Keystone America Hartwell Emerging Growth Fund Inc · 485APOS · On 2/2/95

Filed On 2/2/95   ·   SEC Files 2-28719, 811-01633   ·   Accession Number 950156-95-4

Post-Effective Amendment
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 485APOS     Form N-1a P.E. Amendment No. 41                      102±   455K 
 2: EX-99.24(B)(1)  Declaration of Trust                              17±    76K 
 3: EX-99.24(B)(2)  By-Laws                                            3     21K 
 4: EX-99.24(B)(5)(A)  Investment Advisory and Management              7±    31K 
                          Agreement                                              
 5: EX-99.24(B)(5)(B)  Subinvestment Advisory Agreement                2     18K 
 6: EX-99.24(B)(18)  Powers of Attorney                               13     31K 

485APOS   ·   Form N-1a P.E. Amendment No. 41
Document Table of Contents

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FEBRUARY 2, 1995.          
                                                               File Nos. 2-28719
                                                                    and 811-1633
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.   41                                           X   
                             ---                                         ---
and 
 REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No.  21                                                         X 
              ---                                                        ---
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND  
(formerly known as Hartwell Emerging Growth Fund, Inc.)   
(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                           

---  immediately upon filing pursuant to paragraph (b) of Rule 485              
---  on (date) pursuant to paragraph (b) of Rule 485                            
X   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                      

The Registrant has filed a declaration pursuant to Rule 24f-2                   
under the Investment  Company Act of 1940. A Rule 24f-2 Notice for  Registrant's
last fiscal year was filed November 29, 1994.                                   

By this Post-Effective  Amendment Keystone America Hartwell Emerging Growth Fund
(the"Trust")  expressly  adopts  as  its  own  the  Registration  Statement  (as
appropriately  modified)  under the  Securities  Act of 1933 (the "1933 Act") of
Keystone  America  Hartwell  Emerging  Growth Fund,  Inc. (the  "Company"),  the
Trust's predecessor registrant,  for purposes of the 1933 Act and the Securities
Exchange  Act of  1934,  and the  Trust  also  adopts  as its own the  Company's
notification and Registration Statement under the Investment Company Act of 1940
(as appropriately modified).                                                    

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KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND          

CONTENTS OF             
POST-EFFECTIVE AMENDMENT NO. 41           
to              
REGISTRATION STATEMENT            

This   Post-Effective   Amendment   No.  41  to   Registration   Statement   No.
2-28719/811-1633  consists of the following  pages,  items of  information,  and
documents:                                                                      
The Facing Sheet              

The Contents Page               

The Cross-Reference Sheet               

PART A                  

Prospectus                  

PART B                  

Statement of Additional Information               

PART C                  

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

Financial Statements                  

Independent Auditors' Report                  

Listing of Exhibits                   

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                      

Signatures                        

Exhibits (including Powers of Attorney)                       

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KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND        

Cross-Reference  Sheet pursuant to Rules 404 and 495 under the Securities Act of
1933.                                                                           

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

1           Cover Page                                                  

2           Fee Table                                                   

3           Financial Highlights                                        

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

5           Fund Management and Expenses                                
Additional Information                          

5A          Not Applicable                                              

6           The Fund                                                    
Dividends and Taxes                             
Fund Shares                                     
Pricing Shares                                  

7           How to Buy Shares                                           
Distribution Plan                               
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 Methods                              
Investment Restrictions                         
Brokerage                                       
Appendix                                        

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KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND                                  

Cross-Reference Sheet continued.                                                

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

14           Directors and Officers                                     

15           Additional Information                                     

16           Investment Adviser                                         
Sub-Adviser                                   
Principal Underwriter                         
Distribution Plan                             
Sales Charges                                 
Additional Information                        

17           Brokerage                                                  

18           The Fund                                                   
Capital Stock                                 

19           Distribution Plan                                          

20           Dividends and Taxes                                        

21           Principal Underwriter                                      

22           Standardized Total Return and Yield Quotations             

23           Financial Statements                                       

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KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND            

PART A                

PROSPECTUS                

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KEYSTONE AMERICA HARTWELL EMERGING                                              
GROWTH FUND                                                                     
PROSPECTUS APRIL   , 1995                                                       

  Keystone   America   Hartwell   Emerging   Growth  Fund  (the   "Fund")  is  a
non-diversified  open-end  management  investment  company,  commonly known as a
mutual fund.                                                                    

  The Fund's objective is capital appreciation.  The Fund pursues this objective
by investing primarily in small and medium-sized companies in a relatively early
stage of development that are principally traded in the over-the-counter market.

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

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

  Additional  information about the Fund, including information about securities
ratings,  is contained in a statement of  additional  information  dated April ,
1995,  which has been filed with the Securities and Exchange  Commission and are
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.                                                                   

KEYSTONE AMERICA HARTWELL EMERGING                                              
GROWTH FUND                                                                     
200 BERKELEY STREET                                                             
BOSTON, MASSACHUSETTS 02116-5034                                                
CALL TOLL FREE 1-800-343-2898                                                   

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

TABLE OF CONTENTS                                                               

                                                                            Page
Fee Table                                                                    2  
Financial Highlights                                                         3  
The Fund                                                                     6  
Investment Objective and Policies                                            6  
Investment Restrictions                                                      7  
Risk Factors                                                                 7  
Pricing Shares                                                               9  
Dividends and Taxes                                                         10  
Fund Management and Expenses                                                10  
How to Buy Shares                                                           13  
Alternative Sales Options                                                   13  
Calculation of Contingent Deferred Sales                                        
Charge and Waiver of Sales Charges                                        16
Distribution Plans                                                          17  
How to Redeem Shares                                                        18  
Shareholder Services                                                        20  
Performance Data                                                            22  
Fund Shares                                                                 23  
Additional Information                                                      23  
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 THE PROSPECTUS.  ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.                                                               

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FEE TABLE   
KEYSTONE AMERICA HARTWELL EMERGING GROWTH 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."          

                                                        · Enlarge/Download Table

                                                        CLASS A SHARES          CLASS B SHARES          CLASS C SHARES          
                                                          FRONT END                BACK END               LEVEL LOAD            
                                                         LOAD OPTION            LOAD OPTION<F1>           OPTION<F2>            
                                                          ---------                ---------             ---------              
                                                                                                                                
SHAREHOLDER TRANSACTION EXPENSES                                                                                                
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                                declining to 1.00% in       year and 0.00%           
  market 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....................................      0.97%<F7>         0.97%<F7>                0.97%<F7>                   
12b-1 Fees ........................................      0.19%             1.00%<F8>                1.00%<F8>                   
Other Expenses ....................................      0.73%             0.73%                    0.73%                       
                                                         ----              ----                     ----                        
Total Fund Operating Expenses......................      1.89%             2.70%                    2.70%                       
                                                         ----              ----                     ----                        
                                                         ----              ----                     ----                        
EXAMPLES<F9>                                                                      1 YEAR       3 YEARS      5 YEARS     10 YEARS
                                                                                  ------      -------      -------      ------- 
                                                                                                                                
You would pay the following expenses on a $1,000 investment, assuming (1) 5%                                                    
annual return and (2) redemption at the end of each period:                                                                     
    Class A....................................................................   $76.00      $113.00      $154.00      $266.00 
    Class B....................................................................   $57.00      $104.00      $143.00        N/A   
    Class C....................................................................   $37.00      $ 84.00      $143.00      $303.00 
You  would  pay  the  following  expenses  on the  same  investment, assuming  no                                               
redemption at the end of each period:                                                                                           
    Class A....................................................................   $76.00      $113.00      $154.00      $266.00 
    Class B....................................................................   $27.00      $ 84.00      $143.00        N/A   
    Class C....................................................................   $27.00      $ 84.00      $143.00      $303.00 

AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST                                                  
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.                                                    
---------                                                                                                                       
<FN>                                                                                                                            
<F1>Class B Shares  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 Distributors, Inc., the Fund's                                                
    principal underwriter.                                                                                                      
<F3>The sales charge applied to purchases of Class A shares declines as the                                                     
    amount invested increases. See "Sales Charges."                                                                             
<F4>Purchases  of Class A shares  in the  amount of  $1,000,000  or more are not                                                
    subject to a sales charge but may be subject to a contingent  deferred sales                                                
    charge of 0.25%.  See  "Calculation of Contingent  Deferred Sales Charge and                                                
    Waiver of Sales Charges" 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 year ended  September  30,  1994  except  "Other                                                
    Expenses" have been restated to reflect estimated future costs.                                                             
<F7>The Fund pays a basic advisory fee which is subject to adjustment up or                                                     
    down by up to  1/2 of 1% of the average daily net asset value during the                                                    
    latest 12 months depending upon the performance of the Fund relative to the                                                 
    Standard and Poor's Index of 500 stocks. See "Fund Management and                                                           
    Expenses."                                                                                                                  
<F8>Long term  shareholders  may pay more than the  economic  equivalent  of the                                                
    maximum front end sales  charges  permitted by the National  Association  of                                                
    Securities Dealers, Inc.("NASD").                                                                                           
<F9>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%.                                                                                                    

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FINANCIAL HIGHLIGHTS  
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND  
CLASS A SHARES  
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)   

      The  following  table  contains  significant  financial  information  with
respect to the Fund.  The  condensed  financial  information  for the four years
ended  September  30, 1994 has been audited by KPMG Peat Marwick LLP, the Fund's
independent  auditors.  The  financial  highlights  for the fiscal  years  ended
September 30, 1985 through  September  30, 1990 were audited by other  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  auditors'  report of KPMG Peat  Marwick  LLP,  in the Fund's
Annual Report.  The Fund's financial  statements,  related  notes,and  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.                   

                                                        · Enlarge/Download Table

                                                                      CLASS A SHARES                                               
-------------------------------------------------------------------------------------------------------------------------------    
                                                                 YEAR ENDED SEPTEMBER 30,                                          
-------------------------------------------------------------------------------------------------------------------------------    
                          1994       1993       1992       1991       1990       1989       1988     1987       1986       1985    
                          ----       ----       ----       ----       ----       ----       ----     ----       ----       ----    
                                                                                                                                   
NET ASSET VALUE,                                                                                                                   
  BEGINNING OF YEAR...   $ 28.56    $ 20.80    $ 22.91    $ 14.13    $ 15.96    $ 11.56    $24.37    $ 14.94    $ 11.17    $ 10.75 
                         -------    -------    -------    -------    -------    -------    ------    -------    -------    ------- 
Income from investment                                                                                                             
  operations                                                                                                                       
Net investment loss...     (0.37)     (0.34)     (0.26)     (0.22)     (0.29)     (0.21)    (0.20)     (0.23)     (0.26)     (0.11)
Net gains (losses)                                                                                                                 
  on securities.......     (4.43)      8.10       0.05       9.13      (1.45)      4.61     (6.03)      9.66       4.03       0.53 
                         -------    -------    -------    -------    -------    -------    ------    -------    -------    ------- 
Total from investment                                                                                                              
  operations.........      (4.80)      7.76      (0.21)      8.91      (1.74)      4.40     (6.23)      9.43       3.77       0.42 
                         -------    -------    -------    -------    -------    -------    ------    -------    -------    ------- 
Less distributions                                                                                                                 
Distributions from                                                                                                                 
  capital gains......      (2.35)         0      (1.90)     (0.13)     (0.09)         0     (6.58)         0          0          0 
                         -------    -------    -------    -------    -------    -------    ------    -------    -------    ------- 
Total distributions...     (2.35)         0      (1.90)     (0.13)     (0.09)         0     (6.58)         0          0          0 
                         -------    -------    -------    -------    -------    -------    ------    -------    -------    ------- 
Net asset value, end                                                                                                               
  of year.............   $ 21.41    $ 28.56    $ 20.80    $ 22.91    $ 14.13    $ 15.96    $11.56    $ 24.37    $ 14.94    $ 11.17 
                         -------    -------    -------    -------    -------    -------    ------    -------    -------    ------- 
                         -------    -------    -------    -------    -------    -------    ------    -------    -------    ------- 
TOTAL RETURN<F1> .....   (17.86%)    37.31%     (1.12%)    63.51%    (10.95%)    38.06%   (16.40%)    63.12%     33.75%      3.91% 
RATIOS/SUPPLEMENTAL DATA                                                                                                           
Ratios to average                                                                                                                  
net assets:                                                                                                                        
  Operating and                                                                                                                    
   management expenses     1.80%      1.60%      1.63%      1.70%      2.50%      2.40%     2.40%      1.90%<F2>  2.00%     1.40%  
  Net investment loss.    (1.62%)    (1.34%)    (1.18%)    (1.18%)    (1.80%)    (1.60%)   (1.70%)    (1.20%)    (1.70%)   (1.00%) 
Portfolio                                                                                                                          
  turnover rate.......      156%       155%       152%       137%        96%       136%      110%       224%       123%      107%  
Net assets, end                                                                                                                    
  of period                                                                                                                        
  (thousands)........  $120,689   $195,708   $152,714    $72,602    $21,855    $25,131    $23,596   $41,440    $24,883    $29,795  
Per share calculation based on average weighted shares outstanding.                                                                

<FN>                                                                                                                               
<F1>Excluding applicable sales charges.                                                                                            
<F2>Figure is net of expense  reimbursement  by Hartwell  Keystone in connection                                                   
    with voluntary expense limitations.  Before the expense  reimbursement,  the                                                   
    "Ratio of operating  and  management  expenses to average net assets"  would                                                   
    have been 2.00% for the year ended September 30, 1987.                                                                         


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FINANCIAL HIGHLIGHTS  
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND  
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  auditors'  report,  in the Fund's Annual
Report. The Fund's financial statements, related notes, and 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.                                 

                                                        · Enlarge/Download Table


                                                              CLASS B SHARES                            
                                           ----------------------------------------------------         
                                                                           AUGUST 2, 1993               
                                                                           (DATE OF INITIAL             
                                                   YEAR ENDED              PUBLIC OFFERING)             
                                              SEPTEMBER  30, 1994       TO SEPTEMBER 30, 1993           
                                              -------------------       ---------------------           
                                                                                                        
NET ASSET VALUE, BEGINNING OF PERIOD.......        $28.56                     $26.69                    
                                                   ------                     ------                    
Income from investment operations                                                                       
Net investment loss........................         (0.49)                     (0.05)                   
Net gains (losses) on securities...........         (4.50)                      1.92                    
                                                   ------                     ------                    
Total from investment operations...........         (4.99)                      1.87                    
                                                   ------                     ------                    
Less distributions                                                                                      
Distributions from capital gains...........         (2.35)                         0                    
                                                   ------                     ------                    
Total distributions........................         (2.35)                         0                    
                                                   ------                      -----                    
NET ASSET VALUE, END OF PERIOD.............        $21.22                     $28.56                    
                                                   ------                     ------                    
                                                   ------                     ------                    
TOTAL RETURN<F1>............................        (18.58)%                    7.01 %                  
RATIOS/SUPPLEMENTAL DATA                                                                                
Ratios to average net assets:                                                                           
  Operating and management expenses........          2.49 %                     3.70 %<F2>              
  Net investment loss......................         (2.27)%                    (3.42)%<F2>              
Portfolio turnover rate....................           156 %                      155 %                  
Net assets, end of period (thousands)......        $3,801                     $  823                    
Per share calculation based on average weighted shares outstanding.                                     
<FN>                                                                                                    
<F1> Excluding applicable sales charges.                                                                
<F2> Annualized  for the period August 2, 1993 (Date of Initial Public  Offering) to September 30, 1993.

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FINANCIAL HIGHLIGHTS  
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND  
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  auditors'  report,  in the Fund's Annual
Report. The Fund's financial statements, related notes, and 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.                                 

                                                        · Enlarge/Download Table


                                                              CLASS C SHARES                            
                                           ----------------------------------------------------         
                                                                           AUGUST 2, 1993               
                                                                          (DATE OF INITIAL              
                                                  YEAR ENDED              PUBLIC OFFERING)              
                                              SEPTEMBER  30, 1994       TO SEPTEMBER 30, 1993           
                                              -------------------       ---------------------           
                                                                                                        
NET ASSET VALUE, BEGINNING OF PERIOD ......        $28.56                     $26.69                    
                                                   ------                     ------                    
Income from investment operations                                                                       
Net investment loss .......................         (0.47)                     (0.08)                   
Net gains (losses) on securities ..........         (4.48)                      1.95                    
                                                   ------                     ------                    
Total from investment operations ..........         (4.95)                      1.87                    
                                                   ------                     ------                    
Less distributions                                                                                      
Distributions from capital gains ..........         (2.35)                         0                    
                                                   ------                     ------                    
Total distributions .......................         (2.35)                         0                    
                                                   ------                     ------                    
NET ASSET VALUE, END OF PERIOD ............        $21.26                     $28.56                    
                                                   ------                     ------                    
                                                   ------                     ------                    
TOTAL RETURN<F1> ...........................       (18.42)%                     7.01%                   
RATIOS/SUPPLEMENTAL DATA                                                                                
Ratios to average net assets:                                                                           

  Operating and management expenses .......          2.47 %                     3.09 %<F2>              
  Net investment loss .....................         (2.25)%                    (2.80)%<F2>              
Portfolio turnover rate ...................           156 %                      155 %                  
Net assets, end of period (thousands) .....        $1,679                     $  297                    
Per share calculation based on average weighted shares outstanding.                                     
<FN>                                                                                                    
<F1> Excluding applicable sales charges.                                                                
<F2> Annualized  for the period August 2, 1993 (Date of Initial Public  Offering) to September 30, 1993.

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THE FUND                                                                        
  The Fund is a non-diversified, open-end investment company commonly known as a
mutual fund.  The Fund was  reorganized  as a  Massachusetts  business  trust on
-----------,  1995.  Originally,  the Fund had been  incorporated in New York on
April 8, 1968 and began  operations on September 10, 1968. The Fund is one of 30
funds  advised  by  Keystone  Custodian  Funds,  Inc.  ("Keystone"),  the Fund's
investment adviser.  Keystone has retained the services of J.M. Hartwell Limited
Partnership ("Hartwell") to provide the Fund with subadvisory services,  subject
to the supervision of the Fund's Board of Trustees and Keystone.                

INVESTMENT OBJECTIVE AND POLICIES                                               
  The investment  objective of the Fund is capital  appreciation.  In seeking to
achieve its investment  objective,  the Fund's  investment  advisers  select for
investment  not  only  those  few  companies  whose  unique  characteristics  or
proprietary  advantages,  they believe,  offer the best prospects for well above
average  increases in revenues and earnings,  but also those companies that tend
to be  grouped  in  industries  that,  from time to time,  are judged to be less
likely to be affected by the  business  cycle and to have strong  prospects  for
revenue  growth.  The Fund's advisers  continuously  monitor these companies and
their industries to make certain the companies retain the  characteristics  that
led to their selection in the first place.                                      

  The  Fund  seeks  to  achieve  its  objective   through  a  program  based  on
substantially  full investment in equity securities of companies in a relatively
early stage of development that are principally  traded in the  over-the-counter
("OTC") market (emerging growth  companies).  Such emerging growth companies are
small  to  medium-sized  companies  (generally  under  $500  million  in  market
capitalization)  that the Fund's advisers  believe have strong potential for (1)
earnings  growth over time that is well above the growth rate of the economy and
(2)  becoming  more  widely  recognized  as  growth   companies.   Under  normal
conditions,  at least 65% of the value of the Fund's  assets will be invested in
common stocks and other  securities  convertible into or exchangeable for common
stocks of emerging growth  companies.  The percentage of assets invested in such
issues may exceed 90% under favorable conditions.                               

  While it is anticipated that equity  securities will constitute all or most of
the  Fund's  investment  portfolio,  the  Fund may also  invest  in  convertible
preferred  stocks and debt securities when it appears  desirable in light of the
Fund's objective.                                                               

  In addition,  in pursuing its  objective,  the Fund may also invest in foreign
securities, and in American Depository Receipts whose underlying securities are,
issued by issuers  located in developed  countries  as well as emerging  markets
countries. For this purpose, countries with emerging markets are generally those
where the per capita income is in the low to middle ranges, as determined,  from
time to time,  by the  International  Bank for  Reconstruction  and  Development
("World Bank").                                                                 

  When,  in the judgment of the Fund's  advisers,  a defensive  or  conservative
posture is appropriate,  the Fund may hold a portion of its assets in short-term
U.S.  Government  obligations,  cash or cash  equivalents.  The adoption of such
defensive or  conservative  positions does not constitute a change in the Fund's
investment objective.                                                           

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

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

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

  The Fund may enter into repurchase and reverse repurchase agreements, purchase
and sell  securities and currencies on a when issued and delayed  delivery basis
and purchase or sell  securities on a forward  commitment  basis,  write covered
call and put options  and  purchase  call and put options to close out  existing
positions and may employ new investment techniques with respect to such options.
The Fund may also enter into currency and other financial  futures contracts and
related options  transactions for hedging purposes and not for speculation,  and
may employ new investment  techniques with respect to such futures contracts and
related options.                                                                

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

  Of course, there can be no assurance that the Fund will achieve its investment
objective since there is uncertainty in every investment.                       

NATURE OF INVESTMENT OBJECTIVE                                                  
  Except  as  otherwise  specified  herein  or in the  statement  of  additional
information,  the Fund's  investment  objective,  policies  and  methods are not
fundamental  policies  and may be changed  without the vote of a majority of the
Fund's outstanding shares when, in the judgment of the Fund's Board of Trustees,
such changes are advisable.  If the Fund's investment objective is changed and a
shareholder determines that the Fund is no longer an appropriate investment, the
shareholder  may redeem his shares but may be subject to a  contingent  deferred
sales charge upon  redemption.  Fundamental  policies may not be changed without
the vote of a majority of the Fund's outstanding shares,  which means the lesser
of (1) 67% of the shares  represented at a meeting at which more than 50% of the
outstanding  shares  are  represented,  or (2) more than 50% of the  outstanding
shares.  There can be no  assurance  that the Fund will  achieve its  investment
objective since there is uncertainty in every investment.                       

INVESTMENT RESTRICTIONS                                                         
  The Fund has adopted the fundamental  restrictions set forth below,  which may
not be changed  without the  approval  of a majority  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) borrow money, except that the Fund may
borrow money from banks or enter into reverse  repurchase  agreements,  provided
that,  immediately  after any such borrowing there is asset coverage of at least
300% for all borrowing and reverse  repurchase  agreements;  and (2) invest more
than 25% of its total assets in securities of issuers in the same 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
portfolio securities of the Fund.                                               

  By itself,  the Fund does not constitute a balanced  investment plan. 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 of
emerging  growth  companies.  The Fund is not meant to  provide  a  vehicle  for
playing  short-term  swings in the stock market.  Investing in a  nondiversified
Fund,  as  opposed to a  diversified  Fund,  may  result in a greater  degree of
exposure  to the  economic  movements  of the  market  sector  in which the Fund
invests.  The value of the Fund's  portfolio  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.                               

  While the companies in which the Fund invests may offer greater  opportunities
for capital appreciation than larger, more established companies, investments in
emerging  growth  companies may involve  greater  risks.  For example,  emerging
growth  companies  may have limited  product  lines,  markets or  financial  and
management resources.  In addition, many OTC stocks trade less frequently and in
smaller volume than  exchange-listed  stocks. The securities of companies traded
in the OTC  market  may  also be more  sensitive  to  market  changes  than  the
securities  of  exchange-listed  companies.  The Fund is suitable only for those
investors  who are  willing  and  able  to  assume  the  risks  inherent  in its
investment program.                                                             

  Although it is not the policy of the Fund to invest in securities of companies
with no operating history,  as much as 10% of the value of the Fund's net assets
may be invested in  securities  of companies  with an operating  history of less
than three years. Investments in the securities of such unseasoned companies may
involve a higher degree of risk than investments in securities of companies with
longer operating histories.                                                     

  Investing in securities of foreign  issuers  generally  involves  greater risk
than investing in securities of domestic issuers for the following reasons:  (1)
there may be less public  information  available about foreign companies than is
available about U.S. companies;  (2) foreign companies are not generally subject
to the uniform  accounting,  auditing  and  financial  reporting  standards  and
practices  applicable  to U.S.  companies;  (3) foreign  stock markets have less
volume than the U.S.  market,  and the securities of some foreign  companies are
much less liquid and much more volatile than the  securities of comparable  U.S.
companies;  (4) foreign  securities  transactions  may involve higher  brokerage
commissions;  (5)  there may be less  government  regulation  of stock  markets,
brokers,  listed companies and banks in foreign  countries than in the U.S.; (6)
the 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;  and (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 and the  People's  Republic of
China,  there is the risk that those  countries  could  convert back to a single
economic structure.                                                             

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

  Investing  in  ADRs  carries  almost  all of the  risks  of  investing  in the
underlying  foreign  securities  themselves,  and therefore an investment in the
Fund involves greater risk than investing in a fund with a portfolio  consisting
solely of securities issued by domestic companies.                              

  If and when the Fund invests in zero coupon bonds, the Fund does not expect to
have enough zero coupon bonds to have a material  effect on dividends.  The Fund
has  undertaken  to a state  securities  authority to disclose  that zero coupon
securities  pay no interest to holders  prior to  maturity,  and the interest on
these  securities  is  reported  as  income to the Fund and  distributed  to its
shareholders.  These  distributions must be made from the Fund's cash assets or,
if necessary, from the proceeds of sales of portfolio securities.  The Fund will
not be able to purchase additional income producing securities with cash used to
make such  distributions  and its current income  ultimately may be reduced as a
result.                                                                         

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

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

PRICING SHARES                                                                  
  The net asset value of a Fund share is computed each day on which the New York
Stock  Exchange  (the  "Exchange")  is open as of the  close of  trading  on the
Exchange  (currently  4:00 p.m.  Eastern  time for the  purpose of pricing  fund
shares)  except  on days  when  changes  in the  value of the  Fund's  portfolio
securities do not affect the current net asset value of its shares. The Exchange
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.                                               

  For the  purposes  of  calculating  the net asset value of a Fund share on any
given day, securities traded on national securities exchanges or reported on the
National   Association  of  Securities   Dealers'  Automated   Quotation  System
("NASDAQ")  National  Market are valued at the last sale price. If there were no
transactions  on that day,  securities will be valued at the mean of the closing
bid and  asked  prices or at such  other  value as shall be  determined  in good
faith, by or under the direction of the Fund's Board of Trustees, to be the fair
market  value of such  securities.  Commercial  paper is valued  at cost,  which
approximates market.                                                            

  Other  securities,  including  unlisted  securities,  are  valued  at the last
reported  bid price if such  prices are  available.  Prices for such  securities
areconsidered  to be unavailable if, for example,  the securities are restricted
securities,  or if  there  exists a "thin  market"  in the  securities.  In such
situations, the value is determined in good faith by, or under the direction of,
the Fund's Board of Trustees.                                                   

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 on October 31 of such calendar  year.  Any
taxable distribution would be (1) declared in October,  November, or December to
shareholders  of record in such a month,  (2) paid by the following  January 31,
and (3) includable in the taxable income of  shareholders  for the year in which
such  distributions  were declared.  If the Fund qualifies and if it distributes
substantially all of its net investment income and net capital gains, if any, to
shareholders,  it will be relieved of any federal income tax liability. The Fund
will make  distributions from 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 Fund shares or, at the
shareholder's option, in cash. Such distributions may be reinvested at net asset
value without any sales charge.  Dividends and distributions are taxable whether
or not they are reimbursed. Income dividends, and net short-term gains dividends
are taxable as ordinary  income and net  long-term  gains 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.                   

FUND MANAGEMENT AND EXPENSES                                                    

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

INVESTMENT ADVISER                                                              
  Keystone,  the Fund's  investment  adviser,  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 Group, Inc.
("Keystone Group"), located at 200 Berkeley Street, Boston, Massachusetts       
02116-5034.                                                                     

  Keystone Group is a corporation  privately owned by current and former members
of  management  of Keystone  and its  affiliates.  The shares of Keystone  Group
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,
Roger T. Wickers,  Edward F. Godfrey and Ralph J. Spuehler,  Jr.  Keystone Group
provides  accounting,   bookkeeping,  legal,  personnel  and  general  corporate
services to Keystone its affiliates and the Keystone Group of Mutual Funds.     

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

  The Advisory  Agreement  provides that, for its services to the Fund, the Fund
pays Keystone a basic  monthly fee at the  following  annual rates of the Fund's
average  daily net asset  value  during the  latest 12 months (a moving  average
method):  1% of such net assets up to and including  $100,000,000,  .90% of such
net assets over $100,000,000 up to and including $200,000,000,  .80% of such net
assets over  $200,000,000  up to and  including  $300,000,000,  .70% of such net
assets over $300,000,000 up to and including $400,000,000,  and .65% of such net
assets over $400,000,000.                                                       

  Under the  Advisory  Agreement,  the basic  management  fee is  subject  to an
incentive adjustment, by which the basic fee may be increased or decreased by up
to 1/2 of 1% of the average  daily net asset value of the Fund during the latest
12 months (a moving average method) of the Fund, depending on the performance of
the Fund relative to the Standard and Poor's Index of 500 Stocks ("S&P 500").   

  A fee of 1% or more is  higher  than the fees  paid by most  other  investment
companies.                                                                      

  For the fiscal  year ended  September  30,  1994,  the Fund paid or accrued to
Hartwell Keystone  Advisers,  Inc.  ("Hartwell  Keystone"),  which served as the
Fund's  investment  adviser prior to January 30, 1995,  $1,452,834 in management
fees which represented 0.97% of the Fund's average net assets.                  

  The Advisory Agreement contains  provisions  permitting Keystone to enter into
an agreement with Hartwell,  under which  Hartwell,  as Subadviser,  would,  for
compensation paid by Keystone,  provide  substantially all the advisory services
to be provided by Keystone under the Advisory  Agreement,  and would delegate to
Hartwell  substantially  all of Keystone's  rights,  duties and  obligations  to
provide investment advisory services under the Advisory Agreement.  Keystone has
entered into such an agreement with Hartwell.                                   

  The Advisory  Agreement  provides  that it will  continue  only if approved at
least  annually  by the Board of Trustees of the Fund or by a vote of a majority
of the outstanding  Shares,  and such renewal has been approved by the vote of a
majority of the Independent  Trustees cast in person at a meeting called for the
purpose of voting on such  approval.  The Advisory  Agreement may be terminated,
without  penalty,  on 60 days'  written  notice by the Board of Trustees or by a
vote of a majority  of the  outstanding  Shares.  The  Advisory  Agreement  will
terminate  automatically  upon its  "assignment"  as that term is defined in the
1940 Act.                                                                       

SUB-ADVISER                                                                     
  Hartwell, the Fund's subadviser,  located at 515 Madison Avenue, New York, New
York 10022, is a majority owned subsidiary of JMH Management Corporation.       

  Under the SubInvestment Advisory Agreement ("Subadvisory Agreement"), Hartwell
provides the Fund and Keystone with investment research, advice, information and
recommendations concerning securities to be acquired, held or sold by the Fund. 

  For its services for each calendar  month,  Hartwell  receives from  Keystone,
after  calculation  of the monthly fee due  Keystone,  40% of  Keystone's  basic
monthly  management  fee as described  above on all assets and 60% of Keystone's
incentive adjustment as described above on all assets,  provided that Hartwell's
total fee will always equal at least 25% of the  combined  total fee paid by the
Fund. The Fund has no responsibility to pay Hartwell's fee.                     

  For the fiscal  year ended  September  30,  1994,  Hartwell  Keystone  paid or
accrued to Hartwell Management $500,516 for its services as subadviser under the
former SubInvestment Advisory Agreement,  which has been replaced on January 30,
1995,  and  which  provided  for a  different  subadvisory  fee  payable  by the
investment adviser to the subadviser.                                           

  The Subadvisory  Agreement is  automatically  renewed for successive  one-year
periods  unless  either  party to it has given the  other at least  sixty  days'
written  notice of its intention to terminate the  Subadvisory  Agreement at the
end of  the  contract  period  then  in  effect,  provided,  however,  that  the
continuation of the Subadvisory  Agreement for more than two years is subject to
the receipt of annual  approvals of the Fund's Board of Trustees or stockholders
in  accordance  with the  1940 Act and the  rules  thereunder.  The  Subadvisory
Agreement may be terminated at any time, without penalty, by the Fund's Board of
Trustees or a majority of the Fund's  outstanding  Shares,  on 60 days'  written
notice to Hartwell. The Subadvisory Agreement automatically  terminates upon its
"assignment" (as defined in the 1940 Act) by either party.                      

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

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  Trustees;
expenses of its transfer,  dividend disbursing and shareholder  servicing agent;
its custodian and its independent auditors; fees charged by legal counsel to its
Board of Trustees;  fees payable to government agencies,  including registration
and  qualification  fees of the Fund and its  shares  under  federal  and  state
securities laws; and certain  extraordinary  expenses.  In addition,  each class
will pay all of the expenses  attributable  to it. Such  expenses are  currently
limited  to  Distribution  Plan  expenses.  The Fund  also  pays  its  brokerage
commissions, interest charges and taxes. For the fiscal year ended September 30,
1994, the Fund's Class A, Class B and Class C shares paid 1.80%, 2.49% and 2.47%
of their average net assets in expenses, respectively.                          

  Keystone  has agreed to  reimburse  the Fund  annually  for certain  operating
expenses  incurred by the Fund in excess of the applicable  state expense limit.
Hartwell is not required to make such reimbursement,  however, to an extent that
would  result in the  Fund's  inability  to qualify  as a  regulated  investment
company under provisions of the Internal Revenue Code.                          

  For the fiscal  year ended  September  30,  1994,  the Fund paid or accrued to
Keystone Investor Resource Center, Inc. ("KIRC"),  the Fund's transfer agent and
dividend  disbursing  agent and Keystone Group,  $18,215 for the cost of certain
accounting   services  and  $685,853  for  shareholder   services.   KIRC  is  a
wholly-owned subsidiary of Keystone.                                            

PORTFOLIO MANAGER                                                               
  John M. Hartwell is one of the investment  industry's  best known growth stock
managers.  He is the founder of Hartwell and portfolio manager of the Fund, with
more than 56 years of investment management experience.                         

SECURITIES TRANSACTIONS                                                         

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

  The Fund may pay higher  commissions to broker-dealers  which provide research
services.  Keystone  and/or Hartwell may use these services in advising the Fund
as well as in advising their other clients.                                     

PORTFOLIO TURNOVER                                                              
  The Fund's  portfolio  turnover rates for the fiscal years ended September 30,
1993 and 1994 were 155% and 156%,  respectively.  High  portfolio  turnover  may
involve  correspondingly  greater brokerage  commissions and other  transactions
costs, which would be borne directly by the Fund, as well as additional realized
gains and/or losses to shareholders. For further information about brokerage and
distributions, see the statement of additional information.                     

HOW TO BUY SHARES                                                               
  Shares of the Fund may be purchased from any broker-dealer  that has a selling
agreement  with  Keystone  Distributors,  Inc.  ("KDI"),  the  Fund's  principal
underwriter.  KDI, a  wholly-owned  subsidiary  of  Keystone,  is located at 200
Berkeley Street, Boston, Massachusetts 02116-5034.                              

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

  Orders for the purchase of shares of the Fund will be confirmed at an offering
price equal to the net asset value per share next  determined  after  receipt of
the order in proper form by KDI  (generally  as of the close of the  Exchange on
that day) plus, in the case of Class A shares, the sales charge. Orders received
by dealers or other firms prior to the close of the Exchange and received by KDI
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  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 shareholders will receive
the offering  price which is the net asset value per share next  computed  after
the Fund receives the purchase  order plus,  in the case of Class A shares,  the
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 sales  charge when they are  redeemed  (except  that
shares  sold in a single  purchase in excess of  $1,000,000  without a front end
sales  charge  will be subject to a  contingent  deferred  sales  charge for one
year).                                                                          

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  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 KDI.                 

  Each  class of  shares,  pursuant  to its  Distribution  Plan,  pays an annual
service fee of 0.25% of the Fund's average daily net assets attributable to that
class.  In addition to the 0.25%  service  fee,  the Class B and C  Distribution
Plans  provide for the payment of an annual  distribution  fee of up to 0.75% of
the average 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  valueplus an initial  sales charge as
follows:                                                                        

                                                        · Enlarge/Download Table


                                                                   AS A % OF          CONCESSION TO
                                                   AS A % OF      NET AMOUNT      DEALERS AS A % OF
AMOUNT OF PURCHASE                            OFFERING PRICE       INVESTED<F1>     AMOUNT INVESTED
---------------------------------------------------------------------------------------------------
                                                                                                   
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%    
$1,000,000 and over<F2>.................                  0%              0%              0.25%    
---------                                                                                          
<FN>                                                                                               
<F1>Rounded to the nearest one-hundredth percent.                                                  
<F2>Purchases of $1,000,000 or more may be subject to acontingent deferred sales                   
    charge of 0.25%. See "Calculation of Contingent Deferred Sales Charge and                      
    Waiver of Sales Charges".                                                                      


-------------------------------------   

  The sales charge is paid to KDI 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 outstanding shares of Class A sold by your dealer.               

  Upon  written  notice to dealers with whom it has dealer  agreements,  KDI 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  managed  fee based  program  (a "wrap  account")  through
broker/dealers  who have entered into special agreements with KDI. 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 KDI, 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 (i) paid a front end sales charge,  or (ii) 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 through June 30, 1995 ("offering  period")
and upon prior notification to Keystone  Distributors,  Inc., 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 (i) paid a front end
sales  charge,  or (ii) was at some time subject to, but did not actually pay, a
contingent deferred sales charge with respect to the redemption proceeds.       

  With  certain  exceptions,  purchases  of  Class A  shares  in the  amount  of
$1,000,000  or more on which no sales  charge has been paid will be subject to a
contingent  deferred sales charge of 0.25% upon  redemption  during the one year
period  commencing  on the  date  the  shares  were  originally  purchased.  The
contingent  deferred  sales  charge is  retained  by KDI.  See  "Calculation  of
Contingent Deferred Sales Charge and Waiver of Sales Charges" below.            

CLASS A DISTRIBUTION PLAN                                                       
  The Fund has adopted a  Distribution  Plan with  respect to its Class A shares
("Class A Distribution  Plan"),  which provides for payments which are currently
limited  to 0.25%  annually  of the  average  daily net  asset  value of Class A
shares,  in connection with the  distribution of Class A shares.  Payments under
the Class A  Distribution  Plan are currently made to KDI (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 specific 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 KDI.  Amounts  received by KDI under the
Class B Distribution Plan are reduced by deferred sales charges retained by KDI.
See  "Calculation  of  Contingent  Deferred  Sales  Charge  and  Waiver of Sales
Charges" below.                                                                 

  Class B shares which 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"), which 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.  Payments  under the Class B
Distribution  Plan are  currently  made to KDI (which may reallow all or part to
others,  such as  dealers)  (1) as  commissions  for Fund shares sold and (2) as
shareholder  service  fees.  Amounts paid or accrued to KDI under (1) and (2) in
the  aggregate  may not exceed  the annual  limitation  referred  to above.  KDI
generally  reallows to brokers or others a  commission  equal to 3% of the price
paid for each Fund share sold the shareholder  service fee, which is paid at the
rate of 0.25%  per  annum of the net asset  value of  shares  maintained  by the
recipients  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 KDI. 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 KDI. See
"Calculation  of Contingent  Deferred  Sales Charge and Waiver of Sales Charges"
below.                                                                          

CLASS C DISTRIBUTION PLAN                                                       
  The Fund has adopted a  Distribution  Plan with  respect to its Class C shares
("Class C Distribution  Plan"), which 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  of the  distribution  of Class C  shares.  Payments  under the Class C
Distribution  Plan are  currently  made to KDI (which may reallow all or part to
others,  such as  dealers)  (1) as  commissions  for Fund shares sold and (2) as
shareholder  service  fees.  Amounts paid or accrued to KDI under (1) and (2) in
the  aggregate  may not exceed  the annual  limitation  referred  to above.  KDI
generally  reallows to brokers or others a commission  in the amount of 0.75% of
the price paid for each Fund share sold,  plus the first  year's  service fee in
advance in the amount of 0.25% of the price paid for each Fund 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 shares maintained by the recipients outstanding
on the books of the Fund for specified periods. See "Distribution Plans" below. 

CALCULATION OF 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 cost of such shares.  No contingent
deferred  sales  charge is imposed  when you  redeem  amounts  derived  from (1)
increases in the value of your account  above the net cost of such shares due to
increases in the net asset value per share of the Fund;  (2) certain shares with
respect to which the Fund did not pay a commission on issuance, including shares
acquired   through   reinvestment   of  dividend   income  and   capital   gains
distributions;  (3) Class C shares and certain Class A shares held for more than
one year from the date of purchase;  or (4) Class B shares held during more than
four consecutive calendar years. Upon request for redemption, shares not subject
to the  contingent  deferred  sales charge will be redeemed  first.  Thereafter,
shares held the longest will be the first to be redeemed.                       

  The Fund also may 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 Trustees,  Trustees, officers and employees of the Fund and Keystone and
certain of their affiliates, to registered  representatives of firms with dealer
agreements  with KDI and to a bank or trust  company  acting as a trustee  for a
single account.                                                                 

  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  or (5)  automatic  withdrawals  under an  automatic
withdrawal plan of up to 1 1/2% per month of the  shareholder's  initial account
balance.                                                                        

ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS                                     
  KDI  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 the
Fund.  In  addition,  dealers  may from  time to time  receive  additional  cash
payments.  KDI 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.           

  KDI 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
KDI. 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 up to .25% of the
value of shares sold by such dealer.                                            

  KDI also may pay banks and other  financial  services  firms  that  facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the payments  made  allowable to dealers for the sale of such shares as
described above.                                                                

  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                                                              
  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 rule limits the amount that a Fund may pay  annually in  distribution
costs for the 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 Distribution Plan, plus interest at
the prime rate plus 1% per annum on such amounts (less any  contingent  deferred
sales charges paid by shareholders to KDI), remaining unpaid from time to time. 

  KDI intends,  but is not obligated,  to continue to pay or accrue distribution
charges  incurred in connection with the Class B Distribution  Plan which exceed
current  annual  payments  permitted  to be received  by KDI from the Fund.  KDI
intends to seek full payment of such charges from the Fund (together with annual
interest  thereon at the prime rate plus one percent) at such time in the future
as,  and to the  extent  that,  payment  thereof by the Fund would be within the
permitted limits.                                                               

  Each of the  Distribution  Plans may be  terminated at any time by vote of the
Independent  Trustees or by vote of a majority of the outstanding  voting shares
of  the  respective  class.  However,  after  the  termination  of the  Class  B
Distribution Plan, KDI would be entitled to receive payment,  at the annual rate
of 1.00% of the average daily net asset value of Class B shares, as compensation
for its  services  which had been  earned at any time  during  which the Class B
Distribution Plan was in effect.  Unreimbursed  distribution  costs at September
30,  1994 for Class B shares  were  $252,738  (6.65%  of Class B's net  assets).
Unreimbursed  distribution  costs at September  30, 1994 for Class C shares were
$114,705 (6.83% of Class C's net assets).                                       

  For the fiscal year ended  September  30,  1994,  the Fund paid KDI  $272,925,
$24,517  and $10,873  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 then 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 you must have completed 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 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.                                     

REDEMPTION OF SHARES IN GENERAL                                                 
  At various times,  the Fund may be requested to redeem shares for which it has
not yet received good payment. In such a case, the Fund will mail the redemption
proceeds upon clearance of the purchase check, which may take 15 days. Any delay
may be avoided by purchasing  shares either with a certified check or by Federal
Reserve  or bank wire of funds or EFT.  Although  the  mailing  of a  redemption
check, 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 will be made within seven days thereafter except
as discussed herein.                                                            

  You may also redeem your shares through  broker-dealers.  KDI, 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 KDI has received  proper  documentation,  it will pay the redemption
proceeds to the  broker-dealer  placing the order within seven days  thereafter.
KDI charges no fees for this service.  However,  your broker-dealer 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  PERSON  ELIGIBLE TO  GUARANTEE  SIGNATURES  UNDER THE  SECURITIES
EXCHANGE  ACT OF 1934 AND  KIRC'S  POLICIES.  The Fund or KIRC  may  waive  this
requirement  but  may  also  require  additional  documents  in  certain  cases.
Currently,  the  requirement  for a  signature  guarantee  has  been  waived  on
redemptions of $50,000 or less where the account  address of record has been the
same for a minimum  period of 30 days.  The Fund and KIRC  reserve  the right to
withdraw this waiver at any time.                                               

  If the Fund receives a redemption 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.                      

  The Fund has the right, at any time and without prior notice to a shareholder,
to redeem shares held in any account  registered in the name of such shareholder
at  current  net  asset  value if and to the  extent  that  such  redemption  is
necessary to reimburse the Fund for any loss  sustained by reason of the failure
of such  shareholder  to make full  payment for shares of the Fund  purchased or
subscribed.  The Fund  may  exercise  such  right  regardless  of  whether  such
shareholder was already an existing  shareholder of the Fund at the time of such
purchase or subscription.                                                       

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.                  

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  KDI  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 KDI 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.                                   

SMALL ACCOUNTS                                                                  
  Because of 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.             

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

REDEMPTION OF CERTAIN CLASS A SHARES                                            
  Certain  purchases of Class A shares in the amount of  $1,000,000  or more, on
which no  initial  sales  charge  has been paid,  are  subject  to a  contingent
deferred sales charge of 0.25%. See the section entitled "Class A Shares".      

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 shareholders specific fund account information and price and yield
quotations  as well as the  ability to effect  account  transactions,  including
investments, exchanges and redemptions.  Shareholders may access KARL by dialing
toll free 1-800-345-3858 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 where the original purchase was for $1,000,000 or more   
and no sales charge was paid,                                                   

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

(iii) Class C shares which 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. 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  shares of the Fund for shares of KLT will be  executed by
redeeming the shares of the Fund and  purchasing  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 only  available 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
account.  Once proper  authorization is given, your bank account will be debited
to purchase shares in the Fund. You will receive confirmation from KDI for every
transaction.                                                                    

  To change the amount of a Keystone  America Money Line service or to terminate
such service (which could take up to 30 days),  you must write to KIRC, P.O. Box
2121, Boston, Massachusetts 02106-2121, and include your 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 Pension Plans; and  Salary-Reduction  Plans. For details,
including feesand  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. 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, which
may cause a lower  average  cost per  share  than a less  systematic  investment
approach.                                                                       

  Prior to participating in dollar cost averaging,  you must have established an
account in a Keystone  America Fund or a money market fund managed or advised by
Keystone.  You should  designate on the  application  the dollar  amount of each
monthly or quarterly  investment (minimum $100) you wish to make and the fund in
which  the  investment  is to be  made.  Thereafter,  on  the  first  day of the
designated  month,  an  amount  equal  to the  specified  monthly  or  quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund. If you are a Class A investor and paid a sales
charge on your  initial  purchase,  the shares  purchased  will be eligible  for
Rights of Accumulation  and the sales charge  applicable to the purchase will be
determined  accordingly.  In  addition,  the value of shares  purchased  will be
included in the total amount required to fulfill a Letter of Intent.  If a sales
charge was not paid on the initial  purchase,  a sales charge will be imposed at
the time of subsequent purchases,  and the value of shares purchased will become
eligible for Rights of Accumulation and Letters of Intent.                      

TWO DIMENSIONAL INVESTING                                                       
  You may elect to have income and capital gains  distributions from any of your
Keystone America Funds automatically  invested to purchase Class A shares of any
other Keystone  America Fund. You may select this service on the 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 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 when advertising or marketing the Fund's shares, such as data from Lipper
Analytical Services, Inc., Morningstar, Inc., and 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 Trustees may designate as class expenses from time to
time,  are borne  solely by each class;  (2) each class of shares has  exclusive
voting  rights  with  respect  to its  Distribution  Plan,  (3) each  class  has
different  exchange  privileges and (4) each class 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 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 prescribed by Section 16(c) of the 1940 Act.                  

  Under  Massachusetts  law, it is possible that a Fund  shareholder may be held
personally liable for the Fund's  obligations.  The Fund's  Declaration of Trust
provides,  however,  that  shareholders  shall not be  subject  to any  personal
liability  for the Fund's  obligations  and provides  indemnification  from Fund
assets for any shareholder  held personally  liable for the Fund's  obligations.
Disclaimers of such liability are included in each Fund agreement.              

ADDITIONAL INFORMATION                                                          
  KIRC, located at 101 Main Street,  Cambridge,  Massachusetts  02142-1519, is a
wholly-owned  subsidiary of Keystone 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.                                                              

485APOS
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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.        

OBLIGATIONS OF FOREIGN BRANCHES OF UNITED STATES BANKS                          
  The obligations of foreign  branches of U.S. banks may be general  obligations
of the parent bank in addition to the issuing  branch,  or may be limited by the
terms of a specific obligation and by government regulation. Payment of interest
and principal upon these obligations may also be affected by governmental action
in the  country of domicile of the branch  (generally  referred to as  sovereign
risk).  In  addition,  evidences of  ownership  of such  securities  may be held
outside the U.S., and the Fund may be subject to the risks  associated  with the
holding of such property overseas. Examples of governmental actions would be the
imposition  of  currency  controls,  interest  limitations,  withholding  taxes,
seizure of assets or the  declaration  of a  moratorium.  Various  provisions of
federal law  governing  domestic  branches  do not apply to foreign  branches of
domestic banks.                                                                 

OBLIGATIONS OF UNITED STATES BRANCHES OF                                        
FOREIGN BANKS                                                                   
  Obligations  of U.S.  branches of foreign banks may be general  obligations of
the parent  bank in addition  to the  issuing  branch,  or may be limited by the
terms of a specific obligation and by federal and state regulation as well as by
governmental  action  in the  country  in which  the  foreign  bank has its head
office. In addition,  there may be less publicly  available  information about a
U.S. branch of a foreign bank than about a domestic bank.                       

MASTER DEMAND NOTES                                                             
  Master demand notes are unsecured  obligations  that permit the  investment of
fluctuating  amounts by the Fund at varying rates of interest pursuant to direct
arrangements  between the Fund, as lender,  and the issuer, as borrower.  Master
demand  notes may  permit  daily  fluctuations  in the  interest  rate and daily
changes in the amounts  borrowed.  The Fund has the right to increase the amount
under the note at any time up to the full amount  provided by the note agreement
or to decrease  the amount.  The borrower may repay up to the full amount of the
note  without  penalty.  Notes  purchased  by the Fund permit the Fund to demand
payment of  principal  and accrued  interest at any time (on not more than seven
days notice) and to resell the note at any time to a third party. Notes acquired
by the Fund may have  maturities  of more than one year,  provided  that (1) the
Fund is entitled to payment of principal and accrued interest upon not more than
seven  days  notice,  and (2) the rate of  interest  on such  notes is  adjusted
automatically at periodic intervals, which normally will not exceed 31 days, but
may extend up to one year.  The notes are deemed to have a maturity equal to the
longer of the period  remaining  to the next  interest  rate  adjustment  or the
demand  notice  period.   Because  these  types  of  notes  are  direct  lending
arrangements between the lender and borrower,  such instruments are not normally
traded and there is no  secondary  market  for these  notes,  although  they are
redeemable  and thus  repayable  by the  borrower  at face  value  plus  accrued
interest at any time.  Accordingly,  the Fund's  right to redeem is dependent on
the  ability of the  borrower  to pay  principal  and  interest  on  demand.  In
connection  with master  demand note  arrangements,  Keystone  considers,  under
standards  established by the Board of Trustees,  earning  power,  cash flow and
other  liquidity  ratios of the  borrower  and will  monitor  the ability of the
borrower to pay principal and interest on demand.  These notes are not typically
rated by credit rating agencies. Unless rated, the Fund will invest in them only
if at the time of an investment  the issuer meets the criteria  established  for
commercial paper.                                                               

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

REVERSE REPURCHASE AGREEMENTS                                                   
  Under a reverse repurchase agreement, the Fund would sell securities and agree
to repurchase them at a mutually agreed upon date and price. The Fund intends to
enter into  reverse  repurchase  agreements  to avoid  otherwise  having to sell
securities during unfavorable market conditions in order to meet redemptions. At
the time the Fund enters into a reverse repurchase agreement,  it will establish
a segregated account with the Fund's custodian containing liquid assets having a
value not less than the repurchase price (including  accrued  interest) and will
subsequently  monitor the account to ensure  such value is  maintained.  Reverse
repurchase  agreements  involve the risk that the market value of the securities
that the Fund is obligated to repurchase may decline below the repurchase price.
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 Securities and Exchange Commission
has taken the position that the reverse repurchase agreements are subject to the
percentage limit on borrowings imposed under the 1940 Act.                      

FOREIGN SECURITIES                                                              
  The Fund may invest in securities  principally  traded in  securities  markets
outside the U.S.  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,
particularily emerging market country companies,  than about a U.S. company, and
foreign  companies  may not be subject to  accounting,  auditing  and  financial
reporting  standards and  requirements  comparable  to those  applicable to U.S.
companies. Securities of some foreign companies are less liquid or more volatile
than  securities  of U.S.  companies,  and  foreign  brokerage  commissions  and
custodian fees are generally  higher than in the United  States.  Investments in
foreign  securities  may also be subject  to other  risks  different  from those
affecting U.S. investments,  including local political or economic developments,
particularly  with respect to companies in the formerly  communist  countries of
Eastern   Europe  and  the  People's   Republic  of  China,   expropriation   or
nationalization  of assets,  imposition  of  withholding  taxes on  dividend  or
interest  payments and currency  blockage  (which would  prevent cash from being
brought back to the U.S.).                                                      

  The  Fund  may  purchase  American  Depositary  Receipts  ("ADRs").  ADRs  are
negotiable certificates issued by a United States ("U.S.") bank representing the
right to receive  securities  of a foreign  issuer  deposited  in that bank or a
foreign correspondent bank. The Fund may invest in ADRs representing  securities
of issuers  located  in  developed  countries  as well as the  emerging  markets
countries. Although the ADRs in which the Fund invests are typically listed on a
major U.S. exchange, there are variations as to marketability.                  

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.  The bonds mature on the payment dates of
the interest or principal which they  represent.  Each zero coupon bond entitles
the  holder to  receive a single  payment  at  maturity.  There are no  periodic
interest  payments  on a zero  coupon  bond.  Zero  coupon  bonds are offered at
discounts from their face amounts.                                              

  In general,  owners of zero coupon bonds have substantially all the rights and
privileges  of  owners  of  the  underlying  coupon   obligations  or  principal
obligations.  Owners of zero  coupon  bonds have the right  upon  default on the
underlying coupon  obligations or principal  obligations to proceed directly and
individally against the issuer and are not required to act in concert with other
holders of zero coupon bonds.                                                   

  For federal  income tax purposes,  a purchaser of principal  zero coupon bonds
(either  initially  or in the  secondary  market) is treated as if the buyer had
purchased a corporate  obligation  issued on the purchase  date with an original
issue  discount  equal to the excess of the amount  payable at maturity over the
purchase  price.  The  purchaser  is  required  to take into income each year as
ordinary  income  an  allocaable  portion  of  such  discounts  determined  on a
"constant  yield" method.  Any such income  increases the holder's tax basis for
the zero coupon  bond,  and any gain or loss on a sale of the zero coupon  bonds
relative to the holder's  basis,  as so adjusted,  is a capital gain or loss. If
the holder owns zero coupon bonds representing  separate interests in the coupon
(interest) payments and the principal payments from the same underlying issue of
securities, a special basis allocation rule (requiring the aggregate basis to be
allocated  among the items sold and retained based on their relative fair market
value at the time of sale) may apply to determine  the gain or loss on a sale of
any such zero coupon bonds.                                                     

"WHEN ISSUED" SECURITIES                                                        
  The Fund may also purchase and sell securities and currencies on a when issued
and delayed delivery basis. When issued or delayed delivery  transactions  arise
when securities or currencies are purchased or sold by the Fund with payment and
delivery  taking place in the future in order to secure what is considered to be
an  advantageous  price and yield to the Fund at the time of  entering  into the
transaction.  When  the  Fund  engages  in  when  issued  and  delayed  delivery
transactions,  the Fund  relies on the buyer or  seller,  as the case may be, to
consummate  the  sale.  Failure  to do so may  result  in the Fund  missing  the
opportunity  to  obtain a price or yield  considered  to be  advantageous.  When
issued and  delayed  delivery  transactions  may be expected to occur a month or
more before delivery is due. No payment or delivery is made by the Fund however,
until it receives payment or delivery from the other party to the transaction. A
separate  account  of  liquid  assets  equal  to  the  value  of  such  purchase
commitments  will be maintained  until payment is made.  When issued and delayed
delivery  agreements  are  subject  to risks from  changes  in value  based upon
changes in the level of interest rates, currency rates and other market factors,
both  before  and after  delivery.  The Fund does not  accrue any income on such
securities or currencies prior to their delivery. To the extent the Fund engages
in when issued and delayed delivery transactions,  it will do so consistent with
its  investment  objective  and policies  and not for the purpose of  investment
leverage.  The Fund  currently  does not  intend to  invest  more than 5% of its
assets in when issued or delayed delivery transactions.                         

LOANS OF SECURITIES TO BROKER-DEALERS                                           
  The Fund may lend  securities  to brokers and dealers  pursuant to  agreements
requiring  that the loans be  continuously  secured by cash or securities of the
U.S. government,  its agencies or instrumentalities,  or any combination of cash
and such  securities,  as collateral equal at all times in value to at least the
market value of the securities  loaned.  Such securities  loans will not be made
with  respect  to the Fund if, as a result,  the  aggregate  of all  outstanding
securities  loans  exceeds 15% of the value of the Fund's  total assets taken at
their current value.  The Fund continues to receive interest or dividends on the
securities  loaned and  simultaneously  earns  interest on the investment of the
cash loan  collateral in U.S.  Treasury notes,  certificates  of deposit,  other
high-grade,   short-term  obligations  or  interest  bearing  cash  equivalents.
Although voting rights attendant to securities loaned pass to the borrower, such
loans may be called at any time and will be called so that the securities may be
voted by the Fund if, in the opinion of the Fund, a material event affecting the
investment  is to  occur.  There may be risks of delay in  receiving  additional
collateral or in recovering the securities  loaned or even loss of rights in the
collateral  should the borrower of the securities  fail  financially.  Loans may
only  be made to  borrowers  deemed  to be of  good  standing,  under  standards
approved  by the Board of  Trustees,  when the income to be earned from the loan
justifies the attendant risks.                                                  

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  riskattendant  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 arehighly 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 lossmay be  sustained  by the Fund as a
  result of the failure of a 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  existswhen  a  particular  instrument  is
  difficult to purchase or sell.  If a derivative  transaction  is  particularly
  large  or if the  relevant  market  is  illiquid  (as is the  case  with  many
  privately  negotiated  derivatives),  it may not be  possible  to  initiate  a
transaction or liquidate a position at an advantageous price.               
* Leverage  Risk -- Since many  derivativeshave  a leverage  component,  adverse
  changes  in the  value or level of the  underlying  asset,  rate or index  can
  result  in a loss  substantially  greater  than  the  amount  invested  in the
  derivative itself. In the case of swaps, the risk of loss generally is related
  to a notional principal amount,  even if the parties have not made any initial
  investment.  Certain  derivatives  have  the  potential  for  unlimited  loss,
regardless of the size of the initial investment.                           
* Other Risks -- Other risks in usingderivatives  include the risk of mispricing
  or improper valuation and the inability of derivatives to correlate  perfectly
  with underlying  assets,  rates and indices.  Many derivatives;  in particular
  privately negotiated  derivatives,  are complex and often valued subjectively.
  Improper  valuations  can result in  increased  cash payment  requirements  to
  counterparties  or a loss  of  value  to a  Fund.  Derivatives  do not  always
  perfectly or even highly correlate or track the value of the assets,  rates or
  indices they are designed to closely  track.  Consequently,  the Fund's use of
  derivatives  may not always be an effective  means of, and sometimes  could be
counterproductive to, furthering the Fund's investment objective.           

OPTIONS TRANSACTIONS                                                            
  WRITING COVERED OPTIONS.  The Fund may write (i.e., sell) covered call and put
options. 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 also may write  straddles
(combinations of covered puts and calls on the same underlying security).       

  The Fund may only write "covered" options. This means that so long as the Fund
is  obligated  as the  writer  of a call  option  it  will  own  the  underlying
securities  subject  to the  option  or,  in the  case of call  options  on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills. If
the Fund has written  options  against all of its securities  that are available
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  with its  custodian in a segregated  account  liquid  assets having a
value equal to or greater than the exercise price of the option.                

  The principal  reason for writing call or put options is to obtain,  through a
receipt of  premiums,  a greater  current  return  than would be realized on the
underlying  securities alone. The 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 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  or dispose of assets held in a segregated  account until the options
expire or are exercised.                                                        

  An option position may be closed out only in a secondary  market for an option
of the same series.  Although the Fund  generally  will write only those options
for which there appears to be an active secondary market,  there is no assurance
that a liquid  secondary  market  will  exist for any  particular  option at any
particular  time, and, for some options,  no secondary market may exist. In such
event, it might not be possible to effect a closing  transaction in a particular
option.                                                                         

  Options on some securities are relatively new, and it is impossible to predict
the amount of trading interest that will exist in such options.  There can be no
assurance  that viable  markets will  develop or  continue.  The failure of such
markets to develop or continue could significantly  impair the Fund's ability to
use such options to achieve its investment objective.                           

   OPTIONS  TRADING  MARKETS.  Options inwhich 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.  In  addition  to  the  limits  on its  use of  options
discussed herein, the Fund is subject to the investment  restrictions  described
in this prospectus and in the statement of additional information.              

  The staff of 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 policies on illiquid securities.     

FUTURES TRANSACTIONS                                                            
  The Fund may enter into  currency and other  financial  futures  contracts and
write options on such  contracts.  The Fund intends to enter into such contracts
and related options for hedging  purposes.  The Fund will enter into securities,
currency or index based futures  contracts in order to hedge against  changes in
interest  or  exchange  rates  or  securities  prices.  A  futures  contract  on
securities or currencies is an agreement to buy or sell securities or currencies
at a  specified  price  during a  designated  month.  A  futures  contract  on a
securities index does not involve the actual delivery of securities,  but merely
requires  the payment of a cash  settlement  based on changes in the  securities
index. The Fund does not make payment or deliver securities upon entering into a
futures contract.  Instead, it puts down a margin deposit,  which is adjusted to
reflect  changes  in the value of the  contract  and which  continues  until the
contract is terminated.                                                         

  The Fund may sell or purchase  futures  contracts.  When a futures contract is
sold by the Fund,  the value of the contract will tend to rise when the value of
the underlying  securities or currencies  declines and to fall when the value of
such securities or currencies increases.  Thus, the Fund sells futures contracts
in order  to  offset a  possible  decline  in the  value  of its  securities  or
currencies.  If a futures  contract is purchased  by the Fund,  the value of the
contract  will  tend to rise  when the  value of the  underlying  securities  or
currencies increases and to fall when the value of such securities or currencies
declines. The Fund intends to purchase futures contracts in order to fix what is
believed by Keystone to be a favorable  price and rate of return for  securities
or favorable exchange rate for currencies the Fund intends to purchase.         

  The Fund also intends to purchase  put and call  options on 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 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 related 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.  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.  The Fund has the ability to write options on futures,  but intends to
write such  options only to close out options  purchased  by the Fund.  The Fund
will not change these  policies  without  supplementing  the  information in its
prospectus and statement of additional information.                             

  FOREIGN  CURRENCY  TRANSACTIONS  As  discussed  above,  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 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 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  accurately  predict 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.
Although the Fund does not currently intend to do so, the Fund may also purchase
and sell  options  related  to foreign  currencies.  The Fund does not intend to
enter into foreign currency transactions for speculation or leverage.           

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                                                                       EXHIBIT A

REDUCED SALES CHARGES   

  Initial  sales   charges  may  be  reduced  or   eliminated   for  persons  or
organizations purchasing Class A shares of the Fund alone or in combination with
Class A shares of other Keystone America Funds.                                 

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

CONCURRENT PURCHASES                                                            
  For purposes of qualifying for a reduced sales charge, a Purchaser may combine
concurrent  direct  purchases of Class A shares of two or more of the  "Eligible
Funds," as defined  below.  For example,  if a Purchaser  concurrently  invested
$75,000 in one of the other "Eligible  Funds" and $75,000 in the Fund, the sales
charge  would be that  applicable  to a $150,000  purchase,  i.e.,  3.75% of the
offering price, as indicated in the Sales Charge Schedule in the Prospectus.    

RIGHT OF ACCUMULATION                                                           
  In calculating the sales charge  applicable to current purchases of the Fund's
Class A shares, a Purchaser is entitled to accumulate current purchases with the
current  value of  previously  purchased  Class A shares of the Fund and Class A
shares of certain other  eligible funds that are still held in (or exchanged for
shares of and are still held in) the same or another  eligible  fund  ("Eligible
Fund(s)"). The Eligible Funds are the Keystone America Funds and Keystone Liquid
Trust.                                                                          

  For example,  if a Purchaser  held shares  valued at $99,999 and  purchased an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales  charge of 3.75% of the  offering  price as  indicated  in the Sales
Charge  schedule.  KIRC  must be  notified  at the  time of  purchase  that  the
Purchaser is entitled to a reduced sales charge, which reduction will be granted
subject to confirmation of the Purchaser's  holdings.  The Right of Accumulation
may be modified or discontinued at any time.                                    

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

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

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

  When the minimum  investment  specified  in the Letter of Intent is  completed
(either prior to or by the end of the thirteen-month period), the Purchaser will
be notified and the escrowed shares will be released. If the intended investment
is not  completed,  the Purchaser  will be asked to remit to KDI 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 KDI
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 KDI or KIRC that a Letter of Intent is
in effect each time a purchase is made.                                         

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KEYSTONE AMERICA                    
FAMILY OF FUNDS                     
*                     
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, Inc.                    
Omega Fund, Inc.                    
Fund of the Americas                    
Strategic Development Fund                    

[Logo] KEYSTONE                     
Distributors, Inc.                    

200 Berkeley Street                     
Boston, Massachusetts 02116-5034                  

KEYSTONE                  
AMERICA                   

HARTWELL                  
EMERGING GROWTH FUND                  

[Logo]                  
PROSPECTUS AND                  
APPLICATION                   

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                                                        · Enlarge/Download Table
                                                      KEYSTONE AMERICA FUNDS                                                        
                                                                                                          APPLICATION               
------------------------------------------------------------------------------ -----------------------------------------            
Make check payable to the fund selected and mail with the application to Keystone, P.O. Box 2121, Boston, MA 02106-2121             
------------------------------------------------------------------------------ -----------------------------------------            
A.  FUND SELECTION Indicate investment amount and share class below. There is                                                       
                   a $1,000 minimum initial investment. If a class is not                                                           
                   indicated, your investment will be made in Class A shares.                                                       

                                                                                                                                    
                                       CLASS      AMOUNT                                           CLASS      AMOUNT                
INCOME                                                     TAX FREE INCOME                                                          
Capital Preservation and Income Fund --------  $ --------  Tax Free Income Fund                    --------  $ --------             
Government Securities Fund           --------  $ --------  Florida Tax Free Fund                   --------  $ --------             
Intermediate Term Bond Fund          --------  $ --------  Pennsylvania Tax Free Fund              --------  $ --------             
World Bond Fund                      --------  $ --------  Massachusetts Tax Free Fund             --------  $ --------             
Strategic Income Fund                --------  $ --------  New York Insured Tax Free Fund          --------  $ --------             
GROWTH & INCOME                                            Texas Tax Free Fund                     --------  $ --------             
Fund for Total Return                --------  $ --------  California Insured Tax Free Fund        --------  $ --------             
Fund of the Americas                 --------  $ --------  Missouri Tax Free Fund                  --------  $ --------             
MONEY MARKET                                               GROWTH                                                                   
Keystone Liquid Trust                --------  $ --------  Global Opportunities Fund               --------  $ --------             
                                                           Hartwell Emerging Growth Fund           --------  $ --------             
                                                           Hartwell Growth Fund                    --------  $ --------             
                                                           Omega Fund, Inc.                        --------  $ --------             
                                                           Strategic Development Fund              --------  $ --------             
If you have an existing Keystone account, please enter the account number here  >                                                   
------------------------------------------------------------------------------ -----------------------------------------            
B.  INVESTMENT DEALER                                                                                                               
------------------------------------------------------------------------------ -----------------------------------------            
Name of Broker/Dealer Firm           Rep/AE No.                 Last Name                       First Initial                       
------------------------------------------------------------------------------ -----------------------------------------            
Broker/Dealer Branch Office          Telephone Number           Investor's Account Number (if any) with your Firm                   
------------------------------------------------------------------------------ -----------------------------------------            
C.  SHAREHOLDER REGISTRATION (please print) For information about naming a beneficiary in your account registration, please         
    call Keystone.                                                                                                                  
Individual -------------------------------------------------------------------------------------------------------------            
  First Name                              Middle Initial        Last Name                   Social Security #                       
Joint Tenant -----------------------------------------------------------------------------------------------------------            
  First Name                              Middle Initial        Last Name                   Social Security #                       
Other ------------------------------------------------------------------------------------------------------------------            
             Name of Corporation, Organization, Fiduciary                                         Taxpayer I.D. #                   
              If trust give date of trust agreement: ------------------------------------------------------------------             
Uniform Gifts to Minors Act --------------------------------------------------------------------------------------------            
                                                                Custodian's Name                                                    
Uniform Transfers to Minors Act ----------------------------------------------------------------------------------------            
                                                                Custodian's Name                                                    
As Custodian for ----------------------------------------------- Under ------------------------------------------------             
                         Minor's Name                           Minor's Social Security #                  State                    
------------------------------------------------------------------------------------------------------------------------            
 Street Address                                                 City                      State        9-digit Zip Code             
Daytime Telephone (         )                                            Evening Telephone (         )                              
                  -----------------------------------------------------------------------------------------------------             
                   Area Code                                                               Area Code                                

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------------------------------------------------------------------------------------------------------------------------            
D.  DISTRIBUTIONS. Choose One (If no choice is indicated, distributions will be reinvested)                                         
[] Reinvest all income dividends and capital gains in additional shares         [] Pay all dividends and capital gains distributions
                                                                                   in cash (if payment is to be made to other than  
                                                                                   registered owner, identify in Section I).        
[] Invest my  dividends in another Keystone America Fund* ----------------      [] Pay all  dividends  in cash and reinvest         
                                                           Designate Fund          capital gains.                                   
[] Invest my capital gains in another Keystone America Fund* -------------                                                          
                                                           Designate Fund                                                           
*See "Two Dimensional Investing" under the "Shareholder Services" section of the Prospectus.                                        
------------------------------------------------------------------------------------------------------------------------            
E.  OPTIONAL SERVICES (please select by checking appropriate box)                                                                   
1.  Telephone Exchanges (1-800-343-2898)   [] Subject  to Prospectus provisions, I authorize  Keystone                              
                                              to accept my telephone  instructions to exchange my shares                            
                                              in any  Keystone  America  Fund for  shares  in any  other                            
                                              Keystone  America  Fund.  There is a  $10.00  fee for each                            
                                              exchange; however, if the exchange is made through KARL by                            
                                              an individual investor, there is no fee.                                              

                                           [] Subject to Prospectus provisions,  I authorize Keystone                               
                                              to accept telephone instructions from my financial adviser                            
                                              of record to  exchange my shares in any  Keystone  America                            
                                              Fund for shares of any other Keystone  America Fund. There                            
                                              is a $10.00  fee for each  exchange.                                                  
                                              Please  refer  to  the  Prospectus  for  a  more  complete                            
                                              description of telephone privileges.                                                  
------------------------------------------------------------------------------------------------------------------------            
2. Telephone Redemptions (1-800-343-2898)  [] Subject to Prospectus provisions, I authorize Keystone to                             
                                              accept my telephone instructions to redeem up to $50,000                              
                                              from my account in any Keystone America Fund and to                                   
                                              deposit the proceeds to my bank by electronic funds                                   
                                              transfer. Redemptions of less than $2,500 will be mailed                              
                                              by check. Only shares on deposit with Keystone can be                                 
                                              redeemed by telephone. 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.                                   
                                              (Please provide information on your bank in Section I.)                               

                                              Please  refer  to  the  Prospectus  for  a  more  complete                            
                                              description of telephone privileges.                                                  
------------------------------------------------------------------------------------------------------------------------            
3. Automatic Investments by                [] I wish to make automatic investments of $ ------------ in                             
   Electronic Funds Transfer                  my Keystone America Fund                                                              
   ($100 minimum)                          ----------------------------------------------------------------------------             
                                                                                Name of Fund                                        
[] Monthly. On [] the 5th or [] 20th day of each month, commencing ---------- 19 ---- or                                            
[] Quarterly. Every three months on the [] 5th or [] 20th day, commencing  ---------- 19 ----                                       
Please provide information on your bank in Section I. You must receive                                                              
notification from Keystone that your electronic transfer feature is active                                                          
before you make electronic transactions. This is normally 30 business days                                                          
after we receive your application.                                                                                                  
------------------------------------------------------------------------------ -----------------------------------------            
4. Automatic Withdrawals by Electronic Funds Transfer or Check. ($100 minimum                                                       
   per withdrawal; withdrawals may be as much as 1.5% per month or 4.5% per                                                         
   quarter of account asset value at time withdrawals commence.)                                                                    
[] Beginning  ---------- 19 ---- please  electronically  transfer to my bank the                                                    
   amount of $ --------- on the first day of each                                                                                   
[] month  or []  quarter  Please  allow  30  days  for payments to begin.  Please                                                   
   provide  information on your bank under Section I.                                                                               
[] I prefer to have checks sent to the registered                                                                                   
   owner's address.                                  [] Payment by check made to payee other than                                   
                                                        registered shareholders. Please identify in                                 
                                                        Section I.                                                                  
------------------------------------------------------------------------------ -----------------------------------------            
5. Dollar Cost Averaging     [] Monthly      [] Quarterly                                                                           
[] I authorize Keystone to withdraw $ ---------- ($100 minimum) from my Keystone America -----------------------------              
                                                                                                Designate Fund                      
   account  to  purchase  shares  of  Keystone   America   --------------------,                                                    
   beginning ---------- 1st, 19 -----------------.            Designate Fund                                                        
               Month                                                                                                                
------------------------------------------------------------------------------ -----------------------------------------            
F.  CHECKWRITING (Capital Preservation & Income Fund and Keystone Liquid Trust ONLY)                                                
[] Yes, I want free  checkwriting  ($500  minimum per check).  Please be sure to                                                    
fill out the attached signature card.                                                                                               

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------------------------------------------------------------------------------ -----------------------------------------            
G.  LETTER OF INTENT (Letter of Intent applies only to Class A shares)                                                              
[] I agree to the terms of the Letter of Intent set forth in the Prospectus  (including the escrowing of                            
   shares).  Although I am not  obligated to do so, it is my  intention to invest over a  thirteen-month                            
   period in shares of one or more Keystone America Funds in an aggregate amount at least equal to:                                 
      [] $50,000        [] $100,000        [] $250,000        [] $500,000          [] $1,000,000                                    

------------------------------------------------------------------------------ -----------------------------------------            
H.  RIGHTS OF ACCUMULATION (Rights of Accumulation applies only to Class A shares)                                                  
I qualify for Rights of Accumulation  as described in the  Prospectus.  Listed below are accounts in the                            
Keystone America Family of Funds which may entitle me to a reduced sales charge:                                                    
------------------------------------------------------------------------------------------------------------------------            
  Fund                                                                                                  Account Number              
------------------------------------------------------------------------------------------------------------------------            
  Fund                                                                                                  Account Number              
------------------------------------------------------------------------------------------------------------------------            
I. BANK AND PAYEE INFORMATION  IMPORTANT -- YOUR BANK MUST BE A MEMBER OF THE AUTOMATED                                             
                               CLEARING  HOUSE  IN  ORDER  FOR  YOU TO USE  ELECTRONIC                                              
                               FUNDS TRANSFER SERVICES.                                                                             
If you have elected to have funds deposited to or withdrawn from your bank account, please attach here a                            
voided check or pre-printed  deposit slip for your bank account.  Your Keystone America account and your                            
bank account must have one name in common.                                                                                          

------------------------------------------------------------------------------------------------------------------------            
Name on Bank Account                                                              Bank Account Number                               
Type of Bank Account:  [] Savings    [] Checking    [] NOW                                                                          
I am identifying below the:  [] Payee for distributions   [] Payee for telephone redemptions   [] Payee for automatic               
                                                                                                  withdrawals                       

------------------------------------------------------------------------------------------------------------------------            
Name of Payee (other than bank)                   Street Address                City            State           Zip                 
------------------------------------------------------------------------------------------------------------------------            
Keystone Use Only                                                               Bank Routing/Transit                                
----------------------------------------------------------------------------------------------------------------------              
J.  SIGNATURES                                                                                                                      
[] Check if any owner is a citizen or resident of the U.S.                                                                          
[] Check if any owner is a foreign                           Indicate Country -----------------------------------                   
   person not subject to U.S. tax                                                                                                   
   reporting requirement.                                                                                                           
NOTE: See reverse side for important tax information.                                                                               

   I (we) am (are) of legal age and have received the prospectus(es) and agree to its (their) terms.                                
IF I (WE) HAVE ELECTED ANY OF THE  OPTIONAL  EXCHANGE,  REDEMPTION,  AUTOMATIC  INVESTMENT  OR AUTOMATIC                            
WITHDRAWAL  SERVICES DESCRIBED ABOVE: (I) I (WE) HEREBY RATIFY ANY INSTRUCTIONS  RECEIVED BY KEYSTONE IN                            
WRITING  AND I (WE)  AGREE  THAT  NEITHER  THE  FUND,  KIRC  NOR KDI  WILL BE HELD  RESPONSIBLE  FOR THE                            
AUTHENTICITY  OF SUCH  INSTRUCTIONS;  (II) I (WE) AGREE THAT NEITHER THE FUND, KIRC NOR KDI WILL BE HELD                            
LIABLE WHEN FOLLOWING  INSTRUCTIONS  RECEIVED OVER KARL OR BY TELEPHONE WHICH ARE REASONABLY BELIEVED TO                            
BE GENUINE; AND (III) I (WE) UNDERSTAND,  THAT IF SUCH REASONABLE PROCEDURES ARE NOT FOLLOWED, THE FUND,                            
KIRC OR KDI MAY BE LIABLE FOR ANY LOSSES DUE TO UNAUTHORIZED OR FRAUDULENT INSTRUCTIONS.                                            

UNDER  PENALTIES  OF  PERJURY,  EACH OF THE  UNDERSIGNED  CERTIFIES  THAT THE NUMBER  SHOWN ABOVE IS THE                            
UNDERSIGNED'S  CORRECT TAXPAYER  IDENTIFICATION NUMBER AND THAT THE UNDERSIGNED IS NOT SUBJECT TO BACKUP                            
WITHHOLDING UNLESS INDICATED BY CHECKING THE BOX BELOW.                                                                             

[] THE UNDERSIGNED IS SUBJECT TO BACKUP  WITHHOLDING  UNDER THE PROVISIONS OF THE INTERNAL  REVENUE CODE                            
SECTION 3406(A)(1)(C).                                                                                                              

[] CHECK HERE IF YOU DO NOT HAVE A NUMBER BUT HAVE APPLIED OR INTEND TO APPLY FOR ONE. THE  SIGNATURE OF                            
EACH PERSON ON THIS APPLICATION  SERVES TO CERTIFY THIS, AND THAT EACH  UNDERSIGNED  UNDERSTANDS THAT IF                            
THE  UNDERSIGNED  DOES NOT PROVIDE A NUMBER WITHIN 60 DAYS WE ARE REQUIRED BY LAW TO WITHHOLD 31% OF ALL                            
DIVIDENDS, CAPITAL GAINS, REDEMPTIONS, EXCHANGES, AND CERTAIN OTHER PAYMENTS.                                                       

>                                                                  >                                                                
Signature                                                          Date                                                             
------------------------------------------------------------------------------ -----------------------------------------            
>                                                                  >                                                                
Signature                                                          Date                                                             
------------------------------------------------------------------------------ -----------------------------------------            

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IMPORTANT TAX NOTICE                                                            
BACKUP WITHHOLDING INFORMATION                                                  
------------------------------------------------------------------------------  

Federal tax law requires us to obtain your certification that:                  

1.   The taxpayer identification number you provide is correct, and             

2.   That you are not subject to backup withholding.  (For most individuals, the
taxpayer identification number is the Social Security Number.)        

Nonresident  aliens must certify that they  qualify as foreign  persons,  exempt
from U.S. tax reporting requirements. On joint accounts where an owner is a U.S.
citizen or resident,  that owner must  certify that the taxpayer  identification
number   provided  is  correct  and  is  not  subject  to  backup   withholding.
Certification of foreign status must be filed every three years.                

If you do not provide us with the above  information on the application,  we are
required  by  law  to  withhold  31%  of  all  your  dividends,  capital  gains,
redemptions, exchanges and certain other payments.                              

The following are the other conditions under which you will be subject to backup
withholding:                                                                    

1.   If you have  received a notice from the Internal  Revenue  Service that you
provided an incorrect taxpayer identification number.                 

2.   If you have  received a notice from the Internal  Revenue  Service that you
     underreported  interest  or  dividend  payments  or did not  file a  return
reporting such payments.                                              

DO NOT CHECK  THE BOX  INDICATING  THAT YOU ARE  SUBJECT  TO BACKUP  WITHHOLDING
UNLESS YOU HAVE RECEIVED A NOTICE FROM THE INTERNAL REVENUE SERVICE.            

If you fall within one of the following  categories,  you are exempt from backup
withholding on ALL payments and should NOT check the box:                       

* CORPORATION * FINANCIAL  INSTITUTION * REGISTERED  SECURITIES  DEALER * COMMON
TRUST FUND * COLLEGE,  CHURCH OR  CHARITABLE  ORGANIZATION  * RETIREMENT  PLAN *
OTHER ENTITY LISTED IN INTERNAL REVENUE CODE SEC. 3452.                         

FOR FURTHER DETAILS, REFER TO INTERNAL REVENUE SERVICE FORM W-9.                

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KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC.

PART B

STATEMENT OF ADDITIONAL INFORMATION 

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KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND

STATEMENT OF ADDITIONAL INFORMATION 

APRIL , 1995

     This statement of additional  information is not a prospectus,  but relates
to, and should be read in conjunction  with, the prospectus of Keystone  America
Hartwell  Emerging  Growth Fund (the  "Fund')  dated April , 1995. A copy of the
prospectus may be obtained from Keystone Distributors,  Inc. ("KDI"), the Fund's
principal underwriter  ("Principal  Underwriter"),  200 Berkeley Street, Boston,
Massachusetts 02116-5034.                                                       

TABLE OF CONTENTS 
                                Page

The Fund                                           2                  
Investment Policies                                2                  
Investment Methods                                 2                  
Investment Restrictions                            4                  
Distributions and Taxes                            6                  
Valuation of Securities                            7                  
Sales Charges                                      8                  
Distribution Plans                                10                  
Investment Adviser                                13                  
Sub-Adviser                                       17                  
Trustees and Officers                             18                  
Principal Underwriter                             22                  
Brokerage                                         23                  
Capital Stock                                     25                  
Standardized Total Return                                             
and Yield Calculations                          26                
Additional Information                            27                  
Appendix                                          A-1                 
Financial Statements                              F-1                 
Independent Auditors' Report                      F-13                

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THE FUND

     The Fund is a non-diversified open-end investment company commonly known as
a mutual fund. The Fund's investment objective is capital appreciation. The Fund
was reorganized as a  Massachusetts  business trust on      , 1995.  Originally,
the Fund had been incorporated in New York on April 8, 1968 and began operations
on September 10, 1968. The Fund is one of 30 funds advised by Keystone Custodian
Funds,  Inc.  ("Keystone").  Keystone has retained the services of J.M. Hartwell
Limited Partnership  ("Hartwell") to provide the Fund with subadvisory  service,
subject  to the  supervision  of the  Fund's  Board of  Trustees  and  Keystone.
Effective July 27, 1993, the Fund changed its name from Hartwell Emerging Growth
Fund,  Inc. to Keystone  America  Hartwell  Emerging  Growth Fund,  Inc., and in
connection with its reorganization as a Massachusetts  business trust the Fund's
name became Keystone America Hartwell Emerging Growth Fund.                     

     The essential  information  about the Fund is contained in its  prospectus.
This statement of additional  information provides additional  information about
the Fund that may be of interest to some investors.                             

INVESTMENT POLICIES 

     In  seeking  to  achieve  the  Fund's   investment   objective  of  capital
appreciation,  the  Fund's  advisers  select for  investment  not only those few
companies whose unique characteristics or proprietary advantages,  they believe,
offer the best  prospects  for well above  average  increases  in  revenues  and
earnings,but  also  companies that tend to be grouped in industries  that,  from
time to time,  are judged to be less likely to be affected by the business cycle
and  to  have  strong   prospects  for  revenue  growth.   The  Fund's  advisers
continuously  monitor these  companies and their  industries to make certain the
companies  retain the  characteristics  that led to their selection in the first
place.  Ratings criteria  applicable to the Fund are more fully explained in the
Appendix to this statement of additional information.                           

INVESTMENT METHODS

     The  Fund  considers  a  number  of  factors  when  selecting  investments,
including the growth  prospects for a company's  products,  the economic outlook
for  its  industry,  its  new  product  development,  its  operating  management
capabilities, utilization and reinvestment of earnings, the relationship between
the price of the security and  estimated  fundamental  values and an analysis of
the market,  economic and political  environments.  Before a company is selected
for the Fund's  portfolio,  it is subjected to a 20-point test  developed by the
Fund's subadviser.  The test includes such objective criteria as position in the
marketplace  (normally  only  companies  ranking first or a close second will be
considered),  average  gross profit margin (will  normally  average at least 45%
over three years),  ratio of long-term debt to total capital (will  generally be
under  25%) as well as more  subjective  criteria  including  breadth of product
line,   proprietary   product  position,   distribution   strength  and  pricing
flexibility.                                                                    

     In  determining  the  companies  in  which  to  actually  invest,  the Fund
considers a number of additional criteria including the following:              

     Growth:    The  annual  growth  rate  over the  next two to three  years is
                estimated by the Fund's advisers to be at least 1 1/2 times that
of the market as a whole.                       

    Valuation:  Total  market  capitalization  should not be more than twice the
                projected  revenues and the anticipated growth rate should be at
least twice the price earnings ratio.           

     Generally,  the  Fund  will  sell a  stock  if its  current  price-earnings
multiple  exceeds  its growth  rate by more than  one-half.  The Fund  considers
selling a stock if it  experiences  a price erosion of 15%. The Fund will sell a
stock  whenever the reasons for which it was purchased are no longer valid or if
its fundamentals  begin to deteriorate.  The Fund will not invest for management
or control.                                                                     

     No assurance can be given that the Fund's  objective will be realized.  The
Fund's shares may increase or decrease in value depending upon many factors that
might produce  fluctuations in the value of securities held by the Fund. Factors
generally  affecting  security  values include  changes in earnings,  dividends,
growth outlook, operating gains or losses, general market conditions or economic
and political conditions.                                                       

     The Fund  will  normally  invest in common  stocks of the  emerging  growth
category and other  securities  convertible into or exchangeable for such common
stocks  having,  in the opinion of its advisers,  a potential for  appreciation.
Emerging growth stocks are stocks of newer,  smaller companies  primarily traded
in the  over-the-counter  market.  The  emphasis  of the Fund on  investment  in
emerging growth stocks inherently  involves greater risk than is associated with
investment in stocks of larger,  more  established  companies traded on national
exchanges.                                                                      

OTHER METHODS                                                                   

     Although  the Fund is  permitted  to employ  the other  investment  methods
enumerated  below,  it does not currently  engage in such practices and does not
intend to do so.                                                                

     The Fund's  policies permit it to borrow from banks and to engage in margin
transactions  for the  purpose  of  making  leveraged  investments,  subject  to
regulatory restrictions, and provided that the Fund maintains an asset coverage,
including the amount of  borrowings,  of at least 300% of such  borrowings.  The
Fund may also engage in short sale  transactions in securities  listed on one or
more national securities  exchanges and in unlisted securities  registered under
Section  12(g) of the  Securities  Exchange Act of 1934 or  securities  that are
subject  to  other   restrictions   against   sale  or   transfer   ("restricted
securities"),  but does not currently do so. The Fund is also  permitted to make
short sales, "sales against the box," to purchase and sell warrants and puts and
calls written by others  (option  contracts),  to engage in margin  transactions
with brokers,  to invest up to 15% of its net assets in illiquid  securities and
to make short-term investments for trading purposes, but does not do so.        

NATURE OF INVESTMENT OBJECTIVE                                                  

     Except as otherwise  specified in the prospectus or statement of additional
information, the investment objective,  policies and methods of the Fund are not
fundamental  and may be changed  without  the vote of a  majority  of the Fund's
outstanding  shares when, in the judgment of the Fund's Board of Trustees,  such
changes  are  advisable.  If the Fund's  investment  objective  is changed and a
shareholder determines that the Fund is no longer an appropriate investment, the
shareholder  may redeem his shares but may be subject to a  contingent  deferred
sales charge upon  redemption.  Fundamental  policies may not be changed without
the vote of a majority of the Fund's  outstanding shares (which means the lesser
of (1) 67% of the shares  represented at a meeting at which more than 50% of the
outstanding  shares  are  represented  or (2) more  than 50% of the  outstanding
shares).                                                                        

INVESTMENT RESTRICTIONS 

     The Fund has  adopted the  fundamental  investment  restrictions  set forth
below  which may not be changed  without  the vote of a  majority  of the Fund's
outstanding shares. Unless otherwise stated, all references to the Fund's assets
are in terms of current market value.                                           

The Fund may not do the following:                                    

     (1) act as  underwriter  of  securities  issued  by other  persons,  except
insofar as the Fund may  technically be deemed to be an underwriter by virtue of
the disposition of a particular block of securities;                            

     (2) make loans, except that the purchase of bonds, debentures or other debt
securities  issued by publicly held  companies  and the purchase of  convertible
debt securities or debt securities with warrants,  rights or options attached or
other such securities shall not be deemed to be the making of loans;            

     (3) invest in real estate  (including  interests in real estate  investment
trusts whose  securities are not readily  marketable),  commodities or commodity
contracts;                                                                      

     (4) borrow  money,  except  that the Fund may (a)  borrow  from a bank as a
temporary measure for extraordinary or emergency purposes notin excess of 33 1/3
of its total assets;                                                            

     (5) concentrate its investments by investing 25% or more of the total value
of its assets in the securities of issuers in any  particular  industry or group
of industries; or                                                               

     (6)  invest  more  than  10% of the  value  of the  Fund's  net  assets  in
securities of companies with an operating history of less than three years.     

     In connection with  undertakings  to the securities  commissions of various
states, the Fund has adopted the following non-fundamental  restrictions,  which
may be changed without shareholder approval.                                    

The Fund will not do the following:                                   

     (1) purchase securities on margin,  except it may obtain short-term credits
as may be necessary for the clearance of purchases and sales of securities;     

     (2) make short sales of securities, unless at the time of such sale it owns
an equal amount of such securities, or, by virtue of ownership of convertible or
exchangeable  securities,  it has the right to obtain  through the conversion or
exchange of such other securities an amount equal to the securities sold short; 

     (3) invest  more than 5% of the value of the Fund's net assets in  warrants
(valued at the lower of cost or market). Included within that amount, but not to
exceed 2% of the value of the Fund's net assets,  may be warrants  which are not
listed on the New York, or American Stock  Exchanges.  Warrants  acquired by the
Fund in units or attached to  securities  may be deemed to be without  value for
purposes of this limitation;                                                    

(4) invest in oil, gas or other mineral leases; and                   

     (5)  purchase  or  sell  real  property   (including  limited   partnership
interests,  but excluding readily marketable interests in real estate investment
trusts or  readily  marketable  securities  of  companies  which  invest in real
estate).                                                                        

DISTRIBUTIONS AND TAXES 

     The Fund ordinarily  distributes its net investment  income and net capital
gains in shares of the Fund or, at the option of the  shareholder,  in cash. All
shareholders may reinvest dividends and distributions without being subject to a
deferred  sales charge when shares so purchased are redeemed.  Shareholders  who
have opted  prior to the record  date to receive  shares  with regard to capital
gains and/or income distributions will have the number of such shares determined
on the basis of the share  value  computed  at the end of the day on the  record
date after adjustment for the distribution. Net asset value is used in computing
the  appropriate  number of shares in both a capital gains  distribution  and an
income   distribution   reinvestment.   Account   statements  and/or  checks  as
appropriate will be mailed to shareholders within seven days after the Fund pays
the distribution.  Unless the Fund receives  instructions to the contrary from a
shareholder  before the record date, it will assume that the shareholder  wishes
to receive  that  distribution  and future  gains and  income  distributions  in
shares. Instructions continue in effect until changed in writing.               

     Distributed  long-term capital gains are taxable as such to the shareholder
whether  received in cash or in  additional  Fund shares and  regardless  of the
period of time Fund  shares  have  been held by the  shareholder.  Distributions
designated  by the Fund as capital  gains  dividends  are not  eligible  for the
corporate  dividends  received  deduction.  If the net asset value of shares was
reduced below a shareholder's  cost by distribution of capital gains realized on
sales of securities, 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 securities profits actually realized,  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 its net
capital  gains  and such  income as has been  predetermined,  to the best of the
Fund's ability,  to be taxable as ordinary  income.  Fund  shareholders  will be
advised annually of the tax status of distributions.                            

VALUATION OF SECURITIES 

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

     (1)  securities  for which market  quotations  are readily  available,  are
valued at the mean of the bid and asked prices at the time of valuation;        

     (2) short-term  investments  which are purchased  with  maturities of sixty
days or less are valued at amortized  cost  (original  purchase cost as adjusted
for amortization of premium or accretion of discount), which, when combined with
accrued  interest,   approximates  market  and  which  reflects  fair  value  as
determined by the Fund's Board of Trustees;                                     

     (3) short-term  investments maturing in more than sixty days when purchased
which are held on the  sixtieth  day prior to maturity  are valued at  amortized
cost (market value on the sixtieth day adjusted for  amortization  of premium or
accretion of discount),  which, when combined with accrued interest approximates
market;                                                                         

     (4) short-term  investments  having maturities of more than sixty days, for
which market  quotations  are readily  available,  are valued at current  market
value; and                                                                      

     (5) the  following  are  valued at prices  deemed in good  faith to be fair
under  procedures  established by the Fund's Board of Trustees:  (a) securities,
including restricted  securities,  for which complete quotations are not readily
available, and (b) other assets.                                                

     The Fund believes that reliable market quotations are generally not readily
available  for  purposes  of  valuing  fixed  income  securities.  As a  result,
depending on the particular securities owned by the Fund, it is likely that most
of the  valuations  for such  securities  will be based  upon  their  fair value
determined  under  procedures  which have been  approved by the Fund's  Board of
Trustees.  The Fund's  Board of  Trustees  has  authorized  the use of a pricing
service to determine the fair value of its fixed income  securities  and certain
other  securities.  Securities for which market quotations are readily available
are valued on a consistent  basis at that price quoted which,  in the opinion of
the Board of Trustees or the person  designated by the Board of Trustees to make
the  determination,  most nearly  represents  the market value of the particular
security.  Any securities for which market  quotations are not readily available
or other assets are valued on a consistent  basis at fair value as determined in
good faith using methods prescribed by the Fund's Board of Trustees.            

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 of Fund shares ("Front End
Load  Option").  Class B shares are sold subject to a contingent  deferred sales
charge  payable upon  redemption  during the calendar year of purchase or 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  KDI,  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 the  amount of
$1,000,000  on  which  no  sales  charge  has been  paid  will be  subject  to a
contingent  deferred sales charge of 0.25% upon  redemption  during the one year
period  commencing  on the  date  the  shares  were  originally  purchased.  The
contingent  deferred sales charge will be retained by KDI. 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  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 KDI. 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 KDI.  See  "Calculation  of  Contingent
Deferred Sales Charge" below.                                                   

CALCULATION OF CONTINGENT DEFERRED SALES CHARGE                                 

     Any  contingent  deferred sales charge imposed upon the redemption of Class
A, Class B or Class C shares is a percentage  of the lesser of (1) the net asset
value of the shares  redeemed or (2) the net cost of such shares.  No contingent
deferred  sales  charge is imposed  when you  redeem  amounts  derived  from (1)
increases in the value of your account  above the net cost of such shares due to
increases  in the net asset value per share 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) Class C shares and  certain  Class A shares held during more
than one year;  or (4) Class B shares  held  during  more than four  consecutive
calendar  years.  Upon  request  for  redemption,  shares  not  subject  to  the
contingent deferred sales charge will be redeemed first. Thereafter, shares held
the longest will be the first to be redeemed.  There is no  contingent  deferred
sales charge when the shares of a class are exchanged for the shares of the same
class of another Keystone America Fund. Moreover,  when shares of one such class
of a fund have been  exchanged  for shares of another such class of a fund,  the
calendar  year of the  purchase  of the  shares  of the fund  exchanged  into is
assumed to be the year shares tendered for exchange were originally purchased.  

WAIVER OF SALES CHARGES                                                         

     Shares of the Fund also may be sold, to the extent  permitted by applicable
law, regulations,  interpretations or exemptions, at net asset value without the
payment  of a  commission  or the  imposition  of an  initial  sales  charge  to
officers,  Trustees,  Trustees, full-time employees and sales representatives of
the Fund, Hartwell Keystone, Hartwell Management, Keystone, Keystone Group, Inc.
("Keystone Group"), any of their subsidiaries or KDI, who have been such for not
less than ninety days or a pension and  profit-sharing  plan established by such
companies, their subsidiaries and affiliates, for the benefit of their officers,
Trustees,  Trustees,  full-time  employees  and  sales  representatives,   or  a
registered  representative  of a firm with a dealer agreement with KDI, provided
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 other
Keystone  Group  Fund  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.                                                                       

     In addition, no contingent deferred sales charge is imposed on a redemption
of  shares  of the  Fund  in  the  event  of  (1)  death  or  disability  of the
shareholder; (2) a lump-sum distribution from a benefit plan qualified under the
Employee  Retirement  Income  Security  Act of  1974  ("ERISA");  (3)  automatic
withdrawals  from ERISA plans if the  shareholder  is at least 59 1/2 years old;
(4) involuntary redemptions of an account having an aggregate net asset value of
less than $1,000;  or (5) automatic  withdrawals  under an automatic  withdrawal
plan of up to 1 1/2% per month of the shareholder's initial account balance.    

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 in any 90-day period up
to the lesser of $250,000 or 1% of the Fund's assets.                           

DISTRIBUTION PLANS

     Rule 12b-1 under the 1940 Act permits investment companies such as the Fund
to use their assets to bear expenses of distributing their shares if they comply
with various  conditions,  including  adoption of a distribution plan containing
certain  provisions set forth in Rule 12b-1. The Fund bears some of the costs of
selling its shares under a Distribution Plan (the  "Distribution  Plan") adopted
on June 26, 1990 pursuant to Rule 12b-1.                                        

DISTRIBUTION PLANS IN GENERAL                                                   

     A rule adopted by the National  Association  of  Securities  Dealers,  Inc.
("NASD")  limits the amount that a Fund may pay annually in  distribution  costs
for sale of its shares and shareholder service fees. The NASD 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 KDI).                                                                        

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 a
principal underwriter of the Fund ("Principal  Underwriter")  (currently KDI) to
enable the Principal  Underwriter to pay or to have paid to others (dealers) 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 outstanding on the books of the Fund for specific 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 to pay to others (dealers)  commissions in respect of Class B shares
since  inception  of  the  Distribution   Plan;  and  to  enable  the  Principal
Underwriter  to pay or to have paid to others  (dealers) a service  fee, at such
intervals as the  Principal  Underwriter  may  determine,  in respect of Class B
shares  maintained by 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.                                        

     KDI  intends,  but  is  not  obligated,   to  continue  to  pay  or  accrue
distribution  charges incurred in connection with the Class B Distribution  Plan
that exceed  current  annual  payments  permitted to be received by KDI from the
Fund.  KDI intends to seek full payment of such charges from the Fund  (together
with annual interest thereon at the prime rate plus one percent) at such time in
the  future as, and to the  extent  that,  payment  thereof by the Fund would be
within the permitted limits.                                                    

CLASS C DISTRIBUTION  PLAN. The Class C Distribution Plan provides that the Fund
may expend daily amounts at 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 to pay to others (dealers)  commissions in respect of Class C shares
since  inception  of  the  Distribution   Plan;  and  to  enable  the  Principal
Underwriter  to pay or to have paid to others  (dealers) 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 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% plus the first  year's  service  fee in advance in the amount of
0.25%,  and  (2)  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  at  an  annual  rate  of  0.25%,
respectively,  of the  average  daily net asset value of each share sold by such
others and remaining outstanding on the books of the Fund for specified periods.

     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.  The Fund does not treat
Distribution Plan expenses as includable in the Fund's total operating  expenses
for purposes of determining compliance with state expense limits.               

     Each of the Distribution Plans may be terminated at any time by a vote of a
majority of the Rule 12b-1 Trustees ("Rule 12b-1 Trustees") (who are the same as
the Independent Trustees), or by vote of a majority of the outstanding shares of
the respective class of Fund shares. However, after the termination of the Class
B  Distribution  Plan, KDI would be entitled to receive  payment,  at the annual
rate of 1.00% of the  average  daily  net  asset  value  of Class B  shares,  as
compensation for its services which had been earned at any time during which the
Class B Distribution Plan was in effect.  Any change in a Distribution Plan that
would materially increase the distribution  expenses of the Fund provided for in
a Distribution Plan requires  shareholder  approval.  Otherwise,  a Distribution
Plan may be amended by the Fund's Trustees, including the Rule 12b-1 Trustees.  
Unreimbursed distribution expenses at September 30, 1994 for Class B and Class C
shares were  $252,738  (6.65% of net class  assets) and  $114,705  (6.83% 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 limit specified above, and 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.                                                                          

     For the fiscal year ended  September 30, 1994,  the Fund paid KDI $272,925,
$24,517 and $10,873 under the Class A, Class B and Class C  Distribution  Plans,
respectively.                                                                   

     The Independent  Trustees of the Fund have determined that the sales of the
Fund's  shares  resulting  from  payments  under  the  Distribution  Plans  have
benefited the Fund.                                                             

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  Group,  located at 200  Berkeley  Street,
Boston, Massachusetts 02116-5034.                                               

     Keystone  Group is a  corporation  privately  owned by  current  and former
members of  management  of Keystone and its  affiliates.  The shares of Keystone
Group  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,  Roger T. Wickers,  Edward F. Godfrey and Ralph J. Spuehler,  Jr.  Keystone
Group provides accounting,  bookkeeping,  legal, personnel and general corporate
services to Keystone, their affiliates and the Keystone Group of Mutual Funds.  

     Except as otherwise  noted below,  pursuant to an  Investment  Advisory and
Management  Agreement with the Fund (the "Advisory  Agreement"),  and subject to
the  supervision  of  the  Fund's  Board  of  Trustees,   Keystone  manages  and
administers   the  operation  of  the  Fund  and  manages  the   investment  and
reinvestment  of the Fund's  assets in  conformity  with the  Fund's  investment
objective and  restrictions.  The Advisory  Agreement  stipulates  that Keystone
shall provide  office  space,  all necessary  office  facilities,  equipment and
personnel in connection  with its services and pay or reimburse the Fund for the
compensation  of  Fund  officers  and  Trustees  who  are  affiliated  with  the
investment  adviser as well as pay all of its  expenses  incurred in  connection
with the  provisions of its services.  All charges and expenses other than those
specifically  referred to as being  borne by Keystone  will be paid by the Fund,
including,  but not limited to, custodian charges and expenses;  bookkeeping and
auditors'  charges and expenses;  transfer  agent charges and expenses;  fees of
Independent Trustees;  brokerage commissions,  brokers' fees and expenses; issue
and transfer taxes;  costs and expenses under the Distribution  Plans; taxes and
trust fees payable to  governmental  agencies;  the cost of share  certificates;
fees and  expenses of the  registration  and  qualification  of the Fund and its
shares with the Securities and Exchange Commission (sometimes referred to herein
as the  "SEC" or the  "Commission")  or under  state or other  securities  laws;
expenses  of  preparing,  printing  and  mailing  prospectuses,   statements  of
additional information,  notices, reports and proxy materials to shareholders of
the Fund; expenses of shareholders' and Trustees' meetings; charges and expenses
of  legal  counsel  for the  Fund and for the  Trustees  of the Fund on  matters
relating to the Fund;  charges and expenses of filing  annual and other  reports
with the SEC and other authorities;  and all extraordinary  charges and expenses
of the Fund.                                                                    

     The Advisory  Agreement  permits  Keystone to enter into an agreement  with
Hartwell,  or another  investment  adviser,  pursuant to which  Hartwell or such
other investment  adviser (as investment  adviser and subject to the supervision
of the Fund's Board of Trustees and Keystone) will furnish an investment program
for the Fund and will  furnish to the Fund and  Keystone  from time to time,  as
needed, investment research,  advice, information and recommendations concerning
securities to be acquired, held or sold by the Fund. Keystone has entered into a
SubInvestment Advisory Agreement with Hartwell.                                 

     For the  services  provided  by  Keystone,  the Fund  pays a basic  monthly
management  fee of 1/12 of 1% of that  portion of the Fund's  average  daily net
asset value  during the latest 12 months (a moving  average  method),  up to and
including  $100,000,000  (an annual rate of 1%),  1/12 of 0.90% of that  portion
over  $100,000,000 up to and including  $200,000,000  (an annual rate of 0.90%),
1/12 of 0.80% of that portion over $200,000,000 up to and including $300,000,000
(an annual rate of 0.80%), 1/12 of 0.70% of that portion over $300,000,000 up to
and including  $400,000,000  (an annual rate of 0.70%) and 1/12 of 0.65% of that
portion over  $400,000,000 (an annual rate of 0.65%).  For the fiscal year ended
September  30, 1994 the Fund had average daily net assets of  $146,773,911.  The
basic management fee is accrued daily and paid monthly.                         

     The basic  management  fee payable by the Fund to Keystone is subject to an
incentive adjustment,  calculated monthly, depending upon the performance of the
Fund relative to the Standard & Poor's 500 Index (the "Index"),  on the basis of
1/12 of the results during the latest 12 months (a moving average  method).  The
incentive  adjustment,  if any, is added to or subtracted from the monthly basic
management fee, and is payable after the close of each month on the basis of the
latest 12 months' results.  The incentive  adjustment is accrued as incurred for
the purpose of calculating  the  redemption  price and offering price per share.
The incentive adjustment for the Fund is calculated each month as follows:      

     (1) The sum of the net asset value of a share of the Fund at the end of the
last  12-month  period,  plus the value per share during such period of all cash
distributions  made and  capital  gain taxes  paid or  payable on  undistributed
realized long-term capital gains (treated as reinvested in shares of the Fund on
the record date of such  distribution  or the date on which  provision  for such
taxes is made,  as the case may be) is compared to the net asset value per share
of the Fund at the beginning of the period and the  difference is expressed as a
percentage (the "Fund's percentage change").                                    

     (2) The Fund's  percentage  change is compared to the percentage  change in
the Index, which change is determined by adding to the level of the Index at the
end of the  period,  in  accordance  with  SEC  guidelines,  the  value  of cash
distributions on securities  which comprise the Index,  treated as reinvested in
the Index based on a monthly  value  supplied by Standard & Poor's and comparing
such adjusted level with the level of the Index at the beginning of the period. 

     (3) If the Fund's  percentage  change  during such period  shows a relative
performance  more than 5  percentage  points  better  or worse  than that of the
Index,  the  excess  over  5  percentage  points  is  the  "excess   performance
differential,"  and the  incentive  adjustment  is an amount equal to 5% of this
"excess performance  differential" multiplied by the net asset value of the Fund
averaged  daily  over the  12-month  period and  divided  by 12.  The  incentive
adjustment  for any  month,  however,  may not  exceed  1/12 of 1/2 of 1% of the
average net asset value for any 12-month  period  (equivalent on an annual basis
to an adjustment of 1/2 of 1%). A percentage change in a share of the Fund which
is no greater  than 5  percentage  points  better or worse  than the  percentage
change in the Index results in no incentive adjustment.                         

     During the fiscal year ended  September 30, 1992,  the Fund paid or accrued
to Hartwell Keystone Advisers,  Inc. ("Hartwell Keystone"),  which served as the
Fund's  investment  adviser  prior  to  January  30,  1995,  $1,120,911,   which
represented 0.88% of the Fund's average daily net assets.                       

     During the fiscal year ended  September 30, 1993,  the Fund paid or accrued
to Hartwell Keystone  $1,639,008,  which represented 0.89% of the Fund's average
daily net assets.                                                               

     During the fiscal year ended  September 30, 1994,  the Fund paid or accrued
to Hartwell Keystone  $1,452,834,  which represented 0.97% of the Fund's average
daily net assets.                                                               

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

     The  Advisory  Agreement  continues  in  effect  from  year to year only if
approved  at least  annually  by the Fund's  Board of Trustees or by a vote of a
majority of the Fund's outstanding shares, and such renewal has been approved by
the vote of a majority of the  Independent  Trustees cast in person at a meeting
called for the purpose of voting on such approval. The Advisory Agreement may be
terminated,  without penalty,  on 60 days' written notice by the Fund's Board of
Trustees  or by a vote of a  majority  of the  Fund's  outstanding  shares.  The
Advisory  Agreement will terminate  automatically  upon its "assignment" as that
term is defined in the 1940 Act.                                                

SUB-ADVISER 

     Pursuant to the terms of the Advisory Agreement with the Fund, Keystone has
delegated  certain of its  investment  advisory  functions,  except for  certain
administrative  and  management  services,  to Hartwell  and has entered  into a
SubInvestment Advisory Agreement  ("Subadvisory  Agreement") with Hartwell under
which Hartwell  furnishes to the Fund and Keystone from time to time, as needed,
investment  research,   advice,   information  and  recommendations   concerning
securities to be acquired, held or sold by the Fund.                            

     Hartwell,  located at 515 Madison  Avenue,  New York,  New York 10022,  was
organized  in  1994  and  is  a  majority-owned  subsidiary  of  JMH  Management
Corporation.                                                                    

     For its services for each calendar month,  Hartwell  receives promptly from
Keystone  after  calculation  of the monthly fee due Keystone under the Advisory
Agreement,  40% of Keystone's basic monthly management fee as described above on
all assets and 60% of Keystone's  incentive adjustment as described above on all
assets, provided that Hartwell's total fee will always equal at least 25% of the
combined  total  fee paid by the  Fund.  The Fund has no  responsibility  to pay
Hartwell's fee.                                                                 

     The  Subadvisory  Agreement  automatically  renews for successive  one-year
periods  unless either party to the agreement has given the other party at least
sixty days'  written  notice of its  intention to terminate the agreement at the
end of  the  contract  period  then  in  effect;  provided,  however,  that  the
continuation  of the  Subadvisory  Agreement  for more than two  years  shall be
subject to the receipt of annual  approvals  of the Fund's  Board of Trustees or
shareholders  in  accordance  with the 1940 Act and the  rules  thereunder.  The
Subadvisory  Agreement may be terminated at any time,  without  penalty,  by the
Fund's Board of Trustees or a majority of the Fund's  outstanding  shares, on 60
days' written notice to Hartwell.  The Subadvisory  Agreement will automatically
terminate upon its "assignment" (as defined in the 1940 Act) by either party.   

     For the fiscal  years ended  September  30, 1992,  1993 and 1994,  Hartwell
Management  Company,  Inc.,  Hartwell's  predecessor  which served as the Fund's
subadviser prior to January 30, 1995,  received $592,810,  $841,511 and $500,516
from  Hartwell  Keystone  for its  services  under  its  SubInvestment  Advisory
Agreement.                                                                      

     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 net assets;  2.0% of the next
     470  million of fund  average  net  assets;  and 1.5% of Fund  average  net
assaets 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.        

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,  Trustee and Chief Executive Officer of the
     Fund;  Chairman  of the  Board,  President,  Director  and Chief  Executive
     Officer of Keystone Group, Inc. ("Keystone  Group"),  President and Trustee
     or Director of  Keystone  America  Capital  Preservation  and Income  Fund,
     Keystone America  Intermediate  Term Bond Fund,  Keystone America Strategic
     Income Fund,  Keystone  America  World Bond Fund,  Keystone Tax Free Income
     Fund, Keystone America State Tax Free Fund, Keystone America State Tax Free
     Fund - Series II, Keystone America Fund for Total Return,  Keystone America
     Global  Opportunities Fund, Keystone America Hartwell Emerging Growth Fund,
     Inc.,  Keystone  America  Omega Fund,  Inc.,  Keystone Fund of the Americas
     Luxembourg  and Keystone  Fund of the Americas - U.S.,  Keystone  Strategic
     Development  Fund  (collectively,   "Keystone  America  Funds");   Keystone
     Custodian  Funds,  Series B-1,  B-2,  B-4,  K-1,  K-2,  S-1,  S-3, and S-4;
     Keystone  International  Fund,  Keystone  Precious Metals  Holdings,  Inc.,
     Keystone Tax Free Fund,  Keystone Tax Exempt Trust,  Keystone  Liquid Trust
     (collectively,   "Keystone   Custodian  Funds");   Keystone   Institutional
     Adjustable   Rate  Fund  and  Master   Reserves   Trust  (all  such  funds,
     collectively,  "Keystone  Group  Funds");  Director  and Vice  Chairman  of
     Keystone  Custodian  Funds,  Inc.  ("Keystone");  Chairman of the Board and
     Director  of  Keystone  Investment  Management  Corporation  ("KIMCO")  and
     Keystone Fixed Income Advisors ("KFIA"); President and Director of Keystone
     Management, Inc. ("Keystone Management"),  Hartwell Keystone Advisers, Inc.
     ("Hartwell  Keystone") and Keystone  Software Inc.  ("Keystone  Software");
     Director of Keystone Distributors, Inc. ("KDI"), Keystone Investor Resource
     Center,  Inc. ("KIRC"),  Fiduciary  Investment  Company,  Inc. ("FICO") and
     Robert  Van  Partners,   Inc.;   Director  of  Boston  Children's  Services
     Association  and  Trustee  of  Anatolia   College,   Middlesex  School  and
     Middlebury  College ;  Member,  Board of  Governors,  New  England  Medical
  Center; former Trustee of Neworld Bank and former President of Keystone.

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

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

*GEORGE S. BISSELL:  Chairman of the Board and Trustee of the Fund;  Director of
     Keystone Group, Keystone, Keystone Management, Keystone Software Inc., KFIA
     and KIRC;  Chairman  of the  Board and  Trustee  or  Director  of all other
     Keystone Group Funds,; Director of KIMCO; Chairman of the Board and Trustee
     of Anatolia  College;  Trustee of University  Hospital (and Chairman of its
     Investment  Committee);  former Chief Executive Officer and Chairman of the
  Board of Keystone Group; and former Chief Executive Officer of the Fund.

EDWIN D. CAMPBELL:  Trustee  of the  Fund;  Trustee  or  Director  of all  other
     Keystone Group Funds;  Executive Director,  Coalition of Essential Schools,
     Brown  University;  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  Group Funds;  former Group Vice  President,  Textron  Corp.;  and
former Director, Peoples Bank (Charlotte, N.C).                       

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

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

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

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

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

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

JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of all
other Keystone Group Funds; and President of Keystone.                

KEVINJ. MORRISSEY:  Treasurer of the Fund; Treasurer of all other Keystone Group
     Funds;  Vice President of Keystone Group;  Assistant  Treasurer of FICO and
Keystone; and former Vice President and Treasurer of KIRC.            

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

**JOHN  M.  HARTWELL:  Vice  President  of  the Fund;  Vice President and former
     President of Keystone America Hartwell  Emerging Growth Fund, Inc.;  former
     Chairman  and  President  of the  Fund;  former  President,  Treasurer  and
     Director  of  Hartwell  Management,  JMH  Management  Corporation  and J.M.
     Hartwell & Co., Inc., an investment counseling firm; and former Director of
Hartwell Distributors, Inc.                                           

**WILLIAM C. MILLER:  Vice President of the Fund;   Vice  President of  Keystone
     America Hartwell  Emerging Growth Fund, Inc.; former President of the Fund;
     President of Hartwell  Management  and  Director of Hartwell  Distributors,
Inc.                                                                  

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

** The  address of these  officers  is 515 Madison  Avenue,  New York,  New York
10022.                                                                          

     Mr.  Elfner and Mr.  Bissell  are  "interested  persons" by virtue of their
positions  as officers  and/or  Trustees  of  Keystone  Group and several of its
affiliates including Keystone,  Hartwell Keystone,  KDI and KIRC. Mr. Elfner and
Mr. Bissell own shares of Keystone  Group.  Mr. Elfner is Chairman of the Board,
President  and Chief  Executive  Officer of  Keystone  Group.  Mr.  Bissell is a
Trustee of Keystone Group.                                                      

     During the fiscal year ended September 30, 1994, no Trustee affiliated with
Hartwell Keystone or any officer received any direct remuneration from the Fund.
As of December 31, 1994,  the Fund's  Trustees and officers  beneficially  owned
less than 1% of the Fund's then outstanding Class A shares. For the same period,
the  Fund's  Trustees  and  officers  beneficially  owned  none  of  the  Fund's
outstanding Class B and Class C shares.                                         

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

PRINCIPAL UNDERWRITER 

     The Fund has entered into a Principal  Underwriting Agreement with KDI (the
"Underwriting  Agreement"),  pursuant to which KDI acts as the Fund's  principal
underwriter.   KDI,  located  at  200  Berkeley  Street,  Boston,  Massachusetts
02116-5034, is a Delaware corporation, wholly-owned by Keystone.                

     KDI has agreed to use its best efforts to find  purchasers  for the shares.
KDI may retain and employ  representatives to promote distribution of the shares
and may obtain orders from brokers,  dealers and others,  acting as  principals,
for sales of shares to them. The Underwriting  Agreement  provides that KDI will
bear the expense of preparing,  printing and distributing  advertising and sales
literature  and   prospectuses   used  by  it.  In  its  capacity  as  Principal
Underwriter,  KDI may  receive  payments  from the Fund  pursuant  to the Fund's
Distribution Plans.                                                             

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

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

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

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

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

     The Underwriting Agreement may be terminated,  without penalty, on 60 days'
written notice by the Board of Trustees or by a vote of a majority of the Fund's
outstanding shares. The Underwriting Agreement will terminate automatically upon
its "assignment" as that term is defined in the 1940 Act.                       

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 its advisers is considered to be
in  addition  to and not in lieu of services  required  to be  performed  by the
adviser under its Advisory  Agreement with the Fund or the subadviser  under its
SubAdvisory  Agreement.  The  cost,  value  and  specific  application  of  such
information  are  indeterminable  and cannot be practically  allocated among the
Fund and other  clients of the  advisers  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 Advisory Agreement and the SubAdvisory  Agreement,  the
advisers are  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 the advisers do follow such a practice,  they will do
so on a basis which is fair and equitable to the Fund.                          

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

     The Fund may participate, if and when practicable, in group bidding for the
purchase directly from an issuer of certain  securities for the Fund's portfolio
in order to take advantage of the lower  purchase price  available to members of
such a group.                                                                   

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

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

     Investment  decisions for the Fund are made  independently  by the advisers
from those of the other funds and investment  accounts  managed by the advisers.
It may  frequently  develop that the same  investment  decision is made for more
than one fund.  Simultaneous  transactions are inevitable when the same security
is suitable for the investment  objective of more than one account.  When two or
more funds or accounts are engaged in the purchase or sale of the same security,
the  transactions  are allocated as to amount in accordance with a formula which
is equitable to each fund or account.  It is recognized  that in some cases this
system could have a detrimental effect on the price or volume of the security as
far as the Fund is concerned.  In other cases,  however, it is believed that the
ability of the Fund to  participate in volume  transactions  will produce better
executions for the Fund.                                                        

     In no  instance  are  portfolio  securities  purchased  from or sold to the
advisers, KDI or any of their affiliated persons, as defined in the 1940 Act and
rules and regulations issued thereunder.                                        

     For the fiscal years ended  September 30, 1992, 1993 and 1994 the Fund paid
$224,659, $268,848 and $257,916, respectively, in brokerage commissions.        

CAPITAL STOCK 

   The Fund has authorized the following classes of shares, $1.00 par value:

Class A               15,000,000                                      
Class B               15,000,000                                      
Class C               15,000,000                                      
Class D               50,000,000                                      
Class E               15,000,000                                      
Class F               15,000,000                                      

     Each share represents an equal proportionate interest in the Fund with each
other share of that class. Upon  liquidation,  shares are entitled to a pro rata
share in the net assets of the Fund  based on the  relative  net asset  value of
each class of shares. Each share of the Fund is entitled to one vote. Classes of
shares of the Fund have equal voting rights except that each class of shares has
exclusive voting rights with respect to its Distribution Plan.                  

     Fund  shares  are fully  paid and  non-assessable  when  issued and have no
preemptive,  conversion or exchange rights.  Shareholders are entitled to redeem
their shares as set forth under "How to Redeem  Shares" in the  prospectus.  The
shares  are  transferable   without   restriction.   The  Fund  does  not  issue
certificates for fractional shares.                                             

     Fund shares have non-cumulative voting rights, which means that the holders
of more than 50% of shares voting for the election of Trustees can elect 100% of
the  Trustees  if they  choose to do so. In such an event,  the  holders  of the
remaining shares so voting are not able to elect any Trustees.                  

STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS

     Total  return  quotations  for a class  of  shares  of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual  compounded  rates of return over one, five and ten year periods,  or the
time  periods for which such class of shares has been  effective,  whichever  is
relevant,  on a  hypothetical  $1,000  investment  that would equate the initial
amount  invested  in the class to the ending  redeemable  value.  To the initial
investment  all  dividends  and  distributions  are added and the maximum  sales
charge and all recurring fees charged to all shareholder  accounts are deducted.
The ending  redeemable  value  assumes a complete  redemption  at the end of the
relevant periods.                                                               

     The  cumulative  total returns for Class A of the Fund for the five and ten
year periods ended September 30, 1994 were 53.14% and 300.70%, respectively. The
compounded average annual rates of return for Class A shares of the Fund for the
one, five and ten year periods ended September 30, 1994 were (22.58)%, 8.90% and
14.89%, respectively.                                                           

     The  cumulative  total  return for Class B of the Fund for the period since
commencement  of operations  (August 2, 1993) until September 30, 1994 ("Life of
the Fund") was (15.26)%. The compounded average annual rates of return for Class
B of the Fund for the one year period ended  September  30, 1994 and the Life of
the Fund were (20.81)% and (13.26)%, respectively.                              

     The  cumulative  total  return for Class C of the Fund for the period since
commencement  of operations  (August 2, 1993) until September 30, 1994 ("Life of
the Fund") was (12.71)%. The compounded average annual rates of return for Class
C of the Fund for the one year period ended  September  30, 1994 and the Life of
the Fund were (18.42)% and (11.02)%, respectively.                              

     Current  yield  quotations  as  they  may  appear  from  time  to  time  in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent  balance  sheet of the Fund computed by dividing the net
investment  income per share  earned  during the period by the maximum  offering
price per share on the last day of the base period.  The Fund does not presently
intend to advertise current yield.                                              

ADDITIONAL INFORMATION

     As of December 31, 1994,  Merrill Lynch Pierce Fenner & Smith,  Attn:  Book
Entry,  4800 Deer Lake Drive E 3rd Floor,  Jacksonville,  FL  32246-6484,  owned
22.67% of the Fund's Class A outstanding shares.                                

     As of December 31, 1994,  Merrill Lynch Pierce Fenner & Smith,  Attn:  Book
Entry,  4800 Deer Lake Drive E 3rd Floor,  Jacksonville,  FL  32246-6484,  owned
25.91% of the Fund's Class B outstanding shares.                                

     As of December 31, 1994, the following shareholders owned 5% or more of the
Fund's Class C shares:  Merrill Lynch Pierce Fenner & Smith,  Attn:  Book Entry,
4800 Deer Lake Drive E 3rd Floor, Jacksonville, FL 32246-6484, 26.12%; Donaldson
Lufkin Jenrette,  Securities  Corporation  Inc., P.O. Box 2052,  Jersey City, NJ
07303-2052,  5.73%;  Brian Doolan,  P.O. Box 2182,  Vail, CO 81658-2182,  5.73%;
PaineWebber For the Benefit of John T.  Frankfurth,  70 Celestial Way #208, Juno
Beach, FL 33408-2326, 5.45%.                                                    

     State  Street  Bank  and  Trust  Company,  225  Franklin  Street,   Boston,
Massachusetts  02110, is the custodian  ("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, are the independent auditors for the Fund.        

     KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519, is a
wholly-owned  subsidiary  of Keystone  and acts as transfer  agent and  dividend
disbursing agent for the Fund.                                                  

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

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

     The Fund's prospectus and statement of additional  information omit certain
information  contained in the  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 comprising the family
of Keystone  America Funds.  The Keystone America Funds offer a range of choices
to serve  shareholder  needs.  The Keystone  America Funds and their  respective
various investment objectives are listed below:                                 

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

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

KEYSTONE  AMERICA  CAPITAL  PRESERVATION  AND INCOME  FUND - Seeks high level of
current income,  consistent with low volatility of principal, by investing under
ordinary  circumstances at least 65% in adjustable rate securities issued by the
U.S. government, its agencies or instrumentalities.                             

KEYSTONE AMERICA FUND FOR TOTAL RETURN - Seeks  above-average  income,  dividend
growth and capital appreciation potential from quality common stocks,  preferred
stocks,  convertible bonds, other fixed-income securities and foreign securities
(up to 50%).                                                                    

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

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

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

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

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

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

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

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

KEYSTONE  AMERICA WORLD BOND FUND - Seeks current  income by investing in a non-
diversified portfolio consisting of investment in debt securities denominated in
U.S. and foreign currencies. The Portfolio seeks i.c. capital appreciation as a 
secondary objective.                                                            

KEYSTONE  FUND OF THE  AMERICAS - Seeks  growth and  income  from a  diversified
portfolio of established North American stocks,  Latin American stocks and Latin
American bonds.                                                                 

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

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APPENDIX

COMMON AND PREFERRED STOCK RATINGS

A.      S&P'S EARNINGS AND DIVIDEND RANKINGS FOR COMMON STOCKS                  

        Because the investment  process involves  assessment of various factors,
such as product and industry position, corporate resources and financial policy,
with results that make some common stocks more highly esteemed than others,  S&P
believes  that  earnings  and  dividend  performance  is the end  result  of the
interplay  of these  factors  and that,  over the long run,  the  record of this
performance  has a  considerable  bearing on  relative  quality.  S&P  rankings,
however, do not reflect all of the factors, tangible or intangible, that bear on
stock quality.                                                                  

        Growth and  stability of earnings and  dividends are deemed key elements
in  establishing  S&P earnings and dividend  rankings for common  stocks,  which
capsulize the nature of this record in a single symbol.                         

        S&P has  established a  computerized  scoring  system based on 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.                                                  

B.      MOODY'S COMMON STOCK RANKINGS                                           

        Moody's presents a concise statement of the important characteristics of
a company and an  evaluation of the grade  (quality) of its common  stock.  Data
presented  includes:  (a) capsule stock information which reveals short and long
term growth and yield  afforded  by the  indicated  dividend,  based on a recent
price;  (b) a long term price chart which shows  patterns of monthly stock price
movements and monthly trading  volumes;  (c) a breakdown of a company's  capital
account  which aids in  determining  the  degree of  conservatism  or  financial
leverage in a company's balance sheet; (d) interim earnings for the current year
to date,  plus three  previous  years;  (e)  dividend  information;  (f) company
background;  (g) recent corporate  developments;  (h) prospects for a company in
the  immediate  future  and the next few years;  and (i) a ten-year  comparative
statistical analysis.                                                           

        This information  provides  investors with information on what a company
does, how it has performed in the past, how it is performing  currently and what
its future performance prospects appear to be.                                  

        These  characteristics  are then  evaluated and result in a grading,  or
indication  of  quality.  The grade is based on an  analysis  of each  company's
financial strength, stability of earnings and record of dividend payments. Other
considerations include conservativeness of capitalization,  depth and caliber of
management,  accounting  practices,   technological  capabilities  and  industry
position. Evaluation is represented by the following grades:                    

(1)     High Grade                                              
(2)     Investment Grade                                        
(3)     Medium Grade                                            
(4)     Speculative Grade                                       

C.      MOODY'S PREFERRED STOCK RATINGS                                         

Preferred stock ratings and their definitions are as follows:   

        1. AAA: An issue which is rated "AAA" is  considered to be a top-quality
preferred stock.  This rating indicates good asset protection and the least risk
of dividend  impairment within the universe of preferred stocks.                

        2. AA: An issue which is rated "AA" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable  assurance that earnings
and asset protection will remain relatively  well-maintained  in the foreseeable
future.                                                                         

        3. A: An issue  which is rated "A" is  considered  to be an  uppermedium
grade preferred stock. While risks are judged to be somewhat greater then in the
"aaa" and "aa" classification,  earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.                                   

        4. BAA: An issue which is rated "BAA" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection  appear  adequate at present but may be  questionable  over any great
length of time.                                                                 

        5. BA: An issue which is rated "BA" is  considered  to have  speculative
elements and its future  cannot be considered  well assured.  Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.           

        6. B: An issue which is rated "B" generally lacks the characteristics of
a desirable investment.  Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.                   

        7. CAA:  An issue  which is rated  "CAA" is likely to be in  arrears  on
dividend  payments.  This rating  designation  does not purport to indicate  the
future status of payments.                                                      

        8. CA: An issue which is rated "CA" is  speculative in a high degree and
is likely to be in arrears on  dividends  with  little  likelihood  of  eventual
payments.                                                                       

        9. C: This is the lowest rated class of preferred or  preference  stock.
Issues so rated can be  regarded  as having  extremely  poor  prospects  of ever
attaining any real investment standing.                                         

        Moody's  applies  numerical   modifiers  1,  2  and  3  in  each  rating
classification:  the modifier 1 indicates  that the security ranks in the higher
end of its generic rating category, the modifier 2 indicates a mid-range ranking
and the  modifier  3  indicates  that the  issue  ranks in the  lower end of its
generic rating category.                                                        

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SCHEDULE OF INVESTMENTS--September 30, 1994                                     

                                                                · Download Table

                                     Number             Market
                                  of Shares              Value
                                                              
COMMON STOCKS (98.7%)                                         
CELLULAR (2.7%)                                               
ACS Enterprises                                               
Incorporated                        115,000         $1,581,250
Peoples Choice TV                                             
Corporation                          75,000          1,762,500
                                                     3,343,750
COMMUNICATION EQUIPMENT (20.7%)                               
Chipcom Corp.(a)                   150,000          8,025,000 
General Datacom Inds.,                                        
Inc.                                425,000         12,006,250
Stratacom Incorporated              165,000          6,146,250
                                                    26,177,500
HEALTHCARE FACILITIES (13.9%)                                 
Arbor Health Care Company           250,000          5,187,500
Careerstaff Unlimited                                         
Incorporated                         50,000            681,250
Multicare Cos.                                                
Incorporated                        125,000          2,507,813
Summit Care Corporation             150,000          3,421,875
United American                                               
Healthcare Corp.                    200,000          5,700,000
                                                    17,498,438
HEALTHCARE/INFORMATION SYSTEMS (4.7%)                         
Cerner Corp.(a)                     20,000            817,500 
Clinicom, Inc.(a)                  294,000          5,145,000 
                                                     5,962,500
HEALTHCARE SERVICES                                           
(13.5%)                                                       
Coastal Healthcare Group,                                     
Inc.                                 80,000          2,620,000
Phycor Incorporated                 175,000          6,037,500
Quantum Health Resources                                      
Inc.                                200,000          8,437,500
                                                    17,095,000
OIL (1.5%)                                                    
Petroleum Geo Services              100,000          1,937,500

RESTAURANTS (6.0%)                                            
DF&R Restaurants Inc.               170,000          4,802,500
Papa John's International                                     
Incorporated                        100,000          2,750,000
                                                     7,552,500
SOFTWARE/BUSINESS (22.8%)                                     
Avid Technology Inc.                200,000          6,750,000
Netmanage Inc.                      150,000          3,187,500
People Soft Inc.                    150,000          7,237,500
Platinum Technology Inc.            105,000          2,086,875
Vmark Software Inc.                 250,000          5,250,000
Wonderware Corporation              200,000          4,250,000
                                                    28,761,875
SOFTWARE/PERSONAL (5.0%)                                      
Davidson & Associates                                         
Inc.                                175,000          3,500,000
Spectrum Holobyte                                             
Incorporated                        200,000          2,787,500
                                                     6,287,500
SPECIALITY RETAIL (7.9%)                                      
Sports & Recreation Inc.            165,000          4,290,000
Sunglass Hut                                                  
International Inc.                  150,000          5,662,500
                                                     9,952,500
TOTAL COMMON STOCKS                                           
(Cost-- $107,020,854)                              124,569,063
                                  Par                         
                                 Value                        
SHORT-TERM INVESTMENTS (3.6%)                                 
CERTIFICATE OF DEPOSIT (0.0%)                                 
State Street Bank & Trust                                     
Co. 3.250%, 10/31/94                $18,900             18,900

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Keystone America Hartwell Emerging Growth Fund, Inc.                            
SCHEDULE OF INVESTMENTS--September 30, 1994                                     

                                                                · Download Table

                                    MATURITY            MARKET
                                       VALUE             VALUE
                                                              
REPURCHASE AGREEMENT (3.6%)                                   

State Street Bank & Trust                                     
Co., 4.35%, purchased                                         
09/30/94, (Collateralized                                     
by $4,125,000 U.S.                                            
Treasury Bonds, 8.875%,                                       
due 02/15/19), maturing                                       
10/03/94) (Cost                                               
$4,520,000)                       $4,521,638        $4,520,000
TOTAL SHORT-TERM INVESTMENTS                                  
(Cost--$4,538,900)                                   4,538,900

                                                                · Download Table

                                                        MARKET 
                                                         VALUE 
                                                               
TOTAL INVESTMENTS                                              
(Cost--$111,559,754)(b)                          $129,107,963  
OTHER ASSETS AND LIABILITIES--NET (-2.3%)           (2,938,808)
NET ASSETS (100%)                                 $126,169,155 

[FN]                                                                            
NOTES TO SCHEDULE OF INVESTMENTS                                                
(a) Non-income producing security.                                              
(b) The cost of investments for federal income tax purposes is identical.       
Gross unrealized appreciation and depreciation of investments based on          
identified tax cost, at September 30, 1994 are as follows:                      

                                                                · Download Table

                                                               
Gross unrealized appreciation                      $19,576,453 
Gross unrealized depreciation                       (2,028,244)
Net unrealized appreciation                        $17,548,209 

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FINANCIAL HIGHLIGHTS--CLASS A SHARES                                            
(For a share outstanding throughout the year)                                   

                                                        · Enlarge/Download Table

                                                                Year Ended September 30,                                         
                          1994       1993       1992        1991       1990       1989       1988     1987     1986        1985  
                                                                                                                                 
Net asset value:                                                                                                                 
 Beginning of year      $28.56    $20.80      $22.91    $14.13      $15.96     $11.56     $24.37    $14.94    $11.17    $ 10.75  
Income from                                                                                                                      
investment                                                                                                                       
operations                                                                                                                       
Net investment loss     (0.37)     (0.34)      (0.26)    (0.22)      (0.29)     (0.21)     (0.20)    (0.23)    (0.26)     (0.11) 
Net gains (losses)                                                                                                               
on securities           (4.43)      8.10        0.05      9.13       (1.45)      4.61      (6.03)     9.66      4.03       0.53  
Total from                                                                                                                       
investment                                                                                                                       
operations              (4.80)      7.76       (0.21)     8.91       (1.74)      4.40      (6.23)     9.43      3.77       0.42  
Less distributions:                                                                                                              
Distributions from                                                                                                               
capital gains           (2.35)         0       (1.90)    (0.13)      (0.09)         0      (6.58)        0         0          0  
Total                                                                                                                            
distributions           (2.35)         0       (1.90)    (0.13)      (0.09)         0      (6.58)        0         0          0  
Net asset value:                                                                                                                 
End of year          $  21.41   $  28.56    $  20.80   $ 22.91     $ 14.13    $ 15.96    $ 11.56   $ 24.37   $ 14.94    $ 11.17  
Total return<F1>       (17.86%)    37.31%      (1.12%)   63.51%     (10.95%)    38.06%    (16.40%)   63.12%    33.75%      3.91% 
Ratios/supplemental data                                                                                                         
Ratios to average                                                                                                                
net assets:                                                                                                                      
 Operating and                                                                                                                   
management                                                                                                                       
expenses                 1.80%      1.60%       1.63%     1.70%       2.50%      2.40%      2.40%     1.90%<F2> 2.00%      1.40% 
 Net investment                                                                                                                  
income loss             (1.62%)    (1.34%)     (1.18%)   (1.18%)     (1.80%)    (1.60%)    (1.70%)   (1.20%)   (1.70%)    (1.00%)
Portfolio turnover                                                                                                               
rate                      156%       155%        152%      137%         96%       136%       110%      224%      123%       107% 
Net assets, end of                                                                                                               
period (thousands)   $120,689   $195,708    $152,714   $72,602     $21,855    $25,131   $23,596    $41,440   $24,883    $29,795  

Per share calculation based on average weighted shares outstanding.                                                              

<FN>                                                                                                                             
<F1>Excluding applicable sales charges.                                                                                          
<F2>Figure is net of expense  reimbursement  by Hartwell  Keystone in connection                                                 
    with voluntary expense limitations.  Before the expense  reimbursement,  the                                                 
    "Ratio of operating  and  management  expenses to average net assets"  would                                                 
    have been 2.00% for the year ended September 30, 1987.                                                                       

See Notes to Financial Statements.                                                                                               

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Keystone America Hartwell Emerging Growth Fund, Inc.                            
FINANCIAL HIGHLIGHTS--CLASS B SHARES                                            
(For a share outstanding throughout the period)                                 

                                                                · Download Table

                                                          August 2, 1993
                                      Year Ended        (Date of Initial
                                   September 30,     Public Offering) to
                                            1994      September 30, 1993
                                                                        
Net asset value:                                                        
Beginning of period                $ 28.56                $26.69        
Income from investment                                                  
operations                                                              
Net investment loss                  (0.49)                (0.05)       
Net gains (losses) on                                                   
securities                           (4.50)                 1.92        
Total from investment                                                   
operations                           (4.99)                 1.87        
Less distributions                                                      
Distributions from capital                                              
gains                                (2.35)                    0        
Total distributions                  (2.35)                    0        
Net asset value: End of                                                 
period                             $ 21.22                $28.56        
Total return<F1>                    (18.58%)                7.01%       
Ratios/supplemental data                                                
Ratios to average net                                                   
assets:                                                                 
Operating and management                                                
expenses                              2.49%                 3.70%<F2>   
 Net investment income loss          (2.27%)               (3.42%)<F2>  
Portfolio turnover rate                156%                  155%       
Net assets, end of period                                               
(thousands)                        $ 3,801                $  823        

Per share calculation based on average weighted shares outstanding.             
[FN]                                                                            

<F1>Excluding applicable sales charges.                                         
<F2>Annualized for the period August 2, 1993 (Date of Initial  Public  Offering)
to September 30, 1993.                                                  

See Notes to Financial Statements.                                              

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FINANCIAL HIGHLIGHTS--CLASS C SHARES                                            
(For a share outstanding throughout the period)                                 

                                                                · Download Table

                                                               August 2, 1993
                                           Year Ended        (Date of Initial
                                        September 30,     Public Offering) to
                                                 1994      September 30, 1993
                                                                             
Net asset value:                                                             
Beginning of period                      $ 28.56               $26.69        
Income from investment operations                                            
Net investment loss                        (0.47)               (0.08)       
Net gains (losses) on securities           (4.48)                1.95        
Total from investment operations           (4.95)                1.87        
Less distributions                                                           
Distributions from capital gains           (2.35)                   0        
Total distributions                        (2.35)                   0        
Net asset value: End of period           $ 21.26               $28.56        
Total return<F1>                          (18.42%)               7.01%       
Ratios/supplemental data                                                     
Ratios to average net assets:                                                
Operating and management expenses           2.47%                3.09%<F2>   
 Net investment income loss                (2.25%)              (2.80%)<F2>  
Portfolio turnover rate                      156%                 155%       
Net assets, end of period                                                    
(thousands)                              $ 1,679               $  297        

Per share calculation based on average weighted shares outstanding.             
[FN]                                                                            
<F1>Excluding applicable sales charges.                                         
<F2>Annualized for the period August 2, 1993 (Date of Initial  Public  Offering)
to September 30, 1993.                                                  

See Notes to Financial Statements.                                              

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Keystone America Hartwell Emerging Growth Fund, Inc.                            
STATEMENT OF ASSETS AND LIABILITIES                                             
September 30, 1994                                                              

                                                                · Download Table

 Assets:                                                              
                                                                      
Investments at market value (identified cost--                        
$111,559,754) (Note 1)                                   $129,107,963 
Cash                                                              798 
Receivable for:                                                       
 Fund shares sold                                             107,998 
 Dividends and interest                                           651 
Prepaid expenses                                               11,066 
Other assets                                                   50,791 
 Total assets                                             129,279,267 
Liabilities:                                                          
 Payable for:                                                         
 Investments purchased                                      2,559,063 
 Fund shares redeemed                                         374,670 
Accrued reimbursable expenses (Note 4)                          1,483 
Other accrued expenses                                        174,896 
 Total liabilities                                          3,110,112 
Net assets                                               $126,169,155 
Net assets represented by:                                            
Paid-in capital                                          $110,263,475 
Accumulated distributions in excess of investment                     
income--net                                                  (257,173)
Accumulated realized losses on investment                             
transactions--net                                          (1,385,356)
Net unrealized appreciation on investments                 17,548,209 
 Total net assets                                        $126,169,155 
Net asset value and redemption price per share                        
 (Note 2):                                                            
Class A Shares ($21.41 on 5,637,851 shares                            
outstanding)                                             $120,689,234 
Class B Shares ($21.22 on 179,103 shares                              
outstanding)                                                3,800,683 
Class C Shares ($21.26 on 78,991 shares                               
outstanding)                                                1,679,238 
                                                         $126,169,155 
Offering price per share:                                             
 Class A Shares (including sales charge                               
  of 5.75%) (Note 2)                                     $      22.72 
Class B Shares                                           $      21.22 
Class C Shares                                           $      21.26 

See Notes to Financial Statements.                                              

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STATEMENT OF OPERATIONS                                                         
Year Ended September 30, 1994                                                   

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Investment income (Note 1):                                                  
Dividends                                                       $     53,789 
Interest                                                             216,839 
 Total income                                                        270,628 
Expenses (Notes 2, 4 and 5):                                                 
Management fee                               $  1,452,834                    
Transfer agent fees                               685,853                    
Accounting                                         18,215                    
Auditing and legal                                 25,405                    
Custodian fees                                     81,625                    
Printing expenses                                  28,929                    
Distribution Plan expenses                        308,315                    
Registration fees                                  86,460                    
Directors' fees and expenses                       28,047                    
Postage and mailing                                 3,137                    
Miscellaneous expenses                             11,433                    
 Total expenses                                                    2,730,253 
Loss from operations                                              (2,459,625)
Realized and unrealized gain (loss)                                          
 on investments--net (Notes 1 and 3):                                        
 Realized gain (loss) on:                                                    
 Proceeds from sales                          265,268,448                    
 Cost of investments sold                     256,447,502                    
Realized gain on investment                                                  
 transactions--net                                                 8,820,946 
Net unrealized appreciation                                                  
 (depreciation) on investments:                                              
 Beginning of year                             56,484,677                    
 End of year                                   17,548,209                    
 Increase (decrease) in unrealized                                           
  appreciation or depreciation--net                              (38,936,468)
Net loss on investments                                          (30,115,522)
Net decrease in net assets resulting                                         
 from operations                                               ($ 32,575,147)

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STATEMENTS OF CHANGES IN NET ASSETS                                             

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                                                     Year Ended September 30,
                                                     1994                1993
                                                                             
Operations:                                                                  
Loss from operations--net                 $ (2,459,625)          $(2,487,733)
Realized gain on investments--net            8,820,946             24,997,801
Increase (decrease) in unrealized                                            
appreciation or depreciation--net          (38,936,468)            34,750,758
 Net increase (decrease) in net assets                                       
resulting from operations                  (32,575,147)            57,260,826
Distributions to shareholders from                                           
realized gains on investment                                                 
 transactions--net (Note 5)                (15,831,717)                     0
Capital share transactions (Note 2):                                         
Proceeds from shares sold--Class A                                           
Shares                                      13,815,022             39,477,822
Proceeds from shares sold--Class B                                           
Shares                                       5,015,690                794,853
Proceeds from shares sold--Class C                                           
Shares                                       2,613,385                290,084
Payments for shares redeemed--Class A                                        
Shares                                     (55,198,867)          (53,709,169)
Payments for shares redeemed--Class B                                        
Shares                                      (1,615,154)                  (21)
Payments for shares redeemed--Class C                                        
Shares                                      (1,118,138)                  (21)
Net asset value of shares issued in                                          
reinvestment of capital gain                                                 
distributions--Class A Shares               14,084,578                      0
Net asset value of shares issued in                                          
reinvestment of capital gain                                                 
distributions--Class B Shares                  108,234                      0
Net asset value of shares issued in                                          
reinvestment of capital gain                                                 
distributions--Class C Shares                   42,421                      0
 Net decrease in net assets resulting                                        
from capital share transactions            (22,252,829)          (13,146,452)
  Total increase (decrease) in net                                           
assets                                     (70,659,693)            44,114,374
Net Assets:                                                                  
Beginning of year                          196,828,848            152,714,474
End of year [including accumulated                                           
distributions in excess of net                                               
investment income as follows: September                                      
1994--($257,173) and September 1993--$0]  $126,169,155           $196,828,848

See Notes to Financial Statements.                                              

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Keystone America Hartwell Emerging Growth Fund, Inc.                            

NOTES TO FINANCIAL STATEMENTS                                                   

(1.) Significant Accounting Policies                                            

Hartwell Emerging Growth Fund, Inc. (the "Fund") is a non-diversified,          
open-end investment company. The Fund was incorporated in New York on April     
8, 1968 and began operations on September 10, 1968. Hartwell Keystone           
Advisers, Inc. ("Hartwell Keystone") a wholly-owned subsidiary of Keystone      
Custodian Funds, Inc. ("Keystone") act as the Fund's investment adviser         
pursuant to an Investment Management and Advisory Agreement.                    

Hartwell Management Company, Inc. ("Hartwell Management") has acted as          
subadviser to the Fund pursuant to a Sub-Advisory Agreement with Hartwell       
Keystone. Subject to the supervision of the Fund's Board of Directors and       
Keystone, Hartwell Management provides the Fund and Hartwell Keystone with      
investment research, advice, information and securities recommendations.        

The Fund currently issues Class A, Class B, and Class C shares. Class A         
Shares are sold subject to 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 within three calendar years after the      
year of purchase. Class C shares are sold subject to a contingent deferred      
sales charge payable upon redemption within one year of purchase. Class C       
shares are available only through dealers who have entered into special         
distribution agreements with Keystone Distributors, Inc. ("KDI"), the Fund's    
principal underwriter.                                                          

Keystone is a wholly-owned subsidiary of Keystone Group, Inc. ("KGI"), a        
Delaware corporation. KGI is privately owned by an investor group consisting    
of members of current 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. These      
policies are in conformity with generally accepted accounting principles.       

A. Investments are usually valued at the closing sales price, or in the         
absence of sales and for over-the-counter securities, the mean of bid and       
asked quotations. Management values the following securities at prices it       
deems in good faith to be fair: (a) securities (including restricted            
securities) for which complete quotations are not readily available and (b)     
listed securities if, in the opinion of management, the last sales price does   
not reflect a current value, or if no sale occurred.                            

Short-term investments, if purchased with maturities of sixty days or less,     
are valued at amortized cost (original purchase cost as adjusted for            
amortization of premium or accretion of discount which when combined with       
accrued interest approximates market). Short-term investments maturing in       
more than sixty days 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).                           

B. Securities transactions are accounted for on the trade date. Realized        
gains and losses are computed on the identified cost basis. Interest income     
is recorded on the accrual basis and dividend income is recorded on the         
ex-dividend date. Distributions to the shareholders are recorded by the         
Fundat the close of business on the record date.                                

C. The Fund has qualified, and intends to qualify in the future, as a           
regulated investment company under the Internal Revenue Code of 1986, as        
amended ("Internal Revenue Code"). Thus, the Fund is relieved of any federal    
income or excise tax liability by distributing all of its net taxable           
investment income and net taxable capital gains, if any, to its shareholders.   
The Fund intends to avoid excise tax liability by making the required           
distributions under the Internal Revenue Code.                                  

D. When the Fund enters into a repurchase agreement (a purchase of securities   
whereby the seller agrees to repurchase the securities at a mutually agreed     
upon date and price) the repurchase price of the securities will generally      
equal the amount paid by the Fund plus a negotiated interest amount. The        
seller under the repurchase agreement will be required to provide securities    
("collateral") to the Fund whose value will be maintained at an amount not      
less than the repurchase price, and which generally will be maintained at       
101% of the repurchase price. The Fund monitors the value of collateral on a    
daily basis, and if the value of the collateral falls below required levels,    
the Fund intends to seek additional collateral from the seller or terminate     
the repurchase agreement. If the seller defaults, the Fund would suffer a       
loss to the extent that the proceeds from the sale of the underlying            
securities were less than the repurchase price. Any such loss would be          
increased by any cost incurred on disposing of such securities. If bankruptcy   
proceedings are commenced against the seller under the repurchase agreement,    
the realization on the collateral may be delayed or limited. Repurchase         
agreements entered into by the Fund will be limited to transactions with        
dealers or domestic banks believed to present minimal credit risks, and the     
Fund will take constructive receipt of all securities underlying repurchase     
agreements until such agreements expire.                                        

E. The Fund distributes net investment income and net capital gains, if any,    
annually. Distributions are determined in accordance with income tax            
regulations. Distributions from taxable net investment income and net capital   
gains can exceed book basis net investment income and net capital gains.        
Effective October 1, 1993, the Fund adopted Statement of Position 93-2:         
Determination, Disclosure, and Financial Statement Presentation of Income,      
Capital Gain and Return of Capital Distributions by Investment Companies. As    
a result of this statement, the Fund changed the classification of              
distributions to shareholders to better disclose the differences between        
financial statement amounts and distributions determined in accordance with     
income tax regulations. Accordingly, capital accounts as of September 30,       
1993 have been restated to reflect a decrease in paid-in capital of             
$7,340,833, a decrease in accumulated realized gains (losses) on investment     
transactions of $262,555, and an increase in undistributed net investment       
income of $7,603,388.                                                           

(2.) Capital Share Transactions                                                 

Fifteen million shares each of Class A, B, C, E, and F and fifty million        
shares of Class D of the Fund, each with a par value of $1.00, are authorized   
for issuance. Currently, only Class A, B, and C shares are outstanding.         
Transactions in shares of the Fund were as follows:                             

                                                                · Download Table

                                                   Class A Shares        
                                               Year Ended September 30,  
                                            1994                     1993
                                                                         
Shares sold                              620,860                1,613,951
Shares redeemed                       (2,410,004)             (2,103,817)
Shares issued in                                                         
reinvestment of                                                          
distributions from                                                       
realized gains--net                      573,944                        0
Net decrease                          (1,215,200)               (489,866)
                                                                · Download Table

                                            Class B Shares               
                                                           August 2, 1993
                                                         (Date of Initial
                                      Year Ended         Public Offering)
                                   September 30,         to September 30,
                                            1994                     1993
                                                                         
Shares sold                              216,318                   28,837
Shares redeemed                          (70,467)                     (1)
Shares issued in                                                         
reinvestment of                                                          
distributions from                                                       
realized gains--net                        4,416                        0
Net increase                             150,267                   28,836
                                                                · Download Table

                                            Class C Shares               
                                                           August 2, 1993
                                                         (Date of Initial
                                      Year Ended         Public Offering)
                                   September 30,         to September 30,
                                            1994                     1993
                                                                         
Shares sold                              119,572                   10,407
Shares redeemed                          (52,718)                     (1)
Shares issued in                                                         
reinvestment of                                                          
distributions from                                                       
realized gains--net                        1,731                        0
Net increase                              68,585                   10,406

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 Investment Company Act of 1940 ("1940 Act").   

Keystone America Hartwell Emerging Growth Fund, Inc.                            
The Class A Distribution Plan provides for payments that are currently          
limited to 0.25% annually of the average daily net asset value of Class A       
shares to pay expenses of the distribution of Class A shares. Amounts paid by   
the Fund to KDI under the Class A Distribution Plan are currently used to pay   
others, such as dealers, service fees at an annual rate of 0.25% of the         
average net asset value of the shares sold by such others 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        
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 other (dealers) (i) a       
commission at the time of purchase normally equal to 3.00% of the value of      
each share sold; and/or (ii) service fees at an annual rate of 0.25% of the     
average daily net asset value of shares sold by such others and remaining       
outstanding on the books of the Fund for specified periods.                     

The Class C Distribution Plan provides for payments at an annual rate of up     
to 1.00% of the average daily net asset value of Class C shares to pay          
expenses of 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 normally equal to 1.00% of      
the value of each share sold, such payment to consist of commission in the      
amount of 0.75% and the first year's service in advance in the amount of        
0.25%; and (ii) beginning approximately 15 months after purchase, a             
commission at an annual rate of 0.75% (subject to applicable limitations        
imposed by the rules of the National Association of Securities Dealers, Inc.)   
and service fees at an annual rate of 0.25% of the average net asset value of   
each share sold by such others and remaining outstanding on the books for       
specified periods.                                                              

Each of the Distribution Plans may be terminated at any time by a vote of       
Independent Directors or by a vote of a majority of the outstanding voting      
shares of the respective class. However, after the termination of the Class B   
Distribution Plan, payments to KDI will continue at the annual rate of 1.00%    
of the average daily net asset value of the Class B shares, as compensation     
for its services which had been earned while the Class B Distribution Plan      
was in effect. Such unreimbursed distribution expenses as of September 30,      
1994 were $252,738 and $114,705 for Class B and Class C Distribution Plans,     
respectively.                                                                   

During the year ended September 30, 1994, the Fund paid KDI $272,925, $24,517   
and $10,873 under its Class A, Class B, and Class C Distribution Plans,         
respectively.                                                                   

Presently, the Fund's class specific expenses are limited to Distribuion Plan   
expenses incurred by a class of shares.                                         

(3.) Securities Transactions                                                    

Purchases and sales of investment securities (including proceeds received at    
maturity) for year ended September 30, 1994, were as follows:                   

                                                                · Download Table

                                       Cost of             Proceeds
                                     Purchases           From Sales
                                                                   
Portfolio securities              $227,260,432         $265,268,448
Short-term investments           1,646,812,600        1,649,037,600
                                $1,874,073,032       $1,914,306,048

(4.) Investment Management and Transactions with Affiliates                     

The Fund pays Hartwell Keystone a basic monthly advisory fee calculated by      
applying percentage rates, starting at 1.0% and declining as net assets         
increase, to 0.65% to the Fund's average daily net asset value during the       
latest 12 months (a moving average method). The basic advisory fee of the       
Fund is subject to an incentive adjustment, by which the basic fee may be       
increased or decreased by up to 1/2 of 1% of the average daily net asset        
value during the latest 12 months (a moving average method) of the Fund         
depending upon the performance of the Fund relative to the Standard and         
Poor's Index of 500 Stocks ("S&P 500").                                         

During the year ended September 30, 1994, the Fund paid or accrued $1,452,834   
in management fees representing 0.97% of the Fund's average net assets. Of      
this amount $500,516 was paid or accrued to Hartwell Management for its         
services as subadviser.                                                         

During the year ended September 30, 1994, the Fund paid or accrued $18,215 to   
KIRC for reimbursement of certain accounting services and $685,853 for          
shareholder services.                                                           

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       
average net assets; 2.0% of the next $70 million of fund average net assets;    
and 1.5% of fund average net assets over $100 million.                          

Hartwell Keystone has agreed to reimburse the Fund annually for certain         
operating expenses incurred by the Fund in excess of the applicable state       
expense limit. However, Hartwell Keystone is not required to make such          
reimbursement to an extent which would result in the Fund's inability           
to qualify as a regulated investment company under provisions of the            
Internal Revenue Code.                                                          

Certain officers and/or Directors of Keystone are also officers and/or          
Directors of the Fund. Officers of Keystone and affiliated Directors receive    
no compensation directly from the Fund.                                         

(5.) Distributions to Shareholders                                              

The Fund intends to distribute to its shareholders dividends from net           
investment income, if any, annually and all net taxable realized long-term      
capital gains, if any, at least annually. Any distribution which is declared    
in December and paid before the next February 1 will be taxable to              
shareholders in the year declared.                                              

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INDEPENDENT AUDITORS' REPORT                                                    

The Directors and Shareholders                                                  
Keystone America Hartwell Emerging Growth Fund, Inc.                            

We have audited the accompanying statement of assets and liabilities of         
Keystone America Hartwell Emerging Growth Fund, Inc., including the schedule    
of investments as of September 30, 1994, and the related statement of           
operations for the year then ended, the statements of changes in net assets     
for each of the years in the two-year period then ended, and the financial      
highlights for each of the years in the four-year period ended September 30,    
1994 for Class A shares and the year ended September 30, 1994 and the period    
from August 2, 1993 (Date of Initial Public Offering) to September 30, 1993     
for Class B and Class C shares. These financial statements and financial        
highlights are the responsibility of the Fund's management. Our                 
responsibility is to express an opinion on these financial statements and       
financial highlights based on our audits. The financial highlights for each     
of the years in the six-year period ended September 30, 1990, were audited by   
other auditors whose report, dated November 7, 1990, expressed an unqualified   
opinion on those financial highlights.                                          

We conducted our audits in accordance with generally accepted auditing          
standards. Those standards require that we plan and perform the audit to        
obtain reasonable assurance about whether the financial statements and          
financial highlights are free of material misstatement. An audit includes       
examining, on a test basis, evidence supporting the amounts and disclosures     
in the financial statements. Our procedures included confirmation of            
securities owned as of September 30, 1994 by correspondence with the            
custodian and brokers. An audit also includes assessing the accounting          
principles used and significant estimates made by management, as well as        
evaluating the overall financial statement presentation. We believe that our    
audits provide a reasonable basis for our opinion.                              

In our opinion, the financial statements and financial highlights referred to   
above present fairly, in all material respects, the financial position of       
Keystone America Hartwell Emerging Growth Fund, Inc. as of September 30,        
1994, the results of its operations for the year then ended, the changes in     
its net assets for each of the years in the two-year period then ended, and     
the financial highlights for each of the periods referred to above in           
conformity with generally accepted accounting principles.                       

                                                       KPMG PEAT MARWICK LLP

Boston, Massachusetts                                                           
November 4, 1994                                                                

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KEYSTONE AMERICA HARTWELL EMERGING GROWTH 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                                   September 30, 1994    

Financial Highlights (All Classes)                        For fiscal years ended
                                                 September 30,
                                                1985 through
                                                      September 30, 1994

Statement of Assets and Liabilities                       September 30, 1994    

Statement of Operations                                   Year ended            
                                                      September 30, 1994

Statements of Changes in Net Assets                       Two years ended       
                                                      September 30, 1994

Notes to Financial Statements                                                   

Independent Auditors' Report                                                    
dated November 4, 1994                                                      

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

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(24)(b)   Exhibits                                                              

(1)     A copy of Registrant's Declaration of Trust is filed herewith.      

(2)     A copy of the Registrant's By-Laws is filed herewith.               

(3)     Not applicable.                                                     

 (4)     A copy of the form of share certificate evidencing Registrant's share
of beneficial interest will be filed by amendment.          

 (5) (A) A copy of the form of Investment  Advisory and  Management  Agreement
         between the Registrant and Keystone  Custodian  Funds,  Inc. is filed
herewith.                                                   

     (B) A copy  of the  form  of  SubInvestment  Advisory  Agreement  between
         Keystone Custodian Funds, Inc. and J.M. Hartwell Limited  Partnership
is filed herewith.                                          

 (6) (A) A copy of the form of Principal  Underwriting  Agreement  between the
         Registrant   and   Keystone   Distributors,   Inc.   was  filed  with
         Post-Effective Amendment No. 38 to Registration  No.2-287191/811-1633
   as Exhibit 24(b)(6)(A) and is incorporated by reference herein.

     (B) A copy of the form of Dealer Agreement used by Keystone Distributors,
         Inc. was filed with  Post-Effective  Amendment No. 35 to Registration
       Statement  No.  2-28719/811-1633  as  Exhibit  24(b)(6)(B)  and  is
incorporated by reference herein.                           

(7)     Not applicable.                                                     

 (8)     A copy of the form of  Registrant's  Custodian,  Fund  Accounting and
         Recordkeeping  Agreement with State Street Bank and Trust Company was
         filed with Post-Effective  Amendment No. 34 to Registration Statement
         No.  2-28719/  811-1633 as Exhibit  24(b)(8) and is  incorporated  by
reference herein.                                           

(9)     Not applicable.                                                     

 (10)    An opinion  and consent of counsel as to the  legality of  securities
registered will be filed by amendment.                      

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Item 24(b) Exhibits (continued).                                                

  (11)     A consent as to the use of the Independent  Auditors' Report is filed
           was  filed  with  Post-Effective  Amendment  No.  40 to  Registration
           Statement   No.   2-28719/811-1633   as  Exhibit   24(b)(11)  and  is
incorporated by reference herein.                         

(12)     Not applicable.                                                    

(13)     Not applicable.                                                    

  (14)     Copies of model plans used in the  establishment  of retirement plans
           in connection with which Registrant  offers its securities were filed
           with  Post-Effective  Amendment No. 66 to Registration  Statement No.
           2-10527/811-96 as Exhibit 24(b)(14) and are incorporated by reference
herein.                                                   

  (15)     A copy of the form of Registrant's  existing Rule 12b-1  Distribution
           Plan was filed with Registrant's  Post-Effective  Amendment No. 33 to
           Registration Statement No.  2-28719/811-1633 as Exhibit 24(b)(15) and
           is  incorporated  by  reference   herein.  A  copy  of  the  form  of
           Registrant's   Class   B/C   Distribution   Plan   was   filed   with
           Post-Effective   Amendment  No.  37  to  Registration  Statement  No.
           2-28719/811-1633  as part of Exhibit 24(b)(15) and is incorporated by
           reference  herein.  A copy  of  the  form  of  Registrant's  Class  B
           Distribution Plan was filed with  Post-Effective  Amendment No. 38 to
           Registration Statement No.  2-28719/811-1633 as Exhibit 24(b)(15) and
is incorporated by reference herein.                      

  (16)     Schedules   for   computation   of  total   return  were  filed  with
           Post-Effective   Amendment  No.  40  to  Registration  Statement  No.
           2-28719/811-1633   as  Exhibit   24(b)(6)  and  are  incorporated  by
reference herein.                                         

(17)     Not applicable.                                                    

(18)     Powers of Attorney are filed herewith.                             

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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 December 31, 1994

   Shares of $1.00                            Class A - 10,475
   par value                                  Class B -    582
                                              Class C -    162

Item 27.    Indemnification                                                     

        Provisions for the  indemnification of the Fund's Directors and officers
are contained in Article 4 of the Registrant's Form of By-Laws,  a copy of which
is filed herewith.                                                              

        Provisions for the indemnification of Keystone  Distributors,  Inc., the
Registrant's principal underwriter,  are contained in Section 9 of the Principal
Underwriting Agreement between the Registrant and Keystone Distributors, Inc., a
copy of which was filed with Registration Statement No.  2-28719/811-1633 and is
incorporated by reference herein.                                               

     Provisions for the  indemnification  of Keystone  Custodian Funds, Inc. and
J.M. Hartwell, Registrant's investment adviser and subadviser, respectively, are
contained in Section 4 of the SubInvestment  Advisory Agreement between Keystone
Custodian Funds, Inc. and J.M. Hartwell Limited Partnership and Section 5 of the
Investment  Advisory  and  Management  Agreement  between  Registrant  and  J.M.
Hartwell Limited Partnership, forms of which are filed herewith.                

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Item 28.    Businesses and Other Connections of Investment Advisers             

            The  following  tables  list the names of the various  officers  and
            directors  of  Keystone  Custodian  Funds,  Inc.  and J.M.  Hartwell
            Limited Partnership  Registrant's investment adviser and subadviser,
            respectively,   and  their  respective  positions.  For  each  named
            individual, the tables list for at least the past two years, (i) any
            other  organizations  with which the officer and/or director has had
            or has  substantial  involvement;  and (ii) positions held with such
organizations.                                          

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 LIST OF OFFICERS AND DIRECTORS OF KEYSTONE CUSTODIAN FUNDS, INC.  (1/26/95)

Position with                   
Keystone Custodian              
Name                    Funds, Inc.                  Other Business Affiliations

Albert H.               Chairman of the Board,       Chairman of the Board,     
Elfner, III             Chief Executive Officer,     Chief Executive            
               Vice Chairman and            Officer, President
      Director                     Director:
                                                Keystone Group, Inc.
                                                     Keystone Management, Inc.
                                                   Keystone Software, Inc.
                                                      Keystone Asset Corporation
                                                  Keystone Capital Corp.
                                                   Chairman of the Board and
                                     Director:
                                                 Keystone Fixed Income
                                            Advisers, Inc.
                                               Keystone Investment
                                                    Management Corporation
                                                 President and Director:
                                                  Keystone Trust Company
                                              Director or Trustee:
                                                Fiduciary Investment
                                           Company, Inc.
                                                  Keystone Distributors,
                                  Inc.
                                                      Keystone Investor Resource
                                          Center, Inc.
                                                     Robert Van Partners, Inc.
                                                      Boston Children's Services
                                                Associates Fiduciary
                                                      Investment Company, Inc.
                                            Middlesex School
                                              Middlebury College
                                           Formerly Trustee:
                                        Neworld Bank

Philip M.               Director                     President and Director:    
Byrne                                                 Keystone Investment       
                                                    Management Corporation
                                                Senior Vice President:
                                                Keystone Group, Inc.

Herbert L.              Senior Vice                  None                       
Bishop, Jr.             President                                               

Donald C.               Senior Vice                  None                       
Dates                   President                                               

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Position with                   
Keystone Custodian              
Name                    Funds, Inc.                  Other Business Affiliations

Gilman                  Senior Vice                  None                       
Gunn                    President                                               

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

James R.                Director and                 None                       
McCall                  President                                               

Ralph J.                Director                     President and Director:    
Spuehler, Jr.                                         Keystone Distributors,Inc.
                                                   Senior Vice President and
                                     Director:
                                                Keystone Group, Inc.
                                    Treasurer:
                                                    Hartwell Emerging Growth
                                        Fund, Inc.
                                                     Hartwell Growth Fund,Inc.
                                   Director:
                                             Keystone Investor
                                                   Resource Center, Inc.
                                                     Keystone Management, Inc.
                                             Formerly President:
                                                     Keystone Management, Inc.
                                             Formerly Treasurer:
                                          The Kent Funds
                                                Keystone Group, Inc.
                                                   Keystone Custodian Funds,
                                Inc.

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Position with                   
Keystone Custodian              
Name                    Funds, Inc.                  Other Business Affiliations

Rosemary D.             Senior Vice                  General Counsel, Senior    
Van Antwerp             President,                   Vice President and         
       General Counsel              Secretary:
                  and Secretary                 Keystone Group, Inc.
                                                   Senior Vice President and
                                            General Counsel:
                                               Keystone Investment
                                                    Management Corporation
                                          Senior Vice President,
                                             General Counsel and
                                   Director:
                                                      Keystone Investor Resource
                                          Center, Inc.
                                                Fiduciary Investment
                                           Company, Inc.
                                                  Keystone Distributors,
                                  Inc.
                                                     Keystone Management, Inc.
                                                   Keystone Software, Inc.
                                                   Senior Vice President and
                                    Secretary:
                                             Hartwell Keystone
                                            Advisers, Inc.
                                            Vice President and
                                    Secretary:
                                                 Keystone Fixed Income
                                            Advisers, Inc.
                                            Formerly Assistant
                                    Secretary:
                                          The Kent Funds

Harry Barr              Vice President               None                       

Robert K. Baumback      Vice President               None                       

Betsy A. Blacher        Vice President               None                       

Francis X. Claro        Vice President               None                       

Kristine R. Cloyes      Vice President               None                       

Christopher P.          Vice President               None                       
Conkey                                                                          

Richard Cryan           Vice President               None                       

Maureen E.              Vice President               None                       
Cullinane                                                                       

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Position with                 
Keystone Custodian            
Name                     Funds, Inc.                 Other Business Affiliations

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.               Vice President               None                       
Kimball                                                                         

JoAnn L.                Vice President               None                       
Lyndon                                                                          

John C.                 Vice President               None                       
Madden, Jr.                                                                     

Stephen A.              Vice President               None                       
Marks                                                                           

Eleanor H.              Vice President               None                       
Marsh                                                                           

Walter T.               Vice President               None                       
McCormick                                                                       

Barbara McCue           Vice President               None                       

Stanley  M.             Vice President               None                       
Niksa                                                                           

Robert E.               Vice President               None                       
O'Brien                                                                         

Margery C.              Vice President               None                       
Parker                                                                          

William H.              Vice President               None                       
Parsons                                                                         

Daniel A.               Vice President               None                       
Rabasco                                                                         

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Position with                   
Keystone Custodian              
Name                    Funds, Inc.                  Other Business Affiliations

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 Counsel:
Loewenberg              Secretary                     Keystone Group, Inc.      
                                            Vice President and
                                    Secretary:
                                                  Keystone Trust Company
                                    Secretary:
                                             Keystone Investor
                                                   Resource Center, Inc.
                                            Assistant Secretary:
                                          Keystone Asset
                                         Corporation
                                          Keystone Capital
                                       Corporation
                                                     Keystone Distributors, Inc.
                                               Keystone Fixed Income
                                          Advisers, Inc.
                                                   Keystone Management, Inc.
                                                 Keystone Software, Inc.
                                           Hartwell Keystone
                                         Advisers Inc.
                              Clerk:
                                             Keystone Investment
                                               Managem Corporation
                                              Fiduciary Investment
                                         Company, Inc.
                                            Assistant Secretary:
                                           Hartwell Keystone
                                          Advisers, Inc.
                                                Keystone Distributors,
                                Inc.

Colleen L.              Assistant                   Assistant Secretary:        
Mette                   Secretary                    Keystone                   
                                              Distributors, Inc.
                                              Keystone Group, Inc.

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Position with                   
Keystone Custodian              
Name                    Funds, Inc.                  Other Business Affiliations

Kevin J.                Assistant                    Vice President:            
Morrissey               Treasurer                     Keystone Group, Inc.      
                                              Assistant Treasurer:
                                                Fiduciary Investment
                                           Company, Inc.
                                              Formerly Assistant
                                      Treasurer:
                                            The Kent Funds

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LIST OF OFFICERS AND DIRECTORS OF J.M. HARTWELL LIMITED PARTNERSHIP  (1/30/95)  

Position with                   
J.M. Hartwell                   
Name                    Limited Partnership          Other Business Affiliations

William C.              Director and Chief           Vice President:            
Miller, IV              Executive Officer             Hartwell Emerging Growth  
                                        Fund, Inc.
                                                      Hartwell Growth Fund, Inc.
                                   Director:
                                                      Hartwell Distributors,Inc.
                                                 Director and President:
                                                      JMH Management Corporation
                                                     J.M. Hartwell & Co., Inc.

Harrison                Director                     None                       
Augur                                                                           

William                 Director                     General Partner:           
J. Nutt                                               Affiliated Manager's Group

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Item 29.  Principal Underwriter                                                 

    (a)   Keystone  Distributors, Inc.,  which  acts as  Registrant's  principal
          underwriter,  also acts as  principal  underwriter  for the  following
entities:                                                   

Keystone America Hartwell Growth Fund                       
Keystone Custodian Fund, Series B-1                         
Keystone Custodian Fund, Series B-2                         
Keystone Custodian Fund, Series B-4                         
Keystone Custodian Fund, Series K-1                         
Keystone Custodian Fund, Series K-2                         
Keystone Custodian Fund, Series S-1                         
Keystone Custodian Fund, Series S-3                         
Keystone Custodian Fund, Series S-4                         
Keystone America Capital Preservation and                   
Income Fund                                               
Keystone America Fund for Total Return                      
Keystone America Global Opportunities Fund                  
Keystone America Government Securities Fund                 
Keystone America Intermediate Term Bond Fund                
Keystone America Omega Fund, Inc.                           
Keystone America State Tax Free Fund                        
Keystone America  State  Tax  Free  Fund -  Series  II      
Keystone America Strategic Income Fund                      
Keystone America Tax Free Income Fund                       
Keystone  America  World Bond Fund                          
Keystone Fund of the Americas                               
Keystone International Fund Inc.                            
Keystone Liquid Trust                                       
Keystone Precious Metals Holdings, Inc.                     
Keystone Strategic Development Fund                         
Keystone Tax Exempt Trust                                   
Keystone Tax Free Fund                                      
Master Reserves Trust                                       

     (b)  For  information   with  respect  to  each  director  and  officer  of
       Registrant's acting principal underwriter, see the following pages.

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Item 29(b) (continued).                                                         
                                                                    Position and
Name and Principal       Position and Offices with                  Offices with
Business Address         Keystone Distributors, Inc.                the Fund    

Ralph J. Spuehler*       Director, President                        None        

Edward F. Godfrey*       Director, Senior Vice                      Senior Vice 
                      President, Treasurer                       President
and Chief Financial           
Officer                       

Rosemary D. Van Antwerp  Director, Senior Vice                      Senior Vice 
                      President, General Counsel                 President
and Secretary                 

Albert H. Elfner, III*   Director                                   President   

Charles W. Carr*         Senior Vice President                      None        

Peter M. Delehanty*      Senior Vice President                      None        

J. Kevin Kenely*         Vice President and                         None        
Controller                    

Frank O. Gebhardt        Divisional Vice                            None        
2626 Hopeton             President                                              
San Antonio, TX 78230                                                           

C. Kenneth Molander      Divisional Vice                            None        
8 King Edward Drive      President                                              
Londenderry, NH 03053                                                           

David S. Ashe            Regional Manager and                       None        
32415 Beaconsfield       Vice President                                         
Birmingham, MI  48025                                                           

David E. Achzet          Regional Vice President                    None        
60 Lawn Avenue -                                                                
Greenway 27                                                                     
Stamford, CT  06902                                                             

William L. Carey, Jr.    Regional Manager and                       None        
4 Treble Lane            Vice President                                         
Malvern, PA  19355                                                              

John W. Crites           Regional Manager and                       None        
2769 Oakland Circle W.   Vice President                                         
Aurora, CO 80014                                                                

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Item 29(b) continued                                                            

                                                                    Position and
Name and Principal       Position and Offices with                  Offices with
Business Address         Keystone Distributors, Inc.                the Fund    

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        

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Item 29(b) continued                                                            

                                                                    Position and
Name and Principal       Position and Offices with                  Offices with
Business Address         Keystone Distributors, Inc.                the Fund    

John M. McAllister*      Vice President                             None        

Gregg A. Mahalich        Vice President                             None        
14952 Richards Drive W.                                                         
Minnetonka, MN 55345                                                            

Burton Robbins           Vice President                             None        
1586 Folkstone Terrace                                                          
Westlake Village, CA                                                            
91361                                                                           

Thomas E. Ryan, III*     Vice President                             None        

Peter Willis*            Vice President                             None        

Raymond P. Ajemian*      Manager and Vice President                 None        

Joan M. Balchunas*       Assistant Vice President                   None        

Thomas J. Gainey*        Assistant Vice President                   None        

Eric S. Jeppson*         Assistant Vice President                   None        

Julie A. Robinson*       Assistant Vice President                   None        

Peter M. Sullivan        Assistant Vice President                   None        
21445 Southeast 35th Way                                                        
Issaquah, WA  98027                                                             

Jean S. Loewenberg*      Assistant Secretary                        Assistant   
                                                                 Secretary

Colleen L. Mette*        Assistant Secretary                        Assistant   
                                                                 Secretary

Dorothy E. Bourassa*     Assistant Secretary                        Assistant   
                                                                 Secretary

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

Item 29(c). - Not applicable                                                    

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Item 30. Location of Accounts and Records                                       

200 Berkeley Street                                           
Boston, Massachusetts 02116-5034                              

Hartwell Management Company, Inc.                             
515 Madison Avenue                                            
New York, New York  10022                                     

Keystone Investor Resource Center, Inc.                       
101 Main Street                                               
Cambridge, MA 02142-1519                                      

Data Vault, Inc.                                              
3431 Sharp Slot Road                                          
Swansea, MA  02277                                            

State Street Bank and Trust Company                           
1776 Heritage Drive                                           
Quincy, Massachusetts 02171                                   

Item 31. Management Services                                                    

Not Applicable.                                               

Item 32. Undertakings                                                           

         Registrant  hereby  undertakes to furnish to each person to whom a copy
of Registrant's  prospectus is delivered with a copy of the Registrant's  latest
annual report to shareholders upon request and without charge.                  

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SIGNATURES

Pursuant to the  requirements  of the  Securities Act of 1933 and the Investment
Company  Act of 1940,  the  Registrant  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 2nd day of February, 1995.                                                  

                                              KEYSTONE AMERICA HARTWELL EMERGING
                       GROWTH 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 2nd day of February, 1995.           

SIGNATURES                              TITLE                                   

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

/s/ Albert H. Elfner, III       President and Trustee                           
Albert H. Elfner, III*                                                          

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

                                    *By:/s/ Melina M.T. Murphy
                                              Melina M.T. Murphy**
                                  Attorney-in-Fact

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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/ Leroy Keith, Jr.            Trustee                                         
Leroy Keith, Jr.*                                                               

/s/ K. Dun Gifford              Trustee                                         
K. Dun Gifford*                                                                 

/s/ F. Ray Keyser, Jr.          Trustee                                         
F. Ray Keyser, Jr.*                                                             

/s/ David M. Richardson         Trustee                                         
David M. Richardson*                                                            

/s/ Richard J. Shima            Trustee                                         
Richard J. Shima*                                                               

/s/ Andrew J. Simons            Trustee                                         
Andrew J. Simons*                                                               

                                  *By:/s/ Melina M.T. Murphy
                                          Melina M.T. Murphy**
                                      Attorney-in-Fact

** Melina  M.T.  Murphy,  by signing  her name  hereto,  does  hereby  sign this
document on behalf of each of the above-named  individuals pursuant to powers of
attorney duly executed by such persons and attached hereto as Exhibit 24(b)(18).

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INDEX TO EXHIBITS                                               

                                                                 Page Number
                                                                 in Sequential
Exhibit Number           Exhibit                                Numbering System

1                    Declaration of Trust                                   

2                    By-Laws                                                

5               (A)  Form of Investment Advisory and                        
Management Agreement            
 (B)  Form of SubInvestment Advisory Agreement

6               (A)  Principal Underwriting Agreement(5)                    
(B)  Dealers Agreement(3)                   

8                    Custodian, Fund Accounting                             
and Recordkeeping Agreement(2)  
Amendments to Custody Agreement(8)

11                    Independent Auditors Consent(9)                         

14                    Model Retirement Plans(6)                               

15                    Distribution Plan(1)                                    
    Form of Class B/C Distribution Plan(4)
  Form of Class B Distribution Plan(5)

16                    Performance Data Schedules(9)                           

18                    Powers of Attorney                                      
------------------------------------------------------------------------------  

     (1)Incorporated  by reference herein to Post-Effective  Amendment No. 33 to
Registration Statement No. 2-28719/811-1633.                                    

     (2)Incorporated  by reference herein to Post-Effective  Amendment No. 34 to
Registration Statement No. 2-28719/811-1633.                                    

     (3)Incorporated  by reference herein to Post-Effective  Amendment No. 35 to
Registration Statement No. 2-28719/811-1633.                                    

     (4)Incorporated  by reference herein to Post-Effective  Amendment No. 37 to
Registration Statement No. 2-28719/811-1633.                                    

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INDEX TO EXHIBITS continued.                                                    

     (5)Incorporated  by reference herein to Post-Effective  Amendment No. 38 to
Registration Statement No. 2-28719/811-1633.                                    

     (6)Incorporated  by reference herein to Post-Effective  Amendment No. 66 to
Registration Statement No. 2-10527/811-96.                                      

     (7)Incorporated by reference herein to Registrant's Rule 24f-2 Notice filed
on November 29, 1994.                                                           

     (8)Incorporated   by  reference   herein  to  Registrant's   Post-Effective
Amendment No. 40 to Registration Statement No. 2-28719/811-1633.                

     (9)Incorporated   by  reference   herein  to  Registrant's   Post-Effective
Amendment No. 40 to Registration Statement No. 2-28719/811-1633.                

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This 485APOS Filing		Date		First		Last			Other Filings
		9/30/92		21
		7/27/93		21
		8/2/93		9		32
		9/30/93		9		32
		10/1/93		31
		9/30/94		7		33			NSAR-B
		11/4/94		32		33
		11/29/94		1		53
		12/31/94		21		36
		1/1/95		11
		1/30/95		11		21
Filed On / Filed As Of		2/2/95		1
		6/30/95		11
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