<PAGE>
File No. 2-98560
and 811-4334
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. 14 X
---
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
---
Amendment No. 13 X
---
KEYSTONE TAX EXEMPT TRUST
(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, Massachusetts 02116-5034
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b) of Rule 485.
---
--- on (date) pursuant to paragraph (b) of Rule 485.
--- 60 days after filing pursuant to paragraph (a)(i) of Rule 485.
--- on (date) pursuant to paragraph (a)(i) of Rule 485
--- 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
--- on (date) pursuant to paragraph (a)(ii) of Rule 485.
The Registrant has filed a Declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940. A Rule 24f-2 Notice for Registrant's last fiscal
year was filed on January 28, 1994.
<PAGE>
KEYSTONE TAX EXEMPT TRUST
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 14
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 14 to Registration
Statement No. 2-98560/811-4334 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
Exhibit Listing
PART C - OTHER INFORMATION - ITEMS 25-32 - and SIGNATURE PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections
Principal Underwriter
Location of Accounts and Records
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE TAX EXEMPT TRUST
Cross-Reference Sheet pursuant to Rules 404 and 495 under the Securities of
1933.
Items in
Part A of
Form N-1A Prospectus Caption
1 Cover Page
2 Fee Table
3 Performance Data
Financial Highlights
4 Cover Page
The Fund
Investment Objective and Policies
Investment Restrictions
Risk Factors
5 Fund Management and Expenses
Additional Information
5A Not applicable
6 The Fund
Dividends and Taxes
Fund Shares
Shareholder Services
Pricing Shares
7 How to Buy Shares
Distribution Plan
Shareholder Services
8 How to Redeem Shares
9 Not applicable
Items in
Part B of
Form N-1A Statement of Additional Information Caption
10 Cover Page
11 Table of Contents
12 Not applicable
<PAGE>
KEYSTONE TAX EXEMPT TRUST
Cross-Reference Sheet continued.
Items in
Part B of
Form N-1A Statement of Additional Information Caption
13 The Fund's Objective and Policies
Investment Restrictions
Brokerage
Appendix
14 Trustees and Officers
15 Additional Information
16 Investment Manager
Investment Adviser
Sales Charges
Distribution Plan
Principal Underwriter
Additional Information
17 Brokerage
18 Declaration of Trust
19 Valuation of Securities
Distribution Plan
Redemptions in Kind
20 Not Applicable
21 Principal Underwriter
22 Standardized Total Return and
Yield Quotations
23 Financial Statements
<PAGE>
KEYSTONE TAX EXEMPT TRUST
PART A
PROSPECTUS
<PAGE>
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PROSPECTUS MARCH 31, 1995
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KEYSTONE TAX EXEMPT TRUST
200 BERKELEY STREET, BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
Keystone Tax Exempt Trust (the "Fund") is a mutual fund that seeks the highest
possible current income, exempt from federal income taxes, while preserving
capital. The Fund invests primarily in municipal bonds.
Your purchase payment is fully invested. There is no sales charge when you buy
the Fund's shares. However, there may be 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 and its appendix dated March 31, 1995, which has been
filed with the Securities and Exchange Commission and is incorporated by
reference into this prospectus. For a free copy, or for other information about
the Fund, write to the address or call the telephone number listed 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.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page Page
<S> <C> <S> <C>
Fee Table ........................................ 2 How to Buy Shares ............................ 11
Financial Highlights ............................. 3 Distribution Plan ............................ 12
The Fund ......................................... 4 How to Redeem Shares ......................... 14
Investment Objective and Policies ................ 4 Shareholder Services ......................... 16
Investment Restrictions .......................... 5 Performance Data ............................. 17
Risk Factors ..................................... 6 Fund Shares .................................. 17
Pricing Shares ................................... 7 Additional Information ....................... 18
Dividends and Taxes .............................. 7 Additional Investment Information............. (i)
Fund Management and Expenses ..................... 9
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</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.
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<PAGE>
FEE TABLE
KEYSTONE TAX EXEMPT TRUST
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<F1> ................... 4.00%
(as a percentage of the lesser of total cost or net asset value of
shares redeemed)
Exchange Fee<F2> ....................................... $10.00
(per exchange)
ANNUAL FUND OPERATING EXPENSES<F3>
(as a percentage of average net assets)
Management Fees ........................................ .47%
12b-1 Fees<F4> ......................................... 1.00%
Other Expenses ......................................... .18%
-----
Total Fund Operating Expenses .......................... 1.65%
-----
-----
<TABLE>
EXAMPLE<F5>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each period ................. $57 $72 $90 $195
You would pay the following expenses on the same
investment, assuming no redemption ................... $17 $52 $90 $195
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<FN>
---------
<F1> The deferred sales charge declines from 4% to 1% of amounts redeemed within
four calendar years after purchase. No deferred sales charge is imposed
thereafter.
<F2> There is no fee for exchange orders received by the Fund over the Keystone
Automated Response Line ("KARL"). (For a description of KARL, see
"Shareholder Services".)
<F3> Expense ratios are for the Fund's fiscal year ended November 30, 1994.
<F4> 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. ("NASD").
<F5> The Securities and Exchange Commission requires use of a 5% annual return
figure for purposes of this example. Actual return for the Fund may be
greater or less than 5%.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE TAX EXEMPT TRUST
(For a share outstanding throughout the period)
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>
JUNE 20, 1985
(COMMENCEMENT
YEAR ENDED NOVEMBER 30, OF OPERATIONS) TO
----------------------------------------------------------------------------------- NOVEMBER 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF
PERIOD ..................... $11.080 $11.060 $10.920 $10.760 $10.900 $10.600 $10.080 $11.400 $10.110 $10.000
Income from investment
operations
Investment income -- net .... 0.490 0.531 0.580 0.593 0.611 0.663 0.669 0.682 0.784 0.091
Net gains (losses) on
investments ................ (1.249) 0.480 0.356 0.329 (0.040) 0.368 0.591 (1.195) 1.408 0.143
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net commissions paid on fund
share sales<F2> -0- -0- -0- -0- -0- -0- -0- -0- (0.118) (0.033)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations ................. (0.759) 1.011 0.936 0.922 0.571 1.031 1.260 (0.513) 2.074 0.201
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions from
Investment income -- net (0.495) (0.531) (0.580) (0.593) (0.631) (0.731) (0.740) (0.747) (0.784) (0.091)
In excess of investment
income -- net <F3> ......... (0.096) (0.080) (0.086) (0.099) (0.080) --0-- --0-- --0-- --0-- --0--
Realized capital gains ...... --0-- (0.380) (0.130) (0.070) --0-- --0-- --0-- (0.060) --0-- --0--
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions ......... (0.591) (0.991) (0.796) (0.762) (0.711) (0.731) (0.740) (0.807) (0.784) (0.091)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value end of period $ 9.730 $11.080 $11.060 $10.920 $10.760 $10.900 $10.600 $10.080 $11.400 $10.110
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN <F4> ........... (7.10%) 9.30% 8.79% 8.83% 5.48% 10.00% 12.85% (4.67%) 21.12% 2.02%<F5>
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Operating and management
expenses ................... 1.65% 1.71% 1.86% 1.91% 1.84% 1.80% 1.72% 1.65% 1.02% 1.35%<F1>
Investment income -- net .. 4.69% 4.66% 5.08% 5.44% 5.70% 5.90% 6.33% 6.29% 6.89% 4.77%<F1>
Portfolio turnover rate ..... 83% 66% 49% 65% 73% 71% 83% 112% 50% --0--
Net assets, end of period
(thousands) ................ $676,691 $814,326 $720,271 $628,835 $588,237 $605,044 $522,821 $474,815 $387,740 $47,986
<FN>
<F1> Annualized for the period October 7, 1985 (commencement of investment
operations) through November 30, 1985.
<F2> 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
November 30, 1987, the Fund's financial statements reflect 12b-1
Distribution Plan expenses (i.e., shareholder servicing fees plus
commissions paid net of deferred sales charges received by the Fund) as a
component of net investment income.
<F3> Effective December 1, 1993, the Fund adopted Statement of Position 93-2:
"Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies".
As a result, distribution amounts exceeding book basis investment income --
net (or tax basis net income on a temporary basis) are presented as
"Distributions in excess of investment income -- net". Similarly, capital
gain distributions in excess of book basis capital gains (or tax basis
capital gains on a temporary basis) are presented as "Distributions in
excess of capital gains". For the fiscal years ended January 31, 1992,
1991, 1990, distributions in excess of book basis net income were presented
as "distributions from paid-in capital".
<F4> Excluding contingent deferred sales charges.
<F5> For the period from October 7, 1985 (Commencement of investment operations)
to November 30, 1985.
</TABLE>
<PAGE>
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THE FUND
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The Fund is an open-end, diversified management investment company commonly
known as a mutual fund. The Fund was created under Massachusetts law as a
Massachusetts business trust and has been offering its shares continuously since
June 20, 1985. 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 Custodian Funds, Inc. ("Keystone"), the
Fund's investment adviser. Keystone and Keystone Management are, from time to
time, also collectively referred to as "Keystone."
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INVESTMENT OBJECTIVE AND POLICIES
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The Fund's investment objective is to provide shareholders with the highest
possible current income, exempt from federal income taxes, while preserving
capital.
PRINCIPAL INVESTMENTS
The Fund invests substantially all and, under ordinary circumstances, at
least 80% of its assets in federally tax-exempt obligations, including municipal
bonds and notes and tax-exempt commercial paper (municipal bonds), which are
obligations issued by or on behalf of states, territories and possessions of the
United States ("U.S."), the District of Columbia and their political
subdivisions, agencies and instrumentalities, the interest from which is, in the
opinion of counsel to the issuers of such bonds, exempt from federal income
taxes. Municipal bonds include debt obligations issued by or on behalf of a
political subdivision of the U.S. or any agency or instrumentality thereof to
obtain funds for various public purposes. In addition, municipal bonds include
certain types of industrial revenue bonds issued by or on behalf of public
authorities to finance privately operated facilities. General obligation bonds
involve the credit of an issuer possessing taxing power and are payable from the
issuer's general unrestricted revenues. Their payment may be dependent upon an
appropriation by the issuer's legislative body and may be subject to
quantitative limitations on the issuer's taxing power. Limited obligation or
revenue bonds are payable only from the revenues of a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise or
other specific revenue source, such as the user of the facility. Since the Fund
considers preservation of capital as well as the level of tax-exempt income, the
Fund may realize less income than a fund willing to expose shareholders' capital
to greater risk.
The Fund invests in municipal bonds only if, at the date of investment, they
are rated within the four highest grades by Standard & Poor's Corporation
("S&P") (AAA, AA, A and BBB) or by Moody's Investors Service, Inc. ("Moody's")
(Aaa, Aa, A and Baa) and by Fitch Investors Service, Inc. -- Municipal Division
("Fitch") (AAA, AA, A, BBB), or, if not rated, are of comparable quality to
obligations so rated as determined by Keystone. Securities rated BBB or Baa may
have some speculative characteristics. Keystone expects that under normal
circumstances at least 65% of the Fund's total assets will be invested in
municipal bonds within the three highest ratings of such services or, if not
rated, will be of comparable quality.
The Tax Reform Act of 1986 made significant changes in the federal tax status
of certain obligations that previously were fully federally tax exempt. As a
result, three categories of such obligations issued after August 7, 1986 now
exist: (1) "public purpose" bonds, the income from which remains fully exempt
from federal income tax; (2) qualified "private activity" industrial development
bonds, the income from which, while exempt from federal income tax under Section
103 of the Internal Revenue Code (the "Code"), is includable in the calculation
of the federal alternative minimum tax; and (3) "private activity" (private
purpose) bonds, the income from which is not exempt from federal income tax.
The Fund may invest a portion of its assets in municipal bonds the income from
which is subject to inclusion for purposes of calculation of the federal
alternative minimum tax. The Fund will not invest more than 20% of its assets in
such bonds.
OTHER ELIGIBLE SECURITIES
The Fund may invest up to 20% of its assets under ordinary circumstances and,
when in Keystone's opinion market conditions warrant, may invest up to 100% of
its assets in (1) corporate obligations that, at the date of investment, are
rated BBB or better by S&P or Baa or better by Moody's; (2) securities issued or
guaranteed by the U.S. government or by any of its agencies or
instrumentalities; (3) bank obligations, including certificates of deposit and
banker's acceptances; (4) commercial paper that, at the date of investment, is
rated within the three highest grades by S&P (A-1, A-2 and A-3) or the two
highest grades by Moody's (P-1 and P-2) or, if not rated by such services, is
issued by a company that has an outstanding debt issue rated as described above;
and (5) repurchase agreements.
The Fund also may enter into repurchase and reverse repurchase agreements and
firm commitment agreements for securities and currencies. The Fund may enter
into options transactions and may write covered call and put options and
purchase call and put options, including purchasing call and put options to
close out existing positions and purchase call options to fix the interest rates
of obligations held by it. The Fund may also employ new investment techniques
involving such options. In addition, the Fund may enter into currency and other
financial futures contracts and related options transactions for hedging
purposes and not for speculation and employ new investment techniques with
respect to such futures contracts and related options. In addition, the Fund may
also invest in obligations denominated in foreign currencies that are exempt
from federal income tax.
For further information about the types of investments and investment
techniques available to the Fund, including the risks associated therewith, see
"Additional Investment Information" located at the back of this prospectus and
the statement of additional information.
There can, of course, be no assurance that the Fund will achieve its
investment objectives since there is uncertainty in every investment.
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVE
The investment objective of the Fund is fundamental and may not be changed
without the vote of a majority of the Fund's outstanding shares (which means the
lesser of (1) 67% of the shares represented at a meeting at which more than 50%
of the outstanding shares are represented or (2) more than 50% of the
outstanding shares).
The Fund's policy of investing at least 80% of its assets in federally tax-
exempt obligations is a fundamental policy and may not be changed without the
vote of a majority of the Fund's outstanding shares.
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INVESTMENT RESTRICTIONS
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The Fund has adopted the fundamental restrictions set forth below, which may
not be changed without the approval of a majority of the Fund's outstanding
shares. These restrictions and certain other fundamental restrictions are set
forth in the statement of additional information.
The Fund may not do the following: (1) invest more than 5% of its assets in
the securities of any one issuer (other than U.S. government securities); (2)
borrow money, except that the Fund may borrow money from banks for emergency or
extraordinary purposes in aggregate amounts up to one-third of the value of the
Fund's net assets or enter into reverse repurchase agreements provided that bank
borrowings and reverse repurchase agreements, in aggregate, shall not exceed
one-third 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.
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RISK FACTORS
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Investing in the Fund involves the risk inherent to any investment, i.e., net
asset value will fluctuate in response to changes in economic conditions,
interest rates and the market's perception of the underlying portfolio
securities of the Fund.
The Fund is not intended to constitute a balanced investment program and is
not designed for investors seeking capital appreciation or maximum tax-exempt
income irrespective of fluctuations in principal or marketability. Shares of the
Fund would not be suitable for tax-exempt institutions and may not be suitable
for certain retirement plans that are unable to benefit from the Fund's
federally tax-exempt dividends. In addition, the Fund may not be an appropriate
investment for entities that are "substantial users" of facilities financed by
industrial development bonds or related persons thereof.
The ability of the Fund to achieve its investment objective is dependent upon
the continuing ability of issuers of municipal bonds to meet their obligations
to pay interest and principal when due. Obligations of issuers of municipal
bonds, including municipal bonds issued by them, are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the federal Bankruptcy Act and laws, if any, that may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. There is also the possibility that, as a result of
litigation or other conditions, the power or ability of any one or more issuers
to pay, when due, principal and interest on its or their municipal bonds may be
materially affected. In addition, the market for municipal bonds is often thin
and can be temporarily affected by large purchases and sales, including those by
the Fund.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal bonds, and similar proposals may be introduced in the
future. If such a proposal were enacted, the availability of municipal bonds for
investment by the Fund and the value of the Fund's portfolio could be materially
affected, in which event the Fund would re-evaluate its investment objective and
policies and consider changes in the structure of the Fund or dissolution.
Investment in some securities may involve special considerations. For example,
the Fund may invest in master demand notes, a type of commercial paper that is
redeemable on demand, but for which there is no secondary market. Furthermore,
the Fund may enter into repurchase agreements with domestic banks and
broker-dealers. The payment of interest accrued by the Fund under its repurchase
agreements is dependent on the ability of the seller to perform its obligations
to the Fund. If the seller of a repurchase agreement refused to repurchase the
securities underlying the agreement, the Fund would suffer a loss if the
proceeds from the sale of the underlying securities were less than the agreed
upon repurchase price, and the loss would be increased by any cost of selling
the securities. If the defaulting seller filed for bankruptcy or became
insolvent, sale of the securities might be delayed by pending court action. In
such a case, it is not clear that the Fund would have the right, against other
claimants, to keep the securities.
The market value of fixed income securities may vary inversely to changes in
prevailing interest rates.
Current yield levels should not be considered representative of yields for any
future period of time. Moreover, should many shareholders change from this Fund
to some other investment at about the same time, the Fund might have to sell
portfolio securities at a time when it would be disadvantageous to do so and at
a lower price than if such securities were held to maturity.
If and when the Fund invests in zero coupon bonds, the Fund does not expect
to have enough zero coupon bonds to have a material effect on dividends. The
Fund has undertaken to a state securities authority to disclose that zero coupon
securities pay no interest to holders prior to maturity, and the interest on
these securities is reported as income to the Fund and distributed to its
shareholders. These distributions must be made from the Fund's cash assets or,
if necessary, from the proceeds of sales of portfolio securities. The Fund will
not be able to purchase additional income producing securities with cash used to
make such distributions and its current income ultimately may be reduced as a
result.
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PRICING SHARES
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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 municipal bonds on the basis of valuations provided by a
pricing service, approved by the Fund's Board of Trustees, which uses
information with respect to transactions in bonds, quotations from bond dealers,
market transactions in comparable securities and various relationships between
securities in determining value. The Fund values short- term investments as
follows: short-term investments that are purchased with maturities of sixty days
or less are valued at amortized cost (original purchase price 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
market value; short-term investments maturing in more than sixty days when
purchased that are held on the sixtieth day prior to maturity are valued at
amortized cost (market value on the sixtieth day adjusted for amortization of
premium or accretion of discount), which, when combined with accrued interest,
approximates market; and which, in any case, reflects fair value as determined
by the Fund's Board of Trustees. 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 Fund's Board of Trustees.
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DIVIDENDS AND TAXES
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The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Code. The Fund qualifies if, among other things, it
distributes to its shareholders at least 90% of its net investment income for
its fiscal year. The Fund also intends to make timely distributions, if
necessary, sufficient in amount to avoid the nondeductible 4% excise tax imposed
on a regulated investment company 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. Any such distributions would be (1) declared in October,
November, or December to shareholders of record in such a month, (2) paid by the
following January 31, and (3) includable in the taxable income of shareholders
for the year in which such distributions were declared. If the Fund qualifies
and if it distributes all of its net investment income and net capital gains, if
any, to shareholders, it will be relieved of any federal income tax liability.
Currently, commissions paid by the Fund on new sales of shares under the
Fund's Distribution Plan (see "Distribution Plan") and deferred sales charge
receipts are treated as capital charges and capital credits, respectively, in
determining net investment income for tax purposes. For financial statement
purposes, however, these expenses and receipts are treated as operating expenses
and expense offsets. As a result, the amount of dividend distributions required
to satisfy the requirements of the Code might exceed net investment income for
financial statement purposes, resulting in a portion of such dividends being a
return of capital for financial statement purposes, but not for tax purposes.
Total investment return is equally affected by both treatments.
Recently, the Internal Revenue Service ("IRS") issued a ruling which will
require the Fund effective April 1, 1995 to treat its 12b-1 fees as operating
expenses, instead of as capital charges. The Fund intends to comply with the IRS
ruling by that date. As a result after April 1, 1995, dividend distributions are
no longer expected to exceed net investment income for financial statement
purposes. Total investment return will not be affected.
The Fund intends to declare dividends from net investment income daily and
distribute to its shareholders such dividends monthly and to declare and
distribute all net realized long-term capital gains annually. All dividends and
distributions will be payable in shares or, at the option of the shareholder, in
cash.
Shareholders who have not opted to receive cash prior to the record date for
any distribution will have the number of such shares determined on the basis of
the Fund's net asset value per share computed at the end of the day on the
record date after adjustment for the distribution. Net asset value is used in
computing the number of shares in both capital gains and income distribution
reinvestments. There is a possibility that shareholders may lose the tax-exempt
status on accrued income on municipal bonds if shares of the Fund are redeemed
before a dividend has been declared. Account statements and/or checks as
appropriate will be mailed to shareholders within seven days after the Fund pays
the distribution. Unless the Fund receives instructions to the contrary from a
shareholder before the record date, it will assume that the shareholder wishes
to receive that distribution and future capital gains and income distributions
in shares. Instructions continue in effect until changed in writing.
Under normal circumstances, the Fund expects that substantially all of its
dividends will be "exempt interest dividends," which will be treated by its
shareholders as excludable from federal gross income. In order to pay exempt
interest dividends, at the close of each quarter, at least 50% of the value of
the Fund's assets must consist of federally tax-exempt obligations. An exempt
interest dividend is any dividend or part thereof (other than a capital gain
dividend) paid by the Fund with respect to its net federally excludable
municipal bond interest and designated as an exempt interest dividend in a
written notice mailed to shareholders not later than sixty days after the close
of its taxable year. The percentage of the total dividends paid by the Fund with
respect to any taxable year that qualifies as exempt interest dividends will be
the same for all shareholders receiving dividends with respect to such year. If
a shareholder receives an exempt interest dividend with respect to any share and
such share is held for six months or less, any loss on the sale or exchange of
such share will be disallowed to the extent of the exempt interest dividend
amount.
Any shareholder who may be a "substantial user" of a facility financed with an
issue of tax-exempt obligations or a "related person" to such a user should
consult his tax adviser concerning his qualification to receive exempt interest
dividends should the Fund hold obligations financing such facility.
Under the Tax Reform Act of 1986, interest on certain "private activity bonds"
issued after August 7, 1986, although otherwise tax-exempt, is treated as a tax
preference item for alternative minimum tax purposes. Under regulations to be
promulgated, the Fund's exempt interest dividends will be treated the same way
to the extent attributable to interest paid on such private activity bonds.
Corporate shareholders should also be aware that the receipt of exempt interest
dividends could subject them to alternative minimum tax under the provisions
Section 56(g) of the Code (relating generally to book income in excess of
taxable income).
Some or all of the Fund's exempt interest dividends may be subject to state
income taxes. The Fund will report to shareholders on a state by state basis the
sources of its exempt interest dividends.
The Fund intends to distribute its net capital gains as capital gain
dividends; such dividends are treated by shareholders as long-term capital
gains. Such distributions will be designated as capital gain dividends by a
written notice mailed to each shareholder no later than sixty days after the
close of the Fund's taxable year. If a shareholder receives a capital gain
dividend and holds his shares for six months or less, then any allowable loss on
disposition of such shares will be treated as a long-term capital loss to the
extent of such capital gain dividend.
Interest on indebtedness incurred or continued by shareholders to purchase or
carry shares of the Fund will not be deductible for federal income tax purposes
to the extent of the portion of the interest expense relating to exempt interest
dividends; that portion is determined by multiplying the total amount of
interest paid or accrued on the indebtedness by a fraction, the numerator of
which is the exempt interest dividends received by a shareholder in his taxable
year and the denominator of which is the sum of the exempt interest dividends
and the taxable distributions out of the Fund's investment income and short-term
capital gains received by the shareholder.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Fund and its shareholders. No attempt is made to present
a detailed explanation of the federal income tax treatment of the Fund or its
shareholders, and this discussion is not intended as a substitute for careful
tax planning. Accordingly, potential investors in the Fund are urged to consult
their tax advisers with specific reference to their own tax situation.
As mentioned above, at the end of each quarter, at least 50% of the value of
the Fund's assets must be invested in municipal bonds in order for distributions
to qualify as exempt interest dividends. Under particularly unusual
circumstances, such as when the Fund is in a prolonged defensive investment
position, it is possible that no portion of the Fund's distributions of income
to its shareholders for a fiscal year would be exempt from federal income tax;
however, the Fund does not presently anticipate that such unusual circumstances
will occur.
For the fiscal year ended November 30, 1994, approximately 100% of the Fund's
distributions were designated as exempt from federal income taxes. The Fund
advises its shareholders annually as to the federal tax status of all
distributions made during the year.
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FUND MANAGEMENT AND EXPENSES
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FUND MANAGEMENT
Under Massachusetts law, the Fund's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the Fund.
Subject to the general supervision of the Fund's Board of Trustees, Keystone
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.
INVESTMENT MANAGER
Keystone Management, the Fund's investment manager, 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 Keystone Custodian Funds and to certain other funds in the Keystone
Group of Mutual Funds.
Pursuant to its Investment Management Agreement with the Fund, Keystone
Management (the "Management Agreement"), has delegated its investment management
functions, except for certain administrative and management services to be
performed by 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 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.
The Fund pays Keystone Management a fee for its services at the annual rate
set forth below:
Aggregate Net Asset Value
Management of the Shares
Fee Income of the Fund
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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 each business day and paid daily.
During the year ended November 30, 1994, the Fund paid or accrued to Keystone
Management investment management and administrative services fees of $4,916,571,
which amount includes Keystone Management's management fee of $3,641,696
(representing 0.47% of the Fund's average daily net assets). Of such amount paid
to Keystone Management, $3,095,441 was paid to Keystone for its services to the
Fund.
INVESTMENT ADVISER
Keystone, the Fund's investment adviser, located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034, has provided investment advisory and
management services to investment companies and private accounts since it was
organized in 1932. Keystone is a wholly-owned subsidiary of Keystone Group, Inc.
("Keystone Group"), located at 200 Berkeley Street, Boston, Massachusetts
02116-5034.
Keystone Group is a corporation privately owned by current and former members
of management and certain employees of Keystone and its affiliates. The shares
of Keystone Group common stock beneficially owned by management are held in a
number of voting trusts, the trustees of which are George S. Bissell, Albert H.
Elfner, III, Edward F. Godfrey and Ralph J. Spuehler, Jr. Keystone Group
provides accounting, bookkeeping, legal, personnel and general corporate
services to Keystone Management, Keystone, their affiliates and the Keystone
Group of Mutual 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.
The Fund has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
FUND EXPENSES
The Fund will pay all of its expenses. In addition to the investment advisory
and management fees discussed above, the principal expenses that the Fund is
expected to pay include, but are not limited to, expenses of 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. Keystone Management pays all
charges and expenses relating to these items subject to reimbursement by the
Fund. For the fiscal year ended November 30, 1994 the Fund paid 1.65% of its
average net assets in expenses.
Capital charges and certain expenses, including a portion of the Fund's
Distribution Plan expenses, are not included in the calculation of the state
expense limitations. This limitation may be modified or eliminated in the
future.
During the fiscal year ended November 30, 1994, the Fund paid or accrued to
Keystone Investor Resource Center, Inc. ("KIRC"), the Fund's transfer and
dividend disbursing agent, and Keystone Group, $27,856 for certain accounting
and printing services and $819,910 for shareholder services. KIRC is a
wholly-owned subsidiary of Keystone.
PORTFOLIO MANAGER
Betsy A. Blacher has been the Fund's Portfolio Manager since 1990. She is a
Keystone Vice President and Senior Portfolio Manager and has more than 16 years
of investment experience.
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 November 30,
1994 and 1993 were 83% and 66%, 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.
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HOW TO BUY SHARES
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Shares of the Fund may be purchased from any broker-dealer that has a selling
agreement with Keystone Distributors, Inc. ("KDI"), the Fund's principal
underwriter ("Principal Underwriter"). KDI, a wholly-owned subsidiary of
Keystone, is located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
In addition, you may open an account for the purchase of shares of the Fund by
mailing to the Fund, c/o 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 investment 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 the Fund receives the purchase order. The initial purchase must be at
least $10,000 [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 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. If imposed, the contingent deferred sales charge is deducted from
the redemption proceeds otherwise payable to the shareholder. Prior to July 8,
1992, the Fund retained the contingent deferred sales charge. Since July 8,
1992, the contingent deferred sales charge attributable to shares purchased
prior to January 1, 1992 has been retained by the Fund, and the contingent
deferred sales charge attributable to shares purchased after January 1, 1992 is,
to the extent permitted by a new rule adopted by the NASD, paid to KDI. For the
fiscal year ended November 30, 1994, the Fund recovered $87,456 in contingent
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 contingent 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.
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. No deferred sales charge is payable on permitted
exchanges of shares between Keystone funds that have adopted distribution plans
pursuant to Rule 12b-1 under the 1940 Act. 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.
WAIVER OF DEFERRED SALES CHARGE
Shares may also be sold, to the extent permitted by applicable law, at net
asset value without the payment of commissions or the imposition of a 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 KDI; and (3) a
bank or trust company acting as trustee for a single account.
In addition, no contingent deferred sales charge is imposed on a redemption
of shares of the Fund in the event of (1) death or disability of the
shareholder; (2) a lump-sum distribution from 401(k) plan or other benefit plan
qualified under the Employee Retirement Income Security Act of 1974 ("ERISA");
(3) automatic withdrawals from ERISA plans if the shareholder is at least 59 1/2
years old; (4) involuntary redemptions of accounts having an aggregate net asset
value of less than $1,000; or (5) automatic withdrawals under an automatic
withdrawal plan of up to 1 1/2% per month of the shareholder's initial account
balance.
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DISTRIBUTION PLAN
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The Fund bears some of the costs of selling its shares under a Distribution
Plan adopted on June 20, 1985 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. A NASD rule 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 KDI).
Payments under the Distribution Plan are currently made to KDI, (which may
reallow all or part to others, such as dealers), (1) as commissions for Fund
shares sold and (2) as shareholder service fees in respect of shares maintained
by the recipients outstanding on the Fund's books for specified periods. Amounts
paid or accrued to KDI under (1) and (2) in the aggregate may not exceed the
quarterly limitation referred to above. KDI generally allows to brokers or
others a commission equal to 3% 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.
If the Fund is unable to pay KDI a commission on a new sale because the annual
maximum (0.75% of average daily net assets) has been reached, KDI 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 to dealers in excess of
the amount it currently receives from the Fund. While the Fund is under no
contractual obligation to reimburse KDI for advances made by KDI in excess of
the Distribution Plan limitation, KDI intends to seek full payment of such
charges from the Fund (together with interest at the rate of prime 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. KDI currently intends to seek
payment of interest only on such charges paid or accrued by KDI subsequent to
January 1, 1992. If the Fund's Independent Trustees ("Independent Trustees")
authorize such payments, the effect would be to extend the period of time during
which the Fund incurs the maximum amount of costs allowed by the Distribution
Plan. If the Distribution Plan is terminated, KDI 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 November 30, 1994, the Fund recovered $87,456 in
deferred sales charges. During the year, the Fund paid KDI $7,761,198 under the
Distribution Plan. The amount paid by the Fund under its Distribution Plan, net
of deferred sales charges, was $7,673,742 (1.00% of the Fund's average daily net
assets). During the year, KDI received $4,509,798, after payments of commissions
on new sales and service fees to dealers and others of $3,251,400. During the
year, KDI also received $521,056 in deferred sales charges. Unpaid distribution
costs at November 30, 1994 were $1,206,981 (.18% of net assets).
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 Independent
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, KDI, 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.
KDI may, at its own expense, pay concessions in addition to those described
above to dealers which satisfy certain criteria established from time to time by
KDI. These conditions relate to increasing sales of shares of the Keystone funds
over prior periods and certain other factors. Such payments may, depending on
the dealer's satisfaction of the required conditions, be up to .25% of the value
of shares sold by such dealer.
KDI also may pay banks and other financial services firms that facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the payments made allowable to dealers for the sale of such shares as
described above.
The Glass-Steagall Act currently limits the ability of a depository
institution (such as a commercial bank or a savings and loan association) to
become an underwriter or distributor of securities. In the event the Glass-
Steagall Act is deemed to prohibit depository institutions from accepting
payments under the arrangement described above, or should Congress relax current
restrictions on depository institutions, the Board of Trustees will consider
what action, if any, is appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and banks and financial
institutions may be required to register as dealers pursuant to state law.
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HOW TO REDEEM SHARES
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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 you.
REDEMPTION OF SHARES IN GENERAL
At various times, the Fund may be requested to redeem shares for which it has
not yet received good payment. In such a case, the Fund will mail the redemption
proceeds upon clearance of the purchase check, which may take up to 15 days or
more. Any delay may be avoided by purchasing shares 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 the redemption and prior to the release of
the proceeds, no appreciation or depreciation will occur in the value of the
redeemed shares, and no interest will be paid on the redemption proceeds. If the
mailing of a redemption check has been delayed, the check will be mailed or the
proceeds wired 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 except as
discussed herein.
Shareholders may also redeem their shares through their broker-dealers. KDI,
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.
Assuming it has received proper documentation, KDI 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. KDI 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 when the account address of record has been the
same for a minimum period of 30 days. The Fund and KIRC reserve the right to
withdraw this waiver at any time.
If the Fund receives a redemption 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. To engage in telephone
transactions generally, you must complete the appropriate sections of the Fund's
application.
In order to insure that instructions received by 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 electronic
funds transfer ("EFT") to your previously designated bank account as you direct.
If you do not specify how you wish your redemptions 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 falls 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 KDI assumes
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Keystone Automated Response Line
("KARL") or by telephone. KIRC will employ reasonable procedures to confirm that
instructions received over KARL or by telephone are genuine. Neither the Fund,
KIRC nor KDI will be liable when following instructions received over KARL or by
telephone that KIRC reasonably believes to be genuine.
The Fund may temporarily suspend the right to redeem its shares when (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) 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.
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SHAREHOLDER SERVICES
------------------------------------------------------------------------------
Details on all shareholder services may be obtained from KIRC by writing or
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 do 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 any of the eight Keystone Custodian Funds, Keystone
Precious Metals Holdings, Inc. ("KPMH"), Keystone International Fund Inc.
("KIF"), Keystone Tax Free Fund ("KTFF") and 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 Box 2121, Boston, Massachusetts 02106-
2121. (See "How to Redeem Shares" for additional information with respect to
telephone transactions.)
Fund shares purchased by check may be exchanged for shares of the named funds,
other than KPMH or KTFF, after 15 days provided good payment for the purchase of
Fund shares has been collected. You may exchange your shares for another
Keystone Fund for a $10 fee by calling or writing Keystone. The exchange fee is
waived for individual investors who make an exchange using KARL. If the shares
being tendered for exchange have been held for less than four years and are
still subject to a contingent deferred sales charge, such charge will carry over
to the shares being acquired in the exchange transaction. The Fund reserves the
right to terminate this exchange offer or to change its terms, including the
right to change the service charge 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. 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. 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.
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.
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PERFORMANCE DATA
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From time to time, the Fund may advertise "total return," "current yield" and
a "tax equivalent 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.
Tax equivalent yield is, in general, the current yield divided by a factor
equal to one minus a stated income tax rate and reflects the yield a taxable
investment would have to achieve in order to equal on an after-tax basis a
tax-exempt yield.
The Fund may include comparative performance and general mutual fund industry
information when 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 financial and industry publications.
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FUND SHARES
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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. 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.
Shareholders of the Fund are entitled to one vote for each full share owned
and fractional votes for fractional shares. The Fund is required to hold annual
meetings to consider the election of Trustees and other matters. The Fund will
have special meetings from time to time as required under its Declaration of
Trust and under the 1940 Act. As provided in the Fund's Declaration of Trust,
shareholders have the right to remove Trustees by an affirmative vote of
two-thirds of the outstanding shares. A special meeting of the shareholders will
be held when 10% of the outstanding shares request a meeting for the purpose of
removing a Trustee. As prescribed by Section 16(c) of the 1940 Act, shareholders
may be eligible for shareholder communication assistance in connection with the
special meeting.
Under Massachusetts law it is possible that a Fund shareholder may be held
personally liable for the Fund's obligations. The Fund's Declaration of Trust
provides, however, that shareholders shall not be subject to any personal
liability for the Fund's obligations and provides indemnification from Fund
assets for any shareholder held personally liable for the Fund's obligations.
Disclaimers of such liability are included in each Fund agreement.
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ADDITIONAL INFORMATION
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KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519, is a
wholly-owned subsidiary of Keystone and serves as the Fund's transfer agent and
dividend disbursing agent.
When the Fund determines from its records that more than one account in the
Fund is registered in the name of a shareholder or shareholders having the same
address, upon notice to those shareholders, the Fund intends, when an annual
report or a semi-annual report of the Fund is required to be furnished, to mail
one copy of such report to that address.
Except as otherwise stated in this prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
<PAGE>
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ADDITIONAL INVESTMENT INFORMATION
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The Fund may engage in the following investment practices to the extent
described in the prospectus and the statement of additional information.
OBLIGATIONS OF FOREIGN BRANCHES OF UNITED STATES BANKS
The obligations of foreign branches of U.S. banks may be general obligations
of the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by government regulation. Payment of interest
and principal upon these obligations may also be affected by governmental action
in the country of domicile of the branch (generally referred to as sovereign
risk). In addition, evidences of ownership of such securities may be held
outside the U.S. and the Fund may be subject to the risks associated with the
holding of such property overseas. Examples of governmental actions would be the
imposition of currency controls, interest limitations, withholding taxes,
seizure of assets or the declaration of a moratorium. Various provisions of
federal law governing domestic branches do not apply to foreign branches of
domestic banks.
OBLIGATIONS OF UNITED STATES BRANCHES OF FOREIGN BANKS
Obligations of U.S. branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by federal and state regulation as well as by
governmental action in the country in which the foreign bank has its head
office. In addition, there may be less publicly available information about a
U.S. branch of a foreign bank than about a domestic bank.
MASTER DEMAND NOTES
Master demand notes are unsecured obligations that permit the investment of
fluctuating amounts by the Fund at varying rates of interest pursuant to direct
arrangements between the Fund, as lender, and the issuer as borrower. Master
demand notes may (i) permit daily fluctuations in the interest rate and daily
changes in the amounts borrowed. The Fund has the right to increase the amount
under the note at any time up to the full amount provided by the note agreement,
or to decrease the amount. The borrower may repay up to the full amount of the
note without penalty. Notes acquired 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 will be deemed to
have a maturity equal to the longer of the period remaining to the next interest
rate adjustment or the demand notice period. Because these types of notes are
direct lending arrangements between the lender and borrower, such instruments
are not normally traded and there is no secondary market for these notes,
although they are redeemable and thus repayable by the borrower at face value
plus accrued interest at any time. Accordingly, the Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. In connection with master demand note arrangements, Keystone considers,
under standards established by the Board of Trustees, earning power, cash flow
and other liquidity ratios of the borrower and will monitor the ability of the
borrower to pay principal and interest on demand. These notes are not typically
rated by credit rating agencies. Unless rated, the Fund may 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.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements; i.e., the Fund purchases a
security subject to the Fund's obligation to resell and the seller's obligation
to repurchase that security at an agreed upon price and date, such date usually
being not more than seven days from the date of purchase. The resale price is
based on the purchase price plus an agreed upon current market rate of interest
that (for purposes of the transaction) is generally unrelated to the coupon rate
or maturity of the purchased security. A repurchase agreement imposes an
obligation on the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security. The value of the
underlying security is at least equal to the amount of the agreed upon resale
price and marked to market daily to cover such amount. The Fund may enter into
such agreements only with respect to U.S. government and foreign government
securities, which may be denominated in U.S. or foreign currencies. The Fund may
enter into such repurchase agreements with foreign banks and securities dealers
approved in advance by the Fund's Trustees. Whether a repurchase agreement is
the purchase and sale of a security or a collateralized loan has not been
definitively established. This might become an issue in the event of the
bankruptcy of the other party to the transaction. It does not presently appear
possible to eliminate all risks involved in repurchase agreements. These risks
include the possibility of an increase in the market value of the underlying
securities or inability of the repurchaser to perform its obligation to
repurchase coupled with an uncovered decline in the market value of the
collateral, including the underlying securities, as well as delay and costs to
the Fund in connection with enforcement or bankruptcy proceedings. Therefore, it
is the policy of the Fund to enter into repurchase agreements only with large,
well-capitalized banks that are members of the Federal Reserve System and with
primary dealers in U.S. government securities (as designated by the Federal
Reserve Board) whose creditworthiness has been reviewed and found satisfactory
by the Fund's advisers.
REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Fund would sell securities and agree
to repurchase them at a mutually agreed upon date and price. The Fund intends to
enter into reverse repurchase agreements to avoid otherwise having to sell
securities during unfavorable market conditions in order to meet redemptions. At
the time the Fund enters into a reverse repurchase agreement, it will establish
a segregated account with the Fund's custodian containing liquid assets such as
U.S. government securities or other high grade debt securities having a value
not less than the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure such value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
that the Fund is obligated to repurchase may decline below the repurchase price.
Borrowing and reverse repurchase agreements magnify the potential for gain or
loss on the portfolio securities of the Fund and, therefore, increase the
possibility of fluctuation in the Fund's net asset value. Such practices may
constitute leveraging. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether to
enforce the Fund's obligation to repurchase the securities and the Fund's use of
the proceeds of the reverse repurchase agreement may effectively be restricted
pending such determination. The staff of the SEC has taken the position that the
Investment Company Act of 1940 treats reverse repurchase agreements as being
included in the percentage limit on borrowings imposed on a Fund.
"WHEN ISSUED" SECURITIES
The Fund may also purchase and sell securities and currencies on a when issued
and delayed delivery basis. When issued or delayed delivery transactions arise
when securities or currencies are purchased or sold by the Fund with payment and
delivery taking place in the future in order to secure what is considered to be
an advantageous price and yield to the Fund at the time of entering into the
transaction. When the Fund engages in when issued and delayed delivery
transactions, the Fund relies on the buyer or seller, as the case may be, to
consummate the sale. Failure to do so may result in the Fund missing the
opportunity to obtain a price or yield considered to be advantageous. When
issued and delayed delivery transactions may be expected to occur a month or
more before delivery is due. However, no payment or delivery is made by the Fund
until it receives payment or delivery from the other party to the transaction. A
separate account of liquid assets equal to the value of such purchase
commitments will be maintained until payment is made. When issued and delayed
delivery agreements are subject to risks from changes in value based upon
changes in the level of interest rates, currency rates and other market factors,
both before and after delivery. The Fund does not accrue any income on such
securities or currencies prior to their delivery. To the extent the Fund engages
in when issued and delayed delivery transactions, it will do so consistent with
its investment objective and policies and not for the purpose of investment
leverage.
DERIVATIVES
The Fund may use derivatives in furtherance of its investment objective.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. These assets, rates,
and indices may include bonds, stocks, mortgages, commodities, interest rates,
currency exchange rates, bond indices and stock indices. Derivatives can be used
to earn income or protect against risk, or both. For example, one party with
unwanted risk may agree to pass that risk to another party who is willing to
accept the risk, the second party being motivated, for example, by the desire
either to earn income in the form of a fee or premium from the first party, or
to reduce its own unwanted risk by attempting to pass all or part of that risk
to the first party.
Derivatives can be used by investors such as the Fund to earn income and
enhance returns, to hedge or adjust the risk profile of the portfolio, and
either in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. The Fund is permitted to use derivatives for one
or more of these purposes, although the Fund generally uses derivatives
primarily as direct investments in order to enhance yields and broaden portfolio
diversification. Each of these uses entails greater risk than if derivatives
were used solely for hedging purposes. The Fund uses futures contracts and
related options for hedging purposes. Derivatives are a valuable tool which,
when used properly, can provide significant benefit to Fund shareholders.
Keystone is not an aggressive user of derivatives with respect to the Fund.
However, the Fund may take positions in those derivatives that are within its
investment policies if, in Keystone's judgement, this represents an effective
response to current or anticipated market conditions. Keystone's use of
derivatives is subject to continuous risk assessment and control from the
standpoint of the Fund's investment objectives and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments -- options, futures,
forwards and swaps -- from which virtually any type of derivative transaction
can be created. Further information regarding options and futures, is provided
later in this section and is provided in the Fund's statement of additional
information. The Fund does not presently engage in the use of swaps.
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 a another party to a derivative (usually referred to
as a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the
issuer or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there is no
similar clearing agency guarantee. Therefore, the Fund considers the
creditworthiness of each counterparty to a privately negotiated derivative in
evaluating potential credit risk.
* Liquidity Risk -- Liquidity risk 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 a Fund. Derivatives do not always
perfectly or even highly correlate or track the value of the assets, rates or
indices they are designed to closely track. Consequently, the Fund's use of
derivatives may not always be an effective means of, and sometimes could be
counterproductive to, furthering the Fund's investment objective.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS. The Fund may write (i.e., sell) covered call and put
options. By writing a call option, the Fund becomes obligated during the term of
the option to deliver the securities underlying the option upon payment of the
exercise price. By writing a put option, the Fund becomes obligated during the
term of the option to purchase the securities underlying the option at the
exercise price if the option is exercised. The Fund also may write straddles
(combinations of covered puts and calls on the same underlying security).
The Fund may only write "covered" options. This means that so long as the Fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills. If
the Fund has written options against all of its securities which 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. However, the Fund does not expect that this will occur.
The Fund will be considered "covered" with respect to a put option it writes
if, so long as it is obligated as the writer of the put option, it deposits and
maintains with its custodian in a segregated account liquid assets having a
value equal to or greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain, through a
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Fund receives a premium from writing a call or
put option, which it retains whether or not the option is exercised. By writing
a call option, the Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option the Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.
PURCHASING OPTIONS. The Fund may purchase put or call options, including
purchasing put or call options for the purpose of offsetting previously written
put or call options of the same series.
If the Fund is unable to effect a closing purchase transaction with respect to
covered options it has written, the Fund will not be able to sell the underlying
security 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 generally are
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 SEC is of the view that the premiums that the Fund pays for
the purchase of unlisted options, and the value of securities used to cover
unlisted options written by the Fund, are considered to be invested in illiquid
securities or assets for the purpose of calculating whether the Fund is in
compliance with its investment restriction relating to illiquid investments.
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 futures on
securities or currencies 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 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. The
Fund may also purchase and sell options related to foreign currencies in
connection with hedging strategies.
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.
<PAGE>
KEYSTONE CUSTODIAN K E Y S T O N E
FAMILY OF FUNDS
*
B-1 High Grade Bond Fund
B-2 Diversified Bond Fund
B-4 High Income Bond Fund
K-1 Balanced Income Fund
K-2 Strategic Growth Fund
S-1 Blue Chip Stock Fund
S-3 Capital Growth Fund
S-4 Small Company Growth Fund
International Fund
Precious Metals Holdings
Tax Free Fund
Tax Exempt Trust
Liquid Trust TAX EXEMPT
TRUST
[Logo]
[Logo] KEYSTONE
Distributors, Inc. PROSPECTUS AND
APPLICATION
200 Berkeley Street
KTET-P 3/95 Boston, Massachusetts 02116-5034
39M [Recycle Logo]
<PAGE>
KEYSTONE TAX EXEMPT TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
KEYSTONE TAX EXEMPT TRUST
MARCH 31, 1995
This statement of additional information is not a prospectus, but
relates to and should be read in conjunction with, the prospectus of Keystone
Tax Exempt Trust (the "Fund") dated March 31, 1995. A copy of the prospectus may
be obtained from Keystone Distributors, Inc. ("KDI"), the Fund's current
principal underwriter ("Principal Underwriter"), 200 Berkeley Street, Boston,
Massachusetts 02116-5034 or your broker-dealer.
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TABLE OF CONTENTS
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Page
The Fund's Objective and Policies 2
Investment Restrictions 2
Valuation of Securities 5
Sales Charges 5
Distribution Plan 7
Redemptions in Kind 9
Principal Underwriter 9
Trustees and Officers 10
Declaration of Trust 14
Investment Manager 15
Investment Adviser 17
Brokerage 19
Standardized Total Return
and Yield Quotations 21
Additional Information 21
Appendix A-1
Financial Statements F-1
Independent Auditors' Report F-20
<PAGE>
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THE FUND'S OBJECTIVE AND POLICIES
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The Fund is an open-end, diversified management investment company. The
Fund's investment objective is to provide shareholders with the highest possible
current income, exempt from federal income taxes, while preserving capital. The
Fund invests primarily in municipal bonds, but also may invest in certain other
securities as described in the Appendix to this statement of additional
information.
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVE
The investment objective of the Fund is fundamental and may not be
changed without approval of the holders of a majority, as defined in the
Investment Company Act of 1940 (the "1940 Act"), of the Fund's outstanding
voting shares.
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INVESTMENT RESTRICTIONS
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None of the restrictions enumerated in this paragraph may 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 shall not do the following:
(1) purchase securities on margin, but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities;
(2) make short sales of securities or maintain a short position, unless at
all times when a short position is open it owns an equal amount of such
securities or of securities which without payment of any further
consideration are convertible into or exchangeable for securities of
the same issue as, and equal in amount to, the securities sold short
(the Fund does not presently intend to make such short sales);
(3) borrow money, except that the Fund may (a) borrow money from banks for
emergency or extraordinary purposes in aggregate amounts up to
one-third of its net assets and (b) enter into reverse repurchase
agreements provided that bank borrowings and reverse repurchase
agreements, in aggregate, shall not exceed one-third of the value of
the Fund's net assets;
(4) pledge, mortgage or hypothecate its assets except to secure
indebtedness permitted by subparagraph (3), with pledged assets to be
no more than 15% of its total assets; the Fund understands that pledges
in excess of approximately 6% of its net assets would result in its
inability to sell additional shares in one state; however, the Fund has
no present intention of exceeding this limit;
(5) purchase any security, other than United States ("U.S.") government
securities, if as a result more than 25% of the Fund's total assets
would be invested in a single industry of which the issuer is a member;
governmental issuers of municipal bonds are not regarded as members of
an industry;
(6) purchase any security, other than U.S. government securities, if as a
result more than 5% of the Fund's total assets would be invested in
securities of the issuer, or the Fund would hold more than 10% of the
voting securities of the issuer;
(7) invest for the purpose of exercising control over or management of any
company;
(8) invest in securities of other investment companies, except as part of a
merger, consolidation, purchase of assets or similar transaction
approved by the Fund's shareholders;
(9) purchase or sell real estate or interests in real estate, except that
it may purchase or 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 it may
engage in currency or other financial futures and related options
transactions;
(10) act as an underwriter except to the extent that, in connection with the
disposition of its portfolio investments, it may be deemed to be an
underwriter under federal securities laws; or purchase securities which
are not readily marketable except for repurchase agreements;
(11) purchase or retain securities of an issuer if, to the knowledge of the
Fund, an officer, Trustee or Director of the Fund or Keystone owns
beneficially more than one-half of 1% of the shares or securities of
such issuer and all such officers, Trustees and Directors owning more
than one-half of 1% of such shares or securities together own more than
5% of such shares or securities;
(12) purchase securities of any issuer if the person responsible for
payment, together with any predecessor, has been in operation for less
than three years, if, as a result, the aggregate of such investments
would exceed 5% of the Fund's total assets; provided, however, that
this restriction shall not apply to U.S. government securities or to
any obligation the payment of which involves the credit and taxing
power of any person authorized to issue municipal bonds;
(13) invest in interests in oil, gas or other mineral exploration or
development programs;
(14) make loans, except to the extent that the purchase of debt instruments
or repurchase agreements may be deemed to be loans; repurchase
agreements maturing in more than seven days will not exceed 10% of the
Fund's total assets; and
(15) purchase securities of foreign issuers.
The Fund has no current intention of attempting to increase its net
income by borrowing and intends to repay any borrowings made in accordance with
the third investment restriction enumerated above before it makes any additional
investments.
The foregoing percentage restrictions will apply at the time of the
purchase of a security and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of a purchase of
such security. For the purpose of limitations (5) and (6), the Fund will treat
each state, territory and possession of the U.S., the District of Columbia and,
if its assets and revenues are separate from those of the entity or entities
creating it, each political subdivision, agency and instrumentality of any one
(or more, as in the case of a multistate authority or agency) of the foregoing
as an issuer of all securities that are backed primarily by its assets or
revenues; each company as an issuer of all securities that are backed primarily
by its assets or revenues; and each of the foregoing entities as an issuer of
all securities that it guarantees; provided, however, that for the purpose of
limitation (6) no entity shall be deemed to be an issuer of a security that it
guarantees so long as no more than 10% of the Fund's total assets (taken at
current value) are invested in securities guaranteed by the entity and
securities of which it is otherwise deemed to be an issuer.
The Fund does not presently intend to invest more than 25% of its total
assets in (1) municipal bonds of a single state and its subdivisions, agencies
and instrumentalities; of a single territory or possession of the U.S. and its
subdivisions, agencies or instrumentalities; or of the District of Columbia and
any subdivision, agency or instrumentality thereof; or (2) municipal bonds the
payment of which depends on revenues derived from a single facility or similar
types of facilities. Since certain municipal bonds may be related in such a way
that an economic, business or political development or change affecting one such
security could likewise affect the other securities, a change in this policy
could result in increased investment risk, but no change is presently
contemplated. The Fund may invest more than 25% of its total assets in
industrial development bonds.
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VALUATION OF SECURITIES
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The Fund believes that reliable market quotations generally are not
readily available for purposes of valuing municipal bonds. As a result,
depending on the particular municipal bonds owned by the Fund, it is likely that
most of the valuations for such bonds will be based upon their fair value
determined under procedures which have been approved by the Board of Trustees.
Non-tax exempt securities for which market quotations are readily available are
valued on a consistent basis at that price quoted which, in the opinion of the
Board of Trustees or the person designated by the Board of Trustees to make the
determination, most nearly represents the market value of the particular
security. Short-term investments 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), that, 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 or
premium or accretion of discount), which, when combined with accrued interest,
approximates market; in any case reflecting fair value as determined by the
Board of Trustees. 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.
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SALES CHARGES
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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 a rule adopted by the National Association of Securities Dealers,
Inc. ("NASD"), is paid to KDI. For the fiscal year ended November 30, 1994, the
Fund recovered deferred sales charges amounting to $87,456.
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, or (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 Fund imposes a contingent
deferred sales charge 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 contingent
deferred sales charge is imposed on amounts redeemed thereafter.
The following example will illustrate 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 (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, for a
total contingent deferred sales charge of $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 contingent deferred sales
charge on 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 exchange 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
imposition of a contingent deferred sales charge upon redemption of shares to
(1) officers, Directors, Trustees, full-time employees and sales representatives
of the Fund, Keystone Custodian Funds, Inc. ("Keystone"), The Massachusetts
Company, Inc., Keystone Group, Inc., ("Keystone Group"), 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, 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 contingent deferred sales charge is imposed on a
redemption of shares of the Fund 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 Keystone Custodian Fund, (as
hereinafter defined) Keystone Precious Metals Holdings, Inc., Keystone
International Fund Inc., 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.
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DISTRIBUTION PLAN
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Rule 12b-1 under the 1940 Act permits investment companies such as the
Fund to use their assets to bear expenses of distributing their shares, if they
comply with various conditions, including adoption of a distribution plan
containing certain provisions set forth in the Rule 12b-1.
The Fund's Distribution Plan provides that the Fund may expend up to
0.3125% quarterly (approximately 1.25% annually) of average daily net asset
value of its shares to pay distribution costs for sales of its shares and to pay
shareholder service fees. A rule adopted by 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
charge paid by shareholders to KDI).
Payments under the Distribution Plan are currently made to KDI (which
may reallow all 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 KDI under (1) and (2) in the aggregate may not exceed the
annual limitation referred to above. KDI generally reallows to brokers or others
a commission equal to 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 outstanding on the books of the Fund for
specified periods.
If the Fund is unable to pay KDI a commission on a new sale because the
annual maximum (0.75% of average daily net assets) has been reached, KDI
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 reimburse KDI for advances made by KDI in excess of
the Distribution Plan limitation, KDI intends to seek full payment of such
charges from the Fund (together with interest rate of prime 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. KDI currently intends to seek payment of
interest only on such charges paid or accrued by KDI subsequent to January 1,
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, KDI 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 also 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 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 will be required to
commit the selection and nomination of candidates for Independent Trustees to
the discretion of the Independent Trustees.
During the fiscal year ended November 30, 1994, the Fund recovered
$87,456 in contingent deferred sales charges. During the year, the Fund paid KDI
$7,761,198 under the Distribution Plan. The amount paid by the Fund under its
Distribution Plan, net of deferred sales charges, was $7,673,742 (1.00% of the
Fund's average daily net asset value on an annualized basis). During the year,
KDI received $4,509,798, after payment of commissions on new sales and service
fees to dealers and others of $3,251,400.
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.
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REDEMPTIONS IN KIND
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If conditions arise that would make it undesirable for the Fund to pay
for all redemptions in cash, the Fund may authorize payment to be made in
portfolio securities or other 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 and would be readily marketable. Shareholders
receiving such securities would incur brokerage costs when these securities are
sold.
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PRINCIPAL UNDERWRITER
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Pursuant to a Principal Underwriting Agreement dated August 19, 1993
(the "Underwriting Agreement"), KDI acts as the Fund's Principal Underwriter.
KDI, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034, is a
Delaware corporation wholly-owned by Keystone. KDI, as agent, has agreed to use
its best efforts to find purchasers for the shares. KDI may retain and employ
representatives to promote distribution of the shares and may obtain orders from
brokers, dealers and others, acting as principals, for sales of shares to them.
The Underwriting Agreement provides that KDI will bear the expense of preparing,
printing and distributing advertising and sales literature and prospectuses used
by it. In its capacity as Principal Underwriter, KDI may receive payments from
the Fund pursuant to the Fund's Distribution 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 KDI's judgment it could benefit the sales of
Fund shares, KDI may use its discretion in providing to selected dealers
promotional materials and selling aids, including, but not limited to, personal
computers, related software and Fund data files.
For the fiscal years ended November 30, 1992, 1993, and 1994, KDI
earned commissions of $2,413,948, $3,883,073 and $4,509,798, respectively, after
paying commissions and service fees of $5,611,653, $5,404,976 and $3,251,400,
respectively, to retail dealers under the Distribution Plan.
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TRUSTEES AND OFFICERS
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Trustees and officers of the Fund, their principal occupations and some
of their affiliations over the past five years are set forth below:
*ALBERT H. ELFNER, III: President, Trustee and Chief Executive Officer of the
Fund; Chairman of the Board, President, Director and Chief Executive
Officer of Keystone Group, Inc. ("Keystone Group"), President and
Trustee or Director of Keystone America Capital Preservation and Income
Fund, Keystone America Intermediate Term Bond Fund, Keystone America
Strategic Income Fund, Keystone America World Bond Fund, Keystone Tax
Free Income Fund, Keystone America State Tax Free Fund, Keystone
America State Tax Free Fund - Series II, Keystone America Fund for
Total Return, Keystone America Global Opportunities Fund, Keystone
America Hartwell Emerging Growth Fund, Inc., Keystone America Hartwell
Growth Fund, Inc., Keystone America Omega Fund, Inc., Keystone Fund of
the Americas-Luxembourg and Keystone Fund of the Americas - U.S.,
Keystone Strategic Development Fund (collectively, "Keystone America
Funds"); Keystone Custodian Funds, Series B-1, B-2, B-4, K-1, K-2, S-1,
S-3, and S-4; Keystone International Fund, Keystone Precious Metals
Holdings, Inc., Keystone Tax Free Fund, Keystone Tax Exempt Trust,
Keystone Liquid Trust (collectively, "Keystone Custodian Funds");
Keystone Institutional Adjustable Rate Fund and Master Reserves Trust
(all such funds, collectively, "Keystone Group Funds"); Director and
Chairman of the Board, Chief Executive Officer and Vice Chairman of
Keystone Custodian Funds, Inc. ("Keystone"); Chairman of the Board and
Director of Keystone Investment Management Corporation ("KIMCO") and
Keystone Fixed Income Advisors ("KFIA"); Director, Chairman of the
Board, Chief Executive Officer and President of Keystone Management,
Inc. ("Keystone Management"), Keystone Software Inc. ("Keystone
Software"); Director and President of Hartwell Keystone Advisers, Inc.
("Hartwell Keystone"), Keystone Asset Corporation, Keystone Capital
Corporation, and Keystone Trust Company; Director of Keystone
Distributors, Inc. ("KDI"), Keystone Investor Resource Center, Inc.
("KIRC"), and Fiduciary Investment Company, Inc. ("FICO"); Director and
Vice President of Robert Van Partners, Inc.; Director of Boston
Children's Services Association; Trustee of Anatolia College, Middlesex
School, and Middlebury College; Member, Board of Governors, New England
Medical Center and former Trustee of Neworld Bank.
FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other Keystone
Group Funds; Professor, Finance Department, George Washington
University; President, Amling & Company (investment advice); Member,
Board of Advisers, Credito Emilano (banking); and former Economics and
Financial Consultant, Riggs National Bank.
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; Investment Counselor to Appleton Partners, Inc.;
former Managing Director, Seaward Management Corporation (investment
advice) and former Director, Executive Vice President and Treasurer,
State Street Research & Management Company (investment advice).
*GEORGE S. BISSELL: Chairman of the Board and Trustee of the Fund; Director of
Keystone Group; Chairman of the Board and Trustee or Director of all
other Keystone Group Funds,; Director and Chairman of the Board of
Hartwell Keystone; Chairman of the Board and Trustee of Anatolia
College; Trustee of University Hospital (and Chairman of its Investment
Committee); former Chairman of the Board and Chief Executive Officer of
Keystone Group; and former Chief Executive Officer of the Fund.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; Executive Director, Coalition of Essential
Schools, Brown University; Director and former Executive Vice
President, National Alliance of Business; former Vice President,
Educational Testing Services; and former Dean, School of Business,
Adelphi University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; former Group Vice President, Textron Corp.; and
former Director, Peoples Bank (Charlotte, NC).
LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; Director of Phoenix Total Return Fund and
Equifax, Inc.; Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio
Fund and The Phoenix Big Edge Series Fund; and former President,
Morehouse College.
K. DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; Chairman of the Board, Director and Executive
Vice President, The London Harness Company; Managing Partner, Roscommon
Capital Corp.; Trustee, Cambridge College; Chairman Emeritus and
Director, American Institute of Food and Wine; Chief Executive Officer,
Gifford Gifts of Fine Foods; Chairman, Gifford, Drescher & Associates
(environmental consulting); President, Oldways Preservation and
Exchange Trust (education); and former Director, Keystone Group and
Keystone.
F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; Of Counsel, Keyser, Crowley & Meub, P.C.; Member,
Governor's (VT) Council of Economic Advisers; Chairman of the Board and
Director, Central Vermont Public Service Corporation and Hitchcock
Clinic; Director, Vermont Yankee Nuclear Power Corporation, Vermont
Electric Power Company, Inc., Grand Trunk Corporation, Central Vermont
Railway, Inc., S.K.I. Ltd., Sherburne Corporation, Union Mutual Fire
Insurance Company, New England Guaranty Insurance Company, Inc. and the
Investment Company Institute; former Governor of Vermont; former
Director and President, Associated Industries of Vermont; former
Chairman and President, Vermont Marble Company; former Director of
Keystone; and former Director and Chairman of the Board, Green Mountain
Bank.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; Executive Vice President, DHR International, Inc.
(executive recruitment); former Senior Vice President, Boyden
International Inc. (executive recruitment); and Director, Commerce and
Industry Association of New Jersey, 411 International, Inc. and J & M
Cumming Paper Co.
RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other
Keystone Group Funds; Chairman, Environmental Warranty, Inc., and
Consultant, Drake Beam Morin, Inc. (executive outplacement); Director
of Connecticut Natural Gas Corporation, Trust Company of Connecticut,
Hartford Hospital, Old State House Association and Enhanced Financial
Services, Inc.; Member, Georgetown College Board of Advisors; Chairman,
Board of Trustees, Hartford Graduate Center; Trustee, Kingswood-Oxford
School and Greater Hartford YMCA; former Director, Executive Vice
President and Vice Chairman of The Travelers Corporation; and former
Managing Director of Russell Miller, Inc.
ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other Keystone
Group Funds; Partner, Farrell, Fritz, Caemmerer, Cleary, Barnosky &
Armentano, P.C.; President, Nassau County Bar Association; former
Associate Dean and Professor of Law, St. John's University School of
Law.
EDWARD F. GODFREY: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Group Funds; Director, Senior Vice President, Chief
Financial Officer and Treasurer of Keystone Group, KDI, Keystone Asset
Corporation, Keystone Capital Corporation, Keystone Trust Company;
Treasurer of KIMCO, Robert Van Partners, Inc., and FICO; Treasurer and
Director of Keystone Management, Keystone Software, Inc., and Hartwell
Keystone; Vice President and Treasurer of KFIA; and Director of KIRC.
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of all
other Keystone Group Funds; and President of Keystone.
KEVIN J. MORRISSEY: Treasurer of the Fund; Treasurer of all other Keystone Group
Funds; Vice President of Keystone Group; Assistant Treasurer of FICO
and Keystone; and former Vice President and Treasurer of KIRC.
ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Fund; Senior
Vice President and Secretary of all other Keystone Group Funds; Senior
Vice President, General Counsel and Secretary of Keystone; Senior Vice
President, General Counsel, Secretary and Director of KDI, Keystone
Management and Keystone Software, Senior Vice President and General
Counsel of KIMCO; Senior Vice President, General Counsel and Director
of FICO and KIRC; Senior Vice President and Secretary of Hartwell
Keystone and Robert Van Partners, Inc.; Vice President and Secretary of
KFIA; Senior Vice President, General Counsel and Secretary of Keystone
Group, Keystone Asset Corporation, Keystone Capital Corporation and
Keystone Trust Company.
* This Trustee may be considered an "interested person" within the meaning of
the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Group and several of its
affiliates including Keystone, KDI and KIRC. Mr. Elfner and Mr. Bissell own
shares of Keystone Group. Mr. Elfner is Chairman of the Board, Chief Executive
Officer and Director of Keystone Group. Mr. Bissell is a Director of Keystone
Group.
During the fiscal year ended November 30, 1994, none of the Directors
and officers of Keystone received any direct remuneration from the Fund. During
the same period, the nonaffiliated Trustees received $54,917 in retainers and
fees. Annual retainers and meeting fees paid by all Keystone Group funds (which
included over 30 mutual funds) for the fiscal year ended November 30, 1994,
totalled $585,970. On February 28, 1995, the Directors, officers and members of
the Advisory Board beneficially owned less than 1% of the Fund's then
outstanding shares.
The address of all the Fund's Trustees, officers and Advisory Board
members is 200 Berkeley Street, Boston, Massachusetts 02116-5034.
--------------------------------------------------------------------------------
DECLARATION OF TRUST
--------------------------------------------------------------------------------
The Fund is a Massachusetts business trust established under an Amended
and Restated Declaration of Trust dated July 27, 1993 (the "Declaration of
Trust"). The Fund is similar in most respects to a business corporation. The
principal distinction between the Fund and a corporation relates to the
shareholder liability described below. A copy of the Amended and Restated
Declaration of Trust is filed as an exhibit to Post-Effective Amendment No. 13
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 Declaration of Trust.
SHAREHOLDER LIABILITY
Pursuant to certain decisions of the Supreme Judicial Court of
Massachusetts, shareholders of a Massachusetts business trust may, under certain
circumstances, could possibly be held personally liable as partners for the
obligations of the trust. Even if, however, the Fund were held to be a
partnership, the possibility of the share-holders incurring financial loss for
that reason appears remote because the Fund's Declaration of Trust (1) contains
an express disclaimer of shareholder liability for obligations of the Fund; (2)
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Fund or the Trustees; and (3)
provides for indemnification out of the trust property for any shareholder held
personally liable for the obligations of the Fund.
VOTING RIGHTS
Although the Fund currently issues one class of shares, under the terms
of the Declaration of Trust, the Trustees are authorized to create additional
series or classes of shares. All shares are entitled to vote on the election of
Trustees and each series or class may vote on matters affecting a particular
series or class or where required by law. No amendment may be made to the
Declaration of Trust without the approval of the shareholders of the Fund. All
shares have non-cumulative voting rights, which means that the holders of more
than 50% of the shares voting for the election of Trustees can elect 100% of the
Trustees to be elected at a meeting, and, in such event, the holders of the
remaining less than 50% of the shares will not be able to elect any Trustees.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust 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 Declaration of Trust shall protect a Trustee against any
liability for his willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties.
--------------------------------------------------------------------------------
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 Keystone Custodian Funds and to certain
other funds in the Keystone Group of Mutual Funds.
Except as otherwise noted below, pursuant to an Investment Management
Agreement with the Fund (the "Management Agreement") and subject to the
supervision of the Fund's Board of Trustees, Keystone Management has agreed to
manage and administer 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 officers and
trustees of the Fund who are affiliated with the investment manager and will pay
all expenses of Keystone Management incurred in connection with the provisions
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 shareholder's 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
such other 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.
Keystone Management presently provides the Fund with certain administrative and
management services, such services 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; and (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.
The Fund pays Keystone Management at the end of each calendar month a
fee for its services consisting of (1) an amount calculated as set forth below:
Annual Aggregate Net Asset Value
Management of the Shares
Fee Income 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;
and (2) an amount equal to Keystone Management's reimbursable expenses accrued
during such calendar month.
The Fund is subject to certain state annual 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.
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 continues in effect only if approved at least
annually by the Board of Trustees of the Fund or by a vote of a majority of the
outstanding shares, and such renewal has been approved by the vote of a majority
of the Independent Trustees cast in person at a meeting called for the purpose
of voting on such approval. The 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 be performed by Keystone Management, to Keystone and has
entered into an Investment Advisory Agreement, dated August 19, 1993 (the
"Advisory Agreement"), with Keystone 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, a wholly-owned subsidiary of Keystone Group, 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
Keystone Group is a corporation privately owned by current and former
members of Keystone's management and its affiliates. The shares of Keystone
Group common stock beneficially owned by management are held in a number of
voting trusts, the trustees of which are George s. Bissell, Albert H. Elfner,
III, Edward F. Godfrey and Ralph J. Spuehler, Jr. Keystone Group provides
accounting, bookkeeping, legal, personnel and general corporate services to
Keystone Management, Keystone, their affiliates and the Keystone Group of Mutual
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.
Pursuant to the Advisory Agreement and subject to the supervision of
the Fund's Board of Trustees, Keystone manages and administers the Fund's
operation, and manages the investment and reinvestment of the Fund's assets in
conformity with the Fund's investment objectives 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
Fund officers and trustees who are affiliated with the investment advisor and
will pay all expenses of Keystone incurred in connection with the provisions of
its services. All charges and expenses other than those specifically referred to
as being borne by Keystone will be paid by the Fund, including, but not limited
to, custodian charges and expenses; bookkeeping and auditors' charges and
expenses; transfer agent charges and expenses; fees of Independent Trustees;
brokerage commissions, brokers' fees and expenses; issue and transfer taxes;
costs and expenses under the Distribution 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 shareholder's 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 year ended November 30, 1992, the Fund paid or accrued to
Keystone Management investment management and administrative service fees of
$4,476,711. Included in this amount is the management fee of $3,397,511, which
represented 0.50% of the Fund's average daily net assets. Of such management fee
paid to Keystone Management, $2,887,884 was paid to Keystone for its services to
the Fund.
During the year ended November 30, 1993, the Fund paid or accrued to
Keystone Management investment management and administrative service fees of
$5,009,310. Included in this amount is the management fee of $3,731,660, which
represented 0.47% of the Fund's average daily net assets. Of such management fee
paid to Keystone Management, $3,171,911 was paid to Keystone for its services to
the Fund.
During the year ended November 30, 1994, the Fund paid or accrued to
Keystone Management investment management and administrative services fees of
$4,916,571. Included in this amount is the management fee of $3,641,696, which
represented .47% of the Fund's average daily net assets. Of such amount paid to
Keystone Management, $3,095,441 was paid to Keystone for its services to the
Fund.
--------------------------------------------------------------------------------
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's securities transactions are generally principal transactions
with issuers of the security or with major underwriters and dealers for
municipal bonds. Accordingly, the Fund does not pay significant brokerage
commissions The cost of securities purchased from underwriters includes an
underwriting commission or concession and the prices at which securities are
purchased from and sold to dealers include dealer's mark-up or mark-down.
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.
During the fiscal years ended November 30, 1992, 1993 and 1994, the
Fund paid no brokerage commissions.
In no instance are portfolio securities purchased from or sold to
Keystone Management, Keystone, KDI 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 return of the Fund for the one and five year
periods ended November 30, 1994 were (7.10)% and 26.79%, respectively. The
cumulative total return for the period beginning October 7, 1985 (commencement
of investment operations) through November 30, 1994 was 85.41%. The average
annual total returns for the five year period ended November 30, 1994 and for
the period beginning October 7, 1985 through November 30, 1994 were 4.86% and
6.98%, 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 Portfolio, 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 November 30, 1994 was 5.49%.
Tax equivalent yield as it may appear from time to time in
advertisements will consist of a quotation based on the current yield divided by
a factor equal to one minus a stated income tax rate and reflects the yield a
taxable investment would have to achieve in order to equal on an after-tax basis
a tax-exempt yield. The Fund's federal tax equivalent yield for the 28% tax
bracket, for the 30-day period ended November 30, 1994 was 8.0%.
--------------------------------------------------------------------------------
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 performs no investment management functions for the
Fund, but, in addition to its custodial services, is responsible for accounting
and related recordkeeping on behalf of the Fund.
KPMG Peat Marwick LLP, One Boston Place, Boston, Massachusetts 02108,
Certified Public Accountants, are the independent auditors for the Fund.
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519,
is a wholly-owned subsidiary of Keystone. As previously mentioned, KIRC serves
as transfer agent and dividend paying agent for the Fund.
As of February 28, 1995, Merrill Lynch Pierce Fenner & Smith, Inc.,
Attn: Book Entry 2nd Floor, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville,
Florida 32246-6484, owned of record 8.67% of the Fund's outstanding shares.
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.
<PAGE>
APPENDIX
MUNICIPAL BONDS
Municipal bonds include debt obligations issued by or on behalf of a
state, a territory, or a possession of the United States, the District of
Columbia or any political subdivision, agency or instrumentality thereof (for
example, counties, cities, towns, villages, districts, authorities) to obtain
funds for various public purposes, including the construction of a wide range of
public facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which municipal bonds may be issued include the refunding of
outstanding obligations, obtaining funds for general operating expenses and
obtaining funds to lend to public or private institutions for the construction
of facilities such as educational, hospital and housing facilities. In addition,
certain types of industrial development bonds have been or may be issued by or
on behalf of public authorities to finance certain privately operated facilities
and certain local facilities for water supply, gas, electricity or sewage or
solid waste disposal. Such obligations are included within the term municipal
bonds if the interest paid thereon qualifies as exempt from federal income tax.
The income of certain types of industrial development bonds used to finance
certain privately operated facilities (qualified "private activity" bonds)
issued after August 7, 1986, while exempt from federal income tax, is includable
for purposes of the calculation of the alternative minimum tax. Other types of
industrial development bonds, the proceeds of which are used for the
construction, equipment, repair or improvement of privately operated industrial
or commercial facilities, may constitute municipal bonds, although the current
federal tax laws place substantial limitations on the size of such issues.
The two principal classifications of municipal bonds are "general
obligation" and limited obligation or "revenue" bonds. General obligation bonds
are obligations involving the credit of an issuer possessing taxing power and
are payable from the issuer's general unrestricted revenues and not from any
particular fund or revenue source. Their payment may be dependent upon an
appropriation by the issuer's legislative body and may be subject to
quantitative limitations on the issuer's taxing power. The characteristics and
methods of enforcement of general obligation bonds vary according to the law
applicable to the particular issuer. Limited obligation or revenue bonds are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, such as the user of the facility. Industrial
development bonds which are municipal bonds are in most cases revenue bonds and
generally are not payable from the unrestricted revenues of the issuer. The
credit quality of industrial development revenue bonds is usually directly
related to the credit standing of the owner or user of the facilities. There
are, of course, variations in the security of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors.
The yields on municipal bonds are dependent on a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, size of a particular
offering, the maturity of the obligation and rating of the issue. The ratings of
Moody's Investors Service, Inc. (Moody's) and Standard & Poor's Corporation (S &
P), as described below, represent their opinions as to the quality of the
municipal bonds which they undertake to rate. It should be emphasized, however,
that ratings are general and are not absolute standards of quality.
Consequently, municipal bonds with the same maturity, interest rate and rating
may have different yields while municipal bonds of the same maturity and
interest rate with different ratings may have the same yield. It should also be
noted that the standards of disclosure applicable to and the amount of
information relating to the financial condition of issuers of municipal bonds
are not as extensive as those generally relating to corporations.
Subsequent to its purchase by the Fund, an issue of municipal bonds or
other investment may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Fund. Neither event requires the
elimination of such obligation from the Fund's portfolio, but Keystone will
consider such an event in its determination of whether the Fund should continue
to hold such obligation in its portfolio.
The ability of the Fund to achieve its investment objective is dependent
upon the continuing ability of issuers of municipal bonds to meet their
obligations to pay interest and principal when due. Obligations of issuers of
municipal bonds, including municipal bonds issued by them, are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Act, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations. There is also the possibility that as a result
of litigation or other conditions, the power or ability of any one or more
issuers to pay, when due, principal of and interest on its or their municipal
bonds may be materially affected. In addition the market for municipal bonds is
often thin and can be temporarily affected by large purchases and sales
including those by the Fund.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on municipal bonds, and similar proposals may well be introduced in the
future. If such a proposal were enacted, the availability of municipal bonds for
investment by the Fund and the value of the Fund's portfolio could be materially
affected, in which event the Fund would reevaluate its investment objective and
policies and consider changes in the structure of the Fund or dissolution.
DESCRIPTION OF BOND RATINGS
The Tax Reform Act of 1986 made significant changes in the federal tax
status of certain obligations which were previously fully federally tax exempt.
As a result, three categories of such obligations issued after August 7, 1986
now exist: (1) "public purpose" bonds, the income of which remains fully exempt
from federal income tax, (2) qualified "private activity" industrial development
bonds, the income of which, while exempt from federal income tax under section
103 of the Internal Revenue Code of 1954 as amended (Code) is includable in the
calculation of the federal alternative minimum tax, and (3) "private activity"
(private purpose) bonds, the income of which is not exempt from federal income
tax. The Fund will not invest in private activity (private purpose) bonds, and,
except as described under "Other Eligible Securities", will not invest in
qualified "private activity" industrial development bonds.
CORPORATE AND MUNICIPAL BOND RATINGS
S&P CORPORATE AND MUNICIPAL BOND RATINGS
A. MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access
risks unique to notes. Notes due in 3 years or less will likely receive a note
rating. Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria are used in making that assessment:
a. Amortization schedule (the larger the final maturity relative to
other maturities the more likely it will be treated as a note), and
b. Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note ratings are as follows:
1. SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
2. SP-2 Satisfactory capacity to pay principal and interest.
3. SP-3 Speculative capacity to pay principal and interest.
B. TAX EXEMPT DEMAND BONDS
S&P assigns "dual" ratings to all long-term debt issues that have as
part of their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/A-1+"). For the newer "demand notes," S&P note rating
symbols, combined with the commercial paper symbols, are used (for example,
"SP-1+/A-1+" ).
C. CORPORATE AND MUNICIPAL BOND RATINGS
An S&P corporate or municipal 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.
A provisional rating is sometimes used by S&P. It assumes the
successful completion of the project being financed by the debt being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.
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.
MOODY'S CORPORATE AND MUNICIPAL 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.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa 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.
Con. (---) - Municipal bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Those municipal bonds in the Aa, A, AND Baa groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa 1, A 1, AND Baa 1.
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 Investors Service, Inc. or F-1 by Fitch Investors
Service, Inc. These ratings and other money market instruments are described as
follows:
COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by S&P 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.
Commercial paper rated A-2 by S&P has the same characteristics as that
rated A-1 except that the relative degree of safety is not as overwhelming.
Commercial paper rated A-3 has a satisfactory capacity for timely
payment. However, it is somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations rated A-1 or A-2.
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.
Commercial paper rated Prime-2 by Moody's is considered somewhat lower
than the best commercial paper because margins of protection may not be as large
or because fluctuations of protective elements over the near or intermediate
term may be of greater amplitude.
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. Government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance. 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 U.S. 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 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
The Fund may enter into option transactions. Any premium paid by the
Fund in connection with an option transaction may be forfeited if the option
expires unexercised.
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 may purchase put and call
options, including purchasing put and call options for the purpose of offsetting
previously written put and call options of the same series. The Fund can close
out a put option it has purchased by effecting a closing sale transaction; for
example, the Fund may close out a put option it has purchased by selling a put
option. If, however, a secondary market does not exist at a time the Fund wishes
to effect a closing sale transaction, the Fund will have to exercise the option
to realize any profit. In addition, in a transaction in which the Fund does not
own the security underlying a put option it has purchased, the Fund would be
required, in the absence of a secondary market, to purchase the underlying
security before it could exercise the option. In each such instance, the Fund
would incur additional transaction costs. The Fund also may purchase call
options to fix the interest rates of obligations held by it.
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, 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 security
may fall below the exercise price, at anytime during the option period. If an
option expires, the writer realizes a gain in the amount of the premium. Such a
gain may, in the case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period. If a call
option is exercised, the writer realizes a gain or loss from the sale of the
underlying security. If a put option is exercised, the writer must fulfill his
obligation to purchase the underlying security at the exercise price, which will
usually exceed the then market value of the underlying security. In addition,
the premium paid for the put effectively increases the cost of the underlying
security, thus reducing the yield otherwise available from such securities.
Because the Fund can write only covered options, it may at times be
unable to write additional options unless it sells a portion of its portfolio
holdings to obtain new securities against which it can write options. This may
result in higher portfolio turnover and correspondingly greater brokerage
commissions and other transaction costs.
To the extent that a secondary market is available, the covered option
writer may close out options it has written prior to the assignment of an
exercise notice by purchasing, 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 national
securities exchanges. Exchanges on which such options currently are traded are
the Chicago Board Options Exchange and the New York, American, Pacific and
Philadelphia Stock Exchanges (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 statement
of additional information.
The staff of the Securities and Exchange Commission is of the view that
the premiums which the Fund pays for the purchase of unlisted options, and the
value of the 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 relating to illiquid securities.
SPECIAL CONSIDERATIONS APPLICABLE TO OPTIONS
ON TREASURY BONDS AND NOTES. Because trading interest in U.S. Treasury
bonds and notes tends to center on the most recently auctioned issues, new
series of options with expirations to replace expiring options on particular
issues will not be introduced indefinitely. Instead, the expirations introduced
at the commencement of options trading on a particular issue will be allowed to
run their course, with the possible addition of a limited number of new
expirations as the original ones expire. Options trading on each series of bonds
or notes will thus be phased out as new options are listed on the more recent
issues, and a full range of expiration dates will not ordinarily be available
for every series on which options are traded.
ON TREASURY BILLS. Because the deliverable U.S. Treasury bill changes
from week to week, writers of U.S. Treasury bill call options cannot provide in
advance for their potential exercise settlement obligations by acquiring and
holding the underlying security. However, if the Fund holds a long position in
U.S. Treasury bills with a principal amount corresponding to the option contract
size, the Fund may be hedged from a risk standpoint. In addition, the Fund will
maintain in a segregated account with 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: (1) insufficient trading interest in certain options; (ii)
restrictions imposed on transactions; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options or
underlying securities; (iv) interruption of the normal operations on an Exchange
or by a broker; (v) inadequacy of the facilities of an Exchange, the OCC or a
broker to handle current trading volume; or (vi) a decision by one or more
Exchanges or a broker to discontinue the trading of options (or a particular
class or series of options), in which event the secondary market in that class
or series of options would cease to exist, although outstanding options that had
been issued as a result of trades would generally continue to be exercisable in
accordance with their terms.
The hours of trading for options on U.S. government securities may not
conform to the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS
The Fund intends to enter into currency and other financial futures
contracts as a hedge against changes in prevailing levels of interest or
currency exchange rates to seek relative stability of principal and to establish
more definitely the effective return on securities held or intended to be
acquired by the Fund or as a hedge against changes in the prices of securities
or currencies held by the Fund or to be acquired by the Fund. The Fund's hedging
may include sales of futures as an offset against the effect of expected
increases in interest or currency exchange rates or securities prices and
purchases of futures as an offset against the effect of expected declines in
interest or currency exchange rates.
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 indexes as the underlying commodity.
U.S. futures contracts are traded only on national futures exchanges
and are standardized as to maturity date and underlying financial instrument.
The principal financial futures exchanges in the 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
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
indexes 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 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 a currency or other financial
futures contracts is analagous to the purchase of protective puts on individual
stocks, where an absolute level of protection is sought below which no
additional economic loss would be incurred by the Fund. Put options may be
purchased to hedge a portfolio of stocks or debt instruments or a position in
the futures contract upon which the put option is based.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS
The purchase of 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 he 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 and 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 COMMODITY 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 indexes underlying the
standard futures contracts available for trading, in such respects as interest
rate levels, maturities and creditworthiness of issuers, or identities of
securities comprising the index and those in the Fund's portfolio. A decision of
whether, when and how to hedge involves the exercise of skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Because of the low margin deposits required, futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out, and a 15% decrease would result in a loss equal to 150% of the
original margin 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 denominated in foreign currencies,
and the Fund temporarily may hold funds in foreign currencies. Thus, the Fund's
share value will be affected by changes in exchange rates.
FORWARD CURRENCY CONTRACTS
As one way of managing exchange rate risk, the Fund may engage in
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). Under the contract, the exchange rate for the
transaction (the amount of currency the Fund will deliver or receive when the
contract is completed) is fixed when the Fund enters into the contract. The Fund
usually will enter into these contracts to stabilize the U.S. dollar value of a
security it has agreed to buy or sell. The Fund also may use these contracts to
hedge the U.S. dollar value of a security it already owns, particularly if the
Fund expects a decrease in the value of the currency in which the foreign
security is denominated. Although the Fund will attempt to benefit from using
forward contracts, the success of its hedging strategy will depend on Keystone's
ability to predict accurately the future exchange rates between foreign
currencies and the U.S. dollar. The value of the Fund's investments denominated
in foreign currencies will depend on the relative strength of those currencies
and the U.S. dollar, and the Fund may be affected favorably or unfavorably by
changes in the exchange 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 Commodity Futures Trading Commission (CFTC) and National Futures Association
(NFA). Currently the only national futures exchange on which currency futures
are traded is the International Monetary Market of the Chicago Mercantile
Exchange. Foreign currency futures trading is conducted in the same manner and
subject to the same regulations as trading in interest rate and index based
futures. The Fund intends to only engage in currency futures contracts for
hedging purposes, and not for speculation. The Fund may engage in currency
futures contracts for other purposes if authorized to do so by the Board. The
hedging strategies which will be used by the Fund in connection with foreign
currency futures contracts are similar to those described above for forward
foreign currency exchange contracts.
Currently, currency futures contracts for the British Pound Sterling,
Canadian Dollar, Dutch Guilder, Deutsche Mark, Japanese Yen, Mexican Peso, Swiss
Franc and French Franc can be purchased or sold for U.S. dollars through the
International Monetary Market. It is expected that futures contracts trading in
additional currencies will be authorized. The standard contract sizes are
L125,000 for the Pound, 125,000 for the Guilder, Mark and Swiss 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 counter party 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 counter party 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 the 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 counter party 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
counter party 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 control 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>
EXHIBIT A
GLOSSARY OF TERMS
CLASS OF OPTIONS. Options covering the same underlying security.
CLEARING CORPORATION. The Options Clearing Corporation, Trans Canada
Options, Inc., The European Options Clearing Corporation B.V., or the London
Options Clearing House.
CLOSING PURCHASE TRANSACTION. A transaction in which an investor who is
obligated as a writer of an option or seller of a futures contract terminates
his obligation by purchasing on an Exchange an option of the same series as the
option previously written or futures contract identical to the futures contract
previously sold, as the case may be. (Such a purchase does not result in the
ownership of an option or futures contract.)
CLOSING SALE TRANSACTION. A transaction in which an investor who is the
holder or buyer of an outstanding option or futures contract liquidates his
position as a holder or seller by selling an option of the same series as the
option previously purchased or futures contract identical to the futures
contract previously purchased. (Such sale does not result in the investor
assuming the obligations of a writer or seller.)
COVERED CALL OPTION WRITER. A writer of a call option who, so long as
he remains obligated as a writer, owns the shares of the underlying security or
holds on a share for share basis a call on the same security where the exercise
price of the call held is equal to or less than the exercise price of the call
written, or, if greater than the exercise price of the call written, the
difference is maintained by the writer in cash, U.S. Treasury bills or other
high grade, short term obligations in a segregated account with the writer's
broker or custodian.
COVERED PUT OPTION WRITER. A writer of a put option who, so long as he
remains obligated as a writer, has deposited Treasury bills with a value equal
to or greater than the exercise price with a securities depository and has
pledged them to the Options Clearing Corporation for the account of the
broker-dealer carrying the writer's position or holds on a share for share basis
a put on the same security as the put written where the exercise price of the
put held is equal to or greater than the exercise price of the put written, or,
if less than the exercise price of the put written, the difference is maintained
by the writer in cash, U.S. Treasury bills or other high grade, short term
obligations in a segregated account with the writer's broker or custodian.
SECURITIES EXCHANGE. A securities exchange on which call and put
options are traded. The U.S. Exchanges are as follows The Chicago Board Options
Exchange; American Stock Exchange; New York Stock Exchange; Philadelphia Stock
Exchange; and Pacific Stock Exchange. The foreign securities exchanges in Canada
are the Toronto Stock Exchange and the Montreal Stock Exchange; in the
Netherlands, the European Options Exchange; and in the United Kingdom, the Stock
Exchange (London).
Those issuers whose common stocks have been approved by the Exchanges
as underlying securities for options transactions are published in various
financial publications.
COMMODITIES EXCHANGE. A commodities exchange on which futures contracts
are traded which is regulated by exchange rules that have been approved by the
Commodity Futures Trading Commission. The U.S. exchanges are as follows: The
Chicago Board of Trade of the City of Chicago, Chicago Mercantile Exchange,
International Monetary Market, (a division of the Chicago Mercantile Exchange),
the Kansas City Board of Trade and the New York Futures Exchange.
EXERCISE PRICE. The price per unit at which the holder of a call option
may purchase the underlying security upon exercise or the holder of a put option
may sell the underlying security upon exercise.
EXPIRATION DATE. The latest date when an option may be exercised or a
futures contract must be completed according to its terms.
HEDGING. An action taken by an investor to neutralize an investment
risk by taking an investment position which will move in the opposite direction
as the risk being hedged so that a loss (or gain) on one will tend to be offset
by a gain (or loss) on the other.
OPTION. Unless the context otherwise requires, the term "option" means
either a call or put option issued by a Clearing Corporation, as defined above.
A call option gives a holder the right to buy from such Clearing Corporation the
number of shares of the underlying security covered by the option at the stated
exercise price by the filing of an exercise notice prior to the expiration time
of the option. A put option gives a holder the right to sell to a Clearing
Corporation the number of shares of the underlying security covered by the put
at the stated exercise price by the filing of an exercise notice prior to the
expiration time of the option. The Fund will sell ("write") and purchase puts
only on U.S. Exchanges.
OPTION PERIOD. The time during which an option may be exercised,
generally from the date the option is written through its expiration date.
PREMIUM. The price of an option agreed upon between the buyer and
writer or their agents in a transaction on the floor of an Exchange.
SERIES OF OPTIONS. Options covering the same underlying security and
having the same exercise price and expiration date.
STOCK INDEX. A stock index assigns relative values to the common stocks
included in the index, and the index fluctuates with changes in the market
values of the common stocks so included.
INDEX BASED FUTURES CONTRACT. An index based futures contract is a
bilateral agreement pursuant to which a party agrees to buy or deliver at
settlement an amount of cash equal to $500 times the difference between the
closing value of an index on the expiration date and the price at which the
futures contract is originally struck. Index based futures are traded on
Commodities Exchanges. Currently index based stock index futures contracts can
be purchased or sold with respect to the Standard & Poor's Corporation (S&P) 500
Stock Index and S&P 100 Stock Index on the Chicago Mercantile Exchange, the New
York Stock Exchange Composite Index on the New York Futures Exchange and the
Value Line Stock Index and Major Market Index on the Kansas City Board of Trade.
UNDERLYING SECURITY. The security subject to being purchased upon the
exercise of a call option or subject to being sold upon the exercise of a put
option.
<PAGE>
Keystone Tax Exempt Trust
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
MUNICIPAL BONDS (95.3%)
ALASKA
Alaska State Housing
Finance Corp.,
Collateralized Home
Mortgage 8.000% 12/01/2013 $1,530,000 $1,520,805
North Slope Borough,
Alaska, General Obligation
Refunding (ETM) 8.350 06/30/1998 1,000,000 1,078,650
Valdez, Alaska, Marine
Terminal Revenue (Union
Oil of California) 6.200 05/01/2008 3,000,000 2,780,820
ARIZONA
Maricopa County, Arizona,
Elementary School District
#068 6.750 07/01/2014 3,750,000 3,732,300
Maricopa County, Arizona,
Water District 7.500 01/01/2007 2,000,000 2,159,440
Northern Arizona
University, Revenue (FGIC) 6.300 06/01/2005 2,770,000 2,764,377
Pima County, Arizona,
Industrial Development
Authority, Irvington
Project 7.250 07/15/2010 5,000,000 5,095,000
Pima County, Arizona,
Unified School District,
Tucson Refunding (FGIC) 7.500 07/01/2003 2,030,000 2,216,496
Salt River Project,
Arizona, Agricultural
Improvement, Series C 5.000 01/01/2016 4,700,000 3,602,315
ARKANSAS
Arkansas State Development
Finance Authority, SFMR
Refunding 8.000 08/15/2011 735,000 758,535
CALIFORNIA
Alameda County,
California, Certificates
of Participation, Santa
Rita Jail Project (MBIA) 5.700 12/01/2014 4,000,000 3,463,040
California State Public
Works, Series D (MBIA) 5.375 06/01/2019 3,715,000 2,986,637
Fresno, California, Health
Facility, Holy Cross
Health Systems (MBIA) 5.625 12/01/2015 3,690,000 3,085,504
Los Angeles County,
California, Transportation
Commission, Series A
(MBIA) 6.250 07/01/2013 1,300,000 1,204,177
Los Angeles, California,
Convention and Exhibition
Center Authority, Series A 5.375 08/15/2018 4,000,000 3,236,120
Los Angeles, California,
Wastewater Systems, Series
D (FGIC) 6.000 11/01/2014 3,450,000 3,101,757
Pleasant Hill, California,
Joint Powers Financing,
Capital Improvement
Project, Series A (MBIA) 5.250 12/01/2016 1,600,000 1,274,000
Rancho, California, Water
District Financing
Authority 5.000 08/15/2014 975,000 763,503
Rio Linda, California,
Union School District,
Series A (AMBAC) 7.400 08/01/2010 460,000 478,993
San Francisco, California,
City and County Sewer
Refunding (AMBAC) 5.500 10/01/2015 100,000 83,075
San Francisco, California,
City and County Sewer
Refunding (FGIC) 5.375 10/01/2022 300,000 237,774
San Francisco, California,
City and County Sewer
Refunding (FGIC) 5.375 10/01/2016 900,000 733,824
San Joaquin Hills,
California, Transportation
Corridor Agency, Toll Road 6.750 01/01/2032 1,000,000 884,700
San Joaquin Hills,
California, Transportation
Corridor Agency, Toll Road 7.000 01/01/2030 4,050,000 3,687,809
San Pablo, California,
Redevelopment Agency,
Subordinated Tax
Allocation, Merged Project
Area 5.000 12/01/2013 1,250,000 983,600
Southern California Public
Power Authority, Power
Project Revenue, Series A 5.000 07/01/2015 8,400,000 6,436,416
University of California
Board of Regents--UCLA
COPS--Central Chiller 6.000 11/01/2021 3,000,000 2,554,890
University of California,
Multiple Purpose Project,
Series C (AMBAC) 5.000 09/01/2013 3,450,000 2,719,083
COLORADO
City and County of Denver,
Colorado, Airport System,
Series A 8.500 11/15/2023 3,000,000 3,013,080
City and County of Denver,
Colorado, Airport System,
Series A 7.500 11/15/2023 1,000,000 916,520
City and County of Denver,
Colorado, Airport System,
Series A 8.750 11/15/2023 7,450,000 7,601,607
<PAGE>
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
COLORADO (continued)
City and County of Denver,
Colorado, Airport System,
Series B 7.250% 11/15/2012 $3,500,000 $3,231,935
City and County of Denver,
Colorado, Airport System,
Series C 6.000 12/01/2025 2,000,000 2,001,060
City and County of Denver,
Colorado, Airport System,
Series D 7.750 11/15/2013 7,100,000 6,818,769
Jefferson County,
Colorado, Single Family
Refunding 8.875 10/01/2013 825,000 855,674
CONNECTICUT
Connecticut State Clean
Water Fund Revenue 5.800 06/01/2016 1,000,000 860,260
Connecticut State
Resources Recovery
Authority, Bridgeport
Resco Co. Project 8.500 01/01/2000 1,375,000 1,420,279
DELAWARE
Delaware Health Facilities
Authority, Medical Center
of Delaware (MBIA) 6.250 10/01/2006 2,000,000 1,995,620
Delaware State Health
Facility 7.000 10/01/2015 1,600,000 1,608,080
Delaware State Housing
Authority, Residential
Mortgage 9.375 06/01/2012 195,000 195,655
DISTRICT OF COLUMBIA
District of Columbia,
General Obligation, Series
E (FSA) 6.000 06/01/2011 4,000,000 3,587,880
FLORIDA
Dade County, Florida,
Health Facilities
Authority, Mt. Sinai
Medical Center 8.400 12/01/2007 1,250,000 1,374,087
Dade County, Florida,
Health Facilities
Authority, Mt. Sinai
Medical Center 8.400 12/01/2017 3,000,000 3,297,810
Dade County, Florida,
General Obligation 12.000 10/01/1998 2,300,000 2,819,547
Escambia County, Florida,
Pollution Control,
Champion International
Corp. Project 6.900 08/01/2022 2,000,000 1,823,240
Florida State Board of
Education, Refunding
Public Education, Series A 5.000 06/01/2009 2,000,000 1,697,760
Jacksonville, Florida,
Transportation Authority
(ETM) 9.200 01/01/2015 1,580,000 2,050,240
Kissimmee, Florida, Water
and Sewer Revenue 6.000 10/01/2011 2,000,000 1,864,920
Lee County, Florida,
School Board (FSA) 7.750 08/01/2004 4,630,000 5,052,997
Lee County, Florida,
Transportation Facilities 8.250 10/01/2017 1,455,000 1,534,036
Martin County, Florida,
Improvement Revenue
(AMBAC) 6.000 10/01/2014 1,500,000 1,366,860
Miami Beach, Florida,
Redevelopment Agency, Tax
Increment Revenue 5.875 12/01/2022 1,000,000 792,230
Orlando and Orange County,
Florida, Expressway
Authority 8.250 07/01/2014 3,000,000 3,441,450
Palm Beach County,
Florida, Health Revenue,
John F. Kennedy Hospital 9.500 08/01/2013 3,115,000 3,824,815
Tampa, Florida, Allegheny
Health Systems 6.500 12/01/2023 500,000 473,840
Tampa, Florida, Guaranteed
Entitlement 8.375 10/01/2008 3,430,000 3,748,887
West Melbourne, Florida,
Water and Sewer Revenue
(FGIC) 6.750 10/01/2014 1,000,000 985,730
GEORGIA
Appling County, Georgia,
Development Authority,
Pollution Control Revenue
(Georgia Power Corp.) 10.600 10/01/2015 1,000,000 1,056,160
Georgia Municipal Electric
Authority 8.375 01/01/2020 2,000,000 2,142,440
Georgia, General
Obligation, Series C 5.250 04/11/2001 4,000,000 3,491,200
Monroe County, Georgia,
Development Authority,
Pollution Control 10.500 09/01/2015 2,250,000 2,372,287
HAWAII
State of Hawaii, Airport
System (MBIA) 6.450 07/01/2013 2,920,000 2,809,274
<PAGE>
Keystone Tax Exempt Trust
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
ILLINOIS
Chicago, Illinois, Gas
Supply Revenue (People's
Gas Light and Coke Co.) 8.100% 05/01/2020 $9,120,000 $9,679,421
Chicago, Illinois, Public
Building Commission
(effective yield 7.10%)
(b) 0.000 01/01/2008 4,440,000 1,859,339
Metropolitan Pier and
Exposition Authority,
McCormick Place Expansion
Project 7.250 06/15/2005 4,680,000 4,954,669
Quincy, Illinois, Blessing
Hospital Revenue 6.000 11/15/2018 4,200,000 3,398,346
Robbins, Illinois, Robbins
Resources Recovery,
Partners A 9.250 08/15/2014 4,000,000 4,056,120
KANSAS
Kansas City, Kansas,
Utility Systems, Refunding
and Improvement Revenue 6.375 09/01/2023 5,000,000 4,666,800
KENTUCKY
Carroll County, Kentucky,
Kentucky Utility Company,
Series A 7.450 09/15/2016 3,000,000 3,127,410
LOUISIANA
Louisiana Public
Facilities Authority 7.250 10/01/2022 1,750,000 1,578,307
Ouachita Parish,
Louisiana, Louisiana
Hospital Service, Glenwood
Regional Medical Center 7.500 07/01/2021 2,000,000 1,947,660
MAINE
Maine State Housing
Authority, Mortgage
Purchase 7.800 11/15/2015 2,580,000 2,591,120
MARYLAND
Prince Georges County,
Maryland, Single Family
Mortgage 9.100 09/01/2010 110,000 111,299
Prince Georges County,
Maryland, Solid Waste
Management Systems 6.500 06/15/2007 4,225,000 4,254,829
MASSACHUSETTS
Lawrence, Massachusetts,
General Obligation (AMBAC) 6.250 02/15/2009 900,000 863,307
Massachusetts Bay
Transportation Authority,
Series A 7.000 03/01/2007 5,000,000 5,199,800
Massachusetts Bay
Transportation Authority,
Series A 7.000 03/01/2011 2,500,000 2,542,075
Massachusetts Bay
Transportation Authority,
Series A 6.250 03/01/2012 3,600,000 3,356,748
Massachusetts General
Obligation (FGIC)
(effective yield 6.80%)
(b) 0.000 12/01/2003 3,900,000 1,735,710
Massachusetts General
Obligation, Series A 5.250 02/01/2008 2,000,000 1,689,480
Massachusetts Health and
Educational Facilities
Authority, Massachusetts
General Hospital, Series F 6.250 07/01/2012 4,000,000 3,723,520
Massachusetts Health and
Educational Facilities
Authority, Massachusetts
General Hospital, Series F 6.250 07/01/2020 2,000,000 1,797,820
Massachusetts Health and
Educational Facilities
Authority, New England
Deaconess Hospital 6.875 04/01/2022 500,000 443,640
Massachusetts Health and
Educational Facilities
Authority, Cape Cod Health
Systems, Series A 5.250 11/15/2021 1,975,000 1,473,508
Massachusetts Health and
Educational Facilities
Authority, Holyoke
Hospital 6.500 07/01/2015 1,800,000 1,537,956
Massachusetts Health and
Educational Facilities
Authority, McLean Hospital 6.500 07/01/2010 700,000 682,815
Massachusetts Health and
Educational Facilities
Authority, Milton Hospital 7.250 07/01/2005 700,000 741,629
Massachusetts Health and
Educational Facilities
Authority, Series 1994-D 5.750 07/01/2016 350,000 300,083
<PAGE>
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
MASSACHUSETTS (continued)
Massachusetts Industrial
Finance Agency, Harvard
Community Health Plan,
Inc. 8.125% 10/01/2017 $6,035,000 $6,245,682
Massachusetts Industrial
Finance Agency, Solid
Waste Disposal 9.000 07/01/2016 2,500,000 2,488,200
Massachusetts Municipal
Wholesale Electric
Company, Power Supply
Systems, Series B 5.000 07/01/2017 2,000,000 1,497,720
Massachusetts Municipal
Wholesale Electric
Company, Power Supply
Systems, Series B 6.750 07/01/2008 2,840,000 2,854,115
Massachusetts Municipal
Wholesale Electric
Company, Power Supply
Systems, Series B 5.000 07/01/2014 9,000,000 6,923,880
Massachusetts Port
Authority 5.000 07/01/2013 1,380,000 1,078,208
Massachusetts Special
Obligation 6.000 08/01/2013 4,000,000 3,565,040
Massachusetts State
Consolidated Loan, Series
B (FGIC) 6.000 08/01/2012 2,000,000 1,808,900
Massachusetts State
Housing Finance Agency,
Series A 6.300 10/01/2013 5,565,000 5,038,495
Massachusetts Water
Resources Authority,
Series A 7.000 04/01/1999 1,000,000 1,046,600
Massachusetts Water
Resources Authority,
Series A 7.125 04/01/2000 1,500,000 1,580,760
Massachusetts Water
Resources Authority,
Series C 6.000 12/01/2011 4,000,000 3,664,200
MICHIGAN
Michigan State Hospital
Finance Authority,
Hospital Refunding,
Daughters of Charity
Health Systems, Providence
Hospital 10.000 11/01/2015 995,000 1,055,088
Monroe County, Michigan,
Economic Development
Corp., Detroit Edison Co.
(FGIC) 6.950 09/01/2022 3,500,000 3,478,055
Pinckney, Michigan,
Community Schools,
Livingston and Washtenaw
Counties 5.000 05/01/2014 2,770,000 2,187,192
MINNESOTA
Dakota County, Minnesota,
Single Family Mortgage 8.100 09/01/2012 1,915,000 1,976,874
Minnesota Housing Finance
Agency, Single Family
Mortgage 8.000 01/01/2023 1,680,000 1,689,492
Southern Minnesota
Municipal Power Agency,
Power Supply System 9.500 01/01/2017 500,000 533,735
MISSISSIPPI
Harrison County,
Mississippi, Wastewater
Treatment 8.500 02/01/2013 1,000,000 1,194,310
MISSOURI
Cape Girardeau County,
Missouri, Industrial
Development Authority,
Health Care Facilities 5.250 06/01/2016 2,500,000 2,000,250
Missouri State
Environmental Improvement
and Energy Resources
Authority, Union Electric
Company Project 5.450 10/01/2028 200,000 154,086
Missouri State Health and
Educational Facilities
Authority, Barnes Jewish
Hospital 5.250 05/15/2021 3,000,000 2,276,430
Springfield, Missouri,
Waterworks, Series A 5.600 05/01/2023 100,000 82,786
St. Louis County,
Missouri, Regional
Convention and Sports
Facility, Convention and
Sports Project 5.750 08/15/2021 1,700,000 1,357,739
NEBRASKA
Nebraska Higher Education
Loan Program 6.450 06/01/2018 3,320,000 2,956,028
<PAGE>
Keystone Tax Exempt Trust
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
NEVADA
Clark County, Nevada,
General Obligation (AMBAC) 7.500% 06/01/2009 $2,000,000 $2,137,960
NEW JERSEY
Gloucester County, New
Jersey, Improvement
Authority, Solid Waste
Resources Recovery 8.125 07/01/2010 1,000,000 1,046,140
Hudson County, New Jersey,
Fiscal Year Adjustment
Bonds 5.125 08/01/2008 3,000,000 2,530,920
New Jersey Building
Authority 5.000 06/15/2014 3,750,000 2,958,863
New Jersey Building
Authority 5.000 06/15/2016 4,000,000 3,099,640
New Jersey Economic
Development Authority
(effective yield 6.60%)
(b) 0.000 09/15/2008 4,090,000 1,584,711
New Jersey Economic
Development Authority,
Market Transition
Facility, Series A 5.800 07/01/2009 10,750,000 9,854,202
New Jersey Health Care
Facilities Financing
Authority, General
Hospital Center of
Passaic, Inc. 10.375 07/01/2014 760,000 797,270
New Jersey Health Care
Facilities Financing
Authority, Saint Clares
Riverside Medical Center 5.750 07/01/2010 1,000,000 901,470
New Jersey Health Care
Facilities Financing
Authority, General
Hospital Center at
Passaic, Inc. 10.125 07/01/2002 1,245,000 1,320,086
New Jersey Health Care
Facilities Financing
Authority, Jersey Shore
Medical Center 6.250 07/01/2016 2,290,000 2,121,204
New Jersey Health Care
Facilities Financing
Authority, Jersey Shore
Medical Center 5.875 07/01/2024 2,300,000 1,970,617
New Jersey Health Care
Facilities Financing
Authority, St. Elizabeth's
Hospital, Series B 7.750 07/01/1998 850,000 852,270
Newark, New Jersey, Board
of Education 5.875 12/15/2013 2,265,000 2,037,526
NEW MEXICO
Albuquerque, New Mexico,
Water and Sewer Revenue
(effective yield 6.90%)
(b) 0.000 07/01/2008 2,950,000 1,187,080
New Mexico Educational
Assistance Foundation,
Series B 6.300 12/01/2004 2,570,000 2,432,299
New Mexico Educational
Assistance Foundation,
Series B 5.750 12/01/2008 2,250,000 1,966,928
NEW YORK
Battery Park City
Authority, New York,
Refunding, Series A 5.000 11/01/2013 3,000,000 2,308,680
Broome County, New York,
Public Safety Facility 5.250 04/01/2018 450,000 373,180
Buffalo, New York, Sewer
Authority, Series G 5.250 07/01/2008 220,000 188,236
Erie County, New York,
Water Authority, Fourth
Resolution Refunding
(effective yield 7.30%)
(b) 0.000 12/01/2017 440,000 84,674
Metropolitan
Transportation Authority,
New York, Commuter
Facilities, Series B 6.125 07/01/2012 2,050,000 1,888,931
Metropolitan
Transportation Authority,
New York, Commuter
Facilities, Series M 5.500 07/01/2008 2,500,000 2,189,575
Metropolitan
Transportation Authority,
New York, Commuter
Facilities, Series O 6.250 07/01/2014 5,000,000 4,602,100
New York City, New York,
General Obligation, Fiscal
1992, Series A 6.250 08/01/2003 2,000,000 1,924,960
New York City, New York,
General Obligation, Fiscal
1992, Series A 7.750 08/15/2008 4,000,000 4,155,560
<PAGE>
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
NEW YORK (continued)
New York City, New York,
General Obligation, Fiscal
1992, Series A 7.750% 08/15/2015 $5,250,000 $ 5,331,900
New York City, New York,
General Obligation, Fiscal
1992, Series A 8.000 08/15/2020 500,000 561,470
New York City, New York,
General Obligation, Fiscal
1992, Series B 7.000 10/01/2009 3,400,000 3,309,798
New York City, New York,
General Obligation, Fiscal
1992, Series H 7.100 02/01/2009 2,500,000 2,461,525
New York City, New York,
Municipal Water Finance
Authority, Water and Sewer
System 7.000 06/15/2015 2,600,000 2,611,726
New York Energy Research
and Development Authority 7.750 01/01/2024 4,500,000 4,553,910
New York State Dormitory
Authority, University
Educational Facilities,
Series B 5.375 05/15/2007 6,500,000 5,817,955
New York State Dormitory
Authority, University
Educational Facilities,
Series B 6.250 05/15/2014 1,415,000 1,252,091
New York State Dormitory
Authority, State
University 5.875 05/15/2011 8,000,000 6,846,960
New York State Dormitory
Authority, State
University 6.375 05/15/2014 1,770,000 1,597,354
New York State Energy
Research and Development
Authority 7.150 02/01/2022 2,000,000 1,807,460
New York State Energy, New
York State Electric and
Gas (MBIA) 5.700 12/01/2028 90,000 71,235
New York State
Environmental Facilities
Corp., State Water
Pollution Control (New
York City Water Finance
Authority) 5.875 06/15/2014 5,585,000 4,871,684
New York State Housing
Finance Agency,
Multi-family Mortgage 6.250 08/15/2014 1,770,000 1,621,108
New York State Local
Government Assistance
Corp., Series A 5.375 04/01/2014 3,000,000 2,422,980
New York State Medical
Care Facilities, Mental
Health Facility, Series F 5.375 02/15/2014 2,000,000 1,615,460
New York State Medical
Care Facilities,
Presbyterian Hospital,
Series A 7.700 02/15/2009 5,300,000 5,830,848
New York State Mortgage
Agency, Series A 6.875 04/01/2017 1,565,000 1,462,070
New York State Urban
Development Corp.,
Correctional Facilities,
Series 4 5.250 01/01/2013 2,250,000 1,750,545
New York Urban Development
Corp., Correctional
Facilities, Series A 6.500 01/01/2009 2,475,000 2,320,065
New York Urban Development
Corp., Correctional
Facilities, Series A 7.500 04/01/2011 1,500,000 1,500,000
New York Urban Development
Corp., Correctional
Facilities, Series A 5.000 01/01/2017 500,000 378,195
Port Authority of New York
and New Jersey 6.000 12/01/2016 1,970,000 1,734,073
Rochester, New York,
General Obligation, Series
1994 A 5.000 08/15/2018 140,000 109,630
NORTH CAROLINA
North Carolina Eastern
Municipal Power Agency,
Power Systems 7.250 01/01/2007 6,375,000 6,469,031
North Carolina Eastern
Municipal Power Agency,
Power Systems 7.000 01/01/2013 4,000,000 3,844,320
North Carolina Eastern
Municipal Power Agency,
Power Systems 6.500 01/01/2017 3,500,000 3,127,530
North Carolina Eastern
Municipal Power Agency,
Power Systems 6.500 01/01/2018 335,000 301,436
North Carolina Municipal
Power Agency, Power
Systems 7.500 01/01/2017 3,500,000 3,552,570
Raleigh-Durham, North
Carolina, Airport
Authority, Special
Facility, American
Airlines, Inc. Project 9.625 11/01/2015 3,170,000 3,319,846
OHIO
Cleveland, Ohio, Public
Power Systems, First
Mortgage, Series A 7.000 11/15/2014 3,000,000 3,020,190
Ohio State Air Quality
Development Authority,
Pollution Control, Dayton
Power and Light Co. 10.125 12/01/2015 2,000,000 2,127,760
OKLAHOMA
Enid, Oklahoma, Municipal
Authority, Sales Tax and
Utility Revenue 6.200 02/01/2012 1,500,000 1,391,895
Oklahoma State Industrial
Authority, Baptist Medical
Center 7.000 08/15/2014 2,250,000 2,244,465
<PAGE>
Keystone Tax Exempt Trust
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
PENNSYLVANIA
Beaver County,
Pennsylvania, Industrial
Development Authority,
Ohio Edison Co. 7.750% 09/01/2024 $ 80,000 $ 78,869
Butler County,
Pennsylvania, Hospital
Authority, Butler Memorial
Hospital 8.000 07/01/2017 6,170,000 6,449,809
Dauphin County,
Pennsylvania, General
Authority Hospital 5.500 07/01/2023 3,200,000 2,606,144
Delaware County,
Pennsylvania, Industrial
Development Authority,
Resource Recovery Project 8.100 12/01/2013 3,500,000 3,693,550
Delaware County,
Pennsylvania, Industrial
Development Authority,
Philadelphia Electric Co. 7.375 04/01/2021 500,000 495,510
Guthrie Health Systems,
Care Facility of Sayre,
Pennsylvania (AMBAC) 7.100 03/01/2017 5,100,000 5,156,100
Langhorne Manor Borough,
Pennsylvania, Higher
Education and Health
Authority, Lower Bucks
County Hospital 7.350 07/01/2022 1,000,000 905,820
Lycoming County,
Pennsylvania, Hospital
Authority Williamsport
Hospital Project 9.375 11/01/2015 860,000 913,578
Montgomery County,
Pennsylvania, Industrial
Development and Pollution
Control, Philadelphia
Electric Co. 8.875 06/01/2016 1,500,000 1,582,740
Montgomery County,
Pennsylvania, Industrial
Development and Pollution
Control, Philadelphia
Electric Co. 7.600 04/01/2021 900,000 893,538
Pennsylvania Economic
Development Financing
Authority, Resources
Recovery, Northampton
Project 6.400 01/01/2009 3,000,000 2,619,660
Pennsylvania Economic
Development Financing
Authority, Resources
Recovery, Colver Project 7.050 12/01/2009 3,500,000 3,246,285
Pennsylvania Economic
Development Financing
Authority, Resources
Recovery, Northampton
Project 6.600 01/01/2019 4,000,000 3,386,920
Pennsylvania Economic
Development Financing
Authority, Resources
Recovery, Colver Project 7.125 12/01/2015 2,000,000 1,832,940
Pennsylvania Economic
Development Financing
Authority, Resources
Recovery, Northampton
Project 6.500 01/01/2013 1,500,000 1,261,695
Pennsylvania Housing
Finance Agency,
Residential Development
Section 8 7.600 07/01/2013 5,545,000 5,743,733
Pennsylvania Housing
Finance Agency, Single
Family Mortgage Revenue,
Series V 7.800 04/01/2016 3,950,000 4,050,488
Pennsylvania Housing
Finance Agency, Single
Family Mortgage Revenue,
Series P 8.000 04/01/2016 3,000,000 3,009,120
Pennsylvania Housing
Finance Agency, Single
Family Mortgage Revenue,
Section 8 8.200 07/01/2024 2,000,000 2,134,260
Pennsylvania Industrial
Development Authority 7.000 01/01/2006 2,000,000 2,106,100
Pennsylvania State Higher
Education Facilities
Authority, Allegheny
General Hospital 7.125 09/01/2007 4,000,000 4,068,680
Pennsylvania State Higher
Educational Facilities
Authority, Thomas
Jefferson University 6.625 08/15/2009 150,000 146,510
Pennsylvania State
Industrial Development
Authority, Series 1994 6.000 01/01/2012 1,190,000 1,076,462
Pennsylvania, General
Obligation 5.375 04/15/2012 1,500,000 1,266,720
Philadelphia,
Pennsylvania, Municipal
Authority, Not refunded
(ETM) 7.800 04/01/2018 6,770,000 7,380,992
<PAGE>
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
PENNSYLVANIA (continued)
Philadelphia,
Pennsylvania, Municipal
Authority, Pre-refunded
(ETM) 7.800% 04/01/2018 $ 685,000 $ 744,622
Philadelphia,
Pennsylvania, Water and
Wastewater 5.750 06/15/2013 2,940,000 2,358,174
Philadelphia,
Pennsylvania, Authority
for Industrial Development 5.250 07/01/2017 2,000,000 1,551,920
Philadelphia,
Pennsylvania, Water and
Wastewater (FGIC) 10.000 06/15/2005 3,000,000 3,759,780
Philadelphia,
Pennsylvania, Hospital and
Higher Education
Facilities, Albert
Einstein Medical Center 7.625 04/01/2011 2,350,000 2,390,162
Philadelphia,
Pennsylvania, Hospital and
Higher Education
Facilities, Graduate
Medical Center 7.250 07/01/2018 2,000,000 1,797,980
Philadelphia,
Pennsylvania, Municipal
Authority Revenue 5.625 11/15/2014 1,600,000 1,366,400
Philadelphia,
Pennsylvania, School
District, Series 93B 5.375 07/01/2005 1,500,000 1,335,855
Pittsburgh, Pennsylvania
Series A 5.875 09/01/2011 2,000,000 1,800,460
Pottsville, Pennsylvania,
Hospital Authority,
Daughters of Charity
Health Systems, Inc., Good
Samaritan Hospital 8.250 08/01/2012 4,455,000 4,849,535
PUERTO RICO
Puerto Rico Aqueduct and
Sewer Authority, Series A 7.875 07/01/2017 1,750,000 1,833,370
Puerto Rico Commonwealth
of, General Obligation 7.000 07/01/2010 6,980,000 6,849,265
Puerto Rico Electric Power
Authority, Power Revenue,
Series U 6.000 07/01/2014 2,750,000 2,442,385
Puerto Rico Electric Power
Authority, Power Revenue,
Series S 7.000 07/01/2007 2,000,000 2,042,660
Puerto Rico Public
Buildings Authority,
Series L 5.750 07/01/2016 1,000,000 849,520
Puerto Rico Public
Buildings Authority,
Guaranteed Public
Education and Health
Facilities, Series M 5.700 07/01/2009 1,700,000 1,517,233
RHODE ISLAND
Rhode Island Health and
Educational Building
Corp., Hospital Financing
Revenue, Roger Williams
General Hospital 9.500 07/01/2016 1,500,000 1,549,530
SOUTH CAROLINA
Charleston County, South
Carolina, Hospital
Facilities Refunding and
Improvement, Roper
Hospital Project 9.125 10/01/2011 2,000,000 2,112,860
Laurens, South Carolina,
Utility Systems, Series
1994 5.000 01/01/2018 4,395,000 3,444,845
Sumter County, South
Carolina, Hospital
Facilities, The Tuomey
Hospital 10.000 10/01/2004 395,000 412,340
SOUTH DAKOTA
Aberdeen, South Dakota,
Hospital Revenue, Health
Care System 9.800 10/01/2000 640,000 682,957
South Dakota Student Loan
Finance Corporation,
Series A 6.650 08/01/2008 1,335,000 1,244,193
TENNESSEE
Bristol, Tennessee, Health
and Education Authority,
Bristol Memorial Hospital
(FGIC) 8.870 09/01/2021 4,000,000 3,617,600
Knox County, Tennessee,
Health and Educational
Facilities, Fort Sanders
Hospital 7.250 01/01/2010 4,000,000 4,174,280
Metropolitan Government of
Nashville and Davidson
County, Tennessee Water
and Sewer Revenue 6.500 01/01/2009 4,930,000 4,905,547
Tennessee Housing
Development Authority,
Home Ownership Program,
Issue H 7.825 07/01/2015 2,985,000 3,046,372
<PAGE>
Keystone Tax Exempt Trust
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
TEXAS
Bexar County, Texas,
Health Facilities
Development Corp.,
Refunding, Incarnate Word
Health Services 9.500% 11/01/2015 $3,900,000 $ 4,141,839
Brazos River Authority,
Texas, Revenue Refunding,
Houston Light and Power
Project (BIGI) 8.100 05/01/2019 8,500,000 9,079,700
Brownsville, Texas,
Utility System 6.250 09/01/2014 2,240,000 2,108,781
Harris County, Texas, Toll
Road Subordinated Lien,
Series A 6.100 08/15/2016 2,000,000 1,801,600
Harris County, Texas,
Hospital District Mortgage
Revenue (AMBAC) 8.500 04/01/2015 500,000 531,805
Harris County, Texas,
Flood Control District
(effective yield 7.20%)
(b) 0.000 10/01/2006 2,500,000 1,097,875
Harris County, Texas,
Health Facilities
Development Corp.,
Memorial Hospital Systems 7.125 06/01/2015 2,375,000 2,271,759
Harris County, Texas,
Health Facilities
Development Corp.,
Memorial Hospital Systems 6.625 06/01/2024 1,500,000 1,341,180
Harris County, Texas,
Health Facilities
Development Corp., Hermann
Hospital Project 6.375 10/01/2024 3,000,000 2,731,200
Harris County, Texas, Toll
Road 7.000 08/15/2010 3,000,000 3,087,480
Houston, Texas, Airport 8.200 07/01/2017 2,725,000 2,946,134
Lower Colorado River
Authority, Texas,
(effective yield 7.05%)
(b) 0.000 01/01/2005 2,135,000 1,113,232
McAllen, Texas, Health
Facilities Development
Corp.,
Sisters of Mary Hospital 5.000 06/01/2015 6,060,000 4,590,814
Port of Corpus Christi,
Texas, Industrial
Development Corp.,
Valero Refining and
Marketing Co. Project,
Series A 10.250 06/01/2017 5,550,000 6,074,863
State of Texas, General
Obligation, Series B 5.700 12/01/2014 250,000 210,657
Texas Housing Agency,
Single Family Mortgage 8.200 03/01/2016 3,980,000 4,110,265
Texas Housing Agency,
Residential Development 8.400 01/01/2021 2,215,000 2,199,938
Texas Housing Agency,
Single Family Mortgage 9.375 09/01/2016 1,045,000 1,080,331
Texas Municipal Power
Agency (effective yield
7.09%) (b) 0.000 09/01/2008 4,500,000 1,766,970
Texas Municipal Power
Agency (effective yield
5.70%) (b) 0.000 09/01/2004 2,500,000 1,338,225
Texas Municipal Power
Agency (effective yield
7.15%) (b) 0.000 09/01/2006 4,455,000 2,050,414
Titus County, Texas, Water
District #1, Southwest
Electric Power 8.200 08/01/2011 3,455,000 3,768,818
Tomball, Texas, Hospital
Authority, Tomball
Regional Hospital 6.125 07/01/2023 2,000,000 1,531,880
UTAH
Intermountain Power
Agency, Utah, Power Supply 5.500 07/01/2010 3,910,000 3,364,086
Intermountain Power
Agency, Utah, Power Supply
(effective yield 7.20%)
(b) 0.000 07/01/2012 4,000,000 3,383,880
Intermountain Power
Agency, Utah, Power Supply 8.375 07/01/2012 3,020,000 3,248,946
Intermountain Power
Agency, Utah, Power Supply 10.375 07/01/2016 600,000 631,638
Intermountain Power
Agency, Utah, Power Supply
(effective yield 6.00%)
(b) 0.000 07/01/2011 3,000,000 3,238,290
Intermountain Power
Agency, Utah, Power Supply
(effective yield 7.10%)
(b) 0.000 07/01/2006 2,150,000 1,009,532
Intermountain Power
Agency, Utah, Power Supply
(ETM)
(effective yield 6.80%)
(b) 0.000 07/01/2002 3,000,000 388,290
<PAGE>
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
VERMONT
Vermont Housing Finance
Agency, SFMR Refunding 6.800% 05/01/2025 $ 940,000 $ 840,736
Vermont Housing Finance
Agency, SFMR Refunding 8.150 05/01/2025 1,485,000 1,520,981
VIRGINIA
Norfolk, Virginia,
Industrial Development
Authority, Hospital
Refunding, Sentara
Hospital, Series A 5.500 11/01/2017 4,170,000 3,306,727
Pittsylvania County,
Virginia, Industrial
Development 7.500 01/01/2014 1,200,000 1,134,960
Virginia Housing
Development Authority
(effective yield 9.97%)
(b) 0.000 09/01/2014 200,000 26,544
WASHINGTON
Port of Seattle,
Washington, General
Obligation 5.750 05/01/2014 1,500,000 1,273,395
Seattle, Washington,
Metropolitan Seattle Sewer
Revenue, Series W 6.250 01/01/2018 2,750,000 2,476,677
Washington Public Power
Supply System, Nuclear
Project #1 14.500 07/01/2002 1,350,000 1,639,184
Washington Public Power
Supply System, Nuclear
Project #3 (effective
yield 7.43%) (b) 0.000 07/01/2012 4,000,000 1,145,640
WEST VIRGINIA
State Hospital Finance
Authority, West Virginia 6.100 01/01/2018 2,350,000 2,146,560
WISCONSIN
Wisconsin Health and
Educational Facilities
Authority, Sorrowful
Mother Corporation, Series
D 5.400 08/15/2013 2,000,000 1,628,800
WYOMING
Wyoming Community
Development Authority,
Single Family Mortgage 8.125 06/01/2021 1,765,000 1,810,661
TOTAL MUNICIPAL BONDS
(Cost--$668,233,644) 644,528,667
TEMPORARY TAX-EXEMPT
INVESTMENTS (4.7%)
California Revenue and
Anticipation Warrants,
Series C (a) 5.750 04/25/1996 10,000,000 10,102,544
California Health
Facilities Financing
Authority, Catholic Health
Care, Series B (a) 3.600 07/01/2020 200,000 200,000
California Health
Facilities, Financing
Authority, Catholic Health
Care, Series C (a) 3.600 07/01/2020 1,100,000 1,100,000
Lynchburg, Virginia,
Industrial Development
Authority, First Mortgage
Revenue, Series C (a) 3.650 12/01/2025 1,000,000 1,000,000
Massachusetts Industrial
Finance Agency, Health
Care Facility Revenue (a) 3.500 04/01/2009 715,000 715,000
New York City Municipal
Water and Finance
Authority, Water and Sewer
Systems, Series C (a) 3.400 06/15/2023 6,600,000 6,600,000
New York City, New York,
General Obligation, Series
1994B (a) 3.650 08/15/2022 3,000,000 3,000,000
New York City, New York,
General Obligation, Series
1994H (a) 3.500 08/01/2014 80,000 80,000
North Texas Higher
Education Authority,
Student Loan Revenue,
Series F (a) 3.700 04/01/2020 4,000,000 4,000,000
San Diego County,
California, Regional
Transportation Commission,
Series A (FGIC) (a) 3.500 04/01/2008 220,000 220,000
Sayre County,
Pennsylvania, Health Care
Facilities Authority,
Variable Rate Demand
Hospital Revenue Bonds,
(VHA of Pennsylvania Inc.
Capital Asset Financing
Program) Series 1985B (a) 3.650 12/01/2020 650,000 650,000
<PAGE>
Keystone Tax Exempt Trust
SCHEDULE OF INVESTMENTS--November 30, 1994
Coupon Maturity Principal Market
Rate Date Amount Value
TEMPORARY TAX-EXEMPT
INVESTMENTS (continued)
Seattle, Washington,
Municipal Light and Power
(a) 9.700% 09/01/1995 $2,000,000 $ 2,124,775
Triborough Bridge and
Tunnel Authority, New
York, Special Obligation
(a) 3.750 01/01/2004 2,200,000 2,200,000
TOTAL TEMPORARY TAX-EXEMPT
INVESTMENTS (Cost--$31,992,319) 31,992,319
TOTAL INVESTMENTS
(Cost--$700,225,963)(c) 676,520,986
OTHER ASSETS AND
LIABILITIES--NET (0.0%) 170,062
NET ASSETS (100.0%) $676,691,048
Notes to Schedule of Investments:
(a) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principle and accrued
interest upon surrendering the security to the issuing agent.
(b) Effective yield (calculated at date of purchase) is the annual yield at
which the bond accretes until its maturity date.
(c) The cost of investments for federal income tax purposes amounted to
$699,988,942. Gross unrealized appreciation and depreciation on investments,
based on identified tax cost, at November 30, 1994 are as follows:
Gross appreciation $ 11,231,772
Gross depreciation (34,699,728)
Net unrealized
depreciation ($ 23,467,956)
Legend of Portfolio Abbreviations:
AMBAC--AMBAC Indemnity Corp.
ETM--Escrowed to Maturity
FGIC--Federal Guaranty Insurance Co.
FSA--Financial Security Assurance
MBIA--Municipal Bond Investors Assurance Corp.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
June 20, 1985
(Commencement
of Operations) to
Year Ended November 30, November 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value
beginning of
period $ 11.080 $ 11.060 $ 10.920 $ 10.760 $ 10.900 $ 10.600 $ 10.080 $ 11.400 $ 10.110 $10.000
Income from
investment
operations:
Investment
income--net 0.490 0.531 0.580 0.593 0.611 0.663 0.669 0.682 0.784 0.091
Net gains
(losses) on
investments (1.249) 0.480 0.356 0.329 (0.040) 0.368 0.591 (1.195) 1.408 0.143
Net
commissions
paid on fund
share sales
(b) 0 0 0 0 0 0 0 0 (0.118) (0.033)
Total from
investment
operations (0.759) 1.011 0.936 0.922 0.571 1.031 1.260 (0.513) 2.074 0.201
Less
distributions
from:
Investment
income--net (0.495) (0.531) (0.580) (0.593) (0.631) (0.731) (0.740) (0.747) (0.784) (0.091)
In excess of
investment
income--net
(c) (0.096) (0.080) (0.086) (0.099) (0.080) 0 0 0 0 0
Realized
capital gains 0 (0.380) (0.130) (0.070) 0 0 0 (0.060) 0 0
Total
distributions (0.591) (0.991) (0.796) (0.762) (0.711) (0.731) (0.740) (0.807) (0.784) (0.091)
Net asset
value end of
period $ 9.730 $ 11.080 $ 11.060 $ 10.920 $ 10.760 $ 10.900 $ 10.600 $ 10.080 $ 11.400 $10.110
Total return
(d) (7.10%) 9.30% 8.79% 8.83% 5.48% 10.00% 12.85% (4.67%) 21.12% 2.02%(e)
Ratios/supplemental
data
Ratios to
average net
assets:
Operating
and
management
expenses 1.65% 1.71% 1.86% 1.91% 1.84% 1.80% 1.72% 1.65% 1.02% 1.35%(a)
Investment
income--net 4.69% 4.66% 5.08% 5.44% 5.70% 5.90% 6.33% 6.29% 6.89% 4.77%(a)
Portfolio
turnover rate 83% 66% 49% 65% 73% 71% 83% 112% 50% 0%
Net assets,
end of period
(thousands) $676,691 $814,326 $720,271 $628,835 $588,237 $605,044 $522,821 $474,815 $387,740 $47,986
</TABLE>
(a) Annualized for the period October 7, 1985 (commencement of investment
operations) through November 30, 1985.
(b) 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 November 30,
1987, the Fund's financial statements reflect 12b-1 Distribution Plan
expenses (ie., maintenance fees plus commissions paid net of deferred sales
charges received by the Fund) as a component of net investment income.
(c) Effective December 1, 1993, the Fund adopted Statement of Position 93-2:
"Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies". As
a result, distribution amounts exceeding book basis investment income--net
(or tax basis net income on a temporary basis) are presented as
"Distributions in excess of investment income--net". Similarly, capital gain
distributions in excess of book basis capital gains (or tax basis capital
gains on a temporary basis) are presented as "Distributions in excess of
capital gains". For the fiscal years ended January 31, 1992, 1991, 1990,
distributions in excess of book basis net income were presented as
"distributions from paid-in capital".
(d) Excluding contingent deferred sales charges.
(e) For the period from October 7, 1985 (Commencement of investment
operations) to November 30, 1985.
<PAGE>
Keystone Tax Exempt Trust
STATEMENT OF ASSETS AND LIABILITIES--
November 30, 1994
Assets:
Investments at market value
(identified cost--$700,225,963) (Note 1) $676,520,986
Cash 35,249
Receivable for:
Investments sold 8,199,829
Fund shares sold 283,096
Interest 14,774,646
Prepaid expenses 70,152
Total assets 699,883,958
Liabilities:
Payable for:
Investments purchased 19,094,689
Fund shares redeemed 731,171
Income distribution 3,346,262
Payable to Investment Adviser (Note 4) 9,054
Accrued expenses 11,734
Total liabilities 23,192,910
Net assets $676,691,048
Net assets represented by (Notes 1 and 2):
Paid-in capital $720,027,580
Accumulated distributions in excess of
investment income--net (2,350,752)
Accumulated realized gains (losses) on
investment transactions--net (17,280,803)
Net unrealized depreciation on investments (23,704,977)
Total net assets applicable to outstanding
shares of beneficial interest ($9.73 a
share on 69,520,715 shares outstanding) $676,691,048
STATEMENT OF OPERATIONS--
Year Ended November 30, 1994
Investment income (Note 1):
Interest $ 48,654,505
Expenses (Notes 2 and 4):
Investment management and administrative
services $ 4,916,571
Accounting services 27,856
Trustees' fees and expenses 54,917
Distribution Plan expenses 7,673,742
Total expenses 12,673,086
Investment income--net (Note 1) 35,981,419
Realized and unrealized gain (loss)
on investments and closed
futures contracts--net
(Notes 1 and 3):
Realized gain (loss) on:
Investments (18,209,909)
Closed futures contracts 939,411
Realized loss on investments and closed
futures contracts--net (17,270,498)
Net unrealized appreciation (depreciation)
on investments:
Beginning of year 49,771,066
End of year (23,704,977)
Change in unrealized appreciation or
depreciation on investments--net (73,476,043)
Net loss on investments (90,746,541)
Net decrease in net assets resulting from
operations $(54,765,122)
<PAGE>
Keystone Tax Exempt Trust
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended November 30,
1994 1993
Operations:
Investment income--net (Note 1) $ 35,981,419 $ 36,737,161
Realized gain (loss) on investments and
closed futures contracts--net
(Note 1 and 3) (17,270,498) 26,384,385
Change in unrealized appreciation or
depreciation--net (73,476,043) 6,425,568
Net increase (decrease) in net assets
resulting from operations (54,765,122) 69,547,114
Distributions to shareholders from (Note 1
and 5):
Investment income--net (35,981,419) (36,737,161)
In excess of investment income--net (7,013,590) (5,520,144)
Realized gain on investment
transactions--net -0- (27,091,262)
Total distributions to shareholders (42,995,009) (69,348,567)
Capital share transactions (Note 2):
Proceeds from shares sold 109,096,368 139,299,377
Payments for shares redeemed (171,235,006) (87,989,608)
Net asset value of shares issued in
reinvestment of distributions from:
Investment income--net and in excess of
investment income--net 22,264,022 23,571,760
Realized gain on investment
transactions--net -0- 18,974,424
Net increase (decrease) in net assets
resulting from capital share transactions (39,874,616) 93,855,953
Total increase (decrease) in net assets (137,634,747) 94,054,500
Net assets:
Beginning of year 814,325,795 720,271,295
End of year [including accumulated
distributions in excess of investment
income--net as follows:
[1994--($2,350,752) and 1993--($1,004,034)]
(Note 1) $ 676,691,048 $814,325,795
<PAGE>
Keystone Tax Exempt Trust
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Keystone Tax Exempt Trust (the "Fund"), is an open-end, diversified management
investment company for which Keystone Management, Inc. ("KMI") is the Investment
Manager and Keystone Custodian Funds, Inc. ("Keystone") is the Investment
Adviser. The Fund is registered under the Investment Company Act of 1940. It was
established under Massachusetts law as a Massachusetts business trust on June
20, 1985 and had no operations until October 7, 1985 other than those relating
to organization matters and the initial sale of its shares.
Keystone is a wholly-owned subsidiary of Keystone Group, Inc. ("KGI"), a
Delaware corporation. KGI is privately owned by an investor group consisting of
members of current management of Keystone. KMI is a wholly-owned subsidiary of
Keystone. Keystone Investor Resource Center, Inc. ("KIRC"), a wholly-owned
subsidiary of Keystone, is the Fund's transfer agent.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Tax-exempt bonds are stated on the basis of valuations provided by a pricing
service, approved by the Board of Trustees, that uses information with respect
to transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining value. Non-tax-exempt securities for which market quotations are
readily available are valued at the price quoted which, in the opinion of the
Board of Trustees or their representative, most nearly represents their market
value.
Short-term investments which are purchased with maturities of sixty days or less
are valued at amortized cost (original purchase cost as adjusted for
amortization of premium or accretion of discount) which when combined with
accrued interest approximates market. 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. All other securities and other assets are valued at fair
value as determined in good faith using methods prescribed by the Board of
Trustees.
B. A futures contract is an agreement between two parties to buy and sell a
specific amount of a commodity, security, financial instrument, or, in the case
of a stock index, cash at a set price on a future date. Upon entering into a
futures contract the Fund is required to deposit with a broker an amount
("initial margin") equal to a certain percentage of the purchase price indicated
in the futures contract. Subsequent payments ("variation margin") are made or
received by the Fund each day, as the value of the underlying instrument or
index fluctuates, and are recorded for book purposes as unrealized gains or
losses by the Fund. For federal tax purposes, any futures contracts which remain
open at fiscal year end are marked-to-market and the resultant net gain or loss
is included in federal taxable income. In addition to market risk, the Fund is
subject to the credit risk that the other party will not complete the
obligations of the contract.
<PAGE>
C. Securities transactions are accounted for on the trade date. Realized gains
and losses are recorded on the identified cost basis. Interest income is
recorded on the accrual basis. All premiums and original issue discounts are
amortized/accreted for both financial reporting and federal income tax purposes.
D. The Fund has qualified, and intends to qualify in the future, as a regulated
investment company under the Internal Revenue Code of 1986, as amended
("Internal Revenue Code"). Thus, the Fund expects to be relieved of any federal
income tax liability by distributing all of its tax basis income and tax basis
capital gains, if any, to its shareholders. The Fund intends to avoid excise tax
liability by making the required distributions under the Internal Revenue Code.
E. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed upon
date and price) the repurchase price of the securities will generally equal the
amount paid by the Fund plus a negotiated interest amount. The seller under the
repurchase agreement will be required to provide securities ("collateral") to
the Fund whose value will be maintained at an amount not less than the
repurchase price, and which generally will be maintained at 101% of the
repurchase price. The Fund monitors the value of collateral on a daily basis,
and if the value of 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.
F. The Fund distributes net investment income to shareholders monthly and net
capital gains, if any, annually. Distributions from net investment income are
determined in accordance with income tax regulations. Dividends from net
investment income can exceed the Fund's book basis net investment income.
Effective December 1, 1993, the Fund adopted Statement of Position 93-2:
"Determination, Disclosure and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies." As a
result, the Fund changed the financial statement classification of distributions
to shareholders to more clearly reflect the differences between financial
statement amounts available for distribution and amounts distributed to comply
with income tax regulations. Accordingly, the following reclassifications have
been made as of November 30, 1993: a decrease to paid-in capital of $2,111,629
and corresponding increases to accumulated distributions in excess of investment
income--net and accumulated realized gains (losses) on investment
transactions--net of $1,004,034 and $3,115,663, respectively. The significant
difference between financial statement amounts available for distribution and
distributions made in accordance with income tax regulations is the difference
in treatment of 12b-1 Distribution Plan charges for financial statement and
federal tax purposes.
2. Capital Share Transactions
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest with
<PAGE>
Keystone Tax Exempt Trust
no par value. Transactions in shares of the Fund were as follows:
Year Ended November 30,
1994 1993
Shares sold 10,341,899 13,154,139
Shares redeemed (16,413,626) (8,108,876)
Shares issued in
reinvestment of:
Distributions
from investment
income--net and
Distributions in
excess of
investment income
income--net 2,107,696 1,991,601
Distributions
from realized
gains--net -0- 520,661
Net increase
(decrease) (3,964,031) 7,557,525
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 Distributors, Inc. ("KDI"), 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 below, Fund shares are offered for sale at net asset value without any
initial sales charge. From the amounts received by KDI in connection with the
Distribution Plan, and subject to the limitations discussed below, KDI generally
pays brokers or others a commission equal to 3% 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 the shares sold by such brokers or
others and remaining outstanding on the books of the Fund for specified periods.
To the extent Fund shares purchased prior to July 8, 1992 are redeemed within
four calendar years of original issuance, the Fund may be eligible to receive a
contingent 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 4.0%, applied to the lesser of the net asset
value of shares redeemed or the total cost of such shares.
Since 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 KDI rather than to the Fund. During the fiscal year ended
November 30, 1994, KDI received $521,056 in contingent deferred sales charges.
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 new rule of the National Association of
Securities Dealers, Inc. ("NASD") 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 new NASD Rule also limits the aggregate amount which the Fund may pay
for such distribution costs to 6.25% of gross share sales since the inception of
the Fund's 12b-1 Distribution Plan, plus interest at the prime rate plus 1% on
unpaid amounts thereof (less any contingent deferred sales charges paid by the
shareholders to KDI).
KDI intends, but is not obligated, to continue to pay or accrue distribution
charges which exceed current annual payments permitted to be received by KDI
from the Fund. KDI intends to seek full payment of such charges from the Fund
(together with annual interest thereon at the prime rate plus one percent) at
such time in the future as, and to the extent that, payment thereof by the Fund
would be within permitted limits. KDI currently intends to seek payments of
interest only on such charges paid or accrued by KDI subsequent to January 1,
1992.
During the year ended November 30, 1994, the Fund recovered $87,456 in
contingent deferred sales charges. During the year, the Fund paid KDI $7,761,198
under the Distribution Plan. The amount paid by the Fund under its Distribution
Plan, net of deferred sales charges, was $7,673,742 (1.00% of the Fund's average
daily net assets). During the year, KDI received $4,509,798, after payments of
commissions on new sales and service fees to dealers and others of $3,251,400.
At November 30, 1994, KDI's total unreimbursed Distribution Plan expenses
amounted to $1,206,981 (0.18% of the Fund's net asset value as of November 30,
1994).
3. Securities Transactions
As of November 30, 1994, the Fund had a capital loss carryover for federal
income tax purposes of approximately $17,081,000 which expires in 2002. For the
year ended November 30, 1994, purchases and sales of investment securities were
as follows:
Cost of Proceeds
Purchases from Sales
Tax-exempt
investments $561,513,326 $597,190,041
Short-term
commercial and
tax-exempt notes 372,685,377 365,037,962
$934,198,703 $962,228,003
4. Investment Management and Transactions with Affiliates
Under the terms of the Investment Management Agreement between KMI and the Fund,
dated December 29, 1989, KMI provides investment management and administrative
services to the Fund. In return, KMI is paid a management fee computed and paid
daily. The management fee is calculated at a rate of 2.0% of the Fund's gross
investment income plus an amount determined by applying percentage rates
starting at 0.50% and declining as net assets increase to 0.25% per annum, to
the average daily net asset value of the Fund. KMI has entered into an
Investment Advisory Agreement with Keystone, dated December 30, 1989, 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 November 30, 1994, the Fund paid or accrued to KMI
investment management and administrative services fees of $4,916,571. Included
in this amount is the management fee of $3,641,696, which represented 0.47% of
the Fund's average daily net assets. Of such management fee paid to KMI,
$3,095,441 was paid to Keystone for its services to the Fund.
Included in the total investment management and administrative services fee paid
by the Fund were the following approximate amounts incurred by KMI (and
reimbursed by the Fund) in providing or obtaining for the Fund the additional
operating services, facilities and supplies required by the Agreement: audit and
legal, $57,260, custodian fees, $217,525, printing and supplies, $41,095,
registration fees, $93,860, and other, $45,225.
<PAGE>
Keystone Tax Exempt Trust
During the year ended November 30, 1994, the Fund paid or accrued to KIRC and
KGI $27,856 for certain accounting and printing services and to KIRC $819,910
for shareholder services. This amount for shareholder services is included in
the payments made by KMI.
5. Distributions to Shareholders
The net investment income of the Fund (interest income accrued as earned, less
expenses of the Fund) is determined as of the normal close of trading on the New
York Stock Exchange each business day on which the exchange is open. The net
investment income so determined each day is declared as a dividend to
shareholders of record at the time of such determination and is distributed
promptly after the end of each calendar month. Any net realized short-term and
long-term capital gains in excess of carried-over losses, will be distributed
annually. All distributions of net investment income will be paid in cash unless
the shareholder has directed that they be reinvested, in which case such
reinvestment will be at the net asset value on the last business day of the
month in which declared. Any distributions of capital gains will be reinvested
in additional shares of the Fund at net asset value on the record date of the
month in which declared unless the shareholder has specified that they wish to
receive cash. Shares acquired through reinvestment of net investment income or
capital gains are not subject to contingent deferred sales charges.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone Tax Exempt Trust
We have audited the accompanying statement of assets and liabilities of Keystone
Tax Exempt Trust, including the schedule of investments, as of November 30,
1994, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year period
then ended and the financial highlights for each of the years in the nine-year
period then ended and for the period from June 20, 1985 (commencement of
operations) to November 30, 1985. 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
November 30, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone Tax Exempt Trust as of November 30, 1994, the results of its operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years in the nine-year period then ended and for the period from June 20, 1985
to November 30, 1985 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 6, 1995
<PAGE>
KEYSTONE TAX EXEMPT TRUST
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 November 30, 1993
Financial Highlights For fiscal years ended
November 30, 1985 through
November 30, 1994
Statement of Assets and Liabilities November 30, 1994
Statement of Operations Year ended
November 30, 1994
Statement of Changes in Net Assets Two years ended
November 30, 1994
Notes to Financial Statements
Report of Independent Auditors'
dated January 6, 1995
All schedules are omitted as the required information is inapplicable.
<PAGE>
Item 24(b). Exhibits
(1) A copy of Registrant's Amended and Restated Declaration of Trust dated
July 27, 1993 was filed with Post-Effective Amendment No. 13 to
Registration Statement No. 2-98560/811-4334 as Exhibit 24(b)(1) and is
incorporated by reference hereto.
(2) A copy of Registrant's By-Laws is filed herewith as Exhibit 24(b)(2).
(3) Not applicable.
(4) A specimen of the security issued by Registrant was filed with
Registration Statement No. 2-98560/811-4334 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. dated August 19, 1993 is filed herewith as
Exhibit 24(b)(5)(A).
(5)(B) A copy of the Investment Advisory Agreement between Keystone
Management, Inc. and Keystone Custodian Funds, Inc. dated August 19,
1993 is filed as Exhibit 24(b)(5)(B).
(6) A copy of the Principal Underwriting Agreement between Registrant and
Keystone Distributors, Inc. dated August 19, 1993 is filed herewith as
Exhibit 24(b)(6). A copy of the form of Dealer Agreement used by
Keystone Distributors, Inc. was filed with Post-Effective Amendment No.
8 to Registration Statement No. 2-98560/811-4334 as Exhibit 24(b)(6)
and is incorporated by reference herein.
(7) Not applicable.
(8) A copy of the Custodian, Fund Accounting and Recordkeeping Agreement
between the Fund and State Street Bank and Trust Company together with
the First through the Fourth Amendments thereto are filed herewith.
(9) Not applicable.
(10) An opinion and a consent of counsel as to the legality of the
securities registered hereunder was filed with the Registrant's 24f-2
Notice on January 28, 1994 and are incorporated by reference herein.
(11) Consent as to the use of Registrant's Independent Auditors is filed
herewith as Exhibit 24(b)(11).
(12) Not applicable.
(13) A copy of a letter of Keystone Group, Inc. was filed with Registration
Statement No. 2-98560/811-4334 as Exhibit 1(b)(13) and is incorporated
by reference herein.
(14) Copies of model plans used in the establishment of retirement plans in
connection with which Registrant offers its securities were filed with
Post-Effective Amendment No. 66 to Registration Statement No.
2-10527/811-96 as Exhibit 24(b)(14) and are incorporated by reference
herein.
(15) A copy of Registrant's Distribution Plan adopted pursuant to Rule 12b-1
is filed herewith.
(16) Schedules for computation of total returns, current yield and tax
equivalent are filed herewith as Exhibit 24(b)(16).
(17) Powers of Attorney are filed herewith as Exhibit 24(b)(17).
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 February 28, 1995
-------------- -------------------------------
Shares of Beneficial 17,796
Interest, without
Par Value
Item 27. Indemnification
Provisions for the indemnification of Registrant's Trustees and
officers are contained in Article VIII of Registrant's Declaration of Trust, a
copy of which was filed with Post-Effective Amendment No. 13 to Registration
Statement No. 2-98560/811-4334 as Exhibit 24(b)(1)and is incorporated by
reference hereto.
Provisions for the indemnification of Keystone Management, Inc. and
Keystone Custodian Funds, Inc, investment manager and investment adviser to the
Fund, respectively, are contained in Section 7 of the Investment Management
Agreement between Registrant and Keystone Management, Inc. and Section 6 of the
Investment Advisory Agreement between Keystone Management, Inc. and Keystone
Custodian Funds, Inc, copies of which are filed herewith as Exhibits 24(b)(5)(A)
and 24(b)(5)(B).
Item 28. Business and other Connections of Investment Adviser
The following tables lists the names of the various officers and
directors of Keystone Management, Inc. and Keystone Custodian Funds,
Inc., Registrant's investment manager and adviser, respectively, and
their respective positions. For each named individual, the tables
list, for the past two fiscal years, (i) any other organizations (for
Keystone Custodian Funds, Inc., 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 MANAGEMENT, INC.
Position with
Keystone Other
Management, Business
Name Inc. Affiliations
---- ------------- ------------
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer, Keystone Group, Inc.
President and Keystone Custodian
Director Funds, Inc.
Keystone Software, Inc.
Keystone Asset
Corporation
Keystone Capital
Corporation
Keystone Group Funds
Chairman of the Board and
Director:
Keystone Investment
Management Corporation
Keystone Fixed Income
Advisers, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Investor
Resource Center, Inc.
Robert Van Partners, Inc.
Boston Children's
Services Association
Associate Fiduciary
Investment Company, Inc.
Middlesex School
Middlebury College
Keystone Distributors,
Inc.
Former Trustee or
Director:
Neworld Bank
<PAGE>
Position with
Keystone Other
Management, Business
Name Inc. Affiliations
---- ------------- ------------
Edward F. Godfrey Treasurer and Senior Vice President,
Director Chief Financial Officer,
Treasurer and Director:
Keystone Group, Inc.
Keystone Custodian
Funds, Inc.
Keystone Distributors,
Inc.
Treasurer:
Keystone Investment
Management Corporation
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Treasurer and Director:
Hartwell Keystone
Advisers, Inc.
Senior Vice President:
Keystone Group Funds
Ralph J. Director President and Director:
Spuehler, Jr. Keystone Distributors,
Inc.
Director:
Keystone Investor
Resource Center, Inc.
Keystone Custodian
Funds, Inc.
Senior Vice President and
Director:
Keystone Group, Inc.
Treasurer:
Hartwell Emerging Growth
Fund
Hartwell Growth Fund
Former President:
Keystone Management, Inc.
Former Treasurer:
Keystone Group, Inc.
The Kent Funds
Keystone Custodian
Funds, Inc.
<PAGE>
Position with
Keystone Other
Management, Business
Name Inc. Affiliations
---- ------------- ------------
Rosemary D. Van Senior Vice Senior Vice President,
Antwerp President, General Counsel and
General Counsel Director:
and Secretary Fiduciary Investment
Company, Inc.
Keystone Group, Inc.
Keystone Investor
Resource Center, Inc.
Keystone Distributors,
Inc.
Keystone Software, Inc.
Senior Vice President and
General Counsel:
Keystone Investment
Management Corporation
Senior Vice President and
Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and
Secretary:
Keystone Fixed Income
Advisers, Inc.
Former Assistant Secretary:
The Kent Funds
Kevin Morrissey Assistant Vice President:
Treasurer Keystone Group, Inc.
Assistant Treasurer:
Fiduciary Investment
Company, Inc.
Former Assistant Treasurer:
The Kent Funds
J. Kevin Kenely Vice President Vice President and
and Controller Controller:
Keystone Group, Inc.
Keystone Custodian
Funds, Inc.
Keystone Distributors,
Inc.
Keystone Investment
Management Corporation
Hartwell Keystone
Advisers, Inc.
Fiduciary Investment
Company, Inc.
Keystone Software, Inc.
<PAGE>
Position with
Keystone Other
Management, Business
Name Inc. Affiliations
---- ------------- ------------
Jean Susan Assistant Vice President and
Loewenberg Secretary Counsel:
Keystone Group, Inc.
Vice President and
Secretary:
Keystone Trust Company
Secretary:
Keystone Investor
Resource Center, Inc.
Clerk:
Keystone Investment
Management Corporation
Fiduciary Investment
Company, Inc.
Assistant Secretary:
Keystone Asset
Corporation
Keystone Capital
Corporation
Keystone Fixed Income
Advisers, Inc.
Keystone Group Funds
Hartwell Keystone
Advisers, Inc.
Keystone Software, Inc.
Keystone Distributors,
Inc.
Keystone Custodian
Funds, Inc.
10150266
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF KEYSTONE CUSTODIAN FUNDS, INC.
Position with
Keystone Other
Custodian Business
Name Funds, Inc. Affiliations
---- ------------- ------------
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer, Vice Keystone Group, Inc.
Chairman and Keystone Management,
Director Inc.
Keystone Software, Inc.
Keystone Asset
Corporation
Keystone Capital Corp.
Chairman of the Board and
Director:
Keystone Fixed Income
Advisers, Inc.
Keystone Investment
Management Corporation
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Distributors,
Inc.
Keystone Investor
Resource Center, Inc.
Robert Van Partners,
Inc.
Boston Children's
Services Associates
Fiduciary Investment
Company, Inc.
Middlesex School
Middlebury College
Formerly Trustee:
Neworld Bank
Philip M. Byrne Director President and Director:
Keystone Investment
Management Corporation
Senior Vice President:
Keystone Group, Inc.
<PAGE>
Position with
Keystone Other
Custodian Business
Name Funds, Inc. Affiliations
---- ------------- ------------
Herbert L. Senior Vice None
Bishop, Jr. President
Donald C. Dates Senior Vice None
President
Gilman Gunn Senior Vice None
President
Edward F. Godfrey Director, Director, Senior Vice
Senior Vice Chief Financial
President, Treasurer:
Treasurer and Keystone Group, Inc.
Chief Financial Keystone
Officer Distributors,Inc.
Treasurer:
Keystone Investment
Management Corporation
Keystone Management,
Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Treasurer and Director:
Hartwell Keystone
Advisers, Inc.
James R. McCall Director and None
President
Ralph J. Spuehler, Jr. Director President and Director:
Keystone
Distributors,Inc.
Senior Vice President and
Director:
Keystone Group, Inc.
Treasurer:
Hartwell Emerging Growth
Fund, Inc.
Hartwell Growth
Fund,Inc.
Director:
Keystone Investor
Resource Center, Inc.
Keystone Management,
Inc.
Formerly President:
Keystone Management,
Inc.
Formerly Treasurer:
The Kent Funds
Keystone Group, Inc.
Keystone Custodian
Funds, Inc.
<PAGE>
Position with
Keystone Other
Custodian Business
Name Funds, Inc. Affiliations
---- ------------- ------------
Rosemary D. Van Antwerp Senior Vice General Counsel, Senior
President, Vice President and
General Counsel Secretary:
and Secretary Keystone Group, Inc.
Senior Vice President and
General Counsel:
Keystone Investment
Management Corporation
Senior Vice President,
General Counsel and
Director:
Keystone Investor
Resource Center, Inc.
Fiduciary Investment
Company, Inc.
Keystone Distributors,
Inc.
Keystone Management,
Inc.
Keystone Software, Inc.
Senior Vice President and
Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and
Secretary:
Keystone Fixed Income
Advisers, Inc.
Formerly Assistant
Secretary:
The Kent Funds
Harry Barr Vice President None
Robert K. Baumback Vice President None
<PAGE>
Position with
Keystone Other
Custodian Business
Name Funds, Inc. Affiliations
---- ------------- ------------
Betsy A. Blacher Vice President None
Francis X. Claro Vice President None
Kristine R. Cloyes Vice President None
Christopher P. Conkey Vice President None
Richard Cryan Vice President None
Maureen E. Cullinane Vice President None
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Christopher R. Ely Vice President None
Roland Gillis Vice President None
Robert L. Hockett Vice President None
Sami J. Karam Vice President None
Donald M. Keller Vice President None
George J. Kimball Vice President None
JoAnn L. Lydon Vice President None
John C. Madden, Jr. Vice President None
Stephen A. Marks Vice President None
Eleanor H. Marsh Vice President None
Walter T. McCormick Vice President None
Barbara McCue Vice President None
<PAGE>
Position with
Keystone Other
Custodian Business
Name Funds, Inc. Affiliations
---- ------------- ------------
Stanley M. Niksa Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
William H. Parsons Vice President None
Daniel A. Rabasco Vice President None
David L. Smith Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
Marcia Waterman Vice President None
J. Kevin Kenely Vice President None
Joseph J. Decristofaro Vice President None
Jean Susan Loewenberg Assistant Vice President and
Secretary Counsel:
Keystone Group, Inc.
Vice President and
Secretary:
Keystone Trust Company
Secretary:
Keystone Investor
Resource Center, Inc.
Assistant Secretary:
Keystone Asset
Corporation
Keystone Capital
Corporation
Keystone Distributors,
Inc.
Keystone Fixed Income
Advisers, Inc.
Keystone Management,
Inc.
Keystone Software, Inc.
Hartwell Keystone
Advisers, Inc.
Clerk:
Keystone Investment
Management Corporation
Fiduciary Investment
Company, Inc.
Assistant Secretary:
Hartwell Keystone
Advisers, Inc.
Keystone Distributors,
Inc.
<PAGE>
Position with
Keystone Other
Custodian Business
Name Funds, Inc. Affiliations
---- ------------- ------------
Colleen L. Mette Assistant Assistant Secretary:
Secretary Keystone Distributors,
Inc.
Keystone Group, Inc.
Kevin J. Morrissey Assistant Vice President:
Treasurer Keystone Group, Inc.
Assistant Treasurer:
Fiduciary Investment
Company, Inc.
Formerly Assistant
Treasurer:
The Kent Funds
<PAGE>
Item 29. Principal Underwriter
(a) Keystone Distributors, Inc., which acts as Registrant's
principal underwriter, also acts as principal underwriter for
the following entities:
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone America Hartwell Growth Fund, Inc.
Keystone Custodian Fund, Series B-1
Keystone Custodian Fund, Series B-2
Keystone Custodian Fund, Series B-4
Keystone Custodian Fund, Series K-1
Keystone Custodian Fund, Series K-2
Keystone Custodian Fund, Series S-1
Keystone Custodian Fund, Series S-3
Keystone Custodian Fund, Series S-4
Keystone America Capital Preservation and Income Fund
Keystone America Fund For Total Return
Keystone America Global Opportunities Fund
Keystone America Government Securities Fund
Keystone America Intermediate Term Bond Fund
Keystone America Omega Fund, Inc.
Keystone America State Tax Free Fund
Keystone America Strategic Income Fund
Keystone America Tax Free Income Fund
Keystone America World Bond Fund
Keystone Fund of the Americas
Keystone Tax Free Fund
Keystone Liquid Trust
Keystone International Fund Inc.
Keystone Precious Metals Holdings, Inc.
(b) For information with respect to each officer and director of
Registrants's acting principal underwriter, see the following
pages.
<PAGE>
Position and
Name and Principal Position and Offices with Offices with
Business Address Keystone Distributors, Inc. the Fund
------------------ --------------------------- -------------
Ralph J. Spuehler* Director, President None
Edward F. Godfrey* Director, Senior Vice Senior Vice
President, Treasurer President
and Chief Financial
Officer
Rosemary D. Van Antwerp Director, Senior Vice Senior Vice
President, General Counsel President
and Secretary
Albert H. Elfner, III* Director President
Charles W. Carr* Senior Vice President None
Peter M. Delehanty* Senior Vice President None
J. Kevin Kenely* Vice President and None
Controller
Frank O. Gebhardt Divisional Vice None
2626 Hopeton President
San Antonio, TX 78230
C. Kenneth Molander Divisional Vice None
8 King Edward Drive President
Londenderry, NH 03053
David S. Ashe Regional Manager and None
32415 Beaconsfield Vice President
Birmingham, MI 48025
David E. Achzet Regional Vice President None
60 Lawn Avenue -
Greenway 27
Stamford, CT 06902
William L. Carey, Jr. Regional Manager and None
4 Treble Lane Vice President
Malvern, PA 19355
John W. Crites Regional Manager and None
2769 Oakland Circle W. Vice President
Aurora, CO 80014
<PAGE>
Position and
Name and Principal Position and Offices with Offices with
Business Address Keystone Distributors, Inc. the Fund
------------------ --------------------------- -------------
Richard J. Fish Regional Vice President None
309 West 90th Street
New York, NY 10024
Michael E. Gathings Regional Manager and None
245 Wicklawn Way Vice President
Roswell, GA 30076
Robert G. Holz, Jr. Regional Manager and None
313 Meadowcrest Drive Vice President
Richardson, Texas 75080
Todd L. Kobrin Regional Manager and None
20 Iron Gate Vice President
Metuchen, NJ 08840
Ralph H. Johnson Regional Manager and None
345 Masters Court, #2 Vice President
Walnut Creek, CA 94598
Paul J. McIntyre Regional Manager and None
Vice President
Dale M. Pelletier Regional Manager and None
464 Winnetka Ave. Vice President
Winnetka, IL 60093
Juliana Perkins Regional Manager and None
2348 West Adrian Street Vice President
Newbury Park, CA 91320
Matthew D. Twomey Regional Manager and None
9627 Sparrow Court Vice President
Ellicott City, MD 21042
Mitchell I. Weiser Regional Manager and None
7031 Ventura Court Vice President
Parkland, FL 33067
Welden L. Evans Regional Banking Officer None
490 Huntcliff Green and Vice President
Atlanta, GA 30350
Russell A. Haskell* Vice President None
Robert J. Matson* Vice President None
<PAGE>
Position and
Name and Principal Position and Offices with Offices with
Business Address Keystone Distributors, Inc. the Fund
------------------ --------------------------- -------------
John M. McAllister* Vice President None
Gregg A. Mahalich Vice President None
14952 Richards Drive W.
Minnetonka, MN 55345
Burton Robbins Vice President None
1586 Folkstone Terrace
Westlake Village, CA
91361
Thomas E. Ryan, III* Vice President None
Peter Willis* Vice President None
Raymond P. Ajemian* Manager and Vice President None
Joan M. Balchunas* Assistant Vice President None
Thomas J. Gainey* Assistant Vice President None
Eric S. Jeppson* Assistant Vice President None
Julie A. Robinson* Assistant Vice President None
Peter M. Sullivan Assistant Vice President None
21445 Southeast 35th Way
Issaquah, WA 98027
Jean S. Loewenberg* Assistant Secretary Assistant
Secretary
Colleen L. Mette* Assistant Secretary Assistant
Secretary
Dorothy E. Bourassa* Assistant Secretary Assistant
Secretary
* Located at 200 Berkeley Street, Boston, Massachusetts 02116-5034
Item 29(c). - Not applicable
<PAGE>
Item 30. Location of Accounts and Records
200 Berkeley Street
Boston, Massachusetts 02116-5034
Keystone Investor Resource Center, Inc.
101 Main Street
Cambridge, Massachusetts 02142-1519
Data Vault Inc.
3431 Sharp Slot Road
Swansea, Massachusetts 02277
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, Massachusetts 02171
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 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) and the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston, in The
Commonwealth of Massachusetts, on the 31st day of March, 1995.
KEYSTONE TAX EXEMPT TRUST
By:/s/ George S. Bissell
-----------------------------
George S. Bissell*
Chairman of the Board, Chief
Executive Officer and Trustee
*By:/s/ Melina M.T. Murphy
-----------------------------
Melina M.T. Murphy**
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 31st day of March, 1995.
SIGNATURES TITLE
/s/ George S. Bissell Chairman of the Board and Trustee
-------------------------
George S. Bissell*
/s/ Albert H. Elfner, III Chief Executive Officer, President
------------------------- and Trustee
Albert H. Elfner, III*
/s/ Kevin J. Morrissey Treasurer (Principal Accounting
------------------------- and Financial Officer)
Kevin J. Morrissey*
*By:/s/ Melina M.T. Murphy
----------------------------
Melina M.T. Murphy**
Attorney-in-Fact
<PAGE>
SIGNATURES TITLE
/s/ Frederick Amling Trustee
-------------------------
Frederick Amling*
/s/ Charles A. Austin, III Trustee
-------------------------
Charles A. Austin, III*
/s/ Edwin D. Campbell Trustee
-------------------------
Edwin D. Campbell*
/s/ Charles F. Chapin Trustee
-------------------------
Charles F. Chapin*
/s/ K. Dun Gifford Trustee
-------------------------
K. Dun Gifford*
/s/ Leroy Keith, Jr. Trustee
-------------------------
Leroy Keith, Jr.*
/s/ F. Ray Keyser, Jr. Trustee
-------------------------
F. Ray Keyser, Jr.*
/s/ David M. Richardson Trustee
-------------------------
David M. Richardson*
/s/ Richard J. Shima Trustee
-------------------------
Richard J. Shima*
/s/ Andrew J. Simons Trustee
-------------------------
Andrew J. Simons*
*By:/s/Melina M.T. Murphy
----------------------------
Melina M.T. Murphy**
Attorney-in-Fact
**Melina M.T. Murphy, by signing her name hereto, does hereby sign this document
on behalf of each of the above-named individuals pursuant to powers of attorney
duly executed by such persons and attached hereto as Exhibit 24(b)(18).
<PAGE>
INDEX TO EXHIBITS
Page Number
In Sequential
Exhibit Number Exhibit Numbering System
1 Amended and Restated
Declaration of Trust(1)
2 By-Laws
4 Specimen Stock Certificate(2)
5 (A) Investment Management Agreement
(B) Investment Advisory Agreement
6 (A) Principal Underwriting Agreement
(B) Dealers Agreement(3)
8 Custodian, Fund Accounting and
Recordkeeping Agreement
Amendments to Custody Agreement
10 Opinion and Consent of Counsel(4)
11 Independent Auditors' Consent
14 Model Retirement Plans(5)
15 Distribution Plan
16 Performance Data Schedules
17 Powers of Attorney
(1) Incorporated herein by reference to Post Effective Amendment No. 13 to
Registration Statement No. 2-98560/811-4334.
(2) Incorporated herein by reference to Registration Statement No.
2-98560/811-4334.
(3) Incorporated herein by reference to Post-Effective Amendment No. 8 to
Registrant Statement No. 2-98560/811-4334.
(4) Incorporated herein by reference to Registrant's Rule 24f-2 Notice filed
January 28, 1994.
(5) Incorporated herein by reference to Post-Effective Amendment No. 66 to
Registration Statement No. 2-10527/811-96.
<PAGE>
Exhibit 99.24(b)(2)
KEYSTONE TAX EXEMPT TRUST
BY-LAWS
ARTICLE 1.
Declaration of Trust and Principal Office
1.1 Declaration of Trust. These By-laws are adopted pursuant to and are subject
to the terms of the Declaration of Trust dated June 20, 1985 ("Declaration of
Trust") of KEYSTONE TAX EXEMPT TRUST ("Trust").
1.2 Principal Office of the Fund. The principal office of the fund shall be
located in Boston, Massachusetts.
ARTICLE 2.
Meetings of Shareholders
2.1 Meeting. The meeting of shareholders specified in Article V, Section 2 of
the Declaration of Trust shall be held for the purpose of electing Trustees and
for such other purposes as may be prescribed by law, by the Declaration of Trust
or hereby or as may be specified by the Trustees. If the meeting is not held, a
special meeting may be held in lieu thereof or may be called by Trustees as
provided in Article V, Section 2 of the Declaration of Trust and any business
transacted or election held at the special meeting shall have the same effect as
if transacted or election held at the meeting.
2.2 Special Meetings. Special meetings may be called by the Trustees and shall
be called by the Trustees upon the written request of shareholders owning at
least one quarter of the outstanding shares entitled to vote. Every such request
shall state the purpose of the meeting and shall be delivered at the principal
office of the Fund addressed to the Trustees of the Fund, and in case the
Trustees shall refuse or fail, for fourteen (14) days after the request shall
have been so delivered, to call such special meeting to be held within sixty
(60) days after the delivery of the request, the same may be called by the
person or persons signing such request or by any three of them.
2.3 Business to be Transacted. At any meeting or special meeting of
shareholders, no business shall be transacted other than such as is referred to
in the notice of the meeting.
2.4 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 prepaid,
addressed to him at his address specified in the records of the Trustee or any
transfer or shareholder servicing agent. 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 Secretary or any transfer or shareholder servicing
agent. 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 a time, which shall be not more than sixty
(60) days before the date of any meeting of shareholders or the date for the
payment of any dividend or of any other distribution, 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, provided that notice of the first regular meeting following any such
determination shall be given to absent Trustees.
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 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 Declaration of Trust or any applicable law.
3.6 Participation by Conference Telephone. The Trustees may participate in a
meeting of the Trustees by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time. 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.
Officers
4.1 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.
4.2 Tenure. Each officer and each agent shall hold office at the pleasure of the
Trustees.
4.3 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 Declaration of Trust, such duties and powers as are commonly incident to the
office occupied by him as if the Fund were organized as a Massachusetts business
corporation and such other duties and powers as the Trustees may from time to
time designate.
4.4 President. Unless the Trustees otherwise provide, the President shall
preside at all meetings of shareholders and of the Trustees. The President shall
be the chief executive officer.
4.5 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 Declaration of Trust 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.
4.6 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
proceeding in the aforesaid books.
4.7 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 5.
Committees
5.1 General. The Trustees may appoint from their number an executive committee
of not less than three 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.
5.2 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 a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
ARTICLE 6.
Fiscal Year and Seal
6.1 Fiscal Year. The fiscal year of the Fund shall end on the last day of
December in each year.
6.2 Seal. The seal of the Fund shall consist of a flat-faced die with the name
of the Fund and 1985 cut or engraved thereon.
ARTICLE 7.
Provisions Relating to the Conduct of the Fund's Business
7.1 Dealings with Affiliates. No Portfolio of the Fund shall purchase or retain
securities issued by an issuer if one or more of the holders of the securities
of such issuer or one or more of the officers or Directors of such issuer is an
officer or Trustee of the Fund or an officer or Director of any other
organization, association or corporation which is an investment adviser, as
defined in the Investment Company Act of 1940, to the Fund ("investment
adviser"), and if to the knowledge of the Fund one or more of such officers or
Trustees of the Fund or officers or Directors of any investment adviser owns
beneficially more than one half of one percent of the shares or securities of
such issuer and such officers, Trustees and Directors owning more than one half
of one percent of such shares or securities together own beneficially more than
five percent of such outstanding share or securities. Each Trustee and officer
of the Fund and each Director and officer of any investment adviser shall give
notice to the Secretary of the Fund of the identity of all issuers of which such
officer, Trustee or Director owns as much as one half of one percent of the
outstanding securities, and the Fund shall not be charged with the knowledge of
such holdings in the absence of receiving such notice if the Fund has requested
such information not less often than quarterly.
Subject to the provisions of the preceding paragraph, no officer or Trustee of
the Fund or officer or Director of any investment adviser shall deal for or on
behalf of the Fund with himself as principal or agent, or with any partnership,
association or corporation in which he has a material financial interest;
provided that the foregoing provisions shall not prevent (a) officers and
Trustees of the Fund or officers and Directors of any investment adviser from
buying, holding or selling shares in the Fund, or from being partners, officers
or Directors of or financially interested in any investment adviser or in any
corporation, firm or association which may at any time have an underwriting
contract with the Fund; (b) purchases of investments for the portfolio of the
Fund or sales of investments owned by the Fund through a securities dealer who
is, or one or more of whose partners, stockholders, officers or Directors is, an
officer or Trustee of the Fund or an officer or Director of any investment
adviser or firm which has an underwriting contract with the Fund, if such
transactions are handled in the capacity of broker only and commissions charged
to the Fund do not exceed customary brokerage charges for such services; (c)
employment of legal counsel, registrar, transfer agent, dividend disbursing
agent or custodian who is, or has a partner, stockholder, officer or Director
who is, an officer or Trustee of the Fund or an officer or Director of any
investment adviser, if only customary fees are charged for services to the Fund;
(d) sharing statistical, research and management expenses, including office hire
and services, with any other company in which an officer or Trustee of the Fund
or an officer or Director of any investment adviser is an officer, Trustee, or
Director or financially interested.
7.2 Limitation on Certain Loans. No Portfolio shall make loans to any officer,
Trustee or employee of the Fund or to any investment adviser or their respective
officers, Directors or partners or employees.
7.3 Limitation on Dealing in Securities of the Fund. Neither any organization,
association or corporation which may at any time have an exclusive distributor's
contract with the Fund (the "distributor"), nor any investment adviser to the
Fund, nor any officer or Trustee of the Fund nor any officer or Director of the
distributor or any investment adviser shall take long or short positions in
securities issued by the Fund, provided, however, that:
(a) the distributor may place orders for securities issued by the Fund
equivalent to orders received by the distributor;
(b) there shall be no limitation on the purchase of securities issued
by the Fund by any shareholder acting in such capacity;
(c) any officer or Trustee of the Fund or officer or Director of the
distributor or any investment adviser may at any time, or from time to
time, purchase from the Fund or from the distributor securities issued
by the Fund at the price available to the public or to such officer,
Trustee or Director in accordance with the effective prospectus at the
moment of such purchase or, to the extent that such person is a
securityholder, at the price available to securityholders of the Fund
generally at the moment of such purchase, no such purchase to be in
contravention of any applicable state or federal requirement;
(d) prior to the public offering of securities issued by the Fund, the
distributor or any investment adviser may at any time, or from time to
time, purchase securities issued by the Fund.
7.4 Custodian. All securities and cash owned by the Fund shall be maintained in
the custody of one or more banks or trust companies having (according to their
last published reports) not less than two million dollars ($2,000,000) aggregate
capital, surplus and undivided profits (which banks or trust companies are
hereinafter referred to as a "custodian").
The Fund shall upon the resignation or inability to serve of a custodian or upon
change of the custodian:
(a) in the case of such resignation or inability to serve, use its best
efforts to obtain a successor custodian;
(b) require that the cash and securities owned by the Fund be delivered
directly to the successor custodian; and,
(c) in the event that no successor custodian can be found, submit to
the shareholders, before permitting delivery of the cash and securities
owned by the Fund otherwise than to a successor custodian, the
questions whether or not the Fund shall be liquidated or shall function
without a custodian.
Notwithstanding the foregoing, but subject to such rules, regulations and
orders, if any, as the Securities and Exchange Commission may adopt, the Fund
may, or may permit the custodian to, deposit all or any part of the securities
owned by the Fund in a system for the central handling of securities established
by a national securities exchange or national securities association registered
with said Commission under the Securities Exchange Act of 1934, or such other
person as may be permitted by said Commission, pursuant to which system all
securities of any particular class or series of any issue deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry, without physical delivery of such securities.
7.5 Limitations on Investments. No Portfolio of the Fund shall purchase for its
portfolio the securities of any issuer if immediately after such purchase and as
a result thereof more than five percent (5%) of its total assets value at their
current market value would be invested in the securities of any one issuer,
except that up to twenty-five percent (25%) of its total assets valued in the
manner set forth above may be invested without regard to this limitation.
No Portfolio shall purchase for its portfolio the securities of any issuer if as
a result of such purchase the Fund would thereupon hold more than ten percent
(10%) of the outstanding voting securities (as that term is defined Section
2(a)(42) of the Investment Company Act of 1940) of any issuer. The provisions of
this paragraph and the preceding paragraph shall not apply to obligations issued
or guaranteed by the government of the United States of America or to
obligations of any corporation organized under a general act of Congress if such
corporation is an instrumentality of the United States.
The Portfolios shall not purchase securities on margin, except such short-term
credits as are necessary for the clearance of transactions.
7.6 Limitation on Borrowings. A Portfolio may from time to time borrow money
from banks as a temporary measure to facilitate redemptions or for extraordinary
or emergency purposes or may enter into reverse repurchase agreements, but only
in amount not to exceed ten percent (10%) of its total assets valued at their
current market value.
7.7 Limitation on Pledges and Short Sales. A Portfolio shall not pledge,
mortgage or hypothecate more than fifteen percent of its total assets valued at
their current market value, and any pledge, mortgage or hypothecation shall be
made only to secure borrowings permitted by Section 7.6 hereof.
A Portfolio shall not make short sales of securities or maintain a short
position for its account unless at all times when a short position is open, it
owns an equal amount of such securities or of securities which without the
payment of further consideration are convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the securities sold
short.
7.8 Reports to Shareholders: Distributions from Realized Gains. The Fund shall
send to each shareholder of record at least semiannually a statement of the
condition of the Fund and of the results of its operations, containing all
information required by applicable laws or regulations. Whenever the Fund pays
distributions from realized gains, such fact shall be clearly revealed to the
shareholders and the basis of calculation shall be set forth.
7.9 Underwriting Contract. The Trustees may at any time and from time to time
enter into a contract or contracts providing for the sale of shares of the Fund.
Such contract shall contain a provision that the offering price of the shares
shall not exceed Net Asset Value per Share (determined as set forth in the
Declaration of Trust) plus, if the Trustees so determine, a sales charge not to
exceed nine percent (9%) of the offering price. Any such contract may contain
such terms and conditions, not inconsistent herewith and with applicable laws
and regulations, as may be prescribed in the Declaration of Trust or these
By-laws, or as the Trustees may in their discretion determine.
ARTICLE 8.
Amendments
8.1 Amendment by Trustees or Shareholders. These By-laws may be altered, amended
or repealed at any time by vote of the shareholders. These By-laws may also be
altered, amended or repealed by vote of the Trustee, except with respect to any
provision which by law, the Declaration of Trust or these By-laws requires
action by the shareholders. Such action by the shareholders is hereby declared
necessary to amend, alter or repeal this Section 8.1 so as to increase the power
of the Trustees or reduce the power of the shareholders to amend, alter or
repeal these By-laws.
8.2 Further Amendment by the Shareholders. Any By-law so altered, amended or
repealed by the Trustees may be further altered or reinstated by the
shareholders.
<PAGE>
EXHIBIT 99.24(b)(5)(a)
INVESTMENT MANAGEMENT AGREEMENT
Agreement dated August , 1993 between KEYSTONE TAX EXEMPT TRUST, a
Massachusetts business trust organized under a Declaration of Trust dated July
27, 1993 (the "Fund"), and KEYSTONE MANAGEMENT, INC., a Nevada corporation (the
"Company").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is agreed
as follows:
1. SERVICES TO BE RENDERED BY THE COMPANY TO THE FUND.
The Company will provide investment management and other services to the
Fund as specified below.
A. In providing investment management services to the Fund, the Company will
determine from time to time what securities shall be acquired, held or disposed
of and what portion of the assets of the Fund shall be held uninvested. Should
the Board of Trustees of the Fund at any time, however, notify the Company in
writing of any portfolio transaction to be made or not to be made or any
investment policy to be followed by the Fund, the Company shall be obliged to
follow such direction or such investment policies for the period, if any,
specified in such notice or until the Company has received written notice that
such investment policy is no longer to be followed. The Company shall take, on
behalf of the Fund, all actions which it deems necessary to implement the
investment policies of the Fund, and in particular shall place all orders for
the purchase, sale or loan of portfolio securities for the Fund's account with
brokers or dealers or others selected by it, and to that end the Company is
authorized to give instructions to the custodian of the Fund's assets as to
deliveries of securities and payments of cash for the account of the Fund. In
the placement of such orders and the selection of brokers or dealers, the
Company shall conform to the Fund's policies concerning such matters as may be
from time to time determined by the Board of Trustees of the Fund or set forth
in the Fund's most recent prospectus under the Securities Act of 1933. In the
performance of these duties, the Company will use its best efforts to safeguard
and promote the welfare of the Fund. However, nothing in this agreement shall be
construed to constitute the Company as an agent of the Fund.
B. The Company, at its own expense, shall furnish to the Fund office space
in the offices of the Company or in such other place as may be agreed upon from
time to time, and all necessary office facilities, equipment and personnel for
managing the affairs of the Fund, and shall arrange, if desired by the Fund, for
members of the Company's organization to serve without salaries from the Fund as
officers and agents of the Fund.
C. At the request of the Board of Trustees of the Fund, the Company at its
own expense will provide or cause to be provided to the Fund the following
management and operating services, facilities and personnel: (a) the officers of
the Fund and each Trustee of the Fund who is an affiliated person of the Company
or any investment adviser retained by the Company as contemplated in Section 4;
(b) determination from time to time of the value of the net assets of the Fund,
the keeping of its books and records and the safekeeping of its cash, securities
and other property; (c) auditors and accountants; (d) transfer agents, dividend
disbursing agents and registrars, including checks, stationery and other
supplies for the performance of such functions; (e) insurance and membership in
trade associations; (f) share certificates representing shares of the Fund; (g)
registration and maintenance of registrations of the Fund and of its shares with
various states and with the Securities and Exchange Commission, including the
preparation and printing of prospectuses for filing with said Commission; (h)
for shareholders' and Trustees' meetings and the preparation, printing and
mailing of reports and other material to shareholders; (i) legal counsel in
connection with the Fund's existence, organization and financial structure and
relations with its shareholders, in connection with any of the foregoing items
or otherwise, and in connection with other legal matters with respect to which
the Fund may require and desire advice of legal counsel; and (j) all other
services and facilities, the expenses of which are not hereinafter specifically
assumed by the Fund, for the management of the investment and reinvestment of
the assets of the Fund, the offering and sale of the shares of the Fund and the
administration of the affairs of the Fund. The expense, charges, dues, fees and
other costs to be borne by the Company in providing or causing to be provided to
the Fund the services, facilities and personnel described in clauses (b) through
(i) are hereinafter referred to as the "Reimbursable Expenses of the Company".
The additional management and operating services, facilities and personnel
required by clauses (b) through (i), of the immediately preceding paragraph and
the performance of the same shall be paid for solely by the Company, but shall
be at all times subject to the directions, instructions and requests of the
Board of Trustees of the Fund, including, without limitation, directions as to
the identity of the person or organization providing or performing the same, the
manner of performance and the rates of fees and charges of such persons or
organizations.
D. The Fund assumes and shall pay (1) broker's commissions (which may be
higher than other brokers would charge if paid to a broker which provides
brokerage and research services to the Company or any investment adviser
retained by the Company as contemplated by Section 4 or any affiliate of either,
for use in rendering investment management, advisory or similar services to the
Fund or other clients of the Company, of such investment adviser or of any
affiliate of either); (2) issue and transfer taxes chargeable to the Fund in
connection with securities transactions to which the Fund is a party; (3) its
interest charges and all taxes and fees (not hereinabove specifically required
to be borne by the Company) payable by the Fund to federal, state or other
governmental agencies and (4) the compensation of each Trustee of the Fund who
is not an affiliated person of the Company or any investment adviser retained by
the Company as contemplated by Section 4.
E. The Company may delegate its obligation to provide all of the services
required hereunder to the Fund to an investment adviser retained by the Company
as contemplated by Section 4.
F. The services of the Company to the Fund hereunder are not to be deemed
exclusive, and the Company shall be free to render similar services to others or
to have any other business or management interests.
2. COMPENSATION TO BE PAID BY THE FUND TO THE COMPANY.
As compensation for the services, facilities and personnel which the Company
is to provide or cause to be provided pursuant to Section 1, the Fund shall pay
to the Company at the end of each calendar month (i) an amount calculated as set
forth below:
ANNUAL AGGREGATE NET ASSET VALUE
MANAGEMENT OF THE SHARES
FEE INCOME 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;
and (ii) an amount equal to the amount of the Reimbursable Expenses of the
Company accrued during such calendar month.
Any other provision of this agreement to the contrary notwithstanding, the
total monthly compensation payable to the Company shall not exceed (i) the
largest amount which would not cause the Fund's expenses to exceed the lowest
applicable expense limitation imposed as of the beginning of the fiscal year by
any statute or any regulatory authority of any jurisdiction in which shares of
the Fund are qualified for offer and sale as such limitation is set forth in the
most recent notice furnished by the Company to the Fund not later than the first
day of the fiscal year or (ii) such lower percentage limit as the Company may by
written notice to the Fund declare to be effective for such period of time as
shall be stated in the notice. For purposes of clause (i) of this paragraph,
there shall be excluded from the "Fund's expenses" any amount borne directly or
indirectly by the Fund which is permitted to be excluded from the computation of
such limitation by such statute or regulatory authority. If the Company shall
serve under this agreement for less than the whole of any calendar month, the
foregoing compensation will be prorated. The Company shall submit to the Fund
detailed statements of all Reimbursable Expenses of the Company promptly after
the end of each such calendar month. The Fund and its agents, accountants and
employees shall have the right at reasonable times during normal business hours
to inspect the books and records of the Company pertaining to such Reimbursable
Expenses of the Company.
3. PUBLIC ACCOUNTANT'S REPORT.
The Fund's books and accounts shall 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.
4. INVESTMENT ADVISER.
The Company 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 Company hereunder if such
agreement is approved as required by law. Such agreement may delegate to such
Adviser all of the Company's rights, obligations and duties hereunder.
5. INTERESTED AND AFFILIATED PERSONS.
Subject to and in accordance with the Declaration of Trust of the Fund, the
Articles of Incorporation of the Company and the governing documents of the
Adviser, it is understood that Trustees, officers, agents and shareholders of
the Fund or the Adviser are or may be interested in the Company (or any
successor thereof) as Directors and officers of the Company or its affiliates,
as stockholders of Keystone Group, Inc. or otherwise; that Directors, officers
and agents of the Company and its affiliates or stockholders of Keystone Group,
Inc. are or may be interested in the Fund or the Adviser as Trustees, Directors,
officers, shareholders or otherwise; that the Company (or any such successor) is
or may be interested in the Fund or the Adviser as shareholder, or otherwise,
and that the effect of any such adverse interests shall be governed by said
Declaration of Trust of the Fund, Articles of Incorporation of the Company and
governing documents of the Adviser.
6. TERMINATION AND AMENDMENT.
This agreement shall continue in effect until July 1, 1994, after which it
will terminate unless its continuance after said date is specifically approved
at least annually by the vote of a majority of the Trustees of the Fund who are
not interested persons of the Fund or interested persons of the Company (as
defined in the Investment Company Act of 1940) cast in person at a meeting
called for the purpose of voting on such approval; provided, however, that (1)
this agreement may at any time be terminated without the payment of any penalty
either by the vote of the Board of Trustees of the Fund or by the vote of a
majority of the outstanding voting securities of the Fund, on 60 days' written
notice to the Company, (2) this agreement shall immediately terminate in the
event of its assignment (within the meaning of the Investment Company Act of
1940), and (3) this agreement may be terminated by the Company on 90 days'
written notice to the Fund. The aforesaid requirement that continuance of this
agreement be "specifically approved at least annually" shall be construed in a
manner consistent with the Investment Company Act of 1940 and the Rules and
Regulations thereunder. Any notice under this agreement shall be given in
writing, addressed and delivered, or mailed postpaid, to the other party at any
office of such party.
This agreement may be amended at any time by mutual consent of the parties,
provided that such consent on the part of the Fund shall have been approved by
the vote of a majority of the outstanding voting securities of the Fund and by
the vote of a majority of the Trustees of the Fund who are not interested
persons of the Fund or interested persons of the Company (as defined in the
Investment Company Act of 1940) cast in person at a meeting called for the
purpose of voting on such approval.
7. LIABILITY OF THE COMPANY.
In the absence of willful misfeasance, bad faith or gross negligence on the
part of the Company, or of reckless disregard of its obligations and duties
hereunder, the Company shall not be subject to liability for any act or omission
in the course of, or connected with, rendering services hereunder. The Fund
agrees to indemnify and hold the Company harmless from all taxes, charges,
expenses, assessments, claims and liabilities (including, without limitation,
liabilities arising under the Securities Act of 1933, the Securities Exchange
Act of 1934, the Investment Company of 1940, 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 Company takes or does
or omits to take or do hereunder provided that the Company 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 Company in the performance of
its duties, or from reckless disregard by it of its obligations and duties under
this agreement.
8. DEFINITIONS.
For the purpose of this agreement (1) the words "vote of a majority of the
outstanding voting securities of the Fund" mean the affirmative vote, at a duly
held meeting of shareholders of the Fund, (a) of the holders of 67% or more of
the shares of the Fund present in person or by proxy and entitled to vote at
such meeting, if the holders or more than 50% of the outstanding shares of the
Fund are present in person or by proxy and entitled to vote at such meeting, or
(b) of the holders of more than 50% of the outstanding shares of the Fund,
whichever is less, and (2) the words "brokerage and research services" shall
have the meaning given in the Securities Exchange Act of 1934 and the Rules and
Regulations thereunder.
A copy of the Declaration of Trust of the Fund is on file with the Secretary
of The Commonwealth of Massachusetts and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Fund as Trustees and not
individually and that the obligations of this instrument are not binding upon
the Trustees or holders of Shares of the Fund individually but are binding only
upon the assets and property of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto authorized at Boston,
Massachusetts, on the day and year first above written.
KEYSTONE TAX EXEMPT TRUST
By:_________________________________
Title:
KEYSTONE MANAGEMENT, INC.
By:_________________________________
Title:
<PAGE>
EXHIBIT 99.24(b)(5)(B)
INVESTMENT ADVISORY AGREEMENT
Agreement dated August , 1993 between KEYSTONE MANAGEMENT, INC., a Nevada
corporation (the "Manager"), and KEYSTONE CUSTODIAN FUNDS, INC., a Delaware
corporation (the "Company").
WITNESSETH:
That in consideration of the mutual covenants herein contained, it is agreed
as follows:
1. SERVICES TO BE RENDERED BY THE COMPANY TO KEYSTONE TAX EXEMPT TRUST (THE
"FUND").
The Company will provide investment management and other services to the Fund
(with the exception of certain managerial and administrative services to be
provided by the Manager) as specified below.
A. In providing investment management services to the Fund, the Company will
determine from time to time what securities shall be acquired, held or disposed
of and what portion of the assets of the Fund shall be held uninvested. Should
the Board of Trustees of the Fund or the Manager at any time, however, notify
the Company in writing of any portfolio transaction to be made or not to be made
or any investment policy to be followed by the Fund, the Company shall be
obliged to follow such direction or such investment policies for the period, if
any, specified in such notice or until the Company has received written notice
that such investment policy is no longer to be followed. The Company shall take,
on behalf of the Fund, all actions which it deems necessary to implement the
investment policies of the Fund, and in particular shall place all orders for
the purchase, sale or loan of portfolio securities for the Fund's account with
brokers or dealers or others selected by it, and to that end the Company is
authorized to give instructions to the custodian of the Fund's assets as to
deliveries of securities and payments of cash for the account of the Fund. In
the placement of such orders and the selection of brokers or dealers, the
Company shall conform to the Fund's policies concerning such matters as may be
from time to time determined by the Board of Trustees of the Fund or set forth
in the Fund's most recent prospectus under the Securities Act of 1933. In the
performance of these duties, the Company will use its best efforts to safeguard
and promote the welfare of the Fund. However, nothing in this agreement shall be
construed to constitute the Company as an agent of the Fund or the Manager.
B. The Company, at its own expense, shall furnish to the Fund office space in
the offices of the Company or in such other place as may be agreed upon from
time to time, and all necessary office facilities, equipment and personnel for
managing the affairs of the Fund, and shall arrange, if desired by the Fund, for
members of the Company's organization to serve without salaries from the Fund as
officers and agents of the Fund.
C. At the request of the Board of Trustees of the Fund or the Manager, the
Company at its own expense will provide or cause to be provided to the Fund the
following management and operating services, facilities and personnel: (a) the
officers of the Fund and each Trustee of the Fund who is an affiliated person of
the Company or the Manager; (b) determination from time to time of the value of
the net assets of the Fund, the keeping of its books and records and the
safekeeping of its cash, securities and other property; (c) auditors and
accountants; (d) transfer agents, dividend disbursing agents and registrars,
including checks, stationery and other supplies for the performance of such
functions; (e) insurance and membership in trade associations; (f) share
certificates representing shares of the Fund; (g) registration and maintenance
of registrations of the Fund and of its shares with various states and with the
Securities and Exchange Commission, including the preparation and printing of
prospectuses for filing with said Commission; (h) for shareholders' and
Trustees' meetings and the preparation, printing and mailing of reports and
other material to shareholders; (i) legal counsel in connection with the Fund's
existence, organization and financial structure and relations with its
shareholders, in connection with any of the foregoing items or otherwise, and in
connection with other legal matters with respect to which the Fund may require
and desire advice of legal counsel; and (j) all other services and facilities,
the expenses of which are not hereinafter specifically assumed by the Fund, for
the management of the investment and reinvestment of the assets of the Fund, the
offering and sale of the shares of the Fund and the administration of the
affairs of the Fund. The expense, charges, dues, fees and other costs to be
borne by the Company in providing or causing to be provided to the Fund the
services, facilities and personnel described in clauses (b) through (i) are
hereinafter referred to as the "Reimbursable Expenses of the Company".
The additional management and operating services, facilities and personnel
required by clauses (b) through (i), of the immediately preceding paragraph and
the performance of the same shall be paid for solely by the Company, but shall
be at all times subject to the directions, instructions and requests of the
Board of Trustees of the Fund and the Manager, including, without limitation,
directions as to the identity of the person or organization providing or
performing the same, the manner of performance and the rates of fees and charges
of such persons or organizations.
D. The Manager represents and warrants that the Fund has assumed and agreed
to pay (1) broker's commissions (which may be higher than other brokers would
charge if paid to a broker which provides brokerage and research services to the
Company or the Manager or any affiliate of either, for use in rendering
investment management, advisory or similar services to the Fund or other clients
of the Company or the Manager, or any affiliate of either); (2) issue and
transfer taxes chargeable to the Fund in connection with securities transactions
to which the Fund is a party; (3) its interest charges and all taxes and fees
(not hereinabove specifically required to be borne by the Company or the
Manager) payable by the Fund to federal, state or other governmental agencies
and (4) the compensation of each Trustee of the Fund who is not an affiliated
person of the Company or the Manager.
E. The services of the Company to the Fund hereunder are not to be deemed
exclusive, and the Company shall be free to render similar services to others or
to have any other business or management interests.
2. COMPENSATION TO BE PAID BY THE MANAGER TO THE COMPANY.
For its services (as described in Section 1) for the preceding month, the
Company will receive on the first business day of each month a fee which is 85%
of the management fee paid by the Fund to the Manager for the preceding month.
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.
Any other provision of this agreement to the contrary notwithstanding, the
total monthly compensation payable to the Company shall not exceed (i) the
largest amount which would not cause the Fund's expenses to exceed the lowest
applicable expense limitation imposed as of the beginning of the fiscal year by
any statute or any regulatory authority of any jurisdiction in which shares of
the Fund are qualified for offer and sale as such limitation is set forth in the
most recent notice furnished by the Company to the Fund and the Manager not
later than the first day of the fiscal year or (ii) such lower percentage limit
as the Company may by written notice to the Fund and the Manager declare to be
effective for such period of time as shall be stated in the notice. For purposes
of clause (i) of this paragraph, there shall be excluded from the "Fund's
expenses" any amount borne directly or indirectly by the Fund which is permitted
to be excluded from the computation of such limitation by such statute or
regulatory authority. If the Company shall serve under this agreement for less
than the whole of any calendar month, the foregoing compensation will be
prorated. The Company shall submit to the Fund and the Manager detailed
statements of all Reimbursable Expenses of the Company promptly after the end of
each such calendar month. The Fund and the Manager and their agents, accountants
and employees shall have the right at reasonable times during normal business
hours to inspect the books and records of the Company pertaining to such
Reimbursable Expenses of the Company.
3. PUBLIC ACCOUNTANT'S REPORT.
The Manager represents and warrants that the Fund has agreed that its books
and accounts shall 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.
4. INTERESTED AND AFFILIATED PERSONS.
Subject to and in accordance with the Declaration of Trust of the Fund, the
Certificate of Incorporation of the Company and the Articles of Incorporation of
the Manager, it is understood that Trustees, Directors, officers, agents and
shareholders of the Fund or the Manager are or may be interested in the Company
(or any successor thereof) as Directors and officers of the Company or its
affiliates, as stockholders of Keystone Group, Inc. or otherwise; that
Directors, officers and agents of the Company 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 Company (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 Declaration of Trust of the Fund, Certificate of
Incorporation of the Company and Articles of Incorporation of the Manager.
5. TERMINATION AND AMENDMENT.
This agreement shall continue in effect until July 1, 1994, after which it
will terminate unless its continuance after said date is specifically approved
at least annually by the vote of a majority of the Trustees of the Fund who are
not interested persons of the Fund or interested persons of the Company or the
Manager (as defined in the Investment Company Act of 1940) cast in person at a
meeting called for the purpose of voting on such approval; provided, however,
that (1) this agreement may at any time be terminated without the payment of any
penalty by the Manager, by the vote of the Board of Trustees of the Fund or by
the vote of a majority of the outstanding voting securities of the Fund, on 60
days' written notice to the Company, (2) this agreement shall immediately
terminate in the event of its assignment (within the meaning of the Investment
Company Act of 1940), and (3) this agreement may be terminated by the Company on
90 days' written notice to the Fund and the Manager. The aforesaid requirement
that continuance of this agreement be "specifically approved at least annually"
shall be construed in a manner consistent with the Investment Company Act of
1940 and the Rules and Regulations thereunder. Any notice under this agreement
shall be given in writing, addressed and delivered, or mailed postpaid, to the
other party at any office of such party.
This agreement may be amended at any time by mutual consent of the parties,
provided that such consent on the part of the Fund shall have been approved by
the vote of a majority of the outstanding voting securities of the Fund and by
the vote of a majority of the Trustees of the Fund who are not interested
persons of the Fund or interested persons of the Company or the Manager (as
defined in the Investment Company Act of 1940) cast in person at a meeting
called for the purpose of voting on such approval.
6. LIABILITY OF THE COMPANY.
In the absence of willful misfeasance, bad faith or gross negligence on the
part of the Company, or of reckless disregard of its obligations and duties
hereunder, the Company shall not be subject to liability for any act or omission
in the course of, or connected with, rendering services hereunder. The Fund
agrees to indemnify and hold the Company harmless from all taxes, charges,
expenses, assessments, claims and liabilities (including, without limitation,
liabilities arising under the Securities Act of 1933, the Securities Exchange
Act of 1934, the Investment Company Act of 1940, 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 Company takes or does
or omits to take or do hereunder provided that the Company 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 Company in the performance of
its duties, or from reckless disregard by it of its obligations and duties under
this agreement.
7. DEFINITIONS.
For the purpose of this agreement (1) the words "vote of a majority of the
outstanding voting securities of the Fund" mean the affirmative vote, at a duly
held meeting of shareholders of the Fund, (a) of the holders of 67% or more of
the shares of the Fund present in person or by proxy and entitled to vote at
such meeting, if the holders or more than 50% of the outstanding shares of the
Fund are present in person or by proxy and entitled to vote at such meeting, or
(b) of the holders of more than 50% of the outstanding shares of the Fund,
whichever is less, and (2) the words "brokerage and research services" shall
have the meaning given in the Securities Exchange Act of 1934 and the Rules and
Regulations thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto authorized at Boston,
Massachusetts, on the day and year first above written.
KEYSTONE MANAGEMENT, INC.
By:
--------------------------------
Title:
KEYSTONE CUSTODIAN FUNDS, INC.
By:
-------------------------------
Title:
<PAGE>
Exhibit 99.24(b)(6)
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE TAX EXEMPT TRUST
AGREEMENT made this 19th day of August, 1993 by and between Keystone
Tax Exempt Trust (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 the 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 receive payments in
accordance with the 12b-1 Plan and as set forth in the then current prospectus
and/or statement of additional information of the Fund and to receive the sales
charges, including contingent deferred sales charges, as set forth in the then
current prospectus and/or statement of additional information of the Fund.
Principal Underwriter may reallow all or a part of the 12b-1 payments and the
sales charges to such brokers, dealers or other persons 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 and/or statement of
additional information 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
in 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 such 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 such term if its continuance is
specifically approved by a majority of the Trustees of the Fund and a majority
of the 12b-1 Trustees referred to in the 12b-1 Plan of the Fund ("Rule 12b-1
Directors") at least annually in accordance with the 1940 Act and the rules and
regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Rule 12b-1 Directors 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. It is expressly agreed that this Agreement is executed on behalf of
the Trustees of the Fund as Trustees and not individually and that the
obligations of this Agreement are not binding upon the Trustees or shareholders
of the Fund individually but only the assets of the Trust are bound.
14. 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 therunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE TAX EXEMPT TRUST
By:________________________
Title:
KEYSTONE DISTRIBUTORS, INC.
By:________________________
Title:
<PAGE>
EXHIBIT 99.24(b)8
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE TAX EXEMPT TRUST
AND
STATE STREET BANK AND TRUST COMPANY
Agreement made as of this 20th day of June, 1985 by and between
KEYSTONE TAX EXEMPT TRUST, a Massachusetts business trust (the "Fund"), having
its principal place of business at 99 High Street, Boston, MA 02110, and STATE
STREET BANK AND TRUST COMPANY, a Massachusetts banking corporation ("State
Street"), having its principal place of business at 225 Franklin Street Boston,
MA 02110.
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 Declaration of Trust and By-Laws, all amendments
thereto, a certified copy of the resolution of the Fund's Board of Trustees
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 its
Board of Trustees 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 safe keeping 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
any securities eld by any agent or Sub-Custodian appointed pursuant to paragrapg
6-C of Section II hereof, State Street may rely upon certificates of such agent
or Sub-Custodian as to the holdings of such agent or Sub-Custodian, 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. Deposit of Fund Assets in Securities Systems. Not withstanding
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 "Securities
System(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 book entry 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
form 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 the 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
Security 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 or expense,
including attorney's fees, resulting from use of a Security System by reason of
any negligence, misfeasance or misconduct of State Street, its agents or of any
of its employees or from any failure of State Street to enforce effectively such
rights as it may have against a Security 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 Security System or any other person which
State Street or its agents may have as a consequence of any such claim, loss,
liability 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 record of State Street (and its
agents and Sub-Custodians) 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.
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 or of such other nominee as may be mutually agreed
upon, or of any mutually accepted nominee of any agent or Sub-Custodian
appointed pursuant to the 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
or SUb-Custodian 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 instruction, exchange securities,
interim receipts or temporary securities held by it or by any agent or
Sub-Custodian appointed by it pursuant to paragraph 6-C or 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 or Sub-Custodian 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 or Sub-Custodian). State Street shall give notice as provided under
paragraph 12 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 or Sub-Custodian
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 any agent or
Sub-Custodian 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 or Sub-Custodian to act prior to any expiration date.
F. Sales. Upon receipt of proper instructions and upon receipt of
full payment therefore, 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 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 instruction, 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 State Street that same day. In the event
existing "street delivery" custom is modified, State Street shall obtain
authorization from the Board of Trustees of the Fund prior to any use of such
modified "street delivery" custom.
J. Release of Securities for Use as Collateral. Upon receipt of
proper instructions and subject to the Declaration of Trust, 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, Notice, 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 or Sub-Custodians
shall not vote upon any other 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 non-discretionary
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 17f-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 Trustees of the Fund, 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 connections 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 letter, any written responses thereto, and memoranda of all
oral responses thereto and to telephonic demands, and await proper instruction;
State Street 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 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
Declaration of Trust and By-Laws, as amended.
D. Dividends and Distributions. Upon receipt of proper instructions,
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
Declaration of Trust and By-Laws, as amended, and applicable resolutions of the
Board of Trustees of the Fund pursuant thereto, make funds available for payment
to shareholders who have delivered to the Transfer Agent a request for
redemption of their shares by the Fund pursuant to such Declaration of Trust, as
amended.
In connection with the redemption of shares of the Fund pursuant to
the Fund's Declaration of Trust and By-Laws, 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 its expenses, including without limitation,
interest, taxes and fees or reimbursement to State Street or to the Fund's
Investment Advisor for their payment of any such expenses.
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 under any other law or
administrative rules or procedures which my 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 N-SAR 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 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 the
Fund's Trustees or by one or more person or persons as the Fund's Trustees shall
have from time to time authorized to give the particular class of instructions
for different purposes. Different persons may be authorized to give instructions
for different purposes. A copy of a resolution or action of the Trustees
certified by the secretary or an assistant secretary of the Fund may be received
and accepted by State Street as conclusive evidence of the instruction of the
Fund's Trustees 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 State Street
reasonably believes them to have been given by a person authorized by the
Trustees to give such oral instructions with respect to the class of instruction
involved. 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 Declaration of Trust 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 provision of the Declaration of Trust of the Fund, as
amended, or resolutions or proceedings of the Trustees of the Fund.
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 in the event that the Fund so elects it will
so notify State Street, 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 disbursement, expenses and
charges, excluding salaries and usual overhead expenses, as set forth in
Schedule A.
C. Appointment of Agent and Sub-Custodians. State Street, as
Custodian, may appoint (and may remove), only in compliance with the terms and
conditions of the Fund's Declaration of Trust and By-Laws, as amended, any other
bank, trust company or responsible commercial agent as its agent or
Sub-Custodian 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 or Sub-Custodian 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 the Fund's
Trustees, the secretary or an assistant secretary of the Fund or any other
person expressly authorized by the Trustees of the Fund.
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 Trustees of, attorneys for, auditors employed by the Fund or any other
person as the Fund's Trustees 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 specified in the attached Exhibit A. Such compensation
shall remain fixed until December 31, 1987, unless this Agreement is terminated
as provided in Section 8A.
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 the Fund's Trustees 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 Declaration of Trust of the Fund, as
amended; 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
Declaration of Trust and By-Laws 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 the inability of
State Street 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 Trustees of
the Fund in accordance with the Fund's Declaration of Trust, 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 the Fund's Declaration of Trust and By-Laws, 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 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
Declaration of Trust 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 the
Fund's Trustees 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.
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 State Street upon surrender to State Street of his 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 that 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. State Street 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 KEYSTONE TAX EXEMPT TRUST, 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 the Fund's Trustees, officers or employees
shall be personally liable hereunder, but only the assets of the Fund shall be
bound.
14. This Agreement shall be binding upon and shall inure to the benefit
of the Fund and State Street and their respective successors or assigns.
15. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
16. A copy of the Declaration of Fund of the Fund is on file with the
Secretary of the Commonwealth of Massachusetts and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Fund as trustees
and not individually and that the obligations of this instrument are not binding
upon the Trustees or holders of shares of the Fund individually but are binding
only upon the assets and property of the Fund.
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 TAX EXEMPT TRUST
_______________________________ By:_______________________________
President
ATTEST: STATE STREET BANK AND TRUST COMPANY
_______________________________ By:_______________________________
Vice President
<PAGE>
FIRST
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE TAX EXEMPT TRUST
AND
STATE STREET BANK AND TRUST COMPANY
This First Amendment to the Custodian, Fund Accounting and Recordkeeping
Agreement by and between KEYSTONE TAX EXEMPT TRUST ("Fund") and STATE STREET
BANK AND TRUST COMPANY ("State Street"), dated June 20, 1985 ("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 TAX EXEMPT TRUST
______________________________ By:_______________________
ATTEST: STATE STREET BANK AND TRUST
COMPANY
______________________________ By:_______________________
<PAGE>
SECOND
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE TAX EXEMPT TRUST
AND
STATE STREET BANK AND TRUST COMPANY
This Second Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE TAX EXEMPT TRUST ("Fund") and
STATE STREET BANK AND TRUST COMPANY ("State Street"), dated June 20, 1985 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 Paragraphs 7 and 8:
" 7. Lien on Assets. If the Fund requires State Street to advance cash
or securities for any purpose or in the event that State Street or its
nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of
this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any
property at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay State Street promptly, State
Street shall be entitled to utilize available cash and to dispose of the
Fund assets to the extent necessary to obtain reimbursement; provided,
however, that the total value of any property of any Portfolio of the
Fund which at any time is security for any payment by State Street
hereunder shall not exceed 15% of such Portfolio's total net asset
value.
8. 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 TAX EXEMPT TRUST
_______________________ By:______________________
ATTEST: STATE STREET BANK AND
TRUST COMPANY
By:
_______________________ Vice President
<PAGE>
THIRD
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE TAX EXEMPT TRUST
AND
STATE STREET BANK AND TRUST COMPANY
This Third Amendment to the Custodian, Fund Accounting and Recordkeeping
Agreement by and between KEYSTONE TAX EXEMPT TRUST ("Fund") and STATE STREET
BANK AND TRUST COMPANY ("State Street"), dated June 20, 1985 and amended through
January 1, 1989 ("Agreement"), is made by and between the Fund and State Street
as of February __, 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 TAX EXEMPT TRUST
_____________________________ By:
ATTEST: STATE STREET BANK AND
TRUST COMPANY
______________________________ By:
Vice President
<PAGE>
FOURTH
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE TAX EXEMPT TRUST
AND
STATE STREET BANK AND TRUST COMPANY
This Fourth Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE TAX EXEMPT TRUST, a
Massachusetts business trust organized and existing under the laws of the
Commonwealth of Massachusetts 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 June 20, 1985, 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 _____ day of
February, 1990.
ATTEST: KEYSTONE TAX EXEMPT TRUST
By: By:
ATTEST: STATE STREET BANK AND TRUST COMPANY
By: By:
Assistant Secretary Vice President
<PAGE>
EXHIBIT 24(b)(11)
CONSENT OF INDEPENDENT AUDITORS
To the Trustees and Shareholders
of Keystone Tax Exempt Trust
We consent to the use of our Report dated January 6 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
March , 1995
<PAGE>
EXHIBIT 24(b)(15)
DISTRIBUTION PLAN OF KEYSTONE TAX EXEMPT TRUST
SECTION 1. Keystone Tax Exempt Trust (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 are not "interested persons" of the Fund (as defined in the 1940 Act) 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.
#1016048F
<PAGE>
EXHIBIT 99.24(b)(16)
<TABLE>
<CAPTION>
TET MTD YTD ONE YEAR THREE YEAR THREE YEAR
30-Nov-94 TOTAL RETURN COMPOUNDED
with cdsc N/A -11.53% -9.73% 9.57% 3.09%
4 -1.92% -8.94% -7.10% 10.46% 3.37%
<S> <C> <C> <C> <C> <C>
Beg dates 31-Oct-94 31-Dec-93 30-Nov-93 29-Nov-91 29-Nov-91
Beg Value (no load) 18,905 20,360 19,958 16,785 16,785
End Value (W/O CDSC) 18,541 18,541 18,541 18,541 18,541
End Value (with cdsc) 18,013 18,015 18,391 18,391
beg nav 9.97 11.25 11.08 10.92 10.92
end nav 9.73 9.73 9.73 9.73 9.73
shares originally purchased 1,896.16 1,809.80 1,801.25 1,537.13 1,537.13
TIME 3
<CAPTION>
TET FIVE YEAR FIVE YEAR INCEPTION INCEPTION
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
with cdsc 26.79% 4.86% 85.41% 6.98%
26.79% 4.86% 85.41% 6.98%
<S> <C> <C> <C> <C>
Beg dates 30-Nov-89 30-Nov-89 07-Oct-85 07-Oct-85
Beg Value (no load) 14,623 14,623 10,000 10,000
End Value (W/O CDSC) 18,541 18,541 18,541 18,541
End Value (with cdsc) 18,541 18,540.933999 18,541 18,540.933999
beg nav 10.90 10.9 10.00 10
end nav 9.73 9.73 9.73 9.73
shares originally purchased 1,341.54 1,341.54 1,000.00 1,000.00
TIME 5 9.1478494624
</TABLE>
<PAGE>
FUND #: 4261 SEC STANDARDIZED ADVERTISING YIELD
FUND NAME: KEYSTONE TAX EXEMPT TRUST
PRICING DATE 22-Nov-94
========= TOTAL INCOME FOR PERIOD 3,970,394.38
TOTAL EXPENSES FOR PERIOD 962,191.60
30 DAY YTM 5.41934% AVERAGE SHARES OUTSTANDING 70,165,071.173
======== LAST PRICE DURING PERIOD 9.60
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PRICE OID MORTGAGE PAYDOWN GAIN/LOSS ST FIXED ST VAR LONG TERM TOTAL
DATE INCOME INCOME ADJ ADJ INCOME INCOME INCOME INCOME
125,406 0 0 0 97,033 0 3,747,955 3,970,394
0.22834% 0.00000% 0.00000% 0.00000% 0.17670% 0.00000% 6.73361%
------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
24-Oct-94 4248.83 1946.74 126337.12 132,532.69
25-Oct-94 4248.83 2276.2 126731.6 133,256.63
26-Oct-94 4248.83 2197.43 126587.65 133,033.91
27-Oct-94 4248.83 2325.01 126567.63 133,141.47
28-Oct-94 4248.83 2302.43 126736.25 133,287.51
29-Oct-94 4248.83 2302.43 126736.25 133,287.51
30-Oct-94 4248.83 2302.43 126736.25 133,287.51
31-Oct-94 4248.83 2188.88 127263.38 133,701.09
01-Nov-94 4248.83 1692.64 124262.78 130,204.25
02-Nov-94 4248.83 3150.56 125211.19 132,610.58
03-Nov-94 4248.83 3706.21 125050.25 133,005.29
04-Nov-94 4248.83 3602.68 125152.55 133,004.06
05-Nov-94 4248.83 3602.68 125152.55 133,004.06
06-Nov-94 4248.83 3602.68 125152.55 133,004.06
07-Nov-94 4120.17 3175 123384.69 130,679.86
08-Nov-94 4120.17 3311.35 124393.4 131,824.92
09-Nov-94 4120.17 3546.51 125034.46 132,701.14
10-Nov-94 4120.17 3212.08 124837.08 132,169.33
11-Nov-94 4120.17 3141.39 124952.16 132,213.72
12-Nov-94 4120.17 3141.39 124952.16 132,213.72
13-Nov-94 4120.17 3141.39 124952.16 132,213.72
14-Nov-94 4120.17 3294.91 125188.27 132,603.35
15-Nov-94 4120.17 3163.62 125011.23 132,295.02
16-Nov-94 4120.17 3288.09 124282.03 131,690.29
17-Nov-94 4120.17 4029.42 122683.07 130,832.66
18-Nov-94 4120.17 4683.44 122684.75 131,488.36
19-Nov-94 4120.17 4683.44 122684.75 131,488.36
20-Nov-94 4120.17 4683.44 122684.75 131,488.36
21-Nov-94 4120.17 4704.22 122798.3 131,622.69
22-Nov-94 4120.17 4634.1 123753.99 132,508.26
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
30 DAY 30 DAY 30 DAY
PRICE 12B-1 DAILY DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE EXPENSES CDSC EXPENSES SHARES PRICE INCOME EXPENSES SHARES
452,906 (10,822) 962,192
-0.80664%
------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
24-Oct-94 43972.62 (440.31) 71244.61 70591493.17 10.08 132,532.69 71,244.61 70,591,493.17
25-Oct-94 14598.77 (247.16) 32258.3 70546165.341 10.01 265,789.32 103,502.91 141,137,658.51
26-Oct-94 14496.32 (1,200.03) 31124.71 70490516.186 10 398,823.23 134,627.62 211,628,174.70
27-Oct-94 14464.61 (833.06) 31437.93 70434615.832 9.98 531,964.70 166,065.55 282,062,790.53
28-Oct-94 14416.77 218.67 19448.86 70361300.037 9.97 665,252.21 185,514.41 352,424,090.57
29-Oct-94 0 0.00 19448.86 70361300.037 9.97 798,539.72 204,963.27 422,785,390.60
30-Oct-94 0 0.00 19448.86 70361300.037 9.97 931,827.23 224,412.13 493,146,690.64
31-Oct-94 43212.78 (449.21) 70125.12 70355981.361 4 1,065,528.32 294,537.25 563,502,672.00
01-Nov-94 14394.9 (9.99) 31380.38 70576671.756 9.91 1,195,732.57 325,917.63 634,079,343.76
02-Nov-94 14351.12 (741.71) 30574.11 70513807.59 9.84 1,328,343.15 356,491.74 704,593,151.35
03-Nov-94 14244.04 (33.26) 31123.96 70370580.89 9.83 1,461,348.44 387,615.70 774,963,732.24
04-Nov-94 14186.25 (1,048.58) 18097.53 70308827.799 9.78 1,594,352.50 405,713.23 845,272,560.04
05-Nov-94 0 0.00 18097.53 70308827.799 9.78 1,727,356.56 423,810.76 915,581,387.84
06-Nov-94 0 0.00 18097.53 70308827.799 9.78 1,860,360.62 441,908.29 985,890,215.63
07-Nov-94 42333.21 (548.59) 67997.65 70239025.455 4 1,991,040.48 509,905.94 1,056,129,241.09
08-Nov-94 14015.23 (1,267.31) 29478.55 70144883.23 9.7 2,122,865.40 539,384.49 1,126,274,124.32
09-Nov-94 13962.46 (449.39) 30235.55 70062199.006 9.73 2,255,566.54 569,620.04 1,196,336,323.33
10-Nov-94 14001.88 (18.87) 30720.03 70017138.291 9.74 2,387,735.87 600,340.07 1,266,353,461.62
11-Nov-94 13997.61 (462.95) 18133.73 70016823.408 9.68 2,519,949.59 618,473.80 1,336,370,285.02
12-Nov-94 0 0.00 18133.73 70016823.408 9.68 2,652,163.31 636,607.53 1,406,387,108.43
13-Nov-94 0 0.00 18133.73 70016823.408 9.68 2,784,377.03 654,741.26 1,476,403,931.84
14-Nov-94 41728.83 (675.44) 64748.69 69981403.229 9.69 2,916,980.38 719,489.95 1,546,385,335.07
15-Nov-94 13915.8 (185.71) 32674.69 69942074.012 9.71 3,049,275.40 752,164.64 1,616,327,409.08
16-Nov-94 13930.5 (38.43) 30595.84 69903537.291 9.68 3,180,965.69 782,760.48 1,686,230,946.37
17-Nov-94 13865.03 (615.79) 29869.36 69868976.53 9.64 3,311,798.35 812,629.84 1,756,099,922.90
18-Nov-94 13786.21 (104.19) 18108.57 69810928.086 9.62 3,443,286.71 830,738.41 1,825,910,850.99
19-Nov-94 0 0.00 18108.57 69810928.086 9.62 3,574,775.07 848,846.98 1,895,721,779.07
20-Nov-94 0 0.00 18108.57 69810928.086 9.62 3,706,263.43 866,955.55 1,965,532,707.16
21-Nov-94 41301.87 (473.97) 66344.75 69737513.259 9.6 3,837,886.12 933,300.30 2,035,270,220.42
22-Nov-94 13729.09 (1,197.07) 28891.3 69681914.779 9.6 3,970,394.38 962,191.60 2,104,952,135.20
</TABLE>
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone Tax Exempt Trust
Calculation Period: 30 days ended November 30, 1994
Yield: 5.49%
The Keystone Tax Exempt Trust intends to advertise tax equivalent yield
based on the yield of the Fund over a 30-day period. The calculation includes
the tax equivalent yield from an investment which is exempt from federal taxes.
Calculation below assumes:
Joint Return, 28% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.28
----
0.72
30 day yield 5.49% = 8.00% Federal Tax Equivalent Yield
-----
0.72
<PAGE>
EXHIBIT 99.24(b)(17)
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/George S. Bissell
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chief Executive Officer and for
which Keystone Custodian Funds, Inc. serves as Adviser or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and in my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Director/Trustee,
President and Chief
Executive Officer
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director, Trustee or officer and for which Keystone
Custodian Funds, Inc. serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and in my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Kevin J. Morrissey
Kevin J. Morrissey
Treasurer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Frederick Amling
Frederick Amling
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles A. Austin III
Charles A. Austin III
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Edwin D. Campbell
Edwin D. Campbell
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles F. Chapin
Charles F. Chapin
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ K. Dun Gifford
K. Dun Gifford
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Leroy Keith, Jr.
Leroy Keith, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ F. Ray Keyser, Jr.
F. Ray Keyser, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ David M. Richardson
David M. Richardson
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Richard J. Shima
Richard J. Shima
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/Andrew J. Simons
Andrew J. Simons
Director/Trustee
Dated: December 14, 1994
<TABLE> <S> <C>
<PAGE>
<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>
<CIK> 0000771648
<NAME> KEYSTONE TAX EXEMPT TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 700225963
<INVESTMENTS-AT-VALUE> 676520986
<RECEIVABLES> 23257571
<ASSETS-OTHER> 105401
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 699883958
<PAYABLE-FOR-SECURITIES> 19094689
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4098221
<TOTAL-LIABILITIES> 23192910
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 720027580
<SHARES-COMMON-STOCK> 69520715
<SHARES-COMMON-PRIOR> 73484746
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2350752)
<ACCUMULATED-NET-GAINS> (17280803)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (23704977)
<NET-ASSETS> 676691048
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 48654505
<OTHER-INCOME> 0
<EXPENSES-NET> 12673086
<NET-INVESTMENT-INCOME> 35981419
<REALIZED-GAINS-CURRENT> (17270498)
<APPREC-INCREASE-CURRENT> (73476043)
<NET-CHANGE-FROM-OPS> (54765122)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (42995009)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 109096368
<NUMBER-OF-SHARES-REDEEMED> (171235006)
<SHARES-REINVESTED> 22264022
<NET-CHANGE-IN-ASSETS> (39874616)
<ACCUMULATED-NII-PRIOR> 1004034
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (6236120)
<GROSS-ADVISORY-FEES> 3641696
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12673086
<AVERAGE-NET-ASSETS> 768065818
<PER-SHARE-NAV-BEGIN> 11.08
<PER-SHARE-NII> 0.49
<PER-SHARE-GAIN-APPREC> (1.25)
<PER-SHARE-DIVIDEND> (0.59)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.73
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
