
<NAME>            KEYSTONE STRATEGIC DEVELOPMENT FUND CLASS A
<PERIOD-TYPE>              6-MOS
<FISCAL-YEAR-END>                   MAR-31-1995
<PERIOD-START>                      OCT-17-1994
<PERIOD-END>                        MAR-31-1995
<INVESTMENTS-AT-COST>                       21,537,936
<INVESTMENTS-AT-VALUE>                      20,977,527
<RECEIVABLES>                                2,709,757
<ASSETS-OTHER>                                  70,194
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                              23,757,478
<PAYABLE-FOR-SECURITIES>                     2,679,283
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                      107,722
<TOTAL-LIABILITIES>                          2,787,005
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                     5,267,256
<SHARES-COMMON-STOCK>                          542,279
<SHARES-COMMON-PRIOR>                            3,000
<ACCUMULATED-NII-CURRENT>                            0
<OVERDISTRIBUTION-NII>                           4,608
<ACCUMULATED-NET-GAINS>                       (257,009)
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                      (124,940)
<NET-ASSETS>                                 4,889,915
<DIVIDEND-INCOME>                               17,347
<INTEREST-INCOME>                               32,335
<OTHER-INCOME>                                   1,415
<EXPENSES-NET>                                 (52,303)
<NET-INVESTMENT-INCOME>                         (1,206)
<REALIZED-GAINS-CURRENT>                      (258,856)
<APPREC-INCREASE-CURRENT>                     (124,940)
<NET-CHANGE-FROM-OPS>                         (385,002)
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                            0
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                        594,548
<NUMBER-OF-SHARES-REDEEMED>                    (55,269)
<SHARES-REINVESTED>                                  0
<NET-CHANGE-IN-ASSETS>                       5,246,176
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                          (17,834)
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                (53,353)
<AVERAGE-NET-ASSETS>                         4,020,378
<PER-SHARE-NAV-BEGIN>                           10.00
<PER-SHARE-NII>                                 (0.00)
<PER-SHARE-GAIN-APPREC>                         (0.98)
<PER-SHARE-DIVIDEND>                             0.00
<PER-SHARE-DISTRIBUTIONS>                        0.00
<RETURNS-OF-CAPITAL>                             0.00
<PER-SHARE-NAV-END>                              9.02
<EXPENSE-RATIO>                                  2.77
<AVG-DEBT-OUTSTANDING>                              0
<AVG-DEBT-PER-SHARE>                                0

</TABLE>

<TABLE> <S> <C>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER>          102
<NAME>            KEYSTONE STRATEGIC DEVELOPMENT FUND CLASS B
<PERIOD-TYPE>              6-MOS
<FISCAL-YEAR-END>                   MAR-31-1995
<PERIOD-START>                      OCT-17-1994
<PERIOD-END>                        MAR-31-1995
<INVESTMENTS-AT-COST>                       21,537,936
<INVESTMENTS-AT-VALUE>                      20,977,527
<RECEIVABLES>                                2,709,757
<ASSETS-OTHER>                                  70,194
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                              23,757,478
<PAYABLE-FOR-SECURITIES>                     2,679,283
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                      107,722
<TOTAL-LIABILITIES>                          2,787,005
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                    15,843,917
<SHARES-COMMON-STOCK>                        1,634,469
<SHARES-COMMON-PRIOR>                            3,000
<ACCUMULATED-NII-CURRENT>                            0
<OVERDISTRIBUTION-NII>                         (25,404)
<ACCUMULATED-NET-GAINS>                       (779,896)
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                      (350,825)
<NET-ASSETS>                                14,687,792
<DIVIDEND-INCOME>                               52,056
<INTEREST-INCOME>                               96,092
<OTHER-INCOME>                                   4,223
<EXPENSES-NET>                                (195,066)
<NET-INVESTMENT-INCOME>                        (42,695)
<REALIZED-GAINS-CURRENT>                      (785,387)
<APPREC-INCREASE-CURRENT>                     (350,825)
<NET-CHANGE-FROM-OPS>                       (1,178,907)
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                            0
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                      1,787,714
<NUMBER-OF-SHARES-REDEEMED>                   (156,245)
<SHARES-REINVESTED>                                  0
<NET-CHANGE-IN-ASSETS>                      15,840,441
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                          (53,062)
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                               (198,165)
<AVERAGE-NET-ASSETS>                        11,812,119
<PER-SHARE-NAV-BEGIN>                            10.00
<PER-SHARE-NII>                                  (0.03)
<PER-SHARE-GAIN-APPREC>                          (0.98)
<PER-SHARE-DIVIDEND>                              0.00
<PER-SHARE-DISTRIBUTIONS>                         0.00
<RETURNS-OF-CAPITAL>                              0.00
<PER-SHARE-NAV-END>                               8.99
<EXPENSE-RATIO>                                   3.55
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0

</TABLE>

<TABLE> <S> <C>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER>          103
<NAME>            KEYSTONE STRATEGIC DEVELOPMENT FUND CLASS C
<PERIOD-TYPE>              6-MOS
<FISCAL-YEAR-END>                   MAR-31-1995
<PERIOD-START>                      OCT-17-1994
<PERIOD-END>                        MAR-31-1995
<INVESTMENTS-AT-COST>                       21,537,936
<INVESTMENTS-AT-VALUE>                      20,977,527
<RECEIVABLES>                                2,709,757
<ASSETS-OTHER>                                  70,194
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                              23,757,478
<PAYABLE-FOR-SECURITIES>                     2,679,283
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                      107,722
<TOTAL-LIABILITIES>                          2,787,005
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                     1,532,315
<SHARES-COMMON-STOCK>                          155,020
<SHARES-COMMON-PRIOR>                            4,000
<ACCUMULATED-NII-CURRENT>                            0
<OVERDISTRIBUTION-NII>                          (3,455)
<ACCUMULATED-NET-GAINS>                        (75,700)
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                       (60,394)
<NET-ASSETS>                                 1,392,766
<DIVIDEND-INCOME>                                5,404
<INTEREST-INCOME>                               10,203
<OTHER-INCOME>                                     429
<EXPENSES-NET>                                 (21,369)
<NET-INVESTMENT-INCOME>                         (5,333)
<REALIZED-GAINS-CURRENT>                       (76,297)
<APPREC-INCREASE-CURRENT>                      (60,394)
<NET-CHANGE-FROM-OPS>                         (142,024)
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                            0
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                        160,011
<NUMBER-OF-SHARES-REDEEMED>                     (8,991)
<SHARES-REINVESTED>                                  0
<NET-CHANGE-IN-ASSETS>                       1,495,195
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                           (5,695)
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                (21,698)
<AVERAGE-NET-ASSETS>                         1,278,613
<PER-SHARE-NAV-BEGIN>                            10.00
<PER-SHARE-NII>                                  (0.03)
<PER-SHARE-GAIN-APPREC>                          (0.98)
<PER-SHARE-DIVIDEND>                              0.00
<PER-SHARE-DISTRIBUTIONS>                         0.00
<RETURNS-OF-CAPITAL>                              0.00
<PER-SHARE-NAV-END>                               8.99
<EXPENSE-RATIO>                                   3.51
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0

</TABLE>


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