<PAGE>
AS FILED WITH THE SECURITIES & EXCHANGE COMMISSION ON NOVEMBER__, 1995.
File No. 2-10526
811-95
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. 101 X
----
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 29 X
----
KEYSTONE HIGH INCOME BOND FUND (B-4)
--------------------------------------------------
(formerly named Keystone Custodian Fund, Series B-4)
--------------------------------------------------
(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)
- - - - - ----
X on November 30, 1995 pursuant to paragraph (b)
- - - - - ----
60 days after filing pursuant to paragraph (a)(1)
- - - - - ----
on (date) pursuant to paragraph (a)(1)
- - - - - ----
75 days after filing pursuant to paragraph (a)(2)
- - - - - ----
on (date) pursuant to paragraph (a)(2) of Rule 485.
- - - - - ----
<PAGE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Offering Registration
Registered Registered Per Unit* Price ** Fee
- - - - - -------------------------------------------------------------------------
Shares of
$1.00 Par 55,172,487 $4.15 $289,998 $100
Value
- - - - - -------------------------------------------------------------------------
*Computed under Rule 457(d) on the basis of the offering price per share at the
close of business on November 27, 1995.
** The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940. 55,102,608 shares of the
Fund were redeemed during its fiscal year ended July 31, 1995. Of such shares,
none were used for a reduction pursuant to Rule 24f-2(c).
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has elected to register an indefinite number of its securities under the
Securities Act of 1933. A Rule 24f-2 Notice for Registrant's most recent fiscal
year ended July 31, 1995 was filed on September 29, 1995.
<PAGE>
KEYSTONE HIGH INCOME BOND FUND (B-4)
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 101
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 101 to Registrant's Registration Statement No.
2-10526/811-95 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 - ITEMS 24(a) and 24(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
Undertakings
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE HIGH INCOME BOND FUND (B-4)
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 Performance Data
Financial Highlights
4 Cover Page
Fund Description
Fund Objective and Policies
Investment Restrictions
Risk Factors
5 Fund Management and Expenses
Additional Information
5A Not applicable
6 Fund Description
Dividends and Taxes
Fund Shares
Shareholder Services
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 The Fund's Objectives and Policies
13 The Fund's Objectives and Policies
Investment Restrictions
Brokerage
Appendix
14 The Trust Agreement
Trustees and Officers
15 Additional Information
16 Sales Charges
Distribution Plan
Investment Manager
Investment Adviser
Principal Underwriter
Additional Information
17 Brokerage
18 The Fund's Objectives and Policies
The Trust Agreement
19 Valuation of Securities
Redemptions in Kind
Distribution Plan
20 Distributions and Taxes
21 Principal Underwriter
22 Standardized Total Return and Yield
Quotations
23 Financial Statements
<PAGE>
KEYSTONE HIGH INCOME BOND FUND (B-4)
PART A
PROSPECTUS
<PAGE>
- - - - - ------------------------------------------------------------------------------
PROSPECTUS NOVEMBER 30, 1995
- - - - - ------------------------------------------------------------------------------
KEYSTONE HIGH INCOME BOND FUND (B-4)
(FORMERLY KEYSTONE CUSTODIAN FUND, SERIES B-4)
200 BERKELEY STREET, BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
- - - - - ------------------------------------------------------------------------------
Keystone High Income Bond Fund (B-4) (the "Fund") is a mutual fund whose
investment objective is generous income. The Fund invests primarily in corporate
bonds, and its portfolio ordinarily includes a substantial number of bonds that,
as a class, sell at discounts from par value. The generous income sought by the
Fund is ordinarily associated with high yield, high risk bonds and similar
securities in the lower rating categories of the recognized rating agencies or
with securities that are unrated.
Your purchase payment is fully invested. There is no sales charge when you buy
the Fund's shares. The Fund may impose, however, a deferred sales charge, which
declines from 4% to 1%, if you redeem your shares within four years of purchase.
The Fund has adopted a Distribution Plan (the "Distribution Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act") under which
it bears some of the costs of selling its shares to the public.
This prospectus sets forth concisely the information about the Fund that you
should know before investing. Please read it and retain it for future reference.
Additional information about the Fund is contained in a statement of
additional information dated November 28, 1995, which has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
prospectus. For a free copy, or for other information about the Fund, write to
the address or call the telephone number listed above.
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.
THE FUND MAY INVEST UP TO 100% OF ITS ASSETS IN LOWER RATED BONDS, COMMONLY
KNOWN AS "JUNK BONDS," WHICH ENTAIL GREATER RISKS, INCLUDING RISKS OF DEFAULT,
UNTIMELY INTEREST AND PRINCIPAL PAYMENTS AND PRICE VOLATILITY, THAN THOSE FOUND
IN HIGHER RATED SECURITIES. LOWER RATED BONDS MAY ALSO PRESENT PROBLEMS OF
LIQUIDITY AND VALUATION. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE
INVESTING. SEE "FUND OBJECTIVE AND POLICIES," PAGE 4; "RISK FACTORS," PAGE 5.
<TABLE>
- - - - - --------------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
- - - - - --------------------------------------------------------------------------------------------------------------
<CAPTION>
Page Page
<S> <C> <S> <C>
Fee Table ........................................ 2 How to Buy Shares ............................ 11
Financial Highlights ............................. 3 Distribution Plan ............................ 12
Fund Description ................................. 4 How to Redeem Shares ......................... 14
Fund Objective and Policies ...................... 4 Shareholder Services ......................... 16
Risk Factors ..................................... 5 Performance Data ............................. 17
Investment Restrictions .......................... 8 Fund Shares .................................. 17
Pricing Shares ................................... 8 Additional Information ....................... 18
Dividends and Taxes .............................. 9 Additional Investment Information ............ (i)
Fund Management and Expenses ..................... 9
- - - - - --------------------------------------------------------------------------------------------------------------
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- - - - - ------------------------------------------------------------------------------
<PAGE>
FEE TABLE
KEYSTONE HIGH INCOME BOND FUND (B-4)
The purpose of the fee table is to assist investors in understanding the
costs and expenses that an investor in the Fund will bear directly or
indirectly. For more complete descriptions of the various costs and expenses,
see the following sections of this prospectus: "Fund Management and Expenses";
"How to Buy Shares"; "Distribution Plan"; and "Shareholder Services."
SHAREHOLDER TRANSACTION EXPENSES
Contingent Deferred Sales Charge(1) .................. 4.00%
(as a percentage of the lesser of total cost or the net asset
value
of shares redeemed)
Exchange Fee(2) ...................................... $10.00
(per exchange)
ANNUAL FUND OPERATING EXPENSES(3)
(as a percentage of average net assets)
Management Fees ...................................... 0.57%
12b-1 Fees(4) ........................................ 0.99%
Other Expenses ....................................... 0.47%
----
Total Fund Operating Expenses ........................ 2.03%
====
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
EXAMPLE(5)
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: ............... $60 $84 $109 $236
You would pay the following
expenses on the same investment,
assuming no redemption: ....... $21 $64 $109 $236
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- - - - - ----------
(1) The deferred sales charge declines from 4% to 1% of amounts redeemed
within three calendar years after the year of purchase. No deferred sales
charge is imposed thereafter.
(2) There is no exchange fee for exchange orders received by the Fund over the
Keystone Automated Response Line ("KARL") from an individual shareholder.
(For a description of KARL, see "Shareholder Services".)
(3) Expense ratios are for the Fund's fiscal year ended July 31, 1995.
(4) Long-term shareholders may pay more than the economic equivalent of the
maximum front end sales charges permitted by rules adopted by the National
Association of Securities Dealers, Inc.
(5) The Securities and Exchange Commission requires use of a 5% annual return
figure for purposes of this example. Actual return for the Fund may be
greater or less than 5%.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE HIGH INCOME BOND FUND (B-4)
(For a share outstanding throughout the year)
The following table contains important financial information relating to
the Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table has been taken from the Fund's Annual Report and should be
read in conjunction with the Fund's financial statements and related notes,
which also appear, together with the independent auditors' report, in the
Fund's Annual Report. The Fund's financial statements, related notes, and
independent auditors' report are included in the statement of additional
information. Additional information about the Fund's performance is contained
in its Annual Report, which will be made available upon request and without
charge.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR ... $ 4.68 $ 5.13 $ 4.74 $ 4.19 $ 5.02 $ 6.38 $ 6.91 $ 7.66 $ 8.08 $ 7.92
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income 0.38 0.38 0.45 0.49 0.61 0.68 0.83 0.80 0.81 0.89
Net gain (loss) on
investments and
foreign currency
related transactions (0.15) (0.38) 0.44 0.58 (0.72) (1.18) (0.51) (0.71) (0.26) 0.35
Net commissions
paid on fund share
sales <F1> .......... 0 0 0 0 0 0 0 0 0 (0.08)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ........ 0.23 0 0.89 1.07 (0.11) (0.50) 0.32 0.09 0.55 1.16
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income (0.37) (0.38) (0.45) (0.50) (0.72) (0.78) (0.85) (0.84) (0.90) (1.00)
In excess of net
investment income ... (0.02) (0.07) (0.05) (0.02) 0 (0.08) 0 0 0 0
Tax basis return of
capital ............. (0.10) 0 0 0 0 0 0 0 0 0
Net realized gain on
investments ......... 0 0 0 0 0 0 0 0 (0.07) 0
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.49) (0.45) (0.50) (0.52) (0.72) (0.86) (0.85) (0.84) (0.97) (1.00)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE END OF
YEAR ................ $ 4.42 $ 4.68 $ 5.13 $ 4.74 $ 4.19 $ 5.02 $ 6.38 $ 6.91 $ 7.66 $ 8.08
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN<F2> ..... 5.66% (0.41)% 20.28% 27.25% 0.03% (7.84)% 4.95% 1.66% 7.15% 15.27%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net
assets:
Total expenses ...... 2.03% 1.84% 2.06% 2.17% 2.34% 2.06% 1.97% 1.82% 1.65% 0.86%
Net investment income 8.64% 7.57% 9.30% 10.86% 14.64% 12.77% 12.36% 11.29% 10.26% 10.93%
Portfolio turnover
rate ................ 82% 110% 125% 94% 78% 45% 75% 81% 135% 87%
Net assets end of year
(thousands) ......... $764,965 $766,283 $972,164 $841,757 $710,590 $820,940 $1,188,660 $1,274,673 $1,464,891 $1,569,038
<FN>
<F1> Prior to June 30, 1987, net commissions paid on new sales of shares under the Fund's Rule 12b-1 Distribution Plan had been
treated for both financial statement and tax purposes as capital charges. On June 11, 1987, the Securities and Exchange
Commission adopted a rule which required for financial statements for the periods ended on or after June 30, 1987, that net
commissions paid under Rule 12b-1 be treated as operating expenses rather than capital charges. Accordingly, beginning with
the year ended July 31, 1987, the Fund's financial statements reflect 12b-1 Distribution Plan expenses (i.e., shareholder
service fees plus commissions paid net of deferred sales charges received by the Fund) as a component of net investment
income.
<F2> Excluding applicable sales charges.
</TABLE>
<PAGE>
- - - - - ------------------------------------------------------------------------------
FUND DESCRIPTION
- - - - - ------------------------------------------------------------------------------
The Fund is an open-end, diversified management investment company, commonly
known as a mutual fund. The Fund was created under Pennsylvania law as a
common law trust and has been offering its shares continuously since September
11, 1935. The Fund is one of twenty funds managed by Keystone Management, Inc.
("Keystone Management"), the Fund's investment manager, and is one of thirty
funds managed or advised by Keystone Investment Management Company (formerly
Keystone Custodian Funds, Inc. ("Keystone")), the Fund's investment adviser.
Keystone and Keystone Management are, from time to time, collectively referred
to as "Keystone."
- - - - - ------------------------------------------------------------------------------
FUND OBJECTIVE AND POLICIES
- - - - - ------------------------------------------------------------------------------
The Fund's investment objective is to provide shareholders with generous
income. There can be no assurance that the Fund will achieve its investment
objective since there is uncertainty in every investment. The investment
objective of the Fund cannot be changed without a vote of the holders of a
majority (as defined in the 1940 Act) of the Fund's outstanding shares.
The Fund will invest, under normal circumstances, at least 65% of its total
assets in bonds, debentures and other income obligations, and its portfolio
ordinarily includes a substantial number of bonds, debentures and other income
obligations, which, as a class, sell at discounts from par value and are rated
by Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's") as below investment grade, i.e., S&P rating below BBB and Moody's
rating below BAA. The Fund may purchase securities with any rating or may
purchase unrated securities, which are not necessarily of lower quality than
rated securities, but may not be as attractive to as many buyers. While
Keystone performs its own credit analyses of the Fund's investments and does
not rely on ratings assigned by rating services, bonds rated below investment
grade generally involve greater volatility of price and risk of principal and
income than bonds in the higher rating categories and are, on balance,
considered predominantly speculative.
In addition to its other investment options, the Fund may invest in limited
partnerships, including master limited partnerships, and may invest up to 25%
of its assets in foreign securities. The Fund may also invest in
participations in bank loans.
When market conditions warrant, the Fund may adopt a defensive position to
preserve shareholders' capital by investing in money market instruments. Such
instruments, which must mature within one year of their purchase, consist of
United States ("U.S.") government securities; instruments, including
certificates of deposit, demand and time deposits and bankers' acceptances, of
banks which are members of the Federal Deposit Insurance Corporation and have
assets of at least $1 billion, including U.S. branches of foreign banks and
foreign branches of U.S. banks; prime commercial paper, including master
demand notes; and repurchase agreements secured by U.S. government securities.
The Fund's investments may include fixed and adjustable rate or stripped
bonds, including zero coupon bonds and payment-in-kind securities ("PIKs"),
debentures, notes, equipment trust certificates, U.S. government securities
and debt securities convertible into or exchangeable for preferred or common
stock. The Fund may continue to hold preferred or common stock received in
connection with convertible or exchangeable securities. The Fund may also
invest in units consisting of debt securities with stock or warrants to buy
stock attached.
The Fund may also invest in preferred stock, including convertible preferred
stock and adjustable rate preferred stock, warrants, which may be used to
create other permissible investments, and common stock of issuers that are
objects of acquisition attempts, are undergoing reorganization through
bankruptcy or otherwise, or are in the process of refinancing. Investments in
common stocks of such issuers are expected to provide the Fund with the
opportunity to receive high-yielding, fixed-income securities. Investments in
common stocks will be limited to those stocks that Keystone believes will
assist the Fund in achieving its investment objective.
The Fund intends to follow policies of the Securities and Exchange
Commission as they are adopted from time to time with respect to illiquid
securities, including, at this time, (1) treating as illiquid, securities
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 the
investment on its books and (2) limiting its holdings of such securities to
15% of net assets.
The Fund may write covered call and put options. The Fund may also purchase
call and put options, including call and put options to close out existing
positions, and employ new investment techniques with respect to such options.
The Fund currently does not intend to invest more than 5% of its assets in
options transactions.
The Fund may enter into reverse repurchase agreements and firm commitment
and when-issued transactions for securities and currencies. In addition, the
Fund may enter into currency and other financial futures contracts and engage
in 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 transactions.
In addition to the options, futures contracts and forwards mentioned above,
the Fund may also invest in certain other types of derivative instruments,
including collateralized mortgage obligations, structured notes, interest rate
swaps, index swaps, currency swaps and caps and floors. These basic vehicles
can also be combined to create more complex products called hybrid derivatives
or structured securities.
Investments in foreign securities, options transactions and other complex or
derivative securities involve certain risks. For an explanation of these
risks, see the section of this prospectus entitled "Additional Investment
Information" and the statement of additional information.
For further information generally about the types of investments and
investment techniques available to the Fund and the associated risks, see
"Additional Investment Information" and the statement of additional
information.
- - - - - ------------------------------------------------------------------------------
RISK FACTORS
- - - - - ------------------------------------------------------------------------------
Like any investment, your investment in the Fund involves an element of
risk. Before you invest in the Fund, you should carefully evaluate your
ability to assume the risks your investment in the Fund poses. YOU CAN LOSE
MONEY BY INVESTING IN THE FUND. YOUR INVESTMENT IS NOT GUARANTEED. A DECREASE
IN THE VALUE OF THE FUND'S PORTFOLIO SECURITIES CAN RESULT IN A DECREASE IN
THE VALUE OF YOUR INVESTMENT.
The Fund seeks generous quarterly income ordinarily from high yielding, high
risk bonds, commonly known as "junk bonds." This investment approach involves
risks greater than a more conservative approach.
Certain significant risks unique to the Fund are discussed below. To the
extent not discussed in this section, specific risks attendant to individual
securities or investment practices are discussed in "Additional Investment
Information."
NONINVESTMENT GRADE BONDS
Since 1935, the Fund has had continuous experience investing in bonds
selling at a substantial discount from par, convertible bonds, noninvestment
grade bonds and other securities that as a class may be considered high yield,
high risk securities.
Prior to the 1980's, corporate bonds were primarily issued to finance growth
and development. Noninvestment grade bonds were predominantly bonds that often
traded at discounts from par because the company's credit ratings had been
downgraded. The rapid growth of the noninvestment grade sector of the bond
market during the 1980's was largely attributable to the issuance of such
bonds to finance corporate reorganizations. An economic downturn could
severely disrupt the market for high yield, high risk bonds and adversely
affect the value of outstanding bonds and the ability of issuers to repay
principal and interest.
Although the change in the size and characteristics of the market may result
in higher risks associated with individual bonds, Keystone believes that an
effective program of broad diversification can over time enable the Fund to
successfully achieve its investment objective while reducing the risk of
investing in individual noninvestment grade bonds.
While investment in the Fund provides opportunities to maximize return over
time, investors should be aware of the following risks associated with
noninvestment grade bonds:
(1) Securities rated BB or lower by S&P or Ba or lower by Moody's are
considered predominantly speculative with respect to the ability of the issuer
to meet principal and interest payments.
(2) The lower ratings of certain securities held by the Fund reflect a
greater possibility that adverse changes in the financial condition of the
issuer or in general economic conditions, or both, or an unanticipated rise in
interest rates may impair the ability of the issuer to make payments of
interest and principal, especially if the issuer is highly leveraged. Such
issuer's ability to meet its debt obligations may also be adversely affected
by specific corporate developments, the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing.
Also, an economic downturn or an increase in interest rates may increase the
potential for default by the issuers of these securities.
(3) The value of certain securities held by the Fund may be more susceptible
to real or perceived adverse economic, company or industry conditions and
publicity than is the case for higher quality securities.
(4) The values of certain securities, like those of other fixed income
securities, fluctuate in response to changes in interest rates. When interest
rates decline, the value of a portfolio invested in bonds can be expected to
rise. Conversely, when interest rates rise, the value of a portfolio invested in
bonds can be expected to decline. For example, in the case of an investment in a
fixed-income security, if interest rates increase after the security is
purchased, the security, if sold prior to maturity, may return less than its
cost. The prices of noninvestment grade bonds, however, are generally less
sensitive to interest rate changes than the prices of higher-rated bonds;
noninvestment grade bonds are more sensitive to adverse or positive economic
changes or individual corporate developments.
(5) The secondary market for certain securities held by the Fund may be less
liquid at certain times than the secondary market for higher quality debt
securities, which may have an adverse effect on market price and the Fund's
ability to dispose of particular issues and may also make it more difficult
for the Fund to obtain accurate market quotations for purposes of valuing its
assets.
(6) Zero coupon bonds and PIKs involve additional special considerations.
Zero coupon bonds do not require the periodic payment of interest. PIK bonds
are debt obligations that provide that the issuer may, at its option, pay
interest on such bonds in cash or in the form of additional debt obligations.
Such investments may experience greater fluctuation in value due to changes in
interest rates than debt obligations that pay interest currently. Even though
these investments do not pay current interest in cash, the Fund is nonetheless
required by tax laws to accrue interest income on such investments and to
distribute such amounts at least annually to shareholders. Thus, the Fund
could be required at times to liquidate investments in order to fulfill its
intention to distribute substantially all of its net income as dividends.
The generous income sought by the Fund is ordinarily associated with
securities in the lower rating categories of the recognized rating agencies or
with securities that are unrated. Such securities are generally rated BB or
lower by S&P or Ba or lower by Moody's. The Fund may invest in securities that
are rated as low as D by S&P and C- by Moody's. It is possible for securities
rated D or C-, respectively, to have defaulted on payments of principal and/or
interest at the time of investment. The section of this prospectus entitled
"Additional Investment Information" describes these rating categories. The
Fund intends to invest in D rated debt only in cases when, in Keystone's
judgment, there is a distinct prospect of improvement in the issuer's
financial position as a result of the completion of reorganization or
otherwise. The Fund may also invest in unrated securities that, in Keystone's
judgment, offer comparable yields and risks to those of securities that are
rated, as well as in non-investment quality zero coupon bonds or PIKs.
Keystone considers the ratings of Moody's and S&P assigned to various
securities, but does not rely solely on such ratings because (1) Moody's and S&P
assigned ratings are based largely on historical financial data and may not
accurately reflect the current financial outlook of companies, and (2) there can
be large differences among the current financial conditions of issuers within
the same rating category.
The following table shows the weighted average percentages of the Fund's
assets invested at the end of each month during the last fiscal year in
securities assigned to the various rating categories by S&P and in unrated
securities determined by Keystone to be of comparable quality. Since the
percentages in this table are based on month-end averages throughout the
Fund's fiscal year, they do not reflect the Fund's holdings at any one point
in time. The percentages in each category may be higher or lower on any day
than those shown in the table.
*UNRATED SECURITIES
OF COMPARABLE
RATED SECURITIES QUALITY AS
AS PERCENTAGE OF PERCENTAGE OF
RATING FUND'S ASSETS FUND'S ASSETS
- - - - - ---- ----------------- -------------------
AAA 0.00% 0.00%
AA 0.00% 0.00%
A 0.42% 0.00%
BBB 0.00% 0.00%
BB 18.52% 1.67%
B 48.43% 10.26%
CCC 2.24% 4.83%
CC 0.00% 0.00%
C 0.00% 0.00%
CA 0.00% 0.00%
Unrated* 16.76%
U.S. governments,
cash, equities
and others 13.64%
-------
TOTAL 100.00%
-------
Since the Fund takes an aggressive approach to investing, Keystone tries to
maximize the return by controlling risk through diversification, credit
analysis, review of sector and industry trends, interest rate forecasts and
economic analysis. Keystone's analysis of securities focuses on values based
on factors such as interest or dividend coverage, asset values, earnings
prospects and the quality of management of the company. In making investment
recommendations, Keystone also considers current income, potential for capital
appreciation, maturity structure, quality guidelines, coupon structure,
average yield, percentage of zeros and PIKs, percentage of non-accruing items
and yield to maturity.
Income and yields on high yield, high risk securities, as on all securities,
will fluctuate over time.
RULE 144A SECURITES
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 Keystone and the Board of
Trustees monitors Keystone's implementation of such guidelines and procedures.
At the present time, the Fund cannot accurately predict exactly how the
market for Rule 144A securities will develop. A Rule 144A security that was
readily marketable upon purchase may subsequently become illiquid. In such an
event, the Board of Trustees will consider what action, if any, is
appropriate.
DERIVATIVE SECURITIES
With respect to derivative or structured securities, the market value of
such securities may vary depending on the manner in which such securities have
been structured. As a result, the value of such investments may change at a
more rapid rate than that of traditional fixed income securities.
For more detailed information on derivatives, see "Additional Investment
Information" and the statement of additional information.
- - - - - ------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- - - - - ------------------------------------------------------------------------------
The Fund has adopted the fundamental restrictions set forth below, which may
not be changed without the approval of a 1940 Act majority of the Fund's
outstanding shares. These restrictions and certain other fundamental and
nonfundamental restrictions are set forth in the statement of additional
information.
Generally, the Fund may not do the following: (1) invest more than 5% of its
assets, computed at market value at the time of purchase, in the securities of
any one issuer (other than U.S. government securities) except that not more
than 25% of its assets may be invested without regard to this limit; (2)
borrow money, except that the Fund may borrow money from banks for temporary
or emergency purposes in aggregate amounts up to 10% of the value of the
Fund's net assets (computed at cost) or enter into reverse repurchase
agreements (bank borrowings and reverse repurchase agreements, in aggregate,
shall not exceed 10% of the value of the Fund's net assets); and (3) invest
more than 25% of its assets in securities of issuers in the same industry.
In addition, the Fund may, notwithstanding any other investment policy or
restriction, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objectives, policies and restrictions as the Fund. The Fund does
not currently intend to implement this policy and would do so only if the
Trustees were to determine such action to be in the best interest of the Fund
and its shareholders. In the event of such implementation, the Fund will
comply with such requirements as to written notice to shareholders as are then
in effect.
- - - - - ------------------------------------------------------------------------------
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 securities do
not affect the current net asset value of its shares. The Exchange is
currently closed on weekends, New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is arrived at by determining the value of all of
the Fund's assets, subtracting all liabilities and dividing the result by the
number of shares outstanding.
The Fund values the money market instruments it purchases as follows: short-
term money market instruments 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; money market instruments maturing in
more than sixty days for which market quotations are readily available are
valued at current market value; and money market instruments 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. All other investments are
valued at market value or, where market quotations are not readily available,
at fair value as determined in good faith by the Board of Trustees.
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 that have been approved by the Board of Trustees.
The Board of Trustees has authorized the use of a pricing service to determine
the fair value of certain of the Fund's fixed income securities and other
securities. Securities for which market quotations are readily available are
valued on a consistent basis at the price quoted that, in the opinion of the
Trustees or the person designated by the 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 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 Fund qualifies if,
among other things, it distributes to its shareholders at least 90% of its net
investment income for its fiscal year. The Fund also intends to make timely
distributions, if necessary, sufficient in amount to avoid the nondeductible
4% excise tax imposed on a regulated investment company when it fails to
distribute, with respect to each calendar year, at least 98% of its ordinary
income for such calendar year and 98% of its net capital gains for the one-
year period ending on October 31 of such calendar year. If the Fund qualifies
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.
Any taxable dividend declared in October, November or December to
shareholders of record in such month and paid by the following January 31 will
be includable in the taxable income of the shareholder as if paid on December
31 of the year in which the dividend was declared. The Fund will make
distributions from its net investment income on or about the 5th day of each
month and net capital gains, if any, at least annually.
As of April 1, 1995, in compliance with a recent ruling issued by the
Internal Revenue Service, the Fund treats its 12b-1 fees for tax purposes as
operating expenses rather than capital charges.
The Fund makes distributions in additional shares of the Fund or, at the
shareholder's election (which must be made before the record date for the
distribution), in cash. Income dividends and net short-term gains
distributions are taxable as ordinary income and net long-term gains
distributions are taxable as capital gains regardless of how long the
shareholder has held the Fund's shares. 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. Dividends and distributions also may be subject to state
and local taxes. The Fund advises its shareholders annually as to the federal
tax status of all distributions made during the year.
- - - - - ------------------------------------------------------------------------------
FUND MANAGEMENT AND EXPENSES
- - - - - ------------------------------------------------------------------------------
FUND MANAGEMENT
Subject to the general supervision of the Fund's Board of Trustees, Keystone
Management, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034,
serves as investment manager to the Fund and is responsible for the overall
management of the Fund's business and affairs. Keystone Management, organized in
1989, is a wholly-owned subsidiary of Keystone. Its directors and principal
executive officers have been affiliated with Keystone, a seasoned investment
adviser, for a number of years. Keystone Management also serves as investment
manager to each of the other funds in the Keystone Fund Family and to certain
other funds in the Keystone Investments Family of Funds.
The Fund pays Keystone Management a fee for its services at the annual rate
of:
ANNUAL AGGREGATE NET ASSET VALUE
MANAGEMENT OF THE SHARES
FEE INCOME OF THE FUND
- - - - - ------------------------------------------------------------------------------
2% of
Gross Dividend and
Interest Income
Plus
0.50% of the first $100,000,000 plus
0.45% of the next $100,000,000 plus
0.40% of the next $100,000,000 plus
0.35% of the next $100,000,000 plus
0.30% of the next $100,000,000 plus
0.25% of amounts over $500,000,000;
computed as of the close of business each business day and paid daily.
Pursuant to its Investment Management Agreement with the Fund, Keystone
Management has delegated its investment management functions, except for
certain administrative and management services, to Keystone and has entered
into an Investment Advisory Agreement with Keystone, under which Keystone
provides investment, advisory and management services to the Fund.
Services performed by Keystone Management include (1) performing research
and planning with respect to (a) the Fund's qualification as a regulated
investment company under Subchapter M of the Internal Revenue Code, (b) tax
treatment of the Fund's portfolio investments, (c) tax treatment of special
corporate actions (such as reorganizations), (d) state tax matters affecting
the Fund, and (e) the Fund's distributions of income and capital gains; (2)
preparing the Fund's federal and state tax returns; (3) providing services to
the Fund's shareholders in connection with federal and state taxation and
distributions of income and capital gains; and (4) storing documents relating
to the Fund's activities.
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
Investments, Inc. (formerly "Keystone Group, Inc.") ("Keystone Investments"),
200 Berkeley Street, Boston, Massachusetts 02116-5034.
Keystone Investments is a corporation predominantly owned by current and
former members of management of Keystone and its affiliates. The shares of
Keystone Investment common stock beneficially owned by management are held in
a number of voting trusts, the trustees of which are George S. Bissell, Albert
H. Elfner, III, Edward F. Godfrey and Ralph J. Spuehler, Jr. Keystone
Investments provides accounting, bookkeeping, legal, personnel and general
corporate services to Keystone Management, Keystone, their affiliates and the
Keystone Investments Family of Funds.
Pursuant to the Investment Advisory Agreement, Keystone receives for its
services an annual fee representing 85% of the management fee received by
Keystone Management under its Investment Management Agreement with the Fund.
During the year ended July 31, 1995, the Fund paid or accrued to Keystone
Management investment management and administrative services fees of
$4,040,007, which represented 0.57% of the Fund's average net assets. Of such
amount paid to Keystone Management, $3,434,006 was paid to Keystone for
investment advisory services to the Fund.
The Fund has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
FUND EXPENSES
In addition to the investment advisory and management fees discussed above,
the principal expenses the Fund is expected to pay include, but are not
limited to, expenses of its transfer agent, its custodian and its independent
auditors; expenses under its Distribution Plan; fees of its Independent
Trustees ("Independent Trustees"); expenses of shareholders' and Trustees'
meetings; fees payable to government agencies, including registration and
qualification fees of the Fund and its shares under federal and state
securities laws; expenses of preparing, printing and mailing Fund
prospectuses, notices, reports and proxy material; and certain extraordinary
expenses. In addition to such expenses, the Fund pays its brokerage
commissions, interest charges and taxes. For the fiscal year ended July 31,
1995, the Fund paid 2.03% of its average net assets in expenses.
During the fiscal year ended July 31, 1995, the Fund paid or accrued to
Keystone Investor Resource Center, Inc. ("KIRC"), the Fund's transfer and
dividend disbursing agent, and Keystone Investments $28,703 for certain
accounting services and $2,189,924 for transfer agent fees. KIRC is a wholly-
owned subsidiary of Keystone.
PORTFOLIO MANAGER
Donald M. Keller has been the Fund's portfolio manager since 1987. Mr. Keller
is a Keystone Senior Vice President and has more than 37 years' experience in
fixed-income investing.
SECURITIES TRANSACTIONS
Keystone selects broker-dealers to execute transactions subject to the
receipt of best execution. When selecting broker-dealers to execute portfolio
transactions for the Fund, Keystone may follow a policy of considering as a
factor the number of shares of the Fund sold by such broker-dealers. In
addition, broker-dealers may, from time to time, be affiliated with the Fund,
Keystone Management, Keystone, the Fund's principal underwriter or their
affiliates.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rates for the fiscal years ended July 31, 1994
and 1995 were 110% and 82%, respectively. High portfolio turnover may involve
correspondingly greater brokerage commissions and other transaction costs,
which would be borne directly by the Fund, as well as additional 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 Investment Distributors Company (formerly
named Keystone Distributors, Inc. (the "Principal Underwriter"), the Fund's
principal underwriter. The Principal Underwriter, a wholly-owned subsidiary of
Keystone, is located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
In addition, you may open an account for the purchase of shares of the Fund
by mailing to the Fund, c/o KIRC, P.O. Box 2121, Boston, Massachusetts 02106-
2121, a completed account application and a check payable to the Fund. Or you
may telephone 1-800-343-2898 to obtain the number of an account to which you
can wire or electronically transfer funds and then 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").
The Fund's shares are sold at the net asset value per share next computed
after it receives the purchase order. The initial purchase must be at least
$1,000 except for purchases by participants in certain retirement plans for
which the minimum is waived. There is no minimum for subsequent purchases.
Purchase payments are fully invested at net asset value. There are no sales
charges on purchases of Fund shares at the time of purchase.
CONTINGENT DEFERRED SALES CHARGE
With certain exceptions, when shares are redeemed within four calendar years
after their purchase, a contingent deferred sales charge may be imposed at
rates ranging from a maximum of 4% of amounts redeemed during the same
calendar year of purchase to 1% of amounts redeemed during the third calendar
year after the year of purchase. No contingent deferred sales charge is
imposed on amounts redeemed thereafter or on shares purchased through
reinvestment of dividends. If imposed, the contingent deferred sales charge is
deducted from the redemption proceeds otherwise payable to you. Prior to July
8, 1992, the Fund retained the deferred sales charge. Since July 8, 1992, the
deferred sales charge attributable to shares purchased prior to January 1,
1992 has been retained by the Fund, and the deferred sales charge attributable
to shares purchased after January 1, 1992 is, to the extent permitted by the
NASD, paid to the Principal Underwriter. For the fiscal year ended July 31,
1995, the Fund recovered $43,777 in deferred sales charges.
The contingent deferred sales charge is a declining percentage of the lesser
of (1) the net asset value of the shares redeemed or (2) the total cost of
such shares. No deferred sales charge is imposed when a shareholder redeems
amounts derived from (1) increases in the value of his account above the total
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; or (3) shares held in all or
part of more than four consecutive calendar years.
In determining whether a contingent deferred sales charge is payable and, if
so, the percentage charge applicable, it is assumed that shares held the
longest are the first to be redeemed. There is no deferred sales charge on
permitted exchanges of shares between Keystone funds that have adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act. Moreover, when
shares of one such fund have been exchanged for shares of another such fund,
for purposes of any future contingent deferred sales charge, 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.
In addition, no contingent deferred sales charge is imposed on a redemption of
shares of the Fund in the event of (1) death or disability of the shareholder;
(2) a lump-sum distribution from a 401(k) plan or other benefit plan qualified
under the Employee Retirement Income Security Act of 1974 ("ERISA"); (3)
automatic withdrawals from ERISA plans if the shareholder is at least 59 1/2
years old; (4) involuntary redemptions of accounts having an aggregate net asset
value of less than $1,000; (5) automatic withdrawals under an automatic
withdrawal plan of up to 1% per month of the shareholder's initial account
balance; (6) withdrawals consisting of loan proceeds to a retirement plan
participant; (7) financial hardship withdrawals made by a retirement plan
participant; or (8) withdrawals consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan participant.
WAIVER OF DEFERRED SALES CHARGE
Shares also may be sold, to the extent permitted by applicable law, at net
asset value without the payment of commissions or the imposition of a
contingent deferred sales charge to (1) certain officers, Directors, Trustees
and employees of the Fund, Keystone Management, Keystone and certain of their
affiliates; (2) registered representatives of firms with dealer agreements
with the Principal Underwriter; and (3) a bank or trust company acting as a
trustee for a single account. See the statement of additional information for
more details.
- - - - - ------------------------------------------------------------------------------
DISTRIBUTION PLAN
- - - - - ------------------------------------------------------------------------------
The Fund bears some of the costs of selling its shares under its
Distribution Plan adopted pursuant to Rule 12b-1 under the 1940 Act. The
Fund's Distribution Plan provides that the Fund may expend up to 0.3125%
quarterly (approximately 1.25% annually) of the average daily net asset value
of its shares to pay distribution costs for sales of its shares and to pay
shareholder service fees. The NASD currently limits such annual expenditures
to 1%, of which 0.75% may be used to pay such distribution costs and 0.25% may
be used to pay shareholder services fees. The aggregate amount that the Fund
may pay for such distribution costs is limited to 6.25% of gross share sales
since the inception of the Fund's Distribution Plan plus interest at the prime
rate plus 1% on unpaid amounts thereof (less any contingent deferred sales
charges paid by shareholders to the Principal Underwriter).
Payments under the Distribution Plan are currently made to the Principal
Underwriter (which may reallow all or part to others, such as dealers) (1) as
commissions for Fund shares sold and (2) as shareholder service fees in
respect of shares maintained by the recipients on the Fund's books for
specified periods. Amounts paid or accrued to the Principal Underwriter under
(1) and (2) in the aggregate may not exceed the annual limitation referred to
above. The Principal Underwriter generally reallows to brokers or others a
commission equal to 4% of the price paid for each Fund share sold as well as a
shareholder service fee at a rate of 0.25% per annum of the net asset value of
shares maintained by such recipients on the books of the Fund for specified
periods.
If the Fund is unable to pay the Principal Underwriter a commission on a
new sale because the annual maximum (0.75% of average daily net assets) has
been reached, the Principal Underwriter intends, but is not obligated, to
continue to accept new orders for the purchase of Fund shares and to pay or
accrue commissions and service fees in excess of the amount it currently
receives from the Fund. While the Fund is under no contractual obligation to
pay the Principal Underwriter such amounts that exceed the Distribution Plan
limitation, the Principal Underwriter intends to seek full payment of such
charges from the Fund (together with interest at the rate of prime plus 1%) at
such time in the future as, and to the extent that, payment thereof by the
Fund would be within permitted limits. The Principal Underwriter currently
only intends to seek payment of interest on such charges paid or accrued by
the Principal Underwriter subsequent to July 7, 1992. If the Fund's
Independent Trustees authorize such payments, the effect will be to extend the
period of time during which the Fund incurs the maximum amount of costs
allowed by the Distribution Plan. If the Distribution Plan is terminated, the
Principal Underwriter will ask the Independent Trustees to take whatever
action they deem appropriate under the circumstances with respect to payment
of such amounts.
During the year ended July 31, 1995, the Fund paid the Principal Underwriter
$7,116,706 under the Distribution Plan. For the year ended July 31, 1995, the
Principal Underwriter also received $771,318 in deferred sales charges. For the
year, the amount paid by the Fund under its Distribution Plan, net of deferred
sales charges, was $7,072,929 (0.99% of the Fund's average daily net asset
value). During the year, the Principal Underwriter paid commissions on new sales
and service fees to dealers and others of $3,857,337. At July 31, 1995, unpaid
distribution costs amounted to $8,317,347 (1.09% of net assets as of July 31,
1995).
The amounts and purposes of expenditures under the Distribution Plan must
be reported to the Independent Trustees quarterly. The Independent Trustees
may require or approve changes in the operation of the Distribution Plan and
may require that total expenditures by the Fund under the Distribution Plan
be kept within limits lower than the maximum amount permitted by the
Distribution Plan as stated above. If such costs are not limited by the
Independent Trustees, such costs could, for some period of time, be higher
than such costs permitted by most other plans presently adopted by other
investment companies.
The Distribution Plan may be terminated at any time by vote of the Fund's
Rule 12b-1 Trustees or by vote of a majority of the outstanding voting shares
of the Fund. Any change in the Distribution Plan that would materially
increase the distribution expenses of the Fund provided for in the
Distribution Plan requires shareholder approval. Otherwise, the Distribution
Plan may be amended by votes of the majority of both (1) the Fund's Trustees
and (2) the Independent Trustees, cast in person at a meeting called for the
purpose of voting on such amendment.
While the Distribution Plan is in effect, the Fund is required to commit the
selection and nomination of candidates for Independent Trustees to the
discretion of the Independent Trustees.
Whether any expenditure under the Distribution Plan is subject to a state
expense limit depends upon the nature of the expenditure and the terms of the
state law, regulation or order imposing the limit. A portion of the Fund's
Distribution Plan expenses may be includable in the Fund's total operating
expenses for purposes of determining compliance with state expense limits.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
Upon written notice to dealers, the Principal Underwriter, at its own
expense, may periodically sponsor programs that offer additional compensation
in connection with sales of Fund shares. Participation in such programs may be
available to all dealers or to selected dealers who have sold or are expected
to sell significant amounts of shares. Additional compensation may also
include financial assistance to dealers in connection with preapproved
seminars, conferences and advertising. No such programs or additional
compensation will be offered to the extent they are prohibited by the laws of
any state or any self-regulatory agency, such as the NASD.
The Principal Underwriter may, at its own expense, pay concessions in
addition to those described above to dealers that satisfy certain criteria
established from time to time by the Principal Underwriter. These conditions
relate to increasing sales of shares of the Keystone funds over specified
periods and certain other factors. Such payments may, depending on the
dealer's satisfaction of the required conditions, be periodic and may be up to
0.25% of the value of shares sold by such dealer.
The Principal Underwriter 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 Fund's 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.
- - - - - ------------------------------------------------------------------------------
HOW TO REDEEM SHARES
- - - - - ------------------------------------------------------------------------------
Fund shares may be redeemed for cash at the redemption value upon written
order by the shareholder(s) to the Fund, c/o Keystone Investor Resource
Center, Inc., Box 2121, Boston, Massachusetts 02106-2121, and presentation to
the Fund of a properly endorsed share certificate if certificates have been
issued. The signature(s) of the shareholder(s) on the written order and
certificates must be guaranteed. The redemption value is the net asset value
adjusted for fractions of a cent and may be more or less than the
shareholder's cost depending upon changes in the value of the Fund's portfolio
securities between purchase and redemption. The Fund may impose a deferred
sales charge at the time of redemption of certain shares as explained in "How
to Buy Shares." If imposed, the Fund deducts the deferred sales charge from
the redemption proceeds otherwise payable to the shareholder.
At various times the Fund may be requested to redeem shares for which it
has not yet received good payment. In such a case the Fund will mail the
redemption proceeds upon clearance of the purchase check, which may take up to
15 days or more. Any delay may be avoided by purchasing shares either with a
certified check drawn on a U.S. bank or by bank wire of funds. Although the
mailing of a redemption check 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 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 mailing of a redemption check has been delayed,
the check will be mailed promptly after good payment has been collected.
The Fund computes the redemption value at the close of the Exchange at the
end of the day on which it has received all proper documentation from the
shareholder. Payment of the amount due on redemption, less any applicable
deferred sales charge, will be made within seven days thereafter.
Shareholders also may redeem their shares through their broker-dealers. The
Principal Underwriter, acting as agent for the Fund, stands ready to
repurchase Fund shares upon orders from dealers as follows: redemption
requests 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 net asset value per share computed at the close of
trading on the Exchange on the same day. Redemption requests 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 net asset value price. The Principal
Underwriter will pay the redemption proceeds, less any applicable deferred
sales charge, to the dealer placing the order within seven days thereafter,
assuming it has received proper documentation. The Principal Underwriter
charges no fees for this service, but the shareholder's broker-dealer may do
so.
For the protection of shareholders, SIGNATURES ON CERTIFICATES, STOCK POWERS
AND ALL WRITTEN ORDERS OR AUTHORIZATIONS MUST BE GUARANTEED BY A U.S. STOCK
EXCHANGE MEMBER, A BANK OR OTHER PERSONS ELIGIBLE TO GUARANTEE SIGNATURES
UNDER THE SECURITIES EXCHANGE ACT OF 1934 AND KIRC'S POLICIES. The Fund and
KIRC may waive this requirement, 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 or repurchase order, but the shareholder
has 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 the shareholder and process the order the day it
receives such information.
TELEPHONE
Under ordinary circumstances, you may redeem up to $50,000 from your account
by telephone by calling toll free 1-800-343-2898.
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 above.
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. No
contingent deferred sales charges are applied to such redemptions.
GENERAL
The Fund reserves the right at any time to terminate, suspend or change the
terms of any redemption method described in this prospectus, except redemption
by mail, and to impose fees.
Except as otherwise noted, neither the Fund, KIRC nor the Principal
Underwriter assumes responsibility for the authenticity of any instructions
received by any of them from a shareholder in writing, over the Keystone
Automated Response Line ("KARL") or by telephone. KIRC will employ reasonable
procedures to confirm that instructions received over KARL or by telephone are
genuine. Neither the Fund, KIRC nor 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) the Fund cannot dispose of its
investments or fairly determine their value; or (4) the Securities and
Exchange Commission, for the protection of shareholders, so orders.
- - - - - ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- - - - - ------------------------------------------------------------------------------
Details on all shareholder services may be obtained from KIRC by writing or
by calling toll free 1-800-343-2898.
KEYSTONE AUTOMATED RESPONSE LINE
KARL offers 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 1-800-346-3858 on any touch-tone telephone, 24 hours a
day, seven days a week.
EXCHANGES
A shareholder who has obtained the appropriate prospectus may exchange shares
of the Fund for shares of certain other funds in the Keystone Fund Family,
Keystone Precious Metals Holdings, Inc. ("KPMH"), Keystone International Fund
Inc. ("KIF"), Keystone Tax Free Fund ("KTFF"), Keystone Tax Exempt Trust
("KTET") or Keystone Liquid Trust ("KLT") on the basis of their respective net
asset values by calling toll free 1-800-343-2898 or by writing KIRC at P.O. Box
2121, Boston, Massachusetts 02106-2121. Fund shares purchased by check may be
exchanged for shares of the named funds, other than KPMH, KTET or KTFF, after 15
days, provided good payment for the purchase of Fund shares has been collected.
In order to exchange Fund shares for shares of KPMH, KTET or KTFF, a shareholder
must have held Fund shares for a period of at least six months. There is no
exchange fee for exchanges initiated by an individual investor through KARL;
other exchanges made by phone are subject to a $10 exchange fee. If the shares
being tendered for exchange have been held for less than four years and are
still subject to a deferred sales charge, such charge will carry over to the
shares being acquired in the exchange transaction. The Fund reserves the right,
after 60 days notice to shareholders, to terminate this exchange offer or to
change its terms, including the right to change the service 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 KLT shares determined after the proceeds from such redemption become
available, which may be up to seven days after such redemption. In all other
cases, orders for exchanges received by the Fund prior to 4:00 p.m. Eastern
time on any day the funds are open for business will be executed at the
respective net asset values determined as of the close of business that day.
Orders for exchanges received after 4:00 p.m. Eastern time on any business day
will be executed at the respective net asset values determined at the close of
the next business day.
An excessive number of exchanges may be disadvantageous to the Fund.
Therefore, the Fund, in addition to its right to reject any exchange, reserves
the right to terminate the exchange privilege of any shareholder who makes
more than five exchanges of shares of the funds in a year or three in a
calendar quarter.
An exchange order must comply with the requirements for a redemption or
repurchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial purchase requirements
of the fund being acquired. An exchange constitutes a sale for federal income
tax purposes.
The exchange privilege is available only in states where shares of the fund
being acquired may legally be sold.
RETIREMENT PLANS
The Fund has various pension and profit-sharing plans available to
investors, 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 fees and application forms, call KIRC toll free
at 1-800-247-4075 or write to KIRC at P.O. Box 2121, Boston, Massachusetts
02106-2121.
AUTOMATIC INVESTMENT PLAN
Shareholders may take advantage of investing on an automatic basis by
establishing an automatic investment plan. Funds are drawn on a shareholder's
checking account monthly and used to purchase Fund shares.
AUTOMATIC WITHDRAWAL PLAN
Under an Automatic Withdrawal Plan, shareholders may arrange for regular
monthly or quarterly fixed withdrawal payments. Each payment must be at least
$100 and may be as much as 1% per month or 3% per quarter of the total net
asset value of the Fund shares in the shareholder's account when the Automatic
Withdrawal Plan is opened. Fixed withdrawal payments are not subject to a
deferred sales charge. Excessive withdrawals may decrease or deplete the value
of a shareholder's account.
OTHER SERVICES
Under certain circumstances shareholders may, within 30 days after a
redemption, reinstate their accounts at current net asset value.
- - - - - ------------------------------------------------------------------------------
PERFORMANCE DATA
- - - - - ------------------------------------------------------------------------------
From time to time the Fund may advertise "total return" and "current yield."
BOTH FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. Total return refers to the Fund's average annual
compounded rates of return over specified periods determined by comparing the
initial amount invested to the ending redeemable value of that amount. The
resulting equation assumes reinvestment of all dividends and distributions and
deduction of all recurring charges, if any, applicable to all shareholder
accounts. The deduction of the contingent deferred sales charge is reflected
in the applicable years. 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 include comparative performance information in advertising or
marketing the Fund's shares, such as data from Lipper Analytical Services,
Inc., Morningstar, Inc., Standard & Poor's Corporation, Ibbotson Associates or
other industry publications.
- - - - - ------------------------------------------------------------------------------
FUND SHARES
- - - - - ------------------------------------------------------------------------------
The Fund currently issues one class of shares, which participate equally in
dividends and distributions and have equal voting, liquidation and other
rights. 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. Shareholders are entitled to one vote for each
full share owned and fractional votes for fractional shares. Shares are
redeemable, transferable and freely assignable as collateral. There are no
sinking fund provisions. The Fund may establish additional classes or series
of shares.
The Fund does not have annual meetings. The Fund will have special meetings
from time to time as required under its Restatement of Trust Agreement and
under the 1940 Act. As provided in the Fund's Restatement of Trust Agreement,
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.
- - - - - ------------------------------------------------------------------------------
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 written notice to those shareholders, the Fund intends,
when an annual report or semi-annual report of the Fund is required to be
furnished, to mail one copy of such report to that address.
Except as otherwise stated in this prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
<PAGE>
- - - - - ------------------------------------------------------------------------------
ADDITIONAL INVESTMENT INFORMATION
- - - - - ------------------------------------------------------------------------------
DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS
AND INVESTMENT TECHNIQUES AVAILABLE TO THE FUND
THE FUND MAY ENGAGE IN THE FOLLOWING INVESTMENT PRACTICES TO THE EXTENT
DESCRIBED IN THE PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION.
CORPORATE BOND RATINGS
Higher yields are usually available on securities that are lower rated or
that are unrated. Bonds rated Baa by Moody's are considered as medium grade
obligations which are neither highly protected nor poorly secured. Debt rated
BBB by S&P is regarded as having an adequate capacity to pay interest and
repay principal, although adverse economic conditions are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories. Lower rated securities are usually
defined as Baa or lower by Moody's or BBB or lower by S&P. The Fund may
purchase unrated securities, which are not necessarily of lower quality than
rated securities but may not be attractive to as many buyers. Debt rated BB,
B, CCC, CC and C by S&P is regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance
with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions. Debt
rated CI by S&P is debt (income bonds) on which no interest is being paid.
Debt rated D by S&P is in default and payment of interest and/or repayment of
principal is in arrears. The Fund intends to invest in D-rated debt only in
cases where in Keystone's judgment there is a distinct prospect of
improvement in the issuer's financial position as a result of the completion
of reorganization or otherwise. Bonds which are rated Caa by Moody's are of
poor standing. Such issues may be in default or there may be present elements
of danger with respect to principal or interest. Bonds which are rated Ca by
Moody's represent obligations which are speculative in a high degree. Such
issues are often in default or have other market shortcomings. Bonds which are
rated C by Moody's are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
ZERO COUPON BONDS
A zero coupon "stripped" bond represents ownership in serially maturing
interest payments or principal payments on specific underlying notes and
bonds, including coupons relating to such notes and bonds. The interest and
principal payments are direct obligations of the issuer. Coupon zero coupon
bonds of any series mature periodically from the date of issue of such series
through the maturity date of the securities related to such series. Principal
zero coupon bonds mature on the date specified therein, which is the final
maturity date of the related securities. Each zero coupon bond entitles the
holder to receive a single payment at maturity. There are no periodic interest
payments on a zero coupon bond. Zero coupon bonds are offered at discounts
from their face amounts.
In general, owners of zero coupon bonds have substantially all the rights
and privileges of owners of the underlying coupon obligations or principal
obligations. Owners of zero coupon bonds have the right upon default on the
underlying coupon obligations or principal obligations to proceed directly and
individually against the issuer and are not required to act in concert with
other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon bonds
or coupon zero coupon bonds (either initially or in the secondary market) is
treated as if the buyer had purchased a corporate obligation issued on the
purchase date with an original issue discount equal to the excess of the
amount payable at maturity over the purchase price. The purchaser is required
to take into income each year as ordinary income an allocable portion of such
discounts determined on a "constant yield" method. Any such income increases
the holder's tax basis for the zero coupon bond, and any gain or loss on a
sale of the zero coupon bonds relative to the holder's basis, as so adjusted,
is a capital gain or loss. If the holder owns both principal zero coupon bonds
and coupon zero coupon bonds representing interest in the same underlying
issue of securities, a special basis allocation rule (requiring the aggregate
basis to be allocated among the items sold and retained based on their
relative fair market value at the time of sale) may apply to determine the
gain or loss on a sale of any such zero coupon bonds.
PAYMENT-IN-KIND SECURITIES
Payment-in-kind securities pay interest in either cash or additional
securities, at the issuer's option, for a specified period. The issuer's
option to pay in additional securities typically ranges from one to six years,
compared to an average maturity for all PIK securities of eleven years. Call
protection and sinking fund features are comparable to those offered on
traditional debt issues.
PIKs, like zero coupon bonds, are designed to give an issuer flexibility in
managing cash flow. Several PIKs are senior debt. In other cases, where PIKs
are subordinated, most senior lenders view them as equity equivalents.
An advantage of PIKs for the issuer -- as with zero coupon securities -- is
that interest payments are automatically compounded (reinvested) at the stated
coupon rate, which is not the case with cash-paying securities. However, PIKs
are gaining popularity over zeros since interest payments in additional
securities can be monetized and are more tangible than accretion of a
discount.
As a group, PIK bonds trade flat (i.e., without accrued interest). Their
price is expected to reflect an amount representing accreted interest since
the last payment. PIKs generally trade at higher yields than comparable cash-
paying securities of the same issuer. Their premium yield is the result of the
lesser desirability of non-cash interest, the more limited audience for non-
cash paying securities, and the fact that many PIKs have been issued to equity
investors who do not normally own or hold such securities.
Calculating the true yield on a PIK security requires a discounted cash flow
analysis if the security (ex interest) is trading at a premium or a discount
because the realizable value of additional payments is equal to the current
market value of the underlying security, not par.
Regardless of whether PIK securities are senior or deeply subordinated,
issuers are highly motivated to retire them because they are usually their
most costly form of capital.
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 amount borrowed. The Fund has the right to increase the
amount 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). 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 the
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 discussed in the
Statement of Additional Information (which limit such investments to
commercial paper rated A-1 by S&P, Prime-1 by Moody's or F-1 by Fitch
Investors Service, Inc.).
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with member banks of the Federal
Reserve System having at least $1 billion in assets, primary dealers in U.S.
government securities or other financial institutions believed by Keystone to be
credit- worthy. Such persons must be registered as U.S. government securities
dealers with an appropriate regulatory organization. Under such agreements, the
bank, primary dealer or other financial institution agrees upon entering into
the contract to repurchase the security at a mutually agreed upon date and
price, thereby determining the yield during the term of the agreement. This
results in a fixed rate of return insulated from market fluctuations during such
period. Under a repurchase agreement, the seller must maintain the value of the
securities subject to the agreement at not less than the repurchase price, such
value being determined on a daily basis by marking the underlying securities to
their market value. Although the securities subject to the repurchase agreement
might bear maturities exceeding a year, the Fund only intends to enter into
repurchase agreements that provide for settlement within a year and usually
within seven days. Securities subject to repurchase agreements will be held by
the Fund's custodian or in the Federal Reserve book entry system. The Fund does
not bear the risk of a decline in the value of the underlying security unless
the seller defaults under its repurchase obligation. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and
losses, including (1) possible declines in the value of the underlying
securities during the period while the Fund seeks to enforce its rights thereto;
(2) possible subnormal levels of income and lack of access to income during this
period; and (3) expenses of enforcing its rights. The Board of Trustees has
established procedures to evaluate the creditworthiness of each party with whom
the Fund enters into repurchase agreements by setting guidelines and standards
of review for Keystone and monitoring Keystone's actions with regard to
repurchase agreements.
REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Fund would sell securities and
agree to repurchase them at a mutually agreed upon date and price. The Fund
intends to enter into reverse repurchase agreements to avoid otherwise having
to sell securities during unfavorable market conditions in order to meet
redemptions. At the time the Fund enters into a reverse repurchase agreement,
it will establish a segregated account with the Fund's custodian containing
liquid assets having a value not less than the repurchase price (including
accrued interest) and will subsequently monitor the account to ensure such
value is maintained. Reverse repurchase agreements involve the risk that the
market value of the securities 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 1940 Act treats reverse repurchase agreements as being included in
the percentage limit on borrowings imposed on the Fund.
"WHEN ISSUED" AND "FORWARD COMMITMENT" TRANSACTIONS
The Fund may also purchase securities on a when issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis. When
issued and delayed delivery transactions arise when securities are purchased
by the Fund with payment and delivery taking place in the future in order to
secure what is considered to be an advantageous price and yield to the Fund at
the time of purchase. A forward commitment transaction is an agreement by the
Fund to purchase or sell securities at a specified future date. The Fund may
also enter into foreign currency forward contracts which are described in more
detail in the Section of this Exhibit entitled "Foreign Currency
Transactions." When the Fund engages in these transactions, the Fund relies on
the buyer or seller, as the case may be, to consummate the sale. Failure to do
so may result in the Fund missing the opportunity to obtain a price or yield
considered to be advantageous. When issued, delayed delivery and forward
commitment transactions may be expected to occur a month or more before
delivery is due. However, no payment or delivery is made by the Fund until it
receives payment or delivery from the other party to the transaction. The
Securities and Exchange Commission has established certain requirements to
assure that a Fund is able to meet its obligations under these contracts, for
example a separate account of liquid assets equal to the value of such
purchase commitments may be maintained until payment is made. When issued,
delayed delivery and firm commitment transactions 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 any of these transactions, it will
do so for the purpose of acquiring portfolio securities or currencies
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.
FOREIGN SECURITIES
The Fund may invest up to 25% of its assets 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 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
also may be subject to other risks different from those affecting U.S.
investments, including local political or economic developments, expropriation
or nationalization of assets, imposition of withholding taxes on dividend or
interest payments and currency blockage (which would prevent cash from being
brought back to the U.S.). These risks are carefully considered by Keystone
prior to the purchase of these securities.
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 while seeking to achieve 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. The use of derivatives for non-hedging
purposes entails greater risks than if derivatives were used solely for
hedging purposes. The Fund uses futures contracts and related options as well
as forwards 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 objective 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, futures, forwards and
swaps, is provided later in this section and is provided in the Fund's
statement of additional information.
Debt instruments that incorporate one or more of these building blocks for
the purpose of determining the principal amount of and/or rate of interest
payable on the debt instruments are often referred to as "structured
securities." An example of this type of structured security is indexed
commercial paper. The term is also used to describe certain securities issued
in connection with the restructuring of certain foreign obligations. See
"Indexed Commercial Paper" and "Structured Securities" below. The term
"derivative" is also sometimes used to describe securities involving rights to
a portion of the cash flows from an underlying pool of mortgages or other
assets from which payments are passed through to the owner of, or that
collateralize, the securities. See "Mortgage Related Securities,"
"Collateralized Mortgage Obligations," "Adjustable Rate Mortgage Securities,"
"Stripped Mortgage Securities," "Mortgage Securities - Special
Considerations," and "Other Asset-Backed Securities" and the Fund's statement
of additional information.
While the judicious use of derivatives by experienced investment managers,
such as Keystone, can be beneficial, derivatives also involve risks different
from, and, in certain cases, greater than, the risks presented by more
traditional investments. Following is a general discussion of important risk
factors and issues concerning the use of derivatives that investors should
understand before investing in the Fund.
* Market Risk -- This is the general risk attendant to all investments that
the value of a particular investment will decline or otherwise change in a
way detrimental to the Fund's interest.
* Management Risk -- Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument, but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use and
complexity of derivatives require the maintenance of adequate controls to
monitor the transactions entered into, the ability to assess the risk that a
derivative adds to the Fund's portfolio and the ability to forecast price,
interest rate or currency exchange rate movements correctly.
* Credit Risk -- This is the risk that a loss may be sustained by the Fund as
a result of the failure of another party to a derivative (usually referred
to as a "counterparty") to comply with the terms of the derivative contract.
The credit risk for exchange-traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the
issuer or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the clearing house in order
to reduce overall credit risk. For privately negotiated derivatives, there
is no similar clearing agency guarantee. Therefore, the Fund considers the
creditworthiness of each counterparty to a privately negotiated derivative
in evaluating potential credit risk.
* Liquidity Risk -- Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.
* Leverage Risk -- Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss generally is
related to a notional principal amount, even if the parties have not made
any initial investment. Certain derivatives have the potential for unlimited
loss, regardless of the size of the initial investment.
* Other Risks -- Other risks in using derivatives include the risk of
mispricing or improper valuation and the inability of derivatives to
correlate perfectly with underlying assets, rates and indices. Many
derivatives, in particular privately negotiated derivatives, are complex and
often valued subjectively. Improper valuations can result in increased cash
payment requirements to counterparties or a loss of value to the 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 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 in which the Fund will trade are generally
listed on national securities exchanges. Exchanges on which such options
currently are traded include the Chicago Board Options Exchange and the New
York, American, Pacific and Philadelphia Stock Exchanges. Options on some
securities may not be listed on any exchange, but traded in the over-the-
counter market. Options traded in the over-the-counter market involve the
additional risk that securities dealers participating in such transactions
could fail to meet their obligations to the Fund. The use of options traded in
the over-the-counter market may be subject to limitations imposed by certain
state securities authorities. 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 predict accurately
the future exchange rates between foreign currencies and the U.S. dollar. The
value of the Fund's investments denominated in foreign currencies will depend
on the relative strength of those currencies and the U.S. dollar, and the Fund
may be affected favorably or unfavorably by changes in the exchange rates or
exchange control regulations between foreign currencies and the dollar.
Changes in foreign currency exchange rates also may affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Fund. 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.
INTEREST RATE TRANSACTIONS (SWAPS, CAPS AND FLOORS). If the Fund enters into
interest rate swap, cap or floor transactions, it expects to do so primarily
for hedging purposes, which may include preserving a return or spread on a
particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund does not currently intend to use these transactions in a
speculative manner.
Interest rate swaps involve the exchange by the Fund with another party of
their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). Interest rate caps and floors
are similar to options in that the purchase of an interest rate cap or floor
entitles the purchaser, to the extent that a specified index exceeds (in the
case of a cap) or falls below (in the case of a floor) a predetermined
interest rate, to receive payments of interest on a contractually-based
principal ("notional") amount from the party selling the interest rate cap or
floor. The Fund may enter into interest rate swaps, caps and floors on either
an asset-based or liability-based basis, depending upon whether it is hedging
its assets or liabilities, and will usually enter into interest rate swaps on
a net basis (i.e., the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments).
The swap market has grown substantially in recent years, with a large number
of banks and investment banking firms acting as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become more established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions also involve the delivery of securities or
other underlying assets and principal. Accordingly, the risk of loss to the
Fund from interest rate transactions is limited to the net amount of interest
payments that the Fund is contractually obligated to make.
INDEXED COMMERCIAL PAPER. Indexed commercial paper may have its principal
linked to changes in foreign currency exchange rates whereby its principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect changes in the referenced exchange rate. If permitted by its
investment policies, the Fund will purchase such commercial paper with the
currency in which it is denominated and, at maturity, will receive interest
and principal payments thereon in that currency, but the amount of principal
payable by the issuer at maturity will change in proportion to the change (if
any) in the exchange rate between the two specified currencies between the
date the instrument is issued and the date the instrument matures. While such
commercial paper entails the risk of loss of principal, the potential for
realizing gains as a result of changes in foreign currency exchange rates
enables the Fund to hedge (or cross-hedge) against a decline in the U.S.
dollar value of investments denominated in foreign currencies while providing
an attractive money market rate of return.
MORTGAGE-RELATED SECURITIES. The mortgage-related securities in which the Fund
may invest typically are securities representing interests in pools of
mortgage loans made to home owners. Mortgage-related securities bear interest
at either a fixed rate or an adjustable rate determined by reference to an
index rate. The mortgage loan pools may be assembled for sale to investors
(such as the Fund) by governmental or private organizations. Mortgage-related
securities issued by the Government National Mortgage Association ("GNMA") are
backed by the full faith and credit of the U.S. government; those issued by
Federal National Mortgage Associated ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC") are not so backed.
Securities representing interests in pools created by private issuers
generally offer a higher rate of interest than securities representing
interests in pools created by governmental issuers because there are no direct
or indirect governmental guarantees of the underlying mortgage payments.
However, private issuers sometimes obtain committed loan facilities, lines of
credit, letters of credit, surety bonds or other forms of liquidity and credit
enhancement to support the timely payment of interest and principal with
respect to their securities if the borrowers on the underlying mortgages fail
to make their mortgage payments. The ratings of such non-governmental
securities are generally dependent upon the ratings of the providers of such
liquidity and credit support and would be adversely affected if the rating of
such an enhancer were downgraded. The Fund may buy mortgage-related
securities without credit enhancement if the securities meet the Fund's
investment standards. Although the market for mortgage-related securities is
becoming increasingly liquid, those of certain private organizations may not
be readily marketable.
One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata
share of the monthly payments made by the borrowers on their mortgage loans,
net of any fees paid to the issuer or guarantor of the securities. Prepayments
of mortgages resulting from the sale, refinancing or foreclosure of the
underlying properties are also paid to the holders of these securities. Some
mortgage-related securities, such as securities issued by GNMA, are referred
to as "modified pass-through" securities. The holders of these securities are
entitled to the full and timely payment of principal and interest, net of
certain fees, regardless of whether payments are actually made on the
underlying mortgages. Another form of mortgage-related security is a "pay-
through" security, which is a debt obligation of the issuer secured by a pool
of mortgage loans pledged as collateral that is legally required to be paid by
the issuer regardless of whether payments are actually made on the underlying
mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS. ("CMOs") are the predominant type of
"pay-through" mortgage-related security. CMOs are designed to reduce the risk
of prepayment for investors by issuing multiple classes of securities, each
having different maturities, interest rates and payment schedules, and with
the principal and interest on the underlying mortgages allocated among the
several classes in various ways. The collateral securing the CMOs may consist
of a pool of mortgages, but may also consist of mortgage-backed bonds or pass-
through securities. CMOs may be issued by a U.S. government instrumentality or
agency or by a private issuer. Although payment of the principal of, and
interest on, the underlying collateral securing privately issued CMOs may be
guaranteed by GNMA, FNMA or FHLMC, these CMOs represent obligations solely of
the private issuer and are not insured or guaranteed by GNMA, FNMA, FHLMC, any
other governmental agency or any other person or entity.
INVERSE FLOATING RATE COLLATERALIZED MORTGAGE OBLIGATIONS. In addition to
investing in fixed rate and adjustable rate CMOs, the Fund may also invest in
CMOs with rates that move inversely to market rates ("inverse floaters").
An inverse floater bears an interst rate that resets in the opposite
direction of the change in a specified interest rate index. As market interest
rates rise, the interest rate on the inverse floater goes down, and vice
versa. Inverse floaters tend to exhibit greater price volatility than fixed-
rate bonds of similar maturity and credit quality. The interest rates on
inverse floaters may be significantly reduced, even to zero, if interest rates
rise. Moreover, the secondary market for inverse floaters may be limited in
rising interest rate environments.
ADJUSTABLE RATE MORTGAGE SECURITIES. Another type of mortgage-related
security, known as adjustable-rate mortgage securities ("ARMS"), bears
interest at a rate determined by reference to a predetermined interest rate or
index. There are two main categories of rates or indices: (1) rates based on
the yield on U.S. Treasury securities and (2) indices derived from a
calculated measure such as a cost of funds index or a moving average of
mortgage rates. Some rates and indices closely mirror changes in market
interest rate levels, while others tend to lag changes in market rate levels
and tend to be somewhat less volatile.
ARMS may be secured by adjustable-rate mortgages or fixed-rate mortgages.
ARMS secured by fixed-rate mortgages generally have lifetime caps on the
coupon rates of the securities. To the extent that general interest rates
increase faster than the interest rates on the ARMS, these ARMS will decline
in value. The adjustable-rate mortgages that secure ARMS will frequently have
caps that limit the maximum amount by which the interest rate or the monthly
principal and interest payments on the mortgages may increase. These payment
caps can result in negative amortization (i.e., an increase in the balance of
the mortgage loan). Furthermore, since many adjustable-rate mortgages only
reset on an annual basis, the values of ARMS tend to fluctuate to the extent
that changes in prevailing interest rates are not immediately reflected in the
interest rates payable on the underlying adjustable-rate mortgages.
STRIPPED MORTGAGE SECURITIES. Stripped mortgage-related securities ("SMRS")
are mortgage-related securities that are usually structured with two classes
of securities collateralized by a pool of mortgages or a pool of mortgaged-
backed bonds or pass-through securities, with each class receiving different
proportions of the principal and interest payments from the underlying assets.
A common type of SMRS has one class of interest-only securities ("IOs")
receiving all of the interest payments from the underlying assets, while the
other class of securities, principal-only securities ("POs"), receives all of
the principal payments from the underlying assets. IOs and POs are extremely
sensitive to interest rate changes and are more volatile than mortgage-related
securities that are not stripped. IOs tend to decrease in value as interest
rates decrease, while POs generally increase in value as interest rates
decrease. If prepayments of the underlying mortgages are greater than
anticipated, the amount of interest earned on the overall pool will decrease
due to the decreasing principal balance of the assets. Changes in the values
of IOs and POs can be substantial and occur quickly, such as occurred in the
first half of 1994 when the value of many POs dropped precipitously due to
increase in interest rates. For this reason the Fund does not rely on IOs and
POs as the principal means of furthering its investment objective.
MORTGAGE-RELATED SECURITIES -- SPECIAL CONSIDERATIONS. The value of mortgage-
related securities is affected by a number of factors. Unlike traditional
debt securities, which have fixed maturity dates, mortgage-related securities
may be paid earlier than expected as a result of prepayment of the underlying
mortgages. If property owners make unscheduled prepayments of their mortgage
loans, these prepayments will result in the early payment of the applicable
mortgage-related securities. In that event the Fund may be unable to invest
the proceeds from the early payment of the mortgage-related securities in an
investment that provides as high a yield as the mortgage-related securities.
Consequently, early payment associated with mortgage-related securities causes
these securities to experience significantly greater price and yield
volatility than experienced by traditional fixed-income securities. The
occurrence of mortgage prepayments is affected by the level of general
interest rates, general economic conditions and other social and demographic
factors. During periods of falling interest rates, the rate of mortgage
prepayments tends to increase, thereby tending to decrease the life of
mortgage-related securities. During periods of rising interest rates, the rate
of mortgage prepayments usually decreases, thereby tending to increase the
life of mortgage-related securities. If the life of a mortgage-related
security is inaccurately predicted, the Fund may not be able to realize the
rate of return it expected.
As with fixed-income securities generally, the value of mortgage-related
securities can also be adversely affected by increases in general interest
rates relative to the yield provided by such securities. Such adverse effect
is especially possible with fixed-rate mortgage securities. If the yield
available on other investments rises above the yield of the fixed-rate
mortgage securities as a result of general increases in interest rate levels,
the value of the mortgage-related securities will decline. Although the
negative effect could be lessened if the mortgage-related securities were to
be paid earlier (thus permitting the Fund to reinvest the prepayment proceeds
in investments yielding the higher current interest rate), as described above
the rate of mortgage prepayments and earlier payment of mortgage-related
securities generally tends to decline during a period of rising interest
rates.
Although the value of ARMS may not be affected by rising interest rates as
much as the value of fixed-rate mortgage securities is affected by rising
interest rates, ARMS may still decline in value as a result of rising interest
rates. Although, as described above, the yield on ARMS varies with changes in
the applicable interest rate or index, there is often a lag between increases
in general interest rates and increases in the yield on ARMS as a result of
relatively infrequent interest rate reset dates. In addition, adjustable-rate
mortgages and ARMS often have interest rate or payment caps that limit the
ability of the adjustable-rate mortgages or ARMS to fully reflect increases in
the general level of interest rates.
OTHER ASSET-BACKED SECURITIES. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card
receivables, home equity loans, equipment leases and trade receivables, are
being securitized in structures similar to the structures used in mortgage
securitizations. These asset-backed securities are subject to risks associated
with changes in interest rates and prepayment of underlying obligations
similar to the risks of investment in mortgage-related securities discussed
above.
Each type of asset-backed security also entails unique risks depending on
the type of assets involved and the legal structure used. For example, credit
card receivables are generally unsecured obligations of the credit card holder
and the debtors are entitled to the protection of a number of state and
federal consumer credit laws, many of which give such debtors the right to set
off certain amounts owed on the credit cards, thereby reducing the balance
due. There have also been proposals to cap the interest rate that a credit
card issuer may charge. In some transactions, the value of the asset-backed
security is dependent on the performance of a third party acting as credit
enhancer or servicer. Furthermore, in some transactions (such as those
involving the securitization of vehicle loans or leases) it may be
administratively burdensome to perfect the interest of the security issuer in
the underlying collateral and the underlying collateral may become damaged or
stolen.
VARIABLE, FLOATING AND LEVERAGED INVERSE FLOATING RATE INSTRUMENTS. Fixed-
income securities may have fixed, variable or floating rates of interest.
Variable and floating rate securities pay interest at rates that are adjusted
periodically, according to a specified formula. A "variable" interest rate
adjusts at predetermined intervals (e.g., daily, weekly or monthly), while a
"floating" interest rate adjusts whenever a specified benchmark rate (such as
the bank prime lending rate) changes.
If permitted by its investment policies, the Fund may invest in fixed-income
securities that pay interest at a coupon rate equal to a base rate, plus
additional interest for a certain period of time if short-term interest rates
rise above a predetermined level or "cap." The amount of such an additional
interest payment typically is calculated under a formula based on a short-term
interest rate index multiplied by a designated factor.
An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change
in the index rate of interest. The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in market value.
STRUCTURED SECURITIES. Structured securities represent interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations or foreign government
securities. This type of restructuring involves the deposit with or purchase
by an entity, such as a corporation or trust, of specified instruments (such
as commercial bank loans or Brady Bonds) and the issuance by that entity of
one or more classes of structured securities backed by, or representing
interests in, the underlying instruments. The cash flow on the underlying
instruments may be apportioned among the newly issued structured securities to
create securities with different investment characteristics such as varying
maturities, payment priorities and interest rate provisions, and the extent of
the payments made with respect to structured securities is dependent on the
extent of the cash flow on the underlying instruments. Because structured
securities typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying instruments. Structured
securities of a given class may be either subordinated or unsubordinated to
the right of payment of another class. Subordinated structured securities
typically have higher yields and present greater risks than unsubordinated
structured securities.
BRADY BONDS. Brady Bonds are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection
with debt restructurings under a plan introduced by former U.S. Secretary of
the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been
issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various
currencies (although most are U.S. dollar-denominated) and they are actively
traded in the over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
par bonds or floating rate discount bonds, are generally collateralized in
full as to principal due at maturity by U.S. Treasury zero coupon obligations
that have the same maturity as the Brady Bonds. Interest payments on these
Brady Bonds generally are collateralized by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of
rolling interest payments based on the applicable interest rate at that time
and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments, but generally are not
collateralized. Brady Bonds are often viewed as having up to four valuation
components: (1) collateralized repayment of principal at final maturity, (2)
collateralized interest payments, (3) uncollateralized interest payments, and
(4) any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In the event of a
default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero
coupon obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments that would have then been due on the Brady Bonds in the
normal course. In addition, in light of the residual risk of Brady Bonds and,
among other factors, the history of defaults with respect to commercial bank
loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds are to be viewed as speculative.
<PAGE>
KEYSTONE
FUND FAMILY
Quality Bond Fund (B-1)
Diversified Bond Fund (B-2)
High Income Bond Fund (B-4)
Balanced Fund (K-1)
Strategic Growth Fund (K-2)
Growth and Income Fund (S-1)
Mid-Cap Growth Fund (S-3)
Small Company Growth Fund (S-4)
International Fund
Precious Metals Holdings
Tax Free Fund
Tax Exempt Trust
Liquid Trust
[LOGO] KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5034
[recycle symbol]
B4-P Sup. 11/95
38M
KEYSTONE
Photo:
Father and
son on
park bench
HIGH INCOME
BOND FUND (B-4)
[LOGO]
PROSPECTUS AND
APPLICATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
KEYSTONE HIGH INCOME BOND FUND (B-4)
NOVEMBER 28, 1995
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
High Income Bond Fund (B-4) (formerly named Keystone Custodian Fund, Series B-4)
(the "Fund") dated November 28, 1995. A copy of the prospectus may be obtained
from Keystone Investment Distributors Company (formerly named Keystone
Distributors, Inc.) (the "Principal Underwriter"), the Fund's principal
underwriter, 200 Berkeley Street, Boston, Massachusetts 02116-5034, or your
broker-dealer.
- - - - - --------------------------------------------------------------------------------
TABLE OF CONTENTS
- - - - - --------------------------------------------------------------------------------
Page
The Fund's Objective and Policies 2
Investment Restrictions 2
Valuation of Securities 4
Distributions and Taxes 5
Sales Charges 6
Distribution Plan 8
Redemptions in Kind 10
The Trust Agreement 10
Investment Manager 12
Investment Adviser 15
Trustees and Officers 16
Principal Underwriter 20
Brokerage 21
Standardized Total Return and Yield Quotations 23
Additional Information 23
Appendix A-1
Financial Statements F-1
Independent Auditors' Report F-16
#105101ea
<PAGE>
- - - - - --------------------------------------------------------------------------------
THE FUND'S OBJECTIVE AND POLICIES
- - - - - --------------------------------------------------------------------------------
The Fund is an open-end, diversified management investment company. The
Fund's investment objective is to provide shareholders with generous income. To
achieve this objective, the Fund invests primarily in corporate bonds, and its
portfolio ordinarily includes a substantial number of bonds that, as a class,
sell at discounts from par value and are rated by Standard & Poor's Corporation
("S&P") as below investment grade (BBB). While Keystone Management, Inc.
("Keystone Management") and Keystone Investment Management Company (formerly
named "Keystone Custodian Funds, Inc.") ("Keystone"), the Fund's investment
manager and adviser, respectively, perform their own credit analyses of the
Fund's investments and do not rely on ratings assigned by rating services, bonds
rated below investment grade are, on balance, considered predominantly
speculative.
On May 1, 1995, the Fund changed its name from Keystone Custodian Fund,
Series B-4 to its present name.
- - - - - --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- - - - - --------------------------------------------------------------------------------
The following restrictions are fundamental and may not be changed
without a vote of the holders of a majority, as defined in the Investment
Company Act of 1940 (the "1940 Act"), of the Fund's outstanding shares.
The Fund shall not do any of the following:
(1) invest more than 5% of its total assets, computed at market value,
in the securities of any one issuer, other than securities issued or guaranteed
by the United States ("U.S.") government, its agencies or instrumentalities;
(2) invest more than 5% of the value of its total assets in companies
which have been in operation for less than three years;
(3) borrow money, except that the Fund may (a) borrow money from banks
for temporary or emergency purposes in aggregate amounts up to 10% of the value
of the Fund's net assets (computed at cost); or (b) enter into reverse
repurchase agreements (bank borrowings and reverse repurchase agreements, in
aggregate, shall not exceed 10% of the value of the Fund's net assets);
(4) underwrite securities, except that the Fund may purchase securities
from issuers thereof or others and dispose of such securities in a manner
consistent with its other investment policies; in the disposition of restricted
securities the Fund may be deemed to be an underwriter, as defined in the
Securities Act of 1933 (the "1933 Act");
(5) purchase or sell real estate or interests in real estate, except
that it may purchase and sell securities secured by real estate and securities
of companies which invest in real estate, and will not purchase or sell
commodities or commodity contracts, except that the Fund may engage in currency
or other financial futures contracts and related options transactions;
(6) invest for the primary purpose of exercising control over or
management of any issuer;
(7) make margin purchases or short sales of securities;
(8) make loans, except that the Fund may make, purchase or hold debt
securities and other debt investments, including loans, consistent with its
investment objective lend portfolio securities valued at not more than 15% of
its total assets to broker-dealers, and enter into repurchase agreements;
(9) invest more than 25% of its assets in the securities of issuers in
any single industry, other than securities issued by banks and savings and loan
associations or securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities; and
(10) purchase the securities of any other investment company except in
the open market and at customary brokerage rates and in no event more than 3% of
the voting securities of any investment company.
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 the investment on
its books and (2) limiting its holdings of such securities to 15% of its net
assets.
Although not fundamental restrictions or policies requiring a
shareholders' vote to change, the Fund has undertaken to a securities authority
of a foreign country that, so long as the shares of the Fund are registered for
sale in that country (1) the Fund will not invest in the securities of other
investment companies, including unit investment trusts; (2) the Fund will not
invest in real estate investment trusts or limited partnerships whose purpose is
to acquire real estate for investment purposes only, in accordance with
principles of diversification; (3) upon payment of the purchase price, shares of
corresponding value shall be issued without undue delay in accordance with Rule
22(c)(1) of the 1940 Act; (4) the Fund will suspend the right of redemption only
in accordance with Rule 22(e) of the 1940 Act; (5) all cash and securities of
the Fund shall be received by and disbursed or delivered by or through the
Fund's custodian or transfer agent; (6) amounts borrowed from the Fund's
custodian bank for extraordinary or emergency purposes pursuant to the third
fundamental investment restriction enumerated above shall not exceed 10% of the
Fund's net asset value; (7) the Fund will maintain its present election under
Rule 18(f) of the 1940 Act to redeem in kind only in accordance with the
provisions of such Rule; and (8) assets of the Fund may not be pledged or
otherwise encumbered nor be transferred or assigned for the purpose of securing
a debt except in the course of portfolio trading.
Although not fundamental restrictions or policies requiring a
shareholders' vote to change, the Fund has undertaken to a state securities
authority that, so long as the state authority requires and shares of the Fund
are registered for sale in that state, the Fund will (1) limit its purchase of
warrants to 5% of net assets, of which 2% may be warrants not listed on the New
York or American Stock Exchange; (2) not invest in real estate limited
partnership interests; and (3) not invest in oil, gas or other mineral leases.
In order to permit the sale of Fund shares in certain states or foreign
countries, the Fund may make commitments more restrictive than the investment
restrictions described above. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund, it will revoke the commitment by
terminating sales of its shares in the state or country involved.
If a percentage limit is satisfied at the time of investment or
borrowing, a later increase or decrease resulting from a change in asset value
of a security or a decrease in Fund assets is not a violation of the limit.
- - - - - --------------------------------------------------------------------------------
VALUATION OF SECURITIES
- - - - - --------------------------------------------------------------------------------
Current values for the Fund's portfolio securities are determined in
the following manner:
(1) Securities traded on an established exchange are valued on the
basis of the last sales price on the exchange where primarily traded prior to
the time of the valuation. Securities traded in the over-the-counter market, for
which complete quotations are readily available, are valued at the mean of the
bid and asked prices at the time of valuation.
(2) Short-term instruments that 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. In any case, such valuation reflects fair
value as determined by the Board of Trustees.
(3) Short-term money market instruments having maturities of more than
sixty days when purchased that are held on the sixtieth day prior to maturity
are valued at amortized cost (market value on the sixtieth day adjusted for
amortization of premium or accretion of discount), which, when combined with
accrued interest, approximates market. In any case, such valuation reflects fair
value as determined by the Board of Trustees.
(4) The following securities are valued at prices deemed in good faith
to be fair under procedures established by the Board of Trustees: (a)
securities, including restricted securities, for which complete quotations are
not readily available, 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 fair value determined
under the procedures that have been approved by the Board of Trustees. The Board
of Trustees has authorized the use of a pricing service to determine the fair
value of the Fund's fixed income securities and certain other securities.
Securities for which market quotations are readily available are valued on a
consistent basis at the price quoted that, 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 Board of Trustees.
- - - - - --------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
- - - - - --------------------------------------------------------------------------------
The Fund ordinarily makes distributions in shares of the Fund or, at
the option of the shareholder, in cash. Distributions are taxable whether paid
in cash or in shares. 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.
The Fund will make distributions from its net investment income on or
about the 5th day of each month and net capital gains, if any, at least
annually.
Unless the Fund receives instructions to the contrary from a
shareholder before the record date, it will assume that the shareholder wishes
to receive both capital gains distributions and income distributions in shares.
Instructions continue in effect until changed in writing.
The Fund's income distributions are largely derived from interest on
bonds and thus are not to any significant degree eligible, in whole or in part,
for the corporate 70% dividends received deduction. Distributed long-term
capital gains are taxable as such to the shareholder 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. Therefore, net investment
income distributions will not be made on the basis of distributable income as
computed on the books of the Fund, but will be made on a federal income tax
basis. Shareholders of the Fund will be advised annually of the federal income
tax status of distributions.
- - - - - --------------------------------------------------------------------------------
SALES CHARGES
- - - - - --------------------------------------------------------------------------------
In order to reimburse the Fund for certain expenses relating to the
sale of its shares (see "Distribution Plan"), a deferred sales charge may be
imposed at the time of redemption of certain Fund shares within four calendar
years after their purchase. If imposed, the deferred sales charge is deducted
from the redemption proceeds otherwise payable to the shareholder. Since July 8,
1992, the deferred sales charge attributable to shares purchased prior to
January 1, 1992 has been retained by the Fund, and the deferred sales charge
attributable to shares purchased after January 1, 1992 is, to the extent
permitted by the National Association of Securities Dealers, Inc. ("NASD"), paid
to the Principal Underwriter. For the year ended July 31, 1995, the Fund
recovered $43,777 in deferred sales charges.
The contingent deferred sales charge is a declining percentage of the
lesser of (1) the net asset value of the shares redeemed, or (2) the total cost
of such shares. No deferred sales charge is imposed when the shareholder redeems
amounts derived from (1) increases in the value of his account above the total
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; or (3) shares held in all or part of more than
four consecutive calendar years.
Subject to the limitations stated above, the contingent deferred sales
charge is imposed according to the following schedule: 4% of amounts redeemed
during the calendar year of purchase; 3% of amounts redeemed during the calendar
year after the year of purchase; 2% of amounts redeemed during the second
calendar year after the year of purchase; and 1% of amounts redeemed during the
third calendar year after the year of purchase. No deferred sales charge is
imposed on amounts redeemed thereafter.
The following example illustrates the operation of the contingent
deferred sales charge. Assume that an investor makes a purchase payment of
$10,000 during the calendar year 1995 and on a given date in 1996 the value of
the investor's account has grown through investment performance and reinvestment
of distributions to $12,000. On such date in 1996, the investor could redeem up
to $2,000 ($12,000 minus $10,000) without incurring a deferred sales charge. If,
on such date, the investor should redeem $3,000, a deferred sales charge would
be imposed on $1,000 of the redemption proceeds (the amount by which the
investor's account was reduced by the redemption below the amount of the initial
purchase payment). The charge would be imposed at the rate of 3% (because the
redemption is made during the calendar year after the calendar year of purchase)
and would total $30.
In determining whether a contingent deferred sales charge is payable
and, if so, the percentage charge applicable, it is assumed that shares held the
longest are the first to be redeemed. There is no deferred sales charge on
permitted exchanges of shares between Keystone funds that have adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act. Moreover, when
shares of one such fund have been exchanged for shares of another such fund, for
purposes of any future contingent deferred sales charge, 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.
Shares also may be sold, to the extent permitted by applicable law,
regulations, interpretations or exemptions, at net asset value without the
payment of commissions or the imposition of a deferred sales charge upon
redemption of shares by (1) officers, Directors, Trustees, full-time employees
and sales representatives of Keystone Management, Keystone, Keystone
Investments, Inc. (formerly named "Keystone Group, Inc.") ("Keystone
Investments"), Harbor Capital Management Company, Inc., their subsidiaries and
the Principal Underwriter who have been such for not less than ninety days; and
(2) the pension and profit-sharing plans established by said companies, their
subsidiaries and affiliates, for the benefit of their officers, Directors,
Trustees, full-time employees and sales representatives; provided all such sales
are made upon the written assurance of the purchaser that the purchase is made
for investment purposes and that the securities will not be resold except
through redemption by the Fund.
In addition, no deferred sales charge is imposed on a redemption of
Fund shares purchased by a bank or trust company in a single account in the name
of such bank or trust company as trustee if the initial investment in shares of
the Fund, any other fund in the Keystone Investments Family of Funds (as
hereinafter defined), Keystone Precious Metals Holdings, Inc., Keystone
International Fund Inc., Keystone Tax Exempt Trust, Keystone Tax Free Fund,
Keystone Liquid Trust and/or any Keystone America Fund (as hereinafter defined)
is at least $500,000 and any commission paid by the Fund and such other funds at
the time of such purchase is not more than 1% of the amount invested.
The Fund's prospectus enumerates certain additional deferred sales
charge waivers.
- - - - - --------------------------------------------------------------------------------
DISTRIBUTION PLAN
- - - - - --------------------------------------------------------------------------------
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 adopted pursuant to
Rule 12b-1 (the "Distribution Plan").
The Fund's Distribution Plan provides that the Fund may expend up to
0.3125% quarterly (approximately 1.25% annually) of the average daily net asset
value of its shares to pay distribution costs for sales of its shares and to pay
shareholder service fees. The NASD limits such annual expenditures to 1%, of
which 0.75% may be used to pay such distribution costs and 0.25% may be used to
pay shareholder service fees. The aggregate amount that the Fund may pay for
such distribution costs is limited to 6.25% of gross share sales since the
inception of the Fund's Distribution Plan plus interest at the prime rate plus
1% on unpaid amounts thereof (less any contingent deferred sales charges paid by
shareholders to the Principal Underwriter).
Payments under the Distribution Plan are currently made to the
Principal Underwriter (which may reallow all or part to others, such as dealers)
(1) as commissions for Fund shares sold; and (2) as shareholder service fees in
respect of shares maintained by the recipients outstanding on the Fund's books
for specific periods. Amounts paid or accrued to the Principal Underwriter under
(1) and (2) in the aggregate may not exceed the annual limitation referred to
above. The Principal Underwriter generally reallows to brokers or others a
commission equal to 4% of the price paid for each Fund share sold as well as a
shareholder service fee at a rate of 0.25% per annum of the net asset value of
shares maintained by such recipients on the books of the Fund for specified
periods.
If the Fund is unable to pay the Principal Underwriter a commission on
a new sale because the annual maximum (0.75% of average daily net assets) has
been reached, the Principal Underwriter intends, but is not obligated, to
continue to accept new orders for the purchase of Fund shares and to pay
commissions and service fees to dealers in excess of the amount it currently
receives from the Fund. While the Fund is under no contractual obligation to pay
the Principal Underwriter such amounts that exceed the Distribution Plan
limitation, the Principal Underwriter intends to seek full payment of such
amounts from the Fund (together with interest at the rate of prime plus 1%) at
such time in the future as, and to the extent that, payment thereof by the Fund
would be within permitted limits. The Principal Underwriter currently intends to
seek payment of interest only on such charges paid or accrued by the Principal
Underwriter subsequent to July 7, 1992. If the Fund's independent Trustees
("Independent Trustees") authorize such payments, the effect will be to extend
the period of time during which the Fund incurs the maximum amount of costs
allowed by the Distribution Plan. If the Distribution Plan is terminated, the
Principal Underwriter will ask the Independent Trustees to take whatever action
they deem appropriate under the circumstances with respect to payment of such
amounts.
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 the Distribution Plan must be reported to the
Fund's Rule 12b-1 Trustees ("Rule 12b-1 Trustees") quarterly. The Fund's Rule
12b-1 Trustees may require or approve changes in the implementation or operation
of the Distribution Plan and may require that total expenditures by the Fund
under the Distribution Plan be kept within limits lower than the maximum amount
permitted by the Distribution Plan as stated above. If such costs are not
limited by the Rule 12b-1 Trustees, such costs could, for some period of time,
be higher than such costs permitted by most other plans presently adopted by
other investment companies.
The Distribution Plan may be terminated at any time by vote of the Rule
12b-1 Trustees or by vote of a majority of the outstanding voting securities of
the Fund. Any change in the Distribution Plan that would materially increase the
distribution expenses of the Fund provided for in the Distribution Plan requires
shareholder approval. Otherwise, the Distribution Plan may be amended by the
Trustees, including the Fund's Rule 12b-1 Trustees.
While the Distribution Plan is in effect, the Fund is required to
commit the selection and nomination of candidates for Independent Trustees to
the discretion of the Independent Trustees.
During the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $7,116,706 under the Distribution Plan, of which amount the
Principal Underwriter received $___________ after payment of commissions and
service fees to others of $3,857,337.
Whether any expenditure under the Distribution Plan is subject to a
state expense limit will depend upon the nature of the expenditure and the terms
of the state law, regulation or order imposing the limit. A portion of the
Fund's Distribution Plan expenses may be includable in the Fund's total
operating expenses for purposes of determining compliance with state expense
limits.
The Independent Trustees of the Fund have determined that the sales of
the Fund's shares resulting from payments under the Distribution Plan have
benefited the Fund.
- - - - - --------------------------------------------------------------------------------
REDEMPTIONS IN KIND
- - - - - --------------------------------------------------------------------------------
If conditions arise that would make it undesirable for the Fund to pay
for all redemptions in cash, the Board of Trustees may authorize payment to be
made in portfolio securities or other Fund property. The Fund has obligated
itself, however, 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. Shareholders receiving such securities would incur
brokerage costs when these securities are sold.
- - - - - --------------------------------------------------------------------------------
THE TRUST AGREEMENT
- - - - - --------------------------------------------------------------------------------
The Fund is a Pennsylvania common law trust established under a Trust
Agreement dated July 15, 1935, as amended and restated on December 19, 1989 (the
"Restatement of Trust Agreement"). The Restatement of Trust Agreement
restructured the Fund so that its operation would be substantially similar to
that of most other mutual funds. The Restatement of Trust Agreement provides for
a Board of Trustees and enables the Fund to enter into an agreement with an
investment manager and/or adviser to provide the Fund with investment advisory,
management and administrative services. A copy of the Restatement of Trust
Agreement is filed as an exhibit to the Fund's Registration Statement, of which
this statement of additional information is a part. This summary is qualified in
its entirety by reference to the Restatement of Trust Agreement.
DESCRIPTION OF SHARES
The Restatement of Trust Agreement authorizes the issuance of an
unlimited number of shares of beneficial interest and the creation of additional
series and/or classes of series of shares of the Fund. 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
their class of Fund shares. Shareholders shall have no preemptive or conversion
rights. Shares are transferable. The Fund currently intends to issue only one
class of shares.
SHAREHOLDER LIABILITY
Pursuant to court decisions or other theories of law, shareholders of a
Pennsylvania common law trust could possibly be held personally liable for the
obligations of the Fund. The possibility of Fund shareholders incurring
financial loss under such circumstances appears to be remote, however, because
the Restatement of Trust Agreement (1) contains an express disclaimer of
shareholder liability for obligations of the Fund; (2) requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Fund or the Trustees; and (3) provides for
indemnification out of Fund property for any shareholder held personally liable
for the obligations of the Fund.
VOTING RIGHTS
Under the terms of the Restatement of Trust Agreement, the Fund does
not hold annual meetings. At meetings called for the initial election of
Trustees or to consider other matters, shares are entitled to one vote per
share. Shares generally vote together as one class on all matters. No amendment
may be made to the Restatement of Trust Agreement that adversely affects any
class of shares without the approval of a majority of the shares of that class.
There shall be no cumulative voting in the election of Trustees.
After a meeting as described above, no further meetings of shareholders
for the purpose of electing Trustees will be held, unless required by law or
unless and until such time as less than a majority of the Trustees holding
office have been elected by shareholders, at which time the Trustees then in
office will call a shareholders' meeting for the election of Trustees.
Except as set forth above, the Trustees shall continue to hold office
indefinitely unless otherwise required by law and may appoint successor
Trustees. A Trustee may cease to hold office or may be removed from office (as
the case may be) (1) at any time by a two-thirds vote of the remaining Trustees;
(2) when such Trustee becomes mentally or physically incapacitated; or (3) at a
special meeting of shareholders by a two-thirds vote of the outstanding shares.
Any Trustee may voluntarily resign from office.
LIMITATION OF TRUSTEES' LIABILITY
The Restatement of Trust Agreement provides that a Trustee shall be
liable only for his own willful defaults and, if reasonable care has been
exercised in the selection of officers, agents, employees or investment
advisers, shall not be liable for any neglect or wrongdoing of any such person;
provided, however, that nothing in the Restatement of Trust Agreement shall
protect a Trustee against any liability for his willful misfeasance, bad faith,
gross negligence or reckless disregard of his duties.
The Trustees have absolute and exclusive control over the management
and disposition of all assets of the Fund and may perform such acts as in their
sole judgment and discretion are necessary and proper for conducting the
business and affairs of the Fund or promoting the interests of the Fund and the
shareholders.
- - - - - --------------------------------------------------------------------------------
INVESTMENT MANAGER
- - - - - --------------------------------------------------------------------------------
Subject to the general supervision of the Fund's Board of Trustees,
Keystone Management, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, serves as investment manager to the Fund and is responsible for the
overall management of the Fund's business and affairs. Keystone Management,
organized in 1989, is a wholly-owned subsidiary of Keystone, and its directors
and principal executive officers have been affiliated with Keystone, a seasoned
investment adviser, for a number of years. Keystone Management also serves as
investment manager to each of the other funds in the Keystone Fund Family and to
certain other funds in the Keystone Investments Family of Funds.
Except as otherwise noted below, pursuant to an Investment Management
Agreement with the Fund dated August 19, 1993 ("Management Agreement"), and
subject to the supervision of the Fund's Board of Trustees, Keystone Management
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
objectives and restrictions. The Management Agreement stipulates that Keystone
Management shall provide office space, all necessary office facilities,
equipment and personnel in connection with its services under the Management
Agreement and pay or reimburse the Fund for the compensation of Fund officers
and Trustees who are affiliated with the investment manager as well as pay all
expenses of Keystone Management incurred in connection with the provision of its
services. All charges and expenses, other than those specifically referred to as
being borne by Keystone Management, 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 Plan; 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 Management Agreement permits Keystone Management to enter into an
agreement with Keystone or another investment adviser, under which Keystone or
another investment adviser, as investment adviser, will provide substantially
all the services to be provided by Keystone Management under the Management
Agreement. The Management Agreement also permits Keystone Management to delegate
to Keystone or another investment adviser substantially all of the investment
manager's rights, duties and obligations under the Management Agreement.
Services performed by Keystone Management include (1) performing research and
planning with respect to (a) the Fund's qualification as a regulated investment
company under Subchapter M of the Internal Revenue Code, (b) tax treatment of
the Fund's portfolio investments, (c) tax treatment of special corporate actions
(such as reorganizations), (d) state tax matters affecting the Fund, and (e) the
Fund's distributions of income and capital gains; (2) preparing the Fund's
federal and state tax returns; and (3) providing services to the Fund's
shareholders in connection with federal and state taxation and distributions of
income and capital gains.
The Fund pays Keystone Management a fee for its services at the annual
rate of:
ANNUAL AGGREGATE NET ASSET
MANAGEMENT VALUE OF THE SHARES
FEE INCOME OF THE FUND
2% of Gross Dividend and
Interest Income, Plus
0.50% of the first $ 100,000,000 plus
0.45% of the next $ 100,000,000 plus
0.40% of the next $ 100,000,000 plus
0.35% of the next $ 100,000,000 plus
0.30% of the next $ 100,000,000 plus
0.25% of amounts over $ 500,000,000;
computed as of the close of business on each business day and paid daily.
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 $70 million of Fund average net assets;and
1.5% of fund average net assets over $100 million.
Capital charges and certain expenses, including a portion of the Fund's
Distribution Plan fees, are not included in the calculation of the state expense
limitation. This limitation may be modified or eliminated in the future.
As a continuing condition of registration of shares in a state,
Keystone Management has agreed to reimburse the Fund annually for certain
operating expenses incurred by the Fund in excess of certain percentages of the
Fund's average daily net assets. Keystone Management is not required, however,
to make such reimbursements to the extent it 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 Management Agreement will continue in effect only if approved at
least annually by the Fund's Board of Trustees 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 Management Agreement may be terminated, without
penalty, on 60 days' written notice by the Fund's Board of Trustees or by a vote
of a majority of outstanding shares. The Management Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
For additional discussion of fees paid to Keystone Management, see
"Investment Adviser" below.
- - - - - --------------------------------------------------------------------------------
INVESTMENT ADVISER
- - - - - --------------------------------------------------------------------------------
Pursuant to the Management Agreement, Keystone Management has delegated
its investment management functions, except for certain administrative and
management services, to Keystone and has entered into an Investment Advisory
Agreement with Keystone dated August 19, 1993 ("Advisory Agreement") under which
Keystone provides investment advisory and management services to the Fund.
Keystone, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, has provided investment advisory and management services to
investment companies and private accounts since it was organized in 1932.
Keystone is a wholly-owned subsidiary of Keystone Investments, 200 Berkeley
Street, Boston, Massachusetts 02116-5034.
Keystone Investments is a corporation predominantly owned by current
and former members of management of Keystone and its affiliates. The shares of
Keystone Investments common stock beneficially owned by management are held in a
number of voting trusts, the trustees of which are George S. Bissell, Albert H.
Elfner, III, Edward F. Godfrey and Ralph J. Spuehler, Jr. Keystone Investments
provides accounting, bookkeeping, legal, personnel and general corporate
services to Keystone Management, Keystone, their affiliates and the Keystone
Investments Family of Funds.
Pursuant to the Advisory Agreement, Keystone receives for its services
an annual fee representing 85% of the management fee received by Keystone
Management under its Management Agreement with the Fund.
Pursuant to 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 under
the Advisory Agreement and pay or reimburse the Fund for the compensation of
officers and trustees of the Fund who are affiliated with the investment adviser
as well as pay all expenses of Keystone incurred in connection with the
provision of its services. All charges and expenses, other than those
specifically referred to as being borne by Keystone, will be paid by the Fund,
including, but not limited to, 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 Plan; 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 SEC 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.
During the fiscal year ended July 31, 1993, the Fund paid or accrued to
Keystone Management for investment management and administrative services fees
of $4,857,419, which represented 0.56% of the Fund's average net assets. Of such
amount paid to Keystone Management, $4,128,806 was paid to Keystone for its
services to the Fund.
During the fiscal year ended July 31, 1994, the Fund paid or accrued to
Keystone Management investment management and administrative services fees of
$4,829,247 which represented 0.52% of the Fund's average net assets. Of such
amount paid to Keystone Management, $4,104,859 was paid to Keystone for its
services to the Fund.
During the fiscal year ended July 31, 1995, the Fund paid or accrued to
Keystone Management investment management and administrative services fees of
$4,040,007, which represented 0.57% of the Fund's average net assets. Of such
amount paid to Keystone Management, $3,434,006 was paid to Keystone for its
services to the Fund.
- - - - - --------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- - - - - --------------------------------------------------------------------------------
Trustees and officers of the Fund, their principal occupations and some
of their affiliations over the last five years are as follows:
*ALBERT H. ELFNER, III: President, Chief Executive Officer and Trustee of the
Fund; Chairman of the Board, President, Director and Chief Executive
Officer of Keystone Investments; President, Chief Executive Officer and
Trustee or Director of all 30 funds in the Keystone Investments Family
of Funds; Director and Chairman of the Board, Chief Executive Officer
and Vice Chairman of Keystone; Chairman of the Board and Director of
Keystone Institutional Company, Inc. ("Keystone Institutional")
(formerly named Keystone Investment Management Corporation), and
Keystone Fixed Income Advisors ("KFIA"); Director, Chairman of the
Board, Chief Executive Officer and President of Keystone Management,
Keystone Software Inc. ("Keystone Software"); Director and President of
Keystone Asset Corporation, Keystone Capital Corporation, and Keystone
Trust Company; Director of the Principal Underwriter, KIRC, and
Fiduciary Investment Company, Inc. ("FICO"); Director of Boston
Children's Services Association; Trustee of Anatolia College, Middlesex
School, and Middlebury College; Member, Board of Governors, New England
Medical Center; former Director and President of Hartwell Keystone
Advisers, Inc. ("Hartwell Keystone"); former Director and Vice
President of Robert Van Partners, Inc.; and former Trustee of Neworld
Bank.
FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Professor, Finance Department, George Washington
University; President, Amling & Company (investment advice); Member,
Board of Advisers, Credito Emilano (banking); and former Economics and
Financial Consultant, Riggs National Bank.
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Investment Counselor to Appleton Partners,
Inc.; former Managing Director, Seaward Management Corporation
(investment advice) and former Director, Executive Vice President and
Treasurer, State Street Research & Management Company (investment
advice).
*GEORGE S. BISSELL: Chairman of the Board and Trustee of the Fund; Director of
Keystone Investments; Chairman of the Board and Trustee or Director of
all other Keystone Investments Funds; former Director and Chairman of
the Board of Hartwell Keystone; Chairman of the Board and Trustee of
Anatolia College; Trustee of University Hospital (and Chairman of its
Investment Committee); former Chairman of the Board and Chief Executive
Officer of Keystone Investments; and former Chief Executive Officer of
the Fund.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Director, Coalition of Essential
Schools, Brown University; Director and former Executive Vice
President, National Alliance of Business; former Vice President,
Educational Testing Services; and former Dean, School of Business,
Adelphi University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; former Group Vice President, Textron Corp.;
and former Director, Peoples Bank (Charlotte, N.C).
LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Director of Phoenix Total Return Fund and
Equifax, Inc.; Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio
Fund and The Phoenix Big Edge Series Fund; and former President,
Morehouse College.
K. DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Chairman of the Board, Director and Executive Vice
President, The London Harness Company; Managing Partner, Roscommon
Capital Corp.; Trustee, Cambridge College; Chairman Emeritus and
Director, American Institute of Food and Wine; Chief Executive Officer,
Gifford Gifts of Fine Foods; Chairman, Gifford, Drescher & Associates
(environmental consulting); President, Oldways Preservation and
Exchange Trust (education); and former Director, Keystone Investments
and Keystone.
F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Of Counsel, Keyser, Crowley & Meub, P.C.;
Member, Governor's (VT) Council of Economic Advisers; Chairman of the
Board and Director, Central Vermont Public Service Corporation and
Hitchcock Clinic; Director, Vermont Yankee Nuclear Power Corporation,
Vermont Electric Power Company, Inc., Grand Trunk Corporation, Central
Vermont Railway, Inc., S.K.I. Ltd., Sherburne Corporation, Union Mutual
Fire Insurance Company, New England Guaranty Insurance Company, Inc.
and the Investment Company Institute; former Governor of Vermont;
former Director and President, Associated Industries of Vermont; former
Chairman and President, Vermont Marble Company; former Director of
Keystone; and former Director and Chairman of the Board, Green Mountain
Bank.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Vice President, DHR
International, Inc. (executive recruitment); former Senior Vice
President, Boyden International Inc. (executive recruitment); and
Director, Commerce and Industry Association of New Jersey, 411
International, Inc. and J & M Cumming Paper Co.
RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Chairman, Environmental Warranty, Inc., and
Consultant, Drake Beam Morin, Inc. (executive outplacement); Director
of Connecticut Natural Gas Corporation, Trust Company of Connecticut,
Hartford Hospital, Old State House Association and Enhanced Financial
Services, Inc.; Member, Georgetown College Board of Advisors; Chairman,
Board of Trustees, Hartford Graduate Center; Trustee, Kingswood-Oxford
School and Greater Hartford YMCA; former Director, Executive Vice
President and Vice Chairman of The Travelers Corporation; and former
Managing Director of Russell Miller, Inc.
ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Partner, Farrell, Fritz, Caemmerer, Cleary, Barnosky
& Armentano, P.C.; former President, Nassau County Bar Association; and
former Associate Dean and Professor of Law, St. John's University
School of Law.
EDWARD F. GODFREY: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Investments Funds; Director, Senior Vice President,
Chief Financial Officer and Treasurer of Keystone Investments, the
Principal Underwriter, Keystone Asset Corporation, Keystone Capital
Corporation, Keystone Trust Company; Treasurer of Keystone
Institutional, and FICO; Treasurer and Director of Keystone Management,
and Keystone Software; Vice President and Treasurer of KFIA; and
Director of KIRC; former Treasurer and Director of Hartwell Keystone;
former Treasurer of Robert Van Partners, Inc.
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of all
other Keystone Investments Funds; and President of Keystone.
KEVIN J. MORRISSEY: Treasurer of the Fund; Treasurer of all other Keystone
Investments Funds; Vice President of Keystone Investments; Assistant
Treasurer of FICO and Keystone; and former Vice President and Treasurer
of KIRC.
DONALD M. KELLER: Vice President of the Fund; Vice President of KFIA; and Senior
Vice President of Keystone.
GILMAN C. GUNN, III: Vice President of the Fund; Vice President of certain other
Keystone Investments Funds; and Senior Vice President of Keystone.
RICHARD M. CRYAN: Vice President of the Fund; Vice President of a certain other
Keystone Investment Fund; Vice President of KFIA; and Senior Vice
President of Keystone.
ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Fund; Senior
Vice President and Secretary of all other Keystone Investments Funds;
Senior Vice President, General Counsel and Secretary of Keystone;
Senior Vice President, General Counsel, Secretary and Director of the
Principal Underwriter, Keystone Management and Keystone Software;
Senior Vice President and General Counsel of Keystone Institutional;
Senior Vice President, General Counsel and Director of FICO and KIRC;
Vice President and Secretary of KFIA; Senior Vice President, General
Counsel and Secretary of Keystone Investments, Keystone Asset
Corporation, Keystone Capital Corporation and Keystone Trust Company;
former Senior Vice President and Secretary of Hartwell Keystone, and
Robert Van Partners, Inc.
* This Trustee may be considered an "interested person" within the meaning of
the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Investments and several of
its affiliates including Keystone, the Keystone Management, the Principal
Underwriter, and KIRC. Mr. Elfner and Mr. Bissell both own shares of Keystone
Investments. Mr. Elfner is Chairman of the Board, Chief Executive Officer and
Director of Keystone Investments. Mr. Bissell is a Director of Keystone
Investments.
For the fiscal year ended July 31, 1995, none of the Trustees and
officers of Keystone received any direct remuneration from the Fund. For the
fiscal year ended July 31, 1995, the nonaffiliated Trustees of the Fund received
$36,136 in retainers and fees from the Fund. For the twelve month period ended
December 31, 1994, aggregate compensation paid to the Independent Trustees on a
complex wide basis was approximately $585,989. As of October 31, 1995, the
Trustees and officers of Keystone beneficially owned less than 1% of the Fund's
then outstanding shares.
The address of all Trustees and officers of the Fund and the address of
the Fund is 200 Berkeley Street, Boston, Massachusetts 02116-5034.
- - - - - --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER
- - - - - --------------------------------------------------------------------------------
Pursuant to a Principal Underwriting Agreement by and between the Fund
and the Principal Underwriter (the "Underwriting Agreement"), the Principal
Underwriter acts as the Fund's principal underwriter. The Principal Underwriter,
located at 200 Berkeley Street, Boston, Massachusetts 02116-5034, is a
wholly-owned subsidiary of Keystone. The Principal Underwriter, as agent, has
agreed to use its best efforts to find purchasers for the Fund's shares. The
Principal Underwriter may retain and employ representatives to promote
distribution of the shares and may obtain orders from brokers, dealers and
others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that the Principal Underwriter will bear the expense of
preparing, printing and distributing advertising and sales literature and
prospectuses used by it. In its capacity as principal underwriter, the Principal
Underwriter may receive payments from the Fund pursuant to the Fund's
Distribution Plan.
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
outstanding shares. The Underwriting Agreement will terminate automatically upon
its "assignment" as that term is defined in the 1940 Act.
From time to time, if in the Principal Underwriter's judgment it could
benefit the sales of Fund shares, the Principal Underwriter may use its
discretion in providing to selected dealers promotional materials and selling
aids, including, but not limited to, personal computers, related software and
Fund data files.
During the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $7,116,706 under the Distribution Plan, of which amount the
Principal Underwriter received $__________ after payments of commissions on new
sales and service fees to dealers and others of $3,857,337. During the year, the
Principal Underwriter also received $771,318 in contingent deferred sales
charges.
- - - - - --------------------------------------------------------------------------------
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 judgmental and 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, Keystone Management or Keystone is
considered to be in addition to and not in lieu of services required to be
performed by Keystone Management under the Management Agreement or Keystone
under the Advisory Agreement. The cost, value and specific application of such
information are indeterminable and cannot be practically allocated among the
Fund and other clients of Keystone Management or Keystone who may indirectly
benefit from the availability of such information. Similarly, the Fund may
indirectly benefit from information made available as a result of transactions
effected for such other clients. Under the Management Agreement and the Advisory
Agreement, Keystone Management and Keystone 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 Keystone
Management and Keystone 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 bonds and money market
instruments usually will be principal transactions. Bonds and money market
instruments are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. There usually will be no
brokerage commissions paid by the Fund for such purchases. Purchases from
underwriters will include the underwriting commission or concession and
purchases from dealers serving as market makers will include the spread between
the bid and asked prices. 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 Keystone Management, Keystone, 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 Keystone
Management or Keystone from those of the other funds and investment accounts
managed by Keystone Management or Keystone. 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.
For the fiscal years ended July 31, 1993, 1994 and 1995 the Fund paid
no brokerage commissions.
In no instance are portfolio securities purchased from or sold to
Keystone Management, Keystone, the Principal Underwriter or any of their
affiliated persons, as defined in the 1940 Act and rules and regulations issued
thereunder.
- - - - - --------------------------------------------------------------------------------
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
- - - - - --------------------------------------------------------------------------------
Total return quotations for the Fund as they may appear from time to
time in advertisements are calculated by finding the average annual compounded
rates of return over the one, five and ten year periods on a hypothetical $1,000
investment that would equate the initial amount invested to the ending
redeemable value. To the initial investment all dividends and distributions are
added, and all recurring fees charged to all shareholder accounts are deducted.
The ending redeemable value assumes a complete redemption at the end of the one,
five or ten year periods.
The cumulative total returns of the Fund for the five and ten year
periods ending July 31, 1995 were 61.11% and 95.66%, respectively. The
compounded average rates of return for the one, five and ten year periods ended
July 31, 1995 were 2.83%, 10.01% and 6.94%, 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's current yield for
the 30-day period ended July 31, 1995 was 7.45%.
- - - - - --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- - - - - --------------------------------------------------------------------------------
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is custodian of all securities and cash of the Fund (the
"Custodian"). The Custodian may hold securities of some foreign issuers outside
the U.S. 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, 99 High Street, Boston, Massachusetts 02110,
Certified Public Accountants, are the Fund's independent auditors.
KIRC, 101 Main Street, Cambridge, MA 02142-1519, is a wholly-owned
subsidiary of Keystone and serves 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, this statement of additional information or in supplemental sales
literature issued by the Fund or the Principal Underwriter, and no person is
entitled to rely on any information or representation not contained therein.
The Fund's prospectus and this statement of additional information omit
certain information contained in the registration statement filed with the SEC,
which may be obtained from the SEC's principal office in Washington, D.C. upon
payment of the fee prescribed by the rules and regulations promulgated by the
SEC.
On October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Attn: Book
Entry, 4800 Deer Lake Drive E 3rd Floor, Jacksonville, FL 32246-6484 owned of
record 8.786% of the Fund's shares.
<PAGE>
- - - - - --------------------------------------------------------------------------------
APPENDIX
- - - - - --------------------------------------------------------------------------------
CORPORATE BOND RATINGS
A. S&P CORPORATE BOND RATINGS
A S&P corporate bond rating is a current assessment of the creditworthiness
of an obligor, including obligors outside the U.S., with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers or lessees. Ratings of foreign obligors do not take into
account currency exchange and related uncertainties. The ratings are based on
current information furnished by the issuer or obtained by S&P from other
sources it considers reliable.
The ratings are based, in varying degrees, on the following considerations:
a. Likelihood of default - capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in the
event of bankruptcy reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from AA to BBB may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
5. BB, B, CCC, CC AND C - Debt rated BB, B, CCC, CC AND C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
6. CI - The rating CI is reserved for income bonds on which no interest is
being paid.
7. D - Debt rated D is in default, and payment of interest and/or repayment
of principal is in arrears.
B. MOODY'S CORPORATE BOND RATINGS
Moody's ratings are as follows:
1. Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
2. Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
3. A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
4. Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
5. Ba - Bonds which are rated Ba are judged to have speculative elements.
Their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
6. B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
7. Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
8. Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other market
shortcomings.
9. C - Bonds which are rated as C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 AND 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
ZERO COUPON "STRIPPED" BONDS
A zero coupon "stripped" bond represents ownership in serially maturing
interest payments or principal payments on specific underlying notes and bonds,
including coupons relating to such notes and bonds. The interest and principal
payments are direct obligations of the issuer. Coupon zero coupon bonds of any
series mature periodically from the date of issue of such series through the
maturity date of the securities related to such series. Principal zero coupon
bonds mature on the date specified therein, which is the final maturity date of
the related securities. Each zero coupon bond entitles the holder to receive a
single payment at maturity. There are no periodic interest payments on a zero
coupon bond. Zero coupon bonds are offered at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the rights and
privileges of owners of the underlying coupon obligations or principal
obligations. Owners of zero coupon bonds have the right upon default on the
underlying coupon obligations or principal obligations to proceed directly and
individually against the issuer and are not required to act in concert with
other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon bonds
or coupon zero coupon bonds (either initially or in the secondary market) is
treated as if the buyer had purchased a corporate obligation issued on the
purchase date with an original issue discount equal to the excess of the amount
payable at maturity over the purchase price. The purchaser is required to take
into income each year as ordinary income an allocable portion of such discounts
determined on a "constant yield" method. Any such income increases the holder's
tax basis for the zero coupon bond, and any gain or loss on a sale of the zero
coupon bonds relative to the holder's basis, as so adjusted, is a capital gain
or loss. If the holder owns both principal zero coupon bonds and coupon zero
coupon bonds representing interest in the same underlying issue of securities, a
special basis allocation rule (requiring the aggregate basis to be allocated
among the items sold and retained based on their relative fair market values at
the time of sale) may apply to determine the gain orloss on a sale of any such
zero coupon bonds items.
PAYMENT-IN-KIND SECURITIES
Payment-in-kind ("PIK") securities pay interest in either cash or additional
securities, at the issuer's option, for a specified period. The issuer's option
to pay in additional securities typically ranges from one to six years, compared
to an average maturity for all PIK securities of eleven years. Call protection
and sinking fund features are comparable to those offered on traditional debt
issues.
PIKs, like zero coupon bonds, are designated to give an issuer flexibility in
managing cash flow. Several PIKs are senior debt. In other cases, where PIKs are
subordinated, most senior lenders view them as equity equivalents.
An advantage of PIKs for the issuer - as with zero coupon securities - is
that interest payments are automatically compounded (reinvested) at the stated
coupon rate, which is not the case with cash-paying securities. However, PIKs
are gaining popularity over zeros since interest payments in additional
securities can be monetized and are more tangible than accretion of a discount.
As a group, PIK bonds trade flat (i.e., without accrued interest). Their
price is expected to reflect an amount representing accreted interest since the
last payment. PIKs generally trade at higher yields than comparable cash-paying
securities of the same issuer. Their premium yield is the result of the lesser
desirability of non-cash interest, the more limited audience for non-cash paying
securities, and the fact that many PIKs have been issued to equity investors who
do not normally own or hold such securities.
Calculating the true yield on a PIK security requires a discounted cash flow
analysis if the security (ex interest) is trading at a premium or a discount,
because the realizable value of additional payments is equal to the current
market value of the underlying security, not par.
Regardless of whether PIK securities are senior or deeply subordinated,
issuers are highly motivated to retire them because they are usually their most
costly form of capital. Sixty-eight percent of the PIK debentures issued prior
to 1987 have already been redeemed, and approximately 35% of the over $10
billion PIK debentures issued through year-end 1988 have been retired.
EQUIPMENT TRUST CERTIFICATES
Equipment Trust Certificates are a mechanism for financing the purchase of
transportation equipment, such as railroad cars and locomotives, trucks,
airplanes and oil tankers.
Under an equipment trust certificate, the equipment is used as the security
for the debt and title to the equipment is vested in a trustee. The trustee
leases the equipment to the user, i.e., the railroad, airline, trucking or oil
company. At the same time equipment trust certificates in an aggregate amount
equal to a certain percentage of the equipment's purchase price are sold to
lenders. The trustee pays the proceeds from the sale of certificates to the
manufacturer. In addition, the company using the equipment makes an initial
payment of rent equal to their balance of the purchase price to the trustee,
which the trustee then pays to the manufacturer. The trustee collects lease
payments from the company and uses the payments to pay interest and principal on
the certificates. At maturity, the certificates are redeemed and paid, the
equipment is sold to the company and the lease is terminated.
Generally, these certificates are regarded as obligations of the company that
is leasing the equipment and are shown as liabilities on its balance sheet.
However, the company does not own the equipment until all the certificates are
redeemed and paid. In the event the company defaults under its lease, the
trustee terminates the lease. If another lessee is available, the trustee leases
the equipment to another user and makes payments on the certificates from new
lease rentals.
LIMITED PARTNERSHIPS
The Fund may invest in limited and master limited partnerships. A limited
partnership is a partnership consisting of one or more general partners, jointly
and severally responsible as ordinary partners, and by whom the business is
conducted, and one or more limited partners who contribute cash as capital to
the partnership and who generally are not liable for the debts of the
partnership beyond the amounts contributed. Limited partners are not involved in
the day-to-day management of the partnership. They receive income, capital gains
and other tax benefits associated with the partnership project in accordance
with terms established in the partnership agreement. Typical limited
partnerships are in real estate, oil and gas and equipment leasing, but they
also finance movies, research and development and other projects.
For an organization classified as a partnership under the Internal Revenue
Code, each item of income, gain, loss, deduction and credit is not taxed at the
partnership level but flows through to the holder of the partnership unit. This
allows the partnership to avoid taxation and to pass through income to the
holder of the partnership unit at lower individual rates.
A master limited partnership is a publicly traded limited partnership. The
partnership units are registered with the Securities and Exchange Commission and
are freely exchanged on a securities exchange or in the over-the-counter market.
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 upper-medium grade
preferred stock. While risks are judged to be somewhat greater then in the aaa
and aa classification, earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.
4. baa: An issue 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.
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.
MONEY MARKET INSTRUMENTS
The Fund's investments in commercial paper are limited to those rated A-1 by
S&P, PRIME-1 by Moody's or F-1 by Fitch Investors Service, Inc. (Fitch). These
ratings and other money market instruments are described as follows:
COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics: Liquidity ratios are adequate to meet cash requirements. The
issuer's long-term senior debt is rated A or better, although in some cases BBB
credits may be allowed. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry.
The rating PRIME-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public
preparations to meet such obligations. Relative strength or weakness of the
above factors determines how the issuer's commercial paper is rated within
various categories.
The rating F-1 is the highest rating assigned by Fitch. Among the factors
considered by Fitch in assigning this rating are: (1) the issuer's liquidity;
(2) its standing in the industry; (3) the size of its debt; (4) its ability to
service its debt; (5) its profitability; (6) its return on equity; (7) its
alternative sources of financing; and (8) its ability to access the capital
markets. Analysis of the relative strength or weakness of these factors and
others determines whether an issuer's commercial paper is rated F-1.
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the United States Government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance. Treasury bills have maturities of one year or
less. Treasury notes have maturities of one to ten years, and Treasury bonds
generally have maturities of greater than ten years at the date of issuance.
Securities issued or guaranteed by the United States Government or its
agencies or instrumentalities include direct obligations of the United States
Treasury and securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
General Services Administration, Central Bank for Cooperatives, Federal Home
Loan Banks, Federal Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks, Maritime Administration, The Tennessee Valley
Authority, District of Columbia Armory Board and Federal National Mortgage
Association.
Some obligations of United States Government agencies and instrumentalities,
such as Treasury bills and Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the United States;
others, such as securities of Federal Home Loan Banks, by the right of the
issuer to borrow from the Treasury; still others, such as bonds issued by the
Federal National Mortgage Association, a private corporation, are supported only
by the credit of the instrumentality. Because the United States Government is
not obligated by law to provide support to an instrumentality it sponsors, the
Fund will invest in the securities issued by such an instrumentality only when
Keystone determines that the credit risk with respect to the instrumentality
does not make its securities unsuitable investments. United States Government
securities will not include international agencies or instrumentalities in which
the United States Government, its agencies or instrumentalities participate,
such as the World Bank, the Asian Development Bank or the InterAmerican
Development Bank, or issues insured by the Federal Deposit Insurance
Corporation.
CERTIFICATES OF DEPOSITS
Certificates of deposit are receipts issued by a bank in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-denominated
certificates of United States banks, including their branches abroad, and of
U.S. branches of foreign banks which are members of the Federal Reserve System
or the Federal Deposit Insurance Corporation and have at least $1 billion in
deposits as of the date of their most recently published financial statements.
The Fund will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank. Additionally, the Fund does not
currently intend to purchase such foreign securities (except to the extent that
certificates of deposit of foreign branches of U.S. banks may be deemed foreign
securities) or purchase certificates of deposit, bankers' acceptances or other
similar obligations issued by foreign banks.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Fund must have been accepted by U.S.
commercial banks, including foreign branches of U.S commercial banks, having
total deposits at the time of purchase in excess of $1 billion and must be
payable in U.S. dollars.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS
The Fund writes only covered options. Options written by the Fund will
normally have expiration dates of not more than nine months from the date
written. The exercise price of the options may be below, equal to, or above the
current market values of the underlying securities at the times the options are
written.
Unless the option has been exercised, the Fund may close out an option it has
written by effecting a closing purchase transaction, whereby it purchases an
option covering the same underlying security and having the same exercise price
and expiration date ("of the same series") as the one it has written. If the
Fund desires to sell a particular security on which it has written a call
option, it will effect a closing purchase transaction prior to or concurrently
with the sale of the security. If the Fund is able to enter into a closing
purchase transaction, the Fund will realize a profit (or loss) from such
transaction if the cost of such transaction is less (or more) than the premium
received from the writing of the option.
An option position may be closed out only in a secondary market for an option
of the same series. Although the Fund will generally write only those options
for which there appears to be an active secondary market, there is no assurance
that a liquid secondary market will exist for any particular option at any
particular time, and for some options no secondary market may exist. In such
event it might not be possible to effect a closing transaction in a particular
option. If the Fund as a covered call option writer is unable to effect a
closing purchase transaction, it will not be able to sell the underlying
securities until the option expires or it delivers the underlying securities
upon exercise.
Because the Fund intends to qualify as a regulated investment company under
the Internal Revenue Code, the extent to which the Fund may write covered call
options and enter into so-called "straddle" transactions involving put and call
options may be limited.
Many options are traded on registered securities exchanges. Options traded on
such exchanges are issued by the Options Clearing Corporation (OCC), a clearing
corporation which assumes responsibility for the completion of options
transactions.
PURCHASING PUT AND CALL OPTIONS
The Fund can close out a put or call option it has written by effecting a
closing purchase transaction; for example, the Fund may close out a put or call
option it has written by buying an option identical to the one it has written.
If, however, a secondary market does not exist at a time the Fund wishes to
effect a closing sale transaction, the Fund will have to exercise the option to
realize any profit. If a covered call option writer cannot effect a closing
transaction, it cannot sell the underlying securities until the option expires
or is exercised. In addition, in a transaction in which the Fund does not own
the security underlying a put option it has purchased, the Fund would be
required, in the absence of a secondary market, to purchase the underlying
security before it could exercise the option, thereby incurring additional
transaction costs.
The Fund will not purchase a put option if, as a result of such purchase,
more than 10% of its total assets would be invested in premiums for such
options. The Fund's ability to purchase put and call options may be limited by
the Internal Revenue Code's requirements for qualification as a regulated
investment company.
OPTION WRITING AND RELATED RISKS
The Fund may write covered call and put options. A call option gives the
purchaser of the option the right to buy, and the writer the obligation to sell,
the underlying security at the exercise price during the option period.
Conversely, a put option gives the purchaser the right to sell, and the writer
the obligation to buy, the underlying security at the exercise price during the
option period.
So long as the obligation of the writer continues, the writer may be assigned
an exercise notice by the broker-dealer through whom the option was sold. The
exercise notice would require the writer to deliver, in the case of a call, or
take delivery of, in the case of a put, the underlying security against payment
of the exercise price. This obligation terminates upon expiration of the option,
or at such earlier time as the writer effects a closing purchase transaction by
purchasing an option of the same series as the one previously sold. Once an
option has been exercised, the writer may not execute a closing purchase
transaction. For options traded on national securities exchanges (Exchanges), to
secure the obligation to deliver the underlying security in the case of a call
option, the writer of the option is required to deposit in escrow the underlying
security or other assets in accordance with the rules of the OCC, an institution
created to interpose itself between buyers and sellers of options. Technically,
the OCC assumes the order side of every purchase and sale transaction on an
Exchange and by doing so, gives its guarantee to the transaction.
The principal reason for writing options on a securities portfolio is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the underlying securities alone. In return for the premium, the
covered call option writer has given up the opportunity for profit from a price
increase in the underlying security above the exercise price so long as the
option remains open, but retains the risk of loss should the price of the
security decline. Conversely, the put option writer gains a profit, in the form
of a premium, so long as the price of the underlying security remains above the
exercise price, but assumes an obligation to purchase the underlying security
from the buyer of the put option at the exercise price, even though the price of
the security may fall below the exercise price, at any time during the option
period. If an option expires, the writer realizes a gain in the amount of the
premium. Such a gain may, in the case of a covered call option, be offset by a
decline in the market value of the underlying security during the option period.
If a call option is exercised, the writer realizes a gain or loss from the sale
of the underlying security. If a put option is exercised, the writer must
fulfill his obligation to purchase the underlying security at the exercise
price, which will usually exceed the then market value of the underlying
security. In addition, the premium paid for the put effectively increases the
cost of the underlying security, thus reducing the yield otherwise available
from such securities.
Because the Fund can write only covered options, it may at times be unable to
write additional options unless it sells a portion of its portfolio holdings to
obtain new debt securities against which it can write options. This may result
in higher portfolio turnover and correspondingly greater brokerage commissions
and other transaction costs.
To the extent that a secondary market is available the covered option writer
may close out options it has written prior to the assignment of an exercise
notice by purchasing, in a closing purchase transaction, an option of the same
series as the option previously written. If the cost of such a closing purchase,
plus transaction costs, is greater than the premium received upon writing the
original option, the writer will incur a loss on the transaction.
OPTIONS TRADING MARKETS
Options which the Fund will trade are generally listed on Exchanges.
Exchanges on which such options currently are traded are the Chicago Board
Options Exchange and the American, New York, Pacific, and Philadelphia Stock
Exchanges. Options on some securities may not be listed on any Exchange but
traded in the over-the-counter market. Options traded in the over-the-counter
market involve the additional risk that securities dealers participating in such
transactions would fail to meet their obligations to the Fund. The use of
options traded in the over-the-counter market may be subject to limitations
imposed by certain state securities authorities. In addition to the limits on
its use of options discussed herein, the Fund is subject to the investment
restrictions described in the prospectus and the statement of additional
information.
The staff of the Commission is of the view that the premiums which the Fund
pays for the purchase of unlisted options, and the value of securities used to
cover unlisted options written by the Fund are considered to be invested in
illiquid securities or assets for the purpose of calculating whether the Fund is
in compliance with its fundamental investment restriction prohibiting it from
investing more than 10% of its total assets (taken at current value) in any
combination of illiquid assets and securities. The Fund intends to request that
the Commission staff reconsider its view. It is the intention of the Fund to
comply with the staff's current position and the outcome of such
reconsideration.
SPECIAL CONSIDERATIONS APPLICABLE TO OPTIONS
On Treasury Bonds and Notes. Because trading interest in U.S. Treasury bonds
and notes tends to center on the most recently auctioned issues, new series of
options with expirations to replace expiring options on particular issues will
not be introduced indefinitely. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new expirations
as the original ones expire. Options trading on each series of bonds or notes
will thus be phased out as new options are listed on the more recent issues, and
a full range of expiration dates will not ordinarily be available for every
series on which options are traded.
ON TREASURY BILLS. Because the deliverable U.S. Treasury bill changes from
week to week, writers of U.S. Treasury bill call options cannot provide in
advance for their potential exercise settlement obligations by acquiring and
holding the underlying security. However, if the Fund holds a long position in
U.S. Treasury bills with a principal amount corrresponding to the option
contract size, the Fund may be hedged from a risk standpoint. In addition, the
Fund will maintain in a segregated account with its Custodian liquid assets
maturing no later than those which would be deliverable in the event of an
assignment of an exercise notice to ensure that it can meet its open option
obligations.
ON GNMA CERTIFICATES. Options on GNMA certificates are not currently traded
on any Exchange. However, the Fund may purchase and write such options in the
over-the-counter market or, should they commence trading, on any Exchange.
Since the remaining principal balance of GNMA certificates declines each
month as a result of mortgage payments, the Fund, as a writer of a covered GNMA
call holding GNMA certificates as "cover" to satisfy its delivery obligation in
the event of assignment of an exercise notice, may find that its GNMA
certificates no longer have a sufficient remaining principal balance for this
purpose. Should this occur, the Fund will enter into a closing purchase
transaction or will purchase additional GNMA certificates from the same pool (if
obtainable) or replacement GNMA certificates in the cash market in order to
remain covered.
A GNMA certificate held by the Fund to cover an option position in any but
the nearest expiration month may cease to present cover for the option in the
event of a decline in the GNMA coupon rate at which new pools are originated
under the FHA/VA loan ceiling in effect at any given time. Should this occur,
the Fund will no longer be covered, and the Fund will either enter into a
closing purchase transaction or replace the GNMA certificate with a certificate
which represents cover. When the Fund closes its position or replaces the GNMA
certificate, it may realize an unanticipated loss and incur transaction costs.
RISKS PERTAINING TO THE SECONDARY MARKET. An option position may be closed
out only in a secondary market for an option of the same series. Although the
Fund will generally purchase or write only those options for which there appears
to be an active secondary market, there is no assurance that a liquid secondary
market will exist for any particular option at any particular time, and for some
options no secondary market may exist. In such event, it might not be possible
to effect closing transactions in particular options, with the result that the
Fund would have to exercise its options in order to realize any profit and might
incur transaction costs in connection therewith. If the Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market include the following:
(i) insufficient trading interest in certain options; (ii) restrictions imposed
on transactions; (iii) trading halts, suspensions or other restrictions imposed
with respect to particular classes or series of options or underlying
securities; (iv) interruption of the normal operations on an Exchange or by a
broker; (v) inadequacy of the facilities of an Exchange, the OCC or a broker
handle current trading volume; or (vi) a decision by one or more Exchanges or a
broker to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market in that class or series of options
would cease to exist, although outstanding options that had been issued as a
result of trades would generally continue to be exercisable in accordance with
their terms.
The hours of trading for options on U.S. government securities may not
conform to the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS
The Fund intends to enter into currency and other financial futures contracts
as a hedge against changes in prevailing levels of interest or currency exchange
rates to seek relative stability of principal and to establish more definitely
the effective return on securities held or intended to be acquired by the Fund
or as a hedge against changes in the prices of securities or currencies held by
the Fund or to be acquired by the Fund. The Fund's hedging may include sales of
futures as an offset against the effect of expected increases in interest or
currency exchange rates or securities prices and purchases of futures as an
offset against the effect of expected declines in interest or currency exchange
rates.
For example, when the Fund anticipates a significant market or market sector
advance, it will purchase a stock index futures contract as a hedge against not
participating in such advance at a time when the Fund is not fully invested. The
purchase of a futures contract serves as a temporary substitute for the purchase
of individual securities which may then be purchased in an orderly fashion. As
such purchases are made, an equivalent amount of index based futures contracts
would be terminated by offsetting sales. In contrast, the Fund would sell stock
index futures contracts in anticipation of or in a general market or market
sector decline that may adversely affect the market value of the Fund's
portfolio. To the extent that the Fund's portfolio changes in value in
correlation with a given index, the sale of futures contracts on that index
would substantially reduce the risk to the portfolio of a market decline or
change in interest rates, and, by so doing, provide an alternative to the
liquidation of the Fund's securities positions and the resulting transaction
costs.
The Fund intends to engage in options transactions which are related to
commodity futures contracts for hedging purposes and in connection with the
hedging strategies described above.
Although techniques other than sales and purchases of futures contracts and
related options transactions could be used to reduce the Fund's exposure to
interest rate and/or market fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Fund does not intend to
take delivery of the instruments underlying futures contracts it holds, the Fund
does not intend to engage in such futures contracts for speculation.
FUTURES CONTRACTS
Futures contracts are transactions in the commodities markets rather than in
the securities markets. A futures contract creates an obligation by the seller
to deliver to the buyer the commodity specified in the contract at a specified
future time for a specified price. The futures contract creates an obligation by
the buyer to accept delivery from the seller of the commodity specified at the
specified future time for the specified price. In contrast, a spot transaction
creates an immediate obligation for the seller to deliver and the buyer to
accept delivery of and pay for an identified commodity. In general, futures
contracts involve transactions in fungible goods such as wheat, coffee and
soybeans. However, in the last decade an increasing number of futures contracts
have been developed which specify currencies, financial instruments or
financially based indices as the underlying commodity.
U.S. futures contracts are traded only on national futures exchanges and are
standardized as to maturity date and underlying financial instrument. The
principal financial futures exchanges in the United States are The Board of
Trade of the City of Chicago, the Chicago Mercantile Exchange, the International
Monetary Market (a division of the Chicago Mercantile Exchange), the New York
Futures Exchange and the Kansas City Board of Trade. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant ("Broker") effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC") and National Futures Association ("NFA").
INTEREST RATE FUTURES CONTRACTS
The sale of an interest rate futures contract creates an obligation by the
Fund, as seller, to deliver the type of financial instrument specified in the
contract at a specified future time for a specified price. The purchase of an
interest rate futures contract creates an obligation by the Fund, as purchaser,
to accept delivery of the type of financial instrument specified at a specified
future time for a specified price. The specific securities delivered or
accepted, respectively, at settlement date, are not determined until at or near
that date. The determination is in accordance with the rules of the exchange on
which the futures contract sale or purchase was made.
Currently interest rate futures contracts can be purchased or sold on 90-day
U.S. Treasury bills, U.S. Treasury bonds, U.S. Treasury notes with maturities
between 6 1/2 and 10 years, Government National Mortgage Association ("GNMA")
certificates, 90-day domestic bank certificates of deposit, 90-day commercial
paper, and 90-day Eurodollar certificates of deposit. It is expected that
futures contracts trading in additional financial instruments will be
authorized. The standard contract size is $100,000 for futures contracts in U.S.
Treasury bonds, U.S. Treasury notes and GNMA certificates, and $1,000,000 for
the other designated contracts. While U.S. Treasury bonds, U.S. Treasury bills
and U.S. Treasury notes are backed by the full faith and credit of the U.S.
government and GNMA certificates are guaranteed by a U.S. government agency, the
futures contracts in U.S. government securities are not obligations of the U.S.
Treasury.
INDEX BASED FUTURES CONTRACTS
STOCK INDEX FUTURES CONTRACTS
A stock index assigns relative values to the common stocks included in the
index. The index fluctuates with changes in the market values of the common
stocks so included. A stock index futures contract is a bilateral agreement by
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the closing value of the
stock index on the expiration date of the contract and the price at which the
futures contract is originally made. No physical delivery of the underlying
stocks in the index is made.
Currently, stock index futures contracts can be purchased or sold on the
Standard and Poor's Corporation ("S&P") Index of 500 Stocks, the S&P Index of
100 Stocks, the New York Stock Exchange Composite Index, the Value Line Index
and the Major Market Index. It is expected that futures contracts trading in
additional stock indices will be authorized. The standard contract size is $500
times the value of the index.
The Fund does not believe that differences between existing stock indices
will create any differences in the price movements of the stock index futures
contracts in relation to the movements in such indices. However, such
differences in the indices may result in differences in correlation of the
futures with movements in the value of the securities being hedged.
OTHER INDEX BASED FUTURES CONTRACTS
It is expected that bond index and other financially based index futures
contracts will be developed in the future. It is anticipated that such index
based futures contracts will be structured in the same way as stock index
futures contracts but will be measured by changes in interest rates, related
indices or other measures, such as the consumer price index. In the event that
such futures contracts are developed the Fund will sell interest rate index and
other index based futures contracts to hedge against changes which are expected
to affect the Fund's portfolio.
The purchase or sale of a futures contract differs from the purchase or sale
of a security, in that no price or premium is paid or received. Instead, to
initiate trading an amount of cash, cash equivalents, money market instruments,
or U.S. Treasury bills equal to approximately 1 1/2% (up to 5%) of the contract
amount must be deposited by the Fund with the Broker. This amount is known as
initial margin. The nature of initial margin in futures transactions is
different from that of margin in security transactions. Futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions.
Rather, the initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon termination of
the futures contract assuming all contractual obligations have been satisfied.
The margin required for a particular futures contract is set by the exchange on
which the contract is traded, and may be significantly modified from time to
time by the exchange during the term of the contract.
Subsequent payments, called variation margin, to the Broker and from the
Broker, are made on a daily basis as the value of the underlying instrument or
index fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as mark-to-market. For example, when the
Fund has purchased a futures contract and the price of the underlying financial
instrument or index has risen, that position will have increased in value and
the Fund will receive from the Broker a variation margin payment equal to that
increase in value. Conversely, where the Fund has purchased a futures contract
and the price of the underlying financial instrument or index has declined, the
position would be less valuable and the Fund would be required to make a
variation margin payment to the Broker. At any time prior to expiration of the
futures contract, the Fund may elect to close the position. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the Broker, and the Fund realizes a loss or gain.
The Fund intends to enter into arrangements with its custodian and with
Brokers to enable its initial margin and any variation margin to be held in a
segregated account by its custodian on behalf of the Broker.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of financial instruments, and index based futures
contracts call for the delivery of cash equal to a specified dollar amount times
the difference between the closing value of the index on the expiration date of
the contract and the price at which the futures contract is originally made, in
most cases such futures contracts are closed out before the settlement date
without the making or taking of delivery. Closing out a futures contract sale is
effected by an offsetting transaction in which the Fund enters into a futures
contract purchase for the same aggregate amount of the specific type of
financial instrument or index and same delivery date. If the price in the sale
exceeds the price in the offsetting purchase, the Fund is paid the difference
and thus realizes a gain. If the offsetting purchase price exceeds the sale
price, the Fund pays the difference and realizes a loss. Similarly, the closing
out of a futures contract purchase is effected by an offsetting transaction in
which the Fund enters into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Fund realizes a gain. If the purchase price
exceeds the offsetting sale price the Fund realizes a loss. The amount of the
Fund's gain or loss on any transaction is reduced or increased, respectively, by
the amount of any transaction costs incurred by the Fund.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one contract of September U.S. Treasury bills on an
exchange may be fulfilled at any time before delivery of the contract is
required (i.e., on a specified date in September, the "delivery month") by the
purchase of one contract of September U.S. Treasury bills on the same exchange.
In such instance the difference between the price at which the futures contract
was sold and the price paid for the offsetting purchase after allowance for
transaction costs represents the profit or loss to the Fund.
There can be no assurance, however, that the Fund will be able to enter into
an offsetting transaction with respect to a particular contract at a particular
time. If the Fund is not able to enter into an offsetting transaction, the Fund
will continue to be required to maintain the margin deposits on the contract and
to complete the contract according to its terms.
OPTIONS ON CURRENCY AND OTHER FINANCIAL FUTURES
The Fund intends to purchase call and put options on currency and other
financial futures contracts and sell such options to terminate an existing
position. Options on currency and other financial futures contracts are similar
to options on stocks except that an option on a currency or other financial
futures contract gives the purchaser the right, in return for the premium paid,
to assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put) rather than to purchase or
sell stock, currency or other financial instruments at a specified exercise
price at any time during the period of the option. Upon exercise of the option,
the delivery of the futures position by the writer of the option to the holder
of the option will be accompanied by delivery of the accumulated balance in the
writer's futures margin account. This amount represents the amount by which the
market price of the futures contract at exercise exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. If an option is exercised the last trading day prior to the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and value of
the futures contract.
The Fund intends to use options on currency and other financial futures
contracts in connection with hedging strategies. In the future the Fund may use
such options for other purposes.
PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS
The purchase of protective put options on commodity futures contracts is
analagous to the purchase of protective puts on individual stocks, where an
absolute level of protection is sought below which no additional economic loss
would be incurred by the Fund. Put options may be purchased to hedge a portfolio
of stocks or debt instruments or a position in the futures contract upon which
the put option is based.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS
The purchase of a call option on a currency or other financial futures
contract represents a means of obtaining temporary exposure to market
appreciation at limited risk. It is analogous to the purchase of a call option
on an individual stock which can be used as a substitute for a position in the
stock itself. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the underlying
financial instrument or index itself, the purchase of a call option may be less
risky than the ownership of the interest rate or index based futures contract or
the underlying securities. Call options on currency or other financial futures
contracts may be purchased to hedge against an interest rate increase or a
market advance when the Fund is not fully invested.
USE OF NEW INVESTMENT TECHNIQUES INVOLVING CURRENCY AND OTHER FINANCIAL FUTURES
CONTRACTS OR RELATED OPTIONS
The Fund may employ new investment techniques involving currency and other
financial futures contracts and related options. The Fund intends to take
advantage of new techniques in these areas which may be developed from time to
time and which are consistent with the Fund's investment objective. The Fund
believes that no additional techniques have been identified for employment by
the Fund in the foreseeable future other than those described above.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND RELATED OPTIONS ON
SUCH FUTURES CONTRACTS
The Fund will not enter into a futures contract if, as a result thereof, more
than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to margin deposits on such
futures contracts.
The Fund intends that its futures contracts and related options transactions
will be entered into for traditional hedging purposes. That is, futures
contracts will be sold to protect against a decline in the price of securities
that the Fund owns or futures contracts will be purchased to protect the Fund
against an increase in the price of securities it intends to purchase. The Fund
does not intend to enter into futures contracts for speculation.
In instances involving the purchase of futures contracts by the Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts will be deposited in a segregated account with the Fund's Custodian
and/or in a margin account with a Broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
FEDERAL INCOME TAX TREATMENT
For federal income tax purposes, the Fund is required to recognize as income
for each taxable year its net unrealized gains and losses on futures contracts
as of the end of the year as well as those actually realized during the year.
Any gain or loss recognized with respect to a futures contract is considered to
be 60% long term and 40% short term, without regard to the holding period of the
contract. In the case of a futures transaction classified as a "mixed straddle,"
the recognition of losses may be deferred to a later taxable year. The federal
income tax treatment of gains or losses from transactions in options on futures
is unclear.
In order for the Fund to continue to qualify for federal income tax treatment
as a regulated investment company, at least 90% of its gross income for a
taxable year must be derived from qualifying income. Any net gain realized from
the closing out of futures contracts, for purposes of the 90% requirement, will
be qualifying income. In addition, gains realized on the sale or other
disposition of securities held for less than three months must be limited to
less than 30% of the Fund's annual gross income. The 1986 Tax Act added a
provision which effectively treats both positions in certain hedging
transactions as a single transaction for the purpose of the 30% requirement. The
provision provides that, in the case of any "designated hedge," increases and
decreases in the value of positions of the hedge are to be netted for the
purposes of the 30% requirement. However, in certain situations, in order to
avoid realizing a gain within a three month period, the Fund may be required to
defer the closing out of a contract beyond the time when it would otherwise be
advantageous to do so.
RISKS OF FUTURES CONTRACTS
Currency and other financial futures contracts prices are volatile and are
influenced, among other things, by changes in stock prices, market conditions,
prevailing interest rates and anticipation of future stock prices, market
movements or interest rate changes, all of which in turn are affected by
economic conditions, such as government fiscal and monetary policies and
actions, and national and international political and economic events.
At best, the correlation between changes in prices of futures contracts and
of the securities being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances, such as variations in
speculative market demand for futures contracts and for securities, including
technical influences in futures contracts trading; differences between the
securities being hedged and the financial instruments and indices underlying the
standard futures contracts available for trading, in such respects as interest
rate levels, maturities and creditworthiness of issuers, or identities of
securities comprising the index and those in the Fund's portfolio. A decision of
whether, when and how to hedge involves the exercise of skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out, and a 15% decrease would result in a loss equal to 150% of the
original margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable losses if, instead
of entering into the futures contract, it had invested in the underlying
financial instrument. Furthermore, in order to be certain that the Fund has
sufficient assets to satisfy its obligations under a futures contract, the Fund
will establish a segregated account in connection with its futures contracts
which will hold cash or cash equivalents equal in value to the current value of
the underlying instruments or indices less the margins on deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
RISKS OF OPTIONS ON FUTURES CONTRACTS
In addition to the risks described above for currency and other financial
futures contracts, there are several special risks relating to options on
futures contracts. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. The Fund will not purchase
options on any futures contract unless and until it believes that the market for
such options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with the futures contracts.
Compared to the use of futures contracts, the purchase of options on such
futures involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to the Fund, even though the use of a futures contract would
not, such as when there is no movement in the level of the futures contract.
FOREIGN CURRENCY TRANSACTIONS
The Fund may invest in securities of foreign issuers. When the Fund invests
in foreign securities they usually will be denominated in foreign currencies and
the Fund temporarily may hold funds in foreign currencies. Thus, the Fund's
share value will be affected by changes in exchange rates.
FORWARD CURRENCY CONTRACTS
As one way of managing exchange rate risk, the Fund may engage in forward
currency exchange contracts (agreements to purchase or sell currencies at a
specified price and date). Under the contract, the exchange rate for the
transaction (the amount of currency the Fund will deliver or receive when the
contract is completed) is fixed when the Fund enters into the contract. The Fund
usually will enter into these contracts to stabilize the U.S. dollar value of a
security it has agreed to buy or sell. The Fund also may use these contracts to
hedge the U.S. dollar value of a security it already owns, particularly if the
Fund expects a decrease in the value of the currency in which the foreign
security is denominated. Although the Fund will attempt to benefit from using
forward contracts, the success of its hedging strategy will depend on Keystone's
ability to predict accurately the future exchange rate 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 rate or exchange control regulations between foreign
currencies and the dollar. Changes in foreign currency exchange rates also may
affect the value of dividends and interest earned, gains and losses realized on
the sale of securities and net investment income and gains, if any, to be
distributed to shareholders by the Fund.
CURRENCY FUTURES CONTRACTS
Currency futures contracts are bilateral agreements under which two parties
agree to take or make delivery of a specified amount of a currency at a
specified future time for a specified price. Trading of currency futures
contracts in the United States is regulated under the Commodity Exchange Act by
the CFTC and NFA. Currently, the only national futures exchange on which
currency futures are traded is the International Monetary Market of the Chicago
Mercantile Exchange. Foreign currency futures trading is conducted in the same
manner and subject to the same regulations as trading in interest rate and index
based futures. The Fund intends to engage in currency futures contracts only for
hedging purposes, and not for speculation. The Fund may enter into currency
futures contracts for other purposes if authorized to do so by the Board. The
hedging strategies which will be used by the Fund in connection with foreign
currency futures contracts are similar to those described above for forward
foreign currency exchange contracts.
Currently, currency futures contracts for the British pound sterling,
Canadian dollar, Dutch guilder, Deutsche mark, Japanese yen, Mexican peso, Swiss
franc and French franc can be purchased or sold for U.S. dollars through the
International Monetary Market. It is expected that futures contracts trading in
additional currencies will be authorized. The standard contract sizes are
L125,000 for the pound, 125,000 for the guilder, mark and Swiss and French
francs, C$100,000 for the Canadian dollar, Y12,500,000 for the yen, and
1,000,000 for the peso. In contrast to Forward Currency Exchange Contracts which
can be traded at any time, only four value dates per year are available, the
third Wednesday of March, June, September and December.
FOREIGN CURRENCY OPTIONS TRANSACTIONS
Foreign currency options (as opposed to futures) are traded in a variety of
currencies in both the United States and Europe. On the Philadelphia Stock
Exchange, for example, contracts for half the size of the corresponding futures
contracts on the Chicago Board Options Exchange are traded with up to nine
months maturity in marks, sterling, yen, Swiss francs and Canadian dollars.
Options can be exercised at any time during the contract life and require a
deposit subject to normal margin requirements. Since a futures contract must be
exercised, the Fund must continually make up the margin balance. As a result, a
wrong price move could result in the Fund losing more than the original
investment as it cannot walk away from the futures contract as it can an option
contract.
The Fund will purchase call and put options and sell such options to
terminate an existing position. Options on foreign currency are similar to
options on stocks except that an option on an interest rate and/or index based
futures contract gives the purchaser the right, in return for the premium paid,
to purchase or sell foreign currency, rather than to purchase or sell stock, at
a specified exercise price at any time during the period of the option.
The Fund intends to use foreign currency option transactions in connection
with hedging strategies.
PURCHASE OF PUT OPTIONS ON FOREIGN CURRENCIES
The purchase of protective put options on a foreign currency is analagous to
the purchase of protective puts on individual stocks, where an absolute level of
protection is sought below which no additional economic loss would be incurred
by the Fund. Put options may be purchased to hedge a portfolio of foreign stocks
or foreign debt instruments or a position in the foreign currency upon which the
put option is based.
PURCHASE OF CALL OPTIONS ON FOREIGN CURRENCIES
The purchase of a call option on foreign currency represents a means of
obtaining temporary exposure to market appreciation at limited risk. It is
analogous to the purchase of a call option on an individual stock which can be
used as a substitute for a position in the stock itself. Depending on the
pricing of the option compared to either the foreign currency upon which it is
based, or upon the price of the foreign stock or foreign debt instruments, the
purchase of a call option may be less risky than the ownership of the foreign
currency or the foreign securities. The Fund would purchase a call option on a
foreign currency to hedge against an increase in the foreign currency or a
foreign market advance when the Fund is not fully invested.
The Fund may employ new investment techniques involving forward foreign
currency exchange contracts, foreign currency futures contracts and options on
foreign currencies in order to take advantage of new techniques in these areas
which may be developed from time to time and which are consistent with the
Fund's investment objective. The Fund believes that no additional techniques
have been identified for employment by the Fund in the foreseeable future other
than those described above.
CURRENCY TRADING RISKS
Currency exchange trading may involve significant risks. The four major types
of risk the Fund faces are exchange rate risk, interest rate risk, credit risk
and country risk.
EXCHANGE RATE RISK
Exchange rate risk results from the movement up and down of foreign currency
values in response to shifting market supply and demand. When the Fund buys or
sells a foreign currency, an exposure called an open position is created. Until
the time that position can be "covered" by selling or buying an equivalent
amount of the same currency, the Fund is exposed to the risk that the exchange
rate might move against it. Since exchange rate changes can readily move in one
direction, a position carried overnight or over a number of days involves
greater risk than one carried a few minutes or hours. Techniques such as foreign
currency forward and futures contracts and options on foreign currency are
intended to be used by the Fund to reduce exchange rate risk.
MATURITY GAPS AND INTEREST RATE RISK
Interest rate risk arises whenever there are mismatches or gaps in the
maturity structure of the Fund's foreign exchange currency holdings, which is
the total of its outstanding spot and forward or futures contracts.
Foreign currency transactions often involve borrowing short term and lending
longer term to benefit from the normal tendency of interest rates to be higher
for longer maturities. However in foreign exchange trading, while the maturity
pattern of interest rates for one currency is important, it is the differential
between interest rates for two currencies that is decisive.
CREDIT RISK
Whenever the Fund enters into a foreign exchange contract, it faces a risk,
however small, that the counterparty will not perform under the contract. As a
result there is a credit risk, although no extension of "credit" is intended. To
limit credit risk, the Fund intends to evaluate the creditworthiness of each
other party. The Fund does not intend to trade more than 5% of its net assets
under foreign exchange contracts with one party.
Credit risk exists because the Fund's counterparty may be unable or unwilling
to fulfill its contractual obligations as a result of bankruptcy or insolvency
or when foreign exchange controls prohibit payment. In any foreign exchange
transaction, each party agrees to deliver a certain amount of currency to the
other on a particular date. In establishing its hedges a Fund relies on each
contract being completed. If the contract is not performed, then the Fund's
hedge is eliminated, and the Fund is exposed to any changes in exchange rates
since the contract was originated. To put itself in the same position it would
have been in had the contract been performed, the Fund must arrange a new
transaction. However, the new transaction may have to be arranged at an adverse
exchange rate. The trustee for a bankrupt company may elect to perform those
contracts which are advantageous to the company but disclaim those contracts
which are disadvantageous, resulting in losses to the Fund.
Another form of credit risk stems from the time zone differences between the
U.S. and foreign nations. If the Fund sells sterling it generally must pay
pounds to a counterparty earlier in the day than it will be credited with
dollars in New York. In the intervening hours, the buyer can go into bankruptcy
or can be declared insolvent. Thus, the dollars may never be credited to the
Fund.
COUNTRY RISK
At one time or another, virtually every country has interfered with
international transactions in its currency. Interference has taken the form of
regulation of the local exchange market, restrictions on foreign investment by
residents or limits on inflows of investment funds from abroad. Governments take
such measures for example, to improve control over the domestic banking system
or to influence the pattern of receipts and payments between residents and
foreigners. In those cases, restrictions on the exchange market or on
international transactions are intended to affect the level or movement of the
exchange rate. Occasionally a serious foreign exchange shortage may lead to
payment interruptions or debt servicing delays, as well as interference in the
exchange market. It has become increasingly difficult to distinguish foreign
exchange or credit risk from country risk.
Changes in regulations or restrictions usually do have an important exchange
market impact. Most disruptive are changes in rules which interfere with the
normal payments mechanism. If government regulations change and a counterparty
is either forbidden to perform or is required to do something extra, then the
Fund might be left with an unintended open position or an unintended maturity
mismatch. Dealing with such unintended long or short positions could result in
unanticipated costs to the Fund.
Other changes in official regulations influence international investment
transactions. If one of the factors affecting the buying or selling of a
currency changes, the exchange rate is likely to respond. Changes in such
controls often are unpredictable and can create a significant exchange rate
response.
Many major countries have moved toward liberalization of exchange and
payments restrictions in recent years or accepted the principle that
restrictions should be relaxed. A few industrial countries have moved in the
other direction. Important liberalizations were carried out by Switzerland, the
United Kingdom and Japan. They dismantled mechanisms for restricting either
foreign exchange inflows (Switzerland), outflows (Britain) or elements of both
(Japan). By contrast, France and Mexico have recently tightened foreign exchange
controls.
Overall, many exchange markets are still heavily restricted. Several
countries limit access to the forward market to companies financing documented
export or import transactions in an effort to insulate the market from purely
speculative activities. Some of these countries permit local traders to enter
into forward contracts with residents but prohibit certain forward transactions
with nonresidents. By comparison, other countries have strict controls on
exchange transactions by residents, but permit free exchange transactions
between local traders and non-residents. A few countries have established tiered
markets, funneling commercial transactions through one market and financial
transactions through another. Outside the major industrial countries, relatively
free foreign exchange markets are rare and controls on foreign currency
transactions are extensive.
Another aspect of country risk has to do with the possibility that the Fund
may be dealing with a foreign trader whose home country is facing a payments
problem. Even though the foreign trader intends to perform on its foreign
exchange contracts, the contracts are tied to other external liabilities the
country has incurred. As a result performance may be delayed, and can result in
unanticipated cost to the Fund. This aspect of country risk is a major element
in the Fund's credit judgment as to with whom it will deal and in what amounts.
<PAGE>
- - - - - ------------------------------------
Keystone High Income Bond Fund (B-4)
(formerly Keystone Custodian Fund, Series B-4)
SCHEDULE OF INVESTMENTS--July 31, 1995
<TABLE>
<CAPTION>
Interest Maturity Par Market
Rate Date Value Value
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
FIXED INCOME (84.1%)
INDUSTRIAL BONDS & NOTES (81.6%)
ADVERTISING & PUBLISHING (0.7%)
Lamar Advertising Co. Sr. Secd. Notes 11.000% 2003 $ 5,000,000 $ 5,050,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
AEROSPACE (1.7%)
SabreLiner, Inc. Sr. Notes 12.500 2003 10,000,000 8,800,000
Transdigm, Inc. Sr. Notes (Subord.) 13.000 2000 5,000,000 4,575,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
13,375,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
AIR TRANSPORTATION (2.3%)
CHC Helicopter Corp. Sr. Notes (Subord.) 11.500 2002 10,500,000 9,135,000
Continental Airlines, Inc. Sr. Equip. Trust Cert. 16.000 1999 1,328,323 1,328,323
Northwest Airlines Trust #2 Aircraft Notes (Subord.) 13.875 2008 5,000,000 5,600,000
US Africa Airways (6/02/94--$3,500,000)
(b) (c) (e) (f) Sr. Secd. Notes 12.000 1999 3,500,000 1,610,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
17,673,323
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
AMUSEMENTS (3.8%)
Affinity Group, Inc. Gtd. Sr. Notes (Subord.) 11.500 2003 7,000,000 7,017,500
El Comandante Capital Corp. 1st Mtge. Notes 11.750 2003 7,500,000 7,050,000
Grand Palais Casinos, Inc. (8/15/94--
$7,750,000) (c) (f) Sr. Secd. PIK Notes 18.250 1997 7,750,000 7,750,000
Hemmeter Enterprises, Inc. (12/14/93--
$8,000,000) (c) (e) Unit (Sr. Secd .PIK Notes/Wts.) 12.000 2000 16,097,838 6,922,070
Starcraft Corp. (b) (c) (e) Notes (Subord.) 16.500 1998 6,925,000 138,500
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
28,878,070
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE (0.1%)
Exide Corp. (h) Sr. Notes 10.000 2005 1,000,000 1,037,500
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
BROADCASTING (1.0%)
Outlet Broadcast, Inc. Sr. Notes (Subord. 10.875 2003 4,000,000 4,120,000
People's Choice T.V. Corp.
(Eff. Yield 12.47%) (d) Sr. Disc. Notes 0.000 2004 8,000,000 3,800,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
7,920,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS (4.6%)
Alpine Group, Inc. (h) Sr. Notes 12.250 2003 6,000,000 5,520,000
Associated Materials, Inc. Sr. Notes (Subord.) 11.500 2003 10,000,000 9,200,000
HMH Properties, Inc. (5/18/95-$7,706,960) (c) Sr. Secd. Notes 9.500 2005 8,000,000 7,860,000
Koppers Industries, Inc. Sr. Notes 8.500 2004 8,000,000 7,760,000
Schuller International Group, Inc. Sr. Notes 10.875 2004 4,500,000 4,916,250
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
35,256,250
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
See Notes to Schedule of Investments.
<PAGE>
- - - - - -----------------------------------
SCHEDULE OF INVESTMENTS--July 31, 1995
<CAPTION>
Interest Maturity Par Market
Rate Date Value Value
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
CAPITAL GOODS (1.0%)
Lanesborough Corp. (f) Sr. Secd. Notes (Subord.) 10.000% 2000 $11,026,000 $ 7,718,200
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
CHEMICALS (2.5%)
Key Plastics, Inc. Sr. Notes, Series B 14.000 1999 8,500,000 8,585,000
Scotts Co. Sr. Notes (Subord.) 9.875 2004 3,000,000 3,195,000
Sherritt Gordon Ltd. Sr. Notes 9.750 2003 7,000,000 7,000,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
18,780,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER GOODS (4.7%)
Drypers Corp. Sr. Notes, Series B 12.500 2002 9,601,000 9,024,940
International Semi-Tech Electronics, Inc.
(Eff. Yield 11.96%) (d) Sr. Secd. Disc. Notes 0.000 2003 14,000,000 7,455,000
Pathmark Stores, Inc. Sr. Notes (Subord.) 9.625 2003 3,000,000 2,970,000
Revlon Worldwide Corp. (Eff. Yield 15.52%) (d) Sr. Secd. Disc. Notes 0.000 1998 10,000,000 7,125,000
Revlon Consumer Products Corp. Sr. Notes (Subord.) 10.500 2003 9,000,000 9,045,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
35,619,940
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED COMPANIES (0.9%)
Jordan Industries, Inc. S. Notes 10.375 2003 7,500,000 7,068,750
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
FINANCE (2.0%)
American Life Holding Co. Sr. Notes (Subord.) 11.250 2004 3,770,000 3,958,500
PMI Acquisition Corp. Sr. Notes (Subord.) 10.250 2003 1,750,000 1,798,125
Premium Standard Farms (9/29/93-- $11,033,649)
(Eff. Yield 12.00%) (c) (d) Sr. Sec. Disc. Notes 0.000 2003 7,124,000 5,200,520
Sahara Finance Corp. Gtd. 1st Mtge. Notes 12.125 1996 3,953,541 4,032,612
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
14,989,757
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
FOODS (5.4%)
Cott Corp. Sr. Notes 9.375 2005 5,000,000 5,025,000
Iowa Select Farms (Eff. Yield 13.72%)
(2/04/94--$14,480,865) (c) (d) (f) Unit (Sr. Disc. Notes/Wts.) 0.000 2004 34,470,000 16,618,332
Iowa Select Farms (Eff. Yield 15.26%)
(8/02/94--$8,977,379) (c) (d) (f) Unit (Sr. Disc. Notes/Wts.) 0.000 2004 21,370,000 10,302,691
PM Holdings Corp. (Eff. Yield 11.62%) (d) Unit (Sr. Disc. Notes/Wts.) 0.000 2005 8,812,000 4,560,210
Specialty Foods Acquisition Corp.
(Eff. Yield 10.70%) (d) Sr. Secd. Disc. Deb. 0.000 2005 8,750,000 4,484,375
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
40,990,608
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE SERVICES (0.8%)
Community Health Systems, Inc. Sr. Deb. (Subord.) 10.250 2003 6,000,000 6,390,000
(continued on next page)
<PAGE>
- - - - - ------------------------------------
Keystone High Income Bond Fund (B-4)
(formerly Keystone Custodian Fund, Series B-4)
SCHEDULE OF INVESTMENTS--July 31, 1995
<CAPTION>
Interest Maturity Par Market
Rate Date Value Value
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
HEALTHCARE SERVICES (continued)
Livingwell, Inc. (5/28/86--$1,972,500)(b)(c)(e) Sr. Deb. (Subord.) 14.125% 1996 $ 2,200,000 $ 44,000
Livingwell, Inc. (5/28/86--$2,153,250)(b)(c)(e) Sr. Deb. (Subord.) 13.125 2001 2,000,000 40,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
6,474,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
HOTELS (0.2%)
Santa Fe Hotel, Inc. Unit (1st Mtge. Notes/Wts.) 11.000 2000 1,970,000 1,753,300
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
INSURANCE (2.7%)
Chartwell Re Corp. Sr. Notes 10.250 2004 5,500,000 5,252,500
Reliance Group Holdings, Inc. Sr. Deb. (Subord.) 9.750 2003 16,000,000 5,680,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
20,932,500
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
METALS & MINING (3.8%)
Algoma Steel, Inc. 1st Mtge. Notes 12.375 2005 5,500,000 5,170,000
Inland Steel Co. Unsecd. Notes 12.750 2002 10,000,000 11,175,000
NS Group, Inc. Units (Sr. Secd. Notes/Wts.) 13.500 2003 4,000,000 3,845,000
Russell Metals, Inc. Sr. Notes 10.250 2000 7,890,000 7,416,600
UCAR Global Enterprises, Inc. Sr. Secd. Notes 12.000 2005 1,000,000 1,101,250
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
28,707,850
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
NATURAL GAS (2.0%)
TransTexas Gas Corp. Sr. Secd. Notes 11.500 2002 14,500,000 15,080,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
OIL (5.0%)
Chatwins Group, Inc. Sr. Notes 13.000 2003 9,500,000 7,885,000
Crown Central Petroleum Corp. Sr. Notes 10.875 2005 5,250,000 5,565,000
errity Oil & Gas Corp. Sr. Notes (Subord.) 11.750 2004 1,000,000 910,000
Kelley Oil & Gas Sr. Notes 13.500 1999 7,000,000 6,860,000
Plains Resources, Inc. Sr. Notes (Subord.) 12.000 1999 10,000,000 10,400,000
Wainoco Oil Corp. Sr. Notes 12.000 2002 6,000,000 6,240,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
37,860,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
OIL SERVICES (1.4%)
Dual Drilling Co. Sr. Notes (Subord.) 9.875 2004 5,550,000 5,217,000
Gulf Canada Resources Ltd. Sr. Deb. (Subord.) 9.625 2005 5,175,000 5,226,750
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
10,443,750
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
PAPER & PACKAGING (3.8%)
Container Corp. of America Gtd. Sr. Notes, Series B 10.750 2002 6,000,000 6,390,000
Gaylord Container Corp. (Eff. Yield 8.25%) (d) Sr. Notes 0.000 2005 8,000,000 8,100,000
Gaylord Container Corp. Sr. Notes 11.500 2001 3,000,000 3,232,500
Owens-Ilinois, Inc. Sr. Deb. 11.000 2003 2,000,000 2,205,000
Rainy River Forest Products, Inc. Sr. Secd. Notes 10.750 2001 2,750,000 2,915,000
See Notes to Schedule of Investments.
<PAGE>
- - - - - -------------------------------------
SCHEDULE OF INVESTMENTS--July 31, 1995
<CAPTION>
Interest Maturity Par Market
Rate Date Value Value
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
PAPER & PACKAGING (continued)
Stone Container Corp. 1st Mtge. Notes 10.750% 2002 $ 5,990,000 $ 6,349,400
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
29,191,900
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS (3.6%)
Boston Chicken, Inc. (Eff. Yield 8.32%) (d) Liquid Yld. Option Notes 0.000 2015 20,000,000 4,975,000
Flagstar Corp. Sr. Notes 10.875 2002 7,200,000 6,768,000
Great American Cookie Co., Inc. Sr. Secd. Notes 10.875 2001 10,000,000 8,600,000
Pantry, Inc. Sr. Notes 12.000 2000 7,500,000 7,425,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
27,768,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
RETAIL (7.3%)
Big 5 Holdings, Inc. Sr. Notes (Subord.) 13.625 2002 4,800,000 4,920,000
Cole National Group, Inc. Sr. Notes 11.250 2001 5,000,000 4,875,000
Finlay Fine Jewelry Corp. Sr. Notes 10.625 2003 6,000,000 5,820,000
Hills Stores Co. Sr. Notes 10.250 2003 5,000,000 4,781,250
Pamida, Inc. Sr. Notes (Subord.) 11.750 2003 9,475,000 8,432,750
Penn Traffic Co. Sr. Notes 8.625 2003 5,000,000 4,575,000
Penn Traffic Co. Sr. Notes (Subord.) 9.625 2005 4,000,000 3,590,000
Service Merchandise Co. Sr. Deb. (Subord.) 9.000 2004 10,000,000 8,450,000
Southland Corp. 1st Priority Sr. Deb.Subord.) 5.000 2003 13,000,000 10,010,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
55,454,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY (1.9%)
Ampex Corp. (Eff. Yield 9.56%) (c) (d) (f) Disc. Conv. Bonds, Series C 0.000 1997 10,273,000 14,279,470
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS (14.4%)
Adelphia Communications Corp. Sr. Notes 12.500 2002 12,000,000 12,360,000
American Media Operations, Inc. Sr. Notes (Subord.) 11.625 2004 7,000,000 7,455,000
Bell Cablemedia PLC (Eff. Yield 10.67%) (d) Sr. Disc. Notes 0.000 2004 5,000,000 3,325,000
Cablevision Systems Corp. Sr. Disc. Notes 9.875 2013 3,400,000 3,706,000
Cencall Communications Corp.
(Eff. Yield 13.42%) (d) Sr. Disc. Notes 0.000 2004 10,000,000 5,350,000
Continental Cablevision, Inc. Sr. Deb. 9.000 2008 5,000,000 5,150,000
Continental Cablevision, Inc. Sr. Deb. 9.500 2013 7,000,000 7,350,000
Comcast Celluar Corp. (Eff. Yield 13.42%) (d) Part. Disc. Notes 0.000 2000 18,000,000 13,230,000
Diamond Cable (Eff. Yield 11.57%) (d) Sr. Disc. Notes 0.000 2004 5,000,000 3,275,000
Marcus Cable (Eff. Yield 13.15%) (d) Sr. (Subord.) Disc. Notes 0.000 2005 6,000,000 3,420,000
Marcus Cable (Eff. Yield12.06%) (d) Sr. Disc. Notes 0.000 2004 12,000,000 8,115,000
MFS Communication (Eff. Yield 8.60%) (d) Sr. Disc. Notes 0.000 2004 10,000,000 7,200,000
Mobile Telecommunication Technology Sr. (Subord.) Disc. Notes 13.500 2002 10,000,000 10,950,000
Pagemart, Inc. (Eff. Yield 10.36%) (d) Unit (Sr. Disc. Notes/Wts.) 0.000 2003 18,050,000 11,732,500
Paging Network Inc. Sr. Notes (Subord.) 10.125 2007 2,500,000 2,550,000
Rogers Cablesystems Ltd. Sr. Secd. 2nd Priority Note 10.000 2005 1,000,000 1,047,500
(continued on next page)
<PAGE>
- - - - - ------------------------------------
Keystone High Income Bond Fund (B-4)
(formerly Keystone Custodian Fund, Series B-4)
SCHEDULE OF INVESTMENTS--July 31, 1995
<CAPTION>
Interest Maturity Par Market
Rate Date Value Value
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS (continued)
Videotron Group Ltd. Deb. (Subord.) Voting Co 10.625% 2005 $ 3,750,000 $ 3,993,750
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
110,209,750
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION (3.0%)
Eletson Holdings, Inc. 1st Mtge. Notes 9.250 2003 8,000,500 7,680,480
Gearbulk Holding Ltd. Sr. Notes 11.250 2004 7,000,000 7,350,000
Viking Star Shipping, Inc. 1st Pfd. Ship. Mtge. Notes 9.625 2003 8,000,000 8,160,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
23,190,480
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
UTILITIES (1.0%)
Consolidated Hydro, Inc. (6/15/93--
$8,811,783) (Eff. Yield 12.26%) (c) (d) Sr. Disc. Notes 0.000 2003 13,400,000 7,437,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INDUSTRIAL BONDS & NOTES
(Cost--$633,454,626) 623,139,398
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS (U.S. DOLLARS) (2.5%)
Indah Kiat International Finance Co. B.V. Gtd. Secd. Notes 11.875 2002 8,000,000 8,080,000
Polsindo Eka Perkasa Sr. Notes 13.000 2004 6,000,000 6,120,000
Telefonica de Argentina S.A. Unsecd. Deb. 11.875 2004 2,775,000 2,761,125
YPF Sociedad Anonima Unsecd. Deb. 8.000 2004 3,000,000 2,610,180
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS (U.S. DOLLARS) (Cost--$19,369,496) 19,571,305
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED INCOME (Cost--$652,824,122) 642,710,703
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Shares
<S> <C> <C>
===================================================================================================================================
COMMON STOCKS/RIGHTS/WARRANTS (10.8%)
Ampex Corp. (e) (f) 512 2,224
Ampex Corp., Class A (e) (f) 196,392 834,666
Ampex Corp., Class C (e) (f) 3,629,294 15,424,500
Ampex Corp., wts. (e) (f) 1,007,308 4,281,059
Chatwins Group, Inc., wts.(e) 9,500 4,750
CHC Helicopter Corp., wts.(e) 84,000 84,000
Cookies USA, Inc., wts. (e) 1,800 72,000
Dial Page, Inc., wts. (e) 9,510 19,020
Dimac Corp. (e) 55,481 880,761
EMC Corp. (e) 341,836 7,819,499
Finlay Enterprises, Inc. (e) 4,533 70,261
Grand Palais Casinos, Inc., Series A, wts. (8/15/94--$2,507) (c) (e) (f) 250,735 1,895,559
Grand Palais Casinos, Inc., Series B, wts. (8/15/94--$1,368) (c) (e) (f) 136,765 1,033,941
Grand Palais Casinos, Inc., Series C, wts. (8/15/94--$12,080) (c) (e) (f) 1,208,088 12,081
Grand Palais Casinos, Inc., Ltd. Liab. Int.(8/15/94--$0) (c) (e) (f) 931,379 9,314
Grand Palais Casinos, Inc., wts. (1/28/93--$680,643) (c) (e) (f) 680,643 5,145,661
HDA Management Corp., wts. (e) 5,500 29,150
</TABLE>
See Notes to Schedule of Investments.
<PAGE>
- - - - - -------------------------------------
SCHEDULE OF INVESTMENTS--July 31, 1995
<TABLE>
<CAPTION>
Market
Shares Value
<S> <C> <C>
===================================================================================================================================
COMMON STOCKS/RIGHTS/WARRANTS (continued)
Hemmeter Enterprises Inc., wts. (12/14/93--$140,400) (c) (e) 270,532 $ 271
Hemmeter Enterprises, Inc., wts. (12/22/93--$846,280) (c) (e) 695,643 696
Hollywood Casino Corp., Class A (e) 971,665 66,443
Lanesborough Corp. (e) (f) 15,141 151
Pagemart, Inc., wts. (e) 83,030 98,180
PM Holdings Corp. (e) 2,964 3
Purity Supreme, Inc. wts. (11/30/92-$4,330) (c) (e) 22,525 225
Sabreliner Corp., wts. (e) 10,000 10
Specialty Equipment Cos., Inc. (e) (f) 1,860,700 23,607,631
Specialty Foods Acquisition Corp. (8/10/93-$0) (c) (e) 131,250 229,688
Transdigm Inc., wts. (e) 39,894 398,940
UCC Investors Holding Inc., Class A (e) 1,178,622 11,491,563
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS/RIGHTS/WARRANTS (Cost--$23,421,865) 82,712,247
===================================================================================================================================
PREFERRED STOCK (1.4%)
Ampex Corp. (11/22/92--$23,987,332) (c) (e) (f) 24,562 11,052,911
US Africa Airways (6/02/94--$11,000,000) (b) (c) (e) (f) 11,000 0
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK (Cost--$34,987,331) 11,052,911
===================================================================================================================================
MISCELLANEOUS INVESTMENT (0.0%)
Gold River Hotel and Casino Corp.
(Cost--$424,084) Liquidating R.E. Trust 10,775,000 107,750
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
TOTAL MISCELLANEOUS INVESTMENT (Cost--$424,084) 107,750
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Interest Maturity Maturity
Rate Date Value
===================================================================================================================================
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (1.8%)
REPURCHASE AGREEMENT (1.8%)
Keystone Joint Repurchase Agreement
(Investments in repurchase agreements, in a
joint trading account, purchased 7/31/95)
(Cost--$13,939,000) (g) 5.833% 08/01/95 $13,941,258 3,939,000
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost--$13,939,000) 13,939,000
===================================================================================================================================
TOTAL INVESTMENTS (Cost--$725,596,402) (a) 750,522,611
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES--NET (1.9%) 14,442,275
- - - - - -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100.0%) $764,964,886
===================================================================================================================================
(continued on next page)
</TABLE>
<PAGE>
- - - - - -----------------------------------
Keystone High Income Bond Fund (B-4)
(formerly Keystone Custodian Fund, Series B-4)
Notes to Schedule of Investments:
(a) The cost of investments for federal income tax purposes amounted to
$729,582,378. Gross unrealized appreciation and depreciation of investments,
based on identified tax cost, at July 31, 1995, are as follows:
Gross unrealized appreciation $ 81,927,902
Gross unrealized depreciation $(60,987,669)
------------
Net unrealized appreciation $ 20,940,233
============
(b) Securities which have defaulted on payment of interest and/or principal. The
Fund has ceased accruing income on those so identified. At July 31, 1995,
the fair value of these securities was $1,832,500 (0.2% of the Fund's net
assets).
(c) All or a portion of these securities are restricted securities (i.e.,
securities which may not be publicly sold without registration under the
Federal Securities Act of 1933) which are valued using market quotations
where readily available. In the absence of market quotations, the securities
are valued based upon their fair value determined under procedures approved
by the Board of Trustees. The Fund may make investments in an amount up to
15% of the value of the Fund's net assets in such securities. Dates of
acquisition and costs are set forth in parentheses after the title of the
restricted securities. On the date of acquisition there were no market
quotations on similar securities and the above securities were valued at
acquisition cost. At July 31, 1995, the fair value of these restricted
securities was $97,582,930 (13% of the Fund's net assets at July 31, 1995).
The Fund will not pay the cost of disposition of the above restricted
securities other than ordinary brokerage fees, if any.
(d) Effective yield (calculated at date of purchase) is the yield at which the
bond accretes on an annual basis until maturity date.
(e) Non-income-producing security.
(f) Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer. The
Fund has never owned enough of the outstanding voting securities of any
issuer to have control (as defined in the Investment Company Act of 1940) of
that issuer. At July 31, 1995, the fair value of these securities was
$121,578,391 (16% of the Fund's net assets).
(g) The repurchase agreements are fully collateralized by U.S. Government and/or
agency obligations based on market prices at July 31, 1995.
(h) Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to Section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Trustees.
See Notes to Financial Statements.
<PAGE>
- - - - - --------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the year)
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------------------------------------------
1995 1994 1993 1992 1991
- - - - - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value
beginning of year $4.68 $5.13 $4.74 $4.19 $5.02
- - - - - -----------------------------------------------------------------------------------------------
Income from investment
operations
Net investment income 0.38 0.38 0.45 0.49 0.61
Net gain (loss) on
investments and foreign
currency related
transactions (0.15) (0.38) 0.44 0.58 (0.72)
Net commissions paid on
fund share sales (a) 0 0 0 0 0
- - - - - -----------------------------------------------------------------------------------------------
Total from investment
operations 0.23 0 0.89 1.07 (0.11)
- - - - - -----------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.37) (0.38) (0.45) (0.50) (0.72)
In excess of net
investment income (0.02) (0.07) (0.05) (0.02) 0
Tax basis return of
capital (0.10) 0 0 0 0
Net realized gain
on investments 0 0 0 0 0
- - - - - -----------------------------------------------------------------------------------------------
Total distributions (0.49) (0.45) (0.50) (0.52) (0.72)
- - - - - -----------------------------------------------------------------------------------------------
Net asset value end of
year $4.42 $4.68 $5.13 $4.74 $4.19
- - - - - -----------------------------------------------------------------------------------------------
Total return (b) 5.66% (0.41%) 20.28% 27.25% 0.03%
Ratios/supplemental
data
Ratios to average
net assets:
Total expenses 2.03% 1.84% 2.06% 2.17% 2.34%
Net investment income 8.64% 7.57% 9.30% 10.86% 14.64%
Portfolio turnover rate 82% 110% 125% 94% 78%
- - - - - -----------------------------------------------------------------------------------------------
Net assets end of year
(thousands) $764,965 $766,283 $972,164 $841,757 $710,590
- - - - - -----------------------------------------------------------------------------------------------
<CAPTION>
Year Ended July 31,
----------------------------------------------------------------------
1990 1989 1988 1987 1986
- - - - - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value
beginning of year $6.38 $6.91 $7.66 $8.08 $7.92
- - - - - -----------------------------------------------------------------------------------------------------
Income from investment
operations
Net investment income 0.68 0.83 0.80 0.81 0.89
Net gain (loss) on
investments and foreign
currency related
transactions (1.18) (0.51) (0.71) (0.26) 0.35
Net commissions paid on
fund share sales (a) 0 0 0 0 (0.08)
- - - - - -----------------------------------------------------------------------------------------------------
Total from investment
operations (0.50) 0.32 0.09 0.55 1.16
- - - - - -----------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.78) (0.85) (0.84) (0.90) (1.00)
In excess of net
investment income (0.08) 0 0 0 0
Tax basis return of
capital 0 0 0 0 0
Net realized gain
on investments 0 0 0 (0.07) 0
- - - - - -----------------------------------------------------------------------------------------------------
Total distributions (0.86) (0.85) (0.84) (0.97) (1.00)
- - - - - -----------------------------------------------------------------------------------------------------
Net asset value end of
year $5.02 $6.38 $6.91 $7.66 $8.08
- - - - - -----------------------------------------------------------------------------------------------------
Total return (b) (7.84%) 4.95% 1.66% 7.15% 15.27%
Ratios/supplemental
data
Ratios to average
net assets:
Total expenses 2.06% 1.97% 1.82% 1.65% 0.86%
Net investment income 12.77% 12.36% 11.29% 10.26% 10.93%
Portfolio turnover rate 45% 75% 81% 135% 87%
- - - - - -----------------------------------------------------------------------------------------------------
Net assets end of year
(thousands) $820,940 $1,188,660 $1,274,673 $1,464,891 $1,569,038
- - - - - -----------------------------------------------------------------------------------------------------
</TABLE>
(a) Prior to June 30, 1987, net commissions paid on new sales of shares under
the Fund's Rule 12b-1 Distribution Plan had been treated for both financial
statement and tax purposes as capital charges. On June 11, 1987, the
Securities and Exchange Commission adopted a rule which required for
financial statements for the periods ended on or after June 30, 1987, that
net commissions paid under Rule 12b-1 be treated as operating expenses
rather than capital charges. Accordingly, beginning with the year ended July
31, 1987, the Fund's financial statements reflect 12b-1 Distribution Plan
expenses (i.e., shareholder service fees plus commissions paid net of
deferred sales charges received by the Fund) as a component of net
investment income.
(b) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
- - - - - -----------------------------------
Keystone High Income Bond Fund (B-4)
(formerly Keystone Custodian Fund, Series B-4)
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1995
===================================================================
Assets: (Note 1):
Investments at market value:
Unaffiliated issuers (identified cost--
$615,784,470) $ 628,944,220
Affiliated issuers (identified
cost--$109,811,932) 121,578,391
- - - - - -------------------------------------------------------------------
Total investments 750,522,611
- - - - - -------------------------------------------------------------------
Cash 464
Receivable for:
Investments sold 5,703,655
Fund shares sold 615,775
Interest 12,376,289
Prepaid expenses 114,771
Other assets 2,730,610
- - - - - -------------------------------------------------------------------
Total assets 772,064,175
- - - - - -------------------------------------------------------------------
Liabilities (Notes 2, 4 and 5):
Payable for:
Investments purchased 2,835,296
Fund shares redeemed 1,484,812
Distributions to shareholders 2,427,260
Due to related parties 64,597
Other accrued expenses 287,324
- - - - - -------------------------------------------------------------------
Total liabilities 7,099,289
- - - - - -------------------------------------------------------------------
Net assets $ 764,964,886
===================================================================
Net assets represented by (Note 1):
Paid-in capital $1,267,014,064
Accumulated distributions in excess of net
investment income (5,828,773)
Accumulated net realized gain (loss) on
investments
and foreign currency related transactions (521,146,614)
Net unrealized appreciation (depreciation) on
investments 24,926,209
- - - - - -------------------------------------------------------------------
Total net assets applicable to outstanding
shares of beneficial interest ($4.42 a share on
173,052,313 shares outstanding) $ 764,964,886
===================================================================
STATEMENT OF OPERATIONS
Year Ended July 31, 1995
===================================================================
Investment income (Note 1):
Interest:
Unaffiliated issuers (net of
withholding taxes of $40,615) $ 71,311,621
Affiliated issuers 4,336,292
- - - - - ---------------------------------------------------------------------
Total income 75,647,913
- - - - - ---------------------------------------------------------------------
Expenses (Notes 2 and 4):
Management fee $ 4,040,007
Transfer agent fees 2,189,924
Accounting, auditing and legal 675,522
Custodian fees 255,265
Printing 29,440
Trustees' fees and expenses 36,136
Distribution Plan expenses 7,072,929
Registration fees 80,171
Miscellaneous 35,167
- - - - - ---------------------------------------------------------------------
Total expenses 14,414,561
- - - - - ---------------------------------------------------------------------
Net investment income 61,233,352
- - - - - ---------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency
related transactions (Notes 1 and 3):
Net realized gain (loss) on:
Investments (88,173,005)
Foreign currency related
transactions (3,645,039)
- - - - - ---------------------------------------------------------------------
Net realized gain (loss) on
investments and foreign currency
related transactions (91,818,044)
- - - - - ---------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 71,736,709
- - - - - ---------------------------------------------------------------------
Net gain (loss) on investments and
foreign currency related
transactions (20,081,335)
- - - - - ---------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 41,152,017
=====================================================================
See Notes to Financial Statements.
<PAGE>
- - - - - -----------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended July 31,
------------------------------
1995 1994
===============================================================================================================
<S> <C> <C>
Operations: (Note 1):
Net investment income $ 61,233,352 $ 70,189,475
Net realized gain (loss) on investments and foreign currency related
transactions (91,818,044) (62,808,562)
Net change in unrealized appreciation (depreciation) on investments 71,736,709 2,197,734
- - - - - ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 41,152,017 9,578,647
- - - - - ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders from (Notes 1 and 5):
Net investment income (60,319,059) (70,189,475)
In excess of net investment income (3,043,529) (13,314,817)
Tax basis return of capital (17,099,886) 0
- - - - - ---------------------------------------------------------------------------------------------------------------
Total distributions to shareholder (80,462,474) (83,504,292)
- - - - - ---------------------------------------------------------------------------------------------------------------
Capital share transactions (Note 2):
Proceeds from shares sold 233,171,940 407,409,983
Payments for shares redeemed (240,425,711) (587,387,928)
Net asset value of shares issued in reinvestment of dividends and
distributions 45,245,958 48,023,003
- - - - - ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital share
transactions 37,992,187 (131,954,942)
- - - - - ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (1,318,270) (205,880,587)
- - - - - ---------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of year 766,283,156 972,163,743
- - - - - ---------------------------------------------------------------------------------------------------------------
End of year [including accumulated distributions in excess of net investment
income as follows: 1995--($5,828,773)
and 1994--($3,533,049)] (Note 1) $ 764,964,886 $ 766,283,156
===============================================================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
- - - - - -----------------------------------
Keystone High Income Bond Fund (B-4)
(formerly Keystone Custodian Fund, Series B-4)
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone High Income Bond Fund (B-4) (formerly Keystone Custodian Fund, Series
B-4), (the "Fund") is a common law trust for which Keystone Management, Inc.
("KMI") is the Investment Manager and Keystone Investment Management Company
(formerly Keystone Custodian Funds, Inc.) ("Keystone") is the Investment
Adviser. The Fund is registered under the Investment Company Act of 1940 as a
diversified, open-end investment company.
Keystone is a wholly-owned subsidiary of Keystone Investments Inc.
(fomerly Keystone Group, Inc.) ("KII"), a Delaware corporation. KII is
privately owned by an investor group consisting of members of current and
former members of management of Keystone and its affiliates. Keystone
Investor Resource Center, Inc. ("KIRC"), a wholly-owned subsidiary of
Keystone, is the Fund's transfer agent.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Investments 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 maturing in sixty
days or less are valued at amortized cost (original purchase cost as adjusted
for amortization of premium or accretion of discount), which, when combined with
accrued interest, approximates market. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value.) Short-term investments maturing in more than sixty days
when purchased which are held on the sixtieth day prior to maturity are valued
at amortized cost (market value on the sixtieth day adjusted for amortization of
premium or accretion of discount), which, when combined with accrued interest,
approximates market. Short-term investments denominated in a foreign currency
are adjusted daily to reflect changes in exchange rates. Market quotations are
not considered to be readily available for long-term corporate bonds and notes;
such investments are stated at fair value on the basis of valuations furnished
by a pricing service, approved by the Trustees, which determines valuations for
normal institutional-size trading units of such securities using methods based
on market transactions for comparable securities and various relationships
between securities which are generally recognized by institutional traders.
The Fund enters into currency and other financial futures contracts as a
hedge against changes in interest or currency rates. A futures contract is an
agreement between two parties to buy and sell a specific amount of a commodity,
security, financial instrument, or, in the case of a stock index, cash at a set
price on a future date. Upon entering into a futures contract the Fund is
required to deposit with a broker an amount ("initial margin") equal to a
certain percentage of the purchase price indicated in the futures contract.
Subsequent payments ("variation margin") are made or received by the Fund each
day, as the value of the underlying instrument or index fluctuates, and are
recorded for book purposes as unrealized gains or losses by the Fund. For
federal tax purposes, any futures contracts which remain open at fiscal year-end
<PAGE>
- - - - - ---------------------------------
are marked-to-market and the resultant net gain or loss is included in federal
taxable income. In addition to market risk, the Fund is subject to the credit
risk that the other party will not be able to complete the obligations of the
contract.
Foreign currency amounts are translated into United States dollars as
follows: market value of investments, assets and liabilities at the daily rate
of exchange, purchases and sales of investments, income and expenses at the rate
of exchange prevailing on the respective dates of such transactions. Net
unrealized foreign exchange gains/losses are a component of unrealized
appreciation/depreciation of investments.
B. Securities transactions are accounted for no later than one business day
after the trade date. Realized gains and losses are recorded on the identified
cost basis. Interest income is recorded on the accrual basis and dividend income
is recorded on the ex-dividend date. All discounts are amortized for both
financial reporting and federal income tax purposes. Distributions to
shareholders are recorded at 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 expects to be relieved of any federal
income tax liability by distributing all of its net taxable investment income
and net taxable capital gains, if any, to its shareholders. The Fund intends to
avoid any 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.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other Keystone funds, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are fully collateralized by
U.S. Treasury and/or Federal Agency obligations.
E. The Fund may enter into forward foreign currency exchange contracts
("contracts") to settle portfolio purchases and sales of securities denominated
in a foreign currency and to hedge certain foreign currency assets. Contracts
are recorded at market value and are marked-to-market daily. Realized gains and
losses arising from such transactions are included in net realized
<PAGE>
- - - - - -----------------------------------
Keystone High Income Bond Fund (B-4)
(formerly Keystone Custodian Fund, Series B-4)
gain (loss) on foreign currency related transactions. The Fund is subject to the
credit risk that the other party will not complete the obligations of the
contract.
F. The Fund distributes net investment income monthly and net capital gains, if
any, annually. Distributions are determined in accordance with income tax
regulations. The significant differences between financial statement amounts
available for distribution and distributions made in accordance with income tax
regulations are primarily due to the different treatment of 12b-1 expenses prior
to April 1995 and the deferral of losses for income tax purposes.
(2.) Capital Share Transactions
The Trust agreement authorizes the issuance of an unlimited number of shares of
beneficial interest with a par value of $1.00. Transactions in shares of the
Fund were as follows:
Year Ended
1995 1994
- - - - - -------------------------------------------------------
Shares sold 53,793,683 79,109,683
Shares redeemed (55,102,608) (114,282,869)
Shares issued in
reinvestment of
dividends and
distributions 10,479,964 9,447,901
- - - - - -------------------------------------------------------
Net increase
(decrease) 9,171,039 (25,725,285)
=======================================================
The Fund bears some of the costs of selling its shares under a Distribution
Plan adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940.
Under the Distribution Plan, the Fund pays Keystone Investment Distributors
Company (formerly Keystone Distributors, Inc.) ("KIDC"), the principal
underwriter and a wholly-owned subsidiary of Keystone, amounts which in total
may not exceed the Distribution Plan maximum.
In connection with the Distribution Plan and subject to the limitations
discussed above, Fund shares are offered for sale at net asset value without any
initial sales charge. From the amounts received by KIDC in connection with the
Distribution Plan, and subject to the limitations discussed above, KIDC
generally pays dealers or others a commission equal to 4.00% of the price paid
to the Fund for each sale of Fund shares as well as a shareholder service fee at
a rate of 0.25% per annum of the net asset value of shares sold by such brokers
or others and remaining outstanding on the books of the Fund for specified
periods.
To the extent Fund shares are redeemed within four calendar years of original
issuance, the Fund may be eligible to receive a deferred sales charge from the
investor as partial reimbursement for sales commissions previously paid on those
shares. This charge is based on declining rates, which begin at 4.00%, applied
to the lesser of the net asset value of shares redeemed or the total cost of
such shares.
The Distribution Plan provides that the Fund may incur certain expenses which
may not exceed a maximum amount equal to 0.3125% of the Fund's average daily net
assets for any calendar year (approximately 1.25% annually) occuring after the
inception of the Distribution Plan. A rule of the National Association of
Securities Dealers, Inc. ("NASD Rule") limits the annual expenditures which the
Fund may incur under the Distribution Plan to 1% of which 0.75% may be used to
pay such distribution expenses and 0.25% may be used to pay shareholder service
fees. The NASD Rule also will limit the aggregate amount which the Fund may pay
for such distribution costs to 6.25% of
<PAGE>
- - - - - ---------------------------------------
gross share sales since the inception of the Fund's 12b-1 Distribution Plan,
plus interest at the prime rate plus 1.00% on unpaid amounts thereof (less any
contingent deferred sales charges paid by the shareholders to KIDC).
KIDC intends, but is not obligated, to continue to pay or accrue distribution
charges which exceed current annual payments permitted to be received by KIDC
from the Fund. KIDC 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 permitted limits. KIDC currently intends to seek payment of
interest only on such charges paid or accrued by KIDC subsequent to January 1,
1992.
Commencing on July 8, 1992, contingent deferred sales charges applicable to
shares of the fund issued after January 1, 1992 have, to the extent permitted by
the NASD Rule, been paid to KIDC rather than to the Fund.
During the year ended July 31, 1995, the Fund paid KIDC $7,116,706 under its
Distribution Plan. The amount paid by the Fund under its Distribution Plan, net
of deferred sales charges, was $7,072,929 (0.99% of the Fund's average daily net
asset value). During the year ended July 31, 1995, KIDC received $4,444,407
after payments of commissions on new sales to dealers and others of $3,857,337.
Under the NASD Rule, the maximum uncollected amount for which KIDC may seek
payment from the Fund under its distribution Plan is $8,317,347 (1.09% of the
Fund's net assets at July 31, 1995).
(3.) Securities Transactions
Realized gains and losses are recorded on the identified cost basis. As of July
31, 1995, the Fund had a capital loss carryover for federal income tax purposes
of approximately $517,160,000 which expires as follows: 1996--$16,070,000;
1997--$43,981,000; 1998--$93,048,000; 1999--$91,149,000; 2000--$122,350,000;
2002--$44,605,000; 2003--$105,957,000). For the year ended July 31, 1995,
purchases and sales of investment securities were as follows:
Cost of Proceeds
Purchases from Sales
- - - - - ------------------------------------------------------
Portfolio securities $ 565,320,150 $ 555,960,176
Short-term
investments 4,061,739,572 4,084,334,365
- - - - - ------------------------------------------------------
$4,627,059,722 $4,640,294,541
======================================================
(4.) Investment Management and Transactions with Affiliates
Under the terms of the Investment Management Agreement between KMI and the Fund,
KMI provides investment management and administrative services to the Fund. In
return, KMI is paid a management fee computed and paid daily and is based upon
both Fund net assets and gross income earned by the Fund. The fee is calculated
at a rate of 2.0% of the Fund's gross investment income plus an amount
determined by applying percentage rates, that start at 0.50% and decline, as net
assets increase to 0.25% per annum, to the net asset value of the Fund. KMI has
entered into an Investment Advisory Agreement with Keystone, under which
Keystone provides investment advisory and management services to the Fund and
receives for its services an annual fee representing 85% of the management fee
received by KMI. During the year ended July 31, 1995, the Fund paid or accrued
to KMI investment management and administrative services fees of $4,040,007
which represented 0.57% of
<PAGE>
- - - - - -----------------------------------
Keystone High Income Bond Fund (B-4)
(formerly Keystone Custodian Fund, Series B-4)
the Fund's average net assets. Of such amount paid to KMI, $3,434,006 was
paid to Keystone for its services to the Fund.
During the year ended July 31, 1995, the Fund paid or accrued to KII $28,703
for certain accounting services and to KIRC $2,189,924 for transfer agent fees.
(5.) Distributions to Shareholders
A distribution of net investment income of $0.035 per share was declared payable
on September 7, 1995 to shareholders of record August 25, 1995. This
distribution is not reflected in the accompanying financial statements.
<PAGE>
- - - - - ----------------------------------------
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone High Income Bond Fund (B-4)
(formerly Keystone Custodian Fund, Series B-4)
We have audited the accompanying statements of assets and liabilities of
Keystone High Income Bond Fund (B-4), including the schedule of investments, as
of July 31, 1995, 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 ten-year period then ended. 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.
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 July
31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our 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 High Income Bond Fund (B-4) as of July 31, 1995, 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 years in the ten-year period then ended in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
September 1, 1995
<PAGE>
<TABLE>
Keystone High Income Bond Fund (B-4)
Schedule of Advances to and Investments in Affiliates
(As Required by Rule 12-14 of Regulation S-X)
As of and for the Year Ended July 31, 1995
<CAPTION>
Market Value Market Value 1995
Issuer Description July 31, 1994 Additions Deletions July 31, 1995 Income
- - - - - ------ ----------- ------------- ---------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ampex Corp Disc. Conv. Bonds $ 6,574,420 7,705,050 0 14,279,470 765,938
Ampex Corp. Common Stock 0 2,224 0 2,224 0
Ampex Corp. Common Stock, Class A 0 834,666 0 834,666 0
Ampex Corp. Common Stock, Class C 0 15,424,500 0 15,424,500 0
Ampex Corp. Preferred Stock 0 11,052,911 0 11,052,911 0
Ampex Corp. Warrants 0 4,281,059 0 4,281,059 0
Cherokee Inc. Sr. (Subord.) PIK Notes 2,293,901 0 2,293,901 0 0
Cherokee Inc. Common Stock 210,000 0 210,000 0 0
Cherokee Inc. Warrants, Series A 153 0 153 0 0
Cherokee Inc. Warrants, Series B 192 0 192 0 0
Cherokee Inc. Warrants, Series C 575 0 575 0 0
Grand Palais Casinos, Inc. Secd. PIK Notes 4,511,108 0 4,511,108 0 0
Grand Palais Casinos, Inc. Secd. PIK Notes 3,846,121 0 3,846,121 0 0
Grand Palais Casinos, Inc. Secd. PIK Notes 1,510,057 0 1,510,057 0 0
Grand Palais Casinos, Inc. Sr. PIK Notes 0 7,750,000 0 7,750,000 0
Grand Palais Casinos, Inc. Limited Liability Interest 0 9,314 0 9,314 0
Grand Palais Casinos, Inc. Warrants 11,911,253 0 6,765,592 5,145,661 0
Grand Palais Casinos, Inc. Warrants, Series A 0 1,895,559 0 1,895,559 0
Grand Palais Casinos, Inc. Warrants, Series B 0 1,033,941 0 1,033,941 0
Grand Palais Casinos, Inc. Warrants, Series C 0 12,081 0 12,081 0
Iowa Select Farms Units (Sr. Disc Notes/wts) 14,477,400 2,140,932 0 16,618,332 2,131,334
Iowa Select Farms Units (Sr. Disc Notes/wts) 0 10,302,691 0 10,302,691 1,318,892
Lanesborough Corp Sr. Secd. Notes 0 7,718,200 0 7,718,200 120,128
Lanesborough Corp Common Stock 0 151 0 151 0
SHRP Ltd. Sr. Secd. Notes 6,012,500 0 6,012,500 0 0
Specialty Equipment Cos., Inc. Common Stock 20,130,000 3,477,631 0 23,607,631 0
St. Johnsbury Trucking, Inc. Units 6,300,000 0 6,300,000 0 0
St. Johnsbury Trucking, Inc. Common Stock, Class A 430 0 430 0 0
St. Johnsbury Trucking, Inc. Common Stock, Class B 2,758 0 2,758 0 0
Sun Carriers Inc. Common Stock 1,780 0 1,780 0 0
U.S. Africa Airways Sr. Secd. Notes 3,500,000 0 1,890,000 1,610,000 0
U.S. Africa Airways Preferred Stock 11,000 0 11,000 0 0
Uniroyal Chemical Acquisition
Corp. Common Stock 19,807,086 0 19,807,086 0 0
---------- ---------- ---------- ---------- ---------
Totals $101,100,734 73,640,910 53,163,253 121,578,391 4,336,292
============ ========== ========== =========== =========
</TABLE>
<PAGE>
KEYSTONE HIGH INCOME BOND FUND (B-4)
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 July 31, 1995
Financial Highlights Ten Years ended
July 31, 1995
Statement of Assets and Liabilities July 31, 1995
Statement of Operations Year ended
July 31, 1995
Statement of Changes in Net Assets Two years ended
July 31, 1995
Notes to Financial Statements
Independent Auditors' Report
dated September 1, 1995
Schedule of Advances to and Investments Year ended
in Affiliates July 31, 1995
<PAGE>
Item 24(b). Exhibits
(1) A copy of the Restatement of Trust Agreement, as amended, is filed
herewith.
(2) A copy of the Registrant's By-Laws is filed herewith.
(3) Not applicable.
(4) A specimen of the security issued by the Fund was filed with Post-Effective
Amendment No. 33 to the Fund's Registration Statement No. 2-10526/811-95 as
Exhibit 24(b)(4) and is incorporated by reference herein.
(5) (A) A copy of the Investment Management Agreement between Registrant and
Keystone Management, Inc. is filed herewith.
(B) A copy of the Investment Advisory Agreement between Keystone
Management, Inc. and Keystone Investment Management Company (formerly
named Keystone Custodian Funds, Inc.) is filed herewith.
(6) (A) A copy of the Principal Underwriting Agreement between Registrant and
Keystone Investment Distributors Company (formerly named Keystone
Distributors, Inc.) is filed herewith.
(B) A copy of the form of Dealer Agreement used by Keystone Investment
Distributors Company is filed herewith.
(C) Current copies of Registrant's respective Underwriting Agreements with
Kokusai Securities Co., Ltd. and Nomura Securities Co., Ltd. are filed
herewith.
(7) Not applicable.
(8) A copy of the Custodian, Fund Accounting and Recordkeeping Agreement, as
amended, between Registrant and State Street Bank and Trust Company, is
filed herewith.
(9) Not applicable.
(10) Opinion and consent of counsel as to the legality of securities being
registered by the Fund is filed herewith.
<PAGE>
Item 24(b) Exhibits (continued)
(11) Consent as to use of opinion of Registrant's Independent Auditors Report is
filed herewith.
(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 the Registration Statement No.
33-28183/811-1600 of Keystone Balanced Income Fund (K-1) (formerly named
Keystone Custodian Fund, Series K-1) as Exhibit 24(b)(14) and are
incorporated by reference herein.
(15) A copy of Registrant's Distribution Plan adopted pursuant to Rule 12b-1 is
filed herewith.
(16) Schedules for the computation of total return and current yield quotations
are filed herewith.
(17) Financial Data Schedules are filed herewith as Exhibit 27.
(18) Not applicable.
(19) Powers of Attorney are filed herewith.
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record
Title of Class Holders as of October 31, 1995
-------------- ------------------------------
Shares of $1.00 47,569
Par Value
Item 27. Indemnification
Provisions for the indemnification of the Registrant's Trustees and
officers are contained in Article VIII of the Restatement of Trust, a copy of
which is filed herewith and incorporated by reference herein.
Provisions for the indemnification of Kokusai Securities Co., Ltd. and
Nomura Securities Co., Ltd., underwriters for the sale of Registrant's
securities in Japan, are contained in Section 11 of Registrant's respective
Underwriting Agreements with said entities, copies of which are filed herewith
and incorporated by reference herein.
Provisions for the indemnification of Keystone Investment Distributors
Company, Registrant's principal Underwriter, are contained in Section 9 of the
Principal Underwriting Agreement between Registrant and Keystone Investment
Distributors Company, a copy of which is filed herewith and incorporated by
reference herein.
Provisions for the indemnification of Keystone Management, Inc. and
Keystone Investment Management Company, Registrant's investment manager and
investment adviser, are contained in Section 6 of Registrant's Investment
Management Agreement and Section 5 of Registrant's Investment Advisory
Agreement, copies of which are filed herewith and incorporated by reference
herein.
Item 28. Business and other Connections of Investment Adviser
The following tables list the names of the various officers and
directors of Keystone Management, Inc. and Keystone Investment
Management Company, Registrant's investment manager and investment
adviser, respectively, and their respective positions. For each named
individual, the tables list, for the past two years, (i) any other
organizations (for Keystone Investment Management Company, excluding
investment advisory clients) with which the officer and/or director
has had or has substantial involvement; and (ii) positions held with
such organizations.
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF
KEYSTONE INVESTMENT MANAGEMENT COMPANY
<TABLE>
<CAPTION>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- - - - - ---- ------------------ ---------------------------
<S> <C> <C>
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer,and Keystone Investments, Inc.
Director Keystone Management, Inc.
Keystone Software, Inc.
Keystone Asset Corporation
Keystone Capital Corporation
Chairman of the Board and Director:
Keystone Fixed Income Advisers, Inc.
Keystone Institutional Company, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment Company, Inc.
Keystone Investment Distributors Company
Keystone Investor Resource Center, Inc.
Boston Children's Services Associates
Middlesex School
Middlebury College
Former Trustee or Director:
Neworld Bank
Robert Van Partners, Inc.
Philip M. Byrne Director President and Director:
Keystone Institutional Company, Inc.
Senior Vice President:
Keystone Investments, Inc.
Herbert L. Senior Vice None
Bishop, Jr. President
Donald C. Dates Senior Vice None
President
Gilman Gunn Senior Vice None
President
Edward F. Director, Director, Senior Vice President
Godfrey Senior Vice President, Chief Financial Officer and Treasurer:
Treasurer and Keystone Investments, Inc.
Chief Financial Officer Keystone Investment Distributors Company
Treasurer:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Former Treasurer and Director: Hartwell
Keystone Advisers, Inc.
James R. McCall Director and None
President
Ralph J. Director President and Director:
Spuehler, Jr. Keystone Investment Distributors Company
Senior Vice President and Director:
Keystone Investments, Inc.
Chairman and Director:
Keystone Investor Resource Center, Inc.
Keystone Management, Inc.
Formerly President:
Keystone Management, Inc.
Formerly Treasurer:
The Kent Funds
Keystone Investments, Inc.
Keystone Investment Management Company
Rosemary D. Senior Vice General Counsel, Senior Vice President and Secretary:
Van Antwerp President, Keystone Investments, Inc.
General Counsel Senior Vice President and General Counsel:
and Secretary Keystone Institutional Company, Inc.
Senior Vice President, General Counsel and Director:
Keystone Investor Resource Center, Inc.
Fiduciary Investment Company, Inc.
Keystone Investment Distributors Company
Senior Vice President, General Counsel, Director and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Former Senior Vice President and Secretary:
Hartwell Keystone Advisers, Inc.
Vice President and Secretary:
Keystone Fixed Income Advisers, Inc.
Robert K. Vice President None
Baumback
Betsy A. Blacher Senior Vice None
President
Francis X. Claro Vice President None
Kristine R. Vice President None
Cloyes
Christopher P. Senior Vice None
Conkey President
Richard Cryan Senior Vice None
President
Maureen E. Senior Vice None
Cullinane President
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Christopher R. Senior Vice None
Ely President
Robert L. Hockett Vice President None
Sami J. Karam Vice President None
Donald M. Keller Senior Vice None
President
George J. Kimball Vice President None
JoAnn L. Lyndon Vice President None
John C. Vice President None
Madden, Jr.
Stephen A. Marks Vice President None
Eleanor H. Marsh Vice President None
Walter T. Senior Vice None
McCormick President
Barbara McCue Vice President None
Stanley M. Niksa Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
William H. Vice President None
Parsons
Daniel A. Rabasco Vice President None
David L. Smith Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
J. Kevin Kenely Vice President None
and Controller
Joseph J. Asst. Vice President None
Decristofaro
</TABLE>
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF KEYSTONE MANAGEMENT, INC.
<TABLE>
<CAPTION>
Position with
Keystone Other
Management, Business
Name Inc. Affiliations
- - - - - ---- ------------- -------------
<S> <C> <C>
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Execu- President and Director:
tive Officer, Keystone Investments, Inc.
President and Keystone Software, Inc.
Director Keystone Asset Corporation
Keystone Capital Corporation
Keystone Investments Family of Funds
Chairman of the Board and Director:
Keystone Investment Management Company
Keystone Institutional Company, Inc.
Keystone Fixed Income Advisers, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment Company, Inc.
Keystone Investor Resource Center, Inc.
Boston Children's Services Association
Middlesex School
Middlebury College
Former Trustee or Director:
Neworld Bank
Robert Van Partners, Inc.
Edward F. Godfrey Treasurer and Senior Vice President,
Director Chief Financial Officer, Treasurer and Director:
Keystone Investments, Inc.
Keystone Investment Management Company
Keystone Investment Distributors Company
Treasurer:
Keystone Institutional Company, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Former Treasurer and Director:
Hartwell Keystone Advisers, Inc.
Senior Vice President:
Keystone Investments Family of Funds
Ralph J. Director President and Director:
Spuehler, Jr. Keystone Investment Distributors Company
Chairman and Director:
Keystone Investor Resource Center, Inc.
Keystone Investment Management Company
Senior Vice President and Director:
Keystone Investments, Inc.
Treasurer:
Hartwell Emerging Growth Fund
Hartwell Growth Fund
Former President:
Keystone Management, Inc.
Former Treasurer:
Keystone Investments, Inc.
Keystone Investment Management Company
Rosemary D. Van Senior Vice General Counsel, Senior
Antwerp President, Vice President and Secretary:
General Counsel Keystone Investments, Inc.
and Secretary Senior Vice President and General Counsel:
Keystone Institutional Company, Inc.
Senior Vice President, General Counsel and Director:
Keystone Investor Resource, Center, Inc.
Fiduciary Investment Company, Inc.
Keystone Investment Distributors Company
Senior Vice President, General Counsel, Director and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Formerly Senior Vice President and Secretary:
Hartwell Keystone Advisers, Inc.
Vice President and Secretary:
Keystone Fixed Income Advisers, Inc.
J. Kevin Kenely Vice President Vice President and Controller:
and Controller Keystone Investments, Inc.
Keystone Investment Management Company
Keystone Investment Distributors Company
Keystone Institutional Company, Inc.
Fiduciary Investment Company, Inc.
Keystone Software, Inc.
Formerly Vice President and Controller:
Hartwell Keystone Advisers, Inc.
Michael A. Thomas Vice President Vice President:
Keystone Investments, Inc.
</TABLE>
<PAGE>
Item 29. Principal Underwriter
Keystone Investment Distributors Company (formerly named
Keystone Distributors, Inc.), which acts as Registrant's
principal underwriter, also acts as principal underwriter for
the following entities:
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone Quality Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Mid-Cap Growth Fund (S-3)
Keystone Small Company Growth Fund (S-4)
Keystone Capital Preservation and Income Fund
Keystone Fund of the Americas
Keystone Fund for Total Return
Keystone Global Opportunities Fund
Keystone Government Securities Fund
Keystone Hartwell Growth Fund
Keystone Intermediate Term Bond Fund
Keystone International Fund, Inc.
Keystone Liquid Trust
Keystone Omega Fund
Keystone Precious Metals Holdings, Inc.
Keystone State Tax Free Fund
Keystone State Tax Free Fund - Series II
Keystone Strategic Development Fund
Keystone Strategic Income Fund
Keystone Tax Free Income Fund
Keystone Tax Exempt Trust
Keystone Tax Free Fund
Keystone World Bond Fund
(b) For information with respect to each officer and director of
Registrant's principal underwriter, see the following pages.
<PAGE>
Item 29(b) (continued)
Positions with
Keystone Investment Positions with
Name Distributors Company Registrant
- - - - - ---- -------------------- --------------
Ralph J. Spuehler* Director, President None
Edward F. Godfrey* Director, Senior Vice Senior Vice
President, Treasurer President
and Chief Financial
Officer
Rosemary D. Van Antwerp* Director, Senior Vice Senior Vice
President, General President
Counsel and Secretary and Secretary
Albert H. Elfner, III* Director President
Charles W. Carr* Senior Vice President None
Peter M. Delehanty* Senior Vice President None
J. Kevin Kenely* Vice President and None
Controller
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 None
60 Lawn Avenue President
Greenway 27
Stamford, CT 06902
William L. Carey, Jr. Regional Vice None
4 Treble Lane President
Malvern, PA 19355
John W. Crites Regional Vice None
2769 Oakland Circle W. President
Aurora, CO 80014
Michael S. Festa* Vice President None
Jeffrey M. Lundes* Vice President None
<PAGE>
Item 29(b) (continued)
Positions with
Keystone Investment Positions with
Name Distributors Company Registrant
- - - - - ---- -------------------- --------------
Richard J. Fish Regional Vice None
309 West 90th Street President
New York, NY 10024
Michael T. Flaherty* Regional Vice None
President
Michael E. Gathings Regional Vice None
245 Wicklawn Way President
Roswell, GA 30076
Robert G. Holz, Jr. Regional None
313 Meadowcrest Drive President
Richardson, Texas 75080
Todd L. Kobrin Regional Vice None
20 Iron Gate President
Metuchen, NJ 08840
Ralph H. Johnson Regional Vice None
345 Masters Court, #2 President
Walnut Creek, CA 94598
Paul J. McIntyre* Regional Vice None
President
Thomas E. Meloy* Regional Vice None
President
Juliana Perkins Regional Vice None
2348 West Adrian Street President
Newbury Park, CA 91320
Matthew D. Twomey Regional Vice None
9627 Sparrow Court President
Ellicott City, MD 21042
Mitchell I. Weiser Regional Vice None
7031 Ventura Court President
Parkland, FL 33067
Welden L. Evans Vice President None
490 Huntcliff Green
Atlanta, GA 30350
Russell A. Haskell* Vice President None
<PAGE>
Item 29(b) (continued)
Positions with
Keystone Investment Positions with
Name Distributors Company Registrant
- - - - - ---- -------------------- --------------
John M. McAllister* Vice President None
Gregg A. Mahalich Vice President None
14952 Richards Drive W.
Minnetonka, MN 55345
Robert J. Matson* Vice President None
Alan V. Neimi* Vice President None
Ronald L. Noble* Vice President None
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* Vice President None
Joan M. Balchunas* Assistant Vice None
President
Jody R. Baum* Assistant Vice None
President
Thomas J. Gainey* Assistant Vice None
President
Eric S. Jeppson* Assistant Vice None
President
Julie A. Robinson* Assistant Vice None
President
Peter M. Sullivan Assistant Vice None
21445 Southeast 35th Way President
Issaquah, WA 98027
*Located at 200 Berkeley Street, Boston, Massachusetts 02116-5034
Item 29(c). - Not applicable
Item 30. Location of Accounts and Records
200 Berkeley Street
Boston, Massachusetts 02116-5034
Keystone Investor Resource Center, Inc.
101 Main Street
Cambridge, Massachusetts 02142-1519
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, Massachusetts 02171
DataVault Inc.
3431 Sharpslot Road
Swansea, Massachusetts 02777
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Upon request and without charge, Registrant hereby undertakes
to furnish each person to whom a copy of the Registrant's prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for the effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston, in The
Commonwealth of Massachusetts, on the 28th day of November, 1995.
KEYSTONE HIGH INCOME BOND
FUND (B-4)
By: /s/ George S. Bissell
------------------------
George S. Bissell*
Chairman of the Board
*By: /s/ James M. Wall
------------------------
James M. Wall**
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 28th day of November, 1995.
SIGNATURES TITLE
/s/ George S. Bissell Chairman of the Board, and Director
- - - - - --------------------------
George S. Bissell*
/s/ Albert H. Elfner, III Chief Executive Officer,
- - - - - -------------------------- President and Director
Albert H. Elfner, III*
Kevin J. Morrissey Treasurer (Principal
- - - - - -------------------------- Financial and Accounting Officer)
Kevin J. Morrissey*
*By: /s/ James M. Wall
------------------------------
James M. Wall**
Attorney-in-Fact
<PAGE>
SIGNATURES TITLE
/s/ Frederick Amling Director
- - - - - --------------------------
Frederick Amling*
/s/ Charles A. Austin, III Director
- - - - - --------------------------
Charles A. Austin, III*
/s/ Edwin D. Campbell Director
- - - - - --------------------------
Edwin D. Campbell*
/s/ Charles F. Chapin Director
- - - - - --------------------------
Charles F. Chapin*
/s/ K. Dun Gifford Director
- - - - - --------------------------
K. Dun Gifford*
/s/ Leroy Keith, Jr. Director
- - - - - --------------------------
Leroy Keith, Jr.*
/s/ F. Ray Keyser, Jr. Director
- - - - - --------------------------
F. Ray Keyser, Jr.*
/s/ David M. Richardson Director
- - - - - --------------------------
David M. Richardson*
/s/ Richard J. Shima Director
- - - - - --------------------------
Richard J. Shima*
/s/ Andrew J. Simons Director
- - - - - --------------------------
Andrew J. Simons*
*By: /s/ James M. Wall
------------------------------
James M. Wall**
Attorney-in-Fact
** James M. Wall, by signing his name hereto, does hereby sign this document on
behalf of each of the above-named individuals pursuant to powers of attorney
duly executed by such persons and attached hereto as Exhibit 24(b)(19).
<PAGE>
INDEX TO EXHIBITS
Page Number
In Sequential
Numbering
Exhibit Number Exhibit System
- - - - - ------------- ------- ------------
1 Restatement of Trust, as amended
2 By-Laws
4 Specimen Stock Certificate(1)
5 (A) Investment Management Agreement
(B) Investment Advisory Agreement
6 (A) Principal Underwriting Agreement
(B) Dealers Agreement
(C) Additional Underwriting Agreements
8 Custodian, Fund Accounting
and Recordkeeping Agreement
Amendments to Custody Agreement
10 Opinion and Consent of Counsel
11 Independent Auditors' Consent
14 Model Retirement Plans(2)
15 Distribution Plan
16 Performance Data Schedules
17 Financial Data Schedules
(filed as Exhibit 27)
19 Powers of Attorney
- - - - - ----------------------------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 33 to
Registration Statement No. 2-10526/811-95.
(2) Incorporated herein by reference to Post-Effective Amendment No. 66 to
Registration Statement No. 2-10527/811-96.
<PAGE>
EXHIBIT 99.1
KEYSTONE CUSTODIAN FUND, SERIES B-4
RESTATEMENT OF TRUST AGREEMENT
DATED DECEMBER 19, 1989
This RESTATEMENT OF TRUST AGREEMENT amending in its entirety the Trust
Agreement of Keystone Custodian Fund, Series B-4 (the "Fund"), dated July 15,
1935, as heretofore amended, made at Boston, Massachusetts on December 19, 1989
by and between Keystone Custodian Funds, Inc., a Delaware corporation (the
"Corporate Trustee"), such persons who may be elected or appointed to the office
of Trustee pursuant to Article IV of this Restatement (hereinafter with their
successors referred to as the "Individual Trustees" and together with the
corporate Trustee, as appropriate, the "Trustees"), and such persons, trusts,
estates, corporations and other legal entities as have or may become parties
hereto by the acquisition of shares of the Fund issued hereunder.
WHEREAS, the Trustees have agreed to manage all property received by
them as Trustees in accordance with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon
the following terms and conditions for the pro rata benefit of the holders from
time to time of Shares in this Trust as hereinafter set forth; provided,
however, that, notwithstanding any provision herein to the contrary, until such
time as the Corporate Trustee shall resign or shall be removed by action of a
majority of the Individual Trustees (after which resignation or removal there
shall no longer be any Corporate Trustee), the Corporate Trustee shall remain in
office and, subject to the approval, direction and control of a majority of the
Individual Trustees, shall continue to exercise all the powers and functions of
the Trustees and to manage the business and affairs of the Fund and to provide
investment and other services to the Fund in the same manner, to the same
extent, for the same consideration and upon the same terms and conditions as are
provided for in said Trust Agreement as it existed on the date hereof prior to
this Restatement thereof, the terms of which Trust Agreement are hereby
incorporated herein by this reference for the purposes of this provision.
ARTICLE 1
NAME AND DEFINITIONS
Section 1. Name. This Trust shall be known as the Keystone Custodian
Fund, Series B-4 and the Trustees shall conduct the business of this Trust under
that name or any other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided:
(a) The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person" and "Principal Underwriter" shall have the meanings
given them in the 1940 Act;
(b) The "Trust" refers to the Pennsylvania common law trust
established under a Trust Agreement, dated July 15, 1935, as amended
from time to time and restated by this Restatement of Trust Agreement;
(c) "Trust Agreement" shall mean this Restatement of Trust
Agreement as amended or restated from time to time;
(d) "Net Asset Value Per Share" means the net asset value per
share of the Trust determined in the manner provided or authorized in
Article VI, Section 4;
(e) "Shareholder" means a record owner of Shares of the Trust;
(f) "Shares" means the equal proportionate units of interest
into which the beneficial interest in the Trust shall be divided from
time to time or, if more than one series ("Series") or more than one
class ("Class") of a Series of Shares is authorized by the Trustees,
the equal proportionate units into which each such Series or Class of
Shares shall be divided from time to time, and includes where
appropriate fractions of a Share as well as a whole Share, unless the
Trustees provide that there shall be no fractions of any particular
Shares.
(g) "Trustees" refers to the Trustee or Trustees of the Trust
who become such in accordance with Article IV and where appropriate
means a majority or other portion of them acting in accordance with
this Trust Agreement or the By-laws of the Trust; and
(h) The "1940 Act" refers to the Investment Company Act of
1940 and the Rules nd Regulations thereunder, all as amended from time
to time.
ARTICLE II
PURPOSE OF TRUST
The purpose of the Trust is to provide investors a continuous source of
managed investments.
ARTICLE III
BENEFICIAL INTEREST
Section 1. Shares of Beneficial Interest. The beneficial interest in
the Trust shall at all times be divided into transferable Shares, $1.00 par
value, each of which shall represent an equal proportionate interest in the
Trust with each other Share outstanding, none having priority or preference over
another, except to the extent modified by the Trustees under the provisions of
this Section. The number of Shares which may be issued is unlimited. The
Trustees may from time to time divide or combine the outstanding Shares into a
greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or fractions.
From time to time, as they deem appropriate, the Trustees may create
additional Series and/or Classes of Series of Shares, in addition to the Shares
initially created under this instrument ("Original Series"). References in this
Trust Agreement to Shares of the Trust shall apply, as appropriate, to each such
Series of Shares and to each such Class of Shares.
Any additional Series of Shares created hereunder shall represent the
beneficial interest in the assets (and related liabilities) allocated by the
Trustees to such Series of Shares and acquired by the Trust only after creation
of the respective Series of Shares and only on account of such Series. If the
Trustees create any additional Series of Shares hereunder, then the Original
Series shall be deemed a separate Series of Shares. Upon creation of each Series
of Shares, the Trustees may designate it appropriately and determine the
investment policies with respect to the assets allocated to such Series of
Shares, redemption rights, dividend policies, conversion rights, liquidation
rights, voting rights, and such other rights and restrictions as the Trustees
deem appropriate, to the extent not in consistent with the provisions of this
Trust Agreement.
The Trustees may divide any Series (including the Original Series) into
more than one Class of Shares. Upon creation of each additional Class of Shares
the Trustees may designate it appropriately and determine its rights and
restrictions (including without limitation such redemption rights, dividend
rights, conversion rights, liquidation rights, voting rights, and other rights
and restrictions as the Trustees deem appropriate).
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded in the books of the Trust or a transfer agent or a similar agent. The
Trustees may make such rules as they consider appropriate for the transfer of
Shares and similar matters. The record books of the Trust as kept by the Trust
or any transfer agent or similar agent, as the case may be, shall be conclusive
as to who are the holders of Shares of each Series or Class and as to the number
of Shares of each Series or Class held from time to time by each.
Section 3. Investments in the Trust. The Trustees shall accept
investments in the Trust from such persons and on such terms and, subject to any
requirements of law, for such consideration as the Trustees from time to time
authorize and may cease offering Shares to the public at any time. After such
acceptance, the number of Shares of the appropriate Series or Class to represent
the contribution may in the Trustees' discretion be considered as outstanding
and the amount receivable by the Trustees on account of the contribution may be
treated as an asset of the Series or Class.
Section 4. No Preemptive Rights. Shareholders shall have no redemptive
or other right to subscribe to any additional shares or other securities issued
by the Trust.
Section 5. Provisions relating to Series or Classes of Shares. Whenever
no Shares of a Series or Class are outstanding, then the Trustees may abolish
such Series or Class. Whenever more than one Series or Class of Shares is
outstanding, then the following provisions shall apply:
(a) Assets belonging to Each Series or Class. All
consideration received by the Trust for the issue or sale of Shares of
a particular Series or Class, together with all assets in which such
consideration is invested or reinvested, all income, earnings and
proceeds thereof, and any funds derived from any reinvestment of such
proceeds, shall, except to the extent specifically otherwise provided n
the provisions adopted by the Board of Trustees establishing the Series
or Class, irrevocably belong to that Series or Class for all purposes,
subject only to the rights of creditors, and shall be so recorded upon
the books of the Trust. In the event there are assets, income,
earnings, and proceeds thereof which are not readily identifiable as
belonging to a particular Series or Class, then the Trustees shall
allocate such items to the various Series or Classes then existing. In
such manner and on such basis as they, in their sole discretion, deem
fair and equitable. The amount of each such item allocated to a
particular Series or Class by the Trustees shall then belong to that
Series or Class, and each such allocation shall be conclusive and
binding upon the Shareholders of all Series and Classes for all
purposes.
(b) Liabilities Belonging to Each Series or Class. The assets
belonging to each particular Series or Class shall, except to the
extent specifically otherwise provided in the provisions adopted by the
Board of Trustees establishing the Series or Class, be charged with the
liabilities, expenses, costs and reserves of the Trust attributable to
that Series or Class; and any general liabilities, expenses, costs and
reserves of the Trust which are not readily identifiable as
attributable to a particular Series or Class shall be allocated by the
Trustees to the various Series and Classes then existing, in such
manner and on such basis as they, in their sole discretion, deem fair
and equitable. Each such allocation shall be conclusive and binding
upon the Shareholders of all Series and Classes for all purposes.
(c) Series or Class Shares, Dividends and Liquidation. Each
Share of each respective Class or Series shall, except to the extent
specifically otherwise provided in the provisions adopted by the Board
of Trustees establishing the Series or Class, have the same rights and
pro rata beneficial interest in the assets and liabilities of the
Series or Class as any other such Shares. Any dividends paid on the
Shares of any Series or Class shall, except to the extent specifically
otherwise provided in the provisions adopted by the Board of Trustees
establishing the Series or Class, only be payable from and to the
extent of the assets (net of liabilities) belonging to that respective
Series or Class. In the event of liquidation of a Series or Class, only
the assets (less provision for liabilities) of that Series or Class
shall be distributed to the holders of the Shares of that Series or
Class.
(d) Voting by Series or Class. Except as provided in this
Section or as limited by the rights and restrictions of any Series or
Class, each Share of the Trust may vote with and in the same manner as
any other Share on matters submitted to a vote of the Shareholders
entitled to vote thereon, without differentiation among votes from the
separate Series or Classes; provided, however, that (i) as to any
matter with respect to which a separate vote of any Series or Class is
required by the 1940 Act, or otherwise by applicable law, such
requirement as to a separate vote shall apply in lieu of the voting
described above; (ii) in the event that the separate requirements
referred to in (i) above apply with respect to one or more Series or
Classes, then, subject to (iii) below, the Shares of all other Series
or Classes shall vote without differentiation among their votes; and
(iii) as to any matter which does not affect the interest of any
particular Series or Class, only the holders of Shares of the one or
more affected Series or Classes shall be entitled to vote.
Section 6. Limitation of Personal Liability. The Trustees shall have no
power to bind any Shareholder personally or to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay by way of subscription to
any Shares or otherwise. Every note, bond, contract or other undertaking issued
by or on behalf of the Trust or the Trustees relating to the Trust shall include
a recitation limiting the obligation represented thereby to the Trust and its
assets (but the omission of such a recitation shall not operate to bind any
Shareholder).
ARTICLE IV
THE TRUSTEES
Section 1. Number of Trustees. The number of Individual Trustees shall
initially be such number as shall be elected as such by a vote of the
Shareholders of the Trust, and thereafter shall be such number as shall be fixed
from time to time by action of a majority of the Trustees.
Section 2. Election or Appointment and Term. The initial Individual
Trustees shall be the individuals who shall have been previously elected as such
by a vote of the shareholders of the Trust. Thereafter, subject to Section 16(a)
of the 1940 Act, the Trustees may elect themselves or their successors at such
regular intervals, if any, as they deem proper, and may appoint Trustees to fill
vacancies as provided in Section 4 hereof; provided, that Trustees shall be
elected by the vote of a majority of shares voting thereon at such time or times
as the Trustees shall determine that such action is advisable. Subject to
Section 3 hereof, the Trustees shall have the power to set and alter the terms
of office of the Trustees, and they may at any time lengthen or shorten their
own terms or make their terms of unlimited duration; provided, that the term of
office of any incumbent Trustee shall continue until terminated as provided in
Section 4 hereof, or, if not so terminated, until the election of such Trustee's
successor in office has become effective in accordance with this Section 2.
Section 3. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees, and such resignation shall be
effective upon such delivery or at any later date according to the terms of the
instrument. Any Trustee may be removed by the action of two-thirds of the
remaining Trustees. Upon the resignation or removal of a Trustee, or his
otherwise ceasing to be a Trustee, he shall execute and deliver such documents
as the remaining Trustees shall require for the purpose of conveying to the
Trust or the remaining Trustees any Trust property held in his name. Upon the
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require as
provided in the preceding sentence. However, the execution and delivery of such
documents by a former Trustee or his legal representative shall not be requisite
to the vesting of title to the Trust property in the remaining Trustees.
Section 4. Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of such Trustee's death, resignation,
removal, bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office of Trustee. No such vacancy shall operate to annul this
Trust Agreement or to revoke any existing agency created pursuant to the terms
of this Trust Agreement. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of trustees, subject to
applicable law, the remaining Trustees, or, if only one Trustee shall then
remain in office, the sole remaining Trustee, shall appoint such individual to
fill such vacancy as they or he, in their or his discretion, shall see fit. An
appointment of a Trustee may be made in anticipation of a vacancy to occur at a
later date by reason of retirement or resignation of a Trustee or an increase in
the number of Trustees; provided, that such appointment shall not become
effective prior to such retirement or resignation or such increase in the number
of Trustees. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in this Section 4, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this Trust
Agreement in the manner provided by this Trust Agreement. A written instrument
certifying the existence of such vacancy signed by a majority of the Trustees
shall be conclusive evidence of the existence of such vacancy.
Section 5. Management of the Trust. Subject to the provisions of this
Trust Agreement, the business and affairs of the Trust shall be managed by the
Trustees, and they shall have all powers necessary and desirable to carry out
that responsibility. Action by the Trustees may be taken by majority vote of the
Trustees at a meeting at which a quorum (which shall be a majority of the
Trustees then in office) shall be present, or by a consent in writing signed by
a majority of the Trustees in office.
Without limiting the foregoing, the Trustees may adopt By-Laws not
inconsistent with this Trust Agreement providing for the conduct of the business
of the Trust and may amend and repeal them to the extent and that they do not
reserve that right to any Shareholders; they may elect and remove such officers
and appoint and terminate such agents as they consider appropriate; they may
appoint from their own number and terminate any one or more committees; they may
employ one or more custodians of the assets of the Trust and may authorize such
custodians to employ subcustodians and to deposit all or any part of such assets
in a system or systems for the central handling of securities, retain a transfer
agent or a Shareholder servicing agent, or both, provide for the distribution of
shares by the Trust, through one or more principal underwriters or otherwise,
set, or otherwise provide for the setting of, record dates, and in general
delegate such authority to do any or all things which the Trustees may do in the
operation of the business of the Trust as they consider desirable to any
officers of the Trust and committees of the Trustees and to any agent or
employee, custodian or underwriter. Any action relating to the operation of the
Trust provided for herein to be taken by the Trustees may be taken by any other
person under authority granted by the Trustees whether or not specifically as
stated, and unless specifically so stated to the contrary. A specific statement
indicating that the Trustees may delegate any authority shall not give rise to
any contrary implication with respect to any provision of this Trust Agreement.
Without limiting the foregoing, the Trustees in addition to all powers
granted by law shall have power and authority:
(a) To invest and reinvest cash, and to hold cash uninvested,
without in anywise being bound or limited by any present or future law
or custom in regard to investments by trustees;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate or
lease any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property, and
to execute and delivery proxies or powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities or
property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form, or
in its own name or in the name of aa custodian or subcustodian or a
nominee or nominees or otherwise;
(f) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or concern,
any security of which is held in the Trust; to consent to any contract,
lease, mortgage, purchase or sale of property by such corporation or
concern, and to pay calls or subscriptions with respect to any security
held in the Trust;
(g) To join with other security holders in acting through a
committee, depository, voting Trustee or otherwise, and in that
connection to deposit any security with, or transfer any security to,
any such committee, depository or Trustee, and to delegate to them such
power and authority with relation to any security (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses and compensation
of such committee, depository or Trustee as the Trustees shall deem
proper;
(h) To compromise, arbitrate, or otherwise adjust claims in
favor of or against the Trust for any matter in controversy, including,
but not limited to, claims for taxes; and
(i) To borrow funds.
The Trustees shall not be required to obtain any court order to deal
with any assets of the Trust or take any other action hereunder.
Section 6. Ownership of Assets of the Trust. The assets of the Trust
shall be held separate and apart from any assets now or hereafter held in any
capacity other than as Trustee hereunder by the Trustees or by any successor
Trustees. All of the assets of the Trust shall at all times be considered as
vested in the Trustees. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or any right of partition or
possession thereof, but each Shareholder shall have proportionate undivided
beneficial interest in the assets of the Series or Class of Shares of which he
is a holder, subject to any rights or restrictions applicable to any Series or
Class of Shares of which he is a holder.
Section 7. Payment of Expenses. The Trustees shall pay or cause to be
paid out of the principal or income of the Trust, or partly out of principal and
partly out of income, as they deem fair, all expenses, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the Trust's
investment adviser or manager, administrator, auditor, counsel, custodian,
transfer agent, Shareholder servicing agent, and such other agents or
independent contractors and such other expenses and charges as the Trustees may
deem necessary or proper to incur.
Section 8. Investment Management and Other Services. Without limiting
the generality of the powers of the Trustees, subject to applicable law, the
Trustees may enter into a contract with any person or persons, including any
firm, corporation, trust or association in which any Trustee, Shareholder or
officer of the Trust may be interested, to act as investment advisers and/or
managers of the Trust and to provide such investment advice and/or management as
the Trustees may from time to time consider appropriate (the "Adviser"). Any
such contract may authorize the adviser to determine from time to time what
securities shall be acquired, held or disposed of by the Trust and what portion
of assets of the Trust shall be held uninvested and to take, on behalf of the
Trust, actions which the Adviser deems necessary to implement the investment
policies of the Trust, including the placement of all orders for the purchase,
sale or loan of portfolio securities for the Trust's account with brokers or
dealers or others selected by the adviser and the giving of instructions to the
custodian of the Trust's assets as to deliveries of securities and payments of
cash for the account of the Trust.
Without limiting the generality of the powers of the Trustees, subject
to applicable law, the Adviser may enter into an Agreement to retain at its own
expense any person or persons, including any firm, corporation, trust or
association in which any Trustee, Shareholder or officer of the Trust may be
interested, to provide the trust investment advice and/or management and any
person or persons so retained may be granted all authority which has been
granted to the adviser under the contract which the adviser entered into
pursuant to the preceding paragraph.
Without limiting the generality of the powers of the Trustees, the
Trustees may enter into a contract with any person or persons, including any
firm, corporation, trust or association in which any Trustee, Shareholder or
officer of the Trust may be interested, to act as principal underwriter for the
Shares.
Section 9. Affiliations of Trustees or Officers, Etc. The fact that (i)
any of the Shareholders, Trustees or officers of the Trust is a Shareholder,
Director, officer, partner, Trustee, employee, manager, adviser or distributor
of or for any partnership, corporation, trust, association or other organization
or for any parent or affiliate of any organization with which any contract
including, without limitation, contracts for services as manager, investment
adviser, distributor, principal underwriter, custodian, transfer agent or
disbursing agent or for related services may have been or may hereafter be made,
or that any such organization, or any parent or affiliate thereof, is a
Shareholder of or has an interest in the Trust, or that (ii) any partnership,
corporation, trust, association or other organization with which a contract
referred to in (i) above may have been or may hereafter be made also has any one
or more of such contracts with one or more other partnerships, corporations,
trusts, associations or other organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2 of Article IV
hereof and the removal of Trustees to the extent provided in Section 16(c) of
the 1940 Act, (ii) with respect to approval or termination in accordance with
the 1940 Act of any investment advisory, management or underwriting agreement
described in Article IV hereof, (iii) with respect to any amendment of this
Trust Agreement to the extent and as provided in Section 7 of Article IX hereof,
(iv) as to whether or not a court action, proceeding or claim should be brought
or maintained derivatively or as a class action on behalf of the Trust or its
Shareholders, and (v) with respect to such additional matters relating to the
Trust as may be required by this Trust Agreement or the By-Laws, or as to which
the Trustees in their discretion shall determine such Shareholder vote to be
required by law or otherwise to be necessary, appropriate or advisable.
Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. Until Shares are issued, the Trustees
may exercise all rights of Shareholders and may take any action required by law.
This Trust Agreement or any By-Laws of the Trust to be taken by Shareholders.
Section 2. Meetings. Meetings of Shareholders shall be held at such
times at the principal office of the Trust or such other place as the Trustees
may designate. Meetings of the Shareholders may be called by the Trustees or
such other person or persons as may be specified in the By-laws. Shareholders
shall be entitled to at least seven days' notice of any meeting.
Section 3. Quorum and Required Vote. Except as otherwise provided by
law, to constitute a quorum for the transaction of business at a Shareholders'
meeting there must be present, in person or by proxy, holders of a majority of
the total number of Shares of the Trust then outstanding and entitled to vote at
the meeting, but any lesser number shall be sufficient for adjournment, and any
adjourned session or sessions may be held within 90 days after the date set for
the original meeting without the necessity of further notice. Subject to any
applicable requirements of law, a majority of the Shares present and entitled to
vote on a question or election shall decide such question or election, except
when a larger vote is required by any provision of this Trust Agreement, the
By-Laws of the Trust or any applicable provision of law.
Section 4. Action by Written Consent. Except as otherwise required by
law, any action required or permitted to be taken at any meeting may be taken
without a meeting if a consent in writing setting fourth such action is signed
by the Shareholders entitled to vote on the subject matter thereof holding a
majority of the Shares entitled to vote thereon.
Section 5. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
DISTRIBUTIONS AND REDEMPTIONS
Section 1. Distributions. The Trustees may, but need not, each year
distribute to the Shareholders of each Series or Class such income and gains as
the Trustees may determine, after providing for actual and accrued expenses and
liabilities (including such reserves as the Trustees may establish) determined
in accordance with generally accepted accounting practices. The Trustees shall
have full discretion to determine which items shall be treated as income and
which items as capital and their determination shall be binding upon the
Shareholders. Distributions of each year's income of each Series or Class, if
any be made, may be made in one or more payments, which shall be in Shares, in
cash or otherwise and on a date or dates and as if a record date or dates
determined by or under the authority of the Trustees. At an time and from time
to time in their discretion the Trustees may distribute to the Shareholders of
any one or more Series or Classes as of a record date or dates determined by or
under the authority of the Trustees, in Shares, in cash or otherwise, all or
part of any gain realized on the sale or disposition of property of the Trust or
otherwise, or all or part of any other principal of the Trust. Each distribution
pursuant to this Section 1 shall be made ratably according to the number of
Shares of the Series or Class held by several Shareholders on the applicable
record date thereof, provided that no distribution need be made on Shares
purchased pursuant to orders received or for which payment is made after such
time or times as may be determined by or under the authority of the Trustees.
Any such distribution paid in Shares will be paid at the net asset value thereof
as determined in accordance with Section 4 hereof.
Section 2. Redemptions. Upon offer by any Shareholder of all or part of
the Shares held by the Shareholder for redemption hereunder, in accordance with
such methods, upon such terms and subject to such conditions as from time to
time may be determined by or under the authority of the Trustees, the Trust
shall redeem the Shares so offered by distributing to the Shareholder the Net
Asset Value Per Share thereof determined as of a time to redeem the Shares of
any Shareholder for their Net Asset Value Per Share if the Shareholder owns
Shares of a Series of Class having an aggregate net asset value of less than
such minimum amount as may from time to time be prescribed by or under the
authority of the Trustees or if ownership of such Shares by the Shareholder
could create adverse tax consequences for the Trust or any Series or Class
thereof. With respect to all Shares or any Series or Class of Shares, the right
to redemption or the date for payment may, however, be delayed or suspended by
the Trustees if there is an extraordinary closing or restriction of trading on
the New York Stock Exchange as determined under rules and regulations of the
Commission, or an emergency exists as a result of which it is not reasonably
practicable for the Trust to dispose of securities or fairly to determine the
value of its net assets, or as the Commission may permit. The completion of such
distribution on redemption of Shares shall constitute a full discharge of the
Trust and Trustees with respect to such Shares, and the Trustees may require
that any certificate or certificates issued by the Trust to evidence the
ownership of the Shares shall be surrendered to the Trustees for cancellation or
notation. Shares so redeemed shall be cancelled or held by the Trust for
reissue, as the Trustees may from time to time determine.
Section 3. Payment in Kind. Subject to any generally applicable
limitation imposed by the Trustees, any distribution on redemption may, if
authorized by the Trustees, be made wholly or partly in kind, instead of in
cash. Such distribution in kind shall be made by distributing investments
constituting, in the opinion of the Trustees, a fair representation of the
various types of securities then held by the Series or Class of Shares being
redeemed (but not necessarily including a portion of each particular investment)
and in each case having an aggregate value equal to the amount of cash instead
of which such distribution in kind is made.
Section 4. Determination of Net Asset Value Per Share. Subject to
applicable law, the Net Asset Value Per Share of each Series or Class shall be
computed as of such times as may be determined by or under authority of the
Trustees by determining the value of all the investments of such Series or Class
in such manner as may be determined by or under authority of the Trustees,
adding any other assets of such Series or Class, subtracting all liabilities of
such Series or Class and dividing the result by the number of Shares of such
Series or Class outstanding.
Determination of Net Asset Value Per Share so made in good faith and
pursuant to the provisions of the 1940 Act shall be binding on all parties
concerned.
Section 5. Automatic Redemption from Small Accounts. The Trustees shall
have the power to redeem shares at a redemption price determined in accordance
with Section 4 of this Article if at any time the total investment in such
account does not have a value of at least $1,000 or such other minimum amount as
the Trustees may from time to time determine. Before redeeming such Shares, the
Shareholder will be notified that the value of his account is less than the
required minimum amount and be allowed 60 days or such period as is permitted by
law to make an additional investment to bring the total value of such account to
such amount or more.
Section 6. Power to Modify Foregoing Procedures. Notwithstanding any of
the foregoing provisions of this Article VI, the Trustees may prescribe, in
their absolute discretion, such other bases and times for the declaration and
payment of dividends and distributions as they may deem desirable or necessary
to enable the Trust to comply with any provision of the 1940 Act, including any
rule or regulation adopted by the Commission or any securities association
registered under the Securities Exchange Act of 1934, or any order of exemption
issued by the Commission, all as in effect now or as hereafter amended or
modified.
ARTICLE VII
COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES
Section 1. Compensation. The Trustees shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Section 2. Limitation of Liability. Provided they have exercised
reasonable care in their selection, the Trustees shall not be responsible or
liable in any event for any neglect or wrongdoing of any officer, agent,
employee or Adviser of the Trust nor shall any Trustee be responsible for the
act or omission of any other Trustee, but nothing herein contained shall protect
any Trustee against any liability to which he would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Every note, bond, contract, instrument, certificate, share or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only in their or his
capacity as Trustees or Trustee, and such Trustees or Trustee shall not be
personally liable thereon.
The Trustees shall use their best efforts to ensure that every note,
bond, contract, instrument, certificate or undertaking made or issued by the
Trustees or by any officers shall give notice of the existence of this Trust
Agreement and shall recite to the effect that the same was executed or made by
or on behalf of the Trust or by them as Trustees or officers, and not
individually, and is not binding upon any of them or the Shareholders
individually, but is binding only upon the Trust property, or the assets of the
particular Series or Class in question, as the case may be, but the omission
thereof shall not operate to bind any Trustee or officer or Shareholder
individually, or to subject the assets of any Series or Class to the obligations
of any other Series or Class.
ARTICLE VIII
INDEMNIFICATION
Section 1. Trustees, Officers, etc. The Trust shall indemnify each of
its present and former Trustees and officers and may indemnify any of its
present or former employees or agents, and shall indemnify any persons who serve
or have served at the Trust's request as directors, officers or Trustees of
another organization, and may indemnify persons who serve or have served at the
Trust's request as employees or agents of another organization, in which the
Trust has any interest as a shareholder, creditor or otherwise (hereinafter
referred to as a "Covered Person") against all liabilities and expenses,
including, but not limited to, amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees reasonably incurred by
any such covered Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such person may be or
may have been threatened, while in office, employed or acting as agent
thereafter, by reason of being or having been such a Trustee, officer, director,
employee or agent, except with respect to any matter as to which such Covered
Person shall have been finally adjudicated in any such action, suit or other
proceeding not to have acted in good faith in the reasonable belief that such
Covered Person's action was in the best interest of the Trust and except that no
person shall be indemnified against any liability to the Trust or its
Shareholders to which such Covered Person shall otherwise be subject by reason
of wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Expenses, including counsel fees
so incurred by any Covered Person, may in the discretion of the Trustees be paid
from time to time by the Trust in advance of the final disposition of any such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such Covered Person to repay amounts so paid to the Trust if it is ultimately
determined that indemnification against such expenses is not authorized under
this Article.
Except as otherwise provided by law, the Trust shall have power to
purchase and maintain insurance on behalf of a Covered Person against any
liability asserted against him and incurred by him in his capacity as a Covered
Person, or arising out of his status as such, whether or not the Trust would
have the power to indemnify him against the liability under the provisions of
this Section.
Section 2. Compromise Payment. As to any matter disposed of by a
compromise payment by any Covered Person referred to in Section 1 above,
pursuant to a consent decree or otherwise, no such indemnification either for
such payment or for any other expenses shall be provided unless such compromise
shall be approved as in the best interests of the Trust, after notice that it
involved such indemnification, (a) by a disinterested majority of the Trustees
then in office; or (b) by a majority of the disinterested Trustees then in
office; or (c) by any disinterested person or persons to whom the question may
be referred by the Trustees, provided that in the case of approval pursuant to
clause (b) or (c) there has been obtained an opinion in writing of independent
legal counsel to the effect that such Covered Person appears to have acted in
good faith in the reasonable belief that his action was in the best interests of
the Trust and that such indemnification would not protect such person against
any liability to the Trust to which such person would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office; or (d) by the vote of a
majority of the Shares voting thereon, exclusive of any Shares beneficially
owned by any interested Covered Person. Approval by the Trustees pursuant to
clause (a) or (b) or any disinterested person or persons pursuant to clause (c)
of this Section shall not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with any such clause as
indemnification is such Covered Person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that such person's action was in the best interests of the Trust or to have been
liable to the Trust or its Shareholders by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Section 3. Indemnification Not Exclusive. The rights of indemnification
hereby provided shall not be exclusive or affect any other rights to which any
such Covered Person may be entitled. As used in this Article VIII, the term
"Covered Person" is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this Article shall
affect any rights to indemnification to which personnel of the Trust other than
Trustees and officers or other persons may be entitled by contract or otherwise
under law.
Section 4. Shareholders. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of his being or having
been a Shareholder and not because of his acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other successor) shall be entitled out of the
assets of the Trust to be held harmless from and indemnified against all loss
and expense arising from such liability.
ARTICLE IX
MISCELLANEOUS
Section 1. Trust Not a Partnership. It is hereby expressly declared
that a trust and not a partnership is created hereby. Neither the Trust nor the
Trustees, nor any officer, employee or agent of the Trust shall have any power
to bind personally either the Trust's Trustees or officers or any Shareholders.
All persons extending credit to, contracting with or having any claim against
the Trust shall look only to the assets of the Trust for payment under such
credit, contract or claim, and neither the Shareholders nor the Trustees, nor
any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor. Nothing in this Trust Agreement
shall protect any Trustee against any liability to which such Trustee would
otherwise be subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee hereunder.
Section 2. Trustees' Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
in good faith and with reasonable care under the circumstances then prevailing
shall be binding upon everyone interested. Subject to the provisions of Section
1 of this Article IX, a Trustee shall be liable for his own wilful defaults, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Trust Agreement, and subject to the
provisions of said Section 1 shall be under no liability for any act or omission
in accordance with such advice or for failing to follow such advice. The
Trustees shall not be required to give any bond as such, nor any surety if a
bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees pursuant hereto
or to see to the application of any payments made or property transferred to the
Trust or upon its order.
Section 4. Duration; Termination of Trust; Amendments; Mergers, etc.
(a) This Trust shall continue without limitation of time but
subject to the provisions of this Section 4.
(b) The Trust (as used in this Section 4 the term "Trust"
specifically also means any Series or Class) may be terminated by
action of the Trustees. Upon the termination of the Trust:
(i) The Trust shall carry on no business except for
the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the
affairs of the Trust and all of the powers of the Trustees
under this Trust Agreement shall continue until the affairs of
the Trust shall have been wound up, including the power to
fulfill or discharge the contracts of the Trust, collect its
assets sell, convey, assign, exchange, transfer or otherwise
dispose of all or any part of the remaining Trust property to
one or more persons at public or private sale for
consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay its
liabilities, and to do all other acts appropriate to liquidate
its business.
(iii) After paying or adequately providing for the
payment of all liabilities, and upon receipt of such releases,
indemnities and refunding agreements as they deem necessary
for their protection, the Trustees shall distribute the
remaining Trust property, in cash or in kind or partly each,
among the Shareholders according to their respective rights
and interests.
(c) After termination of the Trust and distribution to the
Shareholders as herein provided, a majority of the Trustees shall
execute and lodge among the records of the Trust an instrument in
writing setting forth the fact of such termination, and the Trustees
shall thereupon be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Shareholders shall
thereupon cease.
(d) Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in paragraph (b), the
Trust shall terminate and the Trustees shall be discharged of any and
all further liabilities and duties hereunder and the rights, title and
interest of all parties shall be cancelled and discharged.
Section 5. Filing of Copies, References, Headings. The original or a
copy of this instrument and of each Trust Agreement supplemental hereto or
Amendment hereof shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any Supplemental
Trust Agreement or Amendments have been made and as to any matters in connection
with the Trust hereunder; and with the same effect as if it were the original,
may rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such supplemental Trust Agreement or Amendment. In this
instrument or in any such Amendment or Supplemental Trust Agreement, references
to this instrument, and all expressions such as "herein," "hereof," and
"hereunder," shall be deemed to refer to this instrument as amended or affected
by any such Supplemental Trust Agreement or Amendment. Headings are placed
herein for convenience of reference only and in case of any conflict, the text
of this instrument, rather than the headings, shall control. This instrument may
be executed in any number of counterparts each of which shall be deemed an
original.
Section 6. Applicable Law. The Trust set forth in this instrument is
made in The Commonwealth of Pennsylvania, and it is created under and is to be
governed by and construed and administered according to the laws of such
Commonwealth. The Trust shall be of the type commonly called a Pennsylvania
common law trust, and, without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a Trust.
Section 7. Amendments. (a) This Trust Agreement may be amended by a
vote or written consent of the Trustees. However, if such amendment adversely
affects the rights of any Shares of any Series or any Class thereof with respect
to matters to which such amendment is applicable, such amendment shall be
subject to approval by holders of a majority of the Shares of such Series or
Class. An amendment or other action which provides for an additional Series of
Shares (and/or Class thereof), which Series may vote together with Shares of
other Series (and/or Classes thereof) and makes other provisions with respect to
such Series (and/or Class thereof) and its relation to existing Series (and/or
Classes thereof), shall not be deemed to adversely affect the rights of any
other Series of Shares or Class thereof. The Trustees may also amend this Trust
Agreement without any Shareholder approval to change the name of the Trust, to
supply any omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or, if they deem it necessary, to conform this
Trust Agreement to the requirements of applicable federal laws or regulations or
the requirements of the Internal Revenue Code, or to eliminate or reduce any
federal, state or local taxes which are or may be payable by the Trust or the
Shareholders, but the Trustees shall not be liable for failing to do so.
(b) Nothing contained in this Trust Agreement shall permit the
amendment of this Trust Agreement to impair the exemption from personal
liability of the Shareholders, Trustees, officers, employees and agents of the
trust or to permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees or by a
Secretary or any Assistant Secretary of the Trust, setting forth an amendment by
reciting that it was duly adopted by the Shareholders or by the Trustees as
aforesaid, or a copy of the Trust Agreement as amended, and executed by a
majority of the Trustees or certified by the Secretary or any Assistant
Secretary of the Trust, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Section 8. Merger, Consolidation and Sale of Assets. The Trust may
merge into or consolidate with any other corporation, association, trust or
other organization or may sell, lease or exchange all or substantially all of
the Trust property, including its good will, upon such terms and conditions and
for such consideration when and as authorized by the Trustees.
Section 9. Incorporation. The Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other organization
to take over all the Trust property or to carry on any business in which the
Trust shall directly or indirectly have any interest, and to sell, convey and
transfer the Trust property to any such corporation, trust, partnership,
association or organization in exchange for the shares or securities thereof or
otherwise, and to lend money to, subscribe for the shares or securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization in which the Trust holds or is about to acquire
shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any corporation,
trust, partnership, association or other organization if and to the extent
permitted by law, as provided under the law then in effect. Nothing contained
herein shall be construed as requiring approval of Shareholders for the Trustees
to organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling, conveying or
transferring the Trust property to such organizations or entities.
IN WITNESS WHEREOF, the undersigned has hereunto set its hand and seal
in the City of Boston, Massachusetts, for itself and its assigns, as of the day
and year first above written.
KEYSTONE CUSTODIAN FUNDS, INC.
By: /s/ Albert H. Elfner, III
-------------------------
President
#1016064a
<PAGE>
EXHIBIT 99.2
BY-LAWS
KEYSTONE HIGH INCOME BOND FUND (B-4)
ARTICLE 1.
Restatement of Trust Agreement and Principal Office
1.1 Restatement of Trust Agreement. These By-laws are adopted pursuant to and
are subject to the terms of the Restatement of Trust Agreement ("Trust
Agreement") of Keystone High Income Bond Fund (B-4) ("Fund").
1.2 Principal Office of the Fund. The principal office of the Fund shall be
located in Boston, Massachusetts, or such other place as the Trustees may
designate from time to time.
ARTICLE 2.
Meetings of Shareholders
2.1 Meetings. Meetings may be called by the Trustees or by the President or by
any other officers designated for the purpose by the Trustees.
2.2 Business to be Transacted. At any meeting of shareholders, such business may
be transacted as is referred to in the notice of the meeting, and any other
business considered appropriate by or under authority of the Trustees.
2.3 Notice. A written notice of each meeting of the shareholders, specifying the
time, place and purposes thereof, shall be given as hereinafter provided by the
Secretary of the Fund or any Assistant Secretary or by a person or persons
designated by either of them, to each shareholder who is entitled to vote
thereat at least seven (7) days (including Sundays and holidays) before such
meeting. Notice of a meeting need not be given to any shareholder if a written
waiver of notice, executed by the shareholder or his attorney thereunto duly
authorized before or after the meeting, is filed with the records of the
meeting, or to any shareholder who attends the meeting either in person or by
proxy without protesting, prior thereto or at its commencement, the lack of
notice to such shareholder. Every notice to any shareholder required or provided
for herein may be given to him personally or by mailing it to him postage
prepaid, addressed to him at his address specified in the records of the Trust.
Notice shall be deemed to have been given at the time when it is so mailed. In
respect of any share held jointly by several persons notice so given to any one
of them shall be sufficient notice to all of them. Any notice so sent to the
address of any shareholder shall be deemed to have been duly sent in respect of
any such share whether held by him solely or jointly with others,
notwithstanding he be then deceased or be bankrupt or insolvent or legally
incompetent, and whether or not the Trustees or any person sending such notice
have knowledge of his death, bankruptcy or insolvency or legal incompetence,
until some other person or persons shall be registered as holders. The
certificate of the person or persons giving such notice shall be sufficient
evidence thereof, and shall protect all persons acting in good faith in reliance
on such certificate.
2.5 Voting. Shares may be voted in person by the shareholder or by proxy in form
reasonably acceptable to the Trust. If the holder of any share is a minor or a
person of unsound mind, or subject to guardianship or to the legal control of
any other person as regards the charge or management of such share, he may vote
by his guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy.
2.6 Record Dates. For the purpose of determining the shareholders who are
entitled to vote or act at any meeting or any adjournment thereof, or who are
entitled to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix or authorize the fixing by others of a time
as the record date for determining the shareholders having the right to notice
of and to vote at such meeting and any adjournment thereof or the right to
receive such dividend or distribution, and in such case only shareholders of
record on such record date shall have such right, notwithstanding any transfer
of shares on the books of the Fund after the record date; or without fixing such
record date the Trustees may for any of such purposes close the register or
transfer books for all or any part of such period.
ARTICLE 3.
Meetings of Trustees
3.1 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the Trustees may from time to time
determine.
3.2 Special Meetings. Special meetings of the Trustees may be held at any time
and at any place designated in the call of the meeting when called by the
Chairman, the President or the Treasurer, or by any other officer authorized by
the Trustees to do so, or by two or more Trustees, sufficient notice thereof
being given to each Trustee by the Secretary or an Assistant Secretary or by the
officer or one of the Trustees calling the meeting.
3.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to him at his usual or last known
business or residence address or to give notice to him in person or by telephone
at least twenty-four hours before the meeting. Notice of a meeting need not be
given to any Trustee if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any Trustee
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
3.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to time
by a majority of the votes cast upon the question, whether or not a quorum is
present and the meeting may be held as adjourned without further notice.
3.5 Action by Vote. When a quorum is present at any meeting, a majority of the
Trustees present may take any action, except when a larger vote is required by
the Trust Agreement or any applicable law.
3.6 Participation by Conference Telephone. The Trustees may participate in a
meeting of the Trustees by means of conference telephone or similar
communications equipment. Participation by such means shall constitute presence
in person at a meeting.
3.7 Action by Writing. The Trustees may act without a meeting and the action of
a majority of the Trustees then in office evidenced by a writing signed by such
a majority shall be valid and binding as the action of the Trustees.
ARTICLE 4.
Trustees
4.1 Term. A Trustee shall serve until his death, Retirement, resignation or
removal from office or until his successor is elected and qualifies.
ARTICLE 5.
Officers
5.1 Election. The President, the Treasurer and the Secretary shall be elected
annually by the Trustees and shall serve until their successors are elected and
qualified or until their earlier death, resignation or removal. Other officers,
if any, including if desired a Controller, may be elected or appointed by the
Trustees at the meeting or at any other time. A Chairman of the Board may be
elected or appointed by the Trustees at the meeting or at any other time.
Vacancies in any office may be filled at any time by the Trustees.
5.2 Tenure. Each officer and each agent shall hold office at the pleasure of the
Trustees.
5.3 Powers. Subject to law and to the other provisions of these By-laws, each
officer shall have, in addition to any duties and powers set forth herein and in
the Trust Agreement, such duties and powers as are commonly incident to the
office occupied by him as if the Fund were organized as a Pennsylvania business
corporation and such other duties and powers as the Trustees may from time to
time designate.
5.4 President. Unless the Trustees otherwise provide, the President shall
preside at all meetings of shareholders and of the Trustees and the President
shall be the chief executive officer.
5.5 Treasurer. The Treasurer shall be the chief financial officer of the Fund.
In the absence of the Treasurer, or if there is then no person serving in such
office, the Controller of the Fund shall be the chief financial officer of the
Fund. He shall, subject to the provisions of the Trust Agreement and subject to
any arrangement made by the Trustees with a bank or other trust company or
organization as custodian, be in charge of valuable papers, books of account and
accounting records, and shall have such other duties and powers as may be
designated from time to time by the Trustees or by the President.
5.6 Secretary. The Secretary shall record all proceedings of the shareholders
and Trustees in books to be kept therefor, which books shall be kept at the
principal office of the Fund. In the absence of the Secretary, an Assistant
Secretary, or if there be none or if he is absent, a temporary Secretary chosen
by the shareholders or the Trustees, as the case may be, shall record the
proceedings in the aforesaid books.
5.7 Resignation and Removals. Any Trustee or officer may resign at any time by
written instrument signed by him and deposited with the Trustees by delivering
such resignation to the President or the Secretary or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless specified to
be effective at some other time. The Trustees may remove any officer elected by
them with or without cause by vote of a majority of the Trustees then in office.
Except to the extent expressly provided in a written agreement with the Fund, no
Trustee or officer resigning and no officer removed shall have any right to
compensation for any period following his resignation or removal, or any right
to damages on account of such removal.
ARTICLE 6.
Committees
6.1 General. The Trustees may appoint from their number an executive committee
to serve during their pleasure. The executive committee may, when the Trustees
are not in session at a meeting, exercise such of the powers and authority of
the Trustees as may be conferred from time to time by the Trustees. Rules
governing the actions of the executive committee may be adopted by the Trustees
from time to time as they deem appropriate. The Trustees may appoint from their
number such other committees from time to time as they deem appropriate. The
number composing such committees, the powers and authority conferred upon such
committees and the rules governing the actions of such committees shall be
determined by the Trustees at their discretion.
6.2 Quorum; Voting. A majority of the members of any committee of the Trustees
shall constitute a quorum for the transaction of business, and any action of
such a committee may be taken at a meeting by a vote of a majority of the
members present (a quorum being present) or evidenced by one or more writings
signed by such a majority. Members of a committee may participate in a meeting
of such committee by means of conference telephone or similar communications
equipment. Participation by such means shall constitute presence in person at a
meeting.
ARTICLE 7.
Fiscal Year and Seal
7.1 Fiscal Year. The fiscal year of the Fund shall end on the last day of July
in each year.
7.2 Seal. The seal of the Fund shall consist of a flat-faced die with the name
of the Fund and 1932 cut or engraved thereon.
ARTICLE 8.
Amendments
8.1 Amendment by Trustees. These By-laws may also be altered, amended or
repealed by the Trustees, except with respect to any provision which by law, the
Trust Agreement or these By-laws requires action by the shareholders.
ARTICLE 9.
9.1 Fundamental Policies applicable to the Operation of the Fund. The Fund shall
at all times conform to the following fundamental Policies in addition to other
applicable investment restrictions and operating procedures:
1. The Fund will not invest in the securities of other investment companies,
including unit investment trusts, in contravention of the German Foreign
Investment Law (AuslandInvestmentGesetsz).
2. The Fund will not invest in real estate investment trusts or limited
partnerships whose purpose is to acquire real estate for investment purposes
only, in accordance with principles of diversification.
3. Upon payment of the purchase price, shares of corresponding value shall be
issued to the purchaser without undue delay in accordance with Rule 22(c)1 of
the Securities and Exchange Commission.
4. The Fund will suspend the right of redemption only in accordance with rule
22(e) of the Securities and Exchange Commission.
5. All cash and securities of the Fund shall be received by and disbursed or
delivered by or through the Custodian or Transfer Agent.
6. Amounts borrowed from the Custodian Bank for extraordinary or emergency
purposes pursuant to Section 3(a) of Article III of the Trust Agreement shall
not exceed 10% of the Fund's net asset value.
7. The Fund will maintain its present election under Rule 18(f) of the
Securities and Exchange Commission to redeem in kind only in accordance with the
provisions of the Rule.
8. Assets of the Trust may not be pledged or otherwise encumbered nor be
transferred or assigned for the purpose of securing a debt except in the course
of portfolio trading.
<PAGE>
Exhibit 99.5(A)
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made the 19th day of August, 1993, by and between KEYSTONE
CUSTODIAN FUND, SERIES B-4, a Pennsylvania common law trust (the "Fund"), and
KEYSTONE MANAGEMENT, INC., a Nevada corporation (the "Manager").
WHEREAS, the Fund and the Manager wish to enter into an Agreement setting
forth the terms on which the Manager will perform certain services for the Fund.
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Fund and the Manager agree as follows:
1. The Fund hereby employs the Manager to manage and administer the
operation of the Fund, to supervise the provision of services to the Fund by
others, and to manage the investment and reinvestment of the assets of the Fund
in conformity with the Fund's investment objectives and restrictions as may be
set forth from time to time in the Fund's then current prospectus and statement
of additional information, if any, and other governing documents, all subject to
the supervision of the Board of Trustees of the Fund, for the period and on the
terms set forth in this Agreement. The Manager hereby accepts such employment
and agrees during such period, at its own expense, to render the services and to
assume the obligations set forth herein, for the compensation provided herein.
The Manager shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
2. The Manager shall place all orders for the purchase and sale of portfolio
securities for the account of the Fund with broker-dealers selected by the
Manager. In executing portfolio transactions and selecting broker-dealers, the
Manager will use its best efforts to seek best execution on behalf of the Fund.
In assessing the best execution available for any transaction, the Manager shall
consider all factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker-dealer, and the reasonableness of the commission, if
any (all for the specific transaction and on a continuing basis). In evaluating
the best execution available, and in selecting the broker-dealer to execute a
particular transaction, the Manager may also consider the brokerage and research
services (as those terms are used in Section 28(e) of the Securities Exchange
Act of 1934 (the "1934 Act") provided to the Fund and/or other accounts over
which the Manager or an affiliate of the Manager exercises investment
discretion. The Manager is authorized to pay a broker-dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for the Fund which is in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction if, but only if,
the Manager determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer viewed in terms of that particular transaction or in terms of all
of the accounts over which investment discretion is so exercised.
3. The Manager, at its own expense, shall furnish to the Fund office space
in the offices of the Manager or in such other place as may be agreed upon by
the parties from time to time, all necessary office facilities, equipment and
personnel in connection with its services hereunder, and shall arrange, if
desired by the Fund, for members of the Manager's organization to serve without
salaries from the Fund as officers or, as may be agreed from time to time, as
agents of the Fund. The Manager assumes and shall pay or reimburse the Fund for:
(1) the compensation (if any) of the Trustees of the Fund who are affiliated
with the Manager or with its affiliates, or with any adviser retained by the
Manager, and of all officers of the Fund as such, and (2) all expenses of the
Manager incurred in connection with its services hereunder. The Fund assumes and
shall pay all other expenses of the Fund, including, without limitation: (1) all
charges and expenses of any custodian or depository appointed by the Fund for
the safekeeping of its cash, securities and other property; (2) all charges and
expenses for bookkeeping and auditors; (3) all charges and expenses of any
transfer agents and registrars appointed by the Fund; (4) all fees of all
Trustees of the Fund who are not affiliated with the Manager or any of its
affiliates, or with any adviser retained by the Manager; (5) all broker's fees,
expenses and commissions and issue and transfer taxes chargeable to the Fund in
connection with transactions involving securities and other property to which
the Fund is a party; (6) all costs and expenses of distribution of its shares
incurred pursuant to a Plan of Distribution adopted under Rule 12b-1 under the
Investment Company Act of 1940 ("1940 Act"); (7) all taxes and trust fees
payable by the Fund to Federal, state or other governmental agencies; (8) all
costs of certificates representing shares of the Fund; (9) all fees and expenses
involved in registering and maintaining registrations of the Fund and of its
shares with the Securities and Exchange Commission (the "Commission") and
registering or qualifying its shares under state or other securities laws,
including, without limitation, the preparation and printing of registration
statements, prospectuses and statements of additional information for filing
with the Commission and other authorities; (10) expenses of preparing, printing
and mailing prospectuses and statements of additional information to
shareholders of the Fund; (11) all expenses of shareholders' and Trustees'
meetings and of preparing, printing and mailing notices, reports and proxy
materials to shareholders of the Fund; (12) all charges and expenses of legal
counsel for the Fund and for Trustees of the Fund in connection with legal
matters relating to the Fund, including, without limitation, legal services
rendered in connection with the Fund's existence, trust and financial structure
and relations with its shareholders, registrations and qualifications of
securities under Federal, state and other laws, issues of securities, expenses
which the Fund has herein assumed, whether customary or not, and extraordinary
matters, including, without limitation, any litigation involving the Fund, its
Trustees, officers, employees or agents; (13) all charges and expenses of filing
annual and other reports with the Commission and other authorities; and (14) all
extraordinary expenses and charges of the Fund. In the event that the Manager
provides any of these services or pays any of these expenses, the Fund will
promptly reimburse the Manager therefor.
The services of the Manager to the Fund hereunder are not to be deemed
exclusive, and the Manager shall be free to render similar services to others.
4. As compensation for the Manager's services to the Fund during the
period of this Agreement, the Fund will pay to the Manager a fee at the annual
rate of:
FOR B-1, B-2, B-4:
MANAGEMENT AGGREGATE NET ASSET VALUE
FEE OF THE SHARES OF THE FUND
- - - - - ------------------------------------------------------------------------------
2.0% of Gross Dividend and
Interest Income Plus
0.50% of the first $100,000,000, plus
0.45% of the next $100,000,000, plus
0.40% of the next $100,000,000, plus
0.35% of the next $100,000,000, plus
0.30% of the next $100,000,000, plus
0.25% of amounts over $500,000,000
- - - - - ------------------------------------------------------------------------------
computed as of the close of business on each business day.
<PAGE>
FOR K-1:
MANAGEMENT AGGREGATE NET ASSET VALUE
FEE OF THE SHARES OF THE FUND
- - - - - ------------------------------------------------------------------------------
1.5% of
Gross Dividend and
Interest Income
Plus
0.60% of the first $ 100,000,000, plus
0.55% of the next $ 100,000,000, plus
0.50% of the next $ 100,000,000, plus
0.45% of the next $ 100,000,000, plus
0.40% of the next $ 100,000,000, plus
0.35% of the next $ 500,000,000, plus
0.30% of amounts over $1,000,000,000
- - - - - ------------------------------------------------------------------------------
computed as of the close of business on each business day.
FOR K-2, S-1, S-3 AND S-4:
MANAGEMENT AGGREGATE NET ASSET VALUE
FEE OF THE SHARES OF THE FUND
- - - - - ------------------------------------------------------------------------------
0.70% of the first $ 100,000,000, plus
0.65% of the next $ 100,000,000, plus
0.60% of the next $ 100,000,000, plus
0.55% of the next $ 100,000,000, plus
0.50% of the next $ 100,000,000, plus
0.45% of the next $ 500,000,000, plus
0.40% of the next $ 500,000,000, plus
0.35% of amounts over $1,500,000,000
- - - - - ------------------------------------------------------------------------------
computed as of the close of business on each business day.
A pro rata portion of the fee shall be payable in arrears at the end of each
day or calendar month as the Manager may from time to time specify to the Fund.
If and when this Agreement terminates, any compensation payable hereunder for
the period ending with the date of such termination shall be payable upon such
termination. Amounts payable hereunder shall be promptly paid when due.
5. The Manager may enter into an agreement to retain, at its own expense,
Keystone Custodian Funds, Inc. or any other firm or firms ("Adviser") to provide
the Fund all of the services to be provided by the Manager hereunder, if such
agreement is approved as required by law. Such agreement may delegate to such
Adviser all of Manager's rights, obligations and duties hereunder.
6. The Manager shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the performance of
this Agreement, except a loss resulting from the Manager's willful misfeasance,
bad faith, gross negligence or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also an officer,
Director, partner, employee, or agent of the Manager, who may be or become an
officer, Trustee, employee or agent of the Fund, shall be deemed, when rendering
services to the Fund or acting on any business of the Fund (other than services
or business in connection with the Manager's duties hereunder), to be rendering
such services to or acting solely for the Fund and not as an officer, Director,
partner, employee, or agent or one under the control or direction of the Manager
even though paid by it. The Fund agrees to indemnify and hold the Manager
harmless from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the Securities Act of
1933, the 1934 Act, the 1940 Act, and any state and foreign securities and blue
sky laws, as amended from time to time) and expenses, including (without
limitation) attorneys' fees and disbursements, arising directly or indirectly
from any action or thing which the Manager takes or does or omits to take or do
hereunder provided that the Manager shall not be indemnified against any
liability to the Fund or to its shareholders (or any expenses incident to such
liability) arising out of a breach of fiduciary duty with respect to the receipt
of compensation for services, willful misfeasance, bad faith, or gross
negligence on the part of the Manager in the performance of its duties, or from
reckless disregard by it of its obligations and duties under this Agreement.
7. The Fund shall cause its books and accounts to be audited at least once
each year by a reputable independent public accountant or organization of public
accountants who shall render a report to the Fund.
8. Subject to and in accordance with the Trust Agreement of the Fund, the
Articles of Incorporation of the Manager and the governing documents of any
Adviser, it is understood that Trustees, Directors, officers, agents and
shareholders of the Fund or any Adviser are or may be interested in the Manager
(or any successor thereof) as Directors and officers of the Manager or its
affiliates, as stockholders of Keystone Group, Inc. or otherwise; that
Directors, officers and agents of the Manager and its affiliates or stockholders
of Keystone Group, Inc. are or may be interested in the Fund or any Adviser as
Trustees, Directors, officers, shareholders or otherwise; that the Manager (or
any such successor) is or may be interested in the Fund or any Adviser as
shareholder, or otherwise; and that the effect of any such adverse interests
shall be governed by said Trust Agreement of the Fund, Articles of Incorporation
of the Manager and governing documents of any Adviser.
9. This Agreement shall continue in effect after July 1, 1994 only so long
as (1) such continuance is specifically approved at least annually by the Board
of Trustees of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund, and (2) such renewal has been approved by the vote of a
majority of Trustees of the Fund who are not interested persons, as that term is
defined in the 1940 Act, of the Manager or of the Fund, cast in person at a
meeting called for the purpose of voting on such approval.
10. On sixty days' written notice to the Manager, this Agreement may be
terminated at any time without the payment of any penalty by the Board of
Trustees of the Fund or by vote of the holders of a majority of the outstanding
voting securities of the Fund; and on sixty days' written notice to the Fund,
this Agreement may be terminated at any time without the payment of any penalty
by the Manager. This Agreement shall automatically terminate upon its assignment
(as that term is defined in the 1940 Act). Any notice under this Agreement shall
be given in writing, addressed and delivered, or mailed postage prepaid, to the
other party at the main office of such party.
11. This Agreement may be amended at any time by an instrument in writing
executed by both parties hereto or their respective successors, provided that
with regard to amendments of substance such execution by the Fund shall have
been first approved by the vote of the holders of a majority of the outstanding
voting securities of the Fund and by the vote of a majority of Trustees of the
Fund who are not interested persons (as that term is defined in the 1940 Act) of
the Manager, any predecessor of the Manager, or of the Fund, cast in person at a
meeting called for the purpose of voting on such approval. A "majority of the
outstanding voting securities of the Fund" shall have, for all purposes of this
Agreement, the meaning provided therefor in the 1940 Act.
12. Any compensation payable to the Manager hereunder for any period other
than a full year shall be proportionately adjusted.
13. The provisions of this Agreement shall be governed, construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.
KEYSTONE CUSTODIAN FUND, SERIES B-4
By: /s/ Ralph J. Spuehler
-----------------------------------------------------------
Title: Treasurer
KEYSTONE MANAGEMENT, INC.
By: /s/ Edward Godfrey
-----------------------------------------------------------
Title: Treasurer
<PAGE>
Exhibit 99.5(B)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made the 19th day of August, 1993, by and between KEYSTONE
MANAGEMENT, INC., a Nevada corporation (the "Manager"), and KEYSTONE CUSTODIAN
FUNDS, INC., a Delaware corporation (the "Adviser").
WHEREAS, the Manager and the Adviser wish to enter into an Agreement setting
forth the terms on which the Adviser will perform certain services for the
Manager and KEYSTONE CUSTODIAN FUND, SERIES B-4 (the "Fund").
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Manager and the Adviser agree as follows:
1. The Manager hereby employs the Adviser to manage and administer the
operation of the Fund (with the exception of certain managerial and
administrative services to be provided by the Manager), to supervise the
provision of services to the Fund by others, and to manage the investment and
reinvestment of the assets of the Fund in conformity with the Fund's investment
objectives and restrictions as may be set forth from time to time in the Fund's
then current prospectus and statement of additional information, if any, and
other governing documents, all subject to the supervision of the Manager and
Board of Trustees of the Fund, for the period and on the terms set forth in this
Agreement. The Adviser hereby accepts such employment and agrees during such
period, at its own expense, to render the services and to assume the obligations
set forth herein, for the compensation provided herein. The Adviser shall for
all purposes herein be deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Manager or the Fund in any way or otherwise be deemed an agent of
the Manager or the Fund.
2. The Adviser shall place all orders for the purchase and sale of portfolio
securities for the account of the Fund with broker-dealers selected by the
Adviser. In executing portfolio transactions and selecting broker-dealers, the
Adviser will use its best efforts to seek best execution on behalf of the Fund.
In assessing the best execution available for any transaction, the Adviser shall
consider all factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker-dealer, and the reasonableness of the commission, if
any (all for the specific transaction and on a continuing basis). In evaluating
the best execution available, and in selecting the broker-dealer to execute a
particular transaction, the Adviser may also consider the brokerage and research
services (as those terms are used in Section 28(e) of the Securities Exchange
Act of 1934 (the "1934 Act") provided to the Fund and/or other accounts over
which the Adviser or an affiliate of the Adviser exercises investment
discretion. The Adviser is authorized to pay a broker-dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for the Fund which is in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction if, but only if,
the Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer viewed in terms of that particular transaction or in terms of all
of the accounts over which investment discretion is so exercised.
3. The Adviser, at its own expense, shall furnish to the Fund office space
in the offices of the Adviser or in such other place as may be agreed upon by
the parties and the Fund from time to time, all necessary office facilities,
equipment and personnel in connection with its services hereunder, and shall
arrange, if desired by the Fund, for members of the Adviser's organization to
serve without salaries from the Fund as officers or, as may be agreed from time
to time, as agents of the Fund. The Adviser assumes and shall pay or reimburse
the Manager or the Fund, as the case may be, for: (1) the compensation (if any)
of the Trustees of the Fund who are affiliated with the Adviser, any of its
affiliates, or the Manager, and of all officers of the Fund as such, and (2) all
expenses of the Adviser incurred in connection with its services hereunder. The
Manager represents and warrants that the Fund has assumed and has agreed to pay
all other expenses of the Fund, including, without limitation: (1) all charges
and expenses of any custodian or depository appointed by the Fund for the
safekeeping of its cash, securities and other property; (2) all charges and
expenses for bookkeeping and auditors; (3) all charges and expenses of any
transfer agents and registrars appointed by the Fund; (4) all fees of all
Trustees of the Fund who are not affiliated with the Adviser, any of its
affiliates, or the Manager; (5) all broker's fees, expenses and commissions and
issue and transfer taxes chargeable to the Fund in connection with transactions
involving securities and other property to which the Fund is a party; (6) all
costs and expenses of distribution of its shares incurred pursuant to a Plan of
Distribution adopted under Rule 12b- 1 under the Investment Company Act of 1940
("1940 Act"); (7) all taxes and trust fees payable by the Fund to Federal, state
or other governmental agencies; (8) all costs of certificates representing
shares of the Fund; (9) all fees and expenses involved in registering and
maintaining registrations of the Fund and of its shares with the Securities and
Exchange Commission (the "Commission") and registering or qualifying its shares
under state or other securities laws, including, without limitation, the
preparation and printing of registration statements, prospectuses and statements
of additional information for filing with the Commission and other authorities;
(10) expenses of preparing, printing and mailing prospectuses and statements of
additional information to shareholders of the Fund; (11) all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
notices, reports and proxy materials to shareholders of the Fund; (12) all
charges and expenses of legal counsel for the Fund and for Trustees of the Fund
in connection with legal matters relating to the Fund, including, without
limitation, legal services rendered in connection with the Fund's existence,
trust and financial structure and relations with its shareholders, registrations
and qualifications of securities under Federal, state and other laws, issues of
securities, expenses which the Fund has herein assumed, whether customary or
not, and extraordinary matters, including, without limitation, any litigation
involving the Fund, its Trustees, officers, employees or agents; (13) all
charges and expenses of filing annual and other reports with the Commission and
other authorities; (14) all charges and expenses of any manager appointed by the
Fund; and (15) all extraordinary expenses and charges of the Fund; and that in
the event that the Adviser provides any of these services or pays any of these
expenses, the Fund will promptly reimburse the Adviser therefor.
The services of the Adviser to the Fund and the Manager hereunder are not to
be deemed exclusive, and the Adviser shall be free to render similar services to
others.
4. As compensation for the Adviser's services to the Fund during the period
of this Agreement, the Manager will pay to the Adviser a fee at the annual rate
of 85% of the management fee paid by the Fund to the Manager.
A pro rata portion of the fee shall be payable in arrears at the end of each
day or calendar month as the Adviser may from time to time specify to the
Manager. If and when this Agreement terminates, any compensation payable
hereunder for the period ending with the date of such termination shall be
payable upon such termination. Amounts payable hereunder shall be promptly paid
when due.
5. The Adviser shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund or the Manager in connection with the
performance of this Agreement, except a loss resulting from the Adviser's
willful misfeasance, bad faith, gross negligence or from reckless disregard by
it of its obligations and duties under this Agreement. Any person, even though
also an officer, Director, partner, employee, or agent of the Adviser, who may
be or become an officer, Trustee, Director, employee or agent of the Fund or the
Manager, shall be deemed, when rendering services to the Fund or the Manager or
acting on any business of the Fund or the Manager, (other than services or
business in connection with the Adviser's duties hereunder), to be rendering
such services to or acting solely for the Fund or the Manager, as the case may
be, and not as an officer, Director, partner, employee, or agent or one under
the control or direction of the Adviser even though paid by it. The Manager
agrees to indemnify and hold the Adviser harmless from all taxes, charges,
expenses, assessments, claims and liabilities (including, without limitation,
liabilities arising under the Securities Act of 1933, the 1934 Act, the 1940
Act, and any state and foreign securities and blue sky laws, as amended from
time to time) and expenses, including (without limitation) attorneys' fees and
disbursements, arising directly or indirectly from any action or thing which the
Adviser takes or does or omits to take or do hereunder; provided that the
Adviser shall not be indemnified against any liability to the Fund or to its
shareholders (or any expenses incident to such liability) arising out of a
breach of fiduciary duty with respect to the receipt of compensation for
services, willful misfeasance, bad faith, or gross negligence on the part of the
Adviser in the performance of its duties, or from reckless disregard by it of
its obligations and duties under this Agreement.
6. The Manager represents and warrants that the Fund has agreed to cause its
books and accounts to be audited at least once each year by a reputable
independent public accountant or organization of public accountants who shall
render a report to the Fund.
7. Subject to and in accordance with the Trust Agreement of the Fund, the
Certificate of Incorporation of the Adviser and Articles of Incorporation of the
Manager, respectively, it is understood that Trustees, Directors, officers,
agents and shareholders of the Fund or the Manager are or may be interested in
the Adviser (or any successor thereof) as Directors and officers of the Adviser
or its affiliates, as stockholders of Keystone Group, Inc. or otherwise; that
Directors, officers and agents of the Adviser and its affiliates or stockholders
of Keystone Group, Inc. are or may be interested in the Fund or the Manager as
Trustees, Directors, officers, shareholders or otherwise; that the Adviser (or
any such successor) is or may be interested in the Fund or the Manager as
shareholder or otherwise; and that the effect of any such adverse interests
shall be governed by said Trust Agreement of the Fund, Certificate of
Incorporation of the Adviser, and Articles of Incorporation of the Manager.
8. This Agreement shall continue in effect after July 1, 1994 only so long
as (1) such continuance is specifically approved at least annually by the Board
of Trustees of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund, and (2) such renewal has been approved by the vote of a
majority of Trustees of the Fund who are not interested persons, as that term is
defined in the 1940 Act, of the Adviser, the Manager or of the Fund, cast in
person at a meeting called for the purpose of voting on such approval.
9. On sixty days' written notice to the Adviser, this Agreement may be
terminated at any time without the payment of any penalty by the Manager, by the
Board of Trustees of the Fund or by vote of the holders of a majority of the
outstanding voting securities of the Fund; and on sixty days' written notice to
the Manager and the Fund, this Agreement may be terminated at any time without
the payment of any penalty by the Adviser. This Agreement shall automatically
terminate upon its assignment (as that term is defined in the 1940 Act). Any
notice under this Agreement shall be given in writing, addressed and delivered,
or mailed postage prepaid, to the other party at the main office of such party.
10. This Agreement may be amended at any time by an instrument in writing
executed by both parties hereto or their respective successors, provided that
with regard to amendments of substance such execution shall have been first
approved by the vote of the holders of a majority of the outstanding voting
securities of the Fund and by the vote of a majority of Trustees of the Fund who
are not interested persons (as that term is defined in the 1940 Act) of the
Adviser, the Manager, or of any predecessor of either, or of the Fund, cast in
person at a meeting called for the purpose of voting on such approval. A
"majority of the outstanding voting securities of the Fund" shall have, for all
purposes of this Agreement, the meaning provided therefor in the 1940 Act.
11. Any compensation payable to the Adviser hereunder for any period other
than a full year shall be proportionately adjusted.
12. The provisions of this Agreement shall be governed, construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.
KEYSTONE MANAGEMENT, INC.
By: /s/ Edward Godfrey
-------------------------------
Title: Treasurer
KEYSTONE CUSTODIAN FUNDS, INC.
By: /s/ Edward Godfrey
-------------------------------
Title: Senior Vice President
<PAGE>
EXHIBIT 99.6(A)
PRINCIPAL UNDERWRITING AGREEMENT
AGREEMENT made as of the 19th day of August, 1993 by and between KEYSTONE
CUSTODIAN FUND, SERIES B-4 (the "Fund"), and KEYSTONE DISTRIBUTORS, INC., a
Delaware corporation (the "Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a Principal Underwriter
pursuant to the terms of the 12b-1 Plan most recently adopted by the Fund
("12b-1 Plan") and a Principal Underwriter of the shares of beneficial interest
of thc Fund (the "Shares") as an independent contractor upon the terms and
conditions hereinafter set forth. Except as the Fund may from time to time
agree, Principal Underwriter will act as agent for the Fund and not as
principal.
2. Principal Underwriter will use its best efforts to find purchasers for
the Shares and in so doing may retain and employ representatives to promote
distribution of the Shares and may obtain orders from brokers, dealers or others
for sales of Shares to them. No such representative, dealer or broker shall have
any authority to act as agent for the Fund; such dealer or broker shall act only
as principal in the sale of Shares.
3. All sales of Shares by Principal Underwriter shall be at the applicable
public offering price determined in the manner set forth in the prospectus
and/or statement of additional information of the Fund current at the time of
the Fund's acceptance of the order for Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of Shares, the Fund shall receive the current net asset
value and Principal Underwriter shall be entitled to the commissions and
maintenance and of the fees provided under the 12b-1 Plan ("12b-1 commissions")
and as set forth in the then current prospectus and/or statement of additional
information of the Fund. Principal Underwriter may reallow all or a part of the
12b-1 commissions to such of its representatives, or to such brokers or dealers,
as Principal Underwriter may determine.
5. Payment for Shares shall be in New York or Boston Clearing House Funds
received by Principal Underwriter within ten (10) business days after notice of
acceptance of the purchase order and notice of the amount of the applicable
public offering price has been given to the purchaser. If such payment is not
received within such ten-day period, the Fund reserves the right, without
further notice, forthwith to cancel its acceptance of any such order. The Fund
shall pay such issue taxes as may be required by law in connection with the
issue of the Shares.
6. Principal Underwriter shall not make, or permit any representative,
broker or dealer to make, in connection with any sale or solicitation of a sale
of the Shares, any representations concerning the Shares except those contained
in the then current prospectus and/or statement of additional information
covering the Shares and in printed information approved by the Fund as
information supplemental to such prospectus and/or statement of additional
information. Copies of the then current prospectus and/or statement of
additional information and any such printed supplemental information will be
supplied by the Fund to Principal Underwriter in reasonable quantities upon
request.
7. Principal Underwriter agrees to comply with the Rules of Fair Practice
of the National Association of Securities Dealers, Inc.
8. The Fund appoints Principal Underwriter as its agent to accept orders
for redemptions and repurchases of Shares at values and in the manner determined
in accordance with the then current prospectus of the Fund.
9. Principal Underwriter covenants and agrees that it will in all respects
duly conform with all state and federal laws and regulations applicable to the
sale of the Shares and will indemnify and hold harmless the Fund and each person
who has been, is or may hereafter 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 Principal Underwriter or any
other person for whose acts Principal Underwriter is responsible, or is alleged
to be responsible unless such misrepresentation or omission was made in reliance
upon written information furnished by the Fund. The term "expenses" includes
amounts paid in satisfaction of judgments or in settlement. The foregoing right
of indemnification shall be in addition to any other rights to which the Fund or
any such Trustee or officer may be entitled as a matter of law.
10. The Fund agrees to execute such papers and to do such acts and things
as shall from time to time be reasonably requested by Principal Underwriter for
the purpose of qualifying the Shares for sale under the so-called "blue sky"
laws of any state or for registering and maintaining the registration of the
Fund and of the Shares under the federal Securities Act of 1933, as amended
("1933 Act"), and the federal Investment Company Act of 1940, as amended ("1940
Act"). Principal Underwriter shall bear the expense of preparing, printing and
distributing advertising and sales literature and prospectuses and statements of
additional information used by it (but not the expenses of registering Shares
under the 1933 Act and the 1940 Act, qualifying Shares for sale under the
so-called "blue sky" laws of any state and the preparation and printing of
prospectuses and statements of additional information and reports required to be
filed with the Securities and Exchange Commission by said Acts and the direct
expenses of the issue of Shares.)
11. The Principal Underwriter shall provide to the Board of Trustees of the
Fund in connection with the 12b-1 Plan, not less than quarterly, a written
report of the amounts expended pursuant to such 12b-1 Plan and the purpose for
which such expenditures were made.
12. Unless sooner terminated or continued as provided below, the term of
this agreement shall begin on the date hereof, and expire after one year. This
agreement shall continue in effect after said term if its continuance is
specifically approved by a majority of the Trustees of the Fund and a majority
of the 12b-1 Trustees referred to in the 12b-1 Plan of the Fund ("Rule 12b-1
Trustees") at least annually in accordance with the 1940 Act and the rules and
regulations thereunder.
This agreement may be terminated at any time, without payment of any
penalty, by the vote of a majority of the Rule 12b-1 Trustees or by a vote of a
majority of the Fund's outstanding shares on not more than sixty days' written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act).
13. This agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts. All sales hereunder are to be made, and title to
the Shares shall pass, in Boston, Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE CUSTODIAN FUND, SERIES B-4
By: /s/ George S. Bissell
------------------------------
Office: Chairman
KEYSTONE DISTRIBUTORS, INC.
By: /s/ Edward F. Godfrey
------------------------------
Office: Sr. Vice President
<PAGE>
EXHIBIT 99.6(B)
[LOGO] KEYSTONE
INVESTMENTS
200 Berkeley Street
Boston, Massachusetts 02116-5034
Dealer No._________________________________________________________
(Please indicate Exchange Membership(s), if any.)__________________
-------------------------------------------------------------------
Effective Date_____________________________________________________
CLASS A AND B SHARES
To Whom It May Concern:
Keystone Investment Distributors Company ("the Company"), principal
underwriter, invites you to participate in the distribution of shares of the
Keystone Fund Family, Classes A and B shares of the Keystone America Fund Family
and other Funds ("Funds") designated by us which are currently or hereafter
underwritten by the Company, subject to the following terms:
1. In the distribution and sale of shares, you shall not have authority to act
as agent for the issuer, the Company or any other dealer in any respect in such
transactions. All orders are subject to acceptance by us and become effective
only upon confirmation by us. The Company reserves the unqualified right not to
accept any specific order for the purchase or exchange of shares.
2. You will offer and sell shares of the Funds other than Class A shares of the
Keystone America Funds only at their respective net asset values in accordance
with the terms and conditions of a current prospectus of the Fund whose shares
you offer. With respect to Class A shares of the Keystone America Funds and
other Funds designated by us, you will offer and sell such shares at the public
offering price described in a current prospectus of the Fund whose shares you
offer. You will offer shares only on a forward pricing basis, i.e. orders for
the purchase or repurchase of shares accepted by you prior to the close of the
New York Stock Exchange and placed with us the same day prior to the close of
our business day, 5:00 p.m. Eastern Time, and orders to exchange shares of one
Fund for shares of another Fund eligible for exchange placed with us prior to
3:00 p.m. Eastern Time, shall be confirmed at the closing price for that
business day. You agree to place orders for shares only with us and at such
closing price. You further agree to confirm the transaction with your customer
at the price confirmed in writing by us. In the event of a difference between
verbal and written price confirmations, the written confirmations shall be
considered final. Prices of the Funds' shares are computed by and are subject to
withdrawal by the Funds in accordance with their current respective
prospectuses. You agree to place orders with us only through your central order
department unless we accept your written Power of Attorney authorizing others to
place orders on your behalf.
3. So long as this agreement remains in effect, we will pay you commissions on
sales of shares of the Funds and service fees, all in accordance with the
Schedule of Commissions and Service Fees ("Schedule") attached hereto and made a
part hereof, effective June 1, 1995, which Schedule may be modified from time to
time or rescinded by us, in either case without prior notice. You shall have no
vested right to receive any continuing service fees, other fees, or other
commissions which we may elect to pay to you from time to time on shares
previously sold by you. You agree not to share or rebate any portion of such
commissions or to otherwise grant any concessions, discounts or other allowances
to any person who is not a broker or dealer actually engaged in the investment
banking or securities business. You will receive commissions in accordance with
the attached Schedule on all purchase transactions in shareholder accounts
(excluding reinvestment of income dividends and capital gains distributions) for
which you are designated as Dealer of Record except where we determine that any
such purchase was made with the proceeds of a redemption or repurchase of shares
of the same Fund or another Fund whether or not the transaction constitutes the
exercise of the exchange privilege. Commissions will be paid to you twice a
month.
You hereby authorize us to act as your agent in connection with all
transactions in shareholder accounts in which you are designated as Dealer of
Record. All designations of Dealer of Record and all authorizations of the
Company to act as your Agent shall cease upon the termination of this Agreement,
or upon the shareholder's instruction to transfer his or her account to another
Dealer of Record.
4. Payment for all shares purchased from us shall be made to the Company and
shall be received by the Company within ten business days after the acceptance
of your order or such shorter time as may be required by law. If such payment is
not received by us, we reserve the right, without prior notice, forthwith to
cancel the sale, or, at our option, to sell the shares ordered by you back to
the Fund concerned in which latter case we may hold you responsible for any
loss, including loss of profit, suffered by us or by the Fund resulting from
your failure to make payment as aforesaid.
5. You agree to purchase shares of the Funds only from us or from your
customers. If you purchase shares from us, you agree that all such purchases
shall be made only to cover orders already received by you from your customers,
or for your own bonafide investment without a view to resale. If you purchase
shares from your customers, you agree to pay such customers the applicable net
asset value per share less any contingent deferred sales charge that would be
applicable if such shares were then tendered for redemption in accordance with
the then current applicable prospectus ("repurchase price").
6. You will sell shares only --
(a) to your clients at the prices described in paragraph 2 above; or
(b) to us as agent for the Funds at the repurchase price. In such a
sale to us, you may act either as principal for your own account or as
agent for your customer. If you act as principal for your own account
in purchasing shares for resale to us, you agree to pay your customer
not less than nor more than the repurchase price which you receive
from us. If you act as agent for your customer in selling shares to
us, you agree not to charge your customer more than a fair commission
for handling the transaction.
7. You shall not withhold placing with us orders received from your customers so
as to profit yourself as a result of such withholding.
8. We will not accept from you any conditional orders for shares.
9. If any shares sold to you under the terms of this agreement are repurchased
by a Fund, or are tendered for redemption, within seven business days after the
date of our confirmation of the original purchase by you, it is agreed that you
shall forfeit your right to any commissions on such sales even though the
shareholder may be charged a contingent deferred sales charge by the Fund.
We will notify you of any such repurchase or redemption within the next ten
business days after the date on which the certificate or written request for
redemption is delivered to us or to the Fund, and you shall forthwith refund to
us the full amount of any commission you received on such sale. We agree, in the
event of any such repurchase or redemption, to refund to the Fund any commission
we retained on such sale and, upon receipt from you of the commissions paid to
you, to pay such commissions forthwith to the Fund.
10. Shares sold to you hereunder shall not be issued in certificate form or
otherwise until payment has been received by the Fund concerned. If transfer
instructions are not received from you within 15 days after our acceptance of
your order, the Company reserves the right to instruct the transfer agent for
the Fund concerned to register a certificate for the shares sold to you in your
name and forward such certificate to you. You agree to hold harmless and
indemnify the Company, the Fund and its transfer agent for any loss or expense
resulting from such registration.
11. No person is authorized to make any representations concerning shares of the
Funds except those contained in the current applicable prospectuses and in sales
literature issued by us supplemental to such prospectuses. In purchasing shares
from us you shall rely solely on the representations contained in the
appropriate prospectus and in such sales literature. We will furnish additional
copies of the current prospectuses and such sales literature and other releases
and information issued by us in reasonable quantities upon request. You agree
that you will in all respects duly conform with all laws and regulations
applicable to the sale of shares of the Funds and will indemnify and hold
harmless the Funds, their directors and trustees and the Company from any damage
or expenses on account of any wrongful act by you, your representatives, agents
or sub-agents in connection with any orders or solicitation of orders of shares
of the Funds by you, your representatives, agents or sub-agents.
12. Each party hereto represents that it is a member of the National Association
of Securities Dealers, Inc., and agrees to notify the other should it cease to
be a member of such Association and agrees to the automatic termination of this
agreement at that time. It is further agreed that all rules or regulations of
said Association now in effect or hereafter adopted, which are binding upon
underwriters and dealers in the distribution of the securities of open-end
investment companies, shall be deemed to be a part of this agreement to the same
extent as if set forth in full herein.
13. You will not offer the Funds for sale in any State where they are not
qualified for sale under the Blue Sky Laws and regulations of such State or
where you are not qualified to act as a dealer, except for States in which they
are exempt from qualification.
14. This agreement supersedes and cancels any prior agreement with respect to
the sales of shares of any of the Funds underwritten by the Company and the
Company reserves the right to amend this agreement at any time and from time to
time.
15. This agreement shall be effective upon acceptance by us in Boston,
Massachusetts and all sales hereunder are to be made, and title to shares of the
Funds shall pass, in Boston. This agreement is made in the Commonwealth of
Massachusetts and shall be interpreted in accordance with the laws of
Massachusetts.
16. All communications to the Company should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
17. Either party may terminate this agreement at any time by written notice to
the other party.
Signed: Accepted:
- - - - - ---------------------------------- Boston, MA (USA) as of June 1, 1995
Dealer or Broker Name
- - - - - ---------------------------------- KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
Address 200 Berkeley Street, Boston, MA 02116-5034
- - - - - ---------------------------------- -----------------------------------------
Authorized Signature Authorized Signature
<PAGE>
Exhibit 99.6(C)
UNDERWRITING AGREEMENT
December 29, 1989
Kokasai Securities Co., Ltd.
Shinjuku Nomura Building
26-2 Nishishinjuku 1-Chome
Shinjuku-ku Tokyo 160 Japan
Gentlemen:
INTRODUCTION
Each of the Keystone Custodian Funds, Series B-1, B-2, B-4, K-1, K-2, S-1,
S-3 and S-4 (hereinafter referred to collectively as the "Keystone Funds")
invites you ("Kokasai") to act as Underwriter in Japan of the shares ("Shares")
of the Keystone Funds, subject to the following terms and conditions:
1. In the distribution and sale in Japan of Shares, Kokasai agrees to act
as principal. Kokasai shall not have authority to act as agent for the Keystone
Funds, Keystone Custodian Funds, Inc. ("Keystone"), Keystone Distributors, Inc.
("KDI") or for any other dealer in any respect in such transactions.
CONCERNING THE CONTINUOUS OFFERING
2. Kokasai intends to undertake the continuous offering and sale of Shares
of Keystone Custodian Fund, Series S-4 (the "S-4 Fund") in Japan to Japanese and
non-U.S. nationals (the "Continuous Offering") and the proposed schedule of
sales charges, sub-dealer concessions and net retention by Kokasai will be as
follows:
Kokasai's-
Sales Sub-Dealer Net
Amount of Purchase Charge Concession Retention
- - - - - -------------------------------------------------------------------
Y500,000 but less than Y5 million 5.0% 4.0% 1.0%
Y5 million but less than Y10 million 4.0 3.2 0.8
Y10 million but less than Y100 million 3.0 2.4 0.6
Y100 million and over 2.0 1.6 0.4
The minimum unit of sale of Shares shall be Y500,000.
Kokasai will be entitled to continuing maintenance fees for services to its
customers in accordance with the attached schedule of maintenance fees which may
be modified from time to time. Kokasai shall not have any vested right to
receive any continuing maintenance fees on Shares sold by it.
3. The Continuous Offering will be made on a forward pricing basis, i.e.,
orders accepted by Kokasai prior to the close of business in Tokyo and placed
with the S-4 Fund the same day prior to the close of the S-4 Fund's business
day, 5:00 p.m. Boston, Massachusetts time, shall be confirmed at the closing per
share net asset value, which the S-4 Fund agrees to furnish to Kokasai each day
by telex, and which Kokasai agrees to make public each day at its head and
branch offices. Orders taken by Kokasai on days when the New York Stock Exchange
is closed will be priced at the closing price on the next day when the New York
Stock Exchange is open. In the event of differences between verbal and telex
orders on the one hand, and written price confirmations on the other, the
written price confirmations shall be considered final.
4. In connection with sales to sub-dealers, the concession to sub-dealers
and Kokasai's net retention shall be subject to the regulations as set forth in
the rules concerning Foreign Securities Transactions of Japanese Securities
Dealers' Association ("Association's Rules"). Kokasai agrees to furnish the S-4
Fund with English copies of agreements entered into between Kokasai and its
sub-dealers. Such agreements and sales by sub-dealers shall conform in all cases
with the terms and conditions of this Agreement.
5. Payment at the appropriate per share net asset value shall be made to
the S-4 Fund by Kokasai and shall be received by the S-4 Fund within ten
business days after its acceptance of Kokasai's order or such shorter time as
may be required by U.S. law.
If such payment is not received by the S-4 Fund, it reserves the right
without notice, forthwith to cancel the sale in which case the S-4 Fund may hold
Kokasai responsible for any loss to it, provided, however, that this paragraph
shall have no force and effect if Kokasai's failure to pay shall be caused by
reason of force majeure.
6. Kokasai agrees to act as agent of the S-4 Fund for the purpose of
facilitating redemptions of Shares of the S-4 Fund sold pursuant to the terms of
this Agreement and held by Japanese investors. If Kokasai repurchases Shares
from its customers or customers of sub-dealers, it agrees to pay not less than
the applicable net asset value as in effect on the date of such repurchase.
7. The S-4 Fund will not accept from Kokasai any conditional orders for
sales of Shares.
8. The S-4 Fund agrees that whenever Kokasai places orders for purchase of
Shares from the S-4 Fund or redemption of Shares by the S-4 Fund, the S-4 Fund
shall unconditionally accept such orders, unless trading on the New York Stock
Exchange has been suspended or there are other reasons, including force majeure,
which prevent such unconditional acceptance. The S-4 Fund also agrees to notify
Kokasai promptly by telex after the S-4 Fund has executed any such orders from
Kokasai. In the case of sales of Shares to the S-4 Fund, the S-4 Fund agrees to
make payment to Kokasai within seven days after its acceptance of Kokasai's
order or such shorter time as may be required by U.S. law. Subject to the
provisions of this Paragraph 8, if the S-4 Fund fails to make payment to Kokasai
as above provided, the S-4 Fund agrees to indemnify and save Kokasai harmless
from any loss resulting therefrom.
9. Kokasai will pay all costs and expenses directly attributable to the
Continuous Offering, including costs of translation, filing and legal and
accounting fees and disbursements of auditors and counsel of Keystone and the
S-4 Fund in conjunction with the filing under the Ordinance of Japanese Ministry
of Finance, costs of advertising, publicity and due diligence and other
meetings, costs and expenses of translating, printing and distributing the
Japanese prospectus (hereinafter referred to, in accordance with the
Association's Rules as the "Explanatory Brochure") and other sales literature
for the Continuous Offering.
10. The S-4 Fund agrees that Kokasai, on behalf of the S-4 Fund, shall
prepare, in conformance with the Association's Rules and applicable Japanese
laws and regulations, the Explanatory Brochure covering the S-4 Fund continuous
offering based on prospectuses, securities reports, semi-annual securities
reports and material information furnished from time to time by the S-4 Fund in
connection with the S-4 Fund (hereinafter collectively referred to as
"Prospectuses-Reports"). In preparing the Explanatory Brochure, Kokasai shall
rely solely on the representations contained in the "Prospectuses-Reports."
Kokasai agrees that it will furnish a draft of the Explanatory Brochure to the
S-4 Fund's designated agent in Tokyo to obtain prior approval for the contents
thereof and will also furnish the S-4 Fund with the required number of Japanese
and English language translations of the Explanatory Brochure for filing as
required by United States law. No person is authorized to make any
representations concerning Shares of the S-4 Fund except those contained in the
then current applicable Explanatory Brochure. Kokasai also agrees that it will
deliver a copy of the then current Japanese Explanatory Brochure, at or prior to
the time of sale, to each of its own purchasers and, in the case of sale by
sub-dealers, it will require that they also deliver a copy of such Explanatory
Brochure to each of their purchasers.
11. The S-4 Fund agrees to indemnify and save Kokasai harmless from any
damages which shall have occurred in the sale of Shares of the S-4 Fund pursuant
to this Agreement to the extent such damages result from a false statement of a
material fact contained in the "Prospectuses-Reports" of the S-4 Fund, an
omission of a material fact which should be stated therein or an omission of a
material fact necessary to make the statement therein not misleading. If the
"Prospectuses-Reports" or any other material used in connection with the sale of
S-4 Fund Shares contains information furnished by Kokasai which information
contains a false statement of a material fact, an omission of a material fact
which should be stated therein, or an omission of a material fact necessary to
make the statement therein not misleading, Kokasai likewise agrees to indemnify
and save the S-4 Fund harmless from any damages it shall have incurred in any
sales of the Shares of the S-4 Fund pursuant to the terms of this Agreement.
12. The S-4 Fund agrees to designate Kokasai if Kokasai so requests, or
such other representative as shall meet the qualification requirements as set
forth in Section 1 of Article 6 of the Japanese Standard Rules Relating to
Selection of Foreign Investment Company Shares to be Sold in Japan (the
"Standard Rules") as legal agent for service of process against the S-4 Fund.
13. The S-4 Fund hereby appoints Kokasai as its agent securities company as
defined in Article 13 of the Association's Rules and Kokasai agrees that it will
submit to the Association on the S-4 Fund's behalf all such documents as may be
required by the provisions the Association's Rules.
14. The S-4 Fund agrees that all its financial statements which appear in
the Japanese Explanatory Brochure and Registration Statement, or in annual
reports to the Ministry of Finance will be certified by independent certified
public accountants who are licensed public accountants under the laws of Japan.
Any such financial statements submitted to the Ministry of Finance will be
manually signed and certified by such representative. The S-4 Fund also agrees
to submit semi-annual reports to the Ministry of Finance which need not be
certified.
15. The S-4 Fund hereby represents and warrants that it currently conforms
to the requirements of the Japanese Standard Rules. The S-4 Fund understands
that if subsequently it is made aware that it does not so conform, the S-4 Fund
will advise Kokasai promptly and Kokasai may suspend further sales of Shares
but, even in such event, the S-4 Fund will continue to be obligated to
repurchase or redeem Shares of the S-4 Fund from Kokasai as hereinbefore
provided.
16. In offering the Shares of the S-4 Fund for sale in Japan, Kokasai
agrees to comply with the applicable laws, rules, regulations and criteria of
the Ministry of Finance and Associations' Rules.
Kokasai also agrees that any advertisements used by Kokasai will in general
conform to the Statement of Policy of the United States Securities and Exchange
Commission (U.S. Release No. 40-2621), except for Paragraph (h) which deals with
comparisons.
17. With the consent of the Board of Trustees of the appropriate Keystone
Fund, Kokasai may also undertake block and/or continuous offerings of the Shares
of such other Keystone Funds on the terms and conditions herein stated or as may
be contained in any supplemental agreement hereto.
18. This Agreement is, to the extent applicable, governed by the laws of
Japan.
19. This Agreement shall continue in effect as long as permitted under the
U.S. Investment Company Act of 1940, as amended from time to time, the rules
promulgated thereunder or under the Japanese Securities and Exchange Law of
1948, appropriate exemptions therefrom. This Agreement may be terminated at any
time by mutual consent or by either party upon thirty days written notice, and
shall terminate automatically in the event of its assignment.
KEYSTONE CUSTODIAN FUND,
SERIES B-1, B-2, B-4, K-1,
K-2, S-1, S-3 and S-4, each
for itself and not jointly
By Albert H. Elfner, III
-------------------------------
Title: President
ACCEPTED as of the 29th day of December 1989:
KOKASAI SECURITIES CO., LTD.
By Hiroshi Ohno
-------------------------------
Title:
<PAGE>
SCHEDULE OF MAINTENANCE FEES
Except as otherwise provided for in the Underwriting Agreement, Kokasai
will be entitled to quarterly maintenance fees based on the aggregate net asset
value of shares of the S-4 Fund which Kokasai has sold, which remain issued and
outstanding on the books of the S-4 Fund on the last business day of the
calendar quarter and which are registered in the names of clients for whom
Kokasai is broker of record ("Eligible Shares"). Such maintenance fees will be
calculated at the rate of 0.0625% per quarter of the aggregate net asset value
of all such Eligible Shares (approximately 0.25% annually); provided, however,
that no maintenance fees will be paid to Kokasai for any calendar quarter if the
aggregate net asset value of such Eligible Shares on the last business day of
the calendar quarter is less than $1 million. Quarterly maintenance fees shall
be payable 90 days after the end of the calendar quarter. Such maintenance fee
rate may be modified by the S-4 Fund from time to time without prior notice.
<PAGE>
UNDERWRITING AGREEMENT
December 29, 1989
Nomura Securities Co., Ltd.
1-9-1, Nihonbashi, Chuo-ku
Tokyo, Japan
Gentlemen:
INTRODUCTION
Each of the Keystone Custodian Funds, Series B-1, B-2, B-4, K-1, K-2, S-1,
S-3 and S-4 (hereinafter referred to collectively as the "Keystone Funds")
invites you ("Nomura") to act as Underwriter in Japan of the shares ("Shares")
of the Keystone Funds, subject to the following terms and conditions:
1. In the distribution and sale in Japan of Shares, Nomura agrees to act as
principal. Nomura shall not have authority to act as agent for the Keystone
Funds, Keystone Custodian Funds, Inc. ("Keystone"), Keystone Distributors, Inc.
("KDI") or for any other dealer in any respect in such transactions.
CONCERNING THE CONTINUOUS OFFERING
2. Nomura intends to undertake the continuous offering and sale of Shares
of Keystone Custodian Fund, Series S-4 (the "S-4 Fund") in Japan to Japanese and
non-U.S. nationals (the "Continuous Offering") and the proposed schedule of
sales charges, sub-dealer concessions and net retention by Nomura will be as
follows:
Nomura's-
Sales Sub-Dealer Net
Amount of Purchase Charge Concession Retention
- - - - - -------------------------------------------------------------------
Y500,000 but less than Y5 million 5.0% 4.0% 1.0%
Y5 million but less than Y10 million 4.0 3.2 0.8
Y10 million but less than Y100 million 3.0 2.4 0.6
Y100 million and over 2.0 1.6 0.4
The minimum unit of sale of Shares shall be Y500,000.
Nomura will be entitled to continuing maintenance fees for services to its
customers in accordance with the attached schedule of maintenance fees which may
be modified from time to time. Nomura shall not have any vested right to receive
any continuing maintenance fees on Shares sold by it.
3. The Continuous Offering will be made on a forward pricing basis, i.e.,
orders accepted by Nomura prior to the close of business in Tokyo and placed
with the S-4 Fund the same day prior to the close of the S-4 Fund's business
day, 5:00 p.m. Boston, Massachusetts time, shall be confirmed at the closing per
share net asset value, which the S-4 Fund agrees to furnish to Nomura each day
by telex, and which Nomura agrees to make public each day at its head and branch
offices. Orders taken by Nomura on days when the New York Stock Exchange is
closed will be priced at the closing price on the next day when the New York
Stock Exchange is open. In the event of differences between verbal and telex
orders on the one hand, and written price confirmations on the other, the
written price confirmations shall be considered final.
4. In connection with sales to sub-dealers, the concession to sub-dealers
and Nomura's net retention shall be subject to the regulations as set forth in
the rules concerning Foreign Securities Transactions of Japanese Securities
Dealers' Association ("Association's Rules"). Nomura agrees to furnish the S-4
Fund with English copies of agreements entered into between Nomura and its
sub-dealers. Such agreements and sales by sub-dealers shall conform in all cases
with the terms and conditions of this Agreement.
5. Payment at the appropriate per share net asset value shall be made to
the S-4 Fund by Nomura and shall be received by the S-4 Fund within ten business
days after its acceptance of Nomura's order or such shorter time as may be
required by U.S. law.
If such payment is not received by the S-4 Fund, it reserves the right
without notice, forthwith to cancel the sale in which case the S-4 Fund may hold
Nomura responsible for any loss to it, provided, however, that this paragraph
shall have no force and effect if Nomura's failure to pay shall be caused by
reason of force majeure.
6. Nomura agrees to act as agent of the S-4 Fund for the purpose of
facilitating redemptions of Shares of the S-4 Fund sold pursuant to the terms of
this Agreement and held by Japanese investors. If Nomura repurchases Shares from
its customers or customers of sub-dealers, it agrees to pay not less than the
applicable net asset value as in effect on the date of such repurchase.
7. The S-4 Fund will not accept from Nomura any conditional orders for
sales of Shares.
8. The S-4 Fund agrees that whenever Nomura places orders for purchase of
Shares from the S-4 Fund or redemption of Shares by the S-4 Fund, the S-4 Fund
shall unconditionally accept such orders, unless trading on the New York Stock
Exchange has been suspended or there are other reasons, including force majeure,
which prevent such unconditional acceptance. The S-4 Fund also agrees to notify
Nomura promptly by telex after the S-4 Fund has executed any such orders from
Nomura. In the case of sales of Shares to the S-4 Fund, the S-4 Fund agrees to
make payment to Nomura within seven days after its acceptance of Nomura's order
or such shorter time as may be required by U.S. law. Subject to the provisions
of this Paragraph 8, if the S-4 Fund fails to make payment to Nomura as above
provided, the S-4 Fund agrees to indemnify and save Nomura harmless from any
loss resulting therefrom.
9. Nomura will pay all costs and expenses directly attributable to the
Continuous Offering, including costs of translation, filing and legal and
accounting fees and disbursements of auditors and counsel of Keystone and the
S-4 Fund in conjunction with the filing under the Ordinance of Japanese Ministry
of Finance, costs of advertising, publicity and due diligence and other
meetings, costs and expenses of translating, printing and distributing the
Japanese prospectus (hereinafter referred to, in accordance with the
Association's Rules as the "Explanatory Brochure") and other sales literature
for the Continuous Offering.
10. The S-4 Fund agrees that Nomura, on behalf of the S-4 Fund, shall
prepare, in conformance with the Association's Rules and applicable Japanese
laws and regulations, the Explanatory Brochure covering the S-4 Fund continuous
offering based on prospectuses, securities reports, semi-annual securities
reports and material information furnished from time to time by the S-4 Fund in
connection with the S-4 Fund (hereinafter collectively referred to as
"Prospectuses-Reports"). In preparing the Explanatory Brochure, Nomura shall
rely solely on the representations contained in the "Prospectuses-Reports."
Nomura agrees that it will furnish a draft of the Explanatory Brochure to the
S-4 Fund's designated agent in Tokyo to obtain prior approval for the contents
thereof and will also furnish the S-4 Fund with the required number of Japanese
and English language translations of the Explanatory Brochure for filing as
required by United States law. No person is authorized to make any
representations concerning Shares of the S-4 Fund except those contained in the
then current applicable Explanatory Brochure. Nomura also agrees that it will
deliver a copy of the then current Japanese Explanatory Brochure, at or prior to
the time of sale, to each of its own purchasers and, in the case of sale by
sub-dealers, it will require that they also deliver a copy of such Explanatory
Brochure to each of their purchasers.
11. The S-4 Fund agrees to indemnify and save Nomura harmless from any
damages which shall have occurred in the sale of Shares of the S-4 Fund pursuant
to this Agreement to the extent such damages result from a false statement of a
material fact contained in the "Prospectuses-Reports" of the S-4 Fund, an
omission of a material fact which should be stated therein or an omission of a
material fact necessary to make the statement therein not misleading. If the
"Prospectuses-Reports" or any other material used in connection with the sale of
S-4 Fund Shares contains information furnished by Nomura which information
contains a false statement of a material fact, an omission of a material fact
which should be stated therein, or an omission of a material fact necessary to
make the statement therein not misleading, Nomura likewise agrees to indemnify
and save the S-4 Fund harmless from any damages it shall have incurred in any
sales of the Shares of the S-4 Fund pursuant to the terms of this Agreement.
12. The S-4 Fund agrees to designate Nomura if Nomura so requests, or such
other representative as shall meet the qualification requirements as set forth
in Section 1 of Article 6 of the Japanese Standard Rules Relating to Selection
of Foreign Investment Company Shares to be Sold in Japan (the "Standard Rules")
as legal agent for service of process against the S-4 Fund.
13. The S-4 Fund hereby appoints Nomura as its agent securities company as
defined in Article 13 of the Association's Rules and Nomura agrees that it will
submit to the Association on the S-4 Fund's behalf all such documents as may be
required by the provisions the Association's Rules.
14. The S-4 Fund agrees that all its financial statements which appear in
the Japanese Explanatory Brochure and Registration Statement, or in annual
reports to the Ministry of Finance will be certified by independent certified
public accountants who are licensed public accountants under the laws of Japan.
Any such financial statements submitted to the Ministry of Finance will be
manually signed and certified by such representative. The S-4 Fund also agrees
to submit semi-annual reports to the Ministry of Finance which need not be
certified.
15. The S-4 Fund hereby represents and warrants that it currently conforms
to the requirements of the Japanese Standard Rules. The S-4 Fund understands
that if subsequently it is made aware that it does not so conform, the S-4 Fund
will advise Nomura promptly and Nomura may suspend further sales of Shares but,
even in such event, the S-4 Fund will continue to be obligated to repurchase or
redeem Shares of the S-4 Fund from Nomura as hereinbefore provided.
16. In offering the Shares of the S-4 Fund for sale in Japan, Nomura agrees
to comply with the applicable laws, rules, regulations and criteria of the
Ministry of Finance and Associations' Rules.
Nomura also agrees that any advertisements used by Nomura will in general
conform to the Statement of Policy of the United States Securities and Exchange
Commission (U.S. Release No. 40-2621), except for Paragraph (h) which deals with
comparisons.
17. With the consent of the Board of Trustees of the appropriate Keystone
Fund, Nomura may also undertake block and/or continuous offerings of the Shares
of such other Keystone Funds on the terms and conditions herein stated or as may
be contained in any supplemental agreement hereto.
18. This Agreement is, to the extent applicable, governed by the laws of
Japan.
19. This Agreement shall continue in effect as long as permitted under the
U.S. Investment Company Act of 1940, as amended from time to time, the rules
promulgated thereunder or under the Japanese Securities and Exchange Law of
1948, appropriate exemptions therefrom. This Agreement may be terminated at any
time by mutual consent or by either party upon thirty days written notice, and
shall terminate automatically in the event of its assignment.
KEYSTONE CUSTODIAN FUND,
SERIES B-1, B-2, B-4, K-1,
K-2, S-1, S-3 and S-4, each
for itself and not jointly
By Albert H. Elfner, III
-------------------------------
Title: President
ACCEPTED as of the 29th day of December 1989:
NOMURA SECURITIES CO., LTD.
By Mr. Saito
-------------------------------
Title:
<PAGE>
SCHEDULE OF MAINTENANCE FEES
Except as otherwise provided for in the Underwriting Agreement, Nomura will
be entitled to quarterly maintenance fees based on the aggregate net asset value
of shares of the S-4 Fund which Nomura has sold, which remain issued and
outstanding on the books of the S-4 Fund on the last business day of the
calendar quarter and which are registered in the names of clients for whom
Nomura is broker of record ("Eligible Shares"). Such maintenance fees will be
calculated at the rate of 0.0625% per quarter of the aggregate net asset value
of all such Eligible Shares (approximately 0.25% annually); provided, however,
that no maintenance fees will be paid to Nomura for any calendar quarter if the
aggregate net asset value of such Eligible Shares on the last business day of
the calendar quarter is less than $1 million. Quarterly maintenance fees shall
be payable 90 days after the end of the calendar quarter. Such maintenance fee
rate may be modified by the S-4 Fund from time to time without prior notice.
<PAGE>
EXHIBIT 99.8
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE CUSTODIAN FUNDS, SERIES B-4
AND
STATE STREET BANK AND TRUST COMPANY
Agreement made as of this 31st day of December 1979 by and between KEYSTONE
CUSTODIAN FUND, INC., a Delaware business corporation ("KCF"), as TRUSTEE OF
KEYSTONE CUSTODIAN FUND, SERIES B-4, a Pennsylvania common law trust having its
principal place of business at 99 High Street, Boston, Massachusetts 02110, (the
"Fund'), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts banking
corporation, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts 02110 ("State Street").
WITNESSETH THAT:
In consideration of the mutual agreements herein contained, the Fund and
State Street agree as follows:
I. DEPOSITORY
The Fund hereby appoints State Street as its Depository subject to the
provisions hereof. The Fund shall deliver to State Street certified or
authenticated copies of its Trust Agreement, all amendments thereto, a certified
copy of the resolution of KCF's board of directors appointing State Street to
act in the capacities covered by this Agreement and authorizing the signing of
this Agreement and copies of such resolutions of KCF's board of directors,
contracts and other documents as may be reasonably required by State Street in
the performance of its duties hereunder.
II. CUSTODIAN
1. The Fund appoints State Street as its Custodian, subject to the
provisions hereof. State Street hereby accepts such appointment as Custodian. As
such Custodian, State Street shall retain all securities, cash and other assets
now owned or hereafter acquired by the Fund, and the Fund shall deliver and pay
or cause to be delivered and paid to State Street, as Custodian, all securities,
cash and other assets now owned or hereafter acquired by the Fund during the
period of this Agreement.
2. All securities delivered to State Street (other than in bearer form)
shall be properly endorsed and in proper form for transfer into or in the name
of the Fund, of a nominee of State Street for the exclusive use of the Fund or
of such other nominee as may be mutually agreed upon by State Street and the
Fund.
3. As Custodian, State Street shall promptly:
A. Safekeeping. Keep safely in a separate account the securities of
the Fund, including without limitation all securities in bearer form, and on
behalf of the Fund, receive delivery of certificates, including without
limitation all securities in bearer form, for safekeeping and keep such
certificates physically segregated at all times from those of any other person.
State Street shall maintain records of all receipts, deliveries and locations of
such securities, together with a current inventory thereof and shall conduct
periodic physical inspections of certificates representing bonds and other
securities held by it under this Agreement at least annually in such manner as
State Street shall determine from time to time to be advisable in order to
verify the accuracy of such inventory. State Street shall provide the Fund with
copies of any reports of its internal count or other verification of the
securities of the Fund held in its custody, including reports on its own system
of internal accounting control. In addition, if and when independent certified
public accounts retained by State Street shall count or otherwise verify the
securities of the Fund held in State Street's custody, State Street shall
provide the Fund with a copy of the report of such accountants. With respect to
securities held by any agent appointed pursuant to paragraph 6-C of section II
hereof, State Street may rely upon certificates from such agent as to the
holdings of such agent, it being understood that such reliance in no way
releases State Street of its responsibilities or liabilities under this
Agreement. State Street shall promptly report to the Fund the results of such
inspections, indicating any shortages or discrepancies uncovered thereby, and
take appropriate action to remedy any such shortages or discrepancies.
B. Use of a System for the Central Handling of Securities. Not
withstanding any other provision of this Agreement, if in the best interest of
the Fund, deposit all or any part of the securities owned by the Fund in the
book-entry system of the Federal Reserve Banks (hereinafter called the
("system") and to use the facilities of such system, all as provided under the
provisions of Rule 17f-4 of the Investment Company Act of 1940, as amended.
Without limiting the generality of such use, the following provisions shall
apply thereto:
(1) State Street may keep securities of the Fund in the system provided
that such securities are represented in an account ("Account") of State Street's
(or its agent) in the system which shall not include any assets of State Street
(or such agent) other than assets held as fiduciary, custodian or otherwise for
customers. The records of State Street (and such agents) shall at all times
during the regular business hours of State Street (or such agents) be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission.
(2) State Street shall send to the Fund a confirmation of all transfers
to or from the System for the account of the Fund. Where securities are
transferred to the Fund's accounts, State Street shall, by book-entry or
otherwise, identify as belonging to the Fund a quantity of securities in a
fungible bulk of securities (i) registered in the name of State Street or its
nominee or (ii) shown on State Street's account on the books of the appropriate
Federal Reserve Bank. For this purpose, the term "confirmation" means advice or
notice of transaction; it is not intended to require preparation by State Street
of the confirmation required of broker-dealers under the Securities Exchange Act
of 1934.
(3) State Street shall promptly send to the Fund any report it receives
from the appropriate Federal Reserve Bank on its system of internal accounting
control.
(4) Anything to the contrary in this Agreement notwithstanding, State
Street shall be liable to the Fund for any claim, liability, loss or expense,
including attorney's fees, resulting to such Fund from use of the system by
reason of any negligence, misfeasance or misconduct of State Street or any of
its agents) or of any of its (or their) employees or from any failure of State
Street (or any such agent) to enforce effectively such rights as it (or they)
may have against the system. At the election of the Fund, it shall be entitled
to be subrogated to State Street or its agents in any claim against the system
or any other person which State Street, its agents may have as a consequence of
any such claim, liability, loss or expense if and to the extent that the Fund
has not been made whole for such claim, liability, loss or expense.
C. Registered Name, Nominee. Register securities of the Fund held by
State Street in the name of the Fund, of a nominee of State Street for the
exclusive use of the Fund, of such other nominee as may be mutually agreed upon,
or of any mutually acceptable nominee of any agent appointed pursuant to
paragraph 6-C of section II hereof.
D. Purchases. Upon receipt of proper instructions (as defined in
paragraph 5-A of section II hereof; hereafter "proper instructions") and insofar
as cash is available for the purpose, pay for and receive all securities
purchased for the account of the Fund, payment being made only upon receipt of
the securities by State Street (or any bank, banking firm, responsible
commercial agent or trust company doing business in the United States and
appointed pursuant to paragraph 6-C of section II hereof as State Street's agent
for this purpose) registered as provided in paragraph 3-C of section II hereof
or in form for transfer satisfactory to State Street, or, in the case of
repurchase agreements entered into between the Fund and bank or a dealer,
delivery of the securities either in certificate form or through an entry
crediting State Street's account at the Federal Reserve Bank with such
securities. All securities accepted by State Street shall be accompanied by
payment of, or a "due bill" for, any dividends, interest or other distributions
of the issuer, due the purchaser. In any and every case of a purchase of
securities for the account of the Fund where payment is made by State Street in
advance of receipt of the securities purchased, State Street shall be absolutely
liable to the Fund for such securities to the same extent as if the securities
had been received by State Street except that in the case of repurchase
agreements entered into by the Fund with a bank which is a member of the Federal
Reserve System, State Street may transfer funds to the account of such bank
prior to the receipt of written evidence that the securities subject to such
repurchase agreement have been transferred by book-entry into a segregated
nonproprietary account of State Street maintained with the Federal Reserve Bank
of Boston, provided, that such securities have in fact been so transferred by
book-entry; provided, further, however, that State Street and the Fund agree to
use their best efforts to insure receipt by State Street of copies of
documentation for each such transaction as promptly as possible.
E. Exchanges. Upon receipt of proper instructions, exchange
securities, interim receipts or temporary securities held by it or by any agent
appointed by it pursuant to paragraph 6-C of section II hereof for the account
of the Fund for other securities alone or for other securities and cash, and
expend cash insofar as cash is available in connection with any merger,
consolidation, reorganization, recapitalization, split-up of shares, changes of
par value, conversion or in connection with the exercise of warrants,
subscription or purchase rights, or otherwise, and deliver securities to the
designated depository or other receiving agent in response to tender offers or
similar offers to purchase received in writing; provided that in any such case
the securities and/or cash to be received as a result of any such exchange,
expenditure or delivery are to be delivered to State Street or its agents. State
Street shall give notice as provided under paragraph 6F of section II hereof to
the Fund in connection with any transaction specified in this paragraph and at
the same time shall specify to the Fund whether such notice relates to
securities held by an agent appointed pursuant to paragraph 6-C of section II
hereof, so that the Fund may issue to State Street proper instructions for State
Street to act thereon prior to any expiration date (which shall be presumed to
be two business days prior to such date unless State Street has previously
advised the Fund of a different period). The Fund shall give to State Street
full details of the time and method of submitting securities in response to any
tender or similar offer, exercising any subscription or purchase right or making
any exchange pursuant to this paragraph. When such securities are in the
possession of an agent appointed by State Street pursuant to paragraph 6-C of
section II hereof, the proper instructions referred to in the preceding sentence
must be received by State Street in timely enough fashion (which shall be
presumed to be three business days unless State Street has advised the Fund in
writing of a different period) for State Street to notify the agent in
sufficient time to permit such agent to act prior to any expiration date.
F. Sales. Upon receipt of proper instructions and upon receipt of
full payment therefor, release and deliver securities which have been sold for
the account of the Fund. At the time of delivery all such payments are to be
made in cash, by a certified check upon or a treasurer's or cashier's check of a
bank, by effective bank wire transfer through the Federal Reserve Wire System
or, if appropriate, outside of the Federal Reserve Wire System and subsequent
credit to the Fund's Custodian account, or, in case of delivery through a stock
clearing company, by book-entry credit by the stock clearing company in
accordance with the then current "street" custom.
G. Purchases by Issuer. Upon receipt of proper instructions, release
and deliver securities owned by the Fund to the issuer thereof or its agent when
such securities are called, redeemed, retired or otherwise become payable;
provided that in any such case, the cash or other consideration is to be
delivered to State Street.
H. Changes of Name and Denomination. Upon receipt of proper
instructions, release and deliver securities owned by the Fund to the issuer
thereof or its agent for transfer into the name of the Fund or of a nominee of
State Street or of the Fund for the exclusive use of the Fund or for exchange
for a different number of bonds, certificates, or other evidence representing
the same aggregate face amount or number of units bearing the same interest
rate, maturity date and call provisions if any; provided that in any such case,
the new securities are to be delivered to State Street.
I. Street Delivery. In connection with delivery in New York City and
upon receipt of proper instructions, which in the case of registered securities
may be standing instructions, release securities owned by the Fund upon receipt
of a written receipt for such securities to the broker selling the same for
examination in accordance with the existing "street delivery" custom. In every
instance either payment in full for such securities shall be made or such
securities shall be returned to the custodian that same day. In the event
existing "street delivery" custom is modified, State Street shall obtain
authorization from the board of directors of KCF prior to any such of such
modified "street delivery" custom.
J. Release of Securities for Use as Collateral. Upon receipt of
proper instructions and subject to section 3(b) of Article III of the Trust
Agreement, release securities belonging to the Fund to any bank or trust company
for the purpose of pledge, mortgage or hypothecation to secure any loan incurred
by the Fund; provided, however, that securities shall be released only upon
payment to State Street of the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing already made, subject to
proper prior authorization from the Fund, further securities may be released for
that purpose. Upon receipt of proper instructions, pay such loan upon redelivery
to it of the securities pledged or hypothecated therefore and upon surrender of
the note or notes evidencing the loan.
K. Release or Delivery of Securities for Other Purposes. Upon
receipt of proper instructions, release or deliver any securities held by it for
the account of the Fund for any other purpose (in addition to those specified in
paragraphs 3-E, 3-F, 3-G, 3-H, 3-I and 3-J of section II hereof) which the Fund
declares is a proper corporate purpose pursuant to proper instructions.
L. Proxies, Notices, Etc. State Street shall promptly forward upon
receipt to the Fund all forms of proxies and all notices of meetings and any
other notices or announcements affecting or relating to the securities,
including without limitation notices relating to class action claims and
bankruptcy claims, and upon receipt of proper instructions execute and deliver
or cause its nominee to execute and deliver such proxies or other authorizations
as may be required. State Street, its nominee or its agents shall not vote upon
any of the securities or execute any proxy to vote thereon or give any consent
or take any other action with respect thereto (except as otherwise herein
provided) unless ordered to do so by proper instructions. State Street shall
require its agents and sub-custodians appointed pursuant to paragraph 6-C of
section II hereof to forward any such announcements and notices to State Street
upon receipt.
M. Miscellaneous. In general, attend to all nondiscretionary details
in connection with the sale, exchange, substitution, purchase, transfer or other
dealing with such securities or property of the Fund, except as otherwise
directed by the Fund pursuant to proper instructions. State Street shall render
to the Fund daily a report of all monies received or paid on behalf of the Fund,
an itemized statement of the securities and cash for which it is accountable to
the Fund under this Agreement and itemized statement of security transactions
which settled the day before and shall render to the Fund weekly an itemized
statement of security transactions which failed to settle as scheduled. At the
end of each week State Street shall provide a list of all security transactions
that remain unsettled at such time.
4. Additionally, as Custodian, State Street shall promptly:
A. Bank Account. Retain safely all cash of the Fund, other than cash
maintained by the Fund in a bank account established and used in accordance with
Rule 14f-3 under the Investment Company Act of 1940, as amended, in the banking
department of State Street in a separate account or accounts in the name of the
Fund, subject only to draft or order by State Street acting pursuant to the
terms of this Agreement. If and when authorized by proper instructions in
accordance with a vote of the board of directors of KCF, State Street may open
and maintain an additional account or accounts in such other bank or trust
companies as may be designated by such instructions, such account or accounts,
however, to be solely in the name of State Street in its capacity as custodian
and subject only to its draft or order in accordance with the terms of this
Agreement. State Street shall furnish the Fund, not later than thirty (30)
calendar days after the last business day of each month, a statement reflecting
the current status of its internal reconciliation of the closing balance as of
that day in all accounts described in this paragraph to the balance shown on the
daily cash report for that day rendered to the Fund.
B. Collections. Unless otherwise instructed by receipt of proper
instructions, collect, receive and deposit in the bank account or accounts
maintained pursuant to paragraph 4-A of section II hereof all income and other
payments with respect to the securities held hereunder, execute ownership and
other certificates and affidavits for all federal and state tax purposes in
connection with the collection of bond and note coupons, do all other things
necessary or proper in connection with the collection of such income, and
without waiving the generality of the foregoing:
(1) Present for payment on the date of payment all coupons and
other income items requiring presentation;
(2) present for payment all securities which may mature or be
called, redeemed, retired or otherwise become payable on the date such
securities become payable;
(3) endorse and deposit for collection, in the name of the Fund,
checks, drafts or other negotiable instruments on the same day as received.
In any case in which State Street does not receive any such due and
unpaid income within a reasonable time after it has made proper demands for the
same (which shall be presumed to consist of at least three demand letters and at
least one telephonic demand), it shall so notify the Fund in writing, including
copies of all demand letters, any written responses thereto, and memoranda of
all oral responses thereto and to telephonic demands, and await proper
instruction; the Custodian shall not be obliged to take legal action for
collection unless and until reasonably indemnified to its satisfaction for the
reasonable costs of such legal action for collection. It shall also notify the
Fund as soon as reasonably practicable whenever income due on securities is not
collected in due course.
C. Sale of Shares of the Fund. Make such arrangements with the
Transfer Agent of the Fund as will enable State Street to make certain it
receives the cash consideration due to the Fund for shares of the Fund as may be
issued or sold from time to time by the Fund, all in accordance with the Fund's
Trust Agreement, as amended.
D. Dividends and Distributions. Upon receipt of proper instruction,
release or otherwise apply cash insofar as cash is available for the purpose for
the payment of dividends or other distributions to shareholders of the Fund.
E. Redemption of Shares of the Fund. From such funds as may be
available for the purpose, but subject to the limitation of the Fund's Trust
Agreement as amended, and applicable resolutions of the board of directors of
KCF pursuant thereto, make funds available to shareholders who have delivered to
the Transfer Agent a request for redemption of their shares by the Fund pursuant
to said Trust Agreement, as amended.
In connection with the redemption of shares of the Fund pursuant to the
Fund's Trust Agreement, as amended, State Street is authorized and directed upon
receipt of proper instructions from the Transfer Agent for the Fund to make
funds available for transfer through the Federal Reserve Wire System or by other
bank wire to a commercial bank account designated by the redeeming shareholder.
F. Stock Dividends, Rights, Etc. Receive and collect all stock
dividends, rights and other items of like nature; and deal with the same
pursuant to proper instructions relative thereto.
G. Disbursements. Upon receipt of proper instructions, make or cause
to be made, insofar as cash is available for the purpose, disbursements for the
payment on behalf of the Fund of taxes or reimbursement to State Street or
Keystone Custodian Funds, Inc. for their payment of any such taxes and of the
management fee and recurring charge as provided by article I, section 3 of the
Fund's Trust Agreement, as amended.
H. Other Proper Corporate Purposes. Upon receipt of proper
instructions, make or cause to be made, insofar as cash is available for the
purpose, disbursements for any other purpose (in addition to the purposes
specified in paragraphs 3-D, 3-E, 4-D, 4-E, and 4-G of this Agreement) which the
Fund declares is a proper corporate purpose.
I. Records. Create, maintain and retain all records (a) relating
to its activities and obligations under this Agreement in such manner as shall
meet the obligations of the Fund under the Investment Company Act of 1940, as
amended, particularly Section 31 thereof and Rules 31a-1 and 31a-2 thereunder,
under applicable federal and State tax laws and under any other law or
administrative rules or procedures which may be applicable to the Fund, (b)
necessary to comply with the representations of Part I - Fund Custodian Services
and Part II - Portfolio Pricing and Accounting of State Street's Response, dated
May 1, 1979, as amended, to Keystone Custodian Funds, Inc.'s and the
Massachusetts Companies, Inc.'s Request for Proposal, dated March 19, 1979, as
amended, (amendments after June 22, 1979 are set forth in Exhibit B) ("Parts I
and II"), insofar as such representations relate to the creation, maintenance
and retention of records for the Fund, or (c) as reasonably requested from time
to time by the Fund. All records maintained by State Street in connection with
the performance of its duties under this Agreement shall remain the property of
the Fund and in the event of termination of this Agreement shall be delivered in
accordance with the terms of paragraph 8 below.
J. Miscellaneous. Assist generally in the preparation of routine
reports to holders of shares of the Fund, to the Securities and Exchange
Commission, including forms N1-R and N-1Q, to State "Blue Sky" authorities, to
others in the auditing of accounts and in other matters of like nature, as
required to comply with the representations of Parts I and II insofar as such
representations relate to the preparation of reports for the Fund and as
otherwise reasonably requested by the Fund.
K. Fund Accounting and Net Asset Value Computation. State Street
shall maintain the general ledger and all other books of account of the Fund,
including the accounting for the Fund's portfolio. In addition, upon receipt of
proper instructions, which may be deemed to be continuing instructions, State
Street shall daily compute the net asset value of the Shares of the Fund and the
total net asset value of the Fund. State Street shall, in addition, perform such
other services incidental to its duties hereunder as may be reasonably requested
from time to time by the Fund.
L. Services under Parts I and Part II. In addition to the services
specified herein, State Street shall perform those services set forth in Parts I
and II, including without limitation general ledger accounting, daily Fund
portfolio pricing and custodian services to the extent such services relate to
the Fund; provided, however, that in the event that Parts I and II as they
relate to the Fund are in conflict with the terms of this Agreement, the terms
of this Agreement shall govern.
5. State Street and the Fund further agree as follows:
A. Proper Instructions. State Street shall be deemed to have
received proper instructions upon receipt of written instructions signed by
KCF's board of directors or by one or more person or persons as KCF's board of
directors shall have from time to time authorized to give the particular class
of instructions for different purposes. A copy of a resolution or action of the
board of directors certified by the secretary or an assistant secretary of KCF
may be received and accepted by State Street as conclusive evidence of the
instruction of KCF's board of directors and/or the authority of any person or
persons to act on behalf of the Fund and may be considered as in full force and
effect until receipt of written notice to the contrary. Such instruction may be
general or specific in terms. Oral instructions will be considered proper
instructions if the Custodian reasonably believes them to have been by a person
authorized by the board of directors to give such oral instructions with respect
to the class of instruction in question. The Fund shall cause all oral
instructions to be confirmed in writing.
B. Investments, Limitations. In performing its duties generally, and
more particularly in connection with the purchase, sale and exchange of
securities made by or for the Fund, State Street may take cognizance of the
provisions of the Trust Agreement of the Fund, as amended; provided, however,
that except as otherwise expressly provided herein, State Street may assume
unless and until notified in writing to the contrary that instructions
purporting to be proper instructions received by it are not in conflict with or
in any way contrary to any provisions of the Trust Agreement of the Fund, as
amended, or resolutions or proceedings of the board of directors of KCF.
6. State Street and the Fund further agree as follows:
A. Indemnification. State Street, as Depository and Custodian, shall
be entitled to receive and act upon advice of counsel (who may be counsel for
the Fund) and shall be without liability for any action reasonably taken or
thing reasonably done pursuant to such advice; provided that such action is not
in violation of applicable Federal or State laws or regulations or contrary to
written instructions received from the Fund, and shall be indemnified by the
Fund and without liability for any action taken or thing done by it in carrying
out the terms and provisions of this Agreement in good faith and without
negligence, misfeasance or misconduct. In order that the indemnification
provision contained in this paragraph shall apply, however, if the Fund is asked
to indemnify or save State Street harmless, the Fund shall be fully and promptly
advised of all pertinent facts concerning the situation in question, and State
Street shall use all reasonable care to identify and notify the Fund fully and
promptly concerning any situation which presents or appears likely to present
the probability of such a claim for indemnification against the Fund. The Fund
shall have the option to defend State Street against any claim which may be the
subject of this indemnification, and thereupon the Fund shall take over complete
defense of the claim, and State Street shall initiate no further legal or other
expenses for which it shall seek indemnification under this paragraph. State
Street shall in no case confess any claim or make any compromise in any case in
which the Fund will be asked to indemnify State Street except with the Fund's
prior written consent.
B. Expenses Reimbursement. State Street shall be entitled to receive
from the Fund on demand reimbursement for its cash disbursements, expenses and
charges, excluding salaries and usual overhead expenses, as set forth in
Schedule A.
C. Appointment of Agent. State Street, as Custodian, may appoint
(and may remove) any other bank, trust company or responsible commercial agent
as its agent to carry out such of the provisions of this Agreement as State
Street may from time to time direct; provided, however, that the appointment of
any such agent shall not relieve State Street of any of its responsibilities
under this Agreement.
D. Reliance on Documents. So long as and to the extent that it is in
good faith and in the exercise of reasonable care, State Street, as Depository
and Custodian, shall not be responsible for the title, validity or genuineness
of any property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement, shall be protected in acting upon any instructions,
notice, request consent, certificate or other instrument or paper reasonably
believed by it to be genuine and to constitute proper instructions under this
Agreement and shall, except as otherwise specifically provided in this
Agreement, be entitled to receive as conclusive proof of any fact or matter
required to be ascertained by it hereunder a certificate signed by KCF's board
of directors, the secretary or an assistant secretary of the Fund or any other
person expressly authorized by the board of directors of KCF.
E. Access to Records. Subject to security requirements of State
Street applicable to its own employees having access to similar records within
State Street and such regulations as to the conduct of such monitors as may be
reasonably imposed by State Street after prior consultation with an authorized
officer of the Fund, books and records of State Street pertaining to its actions
under this Agreement shall be open to inspection and audit at reasonable times
by the directors of, attorneys for, auditors employed by the Fund or any other
person as KCF's board of directors shall direct.
F. Record-Keeping. State Street shall maintain such records as shall
enable the Fund to comply with the requirements of all Federal and State laws
and regulations applicable to the Fund with respect to the matters covered by
this Agreement and shall comply with the representations of Parts I and II as
such representations relate to maintaining records of the Fund.
7. The Fund shall pay State Street for its services as Custodian
such compensation as shall be as specified in the attached Exhibit A. Such
compensation shall remain fixed for two years from the date hereof, unless this
Agreement is terminated as provided in section 8A, and shall remain fixed for an
additional year in the event the Fund decides to continue this Agreement for
such period; provided, however, that in the event either party terminates this
Agreement as provided in section 8A State Street hereby guarantees and agrees
that no new Agreement entered into between the parties shall require payment of
compensation greater than that specified herein during such three year period.
8. State Street and the Fund further agree as follows:
A. Effective Period, Termination, Amendment and Interpretive and
Additional Provisions. This Agreement shall become effective as of the date of
its execution, shall continue in full force and effect until terminated as
hereinafter provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated by either party by an instrument in writing
delivered or mailed, postage prepaid, to the other party, such termination to
take effect sixty (60) days after the date of such delivery or mailing; and
further provided, that the Fund may by action of KCF's board of directors
substitute another bank or trust company for State Street by giving notice as
provided above to State Street. The Fund or State Street shall not amend or
terminate this Agreement in contravention of any applicable Federal or State
laws or regulations or any provision of the Trust Agreement of the Fund, as
amended, and provided, that prior to three years from the date hereof State
Street shall not terminate this Agreement except in the event of the Fund's
substantial default hereunder which default continues uncorrected after notice
to the Fund of such default for thirty (30) days, such termination to take
effect as provided above; provided, however, that in the event of such
termination State Street shall remain as Custodian hereunder for a reasonable
period thereafter if the Fund after using its best efforts is unable to find a
Successor Custodian.
In connection with the operation of this Agreement, State Street and
the Fund may agree from time to time on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement, any such interpretive or
additional provision to be signed by both parties and annexed hereto, provided
that no such interpretive or additional provisions shall contravene any
applicable Federal or State laws or regulations, or any provision of the Fund's
Trust Agreement as amended. No interpretive provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Agreement.
B. Successor Custodian. Upon termination hereof or in the inability
of the Custodian to continue to serve hereunder, the Fund shall pay to State
Street such compensation as may be due for services through the date of such
termination and shall likewise reimburse State Street for its costs, expenses
and disbursements incurred prior to such termination in accordance with
paragraph 6-B of section II hereof and such reasonable costs, expenses and
disbursements as may be incurred by State Street in connection with such
termination.
If a Successor Custodian is appointed by the board of directors of KCF
in accordance with section 1(b) of Article V of the Fund's Trust Agreement, as
amended, State Street shall, upon termination, deliver to such Successor
Custodian at the office of State Street, properly endorsed and in proper form
for transfer, all securities then held hereunder, all cash and other assets of
the Fund deposited with or held by it hereunder.
If no such Successor Custodian is appointed, State Street shall, in
like manner at its office, upon receipt of a certified copy of a resolution of
the shareholders pursuant to section 1(b) of Article V of the Fund's Trust
Agreement, as amended, deliver such securities, cash and other properties in
accordance with such resolutions.
In the event that no written order designating a Successor Custodian or
certified copy of a resolution of the shareholders shall have been delivered to
State Street on or before the date when such termination shall become effective,
then State Street shall have the right to deliver to a bank or trust company
doing business in Boston, Massachusetts of its own selection, having an
aggregate capital surplus and undivided profits, as shown by its last published
report, of not less than $5,000,000, all securities, cash and other properties
held by State Street and all instruments held by State Street and all
instruments held by it relative thereto and all other property held by it under
this Agreement. Thereafter, such bank or trust company shall be the Successor of
State Street under this Agreement and subject to the restrictions, limitations
and other requirements of the Fund's Trust Agreement and By-Laws, both as
amended.
In the event that securities, funds, And other properties remain in the
possession of State Street after the date of termination hereof owing to failure
of the Fund to procure the certified copy above referred to, or of KCF's board
of directors to appoint a Successor Custodian, State Street shall be entitled to
fair compensation for its services during such period and the provisions of this
Agreement relating to the duties and obligations of State Street shall remain in
full force and effect.
C. Duplicate Records and Backup Facilities. State Street shall not
be liable for loss of data, occurring by reason of circumstances beyond its
control, including but not limited to acts of civil or military authority,
national emergencies, fire, flood or catastrophe, acts of God, insurrection,
war, riots, or failure of transportation, communication or power supply.
However, State Street shall keep in a separate and safe place additional copies
of all records required to be maintained pursuant to this Agreement or
additional tapes, disks or other sources of information necessary to reproduce
all such records. Furthermore, at all times during this Agreement, State Street
shall maintain a contractual arrangement whereby State Street will have a
back-up computer facility available for its use in providing the services
required hereunder in the event circumstances beyond State Street's control
result in State Street not being able to process the necessary work at its
principal computer facility, State Street shall, from time to time, upon request
from the Fund provide written evidence and details of its arrangement for
obtaining the use of such a back-up computer facility. State Street shall use
its best efforts to minimize the likelihood of all damage, loss of data, delays
and errors resulting from an uncontrollable event, and should such damage, loss
of data, delays or errors occur, State Street shall use its best efforts to
mitigate the effects of such occurrence. Representatives of the Fund shall be
entitled to inspect the State Street premises and operating capabilities within
reasonable business hours upon reasonable notice to State Street, and, upon
request of such representative or representatives, State Street shall from time
to time as appropriate, furnish to the Fund a letter setting forth the insurance
coverage thereon, any changes in such coverage which may occur and any claim
relating to the Fund which State Street may have made under such insurance.
D. Confidentiality. State Street agrees to treat all records and
other information relative to the Fund confidentially and State Street on behalf
of itself and its officers, employees and agents agrees to keep confidential all
such information, except after prior notification to and approval by the Fund
(which approval shall not be unreasonably withheld and may not be withheld where
State Street may be exposed to civil or criminal contempt proceedings), when
requested to divulge such information by duly constituted authorities or when so
requested by a properly authorized person.
(a) State Street and the Fund agree that they, their officers,
employees and agents shall maintain all information disclosed
to them by the other in connection with this Agreement in
confidence and will not disclose any such information to any
other person, nor use such information for their own benefit
or for the benefit of third parties without the consent in
writing of the other; provided, however, that each party shall
have the right to use any such information for its own
necessary internal purposes while this Agreement is in effect.
The provisions of the paragraph shall not apply to information
which (i) is in or becomes part of the public domain, or (ii)
is demonstrably known previously to the party to whom it is
disclosed, or (iii) is independently developed outside this
Agreement by the party to whom it is disclosed or (iv) is
rightfully obtained from third parties by the party to whom it
is disclosed.
9. The Fund shall not circulate any printed matter which contains any
reference to State Street without the prior written approval of State Street,
excepting solely such printed matter as merely identifies State Street as
Depository or Custodian. The Fund will submit printed matter requiring approval
to State Street in draft form, allowing sufficient time for review by State
Street and its counsel prior to any deadline for printing.
10. In the event of a reorganization of the Fund through a merger,
consolidation, sale of assets or other reorganization, State Street, at the
request of the Fund, shall act as Custodian for shares of any investment company
or other company obtained in any such reorganization by the Fund for
distribution to those Fund shareholders whose shares are represented by
certificates. The Fund shall give notice to each such shareholder of his or her
right to exchange his or her Fund shares represented by certificates for shares
held by the Custodian upon surrender to the Custodian of his or her certificates
representing such Fund shares properly endorsed and in proper form for transfer.
Upon the surrender of such Fund certificates State Street will issue a
certificate or certificates to the surrendering shareholder for an approximate
number of shares held by State Street, unless such shareholder establishes an
Open Account Plan or other similar account at the time in which case such shares
will be credited to his or her account. State Street shall not be required to
issue certificates for any fractional shares held by it. Instead, fractional
interests in such shares shall be distributed to the shareholder in cash at
their then current market value or, if the fractional share represents an
interest in an investment company, it shall be redeemed by State Street at the
then current redemption price for such shares and the proceeds of such
redemption shall be distributed to such shareholder in cash. The Custodian shall
not release to any shareholder any such shares held by it until such shareholder
has properly surrendered for exchange his or her Fund shares represented by
certificates.
11. This Agreement is executed and delivered in the Commonwealth
of Massachusetts and shall be subject to and be construed in accordance with
the laws of said Commonwealth.
12. Notices and other writings delivered or mailed postage prepaid to
the Fund, c/o Keystone Custodian Funds, Inc., 99 High Street, 32nd Floor,
Boston, Massachusetts 02110 or to State Street at 225 Franklin Street, Boston,
Massachusetts 02110 or to such other address as the Fund or State Street may
hereafter specify, shall be deemed to have been properly delivered or given
hereunder to the respective address.
13. It is understood and is expressly stipulated that neither the
holders of shares in the Fund nor KCF's board of directors, officers or
employees shall be personally liable hereunder, but only the assets of the Fund
shall be bound.
14. This Agreement shall be binding on and shall inure to the benefit
of the Fund and State Street and their respective successors or assigns.
15. State Street and the Fund hereby agree that the Custodian
Agreement, dated August 1, 1963 between them shall terminate upon the
effectiveness of this Agreement.
16. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
officer as of the day and year first above written.
ATTEST: KEYSTONE CUSTODIAN FUNDS, INC., as
Trustee for Keystone Custodian
Fund, Series B-4
/s/ Rosemary Van Antwerp By: /s/ George S. Bissell
- - - - - ---------------------------- ----------------------------------
Chief Executive Officer
ATTEST: STATE STREET BANK AND TRUST COMPANY
/s/ [illegible] By: /s/ J.R. Towers
- - - - - ---------------------------- ----------------------------------
Vice President
#10160634
<PAGE>
SCHEDULE A
Keystone Custodian Fund, Series B-4
State Street Bank and Trust Company
Custodian, Fund Accounting and Records Keeping fee Schedule
I. Annual Fee
$6,000
II. Out-of-Pocket Expenses
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of-pocket expenses include the
following:
Telephone
Postage and insurance
Courier service
Legal fees
Supplies related to Fund records
Duplicating
Transfer fees
Sub-Custodian charges
Wire Service ($2.00 in or out)
III. Additional Services
Any modifications, innovations, improvements or other changes made by
State Street in the services and reports which it provides to other
customers receiving its custodial, portfolio accounting and
records-keeping services without additional charges or fees shall be
provided to the Fund at its request for no additional charge or fee.
<PAGE>
SCHEDULE B
I. Operating Plan - Fund Custodian Services
1. Page 1
(a) Trade instructions by tape input compatible with the
SPARK system will not be given.
(b) System 34 terminals will not be provided for trade input.
2. Page 2
(a) Distributions will be charged against the custodian
account and credited to the disbursement account on the payable date.
(b) Reports - improved or new SPARK Reports will be made
available to the Fund at its request for no additional cost, if made available
at no additional cost to other customers of State Street.
II. Fund Custodian Services
A. Page 1
(1) The Fund will receive Custody and Full Accounting
Services.
B. Page 2
(1) Polaris Fund Inc. is now Keystone International Fund Inc.
III. I. Custodian Reports
A. Page 1
(2) Analytics - Spark information reports - the Funds will
receive none of these.
IV. KM - SSB Reports Comparison
A. Page 1 - MASSCO Report
(1) (9) Different form with similar content to be
prepared for Keystone Tax Free Fund (Massachusetts
Fund for Tax Exempt Income) rather than Master
Reserves Trust (MRT).
(2) (12) To be prepared for all Funds.
(3) (13) Trade Settlement Authorizations and all other
reports as provided to the Keystone
Funds will be provided MassCo Funds.
(4) (26) Initial instructions in memo from Mr. Joseph Naples.
Instructions may be changed from time to time by
proper instructions.
(5) (30) Letter to be supplied by Bradford Trust Company.
(6) (31) Report to be supplied by Bradford Trust Company.
B. Keystone Reports
(1) (3) Information to be supplied by Open Order System.
(2) (16) Will be prepared manually by State Street.
Calculations to be based on initial
instructions provided under (4)(26) memo.
(3) (18) To be prepared by State Street.
(4) (30) New SPARK Report to be provided the Funds.
(5) (31) Priding Quotes for foreign issues, restricted
securities and private placements not otherwise
available to State Street to be supplied by the Fund.
(6) (46) KIMCO Reports unnecessary.
(7) (58) State Street to prepare manually.
(8) (57) Keystone to provide.
(9) (70) New SPARK report to be provided the Funds.
(10) (73) SPARK Report to be provided the Funds.
(11) (74) New SPARK Report and hard copy tape to be provided
the Funds.
(12) (75) State Street to provide weekly report of fails for
each Fund.
(13) All new SPARK reports must be reviewed and accepted
by the Funds before they will be considered to comply
with State Street's Custodian, Portfolio Accounting
and Recordskeeping Agreements with the Funds, such
acceptance not to be unreasonably withheld.
IV. Responses
I. Fund Custodian Services
(a) Page 2
Checkwriting privilege is $.35 per check - charged
only for American Liquid Trust at this time. Other
Fund agreements to be amended to include this charge
if such privilege is ever offered to shareholders of
other Funds.
(b) Page 3 (6) Individuals responsible for Fund services
may change as long as the quality of the personnel
is maintained.
(c) Page 6 (11) State Street is liable for the acts of
its sub-custodians to the same extent that it is
liable for the acts of its agents.
II. Exhibits
1. Exhibit 1-2
(a) (6) Notices of corporate actions shall include,
without limitation notices of class actions and
bankruptcy actions in connection with issues held by
the Funds.
<PAGE>
FIRST AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE CUSTODIAN FUNDS, SERIES B-4
AND
STATE STREET BANK AND TRUST COMPANY
This First Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between Keystone Custodian Funds, Inc. ("KCF") as
Trustee of Keystone Custodian Funds, Series B-4 (the "Fund') and State Street
Bank and Trust Company ("State Street"), dated December 31, 1979 (the
"Agreement') is made by and between the Fund and State Street as of January 1,
1982.
In consideration of the mutual agreements contained herein, State
Street and the Fund hereby agree to amend the Agreement by replacing all of
Section II, Paragraph 3(B) with the following provisions:
"B. Deposit of Fund Assets in Securities Systems.
Notwithstanding any other provision of this Agreement, State Street may
deposit and/or maintain securities owned by the Fund in Depository
Trust Company, a clearing agency registered with the Securities and
Exchange Commission under Section 17A of the Securities Exchange Act of
1934, which acts as a securities depository, or in the book-entry
system authorized by the U.S. Department of the Treasury and certain
federal agencies, collectively referred to herein as the Treasury and
certain federal agencies, collectively referred to herein as
"Securities Systems(s)" in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and regulations, if
any, and subject to the following provisions:
1. State Street may keep securities of the Fund in a Securities System
provided that such securities are deposited in an account
("Account") of State Street in the Securities System which shall not
include any assets of State Street other than assets held as a
fiduciary, custodian or otherwise for customers;
2. The records of State Street with respect to securities of the Fund
which are maintained in a Securities System shall identify by
bookentry those securities belonging to the Fund;
3. State Street shall pay for securities purchased for the account of
the Fund upon (i) receipt of advice from the Securities System that
such securities have been transferred to the Account, and (ii) the
making of an entry on the records of State Street to reflect such
payment and transfer for the account of the Fund. State Street shall
transfer securities sold for the account of the Fund upon (i)
receipt of advice from the Securities System that payment for such
securities has been transferred to the account, and (ii) the making
of an entry on the records of State Street to reflect such transfer
and payment for the account of the Fund. Copies of all advices from
the Securities System of transfers of securities for the account of
the Fund shall identify the Fund, be maintained for the Fund by
State Street and be provided to the Fund at its request. State
Street shall furnish the Fund confirmation of each transfer to or
from the account of the Fund in the form of a written advice or
notice and shall furnish to the Fund copies of daily transaction
sheets reflecting each day's transactions in the Securities System
for the account of Fund on the next business day;
4. State Street shall promptly provide the Fund with any report
obtained by State Street on the Securities System's accounting
system, internal accounting control and procedures for safeguarding
securities deposited in the Securities System. State Street shall
promptly provide the Fund any report on State Street's accounting
system, internal accounting control and procedures for safeguarding
securities deposited with State Street which is reasonably requested
by the Fund;
5. Anything to the contrary in this Agreement notwithstanding, State
Street shall be liable to the Fund for any claim, loss, liability,
damage or expense to the Fund, including attorney's fees, resulting
from use of a Securities System by reason of any negligence,
misfeasance or misconduct of State Street or any of its agents or of
any of its or their employees or from failure of State Street or any
such agent to enforce effectively such rights as it may have against
a Securities System. At the election of the Fund, it shall be
entitled to be subrogated to the rights of State Street or its
agents with respect to any claim against the Securities System or
any other person which State Street or its agents may have as a
consequence of any such claim, loss, liability, damage or expense if
and to the extent that the Fund has not been made whole for any such
loss or damage."
"BB. State Street's Records
The records of State Street (and its agents) with respect to its
services for the Fund shall at all times during the regular business
hours of State Street (or its agents) be open for inspection by duly
authorized officers employees or agents of the Fund and employees and
agents of the Securities and Exchange Commission."
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
office as of the day and year first written above.
KEYSTONE CUSTODIAN FUNDS, INC.
AS TRUSTEE FOR
KEYSTONE CUSTODIAN FUND,
SERIES B-4
By: [illegible]
----------------------------------
ATTEST:
[illegible]
- - - - - --------------------------------
STATE STREET BANK AND TRUST COMPANY
By: [illegible]
----------------------------------
ATTEST:
[illegible]
- - - - - --------------------------------
<PAGE>
SECOND AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE CUSTODIAN FUNDS, SERIES B-4
AND
STATE STREET BANK AND TRUST COMPANY
This Second Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between Keystone Custodian Funds, Inc. ("KCF")
and Trustee of KEYSTONE CUSTODIAN FUNDS, SERIES B-4 (the "Fund") and STATE
STREET BANK AND TRUST COMPANY ("State Street"), dated December 31, 1979 and
amended January 1, 1982 (the "Agreement") is made by and between the Fund and
State Street as of December 31, 1982.
In consideration of the mutual agreements contained herein, State
Street and the Fund hereby agree to amend the Agreement by replacing each of
Section II, Paragraph 4(G), Section II, paragraph 6(B), and Section II,
Paragraph 7 with the following provisions:
"4. G. Disbursements. Upon receipt of proper instructions, make or
cause to be made, insofar as cash is available for the purpose, disbursements
for the payment on behalf of the Fund of its costs and expenses or reimbursement
to State Street or Keystone Custodian Funds, Inc. for their payment of any such
costs and expenses including the management fee of the Fund as provided by the
Fund's Trust Agreement, as amended."
"6. B. Expense Reimbursement. State Street shall be entitled to receive
from the Fund on demand reimbursement for its cash disbursements, expenses and
charges, excluding salaries and usual overhead expenses, as set forth on the
attached Schedule C."
"7. The Fund shall pay State Street for its services as Custodian such
compensation as shall be as specified in the attached Schedule C. Such
compensation shall remain as provided in Schedule C until December 31, 1984,
unless this Agreement is terminated as provided in section 8A; provided,
however, that in the event either party terminates this Agreement as provided in
section 8A State Street hereby guarantees and agrees that no new Agreement
entered into between the parties shall require payment of compensation greater
than that specified herein during such period."
IN WITNESS WHEREOF, each of the parties hereto has caused this SECOND
Amendment to the Agreement to be executed in its name and on its behalf by a
duly authorized officer as of the day and year first written above.
KEYSTONE CUSTODIAN FUNDS, INC.
AS TRUSTEE FOR
KEYSTONE CUSTODIAN FUND,
SERIES B-4
By: /s/ Ralph J. Spuehler Jr.
----------------------------------
Treasurer
ATTEST:
/s/ Rosemary Van Antwerp
- - - - - -------------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ B. Weidlich
----------------------------------
Vice President
ATTEST:
/s/ [illegible]
- - - - - --------------------------------
<PAGE>
Schedule C
STATE STREET BANK AND TRUST COMPANY
Custodian Fee Schedule
KEYSTONE B-4
(Effective 1/1/83)
- - - - - ----------------------------------------------------------------------------
I. Administration
Custody, Portfolio and Fund Accounting service - Maintain custody of
fund assets. Settle portfolio purchases and sales. Report buy and sell
fail. Determine and collect portfolio income. make cash disbursements
and report cash transactions. Maintain investment ledgers, provide
selected portfolio transactions, position and income reports. Maintain
general ledger and capital stock accounts. Prepare daily trial balance.
Calculate net asset value daily. Provide selected general ledger
reports. Securities yield or market value quotations will be provided
to State Street from a source designated by the Fund.
The administration fee shown below is an annual charge, billed and
payable monthly, based on average net assets and calculated in the same
manner as the fund management fee.
Annual Fee
----------
Fund Net Assets
---------------
First $35 million 1/15/of 1%
Next $65 million 1/30 of 1%
Excess 1/100 of 1%
No Minimum
II. Portfolio Trades - For each line item processed
All Trades $10.00
III. Holdings & Appraisal Charge
For each issue maintained - monthly charge $ 5.00
<PAGE>
IV. Out-Of-Pocket Expenses
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of-pocket expenses include, but
are not limited to the following:
Telephone
Wire charges ($3.65 per wire in and $3.50 out)
Postage and insurance
Courier service
Legal fees
Supplied related to fund records
Rush transfer - $8 each
Duplicating
DTC Eligibility Books
Transfer fees
Sub-custodian charges
Price Waterhouse Audit Letter
Check writing ($.50 per check)
This fee schedule will terminate 12/31/83
<PAGE>
Schedule C
STATE STREET BANK AND TRUST COMPANY
Custodian Fee Schedule
KEYSTONE B-4
(Effective 1/1/84)
- - - - - ------------------------------------------------------------------------------
I. Administration
Custody, Portfolio and Fund Accounting service - Maintain custody of
fund assets. Settle portfolio purchases and sales. Report buy and sell
fail. Determine and collect portfolio income. Make cash disbursements
and report cash transactions. Maintain investment ledgers, provide
selected portfolio transactions, position and income reports. Maintain
general ledger and capital stock accounts. Prepare daily trial balance.
Calculate net asset value daily. Provide selected general ledger
reports. Securities yield or market value quotations will be provided
to State Street from a source designated by the Fund.
The administration fee shown below is an annual charge, billed and
payable monthly, based on average net assets and calculated in the same
manner as the fund management fee.
Annul Fee
---------
Fund Net Assets
---------------
First $35 million 1/15/of 1%
Next $65 million 1/30 of 1%
Excess 1/100 of 1%
No Minimum
II. Portfolio Trades - For each line item processed
All Trades $12.25
III. Holdings & Appraisal Charge
For each issue maintained - monthly charge $ 5.00
IV. Out-Of-Pocket Expenses
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of-pocket expenses include, but
are not limited to the following:
Telephone
Wire charges ($3.65 per wire in and $3.50 out)
Postage and insurance
Courier service
Legal fees
Supplied related to fund records
Rush transfer - $8 each
Duplicating
DTC Eligibility Books
Transfer fees
Sub-custodian charges
Price Waterhouse Audit Letter
Check writing ($.50 per check)
This fee schedule will terminate 12/31/84
<PAGE>
THIRD AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE CUSTODIAN FUND, SERIES B-4
AND
STATE STREET BANK AND TRUST COMPANY
This Third Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE CUSTODIAN FUNDS, INC., AS
TRUSTEE OF KEYSTONE CUSTODIAN FUND, SERIES B-4 (the "Fund")) and STATE STREET
BANK AND TRUST COMPANY ("State Street"), dated December 31, 1979, amended
January 1, 1982, and December 31, 1982 ("Agreement") is made by and between the
Fund and State Street as of December 31, 1984.
In consideration of the mutual agreements contained herein, State
Street and the Fund hereby agree to amend the Agreement by replacing each of
Section II, Paragraph 6(B), and Section II, Paragraph 7 with the following
provisions:
"6. B. Expense Reimbursement. State Street shall be entitled to receive
from the Fund on demand reimbursement for its cash disbursements, expenses and
charges, excluding salaries and usual overhead expenses, as set forth on the
attached Schedule D.
"7. The Fund shall pay State Street for its services as Custodian such
compensation as shall be as specified in the attached Schedule D. Such
compensation shall remain as provided in Schedule D until December 31, 1986,
unless this Agreement is terminated as provided in Section 8A; provided,
however, that in the event either party terminates this Agreement as provided in
Section 8A State Street hereby guarantees and agrees that no new agreement
entered into between the parties shall require payment during such period of
compensation greater than that specified herein."
<PAGE>
IN WITNESS WHEREOF, each of the paries hereto has caused this Amendment
to the Agreement to be executed in its name and on its behalf by a duly
authorized officer as of the day and year first written above.
KEYSTONE CUSTODIAN FUNDS, INC.
AS TRUSTEE FOR
KEYSTONE CUSTODIAN FUND,
SERIES B-4
ATTEST: By: /s/ Ralph Spuehler Jr.
----------------------------------
/s/ Rosemary Van Antwerp
- - - - - ------------------------------------- Office: Treasurer
STATE STREET BANK AND TRUST COMPANY
ATTEST: By: /s/ B. Weidlich
----------------------------------
/s/ [illegible]
- - - - - ------------------------------------- Office: Vice President
<PAGE>
Schedule D
STATE STREET BANK AND TRUST COMPANY
Custodian Fee Schedule
KEYSTONE CUSTODIAN FUNDS, SERIES B-4
(Effective 1/1/95)
I. Administration
Custodian, Portfolio and Fund Accounting Service - Maintain custody of Fund
assets. Settle portfolio purchases and sales. Report buy and sell fails.
Determine and collect portfolio income. Make cash disbursements and report cash
transactions. Maintain investment ledgers, provide selected portfolio
transactions, position and income reports. Maintain general ledger and capital
stock accounts. Prepare daily trial balance. Calculate net asset value daily.
Provide selected general ledger reports. Securities yield or market value
quotations will be provided to Sate street from a source designated by the Fund.
The administration fee shown below is an annual charge, billed and payable
monthly, based on average net assets and calculated in the same manner as the
Fund management fee.
Annual Fee
----------
Fund Net Assets
- - - - - ---------------
First $35 million 1/15 of 1%
Next $65 million 1/30 of 1%
Excess 1/100 of 1%
No minimum
II. Portfolio Trades - For each line item processed
a) Depository Trust Company and Federal Reserve
Book Entry System $12.25
b) Physical delivery, options nd all other
trades $16.00
III. Holdings & Appraisal Charge
For each issue maintained - monthly charge $ 5.00
IV. Out-of-Pocket Expenses
A billing for the recovery of applicable out-of-pocket expenses will
be made as of the end of each month. Out-of-pocket expenses include,
but are not limited to the following:
Telephone
Wire charges ($3.85 per wire in the $3.60 out)
Postage and insurance
Courier service
Legal fees
Supplies related to Fund records
Rush transfer - $8.00 each
Duplicating
DTC eligibility books
Transfer fees
Sub-custodian charges
Price Waterhouse audit letter
Check writing ($.50 per check)
V. Additional Accounting and Reporting Functions
$150 per month
This fee schedule will terminate 12/31/86
#10160631
<PAGE>
FOURTH
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE CUSTODIAN FUNDS, INC.,
AS TRUSTEE FOR
KEYSTONE CUSTODIAN FUND, SERIES B-4
AND
STATE STREET BANK AND TRUST COMPANY
This Fourth Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE CUSTODIAN FUNDS, INC. AS TRUSTEE
FOR KEYSTONE CUSTODIAN FUND, SERIES B-4 ("Fund") and STATE STREET BANK AND TRUST
COMPANY ("State Street"), dated December 31, 1979 and amended through December
31, 1984 ("Agreement") is made by and between the Fund and State Street as of
September 1, 1988.
In consideration of the mutual agreements contained herein, State
Street and the Fund hereby agree to amend the Agreement as follows:
1. Section II, Paragraph 3(K) is amended by inserting the following
language after Paragraph 3(J) and by renumbering existing Paragraph 3(K) as
Paragraph 3(L):
" K. Compliance with Applicable Rules and Regulations of The
Options Clearing Corporation and National Securities or Commodities Exchanges or
Commissions. Upon receipt of proper instructions, deliver securities in
accordance with the provisions of any agreement among the Fund, the Custodian
and a broker-dealer registered under the Securities Exchange Act of 1934
("Exchange Act") and a member of the National Association of Securities Dealers,
Inc.("NASD"), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund; or, upon receipt of proper
instructions deliver securities in accordance with the provisions of any
agreement among the Fund, the Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract market, or
any similar organization or organizations, regarding account deposits in
connection with transactions by the Fund."
2. Existing Section II, Paragraph 3(L) is renumbered as Paragraph 3(M).
3. The following language is inserted after new Paragraph 3(M) as
Paragraph 3(N) :
" N. Segregated Account. The Custodian shall upon receipt of
proper instructions, establish and maintain a segregated account or accounts for
and on behalf of the Fund, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by the
Custodian pursuant to Paragraph 3(B) hereof, (i) in accordance with the
provisions of any agreement among the Fund, the Custodian and a broker-dealer
registered under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold by the Fund,
(iii) for the purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or releases
of the Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv), for other
proper corporate purposes, but only, in the case of clause (iv), upon receipt
of, in addition to proper instructions, a certified copy of a resolution of the
Board of Trustees signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes of
such segregated account and declaring such purposes to be proper corporate
purposes."
4. Existing Section II, Paragraphs 3(M) and 3(N) are renumbered as
Paragraphs 3(O) and 3(P).
5. In all other respects the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
officer as of the day and year first above written.
ATTEST: KEYSTONE CUSTODIAN FUNDS, INC.
AS TRUSTEE FOR
KEYSTONE CUSTODIAN FUND,
SERIES B-4
/s/ Rosemary D. Van Antwerp By: /s/ Albert H. Elfner, III
- - - - - ----------------------------- ------------------------------
President
ATTEST: STATE STREET BANK AND TRUST
COMPANY
/s/ [illegible] /s/ [illegible]
- - - - - ----------------------------- By: ------------------------------
Vice President
<PAGE>
FIFTH
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE CUSTODIAN FUNDS, INC.
AS TRUSTEE OF
KEYSTONE CUSTODIAN FUND, SERIES B-4
AND
STATE STREET BANK AND TRUST COMPANY
This Fifth Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE CUSTODIAN FUNDS, INC. AS TRUSTEE
OF KEYSTONE CUSTODIAN FUND, SERIES B-4, ("Fund") and STATE STREET BANK AND TRUST
COMPANY ("State Street"), dated December 31, 1979 and amended through September
1, 1988 ("Agreement") is made by and between the Fund and State Street as of
January 1, 1989.
In consideration of the mutual agreements contained herein, State
Street and the Fund hereby agree to amend the Agreement as follows:
1. Section 3-D of Section II entitled, Purchases is amended by
concluding the first sentence of such paragraph with the following:
"or, upon receipt by State Street of a facsimile copy of a letter of
understanding with respect to a time deposit account of the Fund signed
by any bank, whether domestic or foreign, and pursuant to Proper
Instructions from the Fund as defined in Section 5-A, for transfer to
the time deposit account of the Fund in such bank; such transfer may be
effected prior to receipt of a confirmation from a broker and/or the
applicable bank."
2. Section II is amended by deleting existing Paragraph 7 and by
inserting the following as Paragraph 7:
" 7. The Fund shall pay State Street for its services as Custodian such
compensation as shall be specified in the attached Exhibit A. Such
compensation shall remain fixed until December 31, 1989, unless this
Agreement is terminated as provided in Section 8A."
3. In all other respects the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
officer as of the day and year first above written.
ATTEST: KEYSTONE CUSTODIAN FUNDS, INC.
AS TRUSTEE FOR
KEYSTONE CUSTODIAN FUND,
SERIES B-4
/s/ Rosemary D. Van Antwerp By: /s/ Albert H. Elfner, III
- - - - - ----------------------------- ------------------------------
President
ATTEST: STATE STREET BANK AND TRUST
COMPANY
/s/ [illegible] /s/ [illegible]
- - - - - ----------------------------- By: ------------------------------
Vice President
<PAGE>
SIXTH
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE CUSTODIAN FUND, SERIES B-4
AND
STATE STREET BANK AND TRUST COMPANY
This Sixth Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE CUSTODIAN FUND, SERIES B-4
("Fund") and STATE STREET BANK AND TRUST COMPANY ("State Street"), dated
December 31, 1979 and amended through January 1, 1989 ("Agreement"), is made by
and between the Fund and State Street as of February 8, 1990.
In consideration of the mutual agreements contained herein, State
Street and the Fund hereby agree to amend the Agreement as follows:
1. Section II is amended by deleting Paragraph 8 and by inserting the
following as Paragraph 7A:
" 7A. The Fund shall pay State Street for its services as Custodian
such compensation as specified in the existing Schedule A. Such
compensation shall remain fixed until March 31, 1990 unless this
Agreement is terminated as provided in Paragraph 8A."
2. In all other respects the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
officer as of the day and year first above written.
ATTEST: KEYSTONE CUSTODIAN FUND,
SERIES B-4
/s/ [illegible] By: /s/ [illegible]
- - - - - ----------------------------- ------------------------------
ATTEST: STATE STREET BANK AND TRUST
COMPANY
/s/ [illegible] /s/ [illegible]
- - - - - ----------------------------- By: ------------------------------
Vice President
<PAGE>
SEVENTH
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE CUSTODIAN FUND, SERIES B-4
AND
STATE STREET BANK AND TRUST COMPANY
This Seventh Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE CUSTODIAN FUND, SERIES B-4, a
Pennsylvania common law trust organized and existing under the laws of the state
of Pennsylvania and having a principal place of business at 99 High Street,
Boston, Massachusetts 02110 (hereinafter called the "Fund"), and State Street
Bank and Trust Company, a Massachusetts trust company, having its principal
place of business at 225 Franklin Street, Boston, Massachusetts 02110
(hereinafter called the "Custodian").
WHEREAS: The Fund and the Custodian are parties to a Custodian, Fund
Accounting and Recordkeeping Agreement dated December 31, 1979, as most recently
amended January 1, 1989 (the "Custodian Contract");
WHEREAS: The Fund desires that the Custodian issue a letter of credit
(the "Letter of Credit") on behalf of the Fund for the benefit of ICI Mutual
Insurance Company (the "Company") in accordance with the Continuing Letter of
Credit and Security Agreement and that the Fund's obligations to the Custodian
with respect to the Letter of Credit shall be fully collateralized at all times
while the Letter of Credit is outstanding by, among other things, segregated
assets of the Fund equal to 100% of the Fund's proportionate share of the face
amount of the Letter of Credit;
WHEREAS: The Custodian Contract provides for the establishment of
segregated accounts for proper Fund purposes upon Proper Instructions (as
defined in the Custodian Contract); and
WHEREAS: The Fund and the Custodian desire to establish a segregated
account to hold the collateral for the Fund's obligations to the Custodian with
respect to the Letter of Credit and to amend the Custodian Contract to provide
for the establishment and maintenance thereof:
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto hereby amend the Custodian
Contract as follows:
1. Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Custodian Contract.
2. The Fund hereby instructs the Custodian to establish and maintain
a segregated account (the "Letter of Credit Custody Account") for
and on behalf of the Fund as contemplated by [Section II,
Paragraph 3N (iv) of the Custodian Contract] for the purpose of
collateralizing the Fund's obligations under this Amendment to
the Custodian Contract.
3. The Fund shall deposit with the Custodian and the Custodian shall
hold in the Letter of Credit Custody Account cash, certificates
of deposit, U.S. government securities or other high-grade debt
securities owned by the Fund acceptable to the Custodian
(collectively "Collateral Securities") equal to 100% of the
Fund's proportionate share of the face amount which the Company
may draw under the Letter of Credit. Upon receipt of such
Collateral Securities in the Letter of Credit Custody Account,
the Custodian shall issue the Letter of Credit to the Company.
4. The Fund hereby grants to the Custodian a security interest in
the Collateral Securities from time to time in the Letter of
Credit Custody Account (the "Collateral") to secure the
performance of the Fund's obligations to the Custodian with
respect to the Letter of Credit, including, without limitation,
under Section 5-144(3) of the Uniform Commercial Code. The Fund
shall register the pledge of Collateral and execute and deliver
to the Custodian such powers and instruments of assignment as may
be requested by the Custodian to evidence and perfect the limited
interest in the Collateral granted hereby.
5. The Collateral Securities in the Letter of Credit Custody Account
may be substituted or exchanged (including substitutions or
exchanges which increase or decrease the aggregate value of the
Collateral) only pursuant to Proper Instructions from the Fund
after the Fund notifies the Custodian of the contemplated
substitution or exchange and the Custodian agrees that such
substitution or exchange is acceptable to the Custodian.
6. Upon any payment made pursuant to the Letter of Credit by the
Custodian to the Company, the Custodian may withdraw from the
Letter of Credit Custody Account Collateral Securities in an
amount equal in value to the amount actually so paid. The
Custodian shall have with respect to the Collateral so withdrawn
all of the rights of a secured creditor under the Uniform
Commercial Code as adopted in the Commonwealth of Massachusetts
at the time of such withdrawal and all other rights granted or
permitted to it under law.
7. The Custodian will transfer upon receipt all income earned on the
Collateral to the Fund custody account unless the Custodian
receives Proper Instructions from the Fund to the contrary.
8. Upon the drawing by the Company of all amounts which may become
payable to it under the Letter of Credit and the withdrawal of
all Collateral Securities with respect thereto by the Custodian
pursuant to Section 6 hereof, or upon the termination of the
Letter of Credit by the Fund with the written consent of the
Company, the Custodian shall transfer any Collateral Securities
then remaining in the Letter of Credit Custody Account to another
fund custody account.
9. Collateral held in the Letter of Credit Custody Account shall be
released only in accordance with the provisions of this Amendment
to Custodian Contract. The Collateral shall at all times until
withdrawn pursuant to Section 6 hereof remain the property of the
Fund, subject only to the extent of the interest granted herein
to the Custodian.
10. Notwithstanding any other termination of the Custodian Contract,
the Custodian Contract shall remain in full force and effect with
respect to the Letter of Credit Custody Account until transfer of
all Collateral Securities pursuant to Section 8 hereof.
11. The Custodian shall be entitled to reasonable compensation for
its issuance of the Letter of Credit and for its services in
connection with the Letter of Credit Custody Account as agreed
upon from time to time between the Fund and the Custodian.
12. The Custodian Contract as amended hereby shall be governed by,
and construed and interpreted under, the laws of the Commonwealth
of Massachusetts.
13. The parties agree to execute and deliver all such further
documents and instruments and to take such further action as may
be required to carry out the purposes of the Custodian Contract,
as amended hereby.
14. Except as provided in this Amendment, the Custodian Contract
shall remain in full force and effect, without amendment or
modification, and all applicable provisions of the Custodian
Contract, as amended hereby, shall govern the Letter of Credit
Custody Account and the rights and obligations of the Fund and
the Custodian under this Amendment to Custodian Contract. No
provision of this Amendment to Custodian Contract shall be deemed
to constitute a waiver of any rights of the Custodian under the
Custodian Contract or under law.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to
Custodian Contract to be executed in its name and behalf by its duly authorized
representatives and its seal to be hereunder affixed as of the 8th day of
February, 1990.
ATTEST: KEYSTONE CUSTODIAN FUND,
SERIES B-4
/s/ [illegible] By: /s/ [illegible]
- - - - - ----------------------------- ------------------------------
ATTEST: STATE STREET BANK AND TRUST
COMPANY
/s/ [illegible] /s/ [illegible]
- - - - - ----------------------------- By: ------------------------------
Assistant Secretary Vice President
<PAGE>
EIGHTH
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE CUSTODIAN FUND, SERIES B-4
AND
STATE STREET BANK AND TRUST COMPANY
This Eighth Amendment to the Custodian, Fund Accounting and Recordkeeping
Agreement by and between KEYSTONE CUSTODIAN FUND, SERIES B-4 ("Fund") and STATE
STREET BANK AND TRUST COMPANY ("State Street"), dated December 31, 1979 and as
amended from time to time ("Agreement") is made by and between the Fund and
State Street as of November 1, 1992.
In consideration of the mutual agreements contained herein, State Street
and the Fund hereby agree to amend the Agreement as follows:
I. THE FOLLOWING LANGUAGE IS INSERTED AFTER SECTION II, PARAGRAPH 3(0) AS
PARAGRAPH 3(P):
"P. Property of the Fund Held Outside of the United States
1. Appointment of Foreign Subcustodians.
State Street is authorized and instructed to employ as Subcustodians for
the Fund's securities and other assets maintained outside of the United States
the foreign banking institutions and foreign securities depositories designated
on Schedule C hereto ("Foreign Subcustodians"). Upon receipt of Proper
Instructions, together with a certified resolution of the Fund's Board of
Trustees, State Street and the Fund may agree to amend Schedule C hereto from
time to time to designate additional foreign banking institutions and foreign
securities depositories to act as Foreign Subcustodians. Upon receipt of Proper
Instructions from the Fund, State Street shall cease the employment of any one
or more of such Subcustodians for maintaining custody of the Fund's assets.
2. Assets to be Held.
State Street shall limit the securities and other assets maintained in the
custody of the Foreign Subcustodians to: (a) "foreign securities", as defined in
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of 1940 ("1940
Act"), and (b) cash and cash equivalents in such amounts as State Street or the
Fund may determine to be reasonably necessary to effect the Fund's foreign
securities transactions.
3. Foreign Securities Depositories.
Except as may otherwise be agreed upon in writing by State Street and the
Fund, assets of the Fund shall be maintained in foreign securities depositories
only through arrangements implemented by the foreign banking institutions
serving as Foreign Subcustodians pursuant to the terms hereof.
4. Segregation of Securities.
State Street shall identify on its books as belonging to the Fund, the
foreign securities of the Fund held by each Foreign Subcustodian. Each agreement
pursuant to which State Street employs a foreign banking institution shall
require that such institution establish a custody account for State Street on
behalf of the Fund, and physically segregate in that account, securities and
other assets of the Fund, and, in the event that such institution deposits the
Fund's securities in a foreign securities depository, that it shall identify on
its books as belonging to State Street, as agent for the Fund, the securities so
deposited (all collectively referred to as the "account").
5. Agreements with Foreign Banking Institutions.
Each agreement with a foreign banking institution shall be substantially in
the form set forth in Schedule D hereto and shall provide that:
a. the Fund's assets will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the foreign banking
institution or its creditors or agents, except a claim of payment for their safe
custody or administration;
b. the Foreign Subcustodian shall maintain insurance covering the
Fund's assets,
c. beneficial ownership for the Fund's assets will be freely
transferable without the payment of money or value other than for custody or
administration;
d. adequate records will be maintained identifying the assets as
belonging to the Fund;
e. officers of or auditors employed by, or other representatives
of State Street, including to the extent permitted under applicable law, the
independent public accountants for the Fund, will be given access to the books
and records of the foreign banking institution relating to its actions under its
agreement with State Street;
f. assets of the Fund held by the Foreign Subcustodian will be
subject only to the instructions of State Street or its agents; and
g. the Foreign Subcustodian will provide periodic reports with
respect to the safekeeping of the Fund's assets, including notification of any
transfer to or from the Fund's account.
6. Access of Independent Accountants of the Fund.
Upon request of the Fund, State Street will use its best efforts to arrange
for the independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a Foreign
Subcustodian insofar as such books and records relate to the performance of such
foreign banking institutions under its agreement with State Street.
7. Reports by State Street.
State Street will supply to the Fund from time to time, as mutually agreed
upon, statements in respect of the securities and other assets of the Fund held
by Foreign Subcustodians, including but not limited to an identification of
entities having possession of the Fund's securities and other assets and advices
or notifications of any transfers of securities of or from each custodian
account maintained by a foreign banking institution for State Street on behalf
of the Fund indicating, as to securities acquired for the Fund, the identity of
the entity having physical possession of such securities.
8. Transactions in Foreign Custody Account.
a. Upon receipt of Proper Instructions, which may be continuing
Instructions when deemed appropriate by the parties, State Street shall make or
cause its Foreign Subcustodian to transfer, exchange or deliver foreign
securities owned by the Fund, but, except to the extent explicitly provided in
this Section II(3)(P), only in any of the cases specified in this Agreement:
b. Upon receipt of Proper Instructions, which may be continuing
Instructions when deemed appropriate by the parties, State Street shall pay out
or, cause its Foreign Subcustodians to pay out monies of the Fund, but, except
to the extent explicitly provided in this Section II(3)(P), only in any of the
cases specified in this Agreement;
c. Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for securities received for the account of the Fund and
delivery of securities maintained for the account of the Fund may be effected in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer thereof (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer;
d. Securities maintained in the custody of a Foreign Subcustodian
may be maintained in the name of such entity's nominee to the same extent as set
forth in Section II, Paragraphs (2) and (3)(P) of this Agreement and the Fund
agrees to hold any such nominee harmless from any liability as a holder of
record of such securities.
9. Liability of Foreign Subcustodians.
Each agreement pursuant to which State Street employs a foreign
banking institution as a Foreign Subcustodian shall require the institution to
exercise reasonable care in the performance of its duties and to indemnify and
hold harmless State Street and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the Fund, it
shall be entitled to be subrogated to the rights of State Street with respect to
any claims against a foreign banking institution as a consequence of any such
loss, damage, cost, expense, liability or claim if and to the extent that the
Fund has not been made whole for any such loss, damage, cost, expense, liability
or claim.
10. Liability of State Street.
State Street shall be liable to the Fund for the acts or omissions of a
foreign banking institution appointed pursuant to these provisions to the
same extent that such foreign banking institution is liable to State Street as
provided under Section 3(P)(9); provided, however, that State Street shall not
be liable to the Fund for any loss resulting from or caused by nationalization,
expropriation, currency restrictions, acts of war or terrorism or other similar
events or acts.
11. Monitoring Responsibilities.
State Street shall furnish annually to the Fund, during the month of
June, information concerning the Foreign Subcustodians employed by State
Street. Such information shall be similar in kind and scope to that furnished to
the Fund in connection with the initial approval of this Agreement. In addition,
State Street will promptly inform the Fund in the event that State Street learns
of a material adverse change in the financial condition of a Foreign
Subcustodian or any material loss in the assets of the Fund, or is notified by a
foreign banking institution employed as a Foreign Subcustodian that there
appears to be a substantial likelihood that its shareholders' equity will
decline below $200 million (U.S. dollars of the equivalent thereof) or that its
shareholders equity has declined below $200 million (in each case computed in
accordance with generally accepted U.S. accounting principles.)
12. Branches of U.S. Banks.
Except as otherwise set forth in this Agreement, the provisions hereof
shall not apply where the custody of the Fund assets maintained is a
foreign branch of a banking institution which is a "bank" as defined by Section
2(a)-(5) of the 1940 Act which meets the qualifications set forth in Section
26(a) of the 1940 Act. The appointment of any such branch as a subcustodian
shall be governed by Paragraph 6(C) of Section II of this Agreement."
II. IN ALL OTHER RESPECTS THE AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
officer as of the day and year first above written.
ATTEST: KEYSTONE CUSTODIAN FUND, SERIES B-4
/s/ Dorothy Bourassa /s/ Albert H. Elfner
- - - - - --------------------------------- By: ----------------------------------
President
ATTEST: STATE STREET BANK AND TRUST COMPANY
/s/ Illegible /s/ Illegible
- - - - - --------------------------------- By: ----------------------------------
Vice President
<PAGE>
Schedule C
SCHEDULE A
17f-5 APPROVAL
The Board of Directors/Trustees of Keystone Custodian Fund, Series B-4 has
approved certain foreign banking institutions and foreign securities
depositories within State Street's Global Custody Network for use as
subcustodians for the Fund's securities, cash and cash-equivalents held outside
of the United States. Board approval is as indicated by the Fund's Authorized
Officer:
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
DEB Argentina Citibank, N.A. Caja deValores S.A.
DEB Australia Westpac Banking Austraclear Limited;
Corporation
Reserve Bank Information and
Transfer System (RITS)
DEB Austria GiroCredit Bank Oesterreichische
Aktiengesellschaft Kontrollbank AG
der Sparkassen
- - - - - --- Bangladesh Standard Chartered Bank None
DEB Belgium Generale Bank Caisse Interprofessionnelle
de Depots et de Virements
de Titres S.A. (CIK);
Banque Nationale de Belgique
- - - - - --- Botswana Barclays Bank of Botswana None
Limited
DEB Brazil Citibank. N.A. Bolsa de Valores de
Sao Paulo (Bovespa);
Banco Central do Brasil,
Systema Especial de
Liquidacao e Custodia
(SELIC)
DEB Canada Canada Trustco The Canadian Depository
Mortgage Company for Securities Limited (CDS)
<PAGE>
SCHEDULE A
17f-5 APPROVAL
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
DEB Chile Citibank, N.A. None
- - - - - --- China The Hongkong and Shanghai Securities Central
Shanghai Banking Clearing and Registration
Corporation Limited Corporation (SSCCRC);
Schenzhen Securities
Registrars Co., Ltd. and
its designated agent banks
DEB Colombia Cititrust Colombia S.A. None
Sociedad Fiduciaria
- - - - - --- Cyprus Barclays Bank PLC None
- - - - - --- Czech Ceskoslovenska Obchodni Stredisko Cennych Papiru
Republic Banka A.S. (SCP); Czech National
Bank (CNB)
DEB Denmark Den Danske Bank Vaerdipapircentralen-
The Danish Securities
Center (VP)
- - - - - --- Egypt National Bank of Egypt None
DEB Finland Kansallis-Osake-Pankki The Central Share Register
of Finland
DEB France Banque Paribas Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobilieres
(SICOVAM);
Banque de France,
Saturne System
DEB Germany Berliner Handels- The Deutscller
und Frankfurter Bank Kassenverein AG
<PAGE>
SCHEDULE A
17f-5 APPROVAL
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- - - - - --- Ghana Barclays Bank of Ghana None
Limited
DEB Greece National Bank of Greece S.A. The Central Securities
Depository
(Apothetirio Titlon A.E.)
DEB Hong Kong Standard Chartered Bank The Central Clearing and
Settlement System (CCASS)
DEB Hungary Citibank Budapest Rt. None
- - - - - --- India The Hongkong and None
Shanghai Banking
Corporation Limited
DEB Indonesia Standard Chartered Bank None
- - - - - --- Ireland Bank of Ireland None;
The Central Bank of Ireland,
The Gilt Settlement Office
(GSO)
- - - - - --- Israel Bank Hapoalim B.M. The Clearing House of the
Tel Aviv Stock Exchange
DEB Italy Morgan Guaranty Monte Titoli S.p.A.;
Trust Company
Banca d'Italia
DEB Japan Sumitomo Trust None;
& Banking Co., Ltd.
Bank of Japan Net System
- - - - - --- Jordan The British Bank of the None
Middle East
<PAGE>
SCHEDULE A
17f-5 APPROVAL
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- - - - - --- Kenya Barclays Bank of Kenya None
Limited
DEB Korea Bank of Seoul Korea Securities Depository
(KSD)
DEB Malaysia Standard Chartered Bank None
Malaysia Berhad
DEB Mexico Citibank, N.A. S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito
de Valores);
Banco de Mexico
- - - - - --- Morocco Banque Commerciale None
du Maroc
DEB Netherlands MeesPierson N.V. Nederlands Centraal
Instituut voor Giraal
Effectenverkeer B.V.
(NECIGEF)
DEB New Zealand ANZ Banking Group None;
(New Zealand) Limited
The Reserve Bank of
New Zealand,
Austraclear NZ
DEB Norway Christiania Bank og Verdipapirsentralen-
Kreditkasse The Norwegian Registry
of Securities (VPS)
- - - - - --- Pakistan Deutsche Bank AG None
DEB Peru Citibank, N.A. Caja de Valores (CAVAL)
DEB Philippines Standard Chartered Bank None
<PAGE>
SCHEDULE A
17f-5 APPROVAL
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- - - - - --- Poland Citibank Poland S.A. The National Depository
of Securities (Centrum
Krajowego Depozvtu
Papierow Wartosciowych)
DEB Portugal Banco Comercial Portugues Central de Valores
Mobiliarios (Central)
DEB Singapore The Development Bank The Central Depository
of Singapore Ltd. (Pte) Limlted (CDP)
- - - - - --- South Africa Standard Bank of None
South Africa Limited
DEB Spain Banco Santander, S.A. Servicio de Compensacion y
Liquidacion de Valores
(SCLV);
Banco de Espana.
Anotaciones en Cuenta
- - - - - --- Sri Lanka The Hongkong and The Central Depository
Shanghai Banking System (Pvt) Limited
Corporation Limited
DEB Sweden Skandinaviska Enskilda Vardepapperscentralen
Banken The Swedish Securities
Register Center (VPC)
DEB Switzerland Union Bank of Switzerland Schweizerische Effekten-
Giro AG (SEGA)
- - - - - --- Taiwan Central Trust of China The Taiwan Securities
Central Depository
Company, Ltd. (TSCD)
<PAGE>
SCHEDULE A
17f-5 APPROVAL
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
DEB Thailand Standard Chartered Bank The Share Depository Center
(SDC)
DEB Turkey Citibank, N.A. Istanbul Stock Exchange
Settlement and Custody Co.,
Inc. (I.M.K.B. Takas ve
Saklama A.S.)
DEB United State Street Bank and None;
Kingdom Trust Company
The Bank of England,
The Central Gilts Office
(CGO);
The Central Moneymarkets
Office (CMO)
DEB Uruguay Citibank, N.A. None
DEB Venezuela Citibank, N.A. None
- - - - - --- Zambia Barclays Bank of Zambia None
Limited
- - - - - --- Zimbabwe Barclays Bank of Zimbabwe None
Limited
DEB Euroclear / State Street London Limited
DEB Cedel / State Street London Limited
CERTIFIED BY:
/s/ Rosemary Van Antwerp 9/27/94
- - - - - ------------------------------------------ ----------------------------
Fund's Authorized Officer Date
<PAGE>
Schedule D
SUBCUSTODIAN AGREEMENT
AGREEMENT made this day of _, 19__,
between State Street Bank and Trust Company, A Massachusetts Trust Company
(hereinafter referred to as the "Custodian"), having its principal place of
business at 225 Franklin Street, Boston, MA, and
(hereinafter referred to as the
"Subcustodian"), a organized under the laws of
and having an office at
WHEREAS, Custodian has been appointed to act as Trustee, Custodian or
Subcustodian of securities and monies on behalf of certain of its customers
including, without limitation, collective investment undertakings, investment
companies subject to the U.S. Investment Company Act of 1940, as amended, and
employee benefit plans subject to the U.S. Employee Retirement Income Security
Act of 1974, as amended;
WHEREAS, Custodian wishes to establish Account (the "Account") with the
Subcustodian to hold and maintain certain property for which Custodian is
responsible as custodian; and
WHEREAS, Subcustodian agrees to establish the Account and to hold and
maintain all Property in the Account in accordance with the terms and conditions
herein set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the Custodian and the Subcustodian agree as follows:
I. The Account
A. Establishment of the Account. Custodian hereby requests that
Subcustodian establish for each client of the Custodian an Account which shall
be composed of:
1. A Custody Account for any and all Securities (as hereinafter defined)
from time to time received by Subcustodian therefor, and
2. A Deposit Account for any and all Cash (as hereinafter defined) from
time to time received by Subcustodian therefor.
B. Use of the Account. The Account shall be used exclusively to hold,
acquire, transfer or otherwise care for, on behalf of Custodian as custodian and
the customers of Custodian and not for Custodian's own interest, Securities and
such Cash or cash equivalents as are transferred to Subcustodian or as are
received in payment of any transfer of, or as payment on, or interest on, or
dividend from, any such Securities (herein collectively called "Cash").
C. Transfer of Property in the Account. Beneficial ownership of the
Securities and Cash in the Account shall be freely transferable without payment
of money or value other than for safe custody and administration.
D. Ownership and Segregation of Property in the Account. The ownership of
the property in the Account, whether Securities, Cash or both, and whether any
such property is held by Subcustodian in an Eligible Depository, shall be
clearly recorded on Subcustodian's books as belonging to Custodian on behalf of
Custodian's customers, and not for Custodian's own interest and, to the extent
that Securities are physically held in the Account, such Securities shall also
be physically segregated from the general assets of Subcustodian, the assets of
Custodian in its individual capacity and the assets of Subcustodian's other
customers. In addition, Subcustodian shall maintain such other records as may be
necessary to identify the property hereunder as belonging to each Account.
E. Registration of Securities in the Account. Securities which are eligible
for deposit in a depository as provided for in Paragraph III may be maintained
with the depository in an account for Subcustodian's customers. Securities which
are not held in a depository and that are ordinarily held in registered form
will be registered in the name of Subcustodian or in the name of Subcustodian's
nominee, unless alternate Instructions are furnished by Custodian.
II. Services to Be Provided By the Subcustodian
The services Subcustodian will provide to Custodian and the manner in which
such services will be performed will be as set forth below in this Agreement.
A. Services Performed Pursuant to Instructions. All transactions involving
the Securities and Cash in the Account shall be executed solely in accordance
with Custodian's Instructions as that term is defined in Paragraph IV hereof,
except those described in paragraph B below.
B. Services to Be Performed Without Instructions. Subcustodian will, unless
it receives Instructions from Custodian to the contrary:
1. Collect Cash. Promptly collect and receive all dividends, income,
principal, proceeds from transfer and other payments with respect to property
held in the Account, and present for payment all Securities held in the Account
which are called, redeemed or retired or otherwise become payable and all
coupons and other income items which call for payment upon presentation, and
credit Cash receipts therefrom to the Deposit Account.
2. Exchange Securities. Promptly exchange Securities where the exchange
is purely ministerial including, without limitation, the exchange of temporary
Securities for those in definitive form and the exchange of warrants, or other
documents of entitlement to Securities, for the Securities themselves.
3. Sale of Rights and Fractional Interests. Whenever notification of a
rights entitlement or a fractional interest resulting from a rights issue, stock
dividend or stock split is received for the Account and such rights entitlement
or fractional interest bears an expiration date, Subcustodian will promptly
endeavor to obtain Custodian's Instructions, but should these not be received in
time for Subcustodian to take timely action, Subcustodian is authorized to sell
such rights entitlement or fractional interest and to credit the Account.
4. Execute Certificates. Execute in Custodian's name for the Account,
whenever Subcustodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of income from the
Securities held in the account.
5. Pay Taxes and Receive Refunds. To pay or cause to be paid from the
Account any and all taxes and levies in the nature of taxes imposed on the
property in the Account by any governmental authority, and to take all steps
necessary to obtain all tax exemptions, privileges or other benefits, including
reclaiming and recovering any foreign withholding tax, relating to the Account
and to execute any declaration, affidavits, or certificates of ownership which
may be necessary in connection therewith.
6. Prevent Losses. Take such steps as may be reasonably necessary to secure
or otherwise prevent the loss of, entitlements attached to or otherwise relating
to property held in the Account.
C. Additional Services.
1. Transmission of Notices of Corporate Action. By such means as will
permit Custodian to take timely action with respect thereto, Subcustodian will
promptly notify Custodian upon receiving notices or reports, or otherwise
becoming aware, of corporate action affecting Securities held in the Account
(including, but not limited to, calls for redemption, mergers, consolidations,
reorganizations, recapitalizations, tender offers, rights offerings, exchanges,
subscriptions and other offerings) and dividend, interest and other income
payments relating to such Securities.
2. Communications Regarding the Exercise of Entitlements. Upon request by
Custodian, Subcustodian will promptly deliver, or cause any Eligible Depository
authorized and acting hereunder to deliver, to Custodian all notices, proxies,
proxy soliciting materials and other communications that call for voting or the
exercise of rights or other specific action (including material relative to
legal proceedings intended to be transmitted to security holders) relating to
Securities held in the Account to the extent received by Subcustodian or said
Eligible Depository, such proxies or any voting instruments to be executed by
the registered holder of the Securities, but without indicating the manner in
which such Securities are to be voted.
3. Monitor Financial Service. In furtherance of its obligations under
this Agreement, Subcustodian will monitor a leading financial service with
respect to announcements and other information respecting property held in the
Account, including announcements and other information with respect to corporate
actions and dividend, interest and other income payments.
III. Use of Securities Depository
Subcustodian may, with the prior written approval of Custodian, maintain
all or any part of the Securities in the Account with a securities depository or
clearing agency which is incorporated or organized under the laws of a country
other than the United States of America and is supervised or regulated by a
government agency or regulatory authority in the foreign jurisdiction having
authority over such depositories or agencies, and which operates (a) the central
system for handling of designated securities or equivalent book entries in _
, or (b) a transnational system for the central
handling of securities or equivalent book entries (herein called "Eligible
Depository"), provided however, that, while so maintained, such Securities shall
be subject only to the directions of Subcustodian, and that Subcustodian duties,
obligations and responsibilities with regard to such Securities shall be the
same as if such Securities were held by Subcustodian on its premises.
IV. Claims Against Property in the Account
The property in the account shall not be subject to any right, charge,
security interest, lien or claim of any kind (collectively "Charges") in favor
of Subcustodian or any Eligible Depository or any creditor of Subcustodian or of
any Eligible Depository except a claim for payment for such property's safe
custody or administration in accordance with the terms of this Agreement.
Subcustodian will immediately notify Custodian of any attempt by any party to
assert any Charge against the property held in the Account and shall take all
lawful actions to protect such property from such Charges until Custodian has
had a reasonable time to respond to such notice.
V. Subcustodian's Warranty
Subcustodian represents and warrants that:
(A) It is a branch of a "qualified U.S. bank" or an "eligible foreign
custodian" as those terms are defined in Rule 17f-5 of the Investment Company
Act of 1940, a copy of which is attached hereto as Attachment A (the "Rule"),
and Subcustodian shall immediately notify Custodian, in writing or by other
authorized means, in the event that there appears to be a substantial likelihood
that Subcustodian will cease to qualify under the Rule as currently in effect or
as hereafter amended, or
(B) It is the subject of an exemptive order issued by the United States
Securities and Exchange Commission which order permits Custodian to employ
Subcustodian notwithstanding the fact that Subcustodian fails to qualify under
the terms of the Rule, and Subcustodian shall immediately notify Custodian, in
writing or by other authorized means, if for any reason it is no longer covered
by such exemptive order.
Upon receipt of any such notification required under (A) or (B) of this section,
Custodian may terminate this Agreement immediately without prior notice to
Subcustodian.
VI. Definitions
A. Instructions. The term "Instructions" means:
1. instructions in writing signed by authorized individuals designated
as such by Custodian;
2. telex or tested telex instructions of Custodian;
3. other forms of instructions in computer readable form as shall
customarily be used for the transmission of like information, and
4. such other forms of communication as from time to time may be agreed
upon by Custodian and Subcustodian, which Subcustodian believes in good faith to
have been given by Custodian or which are transmitted with proper testing or
authentication pursuant to terms and conditions which Custodian may specify.
Unless otherwise expressly provided, ail Instructions shall continue in
full force and effect until canceled or superseded. Subcustodian shall act in
accordance with Instructions and shall not be liable for any act or omission in
respect of any Instruction except in the case of willful default, negligence,
fraud, bad faith, willful misconduct, or reckless disregard of duties on the
part of Subcustodian. Subcustodian in executing all Instructions will take
relevant action in accordance with accepted industry practice and local
settlement practice.
B. Account. The term "Account" means collectively the Custody Account, and
the Deposit Account.
C. Securities. The term "Securities" includes, without limitation, stocks,
shares, bonds, debentures, debt securities (convertible or non-convertible),
notes, or other obligations or securities and any certificates, receipts,
futures contracts, foreign exchange contracts, options, warrants, scrip or other
instruments representing rights to receive, purchase or subscribe for the same,
or evidencing or representing any other rights or interests therein, or in any
property or assets.
VII. Miscellaneous Provisions
A. Statements Regarding the Account. Subcustodian will supply Custodian
with such statements regarding the Account as Custodian may request, including
the identity and location of any Eligible Depository authorized and acting
hereunder. In addition, Subcustodian will supply Custodian an advice or
notification of any transfers of Securities to or from the Account indicating,
as to Securities acquired for the Account, if applicable, the Eligible
Depository having physical possession of such Securities.
B. Examination of Books and Records. Subcustodian agrees that its books and
records relating to the Account and Subcustodian's actions under this Agreement
shall be open to the physical, on-premises inspection and audit at reasonable
times by officers of, auditors employed by or other representatives of Custodian
including (to the extent permitted under the law of )
the independent public accountants for any customer of Custodian whose property
is being held hereunder and such books and records shall be retained for such
period as shall be agreed upon by Custodian and Subcustodian.
As Custodian may reasonably request from time to time, Subcustodian will
furnish its auditor's reports on its system of internal controls, and
Subcustodian will use its best efforts to obtain and furnish similar reports of
any Eligible Depository authorized and acting hereunder.
C. Standard of Care. In holding, maintaining, servicing and disposing of
Property under this Agreement, and in fulfilling any other obligations
hereunder, Subcustodian shall exercise the same standard of care that it
exercises over its own assets, provided that Subcustodian shall exercise at
least the degree of care and maintain adequate insurance as expected of a
prudent professional Subcustodian for hire and shall assume the burden of
proving that it has exercised such care in its maintenance of Property held by
Subcustodian in its Account. The maintenance of the Property in an Eligible
Depository shall not affect Subcustodian's standard of care, and Subcustodian
will remain as fully responsible for any loss or damage to such securities as if
it had itself retained physical possession of them. Subcustodian shall also
indemnify and hold harmless Custodian and each of Custodian's customers from and
against any loss, damage, cost, expense, liability or claim (including
reasonable attorney's fees) arising out of or in connection with the improper or
negligent performance or the nonperformance of the duties of Subcustodian.
Subcustodian shall be responsible for complying with all provisions of the law
of __, or any other law,
applicable to Subcustodian in connection with its duties hereunder, including
(but not limited to) the payment of all transfer taxes or other taxes and
compliance with any currency restrictions and securities laws in connection with
its duties as Subcustodian.
D. Loss of Cash or Securities. Subcustodian agrees that, in the event of
any loss of Securities or Cash in the Account, Subcustodian will use its best
efforts to ascertain the circumstances relating to such loss and will promptly
report the same to Custodian and shall use every legal means available to it to
effect the quickest possible recovery.
E. Compensation of Subcustodian. Custodian agrees to pay to Subcustodian
from time to time such compensation for its services and such out-of-pocket or
incidental expenses of Subcustodian pursuant to this Agreement as may be
mutually agreed upon in writing from time to time.
F. Operating Requirements. The Subcustodian agrees to follow such Operating
Requirements as the Custodian may establish from time to time. A copy of the
current Operating Requirements is attached as Attachment B to this Agreement
G. Termination. This Agreement may be terminated by Subcustodian or
Custodian on 60 days' written notice to the other party, sent by registered
mail, provided that any such notice, whether given by Subcustodian or Custodian,
shall be followed within 60 days by Instructions specifying the names of the
persons to whom Subcustodian shall deliver the Securities in the Account and to
whom the Cash in the account shall be paid If within 60 days following the
giving of such notice of termination, Subcustodian does not receive such
Instructions, Subcustodlan shall continue to hold such Securities and Cash
subject to this Agreement until such Instructions are given. The obligations of
the parties under this Agreement shall survive the termination of this
Agreement.
H. Notices. Unless otherwise specified in this Agreement, all notices and
communications with respect to matters contemplated by this Agreement shall be
in writing, and delivered by mail, postage prepaid, telex, SWIFT, or other
mutually agreed telecommunication methods to the following addresses (or to such
other address as either party hereto may from time to time designate by notice
duly given in accordance with this paragraph):
To Subcustodian:
To Custodian: State Street Bank and Trust Company
Securities Operations/
Network Administration
P.O. Box 1631
Boston, MA 02105
I. Confidentiality. Subcustodian and Custodian shall each use its best
efforts to maintain the confidentiality of the property in the Account and the
beneficial owners thereof, subject, however, to the provisions of any laws,
requiring disclosure. In addition, Subcustodian shall safeguard any test keys,
identification codes or other security devices which Custodian shall make
available to it. The Subcustodian further agrees it will not disclose the
existence of this Agreement or any current business relationship unless
compelled by applicable law or regulation or unless it has secured the
Custodian's written consent.
J. Assignment. This Agreement shall not be assignable by either party but
shall bind any successor in interest of Custodian and Subcustodian respectively.
K. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of . To the extent inconsistent
with this Agreement or Custodian's Operating Requirements as attached hereto,
Subcustodian's rules and conditions regarding accounts generally or custody
accounts specifically shall not apply.
CUSTODIAN: STATE STREET BANK AND TRUST COMPANY
By:
-----------------------------------
Date:
----------------------------------
AGREED TO BY SUBCUSTODIAN
- - - - - ----------------------------------------------
By:
------------------------------------
Date:
------------------------------------
<PAGE>
EXHIBIT 99.10
November 28, 1995
Keystone High Income Bond Fund (B-4)
200 Berkeley Street
Boston, Massachusetts 02116-5034
Ladies and Gentlemen:
I am a Senior Vice President of and General Counsel to Keystone
Investment Management Company (formerly named Keystone Custodian Funds, Inc.),
investment adviser to Keystone High Income Bond Fund (B-4) (the "Fund"). You
have asked for my opinion with respect to the proposed issuance of 55,172,487
additional shares of the Fund.
To my knowledge, a Prospectus is on file with the Securities and
Exchange Commission (the "Commission") as part of Post-Effective Amendment No.
101 to the Fund's Registration Statement, which covers the public offering and
sale of the Fund shares currently registered with the Commission.
In my opinion, such additional shares, if issued and sold in accordance
with the Fund's Restatement of Trust Agreement, as amended ("Restatement of
Trust"), and offering Prospectus, will be legally issued, fully paid, and
nonassessable by the Fund, entitling the holders thereof to the rights set forth
in the Declaration of Trust and subject to the limitations set forth therein.
My opinion is based upon my examination of the Fund's Restatement of
Trust and By-Laws; a review of the minutes of the Fund's Board of Trustees
authorizing the issuance of such additional shares; and the Fund's Prospectus.
In my examination of such documents, I have assumed the genuineness of all
signatures and the conformity of copies to originals.
I hereby consent to the use of this opinion in connection with
Post-Effective Amendment No. 101 to the Fund's Registration Statement, which
covers the registration of such additional shares.
Very truly yours,
/s/ Rosemary D. Van Antwerp
Rosemary D. Van Antwerp
Senior Vice President and
General Counsel
<PAGE>
Exhibit 99.11
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Keystone High Income Bond Fund (B-4)
(formerly Keystone Custodian Fund, Series B-4)
We consent to the use of our report dated September 1, 1995, included
herein and to the references to our firm under the captions "FINANCIAL
HIGHLIGHTS" in the prospectus and "ADDITIONAL INFORMATION" in the statement of
additional information.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
November 28, 1995
<PAGE>
Exhibit 99.15
1989
DISTRIBUTION PLAN OF KEYSTONE CUSTODIAN FUND, SERIES B-4
SECTION 1. Keystone Custodian Fund, Series B-4 (the "Fund") may act as the
distributor of securities of which it is the issuer, pursuant to Rule 12b-1
under the Investment Company Act of 1940 (the "Act") according to the terms of
this Distribution Plan (the "Plan").
SECTION 2. Amounts not exceeding in the aggregate a maximum amount equal to
.3125% of the average of the daily aggregate net asset values of the Fund during
each quarter elapsed after the inception of the Plan (i.e., the first time that
shares of the Fund are generally offered to the public at a price equal to their
net asset value) may be paid by the Fund to the Principal Underwriter at any
time after inception of the Plan in order (i) to pay to the Principal
Underwriter commissions in respect of shares of the Fund previously sold at any
time after the inception of the Plan, all or any part of which may be or may
have been reallowed or otherwise paid to others by the Principal Underwriter in
respect of or in furtherance of sales of shares of the Fund after the inception
of the Plan; and (ii) to enable the Principal Underwriter to pay or to have paid
to others who sell Fund shares a maintenance or other fee, at such intervals as
the Principal Underwriter may determine, in respect of Fund shares previously
sold by any such others at any time after the inception of the Plan and
remaining outstanding during the period in respect of which such fee is or has
been paid.
SECTION 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the Act) of the outstanding shares of
the Fund.
SECTION 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of the majority of
both (a) the Board of Trustees of the Fund and (b) those Trustees of the Fund
who, except for their positions as Trustees, are not "interested persons" (as
defined in the 1940 Act) of the Fund and who have no direct or indirect
financial interest in the operation of this Plan or any agreements of the Fund
or any other person related to this Plan (the "Rule 12b-1 Trustees"), cast in
person at a meeting called for the purpose of voting on this Plan or such
agreements.
SECTION 5. Unless sooner terminated pursuant to Section 8, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 4.
SECTION 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board and the Board shall review at least quarterly a
written report of the amounts so expended and the purposes for which such
expenditures were made.
SECTION 7. This Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees, or by vote of a majority of the Fund's outstanding
shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Trustees or by a
vote of a majority of the Fund's outstanding shares on not more than
sixty days written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of its
assignment.
SECTION 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof and no material amendment
to this Plan shall be made unless approved in the manner provided for in Section
4 hereof.
#10160486
<PAGE>
Exhibit 99.16
<TABLE>
<CAPTION>
B-4 MTD YTD ONE YEAR THREE YEAR THREE YEAR
31-Jul-95 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A 8.75% 2.83% 25.64% 7.91%
W/O CDSC 3.85% 11.75% 5.66% 26.58% 8.17%
Beg dates 30-Jun-95 30-Dec-94 29-Jul-94 31-Jul-92 31-Jul-92
Beg Value (no load) 35,033 32,555 34,431 28,743 28,743
End Value (W/O CDSC) 36,382 36,382 36,382 36,382 36,382
End Value (with cdsc) 35,405 35,406 36,114 36,114
beg nav 4.29 4.22 4.68 4.74 4.74
end nav 4.42 4.42 4.42 4.42 4.42
shares originally purchased 8,166.17 7,714.41 7,357.13 6,063.94 6,063.94
3
10
FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc 61.11% 10.01% 95.66% 6.94%
W/O CDSC 61.11% 10.01% 95.66% 6.94%
Beg dates
Beg Value (no load) 31-Jul-90 31-Jul-90 31-Jul-85 31-Jul-85
End Value (W/O CDSC) 22,582 22,582 18,595 18,595
End Value (with cdsc) 36,382 36,382 36,382 36,382
beg nav 36,382 36,382 36,382 36,382
end nav 5.02 5.02 7.93 7.93
shares originally purchased 4.42 4.42 4.42 4.42
4,498.32 4,498.32 2,344.86 2,344.86
5 10
INCEPTION DATE 31-Mar-81
B-4
31-Jul-95
BEGINNING DATE INPUT: ESTIMATED EDIT
MONTH/YR ACTUAL DATE
MTD Jun-95 30-Jun-95
YTD Dec-94 30-Dec-94
1 YEAR Jul-94 29-Jul-94
3 YEAR Jul-92 31-Jul-92
5 YEAR Jul-90 31-Jul-90
10 YEAR Jul-85 31-Jul-85
</TABLE>
<PAGE>
KEYSTONE HIGH INCOME BOND FUND
<TABLE>
<CAPTION>
FUND #: 4203 SEC STANDARDIZED ADVERTISING YIELD
FUND NAME: KEYSTONE HIGH INCOME BOND FUND
PRICING DATE 26-Jul-95
============
30 DAY YTM 7.44676%
============
- - - - - -------------------------------------------------------------------------------------------------------------
PRICE EQUITY AMORT PIK GAIN/LOSS ST FIXED MORTGAGE BACK LONG TERM
DATE INCOME INCOME INCOME ADJ INCOME INCOME INCOME
0 1,005,916 264,591 0 44,789 0 4,721,245
0.00000% 1.65121% 0.43539% 0.00000% 0.07376% 0.00000% 7.65531%
- - - - - -------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
27-Jun-95 0.00 34,261.58 6,919.43 0.00 0.00 163,676.86
28-Jun-95 0.00 34,853.92 6,919.43 0.00 0.00 163,737.07
29-Jun-95 0.00 35,101.35 6,919.43 0.00 0.00 159,698.85
30-Jun-95 0.00 34,772.95 6,919.43 367.46 0.00 158,180.41
01-Jul-95 0.00 34,772.95 6,919.43 367.46 0.00 158,180.41
02-Jul-95 0.00 34,772.95 6,919.43 367.46 0.00 158,180.41
03-Jul-95 0.00 34,808.15 9,294.77 0.00 0.00 156,339.63
04-Jul-95 0.00 34,808.15 9,294.77 0.00 0.00 156,339.63
05-Jul-95 0.00 33,765.22 9,294.77 2,752.00 0.00 156,021.35
06-Jul-95 0.00 34,762.24 9,294.77 1,610.75 0.00 156,773.47
07-Jul-95 0.00 34,264.01 9,294.77 2,107.40 0.00 155,486.41
08-Jul-95 0.00 34,264.01 9,294.77 2,107.40 0.00 155,486.41
09-Jul-95 0.00 34,264.01 9,294.77 2,107.40 0.00 155,486.41
10-Jul-95 0.00 34,718.98 9,294.77 1,507.57 0.00 156,353.36
11-Jul-95 0.00 35,054.17 9,294.77 1,525.12 0.00 156,283.46
12-Jul-95 0.00 34,814.68 9,294.77 1,434.18 0.00 158,145.34
13-Jul-95 0.00 34,412.29 9,294.77 2,439.26 0.00 157,727.79
14-Jul-95 0.00 34,616.08 9,294.77 1,841.11 0.00 157,721.50
15-Jul-95 0.00 34,616.08 9,294.77 1,841.11 0.00 155,721.50
16-Jul-95 0.00 34,616.08 9,294.77 1,841.11 0.00 155,721.50
17-Jul-95 0.00 31,453.80 9,294.77 2,199.38 0.00 157,155.20
18-Jul-95 0.00 31,460.97 9,294.77 2,419.08 0.00 156,799.82
19-Jul-95 0.00 31,643.41 9,294.77 2,859.66 0.00 154,036.32
20-Jul-95 0.00 31,661.50 9,294.77 2,863.22 0.00 154,834.10
21-Jul-95 0.00 31,448.71 9,294.77 2,499.93 0.00 157,573.97
22-Jul-95 0.00 31,448.71 9,294.77 2,499.93 0.00 157,573.97
23-Jul-95 0.00 31,448.71 9,294.77 2,499.93 0.00 157,573.97
24-Jul-95 0.00 30,480.20 9,294.77 1,056.52 0.00 158,208.71
25-Jul-95 0.00 31,321.69 9,294.77 1,165.33 0.00 158,883.43
26-Jul-95 0.00 31,228.77 9,294.77 509.64 0.00 157,343.37
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTAL INCOME FOR PERIOD 6,036,541.42
TOTAL EXPENSES FOR PERIOD 1,445,896.35
AVERAGE SHARES OUTSTANDING 170,715,748.557
LAST PRICE DURING PERIOD 4.40
- - - - - ------------------- || ------------------------------------------------------------- || 30 DAY 30 DAY 30 DAY
PRICE TOTAL || 2B-1/SERV.FEE DAILY DAILY DAILY || ACCUMULATED ACCUMULATED ACCUMULATED
DATE INCOME || EXPENSES CDSC EXPENSES SHARES PRICE || INCOME EXPENSES SHARES
6,036,541 608,458 0 1,445,896 170,715,748.557
-1.00413%
- - - - - ----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
27-Jun-95 204,857.87 19,796.32 0.00 39,448.16 169,428,498.419 4.29 204,857.87 39,448.16 169,428,498.42
28-Jun-95 205,510.42 19,892.19 0.00 39,246.61 169,394,303.506 4.28 410,368.29 78,694.77 338,822,801.93
29-Jun-95 201,719.63 19,876.89 0.00 39,562.18 169,320,625.529 4.29 612,087.92 118,256.95 508,143,427.45
30-Jun-95 200,240.25 59,675.12 0.00 36,754.98 169,242,111.516 4.29 812,328.17 155,011.93 677,385,538.97
01-Jul-95 200,240.25 0.00 0.00 36,754.98 169,242,111.516 4.29 1,012,568.42 191,766.91 846,627,650.49
02-Jul-95 200,240.25 0.00 0.00 36,754.98 169,242,111.516 4.29 1,212,808.67 228,521.89 1,015,869,762.00
03-Jul-95 200,442.55 19,906.43 0.00 39,429.95 169,272,514.278 4.30 1,413,251.22 267,951.84 1,185,142,276.28
04-Jul-95 200,442.55 0.00 0.00 39,429.95 169,272,514.278 4.30 1,613,693.77 307,381.79 1,354,414,790.56
05-Jul-95 201,833.34 39,888.24 0.00 71,015.30 169,624,451.110 4.31 1,815,527.11 378,397.09 1,524,039,241.67
06-Jul-95 202,441.23 20,010.00 0.00 47,653.91 169,546,126.440 4.32 2,017,968.34 426,051.00 1,693,585,368.11
07-Jul-95 201,152.59 60,137.00 0.00 44,947.88 170,282,560.571 4.33 2,219,120.93 470,998.88 1,863,867,928.68
08-Jul-95 201,152.59 0.00 0.00 44,947.88 170,282,560.571 4.33 2,420,273.52 515,946.76 2,034,150,489.25
09-Jul-95 201,152.59 0.00 0.00 44,947.88 170,282,560.571 4.33 2,621,426.11 560,894.64 2,204,433,049.82
10-Jul-95 201,874.68 20,198.92 0.00 59,021.59 170,325,839.634 4.35 2,823,300.79 619,916.23 2,374,758,889.46
11-Jul-95 202,157.52 20,291.27 0.00 48,103.52 170,108,388.727 4.34 3,025,458.31 668,019.75 2,544,867,278.18
12-Jul-95 203,688.97 20,241.92 0.00 48,042.16 171,645,278.665 4.36 3,229,147.28 716,061.91 2,716,512,556.85
13-Jul-95 203,874.11 20,452.81 0.00 48,350.80 171,774,247.078 4.36 3,433,021.39 764,412.71 2,888,286,803.93
14-Jul-95 203,473.46 61,623.20 0.00 45,671.95 171,552,975.470 4.39 3,636,494.85 810,084.66 3,059,839,779.40
15-Jul-95 201,473.46 0.00 0.00 45,671.95 171,552,975.470 4.39 3,837,968.31 855,756.61 3,231,392,754.87
16-Jul-95 201,473.46 0.00 0.00 45,671.95 171,552,975.470 4.39 4,039,441.77 901,428.56 3,402,945,730.34
17-Jul-95 200,103.15 20,624.75 0.00 56,939.45 171,733,671.766 4.40 4,239,544.92 958,368.01 3,574,679,402.10
18-Jul-95 199,974.64 20,686.16 0.00 48,646.04 171,767,203.136 4.40 4,439,519.56 1,007,014.05 3,746,446,605.24
19-Jul-95 197,834.16 20,711.59 0.00 48,680.41 171,844,056.128 4.37 4,637,353.72 1,055,694.46 3,918,290,661.37
20-Jul-95 198,653.59 20,579.27 0.00 57,314.68 172,202,692.681 4.37 4,836,007.31 1,113,009.14 4,090,493,354.05
21-Jul-95 200,817.38 61,830.96 0.00 51,667.89 171,808,326.905 4.38 5,036,824.69 1,164,677.03 4,262,301,680.95
22-Jul-95 200,817.38 0.00 0.00 51,667.89 171,808,326.905 4.38 5,237,642.07 1,216,344.92 4,434,110,007.86
23-Jul-95 200,817.38 0.00 0.00 51,667.89 171,808,326.905 4.38 5,438,459.45 1,268,012.81 4,605,918,334.76
24-Jul-95 199,040.20 20,602.08 0.00 57,103.32 172,077,819.176 4.39 5,637,499.65 1,325,116.13 4,777,996,153.94
25-Jul-95 200,665.22 20,703.35 0.00 71,915.40 171,862,071.911 4.40 5,838,164.87 1,397,031.53 4,949,858,225.85
26-Jul-95 198,376.55 20,729.29 0.00 48,864.82 171,614,230.870 4.40 6,036,541.42 1,445,896.35 5,121,472,456.72
</TABLE>
<PAGE>
Exhibit 99.19
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/ George S. Bissell
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chief Executive Officer and for
which Keystone Custodian Funds, Inc. serves as Adviser or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and in my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Director/Trustee,
President and Chief
Executive Officer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director, Trustee or officer and for which Keystone
Custodian Funds, Inc. serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and in my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Kevin J. Morrissey
Kevin J. Morrissey
Treasurer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Frederick Amling
Frederick Amling
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles A. Austin III
Charles A. Austin III
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Edwin D. Campbell
Edwin D. Campbell
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles F. Chapin
Charles F. Chapin
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ K. Dun Gifford
K. Dun Gifford
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Leroy Keith, Jr.
Leroy Keith, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ F. Ray Keyser,Jr.
F. Ray Keyser, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ David M. Richardson
David M. Richardson
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Richard J. Shima
Richard J. Shima
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Andrew J. Simons
Andrew J. Simons
Director/Trustee
Dated: December 14, 1994
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<S> <C>
<NUMBER> 101
<NAME> KEYSTONE HIGH INCOME BOND FUND (B-4)
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 725,596,402
<INVESTMENTS-AT-VALUE> 750,522,611
<RECEIVABLES> 18,695,719
<ASSETS-OTHER> 2,845,845
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 772,064,175
<PAYABLE-FOR-SECURITIES> 2,835,296
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,263,993
<TOTAL-LIABILITIES> 7,099,289
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,267,014,064
<SHARES-COMMON-STOCK> 173,052,313
<SHARES-COMMON-PRIOR> 163,881,274
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (5,828,773)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (521,146,614)
<ACCUM-APPREC-OR-DEPREC> 24,926,209
<NET-ASSETS> 764,964,886
<DIVIDEND-INCOME> 22,128,073
<INTEREST-INCOME> 53,519,840
<OTHER-INCOME> 0
<EXPENSES-NET> (14,414,561)
<NET-INVESTMENT-INCOME> 61,233,352
<REALIZED-GAINS-CURRENT> (91,818,044)
<APPREC-INCREASE-CURRENT> 71,736,709
<NET-CHANGE-FROM-OPS> 41,152,017
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (63,362,588)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (17,099,886)
<NUMBER-OF-SHARES-SOLD> 53,793,683
<NUMBER-OF-SHARES-REDEEMED> (55,102,608)
<SHARES-REINVESTED> 10,479,964
<NET-CHANGE-IN-ASSETS> (1,318,270)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (3,533,049)
<OVERDIST-NET-GAINS-PRIOR> (432,978,994)
<GROSS-ADVISORY-FEES> (4,040,007)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (14,414,561)
<AVERAGE-NET-ASSETS> 708,674,629
<PER-SHARE-NAV-BEGIN> 4.68
<PER-SHARE-NII> 0.38
<PER-SHARE-GAIN-APPREC> (0.15)
<PER-SHARE-DIVIDEND> (0.37)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> (0.12)
<PER-SHARE-NAV-END> 4.42
<EXPENSE-RATIO> 2.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
