<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 1995
File Nos. 2-81691
811-2303
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. 19 X
---- ---
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
---- ---
Amendment No. 17 X
---- ---
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 338-3200
Rosemary D. Van Antwerp, Esq., 200 Berkeley Street,
Boston, MA 02116-5034
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
---
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 the Registrant's last
fiscal year was filed April 26, 1995.
<PAGE>
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 19
to REGISTRATION STATEMENT
This Post-Effective Amendment No. 19 to Registrant's Registration Statement No.
2-81691/811-2303 consists of the following pages, items of information and
documents:
The Facing Sheet
The Contents Page
The Cross Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C
PART C - OTHER INFORMATION - ITEM 24(a) and 24(b)
Financial Statements
Independent Auditors' Report
Listing of Exhibits
PART C - OTHER INFORMATION - ITEMS 25-32 - AND SIGNATURE PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
Cross-Reference Sheet pursuant to Rules 404 and 495 under the Securities Act of
1933.
Items in
Part A of
Form N-1A Prospectus Caption
1 Cover Page
2 Fee Table
3 Financial Highlights
4 Cover Page
The Fund
Investment Objectives 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 PRECIOUS METALS HOLDINGS, INC.
Cross-Reference Sheet continued.
Items in
Part B of
Form N-1A Statement of Additional Information Caption
13 The Fund
Investment Objectives and Policies
Investment Restrictions
Brokerage
Appendix
14 Directors and Officers
15 Additional Information
16 Investment Adviser
Subadviser/Consultant
Principal Underwriter
Distribution Plan
Sales Charges
Additional Information
17 Brokerage
18 Not applicable (see Part A, Fund Shares)
19 Valuation of Securities
Distribution Plan
20 Distributions and Taxes
21 Principal Underwriter
22 Standardized Total Return and Yield Quotations
23 Financial Statements
<PAGE>
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
PART A
PROSPECTUS
<PAGE>
- ------------------------------------------------------------------------------
PROSPECTUS JUNE 30, 1995
- ------------------------------------------------------------------------------
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
200 BERKELEY STREET, BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
- ------------------------------------------------------------------------------
Keystone Precious Metals Holdings, Inc. (the "Fund") is a mutual fund that
seeks long-term capital appreciation while protecting the purchasing power of
shareholders' capital. Obtaining current income is a secondary objective.
The Fund invests primarily in common stocks of established companies directly
or indirectly engaged in mining, processing or dealing in gold or other precious
metals and minerals.
Your purchase payment is fully invested. There is no sales charge when you buy
the Fund's shares. The Fund may, however, impose a deferred sales charge, which
declines from 4% to 1%, if you redeem your shares within four calendar years of
purchase.
The Fund has adopted a Distribution Plan (the "Distribution Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act") under which
it bears some of the costs of selling its shares to the public.
This prospectus sets forth concisely the information about the Fund that you
should know before investing. Please read it and retain it for future reference.
Additional information about the Fund is contained in a statement of
additional information dated June 30, 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.
<TABLE>
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<CAPTION>
Page Page
<S> <C> <C>
Fee Table .................................. 2 How to Buy Shares ...................... 10
Financial Highlights ....................... 3 Distribution Plan ...................... 11
The Fund ................................... 4 How to Redeem Shares ................... 13
Investment Objectives and Policies ......... 4 Shareholder Services ................... 15
Investment Restrictions .................... 5 Performance Data ....................... 16
Risk Factors ............................... 5 Fund Shares ............................ 17
Pricing Shares ............................. 6 Additional Information ................. 17
Dividends and Taxes ........................ 7 Additional Investment Information ..... (i)
Fund Management and Expenses ............... 8
</TABLE>
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
<PAGE>
FEE TABLE
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
The purpose of the fee table is to assist investors in understanding the
costs and expenses that an investor in the Fund will bear directly or
indirectly. For more complete descriptions of the various costs and expenses,
see the following sections of this prospectus: "Fund Management and Expenses";
"How to Buy Shares"; "Distribution Plan" and "Shareholder Services."
SHAREHOLDER TRANSACTION EXPENSES
Contingent Deferred Sales Charge(1) .................... 4.00%
(as a percentage of the lesser of total
cost or net asset value of shares redeemed)
Exchange Fee(2) ....................................... $10.00
(per exchange)
ANNUAL FUND OPERATING EXPENSES(3)
(as a percentage of average net assets)
Management Fee ......................................... 0.68%
12b-1 Fee(4) ........................................... 1.00%
Other Expenses ......................................... 0.65%
-----
Total Fund Operating Expenses .......................... 2.33%
=====
EXAMPLE(5)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
You would pay the following expenses
on a $1,000 investment, assuming
(1) 5% annual return and (2)
redemption at the end of
each period $64 $93 $125 $267
You would pay the following expenses
on the same investment, assuming
no redemption $24 $73 $125 $267
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ---------
(1) The deferred sales charge declines from 4% to 1% of amounts redeemed within
four calendar years after purchase. No deferred sales charge is imposed on
amounts redeemed thereafter.
(2) There is no fee for exchange orders received by the Fund directly from a
shareholder over the Keystone Automated Response Line ("KARL"). (For a
description of KARL, see "Shareholder Services".)
(3) Expense ratios are for the Fund's fiscal year ended February 28, 1995.
(4) Long-term shareholders may pay more than the economic equivalent of the
maximum front end sales charge permitted by rules adopted by the National
Association of Securities Dealers, Inc. ("NASD").
(5) The Securities and Exchange Commission requires use of a 5% annual return
figure for purposes of this example. Actual return for the Fund may be
greater or less than 5%.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
(For a share outstanding throughout the year)
The following table contains significant financial information with respect to
the Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the auditors' report, in the Fund's Annual Report. The
Fund's financial statements, related notes, and auditors' report are included in
the statement of additional information. Additional information about the Fund's
performance is contained in its Annual Report, which will be made available upon
request and without charge.
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------------------------------------------
FEB.
FEB. 28, FEB. 28, FEB. 28, FEB. 29, FEB. 28, FEB. 28, FEB. 28, 29, FEB. 28, FEB. 28,
1995<F1> 1994<F1> 1993<F1> 1992<F1> 1991<F1> 1990<F1> 1989<F1> 1988<F1> 1987 1986
--------- -------- -------- -------- -------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $25.09 $14.38 $15.37 $14.22 $19.15 $16.82 $15.50 $17.31 $12.80 $12.21
Income From Investment
Operations
Investment Income
(Loss) -- Net (0.13) (0.17) (0.12) (0.02) -0- 0.06 0.05 (0.01) 0.25 0.34
Realized and
Unrealized Gains
(Losses) on
Investments -- Net (5.54) 10.88 (0.76) 1.30 (4.61) 2.27 1.59 (0.17) 4.85 1.10
Commissions Paid on
Fund
Share Sales -- Net <F2> -0- -0- -0- -0- -0- -0- -0- -0- (0.14) (0.11)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations (5.67) 10.71 (0.88) 1.28 (4.61) 2.33 1.64 (0.18) 4.96 1.33
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions From:
Investment Income --
Net (0.12) -0- -0- -0- (0.06) -0- (0.12) (0.41) (0.37) (0.29)
Distributions in
Excess of Investment
Income -- Net <F3> -0- -0- (0.11) (0.13) (0.26) -0- -0- -0- -0- -0-
Net Realized Capital
Gains -0- -0- -0- -0- -0- -0- (0.20) (1.22) (0.08) (0.45)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions (0.12) -0- (0.11) (0.13) (0.32) -0- (0.32) (1.63) (0.45) (0.74)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value: End
of Year $19.30 $25.09 $14.38 $15.37 $14.22 $19.15 $16.82 $15.50 $17.31 $12.80
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN <F4> (22.70%) 74.48% (5.74%) 9.07% (24.37%) 13.85% 10.64% (2.86%) 40.12% 10.72%
RATIOS/SUPPLEMENTAL DATA
Ratios to Average Net Assets:
Operating and
Management Expenses 2.33% 2.34% 2.83% 2.70% 2.76% 2.20% 1.68% 1.84% 1.41% 1.44%
Investment Income
(Loss) -- Net (0.54%) (0.75%) (0.86%) (0.14%) (0.02%) 0.32% 0.28% (0.05%) 1.98% 3.17%
Portfolio Turnover
Rate 75% 73% 58% 53% 68% 95% 82% 62% 89% 42%
Net Assets, End of
Year (thousands) $171,193 $200,489 $114,364 $131,356 $150,200 $195,837 $222,079 $222,646 $98,433 $63,929
- -----------
<FN>
<F1> Calculation based on average shares outstanding.
<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 Distribution Plans be treated as operating expenses rather than capital charges.
Accordingly, beginning with the year ended February 29, 1988, the Fund's financial statements reflect 12b-1 Distribution Plan
expenses (i.e., shareholder service fees plus commissions paid net of deferred sales charges received by the Fund) as a
component of net investment income.
<F3> Effective March 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 net investment income (or tax basis net income on a temporary basis) are presented as
"Distributions in excess of net 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 realized capital
gains." For the fiscal years ended February 28, 1993, February 29, 1992, and February 28, 1991, distributions in excess of
book basis net income were charged to paid-in capital.
<F4> Excluding applicable sales charges.
</TABLE>
<PAGE>
- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------
The Fund (formerly named Precious Metals Holdings, Inc.) is an open-end,
diversified management investment company, commonly known as a mutual fund. The
Fund was incorporated in Delaware in 1972 and began operating in 1974. In 1984,
the Fund became a member of the Keystone Investments Family of Funds. The Fund
is one of thirty funds managed or advised by Keystone Investment Management
Company (formerly named Keystone Custodian Funds, Inc.) ("Keystone"), the Fund's
investment adviser.
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- ------------------------------------------------------------------------------
The Fund's primary investment objective is to provide shareholders with
long-term capital appreciation and with protection of the purchasing power of
their capital. Obtaining current income is a secondary objective.
The Fund pursues its objectives by investing in common stocks of companies
that are engaged in, or which receive at least half of their revenue from other
companies engaged in, mining, processing or dealing in gold or other precious
metals and minerals, such as silver, platinum, palladium and diamonds. A company
will be considered engaged in a business or an activity if it derives at least
50% of its assets, revenues and/or operating earnings from that business or
activity. The Fund's policy is to invest at least 80% of its assets in such
securities. However, when deemed appropriate by the Fund's investment adviser,
the Fund may invest up to 100% of its assets in cash, cash equivalents and
United States ("U.S.") government securities and repurchase agreements for
temporary, defensive purposes. The Fund may not change this policy or its
objectives without the approval of a majority (as defined in the Investment
Company Act of 1940 ("1940 Act") of the Fund's outstanding shares.
The Fund "concentrates" (for purposes of the 1940 Act) its assets in
securities related to mining, processing or dealing in gold or other precious
metals and minerals referred to above, which means that at least 25% of its
assets will be invested in the securities of these industries.
Currently, the Fund also has a policy, which it may change without the
approval of a majority of the Fund's outstanding shares, of investing a
substantial part of its assets in companies or foreign issuers that operate in
the Republic of South Africa, the principal location of the known free-world
gold ore reserves. The Fund generally makes such investments by purchasing
American Depositary Receipts, which are negotiable certificates issued by a U.S.
bank representing the right to receive securities of a foreign issuer deposited
in that bank or a foreign correspondent bank.
While the Fund does not invest directly in precious metals and minerals, it
may invest up to 25% of its total assets in common or preferred stock of
wholly-owned subsidiaries that do make such investments. Investments in metals
and minerals do not generate yields, but a subsidiary may realize capital gains
from the sale of metals and minerals and pay dividends to the Fund from such
gains. Precious Metals (Bermuda) Ltd. is the Fund's only subsidiary at present.
The Fund may also enter into reverse repurchase agreements and firm commitment
agreements for securities and currencies; write covered call options and
purchase call options to close out existing positions and employ new investment
techniques involving such options; enter into currency and other financial
futures contracts and engage in related options transactions for hedging
purposes and not for speculation; employ new investment techniques with respect
to such futures contracts and related options; invest in obligations denominated
in foreign currencies; and invest in warrants.
The Fund intends to follow policies of the Securities and Exchange Commission
as they are adopted from time to time with respect to illiquid securities,
including, at this time, (1) treating as illiquid securities that may not be
sold or disposed of in the ordinary course of business within seven days at
approximately the value at which the Fund has valued such securities on its
books and (2) limiting its holdings of such securities to 15% of net assets.
The Fund may invest in restricted securities, including securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933 (the "1933
Act"). Generally, Rule 144A establishes a safe harbor from the registration
requirements of the 1933 Act for resales by large institutional investors of
securities not publicly traded in the U.S. The Fund intends to purchase Rule
144A securities when such securities present an attractive investment
opportunity and otherwise meet the Fund's selection criteria. The Board of
Directors has adopted guidelines and procedures pursuant to which Keystone
and/or Harbor Capital determines the liquidity of the Fund's Rule 144A
securities. The Board monitors Keystone and/or Harbor Capital's implementation
of such guidelines and procedures.
At the present time, the Fund cannot accurately predict exactly how the market
for Rule 144A securities will develop. A Rule 144A security that was readily
marketable upon purchase may subsequently become illiquid. In such an event, the
Board of Directors will consider what action, if any, is appropriate.
For further information about the types of investments and investment
techniques available to the Fund, including the risks associated therewith, see
the sections of this prospectus entitled "Additional Investment Information,"
"Risk factors" and the statement of additional information.
Of course, there can be no assurance that the Fund will achieve its investment
objectives since there is uncertainty in every investment.
- ------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- ------------------------------------------------------------------------------
The Fund has adopted the fundamental restrictions set forth below, which may
not be changed without the approval of a majority of the Fund's outstanding
shares. These restrictions and certain other fundamental restrictions are set
forth in the statement of additional information.
The Fund may not do the following: (1) invest more than 5% of its total assets
in the securities of any one issuer (other than U.S. government securities and
its instrumentalities and securities of one or more domestic or foreign wholly
owned subsidiaries) except that up to 25% of its total assets may be invested
without regard to this limit; (2) borrow money, except that the Fund may borrow
money from banks for emergency or extraordinary purposes in aggregate amounts up
to 5% of its net assets, or enter into reverse repurchase agreements.
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 Directors were to
determine such action to be in the best interest of the Fund and its
shareholders. Furthermore, the Directors will not authorize implementation of
this policy so as long as the Fund's shares are registered for sale in Germany,
and German law prohibits such investment. In the event of such implementation,
the Fund will comply with such requirements as to written notice to shareholders
as are then in effect.
- ------------------------------------------------------------------------------
RISK FACTORS
- ------------------------------------------------------------------------------
Investing in the Fund involves the risk common to investing in any security,
i.e., net asset value will fluctuate in response to changes in economic
conditions, and the market's perception of the underlying portfolio securities
of the Fund.
By itself, the Fund does not constitute a balanced investment plan. The Fund
stresses providing long-term capital appreciation by investing principally in
common stocks of companies that are engaged in, or which receive at least half
of their revenue from other companies engaged in, mining, processing or dealing
in gold or other precious metals and minerals. The yield of the Fund's portfolio
securities will fluctuate with changing market conditions. The Fund makes most
sense for those investors who can afford to ride out changes in the stock market
because it invests a substantial portion of its assets in common stocks.
Investing in securities of foreign issuers generally involves greater risk
than investing in securities of domestic issuers for the following reasons: (1)
there may be less public information available about foreign companies than is
available about U.S. companies; (2) foreign companies are not generally subject
to the uniform accounting, auditing and financial reporting standards and
practices applicable to U.S. companies; (3) foreign stock markets have less
volume than the U.S. market, and the securities of some foreign companies are
less liquid and more volatile than the securities of comparable U.S. companies;
(4) foreign securities transactions may involve higher brokerage commissions;
(5) there may be less government regulation of stock exchanges, brokers, listed
companies and banks in foreign countries than in the U.S.; (6) the Fund may
incur fees on currency exchanges when it changes investments from one country to
another; (7) the Fund's foreign investments could be affected by expropriation,
confiscatory taxation, nationalization, establishment of exchange controls,
political or social instability or diplomatic development; (8) foreign
governments may withhold income on investments; and (9) fluctuations in foreign
exchange rates will affect the value of the Fund's investments, the value of
dividends and interest earned, gains and losses realized on the sale of
securities, net investment income and unrealized appreciation or depreciation of
investments.
Investing in securities of issuers in emerging markets countries involves
exposure to economic systems that are generally less mature and political
systems that are generally less stable than those of developed countries. In
addition, investing in companies in emerging markets countries may also involve
exposure to national policies that may restrict investment by foreigners and
undeveloped legal systems governing private and foreign investments and private
property. The typically small size of the markets for securities issued by
companies in emerging markets countries and the possibility of a low or
nonexistent volume of trading in those securities may also result in a lack of
liquidity and in price volatility of those securities.
Furthermore, the profits of the companies in which the Fund invests, and thus
the value of the Fund's securities, are directly affected by the price of gold.
The price of gold, in turn, is subject to dramatic upward and downward
movements, often over short periods of time, and is affected by, among other
things, industrial and commercial demand, investment and speculation, the
monetary and fiscal policies of central banks, governments and their agencies,
including gold auctions conducted by the U.S. Treasury Department and the
International Monetary Fund, and changes in international balances of payments
and governmental responses to them, including currency devaluations and exchange
controls.
Past performance should not be considered representative of results for any
future period of time. Moreover, should many shareholders change from this Fund
to some other investment at about the same time, the Fund might have to sell
portfolio securities at a time when it would be disadvantageous to do so and at
a lower price than if such securities were held to maturity.
For additional information regarding the Fund's investments in securities of
newer and smaller companies and Rule 144A securities, see "Investment Objectives
and Policies". For further information about the types of investments and
investment techniques available to the Fund, including the associated risks, see
"Additional Investment Information" and the statement of additional information.
- ------------------------------------------------------------------------------
PRICING SHARES
- ------------------------------------------------------------------------------
The net asset value of a Fund share is computed each day on which the New York
Stock Exchange (the "Exchange") is open as of the close of trading on the
Exchange (currently 4:00 p.m. Eastern time for the purpose of pricing Fund
shares) except on days when changes in the value of the Fund's 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.
Generally speaking, all investments other than short-term instruments are
valued at market value or, where market quotations are not readily available,
and, in the case of the Fund's investment in any subsidiary, at fair value as
determined in good faith by the Fund's Board of Directors.
The Fund values short-term instruments with maturities of sixty days or less
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 instruments maturing in more than sixty days for
which market quotations are readily available are valued at current market
value; and short-term instruments maturing in more than sixty days when
purchased which are held on the sixtieth day prior to maturity are valued at
amortized cost (market value on the sixtieth day adjusted for amortization of
premium or accretion of discount), which, when combined with accrued interest,
approximates market; and in any case reflects fair value as determined by the
Fund's Board of Directors. For further discussion regarding the pricing of
shares, see the "Valuation of Securities" section of the statement of additional
information.
- ------------------------------------------------------------------------------
DIVIDENDS AND TAXES
- ------------------------------------------------------------------------------
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code (the "Code"). The Fund
qualifies if, among other things, it distributes to its shareholders at least
90% of its net investment income for its fiscal year. The Fund also intends to
make timely distributions, if necessary, sufficient in amount to avoid the
nondeductible 4% excise tax imposed on a regulated investment company 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 taxable dividend
declared in October, November, or December to shareholders of record in such
month, and paid by the following January 31 will be includable in the taxable
income of the shareholder as if paid on December 31 of the year in which the
dividend was declared. If the Fund qualifies and if it distributes all of its
net investment income and net capital gains, if any, to shareholders, it will be
relieved of any federal income tax liability. The Fund generally will make
distributions from its net investment income on or about the 15th day of April
and October each year and its net capital gains, if any, at least annually.
Distributions are payable in shares of the Fund or, at the shareholder's
option (which must be exercised before the record date for the distribution), in
cash. Fund distributions in the form of additional shares are made at net asset
value without the imposition of a sales charge. Income dividends and net
short-term gains distributions are taxable as ordinary income, and net long-term
gains dividends are taxable as capital gains regardless of how long the Fund's
shares are held. If Fund shares held for less than six months are sold at a
loss, however, such loss will be treated for tax purposes as a long-term capital
loss to the extent of any long-term capital gains dividends received. Dividends
and distributions may also be subject to state and local taxes. The Fund advises
its shareholders annually as to the federal tax status of all distributions made
during the year.
If more than 50% of the value of the Fund's total assets at the end of a
fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both actual dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on the Fund's investments.
The shareholder will be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax or to treat the foreign
tax withheld as an itemized deduction from his gross income if that should be to
his advantage. In substance, this policy enables the shareholder to benefit from
the same foreign tax credit or deduction that he would have received if he had
been the individual owner of foreign securities and had paid foreign income tax
on the income therefrom. As in the case of individuals receiving income directly
from foreign sources, the above described tax credit and deductions are subject
to certain limitations.
- ------------------------------------------------------------------------------
FUND MANAGEMENT AND EXPENSES
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BOARD OF DIRECTORS
Under Delaware law, the Fund's Board of Directors has absolute and exclusive
control over the management and disposition of all assets of the Fund. Subject
to the authority of the Fund's Board of Directors, Keystone, the Fund's
investment adviser provides investment advice, management and administrative
services to the Fund.
INVESTMENT ADVISER
Keystone, the Fund's investment adviser, located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034, has provided investment advisory and
management services to investment companies and private accounts since it was
organized in 1932. Keystone is a wholly-owned subsidiary of Keystone
Investments, Inc. ("Keystone Investments"), located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
Keystone Investments is a corporation privately owned by current and former
members of management and certain employees of Keystone and its affiliates. The
shares of Keystone Investments common stock beneficially owned by management are
held in a number of voting trusts, the trustees of which are George S. Bissell,
Albert H. Elfner, III, Edward F. Godfrey and Ralph J. Spuehler, Jr. Keystone
Investments provides accounting, bookkeeping, legal, personnel and general
corporate services to Keystone, its affiliates and the Keystone Investments
Family of Funds.
Pursuant to its Investment Advisory Agreement (the "Advisory Agreement") with
the Fund, Keystone provides investment advisory and management services to the
Fund. Keystone manages the investment and reinvestment of the Fund's assets,
supervises the operation of the Fund, provides all necessary office space,
facilities, equipment and personnel and arranges at the request of the Fund for
its employees to serve as officers or agents of the Fund.
The Advisory Agreement provides that, for its services to the Fund, the Fund
pays Keystone a fee for its services at the annual rate of:
3/4 of 1% of the first $100,000,000, plus
5/8 of 1% of the next $100,000,000, plus
1/2 of 1% of amounts over $200,000,000.
The fee is somewhat higher than fees paid by non-gold funds because of the
higher costs involved in managing a portfolio of predominantly international
securities. The fee is reduced, however, by the amount of any compensation
Keystone receives from the Fund's subsidiary.
During the fiscal year ended February 28, 1995, the Fund paid or accrued
management fees of $1,396,523 to Keystone, which represented 0.68% of the Fund's
average daily net assets. Keystone paid or accrued a sub- advisory fee of
$451,566 to Harbor Capital for the year ended February 28, 1995.
The Advisory Agreement contains provisions permitting Keystone to enter into
an agreement with Harbor Capital Management Company, Inc. ("Harbor Capital") ,
under which Harbor Capital, as Subadviser, may, for compensation paid by
Keystone, provide the Fund, its subsidiaries and Keystone investment advisory
services to be provided by Keystone under the Advisory Agreement. Keystone has
entered into such an agreement with Harbor Capital.
The Advisory Agreement provides that it will continue only if approved at
least annually by the Board of Directors 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 Directors cast in person at a meeting called for the
purpose of voting on such approval. The Advisory Agreement may be terminated,
without penalty, on 60 days' written notice by the Board of Directors or by a
vote of a majority of the outstanding Shares. The Advisory Agreement will
terminate automatically upon its "assignment" as that term is defined in the
1940 Act.
SUB-ADVISER
Harbor Capital, the Fund's subadviser, located at 125 High Street, Boston,
Massachusetts 02110, is an investment management firm which has been providing
counsel both to individuals and institutions, including endowment funds,
foundations and pension and profit-sharing trusts, since 1979.
For its services under its Sub-Advisory Agreement with Keystone, Harbor
Capital receives from Keystone a fee generally equal to 50% of the amount
remaining from Keystone's management fee after the deduction of certain
expenses, but, in any event, not less than 70% of Keystone's fee on the first
$50.1 million of the consolidated average daily net assets of the Fund and its
subsidiary, 40% of Keystone's fee on the next $20 million, 10% of Keystone's fee
on the next $50 million, and 17.5% of Keystone's fee on assets that exceed
$120.1 million, the total not to exceed 90% of Keystone's fee. The Fund has no
responsibility to pay Harbor Capital's fee.
CONSULTANT
Effective August 1, 1995, it is anticipated that Keystone will terminate its
Sub-Advisory Agreement with Harbor Capital, and simultaneously enter into a
Consultant Agreement with Harbor Capital. Pursuant to the terms of the
Consultant Agreement, Harbor Capital will provide Keystone with monthly reports
discussing the worlds' gold bullion markets and gold stock markets, and advice
regarding economic factors and trends in the precious metals sectors.
For its services, Harbor Capital will receive from Keystone a fee at the
annual rate of 0.10% of the Fund's average daily net assets.
The Consultant Agreement provides that it will continue for a period of two
years from August 1, 1995 and thereafter from year to year if the parties
thereto agree. The Consultant Agreement may be terminated by either party,
without penalty, on 60 days' written notice to the other party. Neither party
may assign the Consultant Agreement without the consent of the other party.
The Fund has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
PORTFOLIO MANAGERS
Effective August 1, 1995, John Madden will be primarily responsible for the
management of the Fund's portfolio. Mr. Madden is a Keystone Vice President and
Senior Portfolio Manager and has over 27 years of investment experience.
Until August 1, 1995 Frederick G. P. Thorne and Malcolm Pirnie, III will
continue to serve as co-managers of the Fund. Mr. Thorne has been the Fund's
co-manager for 21 years and Mr. Pirnie has been the Fund's co-manager for 16
years. Mr. Thorne has been President and a Managing Director of Harbor Capital
for 16 years and Mr. Pirnie has been a Managing Director of Harbor Capital for
16 years.
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 Directors ("Independent Directors"); expenses of
shareholders' and Directors' meetings; fees payable to government agencies,
including registration and qualification fees of the Fund and its shares under
federal and state securities laws; expenses of preparing, printing and mailing
Fund prospectuses, notices, reports and proxy material; and certain
extraordinary expenses. In addition to such expenses, the Fund pays its
brokerage commissions, interest charges and taxes.
For the fiscal year ended February 28, 1995, the Fund paid 2.33% of its
average net assets in expenses.
During the fiscal year ended February 28, 1995, the Fund paid or accrued to
Keystone Investor Resource Center, Inc. ("KIRC"), the Fund's transfer and
dividend disbursing agent, and Keystone Investments, $25,349 for the cost of
certain accounting services and $934,951 for shareholders services. KIRC is a
wholly-owned subsidiary of Keystone.
SECURITIES TRANSACTIONS
Under policies established by the Board of Directors, the Fund's advisers
select broker-dealers to execute transactions subject to the receipt of best
execution. When selecting broker-dealers to execute portfolio transactions for
the Fund, the advisers may consider as a factor the number of shares of the Fund
sold by the broker-dealer. In addition, broker-dealers executing portfolio
transactions, from time to time, may be affiliated with the Fund, Keystone,
Harbor Capital, the Fund's principal underwriter or their affiliates.
The Fund may pay higher commissions to broker-dealers which provide research
services. Keystone and/or Harbor Capital may use these services in advising the
Fund as well as in advising their other clients.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rates for the fiscal years ended February 28,
1994 and 1995 were 73% and 75%, 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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You may purchase shares of the Fund from any broker-dealer that has a selling
agreement with Keystone Investment Distributors Company (formerly named Keystone
Distributors, Inc.) ("the Principal Underwriter"), the Fund's principal
underwriter. The Principal Underwriter, a wholly-owned subsidiary of Keystone,
is located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
In addition, you may open an account for the purchase of shares of the Fund by
mailing to the Fund, c/o Keystone Investor Resource Center, Inc., P.O. Box 2121,
Boston, Massachusetts 02106-2121, a completed account application and a check
payable to the Fund, or you may telephone 1-800-343-2898 to obtain the number of
an account to which you can wire or electronically transfer funds and then send
in a completed account application. Subsequent investments in Fund shares in any
amount may be made by check, by wiring Federal funds or by 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 $1,000 except for purchases by participants in certain retirement plans
for which the minimum is waived. There is no minimum for subsequent purchases.
Purchase payments are fully invested at net asset value. There are no sales
charges on purchases of Fund shares at the time of purchase.
CONTINGENT DEFERRED SALES CHARGE
With certain exceptions, when shares are redeemed within four calendar years
after their purchase, a 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 deferred sales charge is imposed on amounts redeemed thereafter
or on shares purchased through reinvestment of dividends. If imposed, the
deferred sales charge is deducted from the redemption proceeds otherwise payable
to the shareholder. Prior to July 8, 1992, the Fund retained the deferred sales
charge. Since July 8, 1992, the deferred sales charge attributable to shares
purchased prior to January 1, 1992 has been retained by the Fund, and the
deferred sales charge attributable to shares purchased after January 1, 1992 is,
to the extent permitted by the NASD, paid to the Principal Underwriter. For the
fiscal year ended February 28, 1995, the Fund recovered $24,927 in deferred
sales charges.
The contingent deferred sales charge is a declining percentage of the lesser
of (1) the net asset value of the shares redeemed or (2) the total cost of such
shares. No deferred sales charge is imposed when the shareholder redeems amounts
derived from (1) increases in the value of his account above the total cost of
such shares due to increases in the net asset value per share of the Fund; (2)
certain shares with respect to which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of dividend income and
capital gains distributions; or (3) shares held in all or part of more than four
consecutive calendar years.
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 the Funds in the Keystone Fund Family 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.
In addition, no contingent deferred sales charge is imposed on a redemption of
shares of the Fund in the event of (1) death or disability of the shareholder;
(2) a lump-sum distribution from a 401(k) plan or other benefit plan qualified
under the Employment Retirement Income Security Act of 1974 ("ERISA"); (3)
automatic withdrawals from ERISA plans if the shareholder is at least 59 1/2
years old; (4) involuntary redemptions of accounts having an aggregate net asset
value of less than $1,000; (5) automatic withdrawals under an automatic
withdrawal plan of up to 1 1/2% per month of the shareholder's initial account
balance; (6) withdrawals consisting of loan proceeds to a retirement plan
participant; (7) financial hardship withdrawals made by a retirement plan
participant; or (8) withdrawals consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan participant.
WAIVER OF DEFERRED SALES CHARGES
Shares also may be sold, to the extent permitted by applicable law, at net
asset value without the payment of commissions or the imposition of a deferred
sales charge to (1) certain officers, Directors, Trustees and employees of the
Fund, Keystone and certain of their affiliates; (2) registered representatives
of firms with dealer agreements with the Principal Underwriter; and (3) a bank
or trust company acting as trustee for a single account.
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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 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 the amount that a Fund may pay annually in distribution costs
for the sale of its shares and shareholder service fees. The rule limits annual
expenditures to 1% of the aggregate average daily net asset value of its shares,
of which 0.75% may be used to pay such distribution costs and 0.25% may be used
to pay shareholder service fees. The NASD rule also limits the aggregate amount
which the Fund may pay for such distribution costs to 6.25% of gross share sales
since the inception of the Fund's Distribution Plan, plus interest at the prime
rate plus 1% per annum on such amounts (less any deferred sales charges paid by
shareholders to the Principal Underwriter), remaining unpaid from time to time.
Payments under the Distribution Plan are currently made to the Principal
Underwriter (which may reallow all or part to others, such as dealers) (1) as
commissions for Fund shares sold and (2) as shareholder service fees in respect
of shares maintained by the recipients outstanding on the Fund's books for
specified periods. Amounts paid or accrued to the Principal Underwriter under
(1) and (2) in the aggregate may not exceed the annual limitations referred to
above. The Principal Underwriter generally reallows to brokers or others
commissions in accordance with the following schedule:
PRINCIPAL UNDERWRITER
PAYS SELLING
AMOUNT OF SALE BROKER-DEALERS
Less than $100,000 4.0%
$100,000-$249,999 2.0%
$250,000-$499,999 1.0%
Over $500,000 0.5%
In addition, the Principal Underwriter generally reallows to brokers or others 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 the Principal Underwriter a commission on a new
sale because the annual maximum (0.75% of average daily net assets) has been
reached, the Principal Underwriter intends, but is not obligated, to continue to
accept new orders for the purchase of Fund shares and to pay or accrue
commissions and service fees to dealers in excess of the amount it currently
receives from the Fund. While the Fund is under no contractual obligation to
reimburse the Principal Underwriter for advances made by the Principal
Underwriter in excess of the Distribution Plan limitation, the Principal
Underwriter intends to seek full payment of such amounts from the Fund (together
with interest at the rate of prime plus one percent) at such time in the future
as, and to the extent that, payment thereof by the Fund would be within
permitted limits. The Principal Underwriter currently intends to seek payment of
interest only on such charges paid or accrued by the Principal Underwriter
subsequent to January 1, 1992. If the Fund's Independent Directors authorize
such payments, the effect will be to extend the period of time during which the
Fund incurs the maximum amount of costs allowed by the Distribution Plan. If the
Distribution Plan is terminated, the Principal Underwriter will ask the
Independent Directors to take whatever action they deem appropriate under the
circumstances with respect to payment of such amounts.
During the fiscal year ended February 28, 1995, the Fund recovered $24,927 in
deferred sales charges. During the year, the Fund paid the Principal Underwriter
$2,085,500 (1.00% of the Fund's average daily net asset value during the year).
The amount paid by the Fund under its Distribution Plan, net of deferred sales
charges, was $2,060,573 (1.00% of the Fund's average daily net asset value
during the year). During the year, the Principal Underwriter received $1,702,590
after payments of commissions on new sales and shareholder service fees to
dealers and others of $2,300,075, of which $597,485 was an advance. Unpaid
distribution costs at February 28, 1995 were $12,646,081 (7.39% of the Fund's
net assets).
The amounts and purposes of expenditures under the Distribution Plan must be
reported to the Independent Directors quarterly. The Independent Directors 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 Directors,
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
Directors 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 a majority of both (1) the Fund's Directors and (2) the Independent Directors
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 Directors to the
discretion of the Independent Directors.
Whether any expenditure under the Distribution Plan is subject to a state
expense limit depends upon the nature of the expenditure and the terms of the
state law, regulation or order imposing the limit. A portion of the Fund's
Distribution Plan expenses may be includable in the Fund's total operating
expenses for purposes of determining compliance with state expense limits.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
Upon written notice to dealers, the Principal Underwriter, at its own expense,
may periodically sponsor programs that offer additional compensation in
connection with sales of Fund shares. Participation in such programs may be
available to all dealers or to selected dealers who have sold or are expected to
sell significant amounts of shares. Additional compensation may also include
financial assistance to dealers in connection with preapproved seminars,
conferences and advertising. No such programs or additional compensation will be
offered to the extent they are prohibited by the laws of any state or any
self-regulatory agency, such as the NASD.
The Principal Underwriter may, at its own expense, pay concessions in addition
to those described above to dealers which satisfy certain criteria established
from time to time by the Principal Underwriter. These conditions relate to
increasing sales of shares of the Keystone funds over specified periods and
certain other factors. Such payments may depending on the dealer's satisfaction
of the required conditions, be up to .25% of the value of shares sold by such
dealer.
The Principal Underwriter also may pay banks and other financial services
firms that facilitate transactions in shares of the Fund for their clients a
transaction fee up to the level of the payments made allowable to dealers for
the sale of such shares as described above.
The Glass-Steagall Act currently limits the ability of a depository
institution (such as a commercial bank or a savings and loan association) to
become an underwriter or distributor of securities. In the event the Glass-
Steagall Act is deemed to prohibit depository institutions from accepting
payments under the arrangement described above, or should Congress relax current
restrictions on depository institutions, the Fund's Board of Directors 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 the shareholder.
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 either with a certified
check drawn on a U.S. bank or by bank wire of funds. Although the mailing of a
redemption check may be delayed, the redemption value will be determined and the
redemption processed in the ordinary course of business upon receipt of proper
documentation. In such a case, after redemption and prior to the release of the
proceeds, no appreciation or depreciation will occur in the value of the
redeemed shares, and no interest will be paid on the redemption proceeds. If the
mailing of a redemption check has been delayed, the check will be mailed
promptly after good payment has been collected.
The Fund computes the redemption value at the close of the Exchange at the end
of the day on which it has received all proper documentation from the
shareholder. Payment of the amount due on redemption, less any applicable
deferred sales charge, will be made within seven days thereafter except as
discussed herein.
Shareholders also may redeem their shares through their broker-dealers. The
Principal Underwriter, acting as agent for the Fund, stands ready to repurchase
Fund shares upon orders from dealers as follows: redemption requests received by
broker-dealers prior to that day's close of trading on the Exchange and
transmitted to the Fund prior to its close of business that day will receive the
net asset value per share computed at the close of trading on the Exchange on
the same day. Redemption requests received by broker-dealers after the day's
close of trading on the Exchange and transmitted to the Fund prior to the close
of business on the next business day will receive the next business day's net
asset value price. The Principal Underwriter will pay the redemption proceeds,
less any applicable deferred sales charge, to the dealer placing the order
within seven days thereafter, assuming it has received proper documentation. The
Principal Underwriter charges no fees for this service, but the shareholder's
broker-dealer may do so.
For the protection of shareholders, SIGNATURES ON CERTIFICATES, STOCK POWERS
AND ALL WRITTEN ORDERS OR AUTHORIZATIONS MUST BE GUARANTEED BY A U.S. STOCK
EXCHANGE MEMBER, OR 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 EFT to your
previously designated bank account as you direct. If you do not specify how you
wish your redemption proceeds to be sent, they will be mailed by check.
If you cannot reach the Fund by telephone, you should follow the procedures
for redeeming by mail or through a broker as set forth above.
SMALL ACCOUNTS
Because of the high cost of maintaining small accounts, the Fund reserves the
right to redeem your account if its value 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 the Principal
Underwriter assumes responsibility for the authenticity of any instructions
received by any of them from a shareholder in writing, over the Keystone
Automated Response Line ("KARL") or by telephone. KIRC will employ reasonable
procedures to confirm that instructions received over KARL or by telephone are
genuine. Neither the Fund, KIRC nor the Principal Underwriter will be liable
when following instructions received over KARL or by telephone that KIRC
reasonably believes to be genuine.
The Fund may temporarily suspend the right to redeem its shares when (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) 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
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Details on all shareholder services may be obtained from KIRC by calling toll
free 1-800-343-2898.
KEYSTONE AUTOMATED RESPONSE LINE
KARL offers shareholders specific fund account information and price and yield
quotations as well as the ability to effect account transactions, including
investments, exchanges and redemptions. Shareholders may access KARL by dialing
toll free 1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days
a week.
EXCHANGES
A shareholder who has obtained the appropriate prospectus may exchange shares
of the Fund for shares of any of the other twelve funds in the Keystone Fund
Family 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 KTET or KTFF. In order to exchange Fund shares for shares of KTET or
KTFF, a shareholder must have held Fund shares for a period of at least six
months. You may exchange your shares for another Keystone fund for a $10 fee by
calling or writing to Keystone. The exchange fee is waived for individual
investors who make an exchange using KARL. If the shares being tendered for
exchange have been held for less than four years and are still subject to a
deferred sales charge, such charge will carry over to the shares being acquired
in the exchange transaction. The Fund reserves the right 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.
RETIREMENT PLANS
The Fund has various retirement plans available to investors, including
Individual Retirement Accounts ("IRAs"); Rollover IRAs; Simplified Employee
Pension Plans ("SEPs"); Tax Sheltered Account Plans ("TSAs"); 403(b) Plans;
401(k) Plans; Keogh Plans; Corporate Profit-Sharing Plans; and Money Purchase
Pension Plans. For details, including fees and application forms, call KIRC toll
free at 1-800-247-4075 or write to KIRC at P.O. Box 2121, Boston, Massachusetts
02106-2121.
AUTOMATIC INVESTMENT PLAN
Shareholders may take advantage of investing on an automatic basis by
establishing an automatic investment plan. Funds are drawn on a shareholder's
checking account monthly and used to purchase Fund shares.
AUTOMATIC WITHDRAWAL PLAN
Under an Automatic Withdrawal Plan, shareholders may arrange for regular
monthly or quarterly fixed withdrawal payments. Each payment must be at least
$100 and may be as much as 1% per month or 3% per quarter of the total net asset
value of the Fund shares in the shareholder's account when the Automatic
Withdrawal Plan is opened. Fixed withdrawal payments are not subject to a
deferred sales charge. Excessive withdrawals may decrease or deplete the value
of a shareholder's account.
OTHER SERVICES
Under certain circumstances shareholders may, within 30 days after a
redemption, reinstate their accounts at current net asset value.
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PERFORMANCE DATA
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From time to time, the Fund may advertise "total return" and "current yield."
BOTH FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. Total return refers to the Fund's average annual compounded
rates of return over specified periods determined by comparing the initial
amount invested to the ending redeemable value of that amount. The resulting
equation assumes reinvestment of all dividends and distributions and deduction
of all recurring charges, if any, applicable to all shareholder accounts. The
deduction of the contingent deferred sales charge is reflected in the applicable
years. The exchange fee is not included in the calculation.
Current yield quotations represent the yield on an investment for a stated
30-day period computed by dividing net investment income earned per share during
the base period by the maximum offering price per share on the last day of the
base period. The Fund presently does not intend to advertise current yield.
The Fund may also include comparative performance information in advertising
or marketing the Fund's shares, such as data from Lipper Analytical Services,
Inc., Morningstar, Inc., Standard & Poor's Corporation and Ibbotson Associates
or other industry publications.
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FUND SHARES
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The Fund currently issues one class of shares that participate equally in
dividends and distributions and have equal voting, liquidation and other rights.
When issued and paid for, the shares will be fully paid and nonassessable by the
Fund. Shares may be exchanged as explained under "Shareholder Services," but
will have no other preference, conversion, exchange or preemptive rights.
Shareholders are entitled to one vote for each full share owned and fractional
votes for fractional shares. Shares are redeemable, transferable and freely
assignable as collateral. There are no sinking fund provisions. The Fund may
establish additional classes or series of shares.
Under Delaware law, the Fund is required to hold annual meetings for the
election of Directors and other matters.
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ADDITIONAL INFORMATION
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KIRC, 101 Main Street, Cambridge, Massachusetts 02142-1519, is a wholly-owned
subsidiary of Keystone. As previously mentioned, KIRC serves as the Fund's
transfer agent and dividend dispersing agent.
When the Fund determines from its records that more than one account in the
Fund is registered in the name of a shareholder or shareholders having the same
address, upon written notice to those shareholders, the Fund intends, when an
annual report or semi-annual report of the Fund is required to be furnished, to
mail one copy of such report to that address.
Except as otherwise stated in this prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
<PAGE>
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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.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with member banks of the Federal
Reserve System that have at least $1 billion in assets, primary dealers in U.S.
government securities or other financial institutions believed by Keystone or
Harbor Capital to be credit-worthy. Such persons are required to be registered
as U.S. government securities dealers with an appropriate regulatory
organization. Under such agreements, the bank, primary dealer or other financial
institution agrees upon entering into the contract to repurchase the security at
a mutually agreed upon date and price, thereby determining the yield during the
term of the agreement. This results in a fixed rate of return insulated from
market fluctuations during such period. Under a repurchase agreement, the seller
must maintain the value of the securities subject to the agreement at not less
than the repurchase price, and such value will be determined on a daily basis by
marking the underlying securities to their market value. Although the securities
subject to the repurchase agreement might bear maturities exceeding a year, the
Fund only intends to enter into repurchase agreements that provide for
settlement within a year and usually within seven days. Securities subject to
repurchase agreements will be held by the Fund's custodian or in the Federal
Reserve book entry system. The Fund does not bear the risk of a decline in the
value of the underlying security unless the seller defaults under its repurchase
obligation. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying securities and losses including (1) possible declines in the value of
the underlying securities during the period while the Fund seeks to enforce its
rights thereto; (2) possible subnormal levels of income and lack of access to
income during this period; and (3) expenses of enforcing its rights. The Board
of Directors has established procedures to evaluate the creditworthiness of each
party with whom the Fund enters into repurchase agreements by setting guidelines
and standards of review for Keystone or Harbor Capital and monitoring Keystone
or Harbor Capital's actions with regard to repurchase agreements. The Fund
currently does not intend to invest more than 10% of its assets in repurchase
agreements.
REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Fund would sell securities and agree
to repurchase them at a mutually agreed upon date and price. The Fund intends to
enter into reverse repurchase agreements to avoid otherwise having to sell
securities during unfavorable market conditions in order to meet redemptions. At
the time the Fund enters into a reverse repurchase agreement, it will establish
a segregated account with the Fund's custodian containing liquid assets having a
value not less than the repurchase price (including accrued interest) and will
subsequently monitor the account to maintain such value. 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. In the
event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
determination. The staff of the Securities and Exchange Commission has taken the
position that the 1940 Act treats reverse repurchase agreements as being
included in the percentage limit on borrowings imposed on a Fund.
FOREIGN SECURITIES
The Fund may invest in securities principally traded in securities markets
outside the U.S. While investment in foreign securities is intended to reduce
risk by providing further diversification, such investments involve sovereign
risk in addition to the credit and market risks normally associated with
domestic securities. Foreign investments may be affected favorably or
unfavorably by changes in currency rates and exchange control regulations. There
may be less publicly available information about a foreign company,
particularily emerging market country companies, than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those applicable to U.S.
companies. Securities of some foreign companies are less liquid or more volatile
than securities of U.S. companies, and foreign brokerage commissions and
custodian fees are generally higher than in the United States. Investments in
foreign securities may also be subject to other risks different from those
affecting U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, imposition of withholding taxes on
dividend or interest payments and currency blockage (which would prevent cash
from being brought back to the U.S.).
DERIVATIVES
The Fund may use derivatives while seeking to achieve its investment
objective. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors such as the Fund to earn income and
enhance returns, to hedge or adjust the risk profile of the portfolio, and
either in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. The Fund is permitted to use derivatives for one
or more of these purposes, 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 as well as forwards for hedging purposes. Derivatives are a
valuable tool which, when used properly, can provide significant benefit to Fund
shareholders. Keystone is not an aggressive user of derivatives with respect to
the Fund. However, the Fund may take positions in those derivatives that are
within its investment policies if, in Keystone's judgement, this represents an
effective response to current or anticipated market conditions. Keystone's use
of derivatives is subject to continuous risk assessment and control from the
standpoint of the Fund's investment 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, futures, forwards and
swaps, is provided later in this section and is provided in the Fund's statement
of additional information. The Fund does not presently engage in the use of
swaps.
While the judicious use of derivatives by experienced investment managers such
as Keystone can be beneficial, derivatives also involve risks different from,
and, in certain cases, greater than, the risks presented by more traditional
investments. Following is a general discussion of important risk factors and
issues concerning the use of derivatives that investors should understand before
investing in the Fund.
* Market Risk -- This is the general risk attendant to all investments that the
value of a particular investment will decline or otherwise change in a way
detrimental to the Fund's interest.
* Management Risk -- Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument, but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use and
complexity of derivatives require the maintenance of adequate controls to
monitor the transactions entered into, the ability to assess the risk that a
derivative adds to the Fund's portfolio and the ability to forecast price,
interest rate or currency exchange rate movements correctly.
* Credit Risk -- This is the risk that a loss may be sustained by the Fund as a
result of the failure of another party to a derivative (usually referred to as
a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange-traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the
issuer or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there is no
similar clearing agency guarantee. Therefore, the Fund considers the
creditworthiness of each counterparty to a privately negotiated derivative in
evaluating potential credit risk.
* Liquidity Risk -- Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.
* 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 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.
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.
The principal reason for writing call 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 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.
PURCHASING OPTIONS. The Fund may purchase call options for the purpose of
offsetting previously written call options of the same series. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
dispose of assets held in a segregated account until the options expire or are
exercised.
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 objectives.
The Fund currently does not intend to invest more than 5% of its assets in
options transactions.
OPTIONS TRADING MARKETS. Options which the Fund will trade generally are
listed on the London Stock Exchange or a national securities exchange. National
exchanges on which such options currently are traded are 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
rather traded in the over-the-counter market. Options traded in the
over-the-counter market involve the additional risk that securities dealers
participating in such transactions could fail to meet their obligations to the
Fund. The use of options traded in the over-the-counter market may be subject to
limitations imposed by certain state securities authorities. In addition to the
limits on its use of options discussed herein, the Fund is subject to the
investment restrictions described in this prospectus and in the statement of
additional information.
The staff of the Securities and Exchange Commission is of the view that the
premiums which the Fund pays for the purchase of unlisted options and the value
of securities used to cover unlisted options written by the Fund are considered
to be invested in illiquid securities or assets for the purpose of calculating
whether the Fund is in compliance with its policies pertaining to illiquid
assets and securities.
FUTURES TRANSACTIONS
The Fund may enter into currency and other financial futures contracts and
write options on such contracts. The Fund intends to enter into such contracts
and related options for hedging purposes. The Fund will enter into securities,
currency or index-based futures contracts in order to hedge against changes in
interest or exchange rates or securities prices. A futures contract on
securities or currencies is an agreement to buy or sell securities or currencies
at a specified price during a designated month. A futures contract on a
securities index does not involve the actual delivery of securities, but merely
requires the payment of a cash settlement based on changes in the securities
index. The Fund does not make payment or deliver securities upon entering into a
futures contract. Instead, it puts down a margin deposit, which is adjusted to
reflect changes in the value of the contract and which continues until the
contract is terminated.
The Fund may sell or purchase currency and other financial 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 or Harbor Capital 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 currency and other
financial futures contracts for hedging purposes. A put option purchased by the
Fund would give it the right to assume a position as the seller of a futures
contract. A call option purchased by the Fund would give it the right to assume
a position as the purchaser of a futures contract. The purchase of an option on
a futures contract requires the Fund to pay a premium. In exchange for the
premium, the Fund becomes entitled to exercise the benefits, if any, provided by
the futures contract, but is not required to take any action under the contract.
If the option cannot be exercised profitably before it expires, the Fund's loss
will be limited to the amount of the premium and any transaction costs.
The Fund may enter into closing purchase and sale transactions in order to
terminate a futures contract and may sell put and call options for the purpose
of closing out its options positions. The Fund's ability to enter into closing
transactions depends on the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. As a result, there can be no
assurance that the Fund will be able to enter into an offsetting transaction
with respect to a particular contract at a particular time. If the Fund is not
able to enter into an offsetting transaction, the Fund will continue to be
required to maintain the margin deposits on the contract and to complete the
contract according to its terms, in which case, it would continue to bear market
risk on the transaction.
Although futures and related options transactions are intended to enable the
Fund to manage market, interest rate or exchange rate risk, unanticipated
changes in interest rates, exchange rates or market prices could result in
poorer performance than if it had not entered into these transactions. Even if
Keystone or Harbor Capital 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 or Harbor Capital 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.
The Fund currently does not intend to invest more than 5% of its assets in
futures transactions.
FIRM COMMITMENT AGREEMENTS
The Fund may 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 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 for the purpose of
acquiring portfolio securities or currencies consistent with its investment
objectives and policies and not for the purpose of investment leverage. The Fund
currently does not intend to invest more than 5% of its assets in when issued or
delayed delivery transactions.
"WHEN ISSUED" AND "FORWARD COMMITMENT" TRANSACTIONS
The Fund may purchase newly issued securities on a when issued and delayed
delivery basis and may purchase or sell securities on a forward commitment
basis. When issued or delayed delivery transactions arise when securities are
purchased by the Fund with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous price and yield to the
Fund at the time of entering into the transaction. A forward commitment
transaction is an agreement by the Fund to purchase or sell securities at a
specified future date. When the Fund engages in these transactions, the Fund
relies on the buyer or seller, as the case may be, to consummate the sale.
Failure to do so may result in the Fund missing the opportunity to obtain a
price or yield considered to be advantageous. When issued and delayed delivery
transactions and forward commitment transactions may be expected to occur a
month or more before delivery is due. No payment or delivery is made by the
Fund, however, until it receives payment or delivery from the other party to the
transaction. A separate account of liquid assets equal to the value of purchase
commitments will be maintained until payment is made.
FOREIGN CURRENCY TRANSACTIONS
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, the Fund may enter into forward
currency exchange contracts (agreements to purchase or sell currencies at a
specified price and date). The exchange rate for the transaction (the amount of
currency the Fund will deliver and receive when the contract is completed) is
fixed when the Fund enters into the contract. The Fund usually will enter into
these contracts to stabilize the U.S. dollar value of a security it has agreed
to buy or sell. The Fund intends to use these contracts to hedge the U.S. dollar
value of a security it already owns, particularly if the Fund expects a decrease
in the value of the currency in which the foreign security is denominated.
Although the Fund will attempt to benefit from using forward contracts, the
success of its hedging strategy will depend on Keystone's ability to predict
accurately the future exchange rates between foreign currencies and the U.S.
dollar. The value of the Fund's investments denominated in foreign currencies
will depend on the relative strength of those currencies and the U.S. dollar,
and the Fund may be affected favorably or unfavorably by changes in the exchange
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. The Fund may also purchase and sell options related to
foreign currencies in connection with hedging strategies.
<PAGE>
KEYSTONE
FUND FAMILY
Quality Bond Fund (B-1)
Diversified Bond Fund (B-2)
High Income Bond Fund (B-4)
Balanced Fund (K-1)
Strategic Growth Fund (K-2)
Growth and Income Fund (S-1)
Mid-Cap Growth Fund (S-3)
Small Company Growth Fund (S-4)
International Fund
Precious Metals Holdings
Tax Free Fund
Tax Exempt Trust
Liquid Trust
[LOGO] KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5034
[recycle symbol]
KEYSTONE
PRECIOUS METALS
HOLDINGS, INC.
[LOGO]
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
JUNE 30, 1995
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
Precious Metals Holdings, Inc. (the "Fund") dated June 30, 1995. A copy of the
prospectus may be obtained from Keystone Investment Distributors Company (the
"Principal Underwriter"), the Fund's principal underwriter, located at 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 Objectives and Policies 2
Investment Restrictions 4
Valuation of Securities 7
Distributions and Taxes 8
Sales Charges 9
Distribution Plan 11
Redemptions in Kind 14
Investment Adviser 14
Subadviser/Consultant 16
Directors and Officers 18
Principal Underwriter 21
Brokerage 22
Standardized Total Return and
Yield Quotations 24
Additional Information 25
Appendix A-1
Financial Statements F-1
Independent Auditors' Report F-13
<PAGE>
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THE FUND'S OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Fund's primary investment objective is to provide shareholders with
long-term capital appreciation and with protection of the purchasing power of
their capital. Obtaining current income is a secondary objective. Keystone
Investment Management Company (formerly named Keystone Custodian Funds, Inc.)
("Keystone") acts as the Fund's investment adviser. Until August 1, 1995, Harbor
Capital Management Company, Inc. ("Harbor Capital") will continue to act as the
Fund's sub-adviser. Thereafter, Harbor Capital will act as a consultant to
Keystone with respect to the Fund.
The Fund pursues its objectives by investing in common stocks of
companies that are engaged in, or receive at least half of their revenue from
other companies engaged in, mining, processing or dealing in gold, gold bullion
or other precious metals and minerals such as silver, platinum, palladium and
diamonds. (A company will be considered "engaged" in a business or activity if
it derives at least 50% of its assets, reserves and/or operating earnings from
that business or activity.)
The Fund invests in securities of South African mining companies only
after considering such factors as profitability of operations, adequacy of ore
reserves and the prices at which the metals and minerals mined by these
companies are selling in the free market.
When investing in securities of South African companies or other
foreign issuers, the Fund may purchase American Depositary Receipts ("ADRs").
ADR are negotiable certificates issued by a United States ("U.S.") bank
representing the right to receive securities of a foreign issuer deposited in
that bank or a correspondent bank. While there are variations as to
marketability, ADRs representing shares of most of the better known South
African gold mining and mining finance companies are characterized by relatively
active trading markets. The Fund may purchase the foreign securities directly
when it is in its best interests to do so. The Fund will purchase only foreign
securities that are listed on recognized domestic or foreign securities
exchanges.
The Fund's normal expectation in purchasing a security is that its
anticipated performance level will be reached over the longer rather than
shorter term, although the rate of portfolio turnover will not be a limiting
factor when portfolio changes are deemed appropriate. It is anticipated,
however, that the Fund's annual portfolio turnover rate, exclusive of
investments made in or by any subsidiary, will not exceed 100%. A 100% portfolio
turnover rate would occur, for example, if the value of the lesser of cost of
purchases or proceeds from sales of portfolio securities for a particular year
equaled the average monthly value of portfolio securities owned during such
year, excluding in each case short-term securities. The turnover rate may also
be affected by cash requirements for redemptions of the Fund's shares. A high
turnover rate would result in increased costs to the Fund for brokerage
commissions or their equivalent.
The Fund will not invest directly in precious metals and minerals or
contracts relating thereto. Any wholly-owned subsidiary of the Fund, however,
may invest in precious metals and minerals, subject to the limitation that no
investment in precious metals and minerals may be made by any wholly-owned
subsidiary or subsidiaries of the Fund if at the time thereof the market value
of all such investments by subsidiaries exceeds, or by virtue of such investment
would exceed, an amount equal to 25% of the then market value of the Fund's
total assets. In the event that, because of fluctuations in the market value of
a subsidiary's investments or in the market value of the Fund's total assets, or
other reasons, the Fund's investments in a subsidiary or subsidiaries represent
more than 25% of the market value of the Fund's total assets, the Fund will not
be required to take any action to reduce such investments, although it will do
so when it is in its best interests.
In making purchases of precious metals and minerals, a wholly-owned
subsidiary may utilize contracts that contemplate delivery of the metal or
mineral at a future date, provided in each case that it instructs the custodian
of its assets to segregate and maintain in a separate account cash or short-term
U.S. government securities at least equal to the aggregate contract price less
the aggregate margin deposit. However, the Fund has undertaken to a state
securities authority that, so long as shares of the Fund are registered for sale
in such state, it will not, as a matter of operating policy, permit any
subsidiary to utilize such contracts. A wholly-owned subsidiary may, from time
to time, engage in short-term trading in metals and minerals, that is, selling
metals and minerals held for a relatively brief period of time, usually less
than three months. Short-term trading will be used primarily to preserve capital
when a subsidiary anticipates there will be a market decline, or to realize gain
after a market increase when a subsidiary anticipates that continued increases
are unlikely. A wholly-owned subsidiary will engage in short-term trading only
if it believes that the transaction, net of costs, including any commissions,
will be in the best interest of the Fund. Whether short-term trading will be
advantageous to a subsidiary will depend on its anticipation and evaluation of
relevant market factors. A wholly-owned subsidiary will not engage in any
activity other than investing in precious metals and minerals, or contracts
relating thereto.
A wholly-owned subsidiary will not incur any obligations for which the
Fund may be directly or indirectly liable. The assets of a wholly-owned
subsidiary will be held either by the Fund's cus- todian or by a foreign branch
of a major U.S. banking institution.
- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
None of the restrictions enumerated in this paragraph may be changed
without the vote 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.
The Fund shall not do any of the following:
(1) issue any senior securities;
(2) sell securities short, unless at the time it owns an equal amount
of such securities or, by virtue of ownership of convertible or exchangeable
securities, it has the right to obtain through conversion or exchange of such
other securities an amount equal to the securities sold short, in which case the
Fund will retain such securities as long as it is in a short position;
(3) purchase or sell securities on margin, but it may obtain such
short-term credits as may be necessary for the clearance of purchased and sold
securities;
(4) invest in oil and gas interests, puts, calls, straddles, spreads
and options, except that the Fund may write covered call options traded on the
London Stock Exchange, a national securities exchange or the over-the-counter
market and purchase call options to close out previously written call options;
this restriction shall not apply to the extent the investments of one or more
domestic or foreign wholly-owned subsidiaries in metals or minerals contracts
might be considered options;
(5) borrow money, except that the Fund may (a) borrow money from banks
for emergency or extraordinary purposes in aggregate amounts up to 5% of its net
assets and (b) enter into reverse repurchase agreements;
(6) underwrite the securities of other issuers, except to the extent
that, in connection with the disposition of securities of the type referred to
in subparagraph (12) below, the Fund may be deemed to be an underwriter under
certain U.S. securities laws;
(7) invest more than 5% of its total assets taken at market value in
the securities of any one issuer, not including securities of the U.S.
government and its instrumentalities and the securities of one or more domestic
or foreign wholly-owned subsidiaries;
(8) purchase or sell real estate or interests therein or real estate
mortgages, provided that the foregoing shall not prevent the Fund from
purchasing or selling (a) readily marketable securities which are secured by
interests in real estate and (b) readily marketable securities of companies
which deal in real estate, including real estate investment trusts;
(9) purchase or sell commodities or commodity contracts, except that
the Fund may invest in the securities of one or more domestic or foreign
wholly-owned subsidiaries which deal in precious metals and minerals and
contracts relating thereto subject to the limitation that no such investment may
be made if at the time thereof the fair value of all such investments exceeds,
or by virtue of such investment would exceed, an amount equal to 25% of the then
market value of the Fund's total assets, and except also that the Fund may
engage in currency or other financial futures and related options transactions;
(10) make loans to other persons, except through the investment of up
to 25% of the total assets of the Fund in one or more domestic or foreign
wholly-owned subsidiaries; for the purposes of this restriction, the purchase of
a portion of an issue of bonds, notes, debentures or other obligations
distributed publicly, whether or not the purchase is made upon the original
issuance of such securities, will not be deemed to be the making of a loan;
(11) pledge more than 15% of its net assets to secure indebtedness; the
purchase or sale of securities on a "when issued" basis, or collateral
arrangement with respect to the writing of options on securities, are not deemed
to be a pledge of assets;
(12) invest more than 15% of its net assets in securities for which
market quotations are not readily available, or in repurchase agreements
maturing in more than seven days; except that this restriction shall not apply
to the Fund's investments in one or more domestic or foreign wholly-owned
subsidiaries, and except also that the Fund may write covered call options
traded on the over-the-counter market and purchase call options to close out
existing positions;
(13) invest more than 5% of the value of the Fund's total assets in the
securities of any issuers which have a record of less than three years
continuous operation, including the similar operations of predecessors or
parents, or equity securities of issuers which are not readily marketable,
except that this restriction shall not apply to the Fund's investments in one or
more domestic or foreign wholly-owned subsidiaries;
(14) purchase the securities of any other investment company, except
that it may make such a purchase (a) in the open market involving no commission
or profit to a sponsor or dealer, other than the customary broker's commission,
and (b) as part of a merger, consolidation or acquisition of assets; provided
that immediately after any such purchase (a) not more than 10% of the Fund's
total assets would be invested in such securities and (b) not more than 3% of
the voting stock of such company would be owned by the Fund;
(15) purchase or retain the securities of any issuer if the Treasurer
of the Fund has knowledge that those officers and/or Directors of the Fund or
its investment adviser who own individually more than 1/2 of 1% of the
securities of such issuer together own more than 5% of the securities of such
issuer;
(16) invest in companies for the purpose of exercising control or
management, except for one or more domestic or foreign wholly-owned
subsidiaries; or
(17) acquire, directly or indirectly, more than 10% of the voting
securities of any issuer other than one or more domestic or foreign wholly-owned
subsidiaries.
For purposes of Investment Restriction (1) the definition of senior
securities is deemed not to include the borrowings described in Investment
Restriction (5) and reverse repurchase agreements.
The Fund's purchase of securities of other investment companies, as
described in Investment Restriction (14), results in the layering of expenses,
such that shareholders indirectly bear a proportionate share of the expenses of
those investment companies, including operating costs, investment advisory and
administrative fees.
As a matter of practice, the Fund treats reverse repurchase agreements
as borrowings subject to the limitations of the 1940 Act. For further
information about reverse repurchase agreements, see the section on "Additional
Investment Information" in the Fund's prospectus. Also, as a matter of practice,
the Fund does not pledge its assets except in the course of portfolio trading.
Additional restrictions adopted by the Fund, which may be changed by
the Fund's Board of Directors and which are more restrictive than the
fundamental restrictions adopted by the Fund's shareholders, provide that (1)
the Fund shall not purchase the securities of any other investment company,
including unit investment trusts; (2) assets of the Fund may not be pledged or
otherwise encumbered nor transferred or assigned for the purpose of securing a
debt, except in the course of portfolio trading; and (3) the Fund may not borrow
money, except that it may borrow from banks on a temporary basis to facilitate
the redemption of shares or for extraordinary purposes and with the consent of
the Fund's custodian bank with respect to the conditions of the loan. (Amounts
so borrowed shall not exceed 5% of the Fund's total assets computed immediately
prior to such borrowing and in no event more than 10% of the Fund's net assets
at such time.)
Although not fundamental restrictions or policies requiring a
shareholders' vote to change, the Fund has undertaken to a state securities
authority that, so long as the state authority requires and shares of the Fund
are registered for sale in that state, the Fund will (1) limit its purchase of
warrants to 5% of net assets, of which 2% may be warrants not listed on the New
York or American Stock Exchanges; (2) not invest in real estate limited
partnership interests; and (3) not invest in oil, gas or other mineral leases.
If a percentage limit is satisfied at the time of investment or
borrowing, a later increase or decrease resulting from a change in asset value
of a security or a decrease in Fund assets is not a violation of the limit.
In order to permit the sale of Fund shares in certain states, the Fund
may make commitments more restrictive than the investment restrictions described
above. Should the Fund determine that any such commitment is no longer in the
best interests on the Fund, it will revoke the commitment by terminating sales
of its shares in the state involved.
- --------------------------------------------------------------------------------
VALUATION OF SECURITIES
- --------------------------------------------------------------------------------
Current value for the Fund's portfolio securities are generally
determined as follows:
(1) Investments, including ADRs, are usually valued at the closing sales price
or, in the absence of sales and for over-the-counter securities, the mean of bid
and asked quotations. Management values the following securities at prices it
deems in good faith to be fair: (a)securities for which complete quotations are
not readily available; and (b)listed securities if, in the opinion of
management, the last sales price does not reflect a current value or if no sale
occurred. ADRs, certificates representing shares of foreign securities deposited
in domestic and foreign banks, are traded and valued in U.S. dollars. Those
securities traded in foreign currency amounts are translated into United States
dollars as follows: market value of investments, assets and liabilities at the
daily rate of exchange; purchases and sales of investments, income and expenses
at the rate of exchange prevailing on the respective dates of such transactions.
Net unrealized foreign exchange gains/losses are a component of unrealized
appreciation/depreciation of investments.
(2) Short-term investments maturing in sixty days or less are valued at
amortized cost (original purchase cost as adjusted for amortization of premium
or accretion of discount, which, when combined with accrued interest,
approximates market.) Short-term investments maturing in more than sixty days
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.)
(3) The Fund's Board of Directors values the following securities at prices it
deems in good faith to be fair: (a) securities, including restricted securities,
for which complete quotations are not readily available; (b) listed securities
if, in the Board's opinion, the last sales price does not reflect a current
market value or if no sale occurred; (c) the Fund's investment in any
subsidiary; and (d) other assets.
- --------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
The Fund distributes to its shareholders dividends from net investment
income and net realized long-term and short-term capital gains annually in
shares or, at the option of the shareholder, in cash. Shareholders who have not
opted, prior to the record date for any distribution, to receive cash will have
the number of distributed shares determined on the basis of the Fund's net asset
value per share computed at the end of the day on the record date after
adjustment for the distribution. Net asset value is used in computing the number
of shares in both gains and income distribution reinvestments. Account
statements and/or checks as appropriate will be mailed to shareholders within
seven days after the Fund pays the distribution. Unless the Fund receives
instructions to the contrary from a shareholder before the record date, it will
assume that the shareholder wishes to receive that distribution and future gains
and income distributions in shares. Instructions continue in effect until
changed in writing.
Distributed long-term capital gains are taxable as such to the
shareholder and regardless of the period of time Fund shares have been held by
the shareholder. However, if such shares are held less than six months and
redeemed at a loss, the shareholder will recognize a long term capital loss on
such shares to the extent of the long term capital gain distribution received in
connection with such shares. If the net asset value of the Fund's shares is
reduced below a shareholder's cost by a capital gains distribution, such
distribution, to the extent of the reduction, would be a return of investment
though taxable as stated above. Since distributions of capital gains depend upon
profits actually realized from the sale of securities by the Fund, they may or
may not occur. The foregoing comments relating to the taxation of dividends and
distributions paid on the Fund's shares relate solely to federal income
taxation. Such dividends and distributions may also be subject to state and
local taxes.
Any capital gains realized by any wholly-owned subsidiary and paid as a
dividend by such subsidiary to the Fund will be treated as ordinary income (and
not as capital gains) by the Fund and taken into consideration in computing the
Fund's net income.
When the Fund makes a distribution, it intends to distribute only its
net capital gains and such income as has been predetermined, to the best of the
Fund's ability, to be taxable as ordinary income. Shareholders of the Fund will
be advised annually of the federal income tax status of distributions.
If more than 50% of the value of the Fund's total assets at the end of
a fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to the Fund's shareholders, a
shareholder will be required to include in his gross income both actual
dividends and the amount the Fund advises him is his pro rata portion of income
taxes withheld by foreign governments from interest and dividends paid on the
Fund's investments. The shareholder will be entitled, however, to take the
amount of his share of such foreign taxes withheld as a credit against his
United States income tax, or to treat his share of the foreign tax withheld as
an itemized deduction from his gross income, if that should be to his advantage.
In substance, this policy enables the shareholder to benefit from the same
foreign tax credit or deduction that he would have received if he had been the
individual owner of foreign securities and had paid foreign income tax on the
income therefrom. As in the case of individuals receiving income directly from
foreign sources, the above described tax credit and deductions are subject to
certain limitations.
- --------------------------------------------------------------------------------
SALES CHARGES
- --------------------------------------------------------------------------------
In order to reimburse the Fund for certain expenses relating to the
sale of its shares (see "Distribution Plan"), a deferred sales charge may be
imposed at the time of redemption of certain Fund shares within four calendar
years after their purchase. If imposed, the deferred sales charge is deducted
from the redemption proceeds otherwise payable to the shareholder. Since July 8,
1992, the deferred sales charge attributable to shares purchased prior to
January 1, 1992 has been retained by the Fund, and the deferred sales charge
attributable to shares purchased after January 1, 1992 is, to the extent
permitted by a rule adopted by the National Association of Securities Dealers,
Inc. ("NASD"), is paid to the Principal Underwriter. For the fiscal year ended
February 28, 1995, the Fund recovered $24,927 in deferred sales charges.
The contingent deferred sales charge is a declining percentage of the
lesser of (1) the net asset value of the shares redeemed, or (2) the total cost
of such shares. No 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.
Subject to the limitations stated above, the contingent deferred sales
charge is imposed according to the following schedule: 4% of amounts redeemed
during the calendar year of purchase; 3% of amounts redeemed during the calendar
year after the year of purchase; 2% of amounts redeemed during the second
calendar year after the year of purchase; and 1% of amounts redeemed during the
third calendar year after the year of purchase. No contingent deferred sales
charge is imposed on amounts redeemed thereafter.
The following example illustrates the operation of the contingent
deferred sales charge. Assume that an investor makes a purchase payment of
$10,000 during the calendar year 1995 and on a given date in 1996 the value of
the investor's account has grown through investment performance and reinvestment
of distributions to $12,000. On such date in 1996, the investor could redeem up
to $2,000 ($12,000 minus $10,000) without incurring a deferred sales charge. If,
on such date, the investor should redeem $3,000, a deferred sales charge would
be imposed on $1,000 of the redemption proceeds (the amount by which the
investor's account was reduced by the redemption below the amount of the initial
purchase payment). The charge would be imposed at the rate of 3% (because the
redemption is made during the calendar year after the calendar year of
purchase), and would total $30.
In determining whether a contingent deferred sales charge is payable
and, if so, the percentage charge applicable, it is assumed that shares held the
longest are the first to be redeemed. There is no 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, the
calendar year of the exchange, for purposes of any future deferred sales charge,
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 deferred sales charge to (1) officers, Directors, Trustees,
full-time employees and sales representatives of the Fund, Keystone Management,
Keystone, Keystone Investments, Inc. ("Keystone Investments"), Harbor Capital
Management Company, Inc., their subsidiaries and the Principal Underwriter who
have been such for not less than ninety days; and (2) the pension and
profit-sharing plans established by such companies, their subsidiaries and
affiliates, for the benefit of their officers, Directors, Trustees, full-time
employees and sales representatives, provided, however, that 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.
No 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 other Fund in the Keystone Fund Family (as hereinafter defined),
Keystone Precious Metals Holdings, Inc., Keystone International Fund Inc.,
Keystone Tax Exempt Trust, Keystone Tax Free Fund, Keystone Liquid Trust and/or
any Keystone America Fund (as hereinafter defined), is at least $500,000 and any
commission paid by the Fund and such other funds at the time of such purchase is
not more than 1% of the amount invested.
In addition, no contingent deferred sales charge is imposed on a
redemption of shares of the Fund in the event of (1) death or disability of the
shareholder; (2) a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security Act of 1974
("ERISA"); (3) automatic withdrawals from ERISA plans if the shareholder is a
least 591/2 years old; (4) involuntary redemptions of accounts having an
aggregate net asset value of less than $1,000; (5) automatic withdrawals under
an automatic withdrawal plan of up to 11/2% per month of the shareholder's
initial account balance; (6) withdrawals consisting of loan proceeds to a
retirement plan participant; (7) financial hardship withdrawals made by a
retirement plan participant; or (8) withdrawals consisting of returns of excess
contributions or excess deferral amounts made to a retirement plan participant.
- --------------------------------------------------------------------------------
DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund to use their assets to bear expenses of distributing their shares if they
comply with various conditions, including adoption of a distribution plan
containing certain provisions set forth in Rule 12b-1. The Fund bears some of
the costs of selling its shares under a Distribution Plan adopted on July 10,
1984 pursuant to Rule 12b-1 (the "Distribution Plan").
The Fund's Distribution Plan provides that the Fund may expend up to
0.3125% quarterly (approximately 1.25% annually) of average daily net asset
value of its shares to pay distribution costs for sales of its shares and to pay
shareholder service fees. The NASD 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 charge paid by
shareholders to the Principal Underwriter).
In connection with the Distribution Plan, Fund shares are offered for
sale at net asset value without any initial sales charge, and the Fund pays or
accrues to the Principal Underwriter commissions in accordance with the
following schedule:
PRINCIPAL
UNDERWRITER AMOUNT
FUND PAYS SELLING RETAINED
PRINCIPAL BROKER- BY PRINCIPAL
AMOUNT OF SALE UNDERWRITER DEALERS UNDERWRITER
- ------------------- ----------- ----------- ------------
Less than $100,000 5.0% 4.0% 1.0%
$100,000 - $249,999 2.5% 2.0% 0.5%
$250,000 - $499,999 1.0% 1.0% -0-
Over $500,000 0.5% 0.5% -0-
Payments under the Distribution Plan are currently made to the
Principal Underwriter (which may reallow all or part to others, such as dealers)
(1) as commissions for Fund shares sold and (2) as shareholder service fees in
respect of shares maintained by the recipients outstanding on the Fund's books
for specific periods. Amounts paid or accrued to the Principal Underwriter under
(1) and (2) in the aggregate may not exceed the limitation referred to above. In
addition, the Principal Underwriter generally reallows to brokers or others 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 the Principal Underwriter a commission on
a new sale because the annual maximum (0.75% of average daily net assets) has
been reached, the Principal Underwriter intends, but is not obligated, to
continue to accept new orders for the purchase of Fund shares and to pay
commissions and service fees to dealers in excess of the amount it currently
receives from the Fund. While the Fund is under no contractual obligation to
reimburse the Principal Underwriter for advances made by the Principal
Underwriter in excess of the Distribution Plan limitation, the Principal
Underwriter intends to seek full payment of such amounts 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. The Principal Underwriter currently intends to seek payment of interest
only on such charges paid or accrued by the Principal Underwriter subsequent to
January 1, 1992. If the Fund's Independent Directors ("Independent Directors")
authorize such payments, the effect will be to extend the period of time during
which the Fund incurs the maximum amount of costs allowed by the Distribution
Plan. If the Distribution Plan is terminated, the Principal Underwriter will ask
the Independent Directors 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 Independent Directors quarterly. The Fund's Independent Directors 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 Directors,
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 Directors 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 votes of the majority of both (1) the Funds Directors and
(2) the Independent Directors 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 Directors to
the discretion of the Independent Directors.
For the fiscal year ended February 28, 1995, the Fund paid the
Principal Underwriter $2,085,500 under the Distribution Plan. For said year, the
Principal Underwriter retained $1,702,590 and paid commissions on new sales and
service fees to dealers and others in the amount of $597,485.
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.
The Independent Directors of the Fund have determined that the sales of
the Fund's shares resulting from payments under the Distribution Plan have
benefited the Fund.
- --------------------------------------------------------------------------------
REDEMPTIONS IN KIND
- --------------------------------------------------------------------------------
If conditions arise that would make it undesirable for the Fund to pay
for all redemptions in cash, the Fund may authorize payment to be made in
portfolio securities or other property of the Fund. The Fund has obligated
itself, however, under the 1940 Act to redeem for cash all shares presented for
redemption by any one shareholder in any 90-day period up to the lesser of
$250,000 or 1% of the Fund's net assets. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving such securities would incur
brokerage costs when these securities are sold.
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Subject to the general supervision of the Fund's Board of Directors,
Keystone, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034,
serves as investment adviser to the Fund and is responsible for the overall
management to the Fund's business and affairs. Keystone has provided investment
advisory and management services to investment companies and private accounts
since it was organized in 1932. Keystone is a wholly-owned subsidiary of
Keystone Investments, Inc., 200 Berkeley Street, Boston, Massachusetts
02116-5034.
Keystone Investments is a corporation privately owned by current and
former members of management and certain employees of Keystone and its
affiliates. The shares of Keystone Investments common stock beneficially owned
by management are held in a number of voting trusts, the trustees of which are
George S. Bissell, Albert H. Elfner, III, Edward E. Godfrey and Ralph J.
Spuehler, Jr. Keystone Investments provides accounting, bookkeeping, legal,
personnel and general corporate services to Keystone Management, Inc., Keystone,
their affiliates and the Keystone Investments Family of Funds.
The Investment Advisory Agreement (the "Advisory Agreement") between
the Fund and Keystone provides that Keystone shall furnish to the Fund office
space and all necessary office facilities, equipment and personnel for managing
the investment and reinvestment of the assets of the Fund and shall arrange, if
desired by the Fund, for members of Keystone's organization to serve without
salaries from the Fund as officers or agents of the Fund. All expenses (other
than those specifically referred to as being borne by Keystone) incurred in the
operation of the Fund are borne by the Fund. Such expenses include, among
others, interest, taxes, brokerage fees and commissions, fees of Directors who
are not affiliated persons of Keystone, charges of custodians, transfer and
dividend disbursing agents and registrars and bookkeeping, auditing and legal
expenses.
The Advisory Agreement provides that, as compensation for its services
to the Fund, Keystone is entitled to a fee at the annual rate of 3/4 of 1% of
the first $100,000,000, 5/8 of 1% of the next $100,000,000 and 1/2 of 1% of the
excess over $200,000,000 of the average of the daily net asset values of the
Fund computed as of the close of business on each business day, such fee to be
reduced by the amount of any compensation paid to Keystone by or on behalf of
the Fund's wholly-owned subsidiaries in consideration for services rendered in
connection with the investment and reinvestment of the assets of such
subsidiaries. The Advisory Agreement also provides that the Fund will reimburse
Keystone on a cost basis in the event Keystone provides any services (excluding
printing) involved in registering and maintaining registrations of the Fund and
its shares with the Securities and Exchange Commission or any services involved
in preparing reports to shareholders. Keystone has undertaken to bear the
expenses of the Fund (including the management fee, but excluding brokerage
commissions, shareholder service fees, taxes, interest and any extraordinary
expenses) in any fiscal year in excess of the most restrictive state expense
limitation then applicable to the Fund.
During the fiscal year ended February 28, 1993, the Fund paid or
accrued management fees of $849,474 to Keystone, which represented 0.72% of the
Fund's average daily net assets. Keystone paid a sub-advisory fee of $350,885 to
Harbor Capital for the year ended February 28, 1993.
During the fiscal year ended February 28, 1994, the Fund paid or
accrued management fees of $1,189,670 to Keystone, which represented 0.69% of
the Fund's average daily net assets. Keystone paid or accrued a sub-advisory fee
of $404,777 to Harbor Capital for the year ended February 28, 1994.
During the fiscal year ended February 28, 1995, the Fund paid or
accrued management fees of $1,396,523 to Keystone, which represented 0.68% of
the Fund's average daily net assets. Keystone paid or accrued a sub-advisory fee
of $451,566 to Harbor Capital for the year ended February 28, 1995.
The Advisory Agreement continues in effect from year to year only so
long as such continuance is specifically approved at least annually by the
Fund's Board of Directors or a majority of the outstanding voting securities of
the Fund and such renewal has been approved by the vote of a majority of
Directors of the Fund who are not "interested persons," as that term is defined
in the 1940 Act, of Keystone or of the Fund, cast in person at a meeting called
for the purpose of voting on such approval. The Advisory Agreement automatically
terminates upon its assignment (within the meaning of the 1940 Act) and is
terminable at any time, without penalty, by the Fund's Board of Directors or by
a vote of a majority of the outstanding voting securities of the Fund on 60
days' written notice to Keystone, and by Keystone on 90 days' written notice to
the Fund. The Advisory Agreement will terminate automatically upon its
"assignment" as that term is defined in the 1940 Act.
- --------------------------------------------------------------------------------
SUBADVISER/CONSULTANT
- --------------------------------------------------------------------------------
Harbor Capital, located at 125 High Street, Boston, Massachusetts
02110, has provided investment counsel to individuals and institutions,
including endowment funds, foundations, and pension and profit sharing trusts,
since it was organized in 1979.
The Directors of Harbor Capital are Jay A. Direnberger, Alan S. Fields,
Lawrence J. Marks, Malcolm Pirnie, III (President), Stanley Schlozman, Frederick
G. P. Thorne (Chairman), and Peter J. Widmer, (each of whom owns 10% or more of
its outstanding voting securities).
The SubAdvisory Agreement between Keystone and Harbor Capital dated
August 19, 1993 (the"SubAdvisory Agreement") will continue in effect until
August 1, 1995. It provides that Harbor Capital, subject to the supervision of
the Fund's Board of Directors and Keystone, will furnish continuously an
investment program for the Fund and will furnish to Keystone, from time to time,
as needed or requested, investment research, advice, information and
recommendations concerning securities to be acquired, held or sold by the Fund
and commodities and other assets to be acquired, held or sold by Precious Metals
(Bermuda) Ltd., a wholly-owned subsidiary of the Fund (the "Subsidiary"). Harbor
Capital will also direct the trading of all securities for the account of the
Fund and of all commodities or other assets for the account of the Subsidiary.
The SubAdvisory Agreement provides that Harbor Capital be paid in each
fiscal quarter for its services in the preceding quarter 50% of the amount of
the fee paid Keystone under the Advisory Agreement remaining for the preceding
quarter after deduction of the interest expense incurred or imputed at a
specified rate by the Fund's Principal Underwriter in connection with certain
payments made by the Principal Underwriter for sales of Fund shares under the
Fund's 12b-1 Plan, but, in no event, less than the total of (a) 70% of
Keystone's fee on the first $50.1 million of the Fund's average daily net
assets; plus (b) 40% of Keystone's fee on the next $20 million of such assets;
plus (c) 10% of Keystone's fee on the next $50 million of such assets; plus
17.5% of Keystone's fee on such assets that exceed $120.1 million.
Notwithstanding the foregoing, the maximum fee payable to Harbor Capital in any
fiscal year (or period) shall not exceed 90% of the fees with respect to such
fiscal year (or period) payable to Keystone.
The SubAdvisory Agreement will be automatically renewed annually unless
either party thereto has given the other at least 180 days' notice of its
intention to terminate the SubAdvisory Agreement at the end of the contract
period then in effect; provided, however, that the SubAdvisory Agreement will
continue in effect for more than two years from the effective date thereof only
so long as such continuance is specifically approved at least annually by the
Fund's Directors or shareholders in the manner prescribed by the 1940 Act. The
SubAdvisory Agreement may be terminated at any time, without penalty, by the
Fund's Board of Directors or by a vote of a majority of the Fund's outstanding
voting securities, on 60 days' written notice to Harbor Capital. The SubAdvisory
Agreement automatically terminates upon its "assignment" (as defined in the 1940
Act) by either party.
Effective August 1, 1995, it is anticipated that the adviser will
terminate its Subadvisory Agreement with Harbor Capital, and simultaneously
enter into a Consultant Agreement with Harbor Capital. Pursuant to the terms of
the Consultant Agreement, Harbor Capital will provide Keystone with monthly
reports discussing the world's gold bullion markets and gold stock markets, and
advice regarding economic factors and trends in the precious metals sectors.
For its services under the Consultant Agreement, Harbor Capital will
receive from Keystone a fee at the annual rate of 0.10% of the Fund's average
daily net assets.
The Consultant Agreement shall continue in effect for a period of two
years from August 1, 1995 and thereafter from year to year if the parties
thereto agree. The Consultant Agreement may be terminated by either party,
without penalty, on 60 days' written notice to the other party. Neither party
may assign the Consultant Agreement without the consent of the other party.
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DIRECTORS AND OFFICERS
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The Directors and officers of the Fund, their principal occupations and
some of their affiliations during the past five years are as follows:
*ALBERT H. ELFNER, III: President, Chief Executive Officer and Director of the
Fund; Chairman of the Board, President, Director and Chief Executive
Officer of Keystone Investments, Inc. ("Keystone Investments"); President,
Chief Executive Officer and Trustee or Director of all 30 Funds in the
Keystone Investments Family of Funds; Director and Chairman of the Board,
Chief Executive Officer and Vice Chairman of Keystone Investment Management
Company ("Keystone"); Chairman of the Board and Director of Keystone
Institutional Company, Inc. ("Keystone Institutional") (formerly named
Keystone Investment Management Corporation), and Keystone Fixed Income
Advisors ("KFIA"); Director, Chairman of the Board, Chief Executive Officer
and President of Keystone Management, Inc. ("Keystone Management"),
Keystone Software Inc. ("Keystone Software"); Keystone Asset Corporation,
Keystone Capital Corporation, and Keystone Trust Company; Director of
Keystone Investment Distributors Company ("the Principal Underwriter"),
Keystone Investor Resource Center, Inc. ("KIRC"), and Fiduciary Investment
Company, Inc. ("FICO"); Director and Vice President of Robert Van Partners,
Inc.; Director of Boston Children's Services Association; Trustee of
Anatolia College, Middlesex School, and Middlebury College; Member, Board
of Governors, New England Medical Center; and former Trustee of Neworld
Bank.
FREDERICK AMLING: Director of the Fund; Trustee or Director of all other
Keystone Investments Funds; Professor, Finance Department, George
Washington University; President, Amling & Company (investment advice);
Member, Board of Advisers, Credito Emilano (banking); and former Economics
and Financial Consultant, Riggs National Bank.
CHARLES A. AUSTIN III: Director of the Fund; Trustee or Director of all other
Keystone Investments Funds; Investment Counselor to Appleton Partners,
Inc.; former Managing Director, Seaward Management Corporation (investment
advice) and former Director, Executive Vice President and Treasurer, State
Street Research & Management Company (investment advice).
*GEORGE S. BISSELL: Chairman of the Board and Director of the Fund; Director of
Keystone Investments; Chairman of the Board and Trustee or Director of all
other Keystone Investments Funds; Director and Chairman of the Board of
Hartwell Keystone; Chairman of the Board and Trustee of Anatolia College;
Trustee of University Hospital (and Chairman of its Investment Committee);
former Chairman of the Board and Chief Executive Officer of Keystone
Investments; and former Chief Executive Officer of the Fund.
EDWIN D. CAMPBELL: Director of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Director, Coalition of Essential
Schools, Brown University; Director and former Executive Vice President,
National Alliance of Business; former Vice President, Educational Testing
Services; and former Dean, School of Business, Adelphi University.
CHARLES F. CHAPIN: Director of the Fund; Trustee or Director of all other
Keystone Investments Funds; former Group Vice President, Textron Corp.; and
former Director, Peoples Bank (Charlotte, N.C).
LEROY KEITH, JR.: Director of the Fund; Trustee or Director of all other
Keystone Investments Funds; Director of Phoenix Total Return Fund and
Equifax, Inc.; Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio Fund
and The Phoenix Big Edge Series Fund; and former President, Morehouse
College.
K. DUN GIFFORD: Director of the Fund; Trustee or Director of all other
Keystone Investments Funds; Chairman of the Board, Director and Executive
Vice President, The London Harness Company; Managing Partner, Roscommon
Capital Corp.; Trustee, Cambridge College; Chairman Emeritus and Director,
American Institute of Food and Wine; Chief Executive Officer, Gifford Gifts
of Fine Foods; Chairman, Gifford, Drescher & Associates (environmental
consulting); President, Oldways Preservation and Exchange Trust
(education); and former Director, Keystone Investments and Keystone.
F. RAY KEYSER, JR.: Director of the Fund; Trustee or Director of all other
Keystone Investments Funds; Of Counsel, Keyser, Crowley & Meub, P.C.;
Member, Governor's (VT) Council of Economic Advisers; Chairman of the Board
and Director, Central Vermont Public Service Corporation and Hitchcock
Clinic; Director, Vermont Yankee Nuclear Power Corporation, Vermont
Electric Power Company, Inc., Grand Trunk Corporation, Central Vermont
Railway, Inc., S.K.I. Ltd., Sherburne Corporation, Union Mutual Fire
Insurance Company, New England Guaranty Insurance Company, Inc. and the
Investment Company Institute; former Governor of Vermont; former Director
and President, Associated Industries of Vermont; former Chairman and
President, Vermont Marble Company; former Director of Keystone; and former
Director and Chairman of the Board, Green Mountain Bank.
DAVID M. RICHARDSON: Director of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Vice President, DHR International,
Inc. (executive recruitment); former Senior Vice President, Boyden
International Inc. (executive recruitment); and Director, Commerce and
Industry Association of New Jersey, 411 International, Inc. and J & M
Cumming Paper Co.
RICHARD J. SHIMA: Director of the Fund; Trustee or Director of all other
Keystone Investments Funds; Chairman, Environmental Warranty, Inc., and
Consultant, Drake Beam Morin, Inc. (executive outplacement); Director of
Connecticut Natural Gas Corporation, Trust Company of Connecticut, Hartford
Hospital, Old State House Association and Enhanced Financial Services,
Inc.; Member, Georgetown College Board of Advisors; Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Kingswood-Oxford School and
Greater Hartford YMCA; former Director, Executive Vice President and Vice
Chairman of The Travelers Corporation; and former Managing Director of
Russell Miller, Inc.
ANDREW J. SIMONS: Director of the Fund; Trustee or Director of all other
Keystone Investments Funds; Partner, Farrell, Fritz, Caemmerer, Cleary,
Barnosky & Armentano, P.C.; President, Nassau County Bar Association;
former Associate Dean and Professor of Law, St. John's University School of
Law.
EDWARD F. GODFREY: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Investments Funds; Director, Senior Vice President,
Chief Financial Officer and Treasurer of Keystone Investments, the
Principal Underwriter, Keystone Asset Corporation, Keystone Capital
Corporation, Keystone Trust Company; Treasurer of Keystone Institutional,
Robert Van Partners, Inc., and FICO; Treasurer and Director of Keystone
Management, Keystone Software, and Hartwell Keystone; Vice President and
Treasurer of KFIA; and Director of KIRC.
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of all
other Keystone Investments Funds; and President of Keystone.
KEVIN J. MORRISSEY: Treasurer of the Fund; Treasurer of all other Keystone
Investments Funds; Vice President of Keystone Investments; Assistant
Treasurer of FICO and Keystone; and former Vice President and Treasurer of
KIRC.
ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Fund; Senior
Vice President and Secretary of all other Keystone Investments Funds;
Senior Vice President, General Counsel and Secretary of Keystone; Senior
Vice President, General Counsel, Secretary and Director of the Principal
Underwriter, Keystone Management and Keystone Software; Senior Vice
President and General Counsel of Keystone Institutional; Senior Vice
President, General Counsel and Director of FICO and KIRC: Senior Vice
President and Secretary of Hartwell Keystone and Robert Van Partners, Inc.
Vice President and Secretary of KFIA; Senior Vice President, General
Counsel and Secretary of Keystone Investments, Keystone Asset Corporation,
Keystone Capital Corporation and Keystone Trust Company.
MALCOLM PIRNIE III: Vice President of the Fund (office to terminate effective
August 1, 1995); Managing Director and President of Harbor Capital;
Director of Nova Petroleum Corporation.
FREDERICK G.P. THORNE: Vice President of the Fund (office to terminate effective
August 1, 1995); Managing Director and Chairman of Harbor Capital.
* This Director may be considered an "interested person" within the meaning of
the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Investments and several of
its affiliates including Keystone, the Principal Underwriter and KIRC. Mr.
Elfner and Mr. Bissell own shares of Keystone Investments. Mr. Elfner is
Chairman of the Board, Chief Executive Officer and Director of Keystone
Investments. Mr. Bissell is a Director of Keystone Investments.
For the fiscal year ended February 28, 1995, none of the Directors and
officers of Keystone or Harbor Capital received any direct remuneration from the
Fund or the Subsidiary. During the same period, the independent Directors
received approximately $556,080 in retainers and fees. Annual retainers and
meeting fees paid by all funds in the Keystone Investments Family of Funds
(which includes 30 mutual funds) for the fiscal year ended February 28, 1995,
totalled approximately, $556,100. On May 31, 1995, the Fund's Directors and
officers, as a group, owned less than 1% of the Fund's outstanding shares.
Except where otherwise indicated, the address of all of the Fund's
Directors and officers and the address of the Fund is 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
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PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
Pursuant to a Principal Underwriting Agreement (the "Underwriting
Agreement"), Keystone Investment Distributors Company acts as the Fund's
principal underwriter. The Principal Underwriter, located at 200 Berkeley
Street, Boston, Massachusetts 02116-5034, is a Delaware corporation wholly-owned
by Keystone. The Principal Underwriter, as agent, has agreed to use its best
efforts to find purchasers for the shares. The Principal Underwriter may retain
and employ representatives to promote distribution of the shares and may obtain
orders from brokers, dealers and others, acting as principals, for sales of
shares to them. The Underwriting Agreement provides that the Principal
Underwriter will bear the expense of preparing, printing and distributing
advertising and sales literature and prospectuses used by it. In its capacity as
principal underwriter, the Principal Underwriter may receive payments from the
Fund pursuant to the Fund's Distribution Plan.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved by a majority of the Fund's
Independent Directors at least annually at a meeting called for that purpose and
if its continuance is approved annually by vote of a majority of Directors 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 Directors or by a vote of a majority of
outstanding shares. The Underwriting Agreement will terminate automatically upon
its "assignment" as that term is defined in the 1940 Act.
From time to time, if in the Principal Underwriter's judgment it could
benefit the sales of Fund shares, the Principal Underwriter may use its
discretion in providing to selected dealers promotional materials and selling
aids, including, but not limited to, personal computers, related software and
Fund data files.
During the fiscal years ended February 28, 1993, 1994 and 1995, the
Principal Underwriter earned commissions of $217,306, $124,209 and $24,927,
respectively, after reallowing commissions and service fees of $719,190,
$1,623,559 and $2,060,573, respectively, to retail brokers and others under the
Distribution Plan.
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BROKERAGE
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It is the policy of the Fund, in effecting transactions in portfolio
securities, to seek best execution of orders at the most favorable prices. The
determination of what may constitute best execution and price in the execution
of a securities transaction by a broker involves a number of considerations,
including, without limitation, the overall direct net economic result to the
Fund, involving both price paid or received and any commissions and other costs
paid, the efficiency with which the transaction is effected, the ability to
effect the transaction at all where a large block is involved, the availability
of the broker to stand ready to execute potentially difficult transactions in
the future and the financial strength and stability of the broker. Such
considerations are weighed by management in determining the overall
reasonableness of brokerage commissions paid.
Subject to the foregoing, a factor in the selection of brokers is the
receipt of research services, such as analyses and reports concerning issuers,
industries, securities, economic factors and trends and other statistical and
factual information. Any such research and other statistical and factual
information provided by brokers to the Fund, Keystone Management or Keystone is
considered to be in addition to and not in lieu of services required to be
performed by Keystone Management under the Management Agreement or Keystone
under the Advisory Agreement. The cost, value and specific application of such
information are indeterminable and cannot be practically allocated among the
Fund and other clients of Keystone Management or Keystone who may indirectly
benefit from the availability of such information. Similarly, the Fund may
indirectly benefit from information made available as a result of transactions
effected for such other clients. Under the Management Agreement and the Advisory
Agreement, Keystone Management and Keystone are permitted to pay higher
brokerage commissions for brokerage and research services in accordance with
Section 28(e) of the Securities Exchange Act of 1934. In the event Keystone
Management and Keystone do follow such a practice, they will do so on a basis
which is fair and equitable to the Fund.
The Fund expects that purchases and sales of securities usually will be
effected through brokerage transactions for which commissions are payable.
Purchases from underwriters will include the underwriting commission or
concession, and purchases from dealers serving as market makers will include a
dealer's mark up or reflect a dealer's mark down. Where transactions are made in
the over-the-counter market, the Fund will deal with primary market makers
unless more favorable prices are otherwise obtainable.
The Fund may participate, if and when practicable, in group bidding for
the purchase directly from an issuer of certain securities for the Fund's
portfolio in order to take advantage of the lower purchase price available to
members of such a group.
Neither 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.
In no instance are portfolio securities purchased from or sold to
Keystone Management, Keystone, the Principal Underwriter or any of their
affiliated persons, as defined in the 1940 Act and rules and regulations issued
thereunder.
During the fiscal years ended February 28, 1993, 1994 and 1995, the
Fund paid approximately $377,533, $574,733 and $523,000, respectively, in
brokerage commissions.
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STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
- --------------------------------------------------------------------------------
Total return quotations for the Fund as they may appear from time to
time in advertisements are calculated by finding the average annual compounded
rates of return over the one, five and ten year periods on a hypothetical $1,000
investment that would equate the initial amount invested to the ending
redeemable value. To the initial investment all dividends and distributions are
added, and all recurring fees charged to all shareholder accounts are deducted.
The ending redeemable value assumes a complete redemption at the end of the one,
five or ten year periods.
The cumulative total returns of the Fund for the five and ten year
periods ended February 28, 1995 were 4.88% and 99.09%, respectively. The
compounded average annual rates of return for the one, five and ten year periods
ended February 28, 1995 were (25.00%) (including contingent deferred sales
charge), 0.96% and 7.13%, respectively.
Current yield quotations as they may appear from time to time in
advertisements will consist of a quotation based on a 30- day period ended on
the date of the most recent balance sheet of the Fund, computed by dividing the
net investment income per share earned during the period by the maximum offering
price per share on the last day of the base period. The Fund presently does not
intend to advertise current yield.
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ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian ("Custodian") of all securities and cash
of the Fund. The Custodian may hold securities of some foreign issuers with
subcustodians located outside the United States. 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 Fund's independent auditors.
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519,
is a wholly-owned subsidiary of Keystone and acts as transfer agent and dividend
disbursing agent for the Fund.
As of May 31, 1995, Merrill Lynch Pierce Fenner & Smith, Attn: Book
Entry, 4800 Deer Lake Drive E 3rd Floor, Jacksonville, FL owned of record 15.75%
of the Fund's then outstanding shares. As of March 31, 1995, management was not
aware of any other person owning beneficially or of record 5% or more of the
Fund's then 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
Securities and Exchange Commission, which may be obtained from the Commission's
principal office in Washington, D.C. upon payment of the fee prescribed by the
rules and regulations promulgated by the Securities and Exchange Commission.
<PAGE>
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APPENDIX
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MONEY MARKET INSTRUMENTS
The Fund's investments in commercial paper are limited to those rated
A-1 by Standard & Poor's Corporation ("S&P"), PRIME-1 by Moody's Investors
Service, Inc. ("Moody's") or F-1 by Fitch Investors Service, Inc. ("Fitch").
These ratings and other money market instruments are described as follows:
COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by 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.
The rating PRIME-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public
preparations to meet such obligations. Relative strength or weakness of the
above factors determines how the issuer's commercial paper is rated within
various categories.
The rating F-1 is the highest rating assigned by Fitch. Among the
factors considered by Fitch in assigning this rating are: (1) the issuer's
liquidity; (2) its standing in the industry; (3) the size of its debt; (4) its
ability to service its debt; (5) its profitability; (6) its return on equity;
(7) its alternative sources of financing; and (8) its ability to access the
capital markets. Analysis of the relative strength or weakness of these factors
and others determines whether an issuer's commercial paper is rated F-1.
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the 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 U.S. 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 U.S. government agencies and instrumentalities,
such as Treasury bills and Government National Mortgage Association ("GNMA")
pass-through certificates, are supported by the full faith and credit of the
U.S.; 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 U.S. government is not
obligated by law to provide support to an instrumentality it sponsors, the Fund
will invest in the securities issued by such an instrumentality only when
Keystone determines that the credit risk with respect to the instrumentality
does not make its securities unsuitable investments. U.S. government securities
will not include international agencies or instrumentalities in which the U.S.
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 U.S. 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 currently does not intend to purchase
such foreign securities (except to the extent that certificates of deposit of
foreign branches of U.S. banks may be deemed foreign securities) or purchase
certificates of deposit, bankers' acceptances or other similar obligations
issued by foreign banks.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short-term credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Fund must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total deposits at the time of purchase in excess of $1 billion and must be
payable in U.S. dollars.
OPTIONS TRANSACTIONS
The Fund is authorized to write (i.e., sell) covered call options and
to purchase call options, including purchasing call options to close out covered
call options previously written. A call option obligates a writer to sell and
gives a purchaser the right to buy the underlying security at the stated
exercise price at any time until the stated expiration date.
The Fund will only write call options that are covered, which means
that the Fund will own the underlying security (or other securities, such as
convertible securities, which are acceptable for escrow) when it writes the call
option and until the Fund's obligation to sell the underlying security is
extinguished by exercise or expiration of the call option or the purchase of a
call option covering the same underlying security and having the same exercise
price and expiration date. The Fund may write a call option on any portfolio
security for which call options are available and listed on the London Stock
Exchange or a national securities exchange. The Fund will receive a premium for
writing a call option but will give up, until the expiration date, the
opportunity to profit from an increase in the underlying security's price above
the exercise price. The Fund will retain the risk of loss from a decrease in the
price of the underlying security. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked options which the Fund will not do) but capable
of enhancing the Fund's total returns.
The premium received by the Fund for writing a covered call option will
be recorded as a liability in the Fund's statement of assets and liabilities.
This liability will be adjusted daily to the option's current market value,
which will be the latest sale price at the time as of which the net asset value
per share of the Fund is computed (the close of the New York Stock Exchange),
or, in the absence of such sale, at the latest bid quotation. The liability will
be extinguished upon expiration of the option, the purchase of an identical
option in a closing transaction or delivery of the underlying security upon
exercise of the option.
The London Options Clearing House is the issuer of, and the obligor on,
every option traded on the London Stock Exchange and will be the issuer of, and
the obligor on, those covered call options written by the Fund which are traded
on the London Stock Exchange. The Fund will be required to make escrow
arrangements to secure its obligation to deliver to the London Options Clearing
House the underlying security of each such covered call option which the Fund
writes.
The Options Clearing Corporation is the issuer of, and the obligor on,
every option traded on a national securities exchange and will be the issuer of,
and the obligor on, those covered call options written by the Fund which are
traded on a national securities exchange. The Fund will be required to make
escrow arrangements to secure its obligation to deliver to The Options Clearing
Corporation the underlying security of each such covered call option which the
Fund writes.
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. In addition, the abililty to terminate
over-the-counter option positions may be more limited than in the case of
exchange traded options positions. The use of options traded in the
over-the-counter market may be subject to limitations imposed by certain state
securities authorities.
The Fund will purchase call options to close out a covered call option
it has written. When it appears that a covered call option written by the Fund
is likely to be exercised, the Fund may consider it appropriate to avoid having
to sell the underlying security. Or, the Fund may wish to extinguish a covered
call option, which it has written in order to be free to sell the underlying
security, to realize a profit on the previously written call option or to write
another covered call option on the underlying security. In all such instances,
the Fund can close out the previously written call option by purchasing a call
option on the same underlying security with the same exercise price and
expiration date. (The Fund may, under certain circumstances, also be able to
transfer a previously written call option.) The Fund will realize a short-term
capital gain if the amount paid to purchase the call option plus transaction
costs is less than the premium received for writing the covered call option. The
Fund will realize a short-term capital loss if the amount paid to purchase the
call option plus transaction costs is greater than the premium received for
writing the covered call option.
A previously written call option can be closed out by purchasing an
identical call option only in a secondary market for the call option. 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.
If a substantial number of the call options written by the Fund are
exercised, the Fund's rate of portfolio turnover may exceed historical levels.
This would result in higher transaction costs, including brokerage commissions.
The Fund will pay brokerage commissions in connection with the writing of
covered call options and the purchase of call options to close out previously
written options. Such brokerage commissions are normally higher than those
applicable to purchases and sales of portfolio securities.
In the past the Fund has qualified for, and elected to receive, the
special tax treatment afforded regulated investment companies under Subchapter M
of the Code. Although the Fund intends to continue to qualify for such tax
treatment, in order to do so it must, among other things, derive less than 30%
of its gross income from gains from the sale or other disposition of securities
held for less than three months. Because of this, the Fund may be restricted in
the writing of call options where the underlying securities have been held less
than three months, in the writing of covered call options which expire in less
than three months and in effecting closing purchases with respect to options
which were written less than three months earlier. As a result, the Fund may
elect to forego otherwise favorable investment opportunities and may elect to
avoid or delay effecting closing purchases or selling portfolio securities, with
the risk that a potential loss may be increased or a potential gain may be
reduced or turned into a loss.
Under the Code, gain or loss attributable to a closing transaction and
premiums received by the Fund for writing a covered call option which is not
exercised may constitute short-term capital gain or loss. Under provisions of
the Tax Reform Act of 1986, effective for taxable years beginning after October
22, 1986, a gain on an option transaction which qualifies as a "designated
hedge" transaction under Treasury regulations may be offset by realized or
unrealized losses on such designated transaction. The netting of gain against
such losses could result in a reduction in gross income from options
transactions for purposes of the 30 percent test.
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 doing so, 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 that are related to
currency and other financial futures contracts for the 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 U.S. are The Board of Trade of
the City of Chicago, the Chicago Mercantile Exchange, the International Monetary
Market (a division of the Chicago Mercantile Exchange), the New York Futures
Exchange and the Kansas City Board of Trade. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant ("Broker") effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC") and National Futures Association ("NFA").
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, GNMA certificates, 90-day domestic bank
certificates of deposit, 90-day commercial paper, and 90-day Eurodollar
certificates of deposit. It is expected that futures contracts trading in
additional financial instruments will be authorized. The standard contract size
is $100,000 for futures contracts in U.S. Treasury bonds, U.S. Treasury notes
and GNMA certificates, and $1,000,000 for the other designated contracts. While
U.S. Treasury bonds, U.S. Treasury bills and U.S. Treasury notes are backed by
the full faith and credit of the U.S. government and GNMA certificates are
guaranteed by a U.S. government agency, the futures contracts in U.S. government
securities are not obligations of the U.S. Treasury.
INDEX BASED FUTURES CONTRACTS/STOCK INDEX FUTURES CONTRACTS
A stock index assigns relative values to the common stocks included in
the index. The index fluctuates with changes in the market values of the common
stocks so included. A stock index futures contract is a bilateral agreement by
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the closing value of the
stock index on the expiration date of the contract and the price at which the
futures contract is originally made. No physical delivery of the underlying
stocks in the index is made.
Currently stock index futures contracts can be purchased or sold on the
S&P Index of 500 Stocks, the S&P Index of 100 Stocks, the New York Stock
Exchange Composite Index, the Value Line Index and the Major Market Index. It is
expected that futures contracts trading in additional stock indices will be
authorized. The standard contract size is $500 times the value of the index.
The Fund does not believe that differences between existing stock
indices will create any differences in the price movements of the stock index
futures contracts in relation to the movements in such indices. However, such
differences in the indices may result in differences in correlation of the
futures with movements in the value of the securities being hedged.
OTHER INDEX BASED FUTURES CONTRACTS
It is expected that bond index and other financially based index
futures contracts will be developed in the future. It is anticipated that such
index based futures contracts will be structured in the same way as stock index
futures contracts but will be measured by changes in interest rates, related
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 currency or other instruments making up a financial futures index 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 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 the price of the underlying
financial instrument or index itself, the purchase of a call option may be less
risky than the ownership of the interest rate or index based futures contract or
the underlying securities. Call options on futures contracts may be purchased to
hedge against an interest rate increase or a market advance when the Fund is not
fully invested.
USE OF NEW INVESTMENT TECHNIQUES INVOLVING CURRENCY AND OTHER
FINANCIAL FUTURES CONTRACTS OR RELATED OPTIONS
The Fund may employ new investment techniques involving currency and
other financial futures contracts and related options. The Fund intends to take
advantage of new techniques in these areas which may be developed from time to
time and which are consistent with the Fund's investment objective. The Fund
believes that no additional techniques have been identified for employment by
the Fund in the foreseeable future other than those described above.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND RELATED
OPTIONS ON SUCH FUTURES CONTRACTS
The Fund will not enter into a futures contract if, as a result
thereof, more than 5% of the Fund's total assets (taken at market value at the
time of entering into the contract) would be committed to margin deposits on
such futures contracts.
The Fund intends that its futures contracts and related options
transactions will be entered into for traditional hedging purposes. That is,
futures contracts will be sold to protect against a decline in the price of
securities that the Fund owns, or futures contracts will be purchased to protect
the Fund against an increase in the price of securities it intends to purchase.
The Fund does not intend to enter into futures contracts for speculation.
In instances involving the purchase of futures contracts by the Fund,
an amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's custodian
and/or in a margin account with a Broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
FEDERAL INCOME TAX TREATMENT
For federal income tax purposes, the Fund is required to recognize as
income for each taxable year its net unrealized gains and losses on futures
contracts as of the end of the year as well as those actually realized during
the year. Any gain or loss recognized with respect to a futures contract is
considered to be 60% long term and 40% short term, without regard to the holding
period of the contract. In the case of a futures transaction classified as a
"mixed straddle," the recognition of losses may be deferred to a later taxable
year. The federal income tax treatment of gains or losses from transactions in
options on futures is unclear.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income. Any net gain realized
from the closing out of futures contracts, for purposes of the 90% requirement,
will be qualifying income. In addition, gains realized on the sale or other
disposition of securities held for less than three months must be limited to
less than 30% of the Fund's annual gross income. The 1986 Tax Act added a
provision which effectively treats both positions in certain hedging
transactions as a single transaction for the purpose of the 30% requirement. The
provision provides that, in the case of any "designated hedge," increases and
decreases in the value of positions of the hedge are to be netted for the
purposes of the 30% requirement. However, in certain situations, in order to
avoid realizing a gain within a three month period, the Fund may be required to
defer the closing out of a contract beyond the time when it would otherwise be
advantageous to do so.
RISKS OF FUTURES CONTRACTS
Currency and other financial futures contracts prices are volatile and
are influenced, among other things, by changes in stock prices, market
conditions, prevailing interest rates and anticipation of future stock prices,
market movements or interest rate changes, all of which in turn are affected by
economic conditions, such as government fiscal and monetary policies and
actions, and national and international political and economic events.
At best, the correlation between changes in prices of futures contracts
and of the securities being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances, such as variations in
speculative market demand for futures contracts and for securities, including
technical influences in futures contracts trading; differences between the
securities being hedged and the financial instruments and 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. In addition,
futures contract transactions involve the remote risk that a party may be unable
to fulfill its obligations and that the amount of the obligation will be beyond
the ability of the clearing broker to satisfy. 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 con-nection with its futures contracts
which will hold cash or cash equivalents equal in value to the current value of
the under-lying instruments or indices less the margins on deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
RISKS OF OPTIONS ON FUTURES CONTRACTS.
In addition to the risks described above for currency and other
financial futures contracts, there are several special risks relating to options
on futures contracts. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. The Fund will not purchase
options on any futures contract unless and until it believes that the market for
such options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with the futures contracts.
Compared to the use of futures contracts, the purchase of options on such
futures involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to the Fund, even though the use of a futures contract would
not, such as when there is no movement in the level of the futures contract.
FOREIGN CURRENCY TRANSACTIONS
The Fund may invest in securities of foreign issuers. When the Fund
invests in foreign securities they usually will be denominated in foreign
currencies and the Fund temporarily may hold funds in foreign currencies. Thus,
the Fund's share value will be affected by changes in exchange rates.
FORWARD CURRENCY CONTRACTS
As one way of managing exchange rate risk, the Fund may enter into
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). Under the contract, the exchange rate for the
transaction (the amount of currency the Fund will deliver or receive when the
contract is completed) is fixed when the Fund enters into the contract. The Fund
usually will enter into these contracts to stabilize the U.S. dollar value of a
security it has agreed to buy or sell. The Fund also may use these contracts to
hedge the U.S. dollar value of a security it already owns, particularly if the
Fund expects a decrease in the value of the currency in which the foreign
security is denominated. Although the Fund will attempt to benefit from using
forward contracts, the success of its hedging strategy will depend on Keystone's
ability to predict accurately the future exchange rate between foreign
currencies and the U.S. dollar. The value of the Fund's investments denominated
in foreign currencies will depend on the relative strength of those currencies
and the U.S. dollar, and the Fund may be affected favorably or unfavorably by
changes in the exchange rates or exchange control regulations between foreign
currencies and the dollar. Changes in foreign currency exchange rates also may
affect the value of dividends and interest earned, gains and losses realized on
the sale of securities and net investment income and gains, if any, to be
distributed to shareholders by the Fund.
CURRENCY FUTURES CONTRACTS
Currency futures contracts are bilateral agreements under which two
parties agree to take or make delivery of a specified amount of a currency at a
specified future time for a specified price. Trading of currency futures
contracts in the U.S. is regulated under the Commodity Exchange Act by the CFTC
and NFA. Currently the only national futures exchange on which currency futures
are traded is the International Monetary Market of the Chicago Mercantile
Exchange. Foreign currency futures trading is conducted in the same manner and
subject to the same regulations as trading in interest rate and index based
futures. The Fund intends to only engage in currency futures contracts for
hedging purposes and not for speculation. The Fund may engage in currency
futures contracts for other purposes if authorized to do so by the Board. The
hedging strategies which will be used by the Fund in connection with foreign
currency futures contracts are similar to those described above for forward
foreign currency exchange contracts.
Currently, currency futures contracts for the British Pound Sterling,
Canadian Dollar, Dutch Guilder, Deutsche Mark, Japanese Yen, Mexican Peso, Swiss
Franc and French Franc can be purchased or sold for U.S. dollars through the
International Monetary Market. It is expected that futures contracts trading in
additional currencies will be authorized. The standard contract sizes are
L125,000 for the Pound, 125,000 for the Guilder, Mark 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 U.S. and Europe. On the Philadelphia Stock
Exchange, for example, contracts for half the size of the corresponding futures
contracts on the Chicago Board Options Exchange are traded with up to nine
months maturity in Deutsche Marks, British Pound Sterling, Japanese 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 the price of the foreign stock or foreign debt instruments, purchase
of a call option may be less risky than the ownership of the foreign currency or
the foreign securities. The Fund would purchase a call option on a foreign
currency to hedge against an increase in the foreign currency or a foreign
market advance when the Fund is not fully invested.
The Fund may employ new investment techniques involving forward foreign
currency exchange contracts, foreign currency futures contracts and options on
foreign currencies in order to take advantage of new techniques in these areas
which may be developed from time to time and which are consistent with the
Fund's investment objective. The Fund believes that no additional techniques
have been identified for employment by the Fund in the foreseeable future other
than those described above.
CURRENCY TRADING RISKS
Currency exchange trading may involve significant risks. The four major
types of risk the Fund faces are exchange rate risk, interest rate risk, credit
risk and country risk.
EXCHANGE RATE RISK
Exchange rate risk results from the movement up and down of foreign
currency values in response to shifting market supply and demand. When the Fund
buys or sells a foreign currency, an exposure called an open position is
created. Until the time that position can be "covered" by selling or buying an
equivalent amount of the same currency, the Fund is exposed to the risk that the
exchange rate might move against it. Since exchange rate changes can readily
move in one direction, a position carried overnight or over a number of days
involves greater risk than one carried a few minutes or hours. Techniques such
as foreign currency forward and futures contracts and options on foreign
currency are intended to be used by the Fund to reduce exchange rate risk.
MATURITY GAPS AND INTEREST RATE RISK
Interest rate risk arises whenever there are mismatches or gaps in the
maturity structure of the Fund's foreign exchange currency holdings, which is
the total of its outstanding spot and forward or futures contracts.
Foreign currency transactions often involve borrowing short term and
lending longer term to benefit from the normal tendency of interest rates to be
higher for longer maturities. However in foreign exchange trading, while the
maturity pattern of interest rates for one currency is important, it is the
differential between interest rates for two currencies that is decisive.
CREDIT RISK
Whenever the Fund enters into a foreign exchange contract, it faces a
risk, however small, that the counterparty will not perform under the contract.
As a result there is a credit risk, although no extension of "credit" is
intended. To limit credit risk, the Fund intends to evaluate the
creditworthiness of each other party. The Fund does not intend to trade more
than 5% of its net assets under foreign exchange contracts with one party.
Credit risk exists because the Fund's counterparty may be unable or
unwilling to fulfill its contractual obligations as a result of bankruptcy or
insolvency or when foreign exchange controls prohibit payment. In any foreign
exchange transaction, each party agrees to deliver a certain amount of currency
to the other on a particular date. In establishing its hedges a Fund relies on
each contract being completed. If the contract is not performed, then the Fund's
hedge is eliminated, and the Fund is exposed to any changes in exchange rates
since the contract was originated. To put itself in the same position it would
have been in had the contract been performed, the Fund must arrange a new
transaction. However, the new transaction may have to be arranged at an adverse
exchange rate. The trustee for a bankrupt company may elect to perform those
contracts which are advantageous to the company but disclaim those contracts
which are disadvantageous, resulting in losses to the Fund.
Another form of credit risk stems from the time zone difference between
the U.S. and foreign nations. If the Fund sells small sterling it generally must
pay pounds to a counterparty earlier in the day than it will be credited with
dollars in New York. In the intervening hours, the buyer can go into bankruptcy
or can be declared insolvent. Thus, the dollars may never be credited to the
Fund.
COUNTRY RISK
At one time or another, virtually every country has interfered with
international transactions in its currency. Interference has taken the form of
regulation of the local exchange market, restrictions on foreign investment by
residents or limits on inflows of investment funds from abroad. Governments take
such measures for example to improve control over the domestic banking system or
to influence the pattern of receipts and payments between residents and
foreigners. In those cases, restrictions on the exchange market or on
international transactions are intended to affect the level or movement of the
exchange rate. Occasionally a serious foreign exchange shortage may lead to
payment interruptions or debt servicing delays, as well as interference in the
exchange market. It has become increasingly difficult to distinguish foreign
exchange or credit risk from country risk.
Changes in regulations or restrictions usually do have an important
exchange market impact. Most disruptive are changes in rules which interfere
with the normal payment mechanism. If government regulations change and a
counterparty is either forbidden to perform or is required to do something
extra, then the Fund might be left with an unintended open position or an
unintended maturity mismatch. Dealing with such unintended long or short
positions could result in unanticipated costs to the Fund.
Other changes in official regulations influence international
investment transactions. If one of the factors affecting the buying or selling
of a currency changes, the exchange rate is likely to respond. Changes in such
controls often are unpredictable and can create a significant exchange rate
response.
Many major countries have moved toward liberalization of exchange and
payment restrictions in recent years, or accepted the principle that
restrictions should be relaxed. A few industrial countries have moved in the
other direction. Important liberalizations were carried out by Switzerland, the
United Kingdom and Japan. They dismantled mechanisms for restricting either
foreign exchange inflows (Switzerland), outflows (Britain), or elements of both
(Japan). By contrast, France and Mexico have recently tightened foreign exchange
controls.
Overall, many exchange markets are still heavily restricted. Several
countries limit access to the forward market to companies financing documented
export or import transactions in an effort to insulate the market from purely
speculative activities. Some of these countries permit local traders to enter
into forward contracts with residents but prohibit certain forward transactions
with nonresidents. By comparison, other countries have strict controls on
exchange transactions by residents, but permit free exchange transactions
between local traders and non-residents. A few countries have established tiered
markets, funneling commercial transactions through one market and financial
transactions through another. Outside the major industrial countries, relatively
free foreign exchange markets are rare and controls on foreign currency
transactions are extensive.
Another aspect of country risk has to do with the possibility that the
Fund may be dealing with a foreign trader whose home country is facing a
payments problem. Even though the foreign trader intends to perform on its
foreign exchange contracts, the contracts are tied to other external liabilities
the country has incurred. As a result performance may be delayed, and can result
in unanticipated cost to the Fund. This aspect of country risk is a major
element in the Fund's credit judgment as to with whom it will deal and in what
amounts.
<PAGE>
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 buyer 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
if the writer 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 if the writer 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 CONTACT. 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 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 Precious Metals Holdings, Inc.
SCHEDULE OF INVESTMENTS--February 28, 1995
Number
of Market
Shares Value
COMMON STOCKS (94.2%)
GOLD MINING (61.7%)
Wiluna Mines Ltd. (a) 810,000 $ 777,466
Bolivar Goldfields Ltd. (a) 250,000 261,912
Cambior Inc. 185,000 1,919,375
Canarc Resource Corp. (a) 200,000 287,026
Delta Gold NL (a) 1,500,000 3,078,854
El Callao Mining Corp. (a) 340,000 219,575
Euro-Nevada Mining Ltd. 350,000 6,812,392
Franco-Nevada Mining Corp. Ltd. 200,000 9,077,210
Free State Consolidated Gold
Mines Ltd. ADR 495,000 5,785,312
Goldcorp Inc. 335,000 1,862,981
Golden Shamrock (a) 6,500,000 4,031,305
Hycroft Resources & Development
Corp. (a) 400,000 545,350
Impala Platinum Holdings ADR 135,000 2,793,177
Kinross Gold Corp. (a) 550,000 2,337,500
Loraine Gold Mines Ltd. ADR (a) 670,000 2,395,920
Newcrest Mining 1,675,000 6,084,613
Newmont Mining Corp. 55,000 1,986,875
North Flinders Mines 800,000 4,430,006
Orion Resources (a) 1,000,000 871,235
Orvana Minerals Corp. (a) 275,000 641,325
Perilya Mines NL (a) 3,050,000 1,801,536
Placer Dome, Inc. 300,000 6,112,500
Plutonic Resources NL 1,900,000 7,364,885
Prime Resources Group Inc. (a) 425,000 2,363,483
Ranger Minerals NL (a) 700,000 1,757,236
Santa Fe Pacific Gold Corp. (a) 700,000 7,612,500
Target Exploration (a) 1,135,000 1,737,245
TVX Gold Inc. (a) 200,000 1,300,000
Vaal Reefs Exploration & Mining
Ltd. ADR 750,000 5,156,250
Western Areas Gold Mining Ltd.
ADR 700,000 7,599,060
Western Deep Levels Ltd. ADR 100,000 3,243,750
Zapopan NL (a) 2,795,600 3,343,822
105,591,676
GOLD MINING FINANCE (1.5%)
Anglo-American Corp. of South
Africa Ltd. ADR 50,000 $ 2,509,375
METALS & MINING (30.0%)
Acacia Resources (a) 2,500,000 4,577,672
Argentina Gold Corp. (a) 400,000 904,133
Ashant Goldfield 335,000 6,968,000
Barrick Gold Corp. (a) 470,000 10,222,500
Driefontein Consolidated Ltd. ADR 325,000 4,285,937
Elandsrand Gold Mining Ltd. ADR 350,000 1,765,645
Harmony Gold Mining Ltd.
ADR (a) 200,000 1,775,240
Middle Witwatersrand ADR 250,000 1,867,850
Mount Edon Gold Mines Ltd. 250,000 465,152
Pioneer Group Inc. 360,000 6,975,000
Randgold + Exploration 1,200,000 3,367,346
Repadre Capital Corp. (a) 200,000 409,013
Rustenburg Platinum Holdings Ltd.
ADR 115,000 2,643,747
Stillwater Mining Company (a) 325,000 5,098,437
51,325,672
OTHER MINING & INDUSTRIAL (1.0%)
Redstone Resources Inc. 650,000 1,819,030
TOTAL COMMON STOCKS
(Cost--$159,090,368) 161,245,753
(continued on next page)
See Notes to Schedule of Investments.
<PAGE>
Par Market
Value Value
FIXED INCOME (1.2%)
OTHER MINING & INDUSTRIAL (1.2%)
Target Exploration, 11.250%,
01/01/97 (Cost--$1,165,066)
SA RAND 655,000 $ 2,088,648
SHORT-TERM INVESTMENTS (0.7%)
Ford Motor Credit Co., 5.76%,
03/01/95 (Cost--$1,100,000) $1,100,000 1,100,000
TOTAL INVESTMENTS
(Cost--$161,355,434) 164,434,401
INVESTMENTS IN WHOLLY-OWNED UNCONSOLIDATED FOREIGN SUBSIDIARY
(0.4%)
Precious Metals (Bermuda) Ltd. $ 716,210
OTHER ASSETS AND LIABILITIES--
NET (3.5%) 6,042,214
NET ASSETS (100.0%) $171,192,825
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) The cost of investments for federal income tax purposes amounted to
$164,626,624. Gross unrealized appreciation and depreciation of investments,
based on identified tax cost, at February 28, 1995, are as follows:
Gross unrealized appreciation $ 17,828,579
Gross unrealized depreciation (17,304,592)
Net unrealized appreciation $ 523,987
See Notes to Financial Statements.
<PAGE>
Keystone Precious Metals Holdings, Inc.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the year)
<TABLE>
<CAPTION>
Year Ended
Feb. 28, Feb. 28, Feb. 28, Feb. 29, Feb. 28,
1995 (a) 1994 (a) 1993 (a) 1992 (a) 1991 (a)
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year $ 25.09 $ 14.38 $ 15.37 $ 14.22 $ 19.15
Income from investment
operations
Investment income (loss)--net (0.13) (0.17) (0.12) (0.02) 0
Realized and unrealized gains
(losses) on investments--net (5.54) 10.88 (0.76) 1.30 (4.61)
Commissions paid on fund share
sales--net (b) 0 0 0 0 0
Total from investment
operations (5.67) 10.71 (0.88) 1.28 (4.61)
Less distributions from:
Investment income--net (0.12) -0- -0- -0- (0.06)
Distributions in excess of
investment income--net (c) -0- -0- (0.11) (0.13) (0.26)
Net realized capital gains -0- -0- -0- -0- -0-
Total distributions (0.12) 0.00 (0.11) (0.13) (0.32)
Net asset value: End of year $ 19.30 $ 25.09 $ 14.38 $ 15.37 $ 14.22
Total return (d) (22.70%) 74.48% (5.74%) 9.07% (24.37%)
Ratios/supplemental data
Ratios to average net assets:
Operating and Management
expenses 2.33% 2.34% 2.83% 2.70% 2.76%
Investment income (loss)--net (0.54%) (0.75%) (0.86%) (0.14%) (0.02%)
Portfolio turnover rate 75% 73% 58% 53% 68%
Net assets, end of year
(thousands) 171,193 200,489 114,364 131,356 150,200
</TABLE>
<TABLE>
<CAPTION>
Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1990 (a) 1989 (a) 1988 (a) 1987 1986
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year $ 16.82 $ 15.50 $ 17.31 $ 12.80 $ 12.21
Income from investment
operations
Investment income (loss)--net 0.06 0.05 (0.01) 0.25 0.34
Realized and unrealized gains
(losses) on investments--net 2.27 1.59 (0.17) 4.85 1.10
Commissions paid on fund share
sales--net (b) 0 0 0 (0.14) (0.11)
Total from investment
operations 2.33 1.64 (0.18) 4.96 1.33
Less distributions from:
Investment income--net -0- (0.12) (0.41) (0.37) (0.29)
Distributions in excess of
investment income--net (c) -0- -0- -0- -0- -0-
Net realized capital gains -0- (0.20) (1.22) (0.08) (0.45)
Total distributions 0.00 (0.32) (1.63) (0.45) (0.74)
Net asset value: End of year $ 19.15 $ 16.82 $ 15.50 $ 17.31 $ 12.80
Total return (d) 13.85% 10.64% (2.86%) 40.12% 10.72%
Ratios/supplemental data
Ratios to average net assets:
Operating and Management
expenses 2.20% 1.68% 1.84% 1.41% 1.44%
Investment income (loss)--net 0.32% 0.28% (0.05%) 1.98% 3.17%
Portfolio turnover rate 95% 82% 62% 89% 42%
Net assets, end of year
(thousands) 195,837 222,079 222,646 98,433 63,929
</TABLE>
(a) Calculation based on average shares outstanding.
(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 Distribution plans be treated as
operating expense rather than capital charges. Accordingly, beginning with
the year ended February 29, 1988 the Fund's financial statements reflect
12b-1 Distribution Plan expenses (i.e., shareholder service fees plus
commissions paid net of deferred sales charges received by the Fund) as a
component of net investment income.
(c) Effective March 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 net investment
income (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 net realized capital gains." For the fiscal years ended February
28, 1993, February 29, 1992, and February 28, 1991, distributions in excess
of book basis net income were charged to paid-in capital.
(d) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1995
Assets:
Investments at market value (identified cost--
$161,355,434) (Note 1) $164,434,401
Investment in wholly-owned unconsolidated foreign
subsidiary, at fair value (Note 2) 716,210
Total investments 165,150,611
Cash 901
Receivable for:
Investments sold 4,823,112
Forward foreign currency exchange contracts 961,696
Fund shares sold 4,271,869
Interest and dividends 293,968
Prepaid expenses 30,946
Other assets 4,435
Due from foreign subsidiary 3,144
Total assets 175,540,682
Liabilities:
Payable for:
Investments purchased 2,941,357
Forward foreign currency exchange contracts 962,654
Fund shares redeemed 336,436
Payable to Investment Adviser (Note 5) 6,085
Accrued reimbursable expenses (Note 5) 4,537
Other accrued expenses 96,788
Total liabilities 4,347,857
Net assets $171,192,825
Net assets represented by (Notes 1 and 3):
Paid-in capital $183,069,021
Undistributed investment income--net 1,129,201
Accumulated realized gains (losses) on investment
transactions--net (16,084,364)
Net unrealized appreciation on investments and
foreign currency 3,078,967
Total net assets applicable to outstanding
shares of beneficial interest ($19.30 a share on
8,870,764 shares outstanding) $171,192,825
See Notes to Financial Statements.
<PAGE>
STATEMENT OF OPERATIONS
Year Ended February 28, 1995
Investment income: (Note 1)
Dividends (net of foreign
withholding taxes of $566,161) $ 3,486,114
Interest 214,175
Total investment income 3,700,289
Expenses (Notes 3 and 5):
Management fee $ 1,396,523
Transfer agent fees 934,951
Accounting, auditing and legal 80,169
Custodian 183,046
Printing 25,423
Directors' fees and expenses 1,729
Distribution Plan expenses 2,060,573
Registration fees 52,489
State tax expense 15,926
Miscellaneous expenses 63,134
Total expenses 4,813,963
Investment loss--net (1,113,674)
Equity in earnings of wholly-owned
unconsolidated foreign subsidiary
(Note 2) 16,070
Realized and unrealized gain (loss)
on investments and foreign
currency related
transactions--net: (Note 4)
Realized gain on:
Investments 16,247,351
Foreign currency related
transactions 17,467
Realized gain on investments and
foreign currency related
transactions--net 16,264,818
Unrealized appreciation on
investments:
Beginning of year 66,862,309
End of year 3,078,967
Net change in unrealized
appreciation or depreciation on
investments: (63,783,342)
Net gain (loss) on investments and
foreign currency related
transactions (47,518,524)
Net decrease in net assets resulting
from operations ($ 48,616,128)
<PAGE>
Keystone Precious Metals Holdings, Inc.
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended February 28,
1995 1994
Operations:
Investment loss--net $ (1,113,674) $ (1,327,426)
Equity in earnings of wholly-owned
unconsolidated foreign subsidiary 16,070 5,057
Realized gain on investments and
foreign currency related
transactions--net 16,264,818 46,667,007
Increase (decrease) in unrealized
appreciation or depreciation--net (63,783,342) 41,092,727
Net increase (decrease) in net
assets resulting from operations (48,616,128) 86,437,365
Distributions to shareholders from
investment income--net
(Notes 1 and 6) (1,048,057) 0
Capital share transactions (Note
3):
Proceeds from shares sold 374,710,377 299,168,601
Payments for shares redeemed (355,122,400) (299,480,226)
Reinvestment of distributions 779,722 0
Net increase (decrease) in net
assets resulting from capital
share transactions 20,367,699 (311,625)
Total increase (decrease) in net
assets (29,296,486) 86,125,740
Net assets:
Beginning of year 200,489,311 114,363,571
End of year [including
undistributed investment
income--net as follows: February,
1995--$1,129,201 and February,
1994--$402,189] (Note 1) $ 171,192,825 $ 200,489,311
See Notes to Financial Statements.
<PAGE>
Keystone Precious Metals Holdings, Inc.
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone Precious Metals Holdings, Inc. (the "Fund") is a Delaware corporation
for which Keystone Custodian Funds, Inc. ("Keystone") is the investment
adviser. It is registered as a diversified open-end management investment
company under the Investment Company Act of 1940 (the "Act").
Harbor Capital Management Company, Inc. (the "Sub-Adviser") acts as sub-adviser
to the Fund. Subject to the supervision of the Fund's Board of Directors and
Keystone, the Sub-Adviser provides an investment program for the Fund, as well
as providing research, advice and security recommendations to Keystone upon
request.
Keystone is a wholly-owned subsidiary of Keystone Group, Inc. ("KGI"), a
Delaware corporation. KGI is privately owned by an investor group consisting of
members of current and former management of Keystone and its affiliates.
Keystone Investor Resource Center, Inc. ("KIRC"), a wholly-owned subsidiary of
Keystone, is the Fund's transfer agent.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Investments, including American Depository Receipts ("ADRs"), are usually
valued at the closing sales price or, in the absence of sales and for over-the-
counter securities, the mean of bid and asked quotations. Management values the
following securities at prices it deems in good faith to be fair: (a)
securities for which complete quotations are not readily available and (b)
listed securities if, in the opinion of management, the last sales price does
not reflect a current value or if no sale occurred. ADRs, certificates
representing shares of foreign securities deposited in domestic and foreign
banks, are traded and valued in United States dollars. Those securities traded
in foreign currency amounts are translated into United States dollars at the
daily rate of exchange. Net unrealized foreign exchange gains/losses are a
component of unrealized appreciation/depreciation of investments.
Short-term investments maturing in sixty days or less are valued at amortized
cost (original purchase cost as adjusted for amortization of premium or
accretion of discount which, when combined with accrued interest, approximates
market.) Short-term investments maturing in more than sixty days for which
market quotations are readily available are valued at current market value.
Short-term investments maturing in more than sixty days when purchased 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.)
B. The Fund enters into currency and other financial futures contracts as a
hedge against changes in interest or currency exchange rates. A futures contract
is an agreement between two parties to buy and sell a specific amount of a
commodity, security, financial instrument, or, in the case of a stock index,
cash at a set price on a future date. Upon entering into a futures contract, the
Fund is required to deposit with a broker an amount ("initial margin") equal to
a certain percentage of the purchase price indicated in the futures contract.
Subsequent payments ("variation margin") are made or received by the Fund each
day, as the value of the underlying instrument or index fluctuates, and are
recorded for book purposes as unrealized gains or losses by the Fund. For
federal tax purposes, any futures contracts which remain open at fiscal year-end
are marked-to-market and the resultant net gain or loss is included in federal
taxable income. In addition to market risk, the Fund is subject to the credit
risk that the other party will not complete the obligation of the contract.
C. Securities transactions are accounted for on the trade date. Interest
income is recorded on the accrual basis and dividend income is recorded on the
ex-dividend date. Distributions to shareholders are recorded on the ex-date.
D. The Fund has qualified, and intends to qualify in the future, as a regulated
investment company under the Internal Revenue Code of 1986, as amended
("Internal Revenue Code"). Thus, the Fund expects to be relieved of any federal
income tax liability by distributing all of its net taxable investment income
and net taxable capital gains, if any, to its shareholders. The Fund intends to
avoid excise tax liability by making the required distributions under the
Internal Revenue Code.
E. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed
upon date and price) the repurchase price of the securities will generally
equal the amount paid by the Fund plus a negotiated interest amount. The
seller, under the repurchase agreement, will be required to provide securities
("collateral") to the Fund whose value will be maintained at an amount not less
than the repurchase price, and which generally will be maintained at 101% of
the repurchase price. The Fund monitors the value of collateral on a daily
basis, and if the value of the collateral falls below required levels, the Fund
intends to seek additional collateral from the seller or terminate the
repurchase agreement. If the seller defaults, the Fund would suffer a loss to
the extent that the proceeds from the sale of the underlying securities were
less than the repurchase price. Any such loss would be increased by any cost
incurred on disposing of such securities. If bankruptcy proceedings are
commenced against the seller under the repurchase agreement, the realization on
the collateral may be delayed or limited. Repurchase agreements entered into by
the Fund will be limited to transactions with dealers or domestic banks
believed to present minimal credit risks, and the Fund will take constructive
receipt of all securities underlying repurchase agreements until such
agreements expire.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the fund, along with certain other Keystone funds, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury and/or Federal Agency obligations.
F. In connection with portfolio purchases and sales of securities denominated
in a foreign currency, the Fund may enter into forward foreign currency
exchange contracts ("contracts"). Additionally, from time to time, the Fund may
enter into contracts to hedge certain foreign currency assets. Contracts are
recorded at market value. Realized gains and losses arising from such
transactions are included in net realized gain (loss) on investments and
forward foreign currency exchange contracts.
G. The Fund distributes net investment income to shareholders, if any,
semiannually, and net capital gains, if any, annually. Distributions from net
investment income are based on tax basis net income. The significant difference
between financial statement amounts available for distribution and
distributions made in accordance with income tax regulations are primarily
attributable to the deferral of post-October losses and utilization of capital
loss carryforwards. Distributions paid for the year ended February 28, 1995
were $1,048,057.
<PAGE>
(2.) Investment in Foreign Subsidiary
Precious Metals (Bermuda) Ltd., the Fund's wholly-owned foreign subsidiary,
was acquired in May 1975 and has as its primary objective the acquisition of
precious metals. The Fund accounts for its investments in the subsidiary under
the equity method of accounting. At February 28, 1995, the fair value of the
Fund's investment in the foreign subsidiary was determined as follows:
Cash and cash equivalents $723,745
Accrued expenses (7,535)
$716,210
During the year ended February 28, 1995, the foreign subsidiary had no
purchases or sales of precious metals. Investment activities of the foreign
subsidiary resulted in gross investment income, general and administrative
expenses, and net investment income of $25,090, $9,020 and $16,070,
respectively. Management fees paid or accrued by the foreign subsidiary to
Keystone totaled $4,905 for the year ended February 28, 1995.
(3.) Capital Share Transactions
One hundred million shares of the Fund with a par value of $1.00 are authorized
for issuance. Transactions in shares of the Fund were as follows:
Year ended February 28,
1995 1994
Shares sold 15,698,308 13,110,077
Shares redeemed (14,849,643) (13,075,662)
Shares issued in
reinvestment of
distributions
from:
Investment
income--net 32,096 0
Net increase 880,761 34,415
The Fund bears some of the cost 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 above, 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 above, KDI
generally pays brokers or others a commission equal to 4% of the price paid to
the Fund for each sale of Fund shares as well as a shareholder service fee at a
rate of 0.25% per annum of the net asset value of shares sold by such brokers
or others and remaining outstanding on the books of the Fund for specified
periods.
To the extent Fund shares are redeemed within four calendar years of original
issuance, depending upon when those shares were issued, the Fund may be
eligible to receive a deferred sales charge from the investor as partial
reimbursement for sales commissions previously paid on those shares. This
charge is based on declining rates, which begin at 4.0%, applied to the lesser
of the net asset value of shares redeemed or the total cost of such shares.
The Distribution Plan provides that the Fund may incur certain expenses which
may not exceed a maximum amount equal to 0.3125% of the Fund's average daily net
assets for any quarter occurring after the inception of the Distribution Plan. A
rule of the National Association of Securities Dealers, Inc. ("NASD Rule")
limits the annual expenditures which the Fund may incur under the Distribution
Plan to 1%, of which 0.75% may be used to pay such distribution expenses and
0.25% may be used to pay shareholder service fees. The NASD Rule also 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).
The Fund has operated its Distribution Plan in accordance with both the Plan
and the NASD Rule since July 8, 1992, except that until July 7, 1993, maximum
annual payments with respect to net asset value as represented by shares sold
prior to January 1, 1992 remained at the current rate of 0.3125% quarterly
(approximately 1.25% annually).
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 1%) 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.
Commencing on July 8, 1992, contingent deferred sales charges applicable to
shares of the Fund issued after January 1, 1992 have, to the extent permitted
by the NASD Rule, been paid to KDI rather than to the Fund.
During the year ended February 28, 1995, the Fund recovered $24,927 in
contingent deferred sales charges. During the year, the Fund paid KDI
$2,085,500. The amount paid by the Fund under its Distribution Plan, net of
deferred sales charge, was $2,060,573 (1.00% of the Fund's average daily net
assets). During the year, KDI received $1,702,590 after payments of commissions
on new sales and service fees to dealers and others of $2,300,075. Under a rule
of the NASD, the maximum uncollected amounts for which KDI may seek payment
from the Fund under its Distribution Plan is $12,646,081. (7.39% of the Funds
net asset value as of February 28, 1995.)
(4.) Securities Transactions
Realized gains and losses are computed on the identified cost basis. Gains and
losses on foreign currency related transactions are treated as ordinary income
for federal income tax purposes. As of February 28, 1995, the Fund had a
capital loss carryover for federal income tax purposes of approximately
$12,350,000 which expires as follows: 2000--$3,812,000 and 2001--$8,538,000.
For the year ended February 28, 1995, purchases and sales of investment
securities were as follows:
Cost of Proceeds
Purchases from Sales
Portfolio securities $ 150,467,999 $ 132,738,312
Short-term investments 871,128,600 876,226,900
$1,021,596,599 $1,008,965,212
(5.) Investment Management and Transactions with Affiliates
Officers and directors of the Fund who are employees of Keystone or the
Sub-Adviser receive no compensation directly from the Fund. Several officers of
the Fund are also officers, directors and/or stockholders of Keystone or the
Sub-Adviser and have an interest in the management fee paid by the Fund to
Keystone and by Keystone to the Sub-Adviser. The management fee paid by the Fund
is determined by applying percentage rates, which start at 0.75%, and decline,
as net assets increase, to 0.50% per annum, to the average daily net assets of
the Fund. The amount of the fee payable to the Fund's Investment Adviser is
reduced by the amount of any investment advisory fee paid to the Fund's
Investment Adviser by the Fund's subsidiary.
During the year ended February 28, 1995, the Fund paid or accrued management
fees of $1,396,523, to Keystone, which represented 0.68% of the Fund's average
daily net assets. Keystone paid or accrued a sub-advisory fee of $451,566 to
Harbor Capital for the year ended February 28, 1995.
During the year ended February 28, 1995, the Fund paid or accrued $25,349 to
KIRC and Keystone Group, Inc., as reimbursement for the cost of certain
accounting services provided to the Fund. During the year ended February 28,
1995, $934,951 was paid or accrued to KIRC for shareholder services.
(6.) Distributions to Shareholders
A distribution of net investment income of $0.05 per share was declared payable
April 7, 1994 to shareholders of record on March 25, 1994. A distribution of
$0.07 per share was declared payable December 6, 1994 to shareholders of record
on November 21, 1994.
(7.) Forward Foreign Currency Exchange Contracts
At February 28, 1995, the Fund had entered into the following forward foreign
currency exchange contracts that obligate the Fund to deliver currencies at
specified future dates. The net unrealized depreciation of $958 on these
contracts is included in the accompanying financial statements. The terms of
the open contracts are as follows:
Currency
to
Exchange be U.S. $ value Currency to U.S. $ value
date delivered at 2/28/95 be received at 2/28/95
3/3/95 736,829 $ 736,829 996,388 $ 735,667
U.S. $ Australian $
3/6/95 305,857 225,825 226,029 226,029
Australian $ U.S. $
$ 962,654 $ 961,696
<PAGE>
Keystone Precious Metals Holdings, Inc.
Keystone's Services
for Shareholders
KEYSTONE AUTOMATED RESPONSE LINE (KARL)--Receive up-to-date account
information on your balance, last transaction and recent Fund distribution. You
may also process transactions such as investments, redemptions and exchanges
using a touch-tone telephone as well as receive quotes on price, yield, and
total return of your Keystone Fund. Call toll-free, 1-800-346-3858.
EASY ACCESS TO INFORMATION ON YOUR ACCOUNT--Information about your Keystone
account is available 24 hours a day through KARL. To speak with a Shareholder
Services representative about your account, call toll-free 1-800-343-2898
between 8:00 A.M. and 6:00 P.M. Eastern time. Retirement Plan investors should
call 1-800-247-4075.
ADDITIONS TO YOUR ACCOUNT--You can buy additional shares for your account at
any time, with no minimum additional investment.
REINVESTMENT OF DISTRIBUTIONS--You can compound the return on your investment
by automatically reinvesting your Fund's distributions at net asset value with
no sales charge.
EXCHANGE PRIVILEGE--You may move your money among funds in the same Keystone
family quickly and easily for a nominal service fee. KARL gives you the added
ability to move your money any time of day, any day of the week. Keystone
offers a variety of funds with different investment objectives for your
changing investment needs.
ELECTRONIC FUNDS TRANSFER (EFT)--Referred to as the "paper-less transaction,"
EFT allows you to take advantage of a variety of preauthorized account
transactions, including automatic monthly investments and systematic monthly or
quarterly withdrawals. EFT is a quick, safe and accurate way to move money
between your bank account and your Keystone account.
CHECK WRITING--Shareholders of Keystone Liquid Trust may exercise the check
writing privilege to draw from their accounts.
EASY REDEMPTION--KARL makes redemption services available to you 24 hours a
day, every day of the year. The amount you receive may be more or less than
your original account value depending on the value of fund shares at time of
redemption.
RETIREMENT PLANS--Keystone offers a full range of retirement plans, including
IRA, SEP-IRA, profit sharing, money purchase, and defined contribution plans.
For more information, please call Retirement Plan Services, toll-free at
1-800-247-4075.
Keystone is committed to providing you with quality, responsive account
service. We will do our best to assist you and your financial adviser in
carrying out your investment plans.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Directors and Shareholders of
Keystone Precious Metals Holdings, Inc.
We have audited the accompanying statement of assets and liabilities of
Keystone Precious Metals Holdings, Inc. including the schedule of investments,
as of February 28, 1995, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years in the ten-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1995 by correspondence with the custodians 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 Precious Metals Holdings, Inc. as of February 28, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the years in the two-year period then ended, and the financial highlights
for each of the years in the ten-year period then ended in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 31, 1995
<PAGE>
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
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 February 28, 1995
Financial Highlights For the fiscal years ended
February 28, 1986 through
February 28, 1995
Statement of Assets and Liabilities February 28, 1995
Statement of Operations Fiscal year ended
February 28, 1995
Statement of Changes in Net Assets Two years ended
February 28, 1995
Notes to Financial Statements
Independent Auditors' Report
dated March 31, 1995
All other schedules are omitted as the required information is inapplicable.
<PAGE>
Item 24(b). Exhibits
(1) A copy of the Registrant's Composite Certificate of
Incorporation dated June 2, 1972 was filed with Registration
Statement No. 2-81691/811-2303 as Exhibit 24(b)(1) and is
incorporated by reference herein. Copies of the Restated
Certificate of Incorporation dated July 19, 1973; Certificate
of Amendment of Restated Certificate of Incorporation dated
March 22, 1983; Certificate of Amendment of Restated
Certificate of Incorporation dated November 19, 1984; Amended
Foreign Corporation Certificate dated December 14, 1984; and
Certificate of Amendment of Restated Certificate of
Incorporation dated February 11, 1986, are filed herewith.
(2) A copy of Registrant's By-Laws was filed with Registration
Statement No. 2-81691/811-2303 as Exhibit 24(b)(2) and is
incorporated by reference herein. A copy of the Registrant's
Amended and Restated Bylaws dated September, 1987 is filed
herewith.
(3) Not applicable.
(4) Not applicable.
(5) (A) A copy of the Investment Advisory Agreement between the
Registrant and Keystone Investment Management Company
(formerly named Keystone Custodian Funds, Inc.)
("Keystone") dated August 19, 1993 is filed herewith.
(B) A copy of the Subadvisory Agreement between Keystone and
Harbor Capital Management Company, Inc. dated August 19,
1993 is filed herewith.
(6) A copy of the Principal Underwriting Agreement between the
Registrant and Keystone Investment Distributors Company
(formerly named Keystone Distributors, Inc.) dated August 19,
1993 is filed herewith. The form of Dealer Agreement used by
the Principal Underwriter was filed with Post-Effective
Amendment No. 13 to Registration Statement No.
2-81691/811-2303 as Exhibit 24(b)(14) and is incorporated by
reference herein.
(7) Not applicable.
(8) A copy of the Custodian, Fund Accounting and Recordkeeping
Agreement between the Registrant 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
securities being registered by the Fund was filed with
Registrant's Rule 24f-2 Notice on April 26, 1995 and are
incorporated by reference herein.
(11) Consent as to use of opinion of Registrant's Independent
Auditors Report is filed herewith.
(12) Not applicable.
(13) Not applicable.
(14) Copies of model plans used in the establishment of retirement
plans in connection with which Registrant offers its
securities were filed with Post-Effective Amendment No. 66 to
Registration Statement No. 2-10527/811-96 as Exhibit 24(b)(14)
and are incorporated by reference herein.
(15) A copy of the Registrant's Distribution Plan adopted pursuant
to Rule 12b-1 is filed herewith.
(16) A schedule for computation of total return is filed herewith.
(17) Financial Data Schedules are filed herewith as Exhibit 27.
(18) Not applicable.
(19) Powers of Attorney are filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant
The Fund owns all of the outstanding voting securities,
excluding Directors' qualifying shares, of Precious Metals
(Bermuda) Ltd., a corporation organized under the laws of
Bermuda.
Item 26. Number of Holders of Securities
Number of Record
Title of Class Holders as of May 31, 1995
-------------- --------------------------
Common Stock, 21,323
$1 par value
Item 27. Indemnification
Provisions for the indemnification of the Registrant's
Directors and officers are contained in Article XIV of the
Registrant's By-Laws, a copy of which is filed herewith.
Provisions for the indemnification of Keystone Investment
Distributors Company (formerly named Keystone Distributors,
Inc.), the Registrant's principal underwriter, are contained
in Section 9 of the Principal Underwriting Agreement between
the Registrant and Keystone Investment Distributors Company, a
copy of which is filed herewith as Exhibit 24(b)(6)(A).
Item 28. Business and other Connections of Investment Advisers
The following tables list the names of the various officers
and directors of Keystone Investment Management Company and
Harbor Capital Management Company, Inc., Registrant's
investment adviser and subadviser, respectively, and their
respective positions. For each named individual, the tables
list, for at least the past two fiscal years, (i) any other
organizations (excluding investment advisory clients) with
which the officer and/or director has had or has substantial
involvement; and (ii) positions held with such organizations.
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF
KEYSTONE INVESTMENT MANAGEMENT COMPANY
Position with
Keystone Investment
Name Management Company Other Business Affiliations
- ---------------------- ------------------------ -----------------------------
Albert H. Elfner, III Chairman of the Board, Chairman of the Board,
Chief Executive Officer, Chief Executive Officer,
Vice Chairman and President and Director:
Director Keystone Investments, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Keystone Asset Corporation
Keystone Capital Corp.
Chairman of the Board and
Director:
Keystone Fixed Income
Advisers, Inc.
Keystone Investment
Management Corporation
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Keystone Investor
Resource Center, Inc.
Robert Van Partners, Inc.
Boston Children's Services
Associates
Fiduciary Investment
Company, Inc.
Middlesex School
Middlebury College
Formerly Trustee:
Neworld Bank
Philip M. Byrne Director President and Director:
Keystone Institutional
Company, Inc.
Senior Vice President:
Keystone Investments, Inc.
Herbert L. Bishop, Jr. Senior Vice President None
Donald C. Dates Senior Vice President None
Gilman Gunn Senior Vice President None
Edward F. Godfrey Director, Director, Senior Vice
Senior Vice President, President, Chief Financial
Treasurer and Officer and Treasurer:
Chief Financial Officer Keystone Investments, Inc.
Keystone Investment
Distributors Company
Treasurer:
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
James R. McCall Director and President None
<PAGE>
Position with
Keystone Investment
Name Management Company Other Business Affiliations
- ---------------------- ------------------------ -----------------------------
Ralph J. Spuehler, Jr. Director President and Director:
Keystone Investment
Distributors Company
Senior Vice President and
Director:
Keystone Investments, Inc.
Director:
Keystone Investor
Resource Center, Inc.
Keystone Management, Inc.
Formerly President:
Keystone Management, Inc.
Formerly Treasurer:
The Kent Funds
Keystone Investments, Inc.
Keystone Investment
Management Company
Rosemary D. Senior Vice President, General Counsel, Senior Vice
Van Antwerp General Counsel President and Secretary:
and Secretary Keystone Investments, Inc.
Senior Vice President and
General Counsel:
Keystone Institutional
Company, Inc.
Senior Vice President,
General Counsel and Director:
Keystone Investor
Resource Center, Inc.
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Keystone Management, Inc.
Keystone Software, Inc.
Vice President and
Secretary:
Keystone Fixed Income
Advisers, Inc.
Formerly Assistant Secretary:
The Kent Funds
Gilman C. Gunn Vice President None
John C. Madden Vice President None
Malcolm Pirnie, III Vice President President and Managing
Director:
Harbor Capital
Frederick G. Vice President Chairman of the Board, Chief
Investment Officer and
P. Thorne Managing Director:
Harbor Capital
<PAGE>
Position with
Keystone Investment
Name Management Company Other Business Affiliations
- ---------------------- ------------------------ -----------------------------
John F. Addeo Vice President None
Harry Barr Vice President None
Robert K. Baumback Vice President None
Betsy A. Blacher Sr. Vice President None
Francis X. Claro Vice President None
Kristine R. Cloyes Vice President None
Christopher P. Sr. Vice President None
Conkey
Richard Cryan Sr. Vice President None
Maureen E. Cullinane Sr. Vice President None
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Christopher R. Ely Sr. Vice President None
Robert L. Hockett Vice President None
Sami J. Karam Vice President None
Donald M. Keller Sr. 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 Sr. Vice President None
Barbara McCue Vice President None
Stanley M. Niksa Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
William H. Parsons Vice President None
Daniel A. Rabasco Vice President None
David L. Smith Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
<PAGE>
Position with
Keystone Investment
Name Management Company Other Business Affiliations
- ---------------------- ------------------------ -----------------------------
Marcia Waterman Vice President None
J. Kevin Kenely Vice President None
Joseph J. Decristofaro Vice President None
Jean Susan Loewenberg Assistant Secretary Vice President and Counsel:
Keystone Investments, Inc.
Vice President and Secretary:
Keystone Trust Company
Secretary:
Keystone Investor
Resource Center, Inc.
Assistant Secretary:
Keystone Asset Corporation
Keystone Capital
Corporation
Keystone Investment
Distributors Company
Keystone Fixed Income
Advisers, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Clerk:
Keystone Institutional
Company, Inc.
Fiduciary Investment
Company, Inc.
Assistant Secretary:
Keystone Investment
Distributors Company
Colleen L. Mette Assistant Secretary Assistant Secretary:
Keystone Investment
Distributors Company
Keystone Investments, Inc.
Kevin J. Morrissey Assistant Treasurer Vice President:
Keystone Investments, Inc.
Assistant Treasurer:
Fiduciary Investment
Company, Inc.
Formerly Assistant Treasurer:
The Kent Funds
<PAGE>
Item 29. Principal Underwriter
Keystone Investment Distributors Company (formerly named
Keystone Distributors, Inc.), which acts as Registrant's
principal underwriter, also acts as principal underwriter for
the following entities:
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone Quality Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone High Income Bond Fund (B-4)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Mid-Cap Growth Fund (S-3)
Keystone Small Company Growth Fund (S-4)
Keystone Capital Preservation and Income Fund
Keystone Fund of the Americas
Keystone Fund for Total Return
Keystone Global Opportunities Fund
Keystone Government Securities Fund
Keystone Hartwell Growth Fund
Keystone Institutional Adjustable Rate Fund
Keystone Intermediate Term Bond Fund
Keystone International Fund, Inc.
Keystone Liquid Trust
Keystone Omega Fund
Keystone State Tax Free Fund
Keystone State Tax Free Fund - Series II
Keystone Strategic Development Fund
Keystone Strategic Income Fund
Keystone Tax Free Income Fund
Keystone Tax Exempt Trust
Keystone Tax Free Fund
Keystone World Bond Fund
(b) For information with respect to each officer and director of
Registrant's principal underwriter, see the following pages.
<PAGE>
Position and Offices with
Name and Principal Keystone Investment Position with
Business Address Distributors Company Registrant
- ------------------------ ----------------------------- ---------------------
Ralph J. Spuehler* Director, President None
Edward F. Godfrey* Director, Senior Vice Senior Vice President
President, Treasurer
and Chief Financial Officer
Rosemary D. Van Antwerp Director, Senior Vice Senior Vice Presidenr
President, General Counsel
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 Controller None
Frank O. Gebhardt Divisional Vice President None
2626 Hopeton
San Antonio, TX 78230
C. Kenneth Molander Divisional Vice President None
8 King Edward Drive
Londenderry, NH 03053
David S. Ashe Regional Manager and None
32415 Beaconsfield Vice President
Birmingham, MI 48025
David E. Achzet Regional Vice President None
60 Lawn Avenue -
Greenway 27
Stamford, CT 06902
William L. Carey, Jr. Regional Manager and None
4 Treble Lane Vice President
Malvern, PA 19355
John W. Crites Regional Manager and None
2769 Oakland Circle W. Vice President
Aurora, CO 80014
Richard J. Fish Regional Vice President None
309 West 90th Street
New York, NY 10024
Michael E. Gathings Regional Manager and None
245 Wicklawn Way Vice President
Roswell, GA 30076
Robert G. Holz, Jr. Regional Manager and None
313 Meadowcrest Drive Vice President
Richardson, Texas 75080
Todd L. Kobrin Regional Manager and None
20 Iron Gate Vice President
Metuchen, NJ 08840
Ralph H. Johnson Regional Manager and None
345 Masters Court, #2 Vice President
Walnut Creek, CA 94598
<PAGE>
Position and Offices with
Name and Principal Keystone Investment Position with
Business Address Distributors Company Registrant
- ------------------------ ----------------------------- ---------------------
Paul J. McIntyre Regional Manager and None
Vice President
Dale M. Pelletier Regional Manager and None
464 Winnetka Ave. Vice President
Winnetka, IL 60093
Juliana Perkins Regional Manager and None
2348 West Adrian Street Vice President
Newbury Park, CA 91320
Matthew D. Twomey Regional Manager and None
9627 Sparrow Court Vice President
Ellicott City, MD 21042
Mitchell I. Weiser Regional Manager and None
7031 Ventura Court Vice President
Parkland, FL 33067
Welden L. Evans Regional Banking Officer None
490 Huntcliff Green and Vice President
Atlanta, GA 30350
Russell A. Haskell* Vice President None
Robert J. Matson* Vice President None
John M. McAllister* Vice President None
Gregg A. Mahalich Vice President None
14952 Richards Drive W.
Minnetonka, MN 55345
Burton Robbins Vice President None
1586 Folkstone Terrace
Westlake Village, CA
91361
Thomas E. Ryan, III* Vice President None
Peter Willis* Vice President None
Raymond P. Ajemian* Manager and Vice President None
Joan M. Balchunas* Assistant Vice President None
Thomas J. Gainey* Assistant Vice President None
Eric S. Jeppson* Assistant Vice President None
Julie A. Robinson* Assistant Vice President None
Peter M. Sullivan Assistant Vice President None
21445 Southeast 35th Way
Issaquah, WA 98027
Jean S. Loewenberg* Assistant Secretary Assistant Secretary
Colleen L. Mette* Assistant Secretary Assistant Secretary
Dorothy E. Bourassa* Assistant Secretary Assistant Secretary
* Located at 200 Berkeley Street, Boston, Massachusetts 02116-5034
<PAGE>
HARBOR CAPITAL MANAGEMENT COMPANY, INC.
POSITION WITH HARBOR
CAPITAL MANAGEMENT
NAME COMPANY, INC. OTHER BUSINESS
- ---- --------------------- --------------
Frederick G.P. Chairman of the Board, DIRECTOR AND PRESIDENT:
Thorne Chief Investment Officer Precious Metals
and Managing Director (Bermuda) Ltd.
VICE PRESIDENT:
Keystone Precious
Metals Holdings, Inc.
TRUSTEE:
Investment Committee,
Bowdoin College
Massachusetts Eye & Ear
Infirmary
Ouimet Caddie
Scholarship
CHAIRMAN:
Investment Committee,
Beverly Hospital
DIRECTOR:
Magnetic Resonance
Corporation
DIRECTOR & TREASURER:
World Peace Foundation
FORMERLY DIRECTOR:
North Conway Institute
Malcolm President and DIRECTOR AND VICE
Pirnie, III Managing Director PRESIDENT:
Precious Metals
(Bermuda) Ltd.
VICE PRESIDENT:
Keystone Precious
Metals Holdings, Inc.
Alan S. Fields Chairman, Executive DIRECTOR:
Committee and Josiah W. Hayden
Managing Director Recreational Center
Lexington Education
Foundation
CHAIRMAN:
Trustees of Public
Trusts, Lexington, MA
<PAGE>
POSITION WITH HARBOR
CAPITAL MANAGEMENT
NAME COMPANY, INC. OTHER BUSINESS
- ---- --------------------- --------------
William S. Peck Managing Director and TRUSTEE:
Portfolio Manager Powers Music School
Lawrence J. Managing Director and TRUSTEE:
Marks Member, Executive Committee Beth Israel Hospital
Stanley F. Managing Director and DIRECTOR:
Schlozman Member, Executive Committee New Prospect Foundation
TREASURER AND CHAIRMAN:
Finance Committee,
Boston Children's
Museum
James H. Kelly Managing Director and None
Director of Marketing
<PAGE>
Item 29(c). - Not applicable
Item 30. Location of Accounts and Records
200 Berkeley Street
Boston, Massachusetts 02116-5034
Keystone Investor Resource Center, Inc.
101 Main Street
Cambridge, Massachusetts 02142-1519
Harbor Capital Management Company, Inc.
125 High Street
Boston, Massachusetts 02110
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, Massachusetts 02171
DataVault Inc.
3431 Sharpslot Road
Swansea, Massachusetts 02777
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Upon request and without charge, Registrant hereby undertakes
to furnish each person to whom a copy of the Registrant's
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for the effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston, in The
Commonwealth of Massachusetts, on the 29th day of June, 1995.
KEYSTONE PRECIOUS METALS
HOLDINGS, INC.
By:
--------------------------------
George S. Bissell*
Chairman of the Board
*By:
--------------------------------
Melina M.T. Murphy**
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 29th day of June, 1995.
SIGNATURES TITLE
- --------------------------- Chairman of the Board,
George S. Bissell* and Director
- --------------------------- Chief Executive Officer,
Albert H. Elfner, III* President and Director
- --------------------------- Treasurer (Principal Financial
Kevin J. Morrissey* and Accounting Officer)
*By:
--------------------------------
Melina M.T. Murphy**
Attorney-in-Fact
<PAGE>
SIGNATURES TITLE
- --------------------------- Director
Frederick Amling*
- --------------------------- Director
Charles A. Austin, III*
- --------------------------- Director
Edwin D. Campbell*
- --------------------------- Director
Charles F. Chapin*
- --------------------------- Director
K. Dun Gifford*
- --------------------------- Director
Leroy Keith, Jr.*
- --------------------------- Director
F. Ray Keyser, Jr.*
- --------------------------- Director
David M. Richardson*
- --------------------------- Director
Richard J. Shima*
- --------------------------- Director
Andrew J. Simons*
*By:
--------------------------------
Melina M.T. Murphy**
Attorney-in-Fact
** Melina M.T. Murphy, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to
powers of attorney duly executed by such persons and attached hereto as
Exhibit 24(b)(19).
<PAGE>
INDEX TO EXHIBITS
Page Number
in Sequential
Exhibit Number Exhibit Numbering System
1 Composite Certificate of Incorporation1
Restated Certificate of
Incorporation
Certificate of Amendment of
Restated Certificate of
Incorporation
Certificate of Amendment of
Restated Certificate of
Incorporation
Amended Foreign Corporation
Certificate
Certificate of Amendment of
Restated Certificate of
Incorporation
2 By-Laws1
Amended and Restated By-Laws
5 (A) Investment Advisory Agreement
(B) SubAdvisory Agreement
6 (A) Principal Underwriting Agreement
(B) Dealer Agreement2
8 Custodian, Fund Accounting
and Recordkeeping Agreement
Amendments to Custody, Fund Accounting
and Recordkeeping Agreement
10 Opinion and Consent of Counsel4
11 Independent Auditors' Consent
14 Model Retirement Plans3
15 Distribution Plan
16 Performance Data Schedules
17 Financial Data Schedules (filed as Exhibit 27)
19 Powers of Attorney
- --------------
1 Incorporated by reference herein to Registration Statement
No. 2-81691/811-2303.
2 Incorporated by reference herein to Post-Effective Amendment
No. 13 to Registration Statement No. 2-81691/811-2303.
3 Incorporated by reference herein to Post-Effective Amendment
No. 66 to Registration Statement No. 2-10527/811-96.
4 Incorporated by reference herein to 24f-2 Notice filed on
April 26, 1995.
<PAGE>
EXHIBIT 99.1
RESTATED CERTIFICATE OF INCORPORATION OF
International Precious Metals Investors, Inc.
This Restated Certificate of Incorporation of International Precious
Metals Investors, Inc. (the "Corporation"), which was originally incorporated by
the filing of its Certificate of Incorporation with the Secretary of State of
Delaware on June 5, 1972, under the name Au/Ag Investment Company, as amended on
June 26, 1972 to change, among other things, its name to Au/Ag CORPORATION, as
further amended on March 15, 1973, to change, among other things, its name to
International Precious Metals Investors, Inc., and as further amended by this
Restated Certificate of Incorporation (the "Certificate of Incorporation"), has
been duly adopted by the vote of the stockholders of the Corporation in
accordance with the provisions of Sections 245 & 242 of the Delaware General
Corporation Law, and consists of the following articles FIRST to SEVENTH,
inclusive:
FIRST: The name of the Corporation is Precious Metals Holdings, Inc.
SECOND: The Corporation's registered office and agent in Delaware is
The Corporation Trust Company, 100 West Tenth Street, Wilmington, County of New
Castle, Delaware.
THIRD: The nature of the business and the objects and purposes to be
transacted, promoted and carried on by the Corporation are as follows:
To subscribe for, invest in, purchase or otherwise acquire, own, hold,
sell, exchange, pledge or otherwise dispose of, precious metals and other
minerals, contracts to purchase and sell, and other interests of every nature
and kind in, such metals or minerals, securities of every nature and kind,
including, without limitation, all types of stocks, bonds, debentures, American
Depository Receipts or other obligations or evidences of indebtedness or
ownership issued or created by any and all associations, trusts or corporations,
public or private, whether created, established or organized under the laws of
the United States, any of the States of any territory or district or colony or
possession thereof, or under the laws of any foreign country, and also foreign
and domestic government and municipal obligations, bank acceptances, commercial
paper and secured call loans; to pay for the same in cash or by the issue of
stock, bonds or notes of this Corporation or otherwise; and while owning and
holding any such securities, to exercise all rights, powers and privileges of a
stockholder or owner, including the right to transfer and convey the said stock
or other securities to one or more persons, firms, associations or corporations
subject to voting trusts or other agreements placing in such persons voting or
other powers in respect of said stocks or other securities; to borrow money or
otherwise obtain credit and to secure the same by mortgaging, pledging or
otherwise subjecting as security the assets of this Corporation; and to have all
the powers of a corporation under the applicable corporation laws, as in effect
from time to time, of the State of Delaware. In these provisions, purposes shall
also be construed as powers, powers shall be construed as purposes, and the
enumeration of specific purposes or powers shall not be construed to limit other
statements of purposes or powers, or purposes or powers which this Corporation
may otherwise have under applicable law, all of the same being separate and
cumulative.
FOURTH: The total number of shares which this Corporation shall have
authority to issue is 10,000,000 shares, all of which shall be Common Stock of
the par value of $1.00 per share.
FIFTH: The following additional provisions not inconsistent with law
are hereby established for the management of the business and the conduct of the
affairs of this Corporation, and for creating, defining, limiting nd regulating
the powers of this Corporation and of its directors and stockholders:
The Board of Directors may, at any time and from time to time, contract
for management services with John P. Chase, Inc., a Massachusetts corporation,
or with such other association, corporation or firm as the Board of Directors
may deem desirable, every such contract to comply with such requirements and
restrictions as may be set forth in the By-Laws of this Corporation as from time
to time amended, and any such contract may contain such other terms interpretive
of or in addition to said requirements and restrictions as the Board of
Directors may determine. The fact that any or all of the directors, officers, or
stockholders of this Corporation are also stockholders, directors or officers of
John P. Chase, Inc. or may abe stockholders, employees, partners, trustees,
directors or officers of or for any other corporation, firm, trust, association
or other organization, or of or for any parent or affiliate of any organization
with which such a management contract or any other contract may hereafter be
made, that any such organization, or any parent or affiliate thereof, is a
stockholder of or has an interest in this Corporation, shall not affect the
validity of any such contact or disqualify any officer or director of this
Corporation from voting upon or executing the same, or create any liability or
accountability to this Corporation or its stockholders.
The Board of Directors may alter, amend or repeal the By-Laws of this
Corporation except with respect to any provision thereof which by law, by this
Certificate of Incorporation or by the By-Laws requires action by the
stockholders.
Assets of this Corporation may be held by or deposited with a bank,
trust company, organization providing shareholder services, or other
organization as custodian, pursuant to such requirements as may be prescribed
from time to time by the By-Laws of this Corporation and by the Board of
Directors pursuant to said By-Laws.
The Board of Directors or any officer or officers or agent or agents of
this Corporation designated from time to time for this purpose by the Board
shall determine the value of all the assets of this Corporation as of the close
of trading no the New York Stock Exchange on any day upon which such exchange is
open for unrestricted trading or at such other times as the Board of Directors
shall designate, and the value of such assets so determined, less total
liabilities of this Corporation (exclusive of capital stock and surplus),
divided by the number of shares outstanding shall be the net asset value of a
share of this Corporation until a new net asset value is determined by the Board
or such officers or agents. In determinations of net asset value each listed
security shall be appraised at last sale price. Unlisted securities, and each
listed security of which there has been no current sale, shall be appraised at
the mean of the last reported bid and asked prices (as nearly as can
conveniently be determined). Securities for which quotations are not readily
available, restricted securities and other assets shall be appraised at fair
value as determined in good faith by or under authority of the Board in
accordance with accounting principles generally accepted at the time. In
determinations of net asset value, treasury stock shall be rated as if it were
unissued. When net asset value is determined as of a time other than the close
of unrestricted trading on the New York Stock Exchange, the Board or such
officers or agents may, but need not, determine such net asset value by
adjusting the net asset value determined as of the preceding close of such
Exchange in such manner based upon changes in the market prices of selected
securities or changes in market averages or on other standard and readily
ascertainable market data since such close) as the Board or such officers or
agents deem adequate to reflect a fair approximate estimate of the probable
change in net asset value which has occurred since such close. In determining
the net asset value the Board or such officers or agents may include in
liabilities such reserves for taxes, estimated accrued expenses and
contingencies in accordance with accounting principles generally accepted at the
time as the Board or such officers or agents may in its or their best judgment
deem fair and reasonable under the circumstances.
The By-Laws of this Corporation, as from time to time amended, may
prescribe limitations upon the borrowing of money and pledging of assets by this
Corporation.
John P. Chase, Inc. and any other association, corporation, person,
firm or other entity with which this Corporation may have any contract for
management services, may perform management and any other services for any other
person, association, corporation, firm or other entity pursuant to any contract
or otherwise, and take any action or do anything in connection therewith or
related thereto.
Meetings of stockholders may be held outside the State of Delaware, if
the By-Laws so provide. The books of this Corporation may be kept (subject to
any provision contained in the statutes) outside the State of Delaware but
within the United States, at such place or places as may be designated from time
to time by the Board of Directors or the by-Laws of this Corporation. Elections
of Directors need not be by ballot unless the By-Laws of this Corporation shall
so provide.
The Corporation shall have the power to conduct and carry on its
business, or any part thereof, and to have one or more offices, and to exercise
any or all of its corporate powers and rights, in the State of Delaware, in any
other states, territories, districts, colonies and dependencies of the United
States, and in any or all foreign countries.
Any authorized but unissued stock, as well as any treasury stock, may
be sold for cash or for securities from time to time, by authority of the Board
of Directors, without first being offered to the existing stockholders, at a
price to net the Corporation not less than its par value or its net asset value,
whichever is higher. Anything herein to the contrary notwithstanding, any part
of the shares from time to time authorized may (subject to any votes of the
stockholders determining the terms and manner of disposition of any such
additional shares) from time to time be issued to and among the stockholders by
way of a stock dividend for such cash or property in the possession of the
Corporation legally available therefor as the Board of Directors may determine,
or may from time to time be issued and disposed of through an offering to
stockholders in proportion to their holdings for cash at not less than the net
asset value; provided that no shares shall be so issued to stockholders for cash
in an amount less than the par value of such shares, and no shares shall be
issued as a stock dividend except to the extent of cash or property in the
possession of the Corporation legally available therefor not less in value than
the par value of the shares so to be issued.
All corporate powers and authority of the Corporation (except as at the
time otherwise provided by statute, by this Certificate of Incorporation or by
the By-Laws) shall be vested in and exercised by the Board of Directors. The
Board of Directors shall have power from time to time to determine whether and
to what extent, and at what times and places and under what conditions and
regulations, the accounts and books of the Corporation (other than the stock
ledger) or any of them shall be open to the inspection of stockholders; and no
stockholder shall have any right of inspecting any account, book or document of
the Corporation except as at the time conferred by statute, unless authorized by
a resolution of the stockholders or the Board of Directors.
SIXTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
<PAGE>
SEVENTH: Except as may be otherwise provided herein, this Corporation
reserves the right to amend, alter, change or repeal any provision contained in
this Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation.
IN WITNESS WHEREOF, the said Corporation has caused these presents to
be duly signed and sealed, and its corporate seal to be hereunto affixed and
attested, by its officers thereunto duly authorized this nineteenth day of July,
1973.
INTERNATIONAL PRECIOUS METALS
INVESTORS, INC.
CORPORATE SEAL
By:
--------------------------------
President
ATTEST:
- --------------------------------
Secretary
<PAGE>
ACKNOWLEDGEMENT
COMMONWEALTH OF MASSACHUSETTS )
)SS:
COUNTY OF SUFFOLK )
BE IT REMEMBERED that on this nineteenth day of July, 1973, personally
came before me, a Notary Public in and for the county and state aforesaid,
Oliver H. Scharnberg, President of International Precious Metals Investors,
Inc., a corporation of the State of Delaware, and he duly executed said
certificate before me and acknowledged the said certificate to be his act and
deed and the act and deed of said corporation and the facts stated therein are
true; and that the seal affixed to said certificate and attested by the
Secretary of said corporation is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
----------------------------
NOTARIAL SEAL Notary Public
My Commission Expires:
<PAGE>
STATE
OF
DELAWARE
Office of SECRETARY OF STATE
I, Michael Harkins, Secretary of State of the State of
Delaware, do hereby certify that the attached is a true and
correct copy of Certificate of Restated Certificate of
Incorporation filed in this office on July 23, 1973 .
-----------------------------------
Michael Harkins, Secretary of State
By:
-----------------------------------
DATE: February 13, 1986
-----------------------------------
Form 130
<PAGE>
CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
OF
PRECIOUS METALS HOLDINGS, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter the "Corporation") is:
Precious Metals Holdings, Inc.
2. The Restated Certificate of Incorporation of the Corporation
is hereby amended by inserting in Article FIFTH thereof the following additional
provisions:
"Any holder of shares of Common Stock, $1.00 par value per
share, of this Corporation upon presentation of a duly executed written
request, together with his certificate, if any, for such shares, duly
endorsed, at the principal office of this Corporation, or of an agent
appointed by this Corporation, is entitled to have this Corporation
redeem his shares for the net asset value thereof. Redemption as
aforesaid, or voluntary purchases by this Corporation of its own stock,
shall be made as provided in the by-Laws, and in accordance with and
subject to the requirements of applicable laws and regulations."
3. The amendment of the Restated Certificate of Incorporation
herein certified has been duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
Signed and attested to on March 22, 1983.
---------------------------------
Frederick G. P. Thorne, President
Attest:
- ------------------------------------
Virginia Spencer, Secretary
<PAGE>
STATE
OF
DELAWARE
Office of SECRETARY OF STATE
I, Michael Harkins, Secretary of State of the State of
Delaware, do hereby certify that the attached is a true and
correct copy of Certificate of Amendment filed in this office
on April 4, 1983 .
-----------------------------------
Michael Harkins, Secretary of State
By:
-----------------------------------
DATE: February 13, 1986
-----------------------------------
Form 130
<PAGE>
CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
OF
PRECIOUS METALS HOLDINGS, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter the "Corporation") is:
Precious Metals Holdings, Inc.
2. The Restated Certificate of Incorporation of the Corporation
is hereby amended by changing the Article thereof numbered "FIRST" so that, as
amended, said Article shall be and read as follows:
"FIRST: The name of the Corporation is Keystone Precious
Metals Holdings, Inc.
3. The amendment of the Restated Certificate of Incorporation
herein certified has been duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
Signed and attested to on November 19, 1984.
------------------------------------
Frederick G. P. Thorne, President
Attest:
- ---------------------------------
Virginia Spencer, Secretary
<PAGE>
STATE
OF
DELAWARE
Office of SECRETARY OF STATE
I, Michael Harkins, Secretary of State of the State of
Delaware, do hereby certify that the attached is a true and
correct copy of Certificate of Amendment filed in this office
on November 20, 1984 .
-----------------------------------
Michael Harkins, Secretary of State
By:
-----------------------------------
DATE: February 13, 1986
-----------------------------------
Form 130
<PAGE>
FORM CE-AFCC
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE
BOSTON, MASS. 02108
FEDERAL IDENTIFICATION
NO. 95-2778170
----------------------
AMENDED FOREIGN CORPORATION CERTIFICATE
We, Albert H. Elfner, III, President and Rosemary D. Van Antwerp,
Secretary of Precious Metals Holdings, Inc., in compliance with the provisions
of General Laws, Chapter 181, Section 4, certify that:
1. The name of the corporation has been changed to: Keystone Precious
Metals Holdings, Inc.
- --------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------
2. The location of its principal office has been changed to: 99 High
Street, Boston, Massachusetts 02110
- --------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------
3. The activities of the corporation within Massachusetts have been
changed and may now be briefly described as follows:
- --------------------------------------------------------------------------------
NO CHANGE
- --------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we hereto sign
our names this 14th day of December, 1984.
- ---------------------------- ---------------------------------
President of Secretary
*If no change, so indicate
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
AMENDED FOREIGN CORPORATION CERTIFICATE
(GENERAL LAWS, CHAPTER 81, SECTION 4)
I hereby approve the within Amended Foreign
Corporation certificate and the filing fee in the amount of
$75.00 having been paid, said certificate is deemed to have
been filed with me this 18th day of December, 1984.
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
Photo Copy of Amended Certificate to be Sent To:
Rosemary D. Van Antwerp, Esq.
Keystone Custodian Funds, Inc.
------------------------------
99 High Street
------------------------------
Boston, MA 02110
------------------------------
Copy Mailed
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
KEYSTONE PRECIOUS METALS HOLDINGS, INC., a corporation organized and
existing under and by virtue of the general corporation law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of KEYSTONE PRECIOUS
METALS HOLDINGS, INC., a resolution was duly adopted authorizing the amendment
of the Certificate of Incorporation and calling a meeting of the stockholders of
said corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of Keystone Precious
Metals Holdings, Inc. be amended by changing the Article thereof
numbered "FOURTH" so that, as amended, the first sentence of said
Article shall be and read as follows:
"The total number of shares of capital stock which the
corporation shall have authority to issue is 100,000,000, all
of which shall be common stock of the par value of $1.00 per
share."
SECOND: That pursuant to resolution of its Board of Directors, a
special meeting in lieu of annual meeting of the stockholders of said
Corporation was duly called and held, upon notice in accordance with Section 222
of the General Corporation Law of the State of Delaware at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said Corporation will not be reduced under
or by reason of said amendment.
<PAGE>
IN WITNESS WHEREOF, said KEYSTONE PRECIOUS METALS HOLDINGS, INC. has
caused this certificate to be signed by Albert H. Elfner, III, its President,
and attested by Rosemary D. Van Antwerp, its Secretary this 11th day of
February, 1986.
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
By:
-----------------------------------
President
ATTEST:
By:
-----------------------------------------
<PAGE>
EXHIBIT 99.2
As Amended 9/87
PRECIOUS METALS HOLDINGS, INC.
BY-LAWS
* * * * * * * *
ARTICLE I
OFFICES
SECTION 1. Principal Office. The registered office of the Corporation
shall be located in the City of Wilmington, County of New Castle, State of
Delaware, and the name of the registered agent in charge thereof shall be The
Corporation Trust Company.
SECTION 2. Other Offices. The Corporation may also have offices at such
places, within or without the State of Delaware, as the Board of Directors may
from time to time appoint or the business of the Corporation may require.
ARTICLE II
SEAL
The corporate seal shall be circular in form and shall contain the name
of the Corporation, the year of its incorporation and the word "Delaware".
ARTICLE III
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meeting. Regular annual meetings either within or
without the State of Delaware of the stockholders for the election of directors
shall be held at such time and place as the Board of Directors may fix, which
time and place shall be stated in the notice thereof.
SECTION 2. Special Meetings. Special meetings of the stockholders for
any purpose or purposes may be called by the President or by the directors
(either by written instrument signed by a majority of the directors then in
office or by resolution adopted by a vote of the majority of the directors then
in office), and special meetings shall be called by the President or the
Secretary whenever stockholders owning a majority of the capital stock
issued,outstanding and entitled to vote at such meeting so request in writing.
Such request shall state the purpose or purposes of the proposed meeting.
SECTION 3. Notice. Written notice of every meeting of stockholders,
annual or special, stating the time and place thereof, and the purpose or
purposes in general terms for which the meeting is called, shall not less than
ten (10) and not more than fifty (50) days before such meeting be served upon or
mailed to each stockholder entitled to vote thereat, and to each other
stockholder, if any, who under the Certificate of Incorporation is entitled to
such notice, at his address as it appears upon the stock records of the
Corporation or, if such stockholder shall have filed with the Secretary of the
Corporation a written request that notices intended for him be mailed to some
other address, then to the address designated in such request.
Notice of the time, place, and purpose of any meeting of stockholders
may be waived by the person entitled to such notice if he shall either sign a
written waiver of such notice, whether before or after the time stated therein,
or attend the meeting, provided, however, that attendance at a meeting shall not
constitute waiver of notice when the express purpose of such attendance is to
object, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
SECTION 4. Quorum. Action of Stockholders. Except as otherwise provided
by law or by the Certificate of Incorporation, the presence in person or by
proxy at any meeting of stockholders of the holders of a majority of the shares
of the capital stock of the Corporation issued and outstanding and entitled to
vote thereat, shall be requisite and shall constitute a quorum for the election
of directors or for voting upon any questions properly coming before the
meeting. If, however, such majority shall not be represented at any meeting of
the stockholders regularly called, the holders of a majority of the shares
present or represented and entitled to vote thereat shall have power to adjourn
the meeting to another time, and/or place without notice other than announcement
of adjournment at the meeting, and there may be successive adjournments for like
cause and in like manner until the requisite amount of shares entitled to vote
at such meeting shall be represented. At such adjourned meeting at which the
requisite amount of shares entitled to vote thereat shall be represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.
At any meeting at which a quorum is present, a plurality of the votes
properly cast for election to fill any vacancy on the Board of Directors shall
be sufficient to elect a candidate to fill such vacancy, and a majority of the
votes properly cast upon any other question shall decide the question, except in
any case where a larger vote is required by law, the Certificate of
Incorporation, these by-laws, or otherwise.
SECTION 5. Votes. Proxies. At each meeting of stockholders, every
stockholder shall have one vote for each share of capital stock entitled to vote
which is registered in his name on the books of the Corporation on the date on
which the transfer books were closed, if closed, or on the date set by the Board
of Directors for the determination of stockholders entitled to vote at such
meeting. At each such meeting every stockholder shall be entitled to vote in
person, or by proxy appointed by an instrument in writing subscribed by such
stockholder and bearing a date not more than three years prior to the meeting in
question, unless said instrument provides for a longer period during which it is
to remain in force.
If the Chairman of the meeting shall so determine, a vote may be taken
upon any matter by ballot.
SECTION 6. Action by Written Consent of Stockholders. Any action
required or permitted to be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice, and without a
vote, if consent in writing, setting forth the action so taken, shall be signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
SECTION 7. Organization. The Chairman of the Board, or in his absence
the President, or in the absence of both the Chairman of the Board and the
President, a Vice President, shall call meetings of the stockholders to order
and shall act as Chairman thereof. The Secretary of the Corporation, if present,
shall act as secretary of all meetings of stockholders and, in his absence, the
presiding officer may appoint a secretary.
ARTICLE IV
DIRECTORS
SECTION 1. Election. The business and property of the Corporation shall
be conducted and managed by a Board of Directors. All of the directors shall be
elected annually, at the annual meeting of the stockholders (or special meeting
held in lieu thereof) by the stockholders entitled to vote at such election.
SECTION 2. Number. The whole Board of Directors shall consist of not
less than three (3) directors. The whole number of directors for the ensuing
year shall be fixed at each annual meeting of directors (or special meeting held
in lieu thereof), but if the number is not so fixed, the number shall remain as
it stood immediately prior to such meeting.
At any time during any year the whole number of directors may be
increased or reduced to not less than three (3) directors, in each case by vote
of, a majority of the stock outstanding and entitled to vote for the election of
directors or by a majority of the directors in office at the time of such
increase or decrease regardless of whether such majority of directors
constitutes a quorum.
SECTION 3. Term of Office. Each director shall hold office until the
next annual meeting of stockholders and until his successor is duly elected and
qualified or until his earlier death or resignation, subject to the right of the
stockholders at any time to remove any director or directors as provided in
Section 5 of this Article IV.
SECTION 4. Vacancies. If any vacancy shall occur among the directors,
or if the number of directors shall at any time be increased, the directors in
office, although less than a quorum, by a majority vote may fill the vacancies
or newly created directorships, or any such vacancies or newly created
directorships may be filled by the stockholders at any meeting.
SECTION 5. Removal. The holders of record of the capital stock of the
Corporation entitled to vote for the election of directors may in their
discretion at any meeting duly called for the purpose, by a majority vote,
remove any director or directors, with or without cause and elect a new director
or directors in place thereof. The Board of Directors may, by a vote of a
majority of the Directors then in office, remove any Director from office, with
cause. The Board of Directors may at any time, by vote of a majority of the
Directors present and voting terminate or modify the authority of any agent. No
director or officer resigning, and (except where a right to receive compensation
for a definite future period shall be expressly provided in a written agreement
with the Corporation duly approved by the Board of Directors) no director or
officer removed, shall have any right to any compensation as such director or
officer for any period following his resignation or removal, or any right to
damages on account of such removal, whether his compensation be by the month or
by the year or otherwise. The foregoing provisions are all subject to the
requirements of the Federal Investment Company Act of 1940 and any other
applicable laws.
SECTION 6. Meetings. Meetings of the Board of Directors shall be held
at such place within or without the State of Delaware, as may from time to time
be fixed by resolution of the Board or by the President and as may be specified
in the notice or waiver of notice of any meeting. Meetings may be held at any
time upon the call of the President or of the Secretary or any two (2) of the
directors in office by oral, telegraphic, or written notice, duly served or sent
or mailed to each director not less than two (2) days before such meeting.
Meetings may be held at any time and place without notice if all directors are
present or, if those not present shall, in writing or by telegram, before or
after the meeting, waive notice thereof. A regular meeting of the Board may be
held without notice immediately following the annual meeting of stockholders at
the place where such meeting is held. Regular meetings of the Board may also be
held without notice at such time and place as shall from time to time be
determined by resolution of the Board.
SECTION 7. Quorum. A majority, but not less than two (2), of the
directors, shall constitute a quorum for the transaction of business. If at any
meeting of the Board there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time without notice other
than announcement of the adjournment at the meeting, and at such adjourned
meeting at which a quorum is present any business may be transacted at the
meeting which might have been transacted at the meeting as originally notified.
SECTION 8. Compensation. Directors, as such, shall receive such
compensation for their services, and expenses of attendance at meetings as the
Board of Directors may determine. Nothing in this Section shall be construed to
preclude a director from serving the Corporation in any other capacity and
receiving compensation therefor.
ARTICLE V
EXECUTIVE COMMITTEE
SECTION 1. Executive Committee. The Board of Directors may appoint an
Executive Committee of two (2) or more members, to serve during the pleasure of
the Board, to consist of such directors as the Board may from time to time
designate. The Chairman of the Executive Committee shall be designated by the
Board of Directors.
SECTION 2. Procedure. The Executive Committee, by a vote of a majority
of its members, shall fix its own times and places of meeting, shall determine
the number of its members constituting a quorum for the transaction of business,
and shall prescribe its own rules of procedure; no change in which shall be made
save by a majority vote of its members.
SECTION 3. Powers. During the intervals between the meetings of the
Board of Directors, the Executive Committee shall possess and may exercise all
the powers of the Board in the management and direction of the business and
affairs of the Corporation; provided, however, that no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
By-laws of the corporation; provided further that no such committee shall have
the power or authority to declare a dividend or authorize the issuance of stock.
SECTION 4. Reports. The Executive Committee shall keep regular minutes
of its proceedings and all action by the Executive Committee shall be reported
promptly to the Board of Directors. Such action shall be subject to review by
the Board, provided that no rights of third parties shall be affected by such
review.
SECTION 5. Additional Committees. The Board of Directors may appoint
such other committee or committees of two (2) or more members, to serve during
the pleasure of the Board, to consist of such persons as the Board may from time
to time designate, and to possess and exercise such powers and to perform such
duties as the Board may from time to time designate. The Chairman of any such
committee shall be designated by the Board of Directors.
SECTION 6. Appointment of Additional Members. In the absence or
disqualification of any member of the Executive Committee or any other
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member.
ARTICLE VI
OFFICERS
SECTION 1. Officers. The Board of Directors shall elect, as executive
officers, a Chairman of the Board, a President, a Secretary and a Treasurer, and
in their discretion a Vice Chairman of the Board, one or more Vice-Presidents
and one or more Assistant Secretaries and Assistant Treasurers. Such officers
shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of stockholders, and each shall hold office until
the corresponding meeting of the Board in the next year and until his successor
shall have been duly elected and qualified, or until he shall have died or
resigned or shall have been removed, in the manner provided herein. Any number
of offices may be held by the same person.
SECTION 2. Vacancies. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 3. Chairman of the Board; Vice Chairman of the Board. The
Chairman of the Board shall be the chief executive officer of the Corporation
and, subject to the supervision of the Board of Directors, he shall have general
management, charge and control of all the affairs of the Corporation. He shall
be a member of the Board of Directors, preside at all meetings of the Board of
Directors and stockholders at which he shall be present and shall have such
other powers and duties, if any, as the Board of Directors may prescribe. The
Vice Chairman of the Board, if elected, shall have such duties and powers as
shall be designated from time to time by the Board of Directors and shall advise
and counsel with the Chairman of the Board,the President and the other executive
officers of the Corporation.
SECTION 4. President. In the absence or disability of the Chairman of
the Board, the President shall have all the powers and be charged with all the
duties of the Chairman. Unless the Chairman of the Board shall be present, the
President shall preside at all meetings of the stockholders and of the Board of
Directors at which he is present.
SECTION 5. Vice-Presidents. Each Vice-President, if elected, shall have
and exercise such powers and shall perform such duties as from time to time may
be conferred upon or assigned to him by the Board of Directors, or as may be
delegated to him by the President.
SECTION 6. Secretary. The Secretary shall keep the minutes of all
meetings of the stockholders and of the Board of Directors in books provided for
the purpose; he shall see that all notices are duly given in accordance with the
provisions of law and these by-laws; he shall be custodian of all contracts,
assignments, and other legal documents and records and of the corporate seal of
the Corporation; he shall see that the corporate seal is affixed to all
documents, the execution of which, on behalf of the Corporation, under its seal,
is duly authorized and when the seal is so affixed he may attest the same; he
may sign, with the Chairman of the Board, or the President or a Vice-President,
certificates of stock of the Corporation; and in general, he shall perform all
duties incident to the office of a secretary of a corporation, and such other
duties as from time to time may be assigned to him by the Board of Directors.
SECTION 7. Assistant Secretaries. The Assistant Secretaries shall, in
the absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary and shall perform such other duties as the Board of
Directors shall prescribe.
SECTION 8. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositaries as shall, from time to time, be selected by the Board of
Directors; he may endorse for collection on behalf of the Corporation, checks,
notes and other obligations; he may sign receipts and vouchers for payments made
to the Corporation, singly or jointly with another person as the Board of
Directors may authorize; he shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation; he may sign, with the Chairman of the Board, or the President or
Vice-President, certificates of stock of the Corporation; and in general shall
perform all the duties incident to the office of a treasurer of a corporation,
and such other duties as from time to time may be assigned to him by the Board
of Directors.
SECTION 9. Assistant Treasurers. The Assistant Treasurers shall, in the
absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties as the Board of
Directors shall prescribe.
SECTION 10. Subordinate Officers. The Board of Directors may appoint
such subordinate officers as it may deem desirable. Each such officer shall hold
office for such period, have such authority and perform such duties as the Board
of Directors may prescribe. The Board of Directors may, from time to time,
authorize any officer to appoint and remove subordinate officers and to
prescribe the powers and duties thereof.
SECTION 11. Compensation. The Board of Directors shall have power to
fix the compensation of all officers of the Corporation. It may authorize any
officer, upon whom the power of appointing subordinate officers may have been
conferred, to fix the compensation of such subordinate officers.
SECTION 12. Removal. Any officer of the Corporation may be removed,
with or without cause, by a majority vote of the Board of Directors at a meeting
called for that purpose.
SECTION 13. Bonds. The Board of Directors may require any officer of
the Corporation to give a bond to the Corporation, conditional upon the faithful
performance of his duties, with one or more sureties and in such amount as may
be satisfactory to the Board of Directors.
ARTICLE VII
CERTIFICATES OF STOCK
SECTION 1. Form and Execution of Certificates. Each stockholder of the
Corporation shall be entitled to a certificate or certificates for shares of
stock owned by him in such form as the Board of Directors may from time to time
prescribe. The certificates of stock of each class and series now authorized or
which may hereafter be authorized by the Certificate of Incorporation shall be
consecutively numbered and signed by the Chairman of the Board of Directors or
the President or a Vice President and by the Secretary or an Assistant Secretary
or the Treasurer or an Assistant Treasurer of the Corporation, and may be
countersigned and registered in such manner as the Board of Directors may by
resolution prescribe, and shall bear the corporate seal or a printed or engraved
facsimile thereof. In case any officer, transfer agent, or registrar who shall
have signed, or whose facsimile signature or signatures shall have been used on,
any such certificate or certificates shall cease to be such officer, transfer
agent, or registrar before such certificate or certificates shall have been
issued by the Corporation, it may nevertheless be issued and delivered by the
Corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue. If such certificate is countersigned by a
transfer agent other than the Corporation or its employee or by a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile.
In case the corporate seal which has been affixed to, impressed on or
reproduced in any such certificate or certificates shall cease to be the seal of
the Corporation before such certificate or certificates have been delivered by
the Corporation, such certificate or certificates may nevertheless be issued and
delivered by the Corporation as though the seal affixed thereto, impressed
thereon or reproduced therein had not ceased to be the seal of the Corporation.
Any restriction on transfer or registrations of transfer of any
security of this Corporation, whether imposed by law, by the Certificate of
Incorporation, by these By-Laws or by an agreement among the shareholders of
this Corporation, shall be noted conspicuously upon the security.
SECTION 2. Transfer of Shares. Subject to any applicable restrictions
noted upon the face of a stock certificate, contained in the Certificate of
Incorporation, these By-laws, or an agreement among stockholders or among such
holders and the Corporation, the shares of stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof in person or
by his attorney lawfully constituted, upon surrender for cancellation of
certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, with such proof or
guaranty of the authenticity of the signature as the Corporation or its agents
may reasonably require. Except as may be otherwise required by law, the
Certificate of Incorporation or these By-Laws, the Corporation shall have the
right to treat the person registered on the stock transfer books as the owner of
any shares of the Corporation's stock as the owner thereof for all purposes,
including the payment of dividends, liability for assessments, the right to vote
with respect thereto and otherwise, and accordingly shall not be bound to
recognize any attempted transfer, pledge or other disposition thereof, or any
equitable or other claim with respect thereto, whether or not it shall have
actual or other notice thereof, until such shares shall have been transferred on
the Corporation's books in accordance with these By-laws. It shall be the duty
of each stockholder to notify the Corporation of his post office address.
SECTION 3. Holder of Record. The Corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person
whether or not it shall have express or other notice thereof, save as expressly
provided by law or by the Certificate of Incorporation.
SECTION 4. Dates of Record. Only such stockholders as shall be
stockholders of record on any record date fixed by the Board of Directors in
accordance with applicable law shall be entitled to receive notice of, and to
vote and act at, any meeting of stockholders or to receive payment of any
dividend, or to receive any allotment of rights, or to exercise any such rights,
as the case may be, notwithstanding any transfer of any stock on the books of
the Corporation after any record date fixed as aforesaid. If no record date is
so fixed, the record date shall be determined by applicable law.
SECTION 5. Lost or Destroyed Certificates. In case of the loss or
destruction of any certificate of stock, a new certificate may be issued upon
the following conditions:
(a) The owner of said certificate shall file with the Secretary or any
Assistant Secretary of the Corporation an affidavit giving the
facts in relation to the ownership, and in relation to the loss or
destruction of said certificate, stating its number and the number
of shares represented thereby; such affidavit to be in such form
and contain such statements as shall satisfy such Secretary or
Assistant Secretary that said certificate has been destroyed or
lost, and that a new certificate ought to be issued in lieu
thereof. Upon being so satisfied, such Secretary or Assistant
Secretary shall require such owner to furnish a bond in such sum
and in such form as he may deem advisable, and with a surety or
sureties approved by him, to indemnify and save harmless the
Corporation from any claim, loss, damage or liability which may be
occasioned by the issuance of a new certificate in lieu thereof.
Upon such bond being so filed a new certificate for the same number
of shares shall be issued to the owner of the certificate so lost
or destroyed; and any transfer agent and registrar of stock shall
countersign and register such new certificate upon receipt of a
written order signed by the Secretary or any Assistant Secretary
and thereupon the Corporation will save harmless said transfer
agent and registrar with respect thereto. In case of the surrender
of the original certificate, in lieu of which a new certificate has
been issued, or the surrender of such new certificate, for
cancellation, the bond of indemnity given as a condition of the
issue of such new certificate may be surrendered; or
(b) The Board of Directors of the Corporation may by resolution
authorize and direct any transfer agent or registrar of the Common
Stock of the Corporation to issue and register respectively from
time to time without further action or approval by or on behalf of
the Corporation new certificates of stock to replace certificates
reported lost, stolen or destroyed upon receipt of an affidavit of
loss and bond of indemnity in form and amount and with surety
satisfactory to such transfer agent or registrar in each instance
or upon such terms and conditions as the Board of Directors may
determine.
ARTICLE VIII
EXECUTION OF DOCUMENTS BY THE CORPORATION
SECTION 1. Execution of Checks, Notes, Etc. All checks and drafts on
the Corporation's bank accounts and all bills of exchange and promissory notes,
and all acceptances, obligations and other instruments for the payment of money,
shall be signed by such officer or officers, agent or agents, as shall be
thereunto authorized from time to time by the Board of Directors, which may in
its discretion authorize any such signature to be facsimile.
SECTION 2. Execution of Contracts, Assignments, Etc. Unless the Board
of Directors shall have otherwise provided generally or in a specific case, all
contracts, agreements, endorsements, assignments, transfers, stock powers, or
other instruments shall be signed by the President, the Chairman of the Board,
any Vice- President, the Secretary or the Treasurer. The Board of Directors may,
however, in its discretion, require any or all of such instruments to be signed
by such other officer or officers, agent or agents, as it shall thereunto
authorize from time to time.
SECTION 3. Execution of Proxies. The Chairman of the Board, the
President or in their absence or disability a Vice-President, may authorize from
time to time the signature and issuance of proxies to vote upon shares of stock
of other corporations or other legal entities standing in the name of the
Corporation. All such proxies shall be signed in the name of the Corporation by
the Chairman of the Board, the President, a Vice-President, the Secretary or the
Treasurer, or by such other or further officer or officers, agent or agents, as
shall be thereunto authorized from time to time by the Board of Directors.
ARTICLE IX
WAIVERS AND CONSENTS
Whenever any notice is required to be given by law, or under the
provisions of the Certificate of Incorporation, or of these by- laws, such
notice may be waived, in writing, signed by the person or persons entitled to
such notice, or by his attorney or attorneys thereunto authorized, whether
before or after the event or action to which such notice relates.
Any action required or permitted to be taken at any meeting of the
Board of Directors or of any Committee of the Board of Directors may be taken
without a meeting, if prior to such action a written consent thereto is signed
by all members of the Board of Directors or of such Committee as the case may
be, and such written consent is filed with the minutes of proceedings of the
Board of Directors or of such Committee.
Members of the Board of Directors or any committee appointed by the
Board of Directors may participate in a meeting of the Board of Directors or
such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in such a meeting shall constitute presence in
person at such meeting.
ARTICLE X
INSPECTION OF BOOKS
The Board of Directors shall determine from time to time whether, and
if allowed, when and under what conditions and regulations, the accounts and
books of the Corporation (except such as may by statute be specifically open to
inspection) or any of them, shall be open to the inspection of the stockholders
and the stockholders' rights in this respect are and shall be restricted and
limited accordingly.
ARTICLE XI
FISCAL YEAR
The fiscal year of the Corporation shall end on such date as the Board
of Directors may by resolution specify and the Board of Directors may by
resolution change such date for future fiscal years at any time or from time to
time.
ARTICLE XII
CERTAIN REGULATIONS
SECTION 1. The Manager. When used herein the following word shall have
the following meaning: "Manager" shall mean any corporation, firm or association
which may at the time have a management contract with this corporation pursuant
to the provisions of the Certificate of Incorporation.
SECTION 2. Limitation on Dealing in Securities of the Corporation by
Certain Officers, Directors or Manager. Neither the Manager, nor any officer or
director of the Corporation or of the Manager shall take long or short positions
in securities issued by the Corporation, provided, however that any officer or
director of the Corporation or of the Manager may at any time, or from time to
time, purchase from the Corporation shares issued by the Corporation at the
price available to the public at the moment of such purchase or, to the extent
that such person is a stockholder, at the price available to stockholders of the
corporation generally at the moment of such purchase, or at a price stated in
the Corporation's current prospectus, no such purchase to be in contravention of
any applicable state or federal requirement.
SECTION 3. Securities and Cash of the Corporation to be held by
Custodian subject to certain Terms and Conditions.
(I) All securities, cash and other property owned by the Corporation
shall, as hereinafter provided, be held by or deposited with a bank or trust
company having (according to its last published report) not less than two
million dollars ($2,000,000) aggregate capital, surplus and undivided profits
(which bank or trust company is hereby designated as "Custodian"), provided such
a Custodian can be found ready and willing to act.
(II) The Corporation shall enter into a written contract with the
Custodian regarding the powers, duties and compensation of the Custodian with
respect to the cash and securities of the Corporation held by the Custodian.
Said contract and all amendments thereto shall be approved by the Board of
Directors of the Corporation.
(III) The Corporation shall upon the resignation or inability to serve
of its Custodian or upon change of the Custodian:
(a) in 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 Corporation be
delivered directly to the successor Custodian; and
(c) in the event that no successor Custodian can be found, submit to
the stockholders, before permitting delivery of the cash and
securities owned by the Corporation otherwise than to a successor
Custodian, the question whether or not the Corporation shall be
liquidated or shall function without a Custodian.
SECTION 4. Reports by the Corporation to its Stockholders Relating to
Certain Dividends. Dividends paid from net profits from the sale of securities
shall be clearly revealed by the Corporation to its stockholders and the basis
of calculation shall be set forth.
SECTION 5. Requirements and Restrictions Regarding the Management
Contract. Every management contract entered into by the Corporation pursuant to
the Certificate of Incorporation shall:
(a) limit the aggregate amount of all fees to be received by the
Manager from the Corporation thereunder in respect of investment
advisory services and expenses for any fiscal year to 1% of the
average of the net assets of this corporation for that fiscal year
determined at least as of the end of each quarter in the manner
provided in the Certificate of Incorporation;
(b) be for a period of not longer than one year unless it provides that
it shall be terminable by this corporation at any time upon not
more than sixty days' written notice;
(c) provide that it shall automatically terminate in the event of its
assignment within the meaning provided therefor by the provisions
of the Federal Investment Company Act of 1940, as amended from time
to time;
(d) provide that it cannot be amended except at a meeting by the
affirmative vote of the holders of a majority of the outstanding
stock of this Corporation; and
(e) become effective and continue in effect only if such continuance is
approved in accordance with the provisions of the Federal
Investment Company Act of 1940, as amended from time to time.
For purposes of this Section 5, the term "Majority of the outstanding
voting securities of this corporation" shall have the meaning provided therefor
in the Federal Investment Company Act of 1940, as amended from time to time.
SECTION 6. Issuance of Shares. Shares of corresponding value of the
Corporation shall be issued or transferred to investors no later than
immediately after the determination of the net asset value of the Corporation
next following payment for such shares in accordance with Rule 22(c)(1) of the
Securities and Exchange Commission under the Investment Company Act of 1940. If
requested by the shareholder, certificates representing such shares shall be
issued without undue delay.
SECTION 7. Redemption of Shares. Shareholders shall be entitled to
payment within seven business days following the next determination of the net
asset value of the Corporation following the receipt of a redemption request in
proper form as described in the current prospectus relating to the offering of
shares of the Corporation. The Fund shall maintain its election under Rule 18(f)
of the Securities and Exchange Commission (under the Investment Company Act of
1940) to redeem in kind only in accordance with the provisions of the Rule.
SECTION 8. Contractual Plans. If shares of the Corporation are offered
through a contractual plan whereby shares are purchased over a period of several
years, no more than one third of each of the payments agreed to be made in the
first year may be deducted for sales charges or other costs, and the remaining
costs shall be equally apportioned to all subsequent payments.
SECTION 9. Investment Companies. The Corporation shall not purchase the
securities of any other investment company, including unit investment trusts, in
contravention of the German Foreign Investment Law (AuslandInvestment - Gesetz).
SECTION 10. Pledging Assets. Assets of the Corporation may not be
pledged or otherwise encumbered nor be transferred or assigned for the purpose
of securing a debt, except in the course of portfolio trading.
SECTION 11. Borrowing. The Corporation may not borrow money, except
that the Corporation may borrow money from banks on a temporary basis to
facilitate redemptions of shares for extraordinary or emergency purposes in
accordance with regular business practices and with the consent of the
Corporation's Custodian Bank with respect to the conditions of the loan. Amounts
so borrowed shall not exceed 5% of the Corporation's total assets computed
immediately prior to such borrowing (and in no event more than 10% of the Fund's
net assets at such time).
SECTION 12. Short Sales. The Corporation shall not sell securities not
belonging to the Corporation.
SECTION 13. Precious Metals and Minerals. The Corporation shall not
invest directly in precious metals and minerals or contracts relating thereto.
However, the Corporation may invest in common and preferred shares of other
companies that invest directly in precious metals and minerals, provided that no
such investment may be made if at the time thereof the fair value of all such
investments exceeds or by virtue of such investment would exceed 25% of the then
market value of the Corporation's total assets.
SECTION 14. Repurchase Agreements. Notwithstanding any of these By
Laws, this Corporation may invest in repurchase agreements and reverse
repurchase agreements in amounts not to exceed 10% of total net assets valued at
current market values.
ARTICLE XIII
FRACTIONAL SHARES
The Board of Directors may authorize the issue from time to time of
shares of the capital stock of the Corporation in fractional denominations,
provided that the transactions in which and the terms upon which shares in
fractional denominations may be issued may from time to time be limited and/or
determined by or under authority of the Board of Directors.
ARTICLE XIV
INDEMNIFICATION
The Corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, except with
respect to any liability to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person was liable for willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of his office.
The Corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, except with
respect to any liability to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in the two immediately preceding
paragraphs, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Any indemnification under these provisions (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth above. Such determination shall be made (1) by the vote of a
majority of a quorum of directors who are neither "interested persons" of the
Corporation as defined in Section 2(a)(19) of the Investment Company Act of 1940
nor parties to the proceeding ("disinterested, non-party directors"), or (2) an
independent legal counsel in a written opinion.
Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Corporation as
authorized hereunder, provided, however, that no such advance may be made unless
a majority of a quorum of the disinterested, non- party directors of the
Corporation, or an independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the director, officer,
employee or agent ultimately will be found entitled to indemnification.
The indemnification provided herein shall not be deemed exclusive of
any other rights to which those seeking indemnification may be lawfully
entitled, both as to action by a person in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability, except a liability to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office, asserted against him and incurred by him in any such
capacity, or arising out of his status as such.
For the purposes of these indemnification provisions, references to
"the Corporation" include all constituent corporations absorbed in a
consolidation or merger as well as the resulting or surviving corporation so
that any person who is or was a director, officer, employee or agent of such a
constituent corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of these indemnification provisions, with respect
to the resulting or surviving corporation, as he would if he had served the
resulting or surviving corporation in the same capacity.
ARTICLE XV
AMENDMENTS
Subject to any applicable requirements of law, these By-Laws may be
amended or added to, altered or repealed by the stockholders, at any annual or
special meeting of the stockholders, provided notice of the general purport of
the proposed amendment, addition, alteration or repeal is given in the notice of
said meeting, or by the Board of Directors, at any meeting of the Board of
Directors, except that the Board of Directors may not amend, add to, alter or
repeal any provision hereof which by law, the Certificate of Incorporation or
these By-Laws requires action by the stockholders. No provisions of Sections 1
through 3 of Article XII or of this Article XV shall be amended by the Board of
Directors. Any By-Law adopted by the directors may be amended or repealed by the
stockholders.
<PAGE>
EXHIBIT 99.5(A)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made the 19th day of August, 1993, by and between KEYSTONE
PRECIOUS METALS HOLDINGS, INC. (hereinafter sometimes called the "Fund"), a
Delaware corporation, and KEYSTONE CUSTODIAN FUNDS, INC. (hereinafter sometimes
called the "Investment Adviser"), a Delaware corporation.
W I T N E S S E T H :
WHEREAS, the Fund and the Investment Adviser wish to enter into an Agreement
setting forth the terms on which the Investment Adviser will perform certain
services for the Fund.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Investment Adviser agree as follows:
1. The Fund hereby employs the Investment Adviser to manage the investment
and reinvestment of the assets of the Fund, subject to the supervision of the
Board of Directors of the Fund, for the period and on the terms in this
Agreement set forth. The Investment Adviser hereby accepts such employment and
agrees during such period, at its own expense, to render the services and to
assume the obligations herein set forth, for the compensation herein provided.
The Investment Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
2. The Investment Adviser, at its own expense, shall furnish to the Fund
office space in the offices of the Investment Adviser or in such other place as
may be agreed upon by the parties from time to time, and all necessary office
facilities, equipment and personnel for managing the investment and reinvestment
of the assets of the Fund, and shall arrange, if desired by the Fund, for
members of the Investment Adviser's organization to serve without salaries from
the Fund as officers or agents of the Fund. The Investment Adviser assumes and
shall pay or reimburse the Fund for: (1) the compensation (if any) of the
Directors of the Fund who are affiliated persons (as such term is defined in the
Investment Company Act of 1940, as amended) of the Investment Adviser and of all
officers of the Fund as such, and (2) all expenses of the Investment Adviser and
the Fund incurred for the management of the investment and reinvestment of the
assets of the Fund, including any fee for services paid to any Sub-Investment
Adviser appointed pursuant to paragraph 6 hereunder. The Fund assumes and shall
pay all other expenses of the Fund, including, without limitation: (1) all
charges and expenses of any custodian or depository appointed by the Fund for
the safekeeping of its cash, securities and other property; (2) all charges and
expenses for bookkeeping and auditors; (3) all charges and expenses of any
transfer agents and registrars appointed by the Fund; (4) all fees of all
Directors of the Fund who are not affiliated persons (as such term is defined in
the Investment Company Act of 1940, as amended) of the Investment Adviser or any
Sub- Investment Adviser appointed pursuant to paragraph 6 hereunder; (5) all
broker's fees, expenses and commissions and issue and transfer taxes chargeable
to the Fund in connection with transactions involving securities and other
property to which the Fund is a party; (6) all taxes and corporate fees payable
by the Fund to federal, state or other governmental agencies; (7) all costs of
stock certificates representing shares of the Fund; (8) all fees and expenses
involved in registering and maintaining registrations of the Fund and of its
shares with the Securities and Exchange Commission and registering or qualifying
its shares under state or other securities laws including the preparation and
printing of prospectuses for filing with said Commission and other authorities
(but not the expense of preparing any sales literature or of printing the same
or of printing any prospectus for use in selling Fund shares, which expenses
neither party undertakes by this agreement to bear); (9) all expenses of
shareholders' and Directors' meetings and of preparing and printing reports to
shareholders dealing with shareholders; and (10) all charges and expenses of
legal counsel for the Fund in connection with legal matters relating to the
Fund, including, without limitation, legal services rendered in connection with
the Fund's corporate existence, corporate and financial structure and relations
with its shareholders, registrations and qualifications of securities under
federal, state and other laws, issues of securities and expenses which the Fund
has herein assumed. In the event the Investment Adviser provides any services
(excluding printing) involved in registering and maintaining registrations of
the Fund and of its shares with the Securities and Exchange Commission or any
services involved in preparing reports to shareholders, the Fund will promptly
reimburse the Investment Adviser therefor on a cost basis.
The services of the Investment Adviser to the Fund hereunder are not to be
deemed exclusive and the Investment Adviser shall be free to render similar
services to others.
3. As compensation for the Investment Adviser's services during the period
of this Agreement, the Fund will pay to the Investment Adviser a fee at the
annual rate of 3/4 of 1% of the first $100,000,000, 5/8 of 1% of the next
$100,000,000 and 1/2 of 1% of the excess over $200,000,000 of the average of the
daily net asset values of the Fund computed as of the close of business on each
business day. Such fee shall be reduced by the amount of any compensation paid
to the Investment Adviser by or on behalf of the Fund's wholly owned
subsidiaries in consideration for services rendered in connection with the
investment and reinvestment of the assets of such subsidiaries.
A pro rata portion of the fee shall be payable in arrears at the end of each
calendar month or fiscal quarter of the Fund as the Investment Adviser may from
time to time specify in writing to the Fund. If this Agreement terminates other
than at the end of a fiscal year of the Fund, any compensation payable hereunder
for the period ending with the date of such termination shall be payable upon
such termination.
Notwithstanding the foregoing, the Investment Adviser agrees to bear any
expenses of the Fund which would cause the Fund to exceed in any fiscal year the
most restrictive expense limitation applicable to the Fund under state law or
regulation and agrees to seek and obtain the approval of a majority of the
Directors of the Fund who are not interested persons, as that term is defined in
the Investment Company Act of 1940, as amended, of the Investment Adviser or the
Fund before requesting the Fund to withdraw from offering its shares in any
state in which the Fund is presently offering its shares.
4. The Fund shall cause its books and accounts to be audited at least once
each year by a reputable, independent public accountant or organization of
public accountants who shall render a report to the Fund.
5. Subject to and in accordance with the Certificate of Incorporation of the
Fund, and the Certificate of Incorporation of the Investment Adviser,
respectively, it is understood that Directors, officers, agents and shareholders
of the Fund are or may be interested in the Investment Adviser (or any successor
thereof) as Directors and officers of the Investment Adviser and its affiliates,
as stockholders of Keystone Group, Inc. or otherwise; that Directors, officers
and agents of the Investment Adviser and its affiliates, or stockholders of
Keystone Group, Inc. are or may be interested in the Fund as Trustees, officers,
shareholders or otherwise, that the Investment Adviser (or any such successor)
is or may be interested in the Fund as shareholder or otherwise; and that the
effect of any such adverse interests shall be governed by said Certificate of
Incorporation of the Fund and Certificate of Incorporation of the Investment
Adviser, respectively.
6. The Investment Adviser may enter into an agreement to retain at its own
expense any other firm or firms to provide the Fund investment advisory
services, if such agreement is approved by a vote of a majority of the
outstanding voting securities of the fund and by the vote of a majority of the
Directors of the Fund who are not parties to such agreement or interested
persons, as that term is defined in the Investment Company Act of 1940, as
amended, of the Fund or of any such party, cast in person at a meeting called
for the purpose of voting on such approval.
7. This Agreement shall continue in effect after July 1, 1994 and thereafter
only so long as (1) such continuance is specifically approved at least annually
by the Board of Directors of the Fund or by a vote of a majority of the
outstanding voting securities of the Fund, and (2) such renewal has been
approved by the vote of a majority of Directors of the Fund who are not
interested persons, as that term is defined in the Investment Company Act of
1940, as amended, of the Investment Adviser or of the Fund, cast in person at a
meeting called for the purpose of voting on such approval.
8. On sixty days' written notice to the Investment Adviser, this Agreement
may be terminated at any time, without the payment of any penalty, by the Board
of Directors of the Fund or by the vote of a majority of the outstanding voting
securities of the Fund; and on ninety days' written notice to the Fund, this
Agreement may be terminated at any time, without the payment of any penalty, by
the Investment Adviser. This Agreement shall automatically terminate upon its
assignment (as that term is defined in the Investment Company Act of 1940, as
amended). Any notice under this Agreement shall be given in writing, addressed
and delivered, or mailed prepaid, to the other party at any office of such
party.
9. 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 a vote of a majority of the outstanding voting securities of the
Fund. A "majority of the outstanding voting securities of the Fund" shall have,
for all purposes of this Agreement, the meaning provided therefor in said
Investment Company Act.
10. Any compensation payable to the Investment Adviser hereunder or any
reimbursement by the Investment Adviser of expenses of the Fund pursuant to
paragraph 3 above for any period other than a full year shall be proportionately
adjusted.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.
KEYSTONE PRECIOUS METALS
HOLDINGS, INC.
By: ------------------------------------------------------
Title:
KEYSTONE CUSTODIAN FUNDS, INC.
By: ------------------------------------------------------
Title:
<PAGE>
EXHIBIT 99.5(B)
SUBADVISORY AGREEMENT
This SubAdvisory Agreement dated August 19, 1993 between HARBOR CAPITAL
MANAGEMENT COMPANY, INC., a Massachusetts corporation ("HCM"), and KEYSTONE
CUSTODIAN FUNDS, INC., a Delaware corporation ("Adviser").
WITNESSETH:
WHEREAS, the Adviser provides investment and management services to Keystone
Precious Metals Holdings, Inc., a Delaware corporation (the "Fund"), under an
investment advisory contract dated August 19, 1993 (the "IA Contract") pursuant
to which the Adviser has agreed to manage the investment and reinvestment of the
assets of the Fund, subject to the supervision of the Board of Directors of the
Fund, for the period and on the terms set forth in the IA Contract;
WHEREAS, the Adviser is obligated under the IA Contract to furnish the Fund
with all necessary office facilities, equipment and personnel for managing the
investment and reinvestment of the assets of the Fund;
WHEREAS, the obligations under an investment advisory contract dated July
30, 1975 (the "Subsidiary Contract") with Precious Metals (Bermuda) Ltd., a
Bermuda corporation (the "Subsidiary"), assumed as of November 20, 1984 by the
Adviser's subsidiary, Harbor Keystone Advisers, Inc., were assumed as of
December 29, 1989 by the Adviser;
WHEREAS, HCM has prior to the date hereof provided comparable services to
the Fund and the Subsidiary for approximately eleven years, has considerable
expertise in managing assets of the Fund and the Subsidiary, and currently
provides such services pursuant to a SubAdvisory Agreement dated December 29,
1989 between HCM and the Adviser; and
WHEREAS, the Adviser wishes to continue to avail itself of such expertise
of HCM for the Fund and its Subsidiary;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, HCM and the Adviser agree as follows:
1. Consistent with the investment objectives and policies of the Fund from
time to time and subject to the supervision of the Board of Directors of the
Fund and the Adviser, HCM will regularly provide the Fund with investment
research, advice and supervision and will furnish continuously an investment
program for the Fund's portfolio. HCM will recommend securities to be purchased
for, or sold from, the portfolio of the Fund and will recommend what portion of
the Fund's assets shall be held uninvested, HCM shall advise and assist the
officers of the Fund and the Adviser in taking such steps as are necessary or
appropriate to carry out the decisions of its Board of Directors and the
appropriate committees of such Board regarding the foregoing matters. HCM will
recommend commodities and other assets to be purchased for, or sold from, the
account of the Subsidiary. HCM will furnish to the Adviser, from time to time,
as needed or requested, investment research and advice concerning the purchase
or sale by the Fund of such portfolio securities and by the Subsidiary of such
commodities and purchase or sale by the Fund of such portfolio securities and by
the Subsidiary of such commodities and other assets. Such recommendations and
services are also to include advice on the selection of such securities to be
purchased or sold, the price(s) and size of each transaction and what portion of
the Fund's assets shall be held uninvested. HCM will direct the trading of all
securities for the account of the Fund and all commodities and other
transactions for the account of the Subsidiary.
2. For its services for the preceding fiscal quarter as described in
paragraph 1 above, HCM will receive on the first business day of each fiscal
quarter a fee calculated in accordance with the following:
(a) 50% of the amount remaining from the management fee paid by the Fund to
the Adviser for the preceding quarter after deduction of an amount equal to the
interest expense actually incurred or imputed as the prevailing prime rate of
the Bank of Boston during the preceding quarter by the Fund's Principal
Underwriter in connection with amounts paid by the Principal Underwriter during
the quarter or in previous quarters relating to the sale of Fund shares in
excess of amounts received by the Principal Underwriter under the 12b-1 Plan of
Distribution adopted by the Fund under the Investment Company Act of 1940
("Act"); but in no event less than an amount calculated as follows:
(i) Subject to the limitation in subparagraph (ii):
(a) With respect to the first $50,100,000 of the consolidated average
daily net assets of the Fund and the Subsidiary during the preceding
quarter, the Adviser shall pay to HCM a fee which is equal to 70% of
the aggregate management fees for such quarter which the Adviser is
entitled to receive under the Contracts with respect to such assets;
(b) With respect to the next $20,000,000 of consolidated average daily net
assets of the Fund and the Subsidiary during the preceding quarter, the
Adviser shall pay to HCM a fee which is equal to 40% of the aggregate
management fees for such quarter which the Adviser is entitled to
receive under the Contracts with respect to such assets; and
(c) With respect to the next $50,000,000 of consolidated average daily net
assets of the Fund and the Subsidiary during the preceding quarter, the
Adviser shall pay to HCM a fee which is equal to 10% of the aggregate
management fees for such quarter which the Adviser is entitled to
receive under the Contracts with respect to such assets; and
(d) With respect to any consolidated average daily net assets of the Fund
and the Subsidiary in excess of $120,100,000 during the preceding
quarter, the Adviser shall pay to HCM a fee which is equal to 17.5% of
the aggregate management fees for such quarter which the Adviser is
entitled to receive under the Contracts with respect to such assets;
(ii) Notwithstanding anything in subparagraph (i) to the contrary, the
maximum fee payable to HCM under this paragraph with respect to any fiscal
year (or period) of the Fund and the Subsidiary shall not exceed 90% of the
aggregate management fees with respect to such fiscal year (or such period)
which the Adviser is entitled to receive from the Fund and the Subsidiary
under the Contracts. In any event, the fees payable to HCM under
subparagraph (i) shall not be reduced because of distribution expenses paid
by the Fund under or by its Principal Underwriter in connection with any
Plan of Distribution adopted under the Act.
3. This Agreement shall continue in effect until July 1, 1994 and shall
be automatically renewed for successive one-year periods unless HCM or the
Adviser has given the other at least 180 days' notice of its intention to
terminate this Agreement at the end of the contract period then in effect;
provided, however, that the continuation of this Agreement for more than two
years shall be subject to the receipt of annual approvals of the Fund's
Directors or stockholders in accordance with the Act and the rules thereunder.
Unless (i) the Adviser has given timely notice to HCM of its intention not to
renew this Agreement for an additional year or (ii) the management relationship
between the Fund and the Adviser has been terminated, the Adviser shall use its
best efforts to obtain every such approval. Notwithstanding the foregoing, the
Agreement may be terminated at any time, without a payment of any penalty, by
the vote of the Fund's Board of Directors or terminated at any time, without a
payment of any penalty, by the vote of the Fund's Board of Directors or a
majority of the Fund's outstanding voting securities (within the meaning of the
Act) on not more than sixty days' written notice to HCM. In addition, the
Agreement shall terminate automatically if it is assigned (within the meaning of
the Act) by either party.
4. HCM acknowledges that it has copies of the Fund's Certificate of
Incorporation, By-Laws, Prospectus and Statement of Additional Information as of
the date hereof. So long as this Agreement remains in effect, the Adviser shall
promptly furnish to HCM any amendments or supplements to these documents which
may hereafter be adopted.
5. All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given on the
date of service if personally served on the party to whom notice is to be given,
or on the second day after mailing if mailed to the party to whom notice is to
be given, by first class mail, registered or certified, postage prepaid, and
properly addressed as follows:
If to HCM: Harbor Capital Management Company, Inc.
265 Franklin Street
Boston, MA 02109
Attention: President
If to the Adviser: Keystone Custodian Funds, Inc.
200 Berkeley Street
Boston, MA 02116
Attention: President
6. This Agreement constitutes the entire agreement between the parties
hereto pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, representations, and understandings of the parties
hereto relating to the subject matter hereof. No supplement, modification, or
amendment of this Agreement shall be binding unless executed in writing by the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provisions, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the other party making the waiver.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the date and year first above written.
HARBOR CAPITAL MANAGEMENT
COMPANY, INC.
By:
---------------------------
KEYSTONE CUSTODIAN
FUNDS, INC.
By:
----------------------------
<PAGE>
EXHIBIT 99.6(A)
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
AGREEMENT made this 19th day of August, 1993 by and between Keystone
Precious Metals Holdings, Inc. (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 common stock 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 Director 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 Director 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 reasonable 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 Directors
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 Directors of the Fund and a majority
of the 12b-1 Directors 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. 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 PRECIOUS METALS HOLDINGS,
INC.
By: ------------------------------
Title:
KEYSTONE DISTRIBUTORS, INC.
By: ------------------------------
Title:
10160197
<PAGE>
EXHIBIT 99.8
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
by and between
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
and
STATE STREET BANK AND TRUST COMPANY
Agreement made as of this l9th day of September 1987 by and between
KEYSTONE PRECIOUS METALS HOLDINGS, INC., a Delaware corporation ("Fund") having
its principal place of business at 99 High Street, Boston, Massachusetts 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, Massachusetts 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 Certificate of Incorporation and By-Laws, all
amendments thereto, a certified copy of the resolution of the Fund's Board of
Directors appointing State Street to act in the capacities covered by this
Agreement and authorizing the signing of this Agreement and copies of such
resolutions of its Board of Directors, contracts and other documents as may be
reasonably required by State Street in the performance of its duties hereunder.
II. Custodian.
1. The Fund appoints State Street as its Custodian, subject to the
provisions hereof. State Street hereby accepts such appointment as Custodian. As
such Custodian, State Street shall retain all securities, cash and other assets
now owned or hereafter acquired by the Fund, and the Fund shall deliver and pay
or cause to be delivered and paid to State Street, as Custodian, all securities,
cash and other assets now owned or hereafter acquired by the Fund during the
period of this Agreement.
2. All securities delivered to State Street (other than in bearer form)
shall be properly endorsed and in proper form for transfer into or in the name
of the Fund, of a nominee of State Street for the exclusive use of the Fund or
of such other nominee as may be mutually agreed upon by State Street and the
Fund.
3. As Custodian, State Street shall promptly:
A. Safekeeping. Keep safely in a separate account the securities of the
Fund, including without limitation all securities in bearer form, and on behalf
of the Fund, receive delivery of certificates, including without limitation all
securities in bearer form, for safekeeping and keep such certificates physically
segregated at all times from those of any other person. State Street shall
maintain records of all receipts, deliveries and locations of such securities,
together with a current inventory thereof and Shall conduct periodic physical
inspections of certificates representing bonds and other securities held by it
under this Agreement at least annually in such manner as State Street shall
determine from time to time to be advisable in order to verify the accuracy of
such inventory. State Street shall provide the Fund with copies of any reports
of its internal count or other verification of the securities of the Fund held
in its custody, including reports on its own system of internal accounting
control. In addition, if and when independent certified public accountants
retained by State Street shall count or otherwise verify the securities of the
Fund held in State Street's custody, State Street shall provide the Fund with a
copy of the report of such accountants. With respect to securities held by any
agent or Subcustodian appointed pursuant to paragraphs 6-C or 3-0 of Section II
hereof, State Street may rely upon certificates from such agent or Subcustodian
as to the holdings of such agent or Subcustodian, 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. Notwithstanding any other
provision of this Agreement, State Street may deposit and/or maintain securities
owned by the Fund in Depository Trust Company, a clearing agency registered with
the Securities and Exchange Commission under Section 17A of the Securities
Exchange Act of 1934, which acts as a securities depository, or in the
book-entry system authorized by the U.S. Department of the Treasury and certain
federal agencies, collectively referred to herein as "Securities Systems(s)" in
accordance with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) State Street may keep securities of the Fund in a Securities System
provided that such securities are deposited in an account ("Account") of
State Street in the Securities System which shall not include any assets of
State Street other than assets held as a fiduciary, custodian or otherwise
for customers;
2) The records of State Street with respect to securities of the Fund
which are maintained in a Securities System shall identify by 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 from the account of
the Fund in the form of a written advice or notice and shall furnish to the
Fund copies of daily transaction sheets reflecting each day's transactions
in the Securities System for the account of 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 Securities System. State Street shall promptly provide the
Fund any report on State Street's accounting system, internal accounting
control and procedures for safeguarding securities deposited with State
Street which is reasonably requested by the Fund;
5) Anything to the contrary in this Agreement notwithstanding, State
Street shall be liable to the Fund for any claim, loss, liability, damage
or expense to the Fund, including attorney's fees, resulting from use of a
Securities System by reason of any negligence, misfeasance or misconduct of
State Street, its agents or any of its or their employees or from failure
of State Street or any such agent to enforce effectively such rights as it
may have against a Securities System. At the election of the Fund, it shall
be entitled to be subrogated to the rights of State Street or its agents
with respect to any claim against the Securities System or any other person
which State Street or its agents may have as a consequence of any such
claim, loss, liability, damage or expense if and to the extent that the
Fund has not been made whole for any such loss or damage.
C. State Street's Records. The records of State Street (and its agents and
Subcustodians) with respect to its services for the Fund shall at all times
during the regular business hours of State Street (or its agents or
Subcustodians) be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Securities and Exchange
Commission.
D. 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 acceptable nominee of any agent or Subcustodian appointed pursuant
to paragraphs 6-C or 3-0 of Section II hereof.
E. 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 Subcustodian for
this purpose or any Foreign Subcustodian appointed pursuant to paragraph 3-0 of
Section II hereof as State Street's Subcustodian for this purpose) registered as
provided in paragraph 3-D 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 a 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.
F. Exchanges. Upon receipt of proper instruction, exchange securities,
interim receipts or temporary securities held by it or by any agent or
Subcustodian appointed by it pursuant to paragraphs 6-C or 3-0 of Section II
hereof for the account of the Fund for other securities alone or for other
securities and cash, and expend cash insofar as cash is available in connection
with any merger, consolidation, reorganization, recapitalization, split-up of
shares, changes of par value, conversion or in connection with the exercise of
warrants, subscription or purchase rights, or otherwise, and deliver securities
to the designated depository or other receiving agent or Subcustodian 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 Subcustodians). 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
Subcustodian appointed pursuant to paragraphs 6-C or 3-0 of Section II hereof,
so that the Fund may issue to State Street proper instructions for State Street
to act thereon prior to any expiration date (which shall be presumed to be two
business days prior to such date unless State Street has previously advised the
Fund of a different period). The Fund shall give to State Street full details of
the time and method of submitting securities in response to any tender or
similar offer, exercising any subscription or purchase right or making any
exchange pursuant to this paragraph. When such securities are in the possession
of an agent or Subcustodian appointed by State Street pursuant to paragraph 6-C
or 3-0 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 or Subcustodian in sufficient time to permit such agent to act prior
to any expiration date.
G. Sales. Upon receipt of proper instructions and upon receipt of full
payment therefor, release and deliver securities which have been sold for the
account of the Fund. At the time of delivery all such payments are to be made in
cash, by a certified check upon or a treasurer's or cashier's check of a bank,
by effective bank wire transfer through the Federal Reserve Wire System or, if
appropriate, outside of the Federal Reserve Wire System and subsequent credit to
the Fund's custodian account, or, in case of delivery through a stock clearing
company, by book-entry credit by the stock clearing company in accordance with
the then current "street" custom.
H. Purchases by Issuer. Upon receipt of proper instructions, release and
deliver securities owned by the Fund to the issuer thereof or its agent when
such securities are called, redeemed, retired or otherwise become payable;
provided that in any such case, the cash or other consideration is to be
delivered to State Street.
I. 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.
J. 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 Directors of the Fund prior to any use of such
modified "street delivery" custom.
K. Release of Securities for Use as Collateral. Upon receipt of proper
instructions and subject to the Certificate of Incorporation, 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.
L. Release or Deliverv 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-F, 3-G, 3-H, 3-I, 3-J and 3-K of Section II hereof) which the Fund
declares is a proper corporate purpose pursuant to proper instructions.
M. Proxies, Notices, Etc. State Street shall promptly forward upon receipt
to the Fund all forms of proxies and all notices of meetings and any other
notices or announcements affecting or relating to the securities, including
without limitation notices relating to class action claims and bankruptcy
claims, and upon receipt of proper instructions execute and deliver or cause its
nominee to execute and deliver such proxies or other authorizations as may be
required. State Street, its nominee or its agents or Subcustodian shall not vote
upon any of the securities or execute any proxy to vote thereon or give any
consent or take any other action with respect thereto (except as otherwise
herein provided) unless ordered to do so by proper instructions. State Street
shall require its agents and Subcustodians appointed pursuant to paragraph 6-C
or 3-O of Section II hereof to forward any such announcements and notices to
State Street upon receipt.
N. Property of the Fund Held Outside of the United States
1) Appointment of Foreign Subcustodians.
State Street is authorized and instructed to employ as Subcustodians for
the Fund's securities and other assets maintained outside of the United States
the foreign banking institutions and foreign securities depositories designated
on Schedule C hereto ("Foreign Subcustodians"). Upon receipt of proper
instructions, together with a certified resolution of the Fund's Board of
Directors, State Street and the Fund may agree to amend Schedule C hereto from
time to time to designate additional foreign banking institutions and foreign
securities depositories to act as Foreign Subcustodians. Upon receipt of proper
instructions from the Fund State Street shall cease the employment of any one or
more of such Subcustodians for maintaining custody of the Fund's assets.
2) Assets to be Held. State Street shall limit the securities and other
assets maintained in the custody of the Foreign Subcustodians to: (a) "foreign
securities", as defined in paragraph (C)(1) of Rule 17f-5 under the Investment
Company Act of 1940, and (b) cash and cash equivalents in such amounts as State
Street or the Fund may determine to be reasonably necessary to effect the Fund's
foreign securities transactions.
3) Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by State Street and the Fund, assets of the Fund shall be maintained
in foreign securities depositories only through arrangements implemented by the
foreign banking institutions serving as Subcustodians pursuant to the terms
hereof.
4) Segregation of Securities. State Street shall identify on its books as
belonging to the Fund, the foreign securities of the Fund held by each Foreign
Subcustodian. Each agreement pursuant to which State Street employs a foreign
banking institution shall require that such institution establish a custody
account for State Street on behalf of the Fund and physically segregate in that
account securities and other assets of the Fund, and, in the event that such
institution deposits the Fund's securities in a foreign securities depository,
that it shall identify on its books as belonging to State Street, as agent for
the Fund, the securities so deposited (all collectively referred to as the
"Account").
5) Aqreements with Foreign Bankinq Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set forth in
Schedule D hereto and shall provide that: (a) the Fund's assets will not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of the foreign banking institution or its creditors, except a claim of
payment for their safe custody or administration; (b) the Foreign Subcustodian
shall maintain insurance covering the Fund's assets, (c) beneficial ownership
for the Fund's assets will be freely transferable without the payment of money
or value other than for custody or administration; (d) adequate records will be
maintained identifying the assets as belonging to the Fund; (e) officers of or
auditors employed by, or other representatives of State Street, including to the
extent permitted under applicable law the independent public accountants for the
Fund, will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with State Street; (f)
assets of the Fund held by the Foreign Subcustodian will be subject only to the
instructions of State Street or its agents; and (g) the Foreign Subcustodian
will provide periodic reports with respect to the safekeeping of the Fund's
assets, including notification of any transfer to or from the Fund's account;
6) Access of Independent Accountants of the Fund. Upon request of the Fund,
State Street will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a Foreign Subcustodian insofar as such
books and records relate to the performance of such foreign banking institutions
under its agreement with State Street.
7) Reports by Custodian. State Street will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and other
assets of the Fund held by Foreign Subcustodians, including but not limited to
an identification of entities having possession of the Fund's securities and
other assets and advices or notifications of any transfers of securities of or
from each custodial account maintained by a foreign banking institution for
State Street on behalf of the Fund indicating, as to securities acquired for the
Fund, the identity of the entity having physical possession of such securities.
8) Transactions in Foreign Custody Account. (a) Upon receipt of proper
instructions, which may be continuing instructions when deemed appropriate by
the parties, State Street shall make or cause its Foreign Subcustodian to
transfer, exchange or deliver foreign securities owned by the Fund, but except
to the extent explicitly provided herein only in any of the cases specified in
Section 0(2); (b) upon receipt of proper instructions, which may be continuing
instructions when deemed appropriate by the parties, State Street shall pay out
or cause its Foreign Subcustodians to pay out monies of the Fund, but except to
the extent explicitly provided herein only in any of the cases specified in
Section 0(7); (c) notwithstanding any provision of this Agreement to the
contrary, settlement and payment for securities received for the account of the
Fund and delivery of securities maintained for the account of the Fund may be
effected in accordance with the customary or established securities trading or
securities processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an agent for
such purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer; (d) securities
maintained in the custody of a Foreign Subcustodian may be maintained in the
name of such entity's nominee to the same extent as set forth in Section 0(3) of
this Agreement and the Fund agrees to hold any such nominee harmless from any
liability as a holder of record of such securities.
9) Liability of Foreign Subcustodians. Each agreement pursuant to which
State Street employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the performance of
its duties as determined under Massachusetts law and to indemnify, and hold
harmless, State Street and Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the Fund, it
shall be entitled to be subrogated to the rights of State Street with respect to
any claims against a foreign banking institution as a consequence of any such
loss, damage, cost, expense, liability or claim if and to the extent that the
Fund has not been made whole for any such loss, damage, cost, expense, liability
or claim.
10) Liability of State Street. State Street shall be liable to the Fund for
the acts or omissions of a foreign banking institution appointed pursuant to
these provisions to the same extent that such foreign banking institution is
liable to State Street under Section O(9); provided however that State Street
shall not be liable to the Fund for any loss resulting from or caused by
nationalization, expropriation, currency restrictions, acts of war or terrorism
or other similar events or acts.
11) Monitorinq Responsibilities. State Street shall furnish annually to the
Fund, during the month of June, information concerning the Foreign Subcustodians
employed by State Street. Such information shall be similar in kind and scope to
that furnished to the Fund in connection with the initial approval of this
Agreement. In addition, State Street will promptly inform the Fund in the event
that State Street learns of a material adverse change in the financial condition
of a Foreign Subcustodian or is notified by a foreign banking institution
employed as a foreign sub-custodian that there appears to be a substantial
likelihood that its Shareholders equity will decline below $200 million (U.S.
dollars or the equivalent thereof) or that its shareholders' equity has declined
below $200 million (in each case computed in accordance with generally accepted
U.S. accounting principles).
12) Branches of U.S. banks. Except as otherwise set forth in this
Agreement, the provisions hereof shall not apply where the custody of the Fund
assets maintained in a foreign branch of a banking institution which is a "bank"
as defined by Section 2(a) (5) of the Investment Company Act of 1940 which meets
the qualifications set forth in Section 26(a) of the Act. The appointment of any
such branch as a sub-custodian shall be governed by paragraph 6-C of Section II
of this Agreement.
O. Miscellaneous. In general, attend to all nondiscretionary details in
connection with the sale, exchange, substitution, purchase, transfer or other
dealing with such securities or property of the Fund, except as otherwise
directed by the Fund pursuant to proper instructions. State Street shall render
to the Fund daily a report of all monies received or paid on behalf of the Fund,
an itemized statement of the securities and cash for which it is accountable to
the Fund under this Agreement and itemized statement of security transactions
which settled the day before and shall render to the Fund weekly an itemized
statement of security transactions which failed to settle as scheduled. At the
end of each week State Street shall provide a list of all security transactions
that remain unsettled at such time.
4. Additionally, as Custodian, State Street shall promptly:
A. Bank Account. Retain safely all cash of the Fund, other than cash
maintained by the Fund in a bank account established and used in accordance with
Rule 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 Directors 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 connection with the collection of such income, and
without waiving the generality of the foregoing:
1) present for payment on the date of payment all coupons and other income
items requiring presentation;
2) present for payment all securities which may mature or be called,
redeemed, retired or otherwise become payable on the date such securities become
payable;
3) endorse and deposit for collection, in the name of the Fund, checks,
drafts or other negotiable instruments on the same day as received.
In any case in which State Street does not receive any such due and unpaid
income within a reasonable time after it has made proper demands for the same
(Which shall be presumed to consist of at least three demand letters and at
least one telephonic demand), it shall so notify the Fund in writing, including
copies of all demand letters, any written responses thereto, and memoranda of
all oral responses thereto and to telephonic demands, and await proper
instruction; 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 income due on securities is not
collected in due course.
C. Sale of Shares of the Fund. Make such arrangements with the Transfer
Agent of the Fund as will enable State Street to make certain it receives the
cash consideration due to the Fund for shares of the Fund as may be issued or
sold from time to time by the Fund, all in accordance with the Fund's and
Certificate of Incorporation 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 of
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 Certificate of
Incorporation and By-Laws, as amended, and applicable resolutions of the Board
of Directors 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 Certificate of Incorporation, as
amended.
In connection with the redemption of shares of the Fund pursuant to the
Fund's Certificate of Incorporation, 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 Adviser 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-E, 3-F, 4-D, 4-E, and 4-G of this Agreement) which the Fund
declares is a proper corporate purpose.
I. Records. Create, maintain and retain all records a) relating to its
activities and obligations under this Agreement in such manner as shall meet the
obligations of the Fund under the Investment Company Act of 1940, as amended,
particularly Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, under
applicable federal and state tax laws and under any other law or administrative
rules or procedures which may be applicable to the Fund, b) necessary to comply
with the representations of Part I - Fund Custodian Services and Part II -
Portfolio Pricing and Accounting of State Street's Response, dated May 1, 1979,
as amended, to Keystone Custodian Funds, Inc.'s and the Massachusetts Company,
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 form N-SAR, 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 Part I and Part II. In addition to the services specified
herein, State Street shall perform those services set forth in Parts I and II,
including without limitation general ledger accounting, daily Fund portfolio
pricing and custodian services to the extent such services relate to the Fund;
provided, however, that in the event that Parts I and II as they relate to the
Fund are in conflict with the terms of this Agreement, the terms of this
Agreement shall govern.
5. State Street and the Fund further agree as follows:
A. Proper Instructions. State Street shall be deemed to have received
proper instructions upon receipt of written instructions signed by the Fund's
Directors or by one or more person or persons as the Fund's Directors 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 Directors 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
Directors and/or the authority of any person or persons to act on behalf of the
Fund and may be considered as in full force and effect until receipt of written
notice to the contrary. Such instruction may be general or specific in terms.
Oral instructions will be considered proper instructions if State Street
reasonably believes them to have been given by a person authorized by the
Directors 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 Certificate of Incorporation 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 Certificate of Incorporation of the
Fund, as amended, or resolutions or proceedings of the Directors 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 disbursements, expenses and
charges, excluding salaries and usual overhead expenses, as set forth in
Schedule A.
C. Appointment of Agents and Subcustodians. State Street, as Custodian, may
appoint (and may remove), only in compliance with the terms and conditions of
the Fund's Certificate of Incorporation 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
Directors, the secretary or an assistant secretary of the Fund or any other
person expressly authorized by the Directors 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 Directors of, attorneys for, auditors employed by the Fund or any other
person as the Fund's Directors shall direct.
F. Record-Keeping. State Street shall maintain such records as shall enable
the Fund to comply with the requirements of all Federal and State laws and
regulations applicable to the Fund with respect to the matters covered by this
Agreement and shall comply with the representations of Parts I and II as such
representations relate to maintaining records of the Fund.
7. The Fund shall pay State Street for its services as Custodian such
compensation as shall be specified in the attached Exhibit A. Such compensation
shall remain fixed until December 31, 1988, 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 Directors substitute
another bank or trust company for State Street by giving notice as provided
above to State Street. The Fund or State Street shall not amend or terminate
this Agreement in contravention of any applicable Federal or State laws or
regulations, or any provision of the Articles of Organization 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
Certificate of Incorporation 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 Directors of the Fund in
accordance with the Fund's Certificate of Incorporation, 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 Certificate of Incorporation 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 Articles
of Organization 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
Directors to appoint a Successor Custodian, State Street shall be entitled to
fair compensation for its services during such period and the provisions of this
Agreement relating to the duties and obligations of State Street shall remain in
full force and effect.
C. Duplicate Records and Backup Facilities. State Street shall not be
liable for loss of data, occurring by reason of circumstances beyond its
control, including but not limited to acts of civil or military authority,
national emergencies, fire, flood or catastrophe, acts of God, insurrection,
war, riots, or failure of transportation, communication or power supply.
However, State Street shall keep in a separate and safe place additional copies
of all records required to be maintained pursuant to this Agreement or
additional tapes, disks or other sources of information necessary to reproduce
all such records. Furthermore, at all times during this Agreement, State Street
shall maintain a contractual arrangement whereby State Street will have a
back-up computer facility available for its use in providing the services
required hereunder in the event circumstances beyond State Street's control
result in State Street not being able to process the necessary work at its
principal computer facility, State Street shall, from time to time, upon request
from the Fund provide written evidence and details of its arrangement for
obtaining the use of such a back-up computer facility. State Street shall use
its best efforts to minimize the likelihood of all damage, loss of data, delays
and errors resulting from an uncontrollable event, and should such damage, loss
of data, delays or errors occur, State Street shall use its best efforts to
mitigate the effects of such occurrence. Representatives of the Fund shall be
entitled to inspect the State Street premises and operating capabilities within
reasonable business hours upon reasonable notice to State Street, and, upon
request of such reperesentative 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 or her certificates
representing such Fund shares properly endorsed and in proper form for transfer.
Upon the surrender of such Fund certificates State Street will issue a
certificate or certificates to the surrendering shareholder for an approximate
number of shares held by State Street, unless such shareholder establishes an
Open Account Plan or other similar account at 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
Keystone Precious Metals Holdings, Inc., 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. This Agreement shall be binding upon and shall inure to the benefit of
the Fund and State Street and their respective successors or assigns.
14. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by a duly authorized officer as of the
day and year first above written.
ATTEST: KEYSTONE PRECIOUS METALS
HOLDINGS, INC.
- --------------------------------- 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 PRECIOUS METALS HOLDINGS, INC.
AND
STATE STREET BANK AND TRUST COMPANY
This First Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE PRECIOUS METALS HOLDINGS, INC.
("Fund") and STATE STREET BANK AND TRUST COMPANY ("State Street"), dated
September 19, 1987 ("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.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
officer as of the day and year first above written.
ATTEST: KEYSTONE PRECIOUS METALS
HOLDINGS, INC.
- ----------------------------- By: -----------------------------
ATTEST: STATE STREET BANK AND TRUST
COMPANY
- ----------------------------- By: -----------------------------
Vice President
<PAGE>
SECOND AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE PRECIOUS METALS HOLDINGS, INC.
AND
STATE STREET BANK AND TRUST COMPANY
This Second Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE PRECIOUS METALS HOLDINGS, INC.
("Fund") and STATE STREET BANK AND TRUST COMPANY ("State Street"), dated
September 19, 1987 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-E 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 an any bank, whether domestic or foreign, and pursuant
to Proper Instructions from the Fund as defined in Section 5-A, for
transfer to the time deposit account of the Fund in such bank; such
transfer may be effected prior to receipt of a confirmation from a
broker and/or the applicable bank."
2. Section II is amended by deleting existing Paragraph 7 and by
inserting the following as Paragraph 7:
" 7. The Fund shall pay State Street for its services as
Custodian such compensation as shall be specified in the attached
Exhibit A. Such compensation shall remain fixed until December 31,
1989, unless this Agreement is terminated as provided in Section 8A."
3. In all other respects the Agreement shall remain in full force and
effect.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
officer as of the day and year first above written.
ATTEST: KEYSTONE PRECIOUS METALS
HOLDINGS, INC.
- ----------------------------- 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 PRECIOUS METALS HOLDINGS, INC.
AND
STATE STREET BANK AND TRUST COMPANY
This Third Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE PRECIOUS METALS HOLDINGS, INC.
("Fund") and STATE STREET BANK AND TRUST COMPANY ("State Street"), dated
September 19, 1987 and amended through January 1, 1989 ("Agreement"), is made by
and between the Fund and State Street as of February 8, 1990.
In consideration of the mutual agreements contained herein, State
Street and the Fund hereby agree to amend the Agreement as follows:
1. Section II is amended by deleting Paragraph 8 and by
inserting the following as Paragraph 7A:
" 7A. The Fund shall pay State Street for its services as
Custodian such compensation as specified in the existing Schedule A.
Such compensation shall remain fixed until March 31, 1990 unless this
Agreement is terminated as provided in Paragraph 8A."
2. In all other respects the Agreement shall remain in full
force and effect.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
officer as of the day and year first above written.
ATTEST: KEYSTONE PRECIOUS METALS
HOLDINGS, INC.
- ----------------------------- 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 PRECIOUS METALS HOLDINGS, INC.
AND
STATE STREET BANK AND TRUST COMPANY
This Fourth Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE PRECIOUS METALS HOLDINGS, INC.,
a Delaware corporation incorporated and existing under the laws of the state of
Delaware 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 September 19, 1987, 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:
<PAGE>
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.
<PAGE>
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.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Amendment to
Custodian Contract to be executed in its name and behalf by its duly authorized
representatives and its seal to be hereunder affixed as of the 8th day of
February, 1990.
ATTEST: KEYSTONE PRECIOUS METALS
HOLDINGS, INC.
By: ------------------------- By: -----------------------------
ATTEST: STATE STREET BANK AND TRUST
COMPANY
By: ------------------------- By: -----------------------------
Assistant Secretary Vice President
<PAGE>
EXHIBIT 99.11
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Keystone Precious Metals Holdings, Inc.
We consent to the use of our report dated March 31, 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.
KPMG Peat Marwick LLP
Boston, Massachusetts
June 20, 1995
<PAGE>
EXHIBIT 99.15
DISTRIBUTION PLAN OF PRECIOUS METALS HOLDINGS, INC.
SECTION 1. Precious Metals Holdings, Inc. 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 may be paid by
the Fund to a principal underwriter within the meaning of the Act's definition
of principal underwriter for an open-end investment company (the "Principal
Underwriter") at any time after the 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 Directors of the Fund and (b) those directors of the Fund
who are not "interested persons" of the Fund (as defined in the 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 Directors"), 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 7, 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.
<PAGE>
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 Directors, or by vote of a majority (as defined in
the Act) 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 Directors or by
vote of a majority (as defined in the Act) 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.
Effective Date: November 20, 1984
<PAGE>
<TABLE>
<CAPTION>
PMH MTD YTD ONE YEAR THREE YEAR THREE YEAR FIVE YEAR
28-Feb-95 TOTAL RETURN COMPOUNDED TOTAL RETURN
<S> <C> <C> <C> <C> <C> <C>
with cdsc N/A -18.53% -25.00% 26.14% 8.05% 4.88%
W/O CDSC 0.52% -16.01% -22.70% 27.14% 8.33% 4.88%
Beg dates 31-Jan-95 30-Dec-94 28-Feb-94 28-Feb-92 28-Feb-92 28-Feb-90
Beg Value (no load) 16,130 19,305 20,974 12,753 12,753 15,460
End Value (W/O CDSC) 16,214 16,214 16,214 16,214 16,214 16,214
End Value (with cdsc) 15,727 15,730 16,086 16,086 16,214
beg nav 19.20 22.98 25.09 15.37 15.37 19.15
end nav 19.30 19.30 19.3 19.3 19.3 19.3
shares originally purhased 840.09 840.09 835.95 829.71 829.71 807.29
TIME 3
INCEPTION DATE 31-Mar-81
<CAPTION>
PMH FIVE YEAR TEN YEAR TEN YEAR
28-Feb-95 COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C>
with cdsc 0.96% 99.09% 7.13%
W/O CDSC 0.96% 99.09% 7.13%
Beg dates 28-Feb-90 28-Feb-85 28-Feb-85
Beg Value (no load) 15,460 8,144 8,144
End Value (W/O CDSC) 16,214 16,214 16,214
End Value (with cdsc) 16,214 16,214 16,214
beg nav 19.15 12.21 12.21
end nav 19.3 19.3 19.3
shares originally purhased 807.29 666.99 666.99
TIME 5 10
</TABLE>
INCEPTION DATE 31-Mar-81
PMH
28-Feb-95
BEGINNING DATE INPUT: ESTIMATED EDIT
MONTH/YR ACTUAL DATE
MTD Jan-95 31-Jan-95
YTD Dec-94 30-Dec-94
1 YEAR Feb-94 28-Feb-94
3 YEAR Feb-92 28-Feb-92
5 YEAR Feb-90 28-Feb-90
10 YEAR Feb-85 28-Feb-85
<PAGE>
EXHIBIT 99.19
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/ George S. Bissell
------------------------------
George S. Bissell
Director/Trustee,
Chairman of the Board and
Chief Executive Officer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chief Executive Officer and for
which Keystone Custodian Funds, Inc. serves as Adviser or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and in my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
/s/ Albert H. Elfner, III
------------------------------
Albert H. Elfner, III
Director/Trustee,
President and Chief
Executive Officer
Dated: January 3, 1995
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director, Trustee or officer and for which Keystone
Custodian Funds, Inc. serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and in my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Kevin J. Morrissey
------------------------------
Kevin J. Morrissey
Treasurer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Frederick Amling
------------------------------
Frederick Amling
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles A. Austin III
------------------------------
Charles A. Austin III
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Edwin D. Campbell
------------------------------
Edwin D. Campbell
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles F. Chapin
------------------------------
Charles F. Chapin
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ K. Dun Gifford
------------------------------
K. Dun Gifford
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Leroy Keith, Jr.
------------------------------
Leroy Keith, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ F. Ray Keyser, Jr.
------------------------------
F. Ray Keyser, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ David M. Richardson
------------------------------
David M. Richardson
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Richard J. Shima
------------------------------
Richard J. Shima
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Andrew J. Simons
------------------------------
Andrew J. Simons
Director/Trustee
Dated: December 14, 1994
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
ACCOUNTING
RECORDS.
</LEGEND>
<CIK> 0000079951
<NAME> KEYSTONE PRECIOUS METALS HOLDING, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-START> MAR-01-1994
<PERIOD-END> FEB-28-1995
<INVESTMENTS-AT-COST> 161355434
<INVESTMENTS-AT-VALUE> 164434401
<RECEIVABLES> 10350645
<ASSETS-OTHER> 755636
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 175540682
<PAYABLE-FOR-SECURITIES> 2941357
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1406500
<TOTAL-LIABILITIES> 4347857
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 183069021
<SHARES-COMMON-STOCK> 8870764
<SHARES-COMMON-PRIOR> 7990003
<ACCUMULATED-NII-CURRENT> 1129201
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (16084364)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3078967
<NET-ASSETS> 171192825
<DIVIDEND-INCOME> 3486114
<INTEREST-INCOME> 214175
<OTHER-INCOME> 16070
<EXPENSES-NET> (4813963)
<NET-INVESTMENT-INCOME> (1097604)
<REALIZED-GAINS-CURRENT> 16264818
<APPREC-INCREASE-CURRENT> (63783342)
<NET-CHANGE-FROM-OPS> (48616128)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1048057)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15698308
<NUMBER-OF-SHARES-REDEEMED> (14849643)
<SHARES-REINVESTED> 32096
<NET-CHANGE-IN-ASSETS> 880761
<ACCUMULATED-NII-PRIOR> 402189
<ACCUMULATED-GAINS-PRIOR> (31659921)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (1396523)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (4813963)
<AVERAGE-NET-ASSETS> 206289546
<PER-SHARE-NAV-BEGIN> 25.09
<PER-SHARE-NII> (0.13)
<PER-SHARE-GAIN-APPREC> (5.54)
<PER-SHARE-DIVIDEND> (0.12)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.30
<EXPENSE-RATIO> 2.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
