<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 1995
File Nos. 33-11052
and 811-4949
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. 18 X
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 18 X
KEYSTONE GOVERNMENT SECURITIES FUND
(formerly known as Keystone America Government Securities Fund)
(Exact name of Registrant as specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(617) 338-3200
Rosemary D. Van Antwerp, Esq., 200 Berkeley Street,
Boston, MA 02116-5034
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
- --- immediately upon filing pursuant to paragraph (b)
- --- on (date) pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a)(1)
- --- on (date) pursuant to paragraph (a)(1)
- --- 75 days after filing pursuant to paragraph (a)(2)
- --- on (date) pursuant to paragraph (a)(2) of Rule 485.
The Registrant has elected to register an indefinite number of its
securities under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. A Rule 24f-2 Notice for Registrant's last fiscal
year was filed September 22, 1995.
<PAGE>
KEYSTONE GOVERNMENT SECURITIES FUND
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 18
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 18 to Registration
Statement No. 33-11052/811-4949 consists of the following pages,
items of information and documents.
The Facing Sheet
The Contents Page
The Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C
PART C - OTHER INFORMATION - ITEMS 24(a) and 24(b)
Financial Statements
Independent Auditors' Report
Listing of Exhibits
PART C - OTHER INFORMATION - ITEMS 25-32 - AND SIGNATURE PAGES
Number of Holders of Securities
Business and Other Connections
Principal Underwriter
Location of Accounts and Records
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE GOVERNMENT SECURITIES FUND
Cross-Reference Sheet pursuant to Rules 404 and 495 under the Securities Act of
1933.
Items in
Part A of
Form N-1A Prospectus Caption
- --------- ------------------
1 Cover Page
2 Fee Table
3 Performance Data
Financial Highlights
4 Cover Page
The Fund
Investment Objective and Policies
Investment Restrictions
Risk Factors
5 Fund Management and Expenses
Additional Information
5A Not applicable
6 The Fund
Dividends and Taxes
Fund Shares
Shareholder Services
Pricing Shares
7 How to Buy Shares
Alternative Sales Options
Distribution Plans
Shareholder Services
8 How to Redeem Shares
Contingent Deferred Sales Charge and
Waiver of Sales Charge
9 Not applicable
<PAGE>
Items in
Part B of
Form N-1A Statement of Additional Information Caption
- --------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 The Fund
13 Investment Policies
Investment Restrictions
Brokerage
Appendix
14 Declaration of Trust
Trustees and Officers
15 Additional Information
16 Sales Charges
Distribution Plans
Investment Manager
Investment Adviser
Principal Underwriter
Additional Information
17 Brokerage
18 Declaration of Trust
19 Valuation of Securities
Distribution Plans
20 Dividends and Taxes
21 Principal Underwriter
22 Standardized Total Return and Yield Quotations
23 Financial Statements
<PAGE>
KEYSTONE GOVERNMENT SECURITIES FUND
PART A
PROSPECTUS
<PAGE>
KEYSTONE GOVERNMENT
SECURITIES FUND
PROSPECTUS NOVEMBER , 1995
Keystone Government Securities Fund (formerly named Keystone America
Government Securities Fund) (the "Fund") is a mutual fund that seeks the highest
possible level of current income, consistent with the safety of principal and
maintenance of liquidity, by investing at least 65% of its assets in securities
issued by or guaranteed as to principal and interest by the full faith and
credit of the United States ("U.S.") government. The Fund may also invest up to
35% of its assets in securities issued by U.S. government agencies or
instrumentalities that are not guaranteed as to principal and interest by the
U.S. government and in certain money market instruments, including commercial
paper, bank obligations and corporate obligations.
The Fund's net asset value per share will fluctuate in response to changes
in the market value of its portfolio securities.
Generally, the Fund offers three classes of shares. Information on share
classes and their fee and sales charge structures may be found in the Fund's fee
table, "How to Buy Shares," "Alternative Sales Options," "Contingent Deferred
Sales Charge and Waiver of Sales Charges," "Distribution Plans," and "Fund
Shares."
This prospectus concisely states information about the Fund that you should
know before investing. Please read it and retain it for future reference.
KEYSTONE GOVERNMENT SECURITIES FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
Additional information about the Fund, including information about
securities ratings, is contained in a statement of additional information dated
November , 1995, which has been filed with the Securities and Exchange
Commission and is incorporated by reference into this prospectus. For a free
copy, or for other information about the Fund, write to the address or call the
telephone number listed below.
TABLE OF CONTENTS
Page
Fee Table 2
Financial Highlights 3
The Fund 6
Investment Objective and Policies 6
Investment Restrictions 8
Risk Factors 8
Pricing Shares 9
Dividends and Taxes 10
Fund Management and Expenses 10
How to Buy Shares 13
Alternative Sales Options 14
Contingent Deferred Sales Charge and
Waiver of Sales Charges 18
Distribution Plans 19
How to Redeem Shares 20
Shareholder Services 22
Performance Data 24
Fund Shares 24
Additional Information 25
Additional Investment Information (i)
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.
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 GOVERNMENT SECURITIES FUND
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in each class will bear directly or
indirectly. For more complete descriptions of the various costs and expenses,
see the following sections of this prospectus: "Fund Management and Expenses";
"How to Buy Shares"; "Alternative Sales Options"; "Contingent Deferred Sales
Charge and Waiver of Sales Charges"; "Distribution Plans"; and "Shareholder
Services."
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
FRONT END BACK END LEVEL LOAD
SHAREHOLDER TRANSACTION EXPENSES LOAD OPTION LOAD OPTION<F1> OPTION<F2>
----------- ----------- ---------
<S> <C> <C> <C>
Sales Charge ...................................... 4.75%<F3> None None
(as a percentage of offering price)
Contingent Deferred Sales Charge .................. 0.00%<F4> 5.00% in the first year 1.00% in the first
(as a percentage of the lesser of cost or market declining to 1.00% in year and 0.00%
value of shares redeemed) the sixth year and thereafter
0.00% thereafter
Exchange Fee (per exchange)<F5>.................... $10.00 $10.00 $10.00
ANNUAL FUND OPERATING EXPENSES<F6>
(After Expense Reimbursements)
(as a percentage of average net assets)
Management Fees ................................... 0.66% 0.66% 0.66%
12b-1 Fees ........................................ 0.25% 1.00%<F7> 1.00%<F7>
Other Expenses .................................... 0.09% 0.09% 0.09%
---- ---- ----
Total Fund Operating Expenses ..................... 1.00% 1.75% 1.75%
==== ==== ====
<CAPTION>
EXAMPLES<F8> 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each period:
Class A .................................................................. $57.00 $78.00 $100.00 $164.00
Class B .................................................................. $68.00 $85.00 $115.00 N/A
Class C .................................................................. $28.00 $55.00 $ 95.00 $206.00
You would pay the following expenses on a $1,000 investment, assuming no
redemption at the end of each period:
Class A .................................................................. $57.00 $78.00 $100.00 $164.00
Class B .................................................................. $18.00 $55.00 $ 95.00 N/A
Class C .................................................................. $18.00 $55.00 $ 95.00 $206.00
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
- ----------
<FN>
<F1>Class B shares purchased on or after June 1, 1995 convert tax free to Class A shares after eight years. See "Class B Shares"
for more information.
<F2>Class C shares are available only through dealers who have entered into special distribution agreements with Keystone
Investment Distributors Company, the Fund's principal underwriter.
<F3>The sales charge applied to purchases of Class A shares declines as the amount invested increases. See "Class A Shares."
<F4>Purchases of Class A shares in the amount of $1,000,000 or more and/or purchases made by certain qualifying retirement or
other plans are not subject to a sales charge at the time of purchase, but may be subject to a contingent deferred sales
charge. See the "Class A Shares" and "Contingent Deferred Sales Charge and Waiver of Sales Charges" sections of this
prospectus for an explanation of the charge.
<F5>There is no fee for exchange orders received by the Fund directly from a shareholder over the Keystone Automated Response
Line ("KARL"). (For a description of KARL, see "Shareholder Services".)
<F6>Expense ratios are for the Fund's fiscal year ended July 31, 1995 after giving effect to the reimbursement by Keystone
Investment Management Company ("Keystone") of expenses in accordance with certain voluntary expense limits. Absent voluntary
expense limitations, expense ratios for the Fund's Class A, B and C shares would have been 1.42%, 2.09% and 2.17%,
respectively.
<F7>Long term shareholders may pay more than the economic equivalent of the maximum front end sales charges permitted by the
National Association of Securities Dealers, Inc. ("NASD").
<F8>The Securities and Exchange Commission requires use of a 5% annual return figure for purposes of this example. Actual return
for the Fund may be greater or less than 5%.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE GOVERNMENT SECURITIES FUND -- CLASS A SHARES
(For a share outstanding throughout the period)
The following table contains important financial information relating to
the Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are included in the statement of additional information.
Additional information about the Fund's performance is contained in its Annual
Report, which will be made available upon request and without charge.
<TABLE>
<CAPTION>
FEBRUARY 13,
1987
(COMMENCEMENT
YEAR ENDED JULY 31, OF OPERATIONS)
------------------------------------------------------------------- TO JULY 31,
1995 1994<F3> 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ...................... $ 9.48 $10.45 $10.58 $10.18 $10.01 $10.11 $ 9.74 $10.22 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ...................... 0.67 0.57 0.68 0.68 0.76 0.76 0.75 0.75 0.14
Net gain (loss) on investments ............. 0.11 (0.63) 0.46 0.55 0.17 (0.10) 0.35 (0.40) 0.22
Total from investment operations ........... 0.78 (0.06) 1.14 1.23 0.93 0.66 1.10 0.35 0.36
LESS DISTRIBUTIONS FROM:
Net investment income ...................... (0.65) (0.57) (0.68) (0.69) (0.76) (0.76) (0.73) (0.83) (0.14)
In excess of net investment income ......... 0 (0.02) (0.06) (0.04) 0 0 0 0 0
Tax basis return of capital ................ 0 (0.06) 0 0 0 0 0 0 0
Net realized gain on investments ........... 0 0 (0.53) (0.10) 0 0 0 0 0
In excess of net realized gain
on investments ............................ 0 (0.26) 0 0 0 0 0 0 0
Total distributions ........................ (0.65) (0.91) (1.27) (0.83) (0.76) (0.76) (0.73) (0.83) (0.14)
----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD ............. $ 9.61 $ 9.48 $10.45 $10.58 $10.18 $10.01 $10.11 $ 9.74 $10.22
------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN <F1> .......................... 8.64% (0.71%) 11.51% 12.45% 9.62% 6.84% 11.89% 3.55% 3.60%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses <F2> ...................... 1.00% 1.00% 1.41% 1.93% 1.92% 1.91% 1.90% 1.30% 1.00%<F4>
Net investment income .................... 7.11% 5.97% 6.49% 6.44% 7.46% 7.61% 7.68% 7.29% 5.74%<F4>
Portfolio turnover rate .................... 182% 230% 189% 93% 72% 58% 171% 206% 60%
Net assets, end of period (thousands) ...... $29,776 $38,541 $50,594 $47,892 $55,597 $61,744 $68,493 $73,757 $ 3,479
<FN>
<F1>Excluding applicable sales charges.
<F2>Figures are net of expense reimbursement by Keystone in connection with the voluntary expense limitation. Before the expense
reimbursement, the "Ratio of total expenses to average net assets" would have been 1.42%, 1.35% and 1.73% for the years ended
July 31, 1995, 1994 and 1993, respectively.
<F3>Calculation based on average shares outstanding.
<F4>Annualized for the period April 14, 1987 (Commencement of Investment Operations) to July 31, 1987.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE GOVERNMENT SECURITIES FUND
CLASS B SHARES
(For a share outstanding throughout the period)
The following table contains important financial information relating to
the Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table is taken from the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are included in the statement of additional information.
Additional information about the Fund's performance is contained in its Annual
Report, which will be made available upon request and without charge.
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
YEAR ENDED JULY 31, (DATE OF INITIAL
----------------------- PUBLIC OFFERING) TO
1995 1994<F4> JULY 31, 1993
---- ------- --------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . $ 9.48 $10.45 $10.32
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............... 0.59 0.50 0.26
Net realized gain (loss) on
investments ........................ 0.12 (0.63) 0.22
----- ----- -----
Total from investment operations ..... 0.71 (0.13) 0.48
----- ----- -----
LESS DISTRIBUTIONS FROM:
Net investment income ................ (0.58) (0.49) (0.26)
In excess of net investment income ... 0 (0.03) (0.09)
Tax basis return of capital .......... 0 (0.06) 0
In excess of net realized gain on
investments ........................ 0 (0.26) 0
----- ----- -----
Total distributions .................. (0.58) (0.84) (0.35)
----- ----- -----
NET ASSET VALUE, END OF PERIOD ....... $ 9.61 $ 9.48 $10.45
====== ====== ======
TOTAL RETURN <F1>..................... 7.81% (1.44%) 4.69%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses <F2>................. 1.75% 1.75% 1.72%<F3>
Net investment income .............. 6.40% 5.32% 5.46%<F3>
Portfolio turnover rate .............. 182% 230% 189%
Net assets, end of period (thousands) $18,064 $15,386 $ 9,223
<F1>Excluding applicable sales charges.
<F2>Figures are net of expense reimbursement by Keystone in connection with the
voluntary expense limitation. Before the expense reimbursement, the "Ratio of total
expenses to average net assets" would have been 2.09%, 2.12% and 2.28% for the
years ended July 31, 1995, 1994, and the period February 1, 1993 (Date of Initial
Public Offering) to July 31, 1993, respectively.
<F3>Annualized.
<F4>Calculation based on average shares outstanding.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE GOVERNMENT SECURITIES FUND
CLASS C SHARES
(For a share outstanding throughout the period)
The following table contains important financial information relating to
the Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table is taken from the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are included in the statement of additional information.
Additional information about the Fund's performance is contained in its Annual
Report, which will be made available upon request and without charge.
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
YEAR ENDED JULY 31, (DATE OF INITIAL
----------------------- PUBLIC OFFERING) TO
1995 1994<F4> JULY 31, 1993
---- ------- --------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . $ 9.49 $10.46 $10.32
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............... 0.61 0.50 0.25
Net realized gain (loss) on
investments .......................... 0.10 (0.63) 0.24
------ ----- ------
Total from investment operations ..... 0.71 (0.13) 0.49
LESS DISTRIBUTIONS FROM:
Net investment income ................ (0.58) (0.50) (0.25)
In excess of net investment income ... 0 (0.02) (0.10)
Tax basis return of capital .......... 0 (0.06) 0
In excess of net realized gain on
investments ........................ 0 (0.26) 0
------ ----- ------
Total distributions .................. (0.58) (0.84) (0.35)
------ ----- ------
NET ASSET VALUE, END OF PERIOD ....... $ 9.62 $ 9.49 $10.46
====== ====== ======
TOTAL RETURN <F1>..................... 7.81% (1.44%) 4.79%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses <F2>................. 1.75% 1.75% 1.71%<F3>
Net investment income .............. 6.32% 5.32% 5.31%<F3>
Portfolio turnover rate .............. 182% 230% 189%
Net assets, end of period (thousands) $ 9,101 $17,505 $13,286
<FN>
<F1>Excluding applicable sales charges.
<F2>Figures are net of expense reimbursement by Keystone in connection with the
voluntary expense limitation. Before the expense reimbursement, the "Ratio of total
expenses to average net assets" would have been 2.17%, 2.12% and 2.17% for the
years ended July 31, 1995, 1994, and for the period February 1, 1993 (Date of
Initial Public Offering) to July 31, 1993, respectively.
<F3>Annualized.
<F4>Calculation based on average shares outstanding.
</TABLE>
<PAGE>
THE FUND
The Fund is an open-end, diversified management investment company commonly
known as a mutual fund. The Fund was formed as a Massachusetts business trust on
October 24, 1986. The Fund is one of twenty funds managed by Keystone
Management, Inc. ("Keystone Management"), its investment manager, and is one of
thirty funds advised by Keystone Investment Management Company (formerly named
Keystone Custodian Funds, Inc.) ("Keystone"), the Fund's investment adviser.
Keystone and Keystone Management are, from time to time, also collectively
referred to as "Keystone."
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks the highest possible level of current income, consistent
with the safety of principal and maintenance of liquidity, by investing
primarily in securities issued by or guaranteed as to principal and interest by
the full faith and credit of the U.S. government.
PRINCIPAL INVESTMENTS
Securities in which the Fund will invest include Government National
Mortgage Association ("GNMA") certificates, U.S. Treasury securities and such
other securities as are issued by or guaranteed as to principal and interest by
the full faith and credit of the U.S. government. (Such securities are herein
collectively referred to as "U.S. Government Guaranteed Securities.") The Fund
may invest in U.S. Government Guaranteed Securities denominated in foreign
currencies. The Fund may also invest in certain money market instruments and
certain other securities issued by U.S. government agencies or
instrumentalities. (Such securities are herein collectively referred to as
"Other Eligible Securities.") (See "Other Eligible Securities.") Under ordinary
circumstances, the Fund expects to invest at least 65% of its assets in U.S.
Government Guaranteed Securities.
While the Fund may invest in securities of any maturity, it is currently
expected that, under normal circumstances, the Fund will not hold securities
with maturities of more than 30 years or less than 5 years (other than certain
money market securities).
U.S. GOVERNMENT GUARANTEED SECURITIES. U.S. Government Guaranteed
Securities include U.S. Treasury securities as well as other securities,
including GNMA certificates, which are issued by or guaranteed with respect to
both principal and interest by the full faith and credit of the U.S. government.
U.S. TREASURY SECURITIES. U.S. Treasury securities are debt obligations
issued by the U.S. Treasury on behalf of the U.S. government to provide some of
the funds needed to finance its activities. Treasury securities come in the form
of Treasury bills, notes and bonds. Treasury bills ("T-bills") are issued on a
discount basis and mature within one year or less from the date of issue.
Treasury notes and bonds are intermediate and long-term obligations,
respectively, and entitle the holder to periodic interest payments from the U.S.
Treasury. Treasury securities could also include so-called Treasury STRIPS.
STRIPS involve the separation by the U.S. Treasury of the corpus (face amount)
of the bond or note from the coupon (interest portion). The U.S. Treasury
redeems the bond or note corpus (zero coupon bond or note) for the face value
thereof at maturity and redeems the stripped coupon (interest portion) beginning
at the date specified thereon.
GNMA CERTIFICATES. The mortgage loans that back the GNMA certificates are
issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations and are either insured by the Federal Housing Administration
("FHA") or Farmers Home Administration ("FMHA") or guaranteed by the Veterans
Administration ("VA").
A "pool" or group of such mortgages is assembled and, after being approved
by GNMA, is offered to investors through securities dealers. Once approved by
GNMA (a government corporation within the U.S. Department of Housing and Urban
Development) the timely payment of interest and principal on each mortgage is
guaranteed by the full faith and credit of the U.S. government. While the timely
payment of principal and interest is guaranteed, the market value of the GNMA
certificate is not. When interest rates rise, the value of a GNMA certificate
held in the Fund may decrease as does the value of other debt instruments.
However, when interest rates decline, the value of the certificate may not
increase as much as that of other debt securities because of the prepayment
features of GNMA certificates.
As mortgage-backed securities, GNMA certificates differ from bonds in that
principal is paid back monthly by the borrower over the term of the loan rather
than returned in a lump sum at maturity. GNMA certificates are called
"pass-through" securities because both interest and principal payments
(including prepayments) are passed through to the holder of the certificate. If
a GNMA certificate is purchased for the Fund at a premium, the premium would be
lost in the event prepayment occurs. Upon receipt, principal payments will be
used by the Fund to purchase additional GNMA certificates, other U.S. Government
Guaranteed Securities or Other Eligible Securities at the prevailing market
interest rate, which may be less than the rate of interest on the underlying
GNMA certificate.
In addition to its investments in GNMA certificates, the Fund may also
invest in certain other types of collateralized mortgage obligations ("CMOs") as
well as inverse floating rate CMOs and interest only ("IO") and principal only
("PO") stripped mortgage obligations, all of whose underlying securities are
U.S. Government Guaranteed Securities. See "Additional Investment Information."
OTHER ELIGIBLE SECURITIES
The Fund may invest up to 35% of its total assets in certain securities
issued by U.S. government agencies or instrumentalities even though such
securities are not guaranteed as to principal and interest by the U.S.
government. Securities issued or guaranteed by U.S. government agencies or
instrumentalities include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime
Administration, The Tennessee Valley Authority, District of Columbia Armory
Board and Federal National Mortgage Association.
Some obligations of U.S. government agencies and instrumentalities, such as
securities of Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury. Others, such as bonds issued by the Federal
National Mortgage Association, a private corporation, are supported only by the
credit of the instrumentality. Because the U.S. government is not obligated by
law to provide support to an instrumentality it sponsors, the Fund will invest
in the securities issued by such an instrumentality only when Keystone
determines (under standards established by the Board of Trustees) that the
credit risk with respect to the instrumentality does not make its securities
unsuitable investments. U.S. government securities do not include international
agencies or instrumentalities in which the U.S. government, its agencies or
instrumentalities participate, such as the World Bank, Asian Development Bank or
the Inter-American Development Bank or issues insured by the Federal Deposit
Insurance Corporation.
In addition, the Fund may invest up to 35% of its total assets in the
following types of money market instruments: (1) commercial paper, including
master demand notes, that at the date of investment is rated A-1, the highest
grade given by Standard & Poor's Corporation ("S&P"), PRIME-1, the highest grade
given by Moody's Investors Service, Inc. ("Moody's") or, if not rated by such
services, is issued by a company that at the date of investment has an
outstanding issue rated A or better by S&P or Moody's; (2) obligations,
including certificates of deposit and bankers' acceptances, of banks or savings
and loan associations having at least $1 billion in assets as of the date of
their most recently published financial statements which are members of the
Federal Deposit Insurance Corporation, including U.S. branches of foreign banks
and foreign branches of U.S. banks; and (3) corporate obligations that at the
date of investment are rated A or better by S&P or Moody's.
In addition, the Fund may enter into repurchase and reverse repurchase
agreements, purchase and sell securities on a when issued and delayed delivery
basis and purchase or sell securities on a forward commitment basis, write
covered call and put options and purchase call and put options to close out
existing positions and may employ new investment techniques with respect to such
options. The Fund may also enter into currency and other financial futures
contracts and related options transactions for hedging purposes and not for
speculation and may employ new investment techniques with respect to such
futures contracts and related options.
In addition to its investments in IOs, POs and inverse floating rate CMOs,
forwards, futures and options, the Fund may also invest in certain other types
of derivative instruments, including interest rate swaps, and caps and floors.
These vehicles can also be combined to create more complex products called
hybrid derivatives or structured securities.
For further information about the types of investments and investment
techniques available to the Fund, including the associated risks, see the
section of this prospectus entitled "Additional Investment Information" 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.
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVE
The investment objective of the Fund is fundamental and may not be changed
without the vote of a majority of the Fund's outstanding shares (as defined in
the Investment Company Act of 1940 ("1940 Act") (which means the lesser of (1)
67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (2) more than 50% of the outstanding
shares).
INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental restrictions summarized below, which
may not be changed without the vote of a 1940 Act majority of the Fund's
outstanding shares. These restrictions and certain other fundamental and non-
fundamental restrictions are set forth in the statement of additional
information. Unless otherwise stated, all references to the Fund's assets are in
terms of current market value.
Generally, the Fund may not do the following: (1) with respect to 75% of
its total assets, invest more than 5% of its total assets in the securities of
any one issuer (other than U.S. Government Securities); and (2) borrow money,
except that the Fund may enter into reverse repurchase agreements or borrow
money from banks for temporary or emergency purposes in aggregate amounts up to
one-third of the value of the Fund's net assets.
RISK FACTORS
Investing in the Fund involves the risk common to investing in any
security, i.e., the net asset value of a share of the Fund can increase or
decrease in response to changes in economic conditions, interest rates and the
market's perception of the underlying portfolio securities of the Fund.
By itself, the Fund does not constitute a balanced investment program. You
should take into account your own investment objectives as well as your other
investments when considering the purchase of shares of any investment company.
While the securities in which the Fund may principally invest are issued by
or guaranteed as to principal and interest by the full faith and credit of the
U.S. government, the market value of such securities is not guaranteed. To the
extent that investments are made in Other Eligible Securities, such investments,
despite favorable credit ratings, are subject to some risk of default.
Investment yields on relatively short-term investments are subject to
substantial and rapid fluctuation. Specifically, the market value of traditional
fixed income debt securities generally will vary inversely with changes in
interest rates. For example, in the case of an investment in a traditional fixed
income debt security, if interest rates increase after the security is
purchased, the security, if sold prior to maturity, may return less than its
cost.
The market value of derivatives or structured securities may vary depending
upon the manner in which the investments have been structured and may fluctuate
much more rapidly and to a much greater extent. As a result, the value of such
investments may change at a rate in excess of the rate at which traditional
fixed income securities change and, depending on the structure of the
derivative, may change in a manner opposite to the change in the market value of
a traditional fixed income security. See "Additional Investment Information" for
a further discussion of the risks inherent in the use of derivatives.
Current yield levels should not be considered representative of yields for
any future period of time. Moreover, should many shareholders change from this
Fund to some other investment at about the same time, the Fund might have to
sell portfolio securities at a time when it would be disadvantageous to do so
and at a lower price than if such securities were held to maturity.
If and when the Fund invests in zero coupon bonds, the Fund does not expect
to have enough zero coupon bonds to have a material effect on dividends. The
Fund has undertaken to a state securities authority to disclose that zero coupon
securities pay no interest to holders prior to maturity, and that the interest
on these securities is reported as income to the Fund and distributed to its
shareholders. These distributions must be made from the Fund's cash assets or,
if necessary, from the proceeds of sales of portfolio securities. The Fund will
not be able to purchase additional income producing securities with cash used to
make such distributions, and its current income ultimately may be reduced as a
result.
PRICING SHARES
The net asset value of a Fund share is computed each day on which the New
York Stock Exchange (the "Exchange") is open as of the close of trading on the
Exchange (currently 4:00 p.m. Eastern time for the purpose of pricing Fund
shares) except on days when changes in the value of the Fund's portfolio
securities do not affect the current net asset value of its shares. The Exchange
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 of the Fund is arrived at by determining the value
of the Fund's assets, subtracting its liabilities and dividing the result by the
number of its shares outstanding.
The Fund values U.S. government securities, other than Treasury bills, on
the basis of valuations provided by a pricing service approved by the Fund's
Board of Trustees, which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities,
various relationships between securities and yield to maturity in determining
value.
The Fund values short-term investments that are purchased 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 investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value; and short-term investments instruments maturing in more
than sixty days when purchased that are held on the sixtieth day prior to
maturity are valued at amortized cost (market value on the sixtieth day adjusted
for amortization of premium or accretion of discount), which, when combined with
accrued interest, approximates market and, in any case, reflects fair value as
determined by the Fund's Board of Trustees. All other investments are valued at
market value or, where market quotations are not readily available, at fair
value as determined in good faith according to procedures established by the
Fund's Board of Trustees.
DIVIDENDS AND TAXES
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code (the "Code"). The Fund
qualifies if, among other things, it distributes to its shareholders at least
90% of its net investment income for its fiscal year. The Fund also intends to
make timely distributions, if necessary, sufficient in amount to avoid the
nondeductible 4% excise tax imposed on a regulated investment company to the
extent that it fails to distribute, with respect to each calendar year, at least
98% of its ordinary income for such calendar year and 98% of its net capital
gains for the one-year period ending on October 31 of such calendar year. Any
taxable dividend declared in October, November or December to shareholders of
record in such month and paid by the following January 31 will be includable in
the taxable income of the shareholder as if paid on December 31 of the year in
which the dividend was declared. If the Fund qualifies and if it distributes all
of its net investment income and net capital gains, if any, to shareholders, it
will be relieved of any federal income tax liability.
The Fund will make distributions from its net investment income monthly and
net capital gains, if any, at least annually. Shareholders receive Fund
distributions in the form of additional shares of that class of shares upon
which the distribution is based or, at the shareholder's option, in cash. Fund
distributions in the form of additional shares are made at net asset value
without the imposition of a sales charge.
Because Class A shares bear most of the costs of distribution of such
shares through payment of a front end sales charge, while Class B and Class C
shares bear such expenses through a higher annual distribution fee, expenses
attributable to Class B and Class C shares will generally be higher, and income
distributions paid by the Fund with respect to Class A shares will generally be
greater than those paid with respect to Class B and Class C shares.
Dividends and distributions are taxable whether they are received in cash
or in shares. Income dividends and net short-term gains dividends are taxable as
ordinary income, and net long-term dividends are taxable as capital gains
regardless of how long the Fund's shares are held. If Fund shares held for less
than six months are sold at a loss, however, such loss will be treated for tax
purposes as a long-term capital loss to the extent of any long-term capital
gains dividends received. The Fund advises its shareholders annually as to the
federal tax status of all distributions made during the year.
Only certain states allow income received from direct U.S. government
obligations to be tax-exempt when received directly as dividends from investment
companies. Further, some of the states that allow such exemption require that
there be a certain minimum percentage of investment income derived from direct
U.S. government obligations. The Fund will inform shareholders of the percentage
of income that is derived from direct U.S. government obligations.
FUND MANAGEMENT AND EXPENSES
BOARD OF TRUSTEES
Under Massachusetts law, the Fund's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the Fund.
Subject to the authority of the Board of Trustees, Keystone Management, located
at 200 Berkeley Street, Boston, Massachusetts 02116-5034, serves as investment
manager to the Fund and is responsible for the overall management of the Fund's
business and affairs.
INVESTMENT MANAGER
Keystone Management, the Fund's investment manager, organized in 1989, is a
wholly-owned subsidiary of Keystone, and its directors and principal executive
officers have been affiliated with Keystone, a seasoned investment adviser, for
a number of years. Keystone Management also serves as investment manager to most
of the other funds in the Keystone America Fund Family and to certain other
funds in the Keystone Family of Funds.
Pursuant to its Investment Management Agreement with the Fund (the
"Management Agreement"), Keystone Management has delegated its investment
management functions, except for certain administrative and management services,
to Keystone and has entered into an Investment Advisory Agreement with Keystone
(the "Advisory Agreement") under which Keystone provides investment, advisory
and management services to the Fund. Services performed by Keystone Management
include (1) performing research and planning with respect to (a) the Fund's
qualification as a regulated investment company under Subchapter M of the
Internal Revenue Code, (b) tax treatment of the Fund's portfolio investments,
(c) tax treatment of special corporate actions (such as reorganizations), (d)
state tax matters affecting the Fund, and (e) the Fund's distributions of income
and capital gains; (2) preparing the Fund's federal and state tax returns; and
(3) providing services to the Fund's shareholders in connection with federal and
state taxation and distributions of income and capital gains.
The Fund currently pays Keystone Management a fee for its services at the
annual rate set forth below:
Aggregate
Net Asset Value
Management of the Shares
Fee Income of the Fund
- ------------------------------------------------------------------------------
2.0% of Gross Dividend
and Interest Income plus
0.50% of the first $100,000,000, plus
0.45% of the next $100,000,000, plus
0.40% of the next $100,000,000, plus
0.35% of the next $100,000,000, plus
0.30% of the next $100,000,000, plus
0.25% of amounts over $500,000,000
computed as of the close of business each business day and paid daily.
During the year ended July 31, 1995, the Fund paid or accrued to Keystone
Management investment management and administrative services fees of $404,773,
which represented 0.66% of the Fund's average net assets on an annualized basis.
Of such amount paid to Keystone Management, $344,057 was paid to Keystone for
its services to the Fund.
The Management 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 Trustees or by vote of a majority of the outstanding shares of the
Fund. In either case, the terms of the Management Agreement and continuance
thereof must be approved by the vote of a majority of Independent Trustees in
person at a meeting called for the purpose of voting on such approval. The
Management Agreement may be terminated, without penalty, on 60 days' written
notice by the Fund or Keystone Management or may be terminated by a vote of
shareholders of the Fund. The Management Agreement will terminate automatically
upon its assignment.
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. (formerly Keystone Group, Inc.) ("Keystone Investments"), 200
Berkeley Street, Boston, Massachusetts 02116-5034.
Keystone Investments is a corporation predominantly owned by current and
former members of management of Keystone and its affiliates. The shares of
Keystone Investments common stock beneficially owned by management are held in a
number of voting trusts, the trustees of which are George S. Bissell, Albert H.
Elfner, III, Edward F. Godfrey and Ralph J. Spuehler, Jr. Keystone Investments
provides accounting, bookkeeping, legal, personnel and general corporate
services to Keystone Management, Keystone, their affiliates and the Keystone
Investments Family of Funds.
Pursuant to the Advisory Agreement, Keystone receives for its services an
annual fee representing 85% of the management fee received by Keystone
Management under the Management Agreement.
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 Trustees or by vote of a majority of the outstanding shares of the
Fund. In either case, the terms of the Advisory Agreement and continuance
thereof must be approved by the vote of a majority of Independent Trustees in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement may be terminated, without penalty, on 60 days' written
notice by the Fund, Keystone Management or Keystone or by a vote of shareholders
of the Fund. The Advisory Agreement will terminate automatically upon its
assignment.
The Fund has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
FUND EXPENSES
The Fund pays 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 relating to certain
Trustees; expenses associated with its transfer, dividend disbursing and
shareholder servicing agent, its custodian, its independent auditors and legal
counsel to its Trustees; fees payable to government agencies, including
registration and qualification fees of the Fund and its shares under federal and
state securities laws; and certain extraordinary expenses. In addition, each
class will pay all of the expenses attributable to it. Such expenses are
currently limited to Distribution Plan expenses. The Fund also pays its
brokerage commissions, interest charges and taxes.
For the fiscal year ended July 31, 1995, the Fund's Class A, B and C shares
each paid 1.00%, 1.75% and 1.75%, respectively, of average net assets in
expenses.
During the year ended July 31, 1995, the Fund paid or accrued to Keystone
Investor Resource Center, Inc. ("KIRC"), the Fund's transfer and dividend
disbursing agent, $18,880 for certain accounting and printing services and paid
KIRC $138,976 for shareholder services. KIRC is a wholly-owned subsidiary of
Keystone.
Until ______________ Keystone has voluntarily limited expenses of Class A
shares to 1.00% annually and each of Class B and Class C shares to 1.75%
annually. Thereafter, a redetermination of whether to continue these expense
limits and, if so, at what rates, will be made. Keystone will not be required to
make any reimbursement to the extent such reimbursement would result in the
Fund's inability to qualify as a regulated investment company under the Code. In
accordance with voluntary expense limitations in effect for the fiscal year
ended July 31, 1995, Keystone reimbursed the Fund, $135,617, $53,116, and
$54,939, respectively, for the Fund's Class A, Class B and Class C shares.
PORTFOLIO MANAGER
Christopher P. Conkey has been the Fund's portfolio manager since 1987. He
is a Keystone Senior Vice President with over 12 years of investment experience.
SECURITIES TRANSACTIONS
Under policies established by the Fund's Board of Trustees, Keystone
selects broker-dealers to execute transactions subject to the receipt of best
execution. When selecting broker-dealers to execute portfolio transactions for
the Fund, Keystone may follow a policy of considering as a factor the number of
shares of the Fund sold by such broker-dealer. In addition, broker-dealers
executing portfolio transactions from time to time may be affiliated with the
Fund, Keystone, the Fund's principal underwriter or their affiliates.
The Fund may pay higher commissions to broker-dealers that provide research
services. Keystone may use these services in advising the Fund as well as in
advising its other clients.
PORTFOLIO TURNOVER
The portfolio turnover rate will vary from year to year. For the fiscal
year ended July 31, 1994, the portfolio turnover rate for the Fund was 230%. For
the fiscal year ended July 31, 1995, the portfolio turnover rate for the Fund
was 182%. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. The Fund pays brokerage commissions in connection with the writing of
options and effecting the closing purchase or sale transactions as well as for
some purchases and sales of portfolio securities.
HOW TO BUY SHARES
You may purchase shares of the Fund from any broker-dealer that has a
selling agreement with Keystone Investment Distributors Company (formerly named
Keystone Distributors, Inc.) (the "Principal Underwriter"), the Fund's principal
underwriter. The Principal Underwriter, a wholly-owned subsidiary of Keystone,
is located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
In addition, you may open an account for the purchase of shares of the Fund
by mailing to the Fund c/o KIRC, P.O. Box 2121, Boston, Massachusetts 02106-
2121, a completed account application and a check payable to the Fund. You may
also open an account by telephoning 1-800-343-2898 to obtain the number of an
account to which you can wire or electronically transfer funds, wiring or
electronically transfering $1,000 or more and sending in a completed account
application. Subsequent investments in Fund shares in any amount may be made by
check, by wiring Federal funds or by an electronic funds transfer ("EFT").
Orders for the purchase of shares of the Fund will be confirmed at an
offering price equal to the net asset value per share next determined after
receipt of the order in proper form by Principal Underwriter (generally as of
the close of the Exchange on that day) plus, in the case of Class A shares, the
applicable sales charge. Orders received by dealers or other firms prior to the
close of the Exchange and received by Principal Underwriter prior to the close
of its business day will be confirmed at the offering price effective as of the
close of the Exchange on that day.
Orders for shares received other than as stated above will receive the
offering price equal to the net asset value per share next determined (generally
the next business day's offering price) plus, in the case of the Class A shares,
the applicable sales charge. The Fund reserves the right to determine the net
asset value more frequently than once a day if deemed desirable. Dealers and
other financial services firms are obligated to transmit orders promptly.
The initial purchase must be at least $1,000. There is no minimum amount
for subsequent purchases.
The Fund reserves the right to withdraw all or any part of the offering
made by this prospectus and to reject purchase orders.
Shareholder inquiries should be directed to KIRC by calling toll free
1-800-343-2898 or writing to KIRC or to the firm from which you received this
prospectus.
ALTERNATIVE SALES OPTIONS
Generally, the Fund offers three classes of shares:
CLASS A SHARES -- FRONT END LOAD OPTION
Class A shares are sold with a sales charge at the time of purchase. Class
A shares are not subject to a deferred sales charge when they are redeemed
except as follows: Class A shares purchased on or after April 10, 1995 (1) in an
amount equal to or exceeding $1,000,000 or (2) by a corporate qualified
retirement plan or a non-qualified deferred compensation plan sponsored by a
corporation having 100 or more eligible employees (a "Qualifying Plan"), in
either case without a front end sales charge, will be subject to a contingent
deferred sales charge for the 24 month period following the date of purchase.
Certain Class A shares purchased prior to April 10, 1995 may be subject to a
deferred sales charge upon redemption during the one year period following the
date of purchase.
CLASS B SHARES -- BACK END LOAD OPTION
Class B shares are sold without a sales charge at the time of purchase, but
are, with certain exceptions, subject to a deferred sales charge if they are
redeemed. Class B shares purchased on or after June 1, 1995 are subject to a
contingent deferred sales charge if redeemed during the 72 month period
commencing with and including the month of purchase. Class B shares purchased
prior to June 1, 1995 are subject to a deferred sales charge upon redemption
during the four calendar years following purchase. Class B shares purchased on
or after June 1, 1995 that have been outstanding for eight years from and
including the month of purchase will automatically convert to Class A shares
without the imposition of a front-end sales charge or exchange fee. Class B
shares purchased prior to June 1, 1995 will retain their existing conversion
rights.
CLASS C SHARES -- LEVEL LOAD OPTION
Class C shares are sold without a sales charge at the time of purchase, but
are subject to a deferred sales charge if they are redeemed within one year
after the date of purchase. Class C shares are available only through dealers
who have entered into special distribution agreements with the Principal
Underwriter.
Each class of shares, pursuant to its Distribution Plan, pays an annual
service fee of 0.25% of the Fund's average daily net assets attributable to that
class. In addition to the 0.25% service fee, the Class B and C Distribution
Plans provide for the payment of an annual distribution fee of up to 0.75% of
the average daily net assets attributable to their respective classes. As a
result, income distributions paid by the Fund with respect to Class B and Class
C shares will generally be less than those paid with respect to Class A shares.
Investors who would rather pay the entire cost of distribution at the time
of investment, rather than spreading such cost over time, might consider Class A
shares. Other investors might consider Class B or Class C shares, in which case
100% of the purchase price is invested immediately, depending on the amount of
the purchase and the intended length of investment.
The Fund will not normally accept any purchase of Class B shares in the
amount of $250,000 or more, and will not normally accept any purchase of Class C
shares in the amount of $1,000,000 or more.
--------------------------------------------
CLASS A SHARES
Class A shares are offered at net asset value plus an initial sales charge
as follows:
<TABLE>
<CAPTION>
AS A % OF CONCESSION TO
AS A % OF NET AMOUNT DEALERS AS A % OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED* OFFERING PRICE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $100,000 ............................... 4.75% 4.99% 4.25%
$100,000 but less than $250,000 .................. 3.75% 3.90% 3.25%
$250,000 but less than $500,000 .................. 2.50% 2.56% 2.25%
$500,000 but less than $1,000,000 ................ 1.50% 1.52% 1.50%
- ----------
*Rounded to the nearest one-hundredth percent.
</TABLE>
--------------------------------------------
Purchases of the Fund's Class A shares in the amount of $1 million or more
and/or purchases of Class A shares made by a Qualifying Plan or a tax-sheltered
annuity plan sponsored by a public educational entity having 5,000 or more
eligible employees (a "TSA Plan") will be at net asset value without the
imposition of a front-end sales charge (each such purchase, an "NAV Purchase").
With respect to NAV Purchases, the Principal Underwriter will pay broker/
dealers or others concessions based on (1) the investor's cumulative purchases
during the one-year period beginning with the date of the initial NAV Purchase
and (2) the investor's cumulative purchases during each subsequent one-year
period beginning with the first NAV Purchase following the end of the prior
period. For such purchases, concessions will be paid at the following rate:
0.50% of the investment amount up to $4,999,999; plus 0.25% of the investment
amount over $4,999,999.
With the exception of Class A shares acquired by a TSA Plan, Class A shares
acquired on or after April 10, 1995 in an NAV Purchase are subject to a
contingent deferred sales charge of 0.50% upon redemption during the 24 month
period commencing on the date the shares were originally purchased. Class A
shares acquired by a TSA Plan in an NAV Purchase are not subject to a contingent
deferred sales charge. Certain Class A shares purchased without a front-end
sales charge prior to April 10, 1995 are subject to a contingent deferred sales
charge of 0.25% upon redemption during the one year period commencing on the
date such shares were originally purchased.
The sales charge is paid to the Principal Underwriter, which in turn
normally reallows a portion to your broker-dealer. In addition, your
broker-dealer currently will be paid periodic service fees at an annual rate of
up to 0.25% of the average daily net asset value of Class A shares maintained by
such recipient on the books of the Fund for specified periods.
Upon written notice to dealers with whom it has dealer agreements, the
Principal Underwriter may reallow up to the full applicable sales charge.
Initial sales charges may be eliminated for persons purchasing Class A
shares that are included in a broker dealer managed fee based program (a wrap
account) with broker dealers who have entered into special agreements with the
Principal Underwriter. Initial sales charges may be reduced or eliminated for
persons or organizations purchasing Class A shares of the Fund alone or in
combination with Class A shares of other Keystone America Funds. See Exhibit A
to this prospectus.
Upon prior notification to the Principal Underwriter, Class A shares may be
purchased at net asset value by clients of registered representatives within six
months after a change in the registered representative's employment, where the
amount invested represents redemption proceeds from a registered open-end
management investment company not distributed or managed by Keystone or its
affiliates; and the shareholder either (1) paid a front end sales charge, or (2)
was at some time subject to, but did not actually pay, a contingent deferred
sales charge with respect to the redemption proceeds.
Until December 31, 1995 and upon prior notification to the Principal
Underwriter, Class A shares may be purchased at net asset value by clients of
registered representatives within six months after the redemption of shares of
any registered open-end investment company not distributed or managed by
Keystone or its affiliates, where the amount invested represents redemption
proceeds from such unrelated registered open-end investment company, and the
shareholder either (1) paid a front end sales charge, or (2) was at some time
subject to, but did not actually pay, a contingent deferred sales charge with
respect to the redemption proceeds.
CLASS A DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class A shares
(the "Class A Distribution Plan") that provides for expenditures by the Fund,
currently limited to 0.25% annually of the average daily net asset value of
Class A shares, in connection with the distribution of Class A shares. Payments
under the Class A Distribution Plan are currently made to the Principal
Underwriter (which may reallow all or part to others, such as dealers) as
service fees at an annual rate of up to 0.25% of the average daily net asset
value of Class A shares maintained by the recipients on the books of the Fund
for specified periods.
CLASS B SHARES
Class B shares are offered at net asset value without an initial sales
charge.
With respect to Class B shares purchased on or after June 1, 1995, the
Fund, with certain exceptions, imposes a deferred sales charge in accordance
with the following schedule:
DEFERRED
SALES
CHARGE
REDEMPTION TIMING IMPOSED
- ----------------- -------
First twelve month period ..................................... 5.00%
Second twelve month period .................................... 4.00%
Third twelve month period ..................................... 3.00%
Fourth twelve month period .................................... 3.00%
Fifth twelve month period ..................................... 2.00%
Sixth twelve month period ..................................... 1.00%
No deferred sales charge is imposed on amounts redeemed thereafter.
With respect to Class B shares purchased prior to June 1, 1995, the Fund,
with certain exceptions, imposes a deferred sales charge of 3.00% on shares
redeemed during the calendar year of purchase and the first calendar year after
the year of purchase; 2.00% on shares redeemed during the second calendar year
after the year of purchase; and 1.00% on shares redeemed during the third
calendar year after the year of purchase. No deferred sales charge is imposed on
amounts redeemed thereafter.
When imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to you. The deferred sales charge is retained by the
Principal Underwriter. Amounts received by the Principal Underwriter under the
Class B Distribution Plans are reduced by deferred sales charges retained by the
Principal Underwriter. See "Contingent Deferred Sales Charges and Waiver of
Sales Charges" below.
Class B shares purchased on or after June 1, 1995 that have been
outstanding for eight years from and including the month of purchase will
automatically convert to Class A shares (which are subject to a lower
Distribution Plan charge) without imposition of a front-end sales charge or
exchange fee. Class B shares purchased prior to June 1, 1995 will similarly
convert to Class A shares at the end of seven calendar years after the year of
purchase. (Conversion of Class B shares represented by stock certificates will
require the return of the stock certificates to KIRC.) The Class B shares so
converted will no longer be subject to the higher expenses borne by Class B
shares. Because the net asset value per share of the Class A shares may be
higher or lower than that of the Class B shares at the time of conversion,
although the dollar value will be the same, a shareholder may receive more or
fewer Class A shares than the number of Class B shares converted. Under current
law, it is the Fund's opinion that such a conversion will not constitute a
taxable event under federal income tax law. In the event that this ceases to be
the case, the Board of Trustees will consider what action, if any, is
appropriate and in the best interests of the Class B shareholders.
CLASS B DISTRIBUTION PLANS
The Fund has adopted Distribution Plans with respect to its Class B shares
(the "Class B Distribution Plans") that provide for expenditures by the Fund at
an annual rate of up to 1.00% of the average daily net asset value of Class B
shares to pay expenses of the distribution of Class B shares. Payments under the
Class B Distribution Plan are currently made to 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. Amounts paid or accrued to the
Principal Underwriter under (1) and (2) in the aggregate may not exceed the
annual limitation referred to above.
The Principal Underwriter generally reallows to brokers or others a
commission equal to 4.00% of the price paid for each Fund share sold plus the
first year's service fee in advance in the amount of 0.25% of the price paid for
each Class B share sold. Beginning approximately 12 months after the purchase of
a Class B share, the broker or other party will receive service fees at an
annual rate of 0.25% of the average daily net asset value of such Class B share
maintained by the recipient on the books of the Fund for specified periods. See
"Distribution Plans" below.
CLASS C SHARES
Class C shares are offered only through dealers who have special
distribution agreements with the Principal Underwriter. Class C shares are
offered at net asset value, without an initial sales charge. With certain
exceptions, the Fund may impose a deferred sales charge of 1.00% on shares
redeemed within one year after the date of purchase. No deferred sales charge is
imposed on amounts redeemed thereafter. If imposed, the deferred sales charge is
deducted from the redemption proceeds otherwise payable to you. The deferred
sales charge is retained by the Principal Underwriter. See "Contingent Deferred
Sales Charges and Waiver of Sales Charges" below.
CLASS C DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class C shares
(the "Class C Distribution Plan") that provides for expenditures by the Fund at
an annual rate of up to 1.00% of the average daily net asset value of Class C
shares to pay expenses of the distribution of Class C shares. Payments under the
Class C Distribution Plan are currently made to the Principal Underwriter (which
may reallow all or part to others, such as dealers) (1) as commissions for Fund
shares sold and (2) as shareholder service fees. Amounts paid or accrued to the
Principal Underwriter under (1) and (2) in the aggregate may not exceed the
annual limitation referred to above.
The Principal Underwriter generally reallows to brokers or others a
commission in the amount of 0.75% of the price paid for each Class C share sold,
plus the first year's service fee in advance in the amount of 0.25% of the price
paid for each Class C share sold, and, beginning approximately fifteen months
after purchase, a commission at an annual rate of 0.75% (subject to NASD rules
- -- see "Distribution Plans") plus service fees at the annual rate of 0.25%,
respectively, of the average daily net asset value of each Class C share
maintained by the recipients on the books of the Fund for specified periods. See
"Distribution Plans" below.
CONTINGENT DEFERRED SALES CHARGE AND WAIVER OF SALES CHARGES
Any contingent deferred sales charge imposed upon the redemption of Class
A, Class B or Class C shares is a percentage of the lesser of (1) the net asset
value of the shares redeemed or (2) the net asset value at the time of purchase
of such shares. No contingent deferred sales charge is imposed when you redeem
amounts derived from (1) increases in the value of your account above the net
cost of such shares due to increases in the net asset value per share of the
Fund; (2) certain shares with respect to which the Fund did not pay a commission
on issuance, including shares acquired through reinvestment of dividend income
and capital gains distributions; (3) certain Class A shares held for more than
one or two years, as the case may be, from the date of purchase; (4) Class B
shares held more than four consecutive calendar years or more than 72 months
after purchase, as the case may be; or (5) Class C shares held for more than one
year from the date of purchase. Upon request for redemption, shares not subject
to the contingent deferred sales charge will be redeemed first. Thereafter,
shares held the longest will be the first to be redeemed.
The Fund may also sell Class A, Class B or Class C shares at net asset
value without any initial sales charge or a contingent deferred sales charge to
certain Directors, Trustees, officers and employees of the Fund and Keystone and
certain of their affiliates, to registered representatives of firms with dealer
agreements with the Principal Underwriter and to a bank or trust company acting
as a trustee for a single account.
With respect to Class A shares purchased by a Qualifying Plan at net asset
value or Class C shares purchased by a Qualifying Plan, no contingent deferred
sales charge will be imposed on any redemptions made specifically by an
individual participant in the Qualifying Plan. This waiver is not available in
the event a Qualifying Plan (as a whole) redeems substantially all of its
assets.
In addition, no contingent deferred sales charge is imposed on a redemption
of shares of the Fund in the event of (1) death or disability of the
shareholder; (2) a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security Act of 1974
("ERISA"); (3) automatic withdrawals from ERISA plans if the shareholder is at
least 59 1/2 years old; (4) involuntary redemptions of accounts having an
aggregate net asset value of less than $1,000; (5) automatic withdrawals under
an automatic withdrawal plan of up to 1 1/2% per month of the shareholder's
initial account balance; (6) withdrawals consisting of loan proceeds to a
retirement plan participant; (7) financial hardship withdrawals made by a
retirement plan participant; or (8) withdrawals consisting of returns of excess
contributions or excess deferral amounts made to a retirement plan participant.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
The Principal Underwriter may, from time to time, provide promotional
incentives, including reallowance of up to the entire sales charge, to certain
dealers whose representatives have sold or are expected to sell significant
amounts of the Fund. In addition, dealers may, from time to time, receive
additional cash payments. The Principal Underwriter may provide written
information to dealers with whom it has dealer agreements that relates to sales
incentive campaigns conducted by such dealers for their representatives as well
as financial assistance in connection with pre-approved seminars, conferences
and advertising. No such programs or additional compensation will be offered to
the extent they are prohibited by the laws of any state or any self-regulatory
agency, such as the NASD. Dealers to whom substantially the entire sales charge
on Class A shares is reallowed may be deemed to be underwriters as that term is
defined under the Securities Act of 1933.
The Principal Underwriter may, at its own expense, pay concessions in
addition to those described above to dealers which satisfy certain criteria
established from time to time by the Principal Underwriter. These conditions
relate to increasing sales of shares of the Keystone funds over specified
periods and certain other factors. Such payments may, depending on the dealer's
satisfaction of the required conditions, be periodic and may be up to 0.25% of
the value of shares sold by such dealer.
The Principal Underwriter may also pay a transaction fee (up to the level
of payments allowed by dealers for the sale of shares as described above) to
banks and other financial services firms that facilitate transactions in shares
of the Fund for their clients.
The Glass-Steagall Act currently limits the ability of a depository
institution (such as a commercial bank or a savings and loan association) to
become an underwriter or distributor of securities. In the event the Glass-
Steagall Act is deemed to prohibit depository institutions from accepting
payments under the arrangement described above, or should Congress relax current
restrictions on depository institutions, the Board of Trustees will consider
what action, if any, is appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
DISTRIBUTION PLANS
As discussed above, the Fund bears some of the costs of selling its shares
under Distribution Plans adopted with respect to its Class A, Class B and Class
C shares pursuant to Rule 12b-1 under the 1940 Act.
The NASD limits the amount that a Fund may pay annually in distribution
costs for the sale of its shares and shareholder service fees. The NASD limits
annual expenditures to 1% of the aggregate average daily net asset value of its
shares, of which 0.75% may be used to pay such distribution costs and 0.25% may
be used to pay shareholder service fees. The NASD also limits the aggregate
amount that the Fund may pay for such distribution costs to 6.25% of gross share
sales since the inception of the 12b-1 Distribution Plan, plus interest at the
prime rate plus 1% on such amounts (less any deferred sales charges paid by
shareholders to the Principal Underwriter) remaining unpaid from time to time.
The Principal Underwriter intends, but is not obligated, to continue to pay
or accrue distribution charges incurred in connection with the Class B
Distribution Plans that exceed current annual payments permitted to be received
by the Principal Underwriter from the Fund. The Principal Underwriter intends to
seek full payment of such charges from the Fund (together with annual interest
thereon at the prime rate plus one percent) at such time in the future as, and
to the extent that, payment thereof by the Fund would be within the permitted
limits.
If the Fund's Independent Trustees authorize such payments, the effect
would be to extend the period of time during which the Fund incurs the maximum
amount of costs allowed by a Distribution Plan. If a Distribution Plan is
terminated, the Principal Underwriter will ask the Independent Trustees to take
whatever action they deem appropriate under the circumstances with respect to
payment of such amounts.
In connection with financing its distribution costs, including commission
advances to dealers and others, the Principal Underwriter has sold to a
financial institution substantially all of its 12b-1 fee collection rights and
contingent deferred sales charge collection rights in respect of Class B shares
sold during the two-year period commencing approximately June 1, 1995. The Fund
has agreed not to reduce the rate of payment of 12b-1 fees in respect of such
Class B shares unless it terminates such shares' Distribution Plan completely.
If it terminates such Distribution Plan, the Fund may be subject to possible
adverse distribution consequences.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class.
Unreimbursed Class B and Class C Distribution Plan expenses at July 31,
1995 were $1,249,882 (6.92% of net Class B assets), and $1,399,338 (15.38% of
net Class C assets), respectively.
For the year ended July 31, 1995, the Fund paid the Principal Underwriter
$80,521, $142,683, and $131,466, respectively, pursuant to its Class A, Class B,
and Class C Distribution Plans.
Dealers or others may receive different levels of compensation depending on
which class of shares they sell. Payments pursuant to a Distribution Plan are
included in the operating expenses of the class.
HOW TO REDEEM SHARES
You may redeem Fund shares for cash at their net asset value upon written
order by you to the Fund, c/o KIRC and presentation to the Fund of a properly
endorsed share certificate (if certificates have been issued). Your signature
(s) on the written order and certificates must be guaranteed as described below.
In order to redeem by telephone or to engage in telephone transactions
generally, you must complete the authorization in your account application.
Proceeds for shares redeemed on telephonic order will be deposited by wire or
EFT only to the bank account designated in your account application.
The redemption value equals the net asset value per share then determined
and may be more or less than your cost depending upon changes in the value of
the Fund's portfolio securities between purchase and redemption.
If imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to you.
REDEMPTION OF SHARES IN GENERAL
At various times, the Fund may be requested to redeem shares for which it
has not yet received good payment. In such a case, the Fund 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 or by Federal Reserve or bank wire of funds or by EFT. Although
the mailing of a redemption check, wiring or EFT of redemption proceeds may be
delayed, the redemption value will be determined and the redemption processed in
the ordinary course of business upon receipt of proper documentation. In such a
case, after the redemption and prior to the release of the proceeds, no
appreciation or depreciation will occur in the value of the redeemed shares, and
no interest will be paid on the redemption proceeds. If the payment of a
redemption has been delayed, the check will be mailed promptly after good
payment has been collected.
The Fund computes the amount due you at the close of the Exchange at the
end of the day on which it has received all proper documentation from you.
Payment of the amount due on redemption, less any applicable contingent deferred
sales charge (as described above), will be made within seven days thereafter
except as discussed herein.
You may also redeem your shares through broker-dealers. The Principal
Underwriter, acting as agent for the Fund, stands ready to repurchase Fund
shares upon orders from dealers and will calculate the net asset value on the
same terms as those orders for the purchase of shares received from
broker-dealers and described under "How to Buy Shares." If the Principal
Underwriter has received proper documentation, it will pay the redemption
proceeds, less any applicable deferred sales charge, to the broker-dealer
placing the order within seven days thereafter. If imposed, the deferred sales
charge is retained by the Principal Underwriter. The Principal Underwriter
charges no fees for this service. Your broker-dealer, however, may charge a
service fee.
For your protection, SIGNATURES ON CERTIFICATES, STOCK POWERS AND ALL
WRITTEN ORDERS OR AUTHORIZATIONS MUST BE GUARANTEED BY A U.S. STOCK EXCHANGE
MEMBER, A BANK OR OTHER PERSON ELIGIBLE TO GUARANTEE SIGNATURES UNDER THE
SECURITIES EXCHANGE ACT OF 1934 AND KIRC'S POLICIES. The Fund or KIRC may waive
this requirement, but may also require additional documents in certain cases.
Currently, the requirement for a signature guarantee has been waived on
redemptions of $50,000 or less when the account address of record has been the
same for a minimum period of 30 days. The Fund and KIRC reserve the right to
withdraw this waiver at any time.
If the Fund receives a redemption order, but you have not clearly indicated
the amount of money or number of shares involved, the Fund cannot execute your
order. In such cases, the Fund will request the missing information from you and
process the order on the day such information is received.
TELEPHONE
Under ordinary circumstances, you may redeem up to $50,000 from your
account by telephone by calling toll free 1-800-343-2898. You must complete the
Telephone Redemption section of the application to enjoy telephone redemption
privileges.
In order to insure that instructions received by KIRC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation of
your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days.
If the redemption proceeds are less than $2,500, they will be mailed by
check. If they are $2,500 or more, they will be mailed, wired or sent by EFT to
your previously designated bank account as you direct. If you do not specify how
you wish your redemption proceeds to be sent, they will be mailed by check.
If you cannot reach the Fund by telephone, you should follow the procedures
for redeeming by mail or through a broker as set forth herein.
SMALL ACCOUNTS
Because of the high cost of maintaining small accounts, the Fund reserves
the right to redeem your account if its value has fallen below $1,000, the
current minimum investment level, as a result of your redemptions (but not as a
result of market action). You will be notified in writing and allowed 60 days to
increase the value of your account to the minimum investment level. No deferred
sales charges are applied to such redemptions.
REDEMPTIONS IN KIND
If conditions arise that would make it undesirable for the Fund to pay
for all redemptions in cash, the Fund may authorize payment to be made in
portfolio securities or other property. The Fund has obligated itself under the
1940 Act, however, 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.
GENERAL
The Fund reserves the right at any time to terminate, suspend or change the
terms of any redemption method described in this prospectus, except redemption
by mail, and to impose fees.
Except as otherwise noted, neither the Fund, KIRC nor the Principal
Underwriter assumes responsibility for the authenticity of any instructions
received by any of them from a shareholder in writing, over the Keystone
Automated Response Line ("KARL") or by telephone. KIRC will employ reasonable
procedures to confirm that instructions received over KARL or by telephone are
genuine. Neither the Fund, KIRC nor the Principal Underwriter will be liable
when following instructions received over KARL or by telephone that KIRC
reasonably believes to be genuine.
The Fund may temporarily suspend the right to redeem its shares when (1)
the Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission so orders.
SHAREHOLDER SERVICES
Details on all shareholder services may be obtained from KIRC by writing or
by calling toll free 1-800-343-2898.
KEYSTONE AUTOMATED RESPONSE LINE
KARL offers you specific fund account information and price and yield
quotations as well as the ability to do account transactions, including
investments, exchanges and redemptions. You may access KARL by dialing toll free
1-800-346-3858 on any touch tone telephone, 24 hours a day, seven days a week.
EXCHANGES
A shareholder who has obtained the appropriate prospectus may exchange
shares of the Fund for shares of certain other Keystone America Funds and
Keystone Liquid Trust ("KLT") as follows:
Class A shares may be exchanged for Class A shares of other Keystone
America Funds and Class A shares of KLT;
Class B shares except as noted below, may be exchanged for the same type of
Class B shares of other Keystone America Funds and the same type of Class B
shares of KLT; and
Class C shares may be exchanged for Class C shares of other Keystone
America Funds and Class C shares of KLT.
Class B shares purchased on or after June 1, 1995 cannot be exchanged for
Class B shares of Keystone Capital Preservation and Income Fund during the 24
month period commencing with and including the month of original purchase.
The exchange of Class B shares and Class C shares will not be subject to a
contingent deferred sales charge. However, if the shares being tendered for
exchange are
(1) Class A shares acquired in an NAV Purchase or otherwise without a front
end sales charge,
(2) Class B shares that have been held for less than 72 months or four
years, as the case may be, or
(3) Class C shares that have been held for less than one year, and are
still subject to a deferred sales charge, such charge will carry over to the
shares being acquired in the exchange transaction.
You may exchange shares for another Keystone fund for a $10 fee by writing
or calling Keystone. The exchange fee is waived for individual investors who
make an exchange using KARL. Shares purchased by check are eligible for exchange
after 15 days. If the shares being tendered for exchange 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 a certain class of shares of the Fund for the
corresponding class of shares of KLT will be executed by redeeming the shares of
the Fund and purchasing the corresponding class of shares of KLT at the net
asset value of KLT shares next determined after the proceeds from such
redemption become available, which may be up to seven days after such
redemption. In all other cases, orders for exchanges received by the Fund prior
to 4:00 p.m. Eastern time on any day the funds are open for business will be
executed at the respective net asset values determined as of the close of
business that day. Orders for exchanges received after 4:00 p.m. Eastern time on
any business day will be executed at the respective net asset values determined
at the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Fund.
Therefore, the Fund, in addition to its right to reject any exchange, reserves
the right to terminate the exchange privilege of any shareholder who makes more
than five exchanges of shares of the funds in a year or three in a calendar
quarter.
An exchange order must comply with the requirements for a redemption or
repurchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial purchase requirements of
the fund being acquired. An exchange constitutes a sale for federal income tax
purposes.
The exchange privilege is available only in states where shares of the fund
being acquired may legally be sold.
KEYSTONE AMERICA MONEY LINE
Keystone America Money Line eliminates the delay of mailing a check or the
expense of wiring funds. You must request the service on your application.
Keystone America Money Line allows you to authorize electronic transfers of
money to purchase shares in any amount and to redeem up to $50,000 worth of
shares. You can use Keystone America Money Line like an "electronic check" to
move money between your bank account and your account in the Fund with one
telephone call. You must allow two business days after the call for the transfer
to take place. For money recently invested, you must allow normal check clearing
time before redemption proceeds are sent to your bank.
You may also arrange for systematic monthly or quarterly investments in
your Keystone account. Once proper authorization is given, your bank account
will be debited to purchase shares in the Fund. You will receive confirmation
from the Principal Underwriter for every transaction.
To change the amount or terminate a Keystone America Money Line service
(which could take up to 30 days), you must write to KIRC and include your
account numbers.
RETIREMENT PLANS
The Fund has various pension plans and profit-sharing plans available to
investors, including Individual Retirement Accounts ("IRAs"); Rollover IRAs;
Simplified Employee Pension Plans ("SEPs"); Tax Sheltered Annuity Plans
("TSAs"); 401(k) Plans; Keogh Plans; Corporate Profit-Sharing Plans, Pension and
Target Benefit Plans; Money Purchase Pension Plans; and Salary-Reduction Plans.
For details, including fees and application forms, call toll free 1-800-247-4075
or write to KIRC.
AUTOMATIC WITHDRAWAL PLAN
Under an Automatic Withdrawal Plan, if your account has a value of at least
$10,000, you may arrange for regular monthly or quarterly fixed withdrawal
payments. Each payment must be at least $100 and may be as much as 1.5% per
month or 4.5% per quarter of the total net asset value of the Fund shares in
your account when the Automatic Withdrawal Plan is opened. Fixed withdrawal
payments are not subject to a deferred sales charge. Excessive withdrawals may
decrease or deplete the value of your account. Because of the effect of the
applicable sales charge, a Class A investor should not make continuous purchases
of the Fund's shares while participating in an Automatic Withdrawal Plan.
DOLLAR COST AVERAGING
Through dollar cost averaging you can invest a fixed dollar amount each
month or each quarter in any Keystone America Fund. This results in more shares
being purchased when the net asset value of the selected class is relatively low
and fewer shares being purchased when the fund's net asset value is relatively
high, which may result in a lower average cost per share than a less systematic
investment approach.
Prior to participating in dollar cost averaging, you must have established
an account in a Keystone America Fund or a money market fund managed or advised
by Keystone. You should designate on the application the dollar amount of each
monthly or quarterly investment (minimum $100) you wish to make and the fund in
which the investment is to be made. Thereafter, on the first day of the
designated month an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund. If you are a Class A investor and paid a sales
charge on your initial purchase, the shares purchased will be eligible for
Rights of Accumulation and the sales charge applicable to the purchase will be
determined accordingly. In addition, the value of shares purchased will be
included in the total amount required to fulfill a Letter of Intent. If a sales
charge was not paid on the initial purchase, a sales charge will be imposed at
the time of subsequent purchases, and the value of shares purchased will become
eligible for Rights of Accumulation and Letters of Intent.
TWO DIMENSIONAL INVESTING
You may elect to have income and capital gains distributions from any class
of Keystone America Fund shares you may own automatically invested to purchase
the same class of shares of any other Keystone America Fund. You may select this
service on the application and indicate the Keystone America Fund(s) into which
distributions are to be invested. The value of shares purchased will be
ineligible for Rights of Accumulation and Letters of Intent.
OTHER SERVICES
Under certain circumstances you may, within 30 days after a redemption,
reinstate your account in the same class of shares that you redeemed at current
net asset value.
PERFORMANCE DATA
From time to time, the Fund may advertise "total return" and "current
yield". ALL DATA IS BASED ON HISTORICAL EARNINGS AND IS NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. Total return and current yield are computed separately for
each class of shares of the Fund. Total return refers to average annual
compounded rates of return over specified periods determined by comparing the
initial amount invested in a particular class to the ending redeemable value of
that amount. The resulting equation assumes reinvestment of all dividends and
distributions and deduction of the maximum sales charge or applicable contingent
deferred sales charge and all recurring charges, if any, applicable to all
shareholder accounts. The exchange fee is not included in the calculation.
Current yield quotations represent the yield on an investment for a stated
30-day period computed by dividing net investment income earned per share during
the base period by the maximum offering price per share on the last day of the
base period.
The Fund may also include comparative performance data for each class of
shares when advertising or marketing the Fund's shares, such as data from Lipper
Analytical Services, Inc., Morningstar, Inc., Standard & Poor's Corporation,
Ibbotson Associates or other industry publications.
FUND SHARES
Generally, the Fund currently issues three classes of shares that
participate in dividends and distributions and have equal voting, liquidation
and other rights except that (1) expenses related to the distribution of each
class of shares or other expenses that the Board of Trustees may designate as
class expenses from time to time are borne solely by each class; (2) each class
of shares has exclusive voting rights with respect to its Distribution Plan; (3)
each class has different exchange privileges; and (4) each class generally has a
different designation. When issued and paid for, the shares will be fully paid
and nonassessable by the Fund. Shares may be exchanged as explained under
"Shareholder Services," but will have no other preference, conversion, exchange
or preemptive rights. Shares are transferable, redeemable and freely assignable
as collateral. There are no sinking fund provisions. The Fund is authorized to
issue additional series or classes of shares.
Shareholders are entitled to one vote for each full share owned and
fractional votes for fractional shares. Shares of the Fund vote together except
when required by law to vote separately by series or class. The Fund does not
have annual meetings. The Fund will have special meetings from time to time as
required under its Declaration of Trust and under the 1940 Act. As provided in
the Declaration of Trust of the Fund, shareholders have the right to remove
Trustees by an affirmative vote of two-thirds of the outstanding shares. A
special meeting of the shareholders will be held when 10% of the outstanding
shares request a meeting. Shareholders may be eligible for shareholder
communication assistance in connection with the special meeting.
Under Massachusetts law, it is possible that a Fund shareholder may be held
personally liable for the Fund's obligations. The Fund's Declaration of Trust
provides, however, that shareholders shall not be subject to any personal
liability for the Fund's obligations and provides indemnification from Fund
assets for any shareholder held personally liable for the Fund's obligations.
Disclaimers of such liability are included in each Fund agreement.
ADDITIONAL INFORMATION
KIRC, located at 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 disbursing agent.
When the Fund determines from its records that more than one account in the
Fund is registered in the name of a shareholder or shareholders having the same
address, upon written notice to those shareholders, the Fund intends, when an
annual report or semi-annual report of the Fund is required to be furnished, to
mail one copy of such report to that address.
Except as otherwise stated in this prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
The Fund may engage in the following investment practices to the extent
described in the prospectus and the statement of additional information.
OBLIGATIONS OF FOREIGN BRANCHES OF UNITED STATES BANKS
The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch or may be
limited by the terms of a specific obligation and by government regulation.
Payment of interest and principal upon these obligations may also be affected by
governmental action in the country of domicile of the branch (generally referred
to as sovereign risk). In addition, evidences of ownership of such securities
may be held outside the U.S. and the Fund may be subject to the risks associated
with the holding of such property overseas. Examples of governmental actions
would be the imposition of currency controls, interest limitations, withholding
taxes, seizure of assets or the declaration of a moratorium. Various provisions
of federal law governing domestic branches do not apply to foreign branches of
domestic banks.
OBLIGATIONS OF UNITED STATES BRANCHES OF FOREIGN BANKS
Obligations of U.S. branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by federal and state regulation as well as by
governmental action in the country in which the foreign bank has its head
office. In addition, there may be less publicly available information about a
U.S. branch of a foreign bank than about a domestic bank.
MASTER DEMAND NOTES
Master demand notes are unsecured obligations that permit the investment of
fluctuating amounts by the Fund at varying rates of interest pursuant to direct
arrangements between the Fund, as lender, and the issuer, as borrower. Master
demand notes may permit daily fluctuations in the interest rate and daily
changes in the amounts borrowed. The Fund has the right to increase the amount
under the note at any time up to the full amount provided by the note agreement,
or to decrease the amount. The borrower may repay up to the full amount of the
note without penalty. Notes purchased by the Fund permit the Fund to demand
payment of principal and accrued interest at any time (on not more than seven
days notice). Notes acquired by the Fund may have maturities of more than one
year, provided that (1) the Fund is entitled to payment of principal and accrued
interest upon not more than seven days notice, and (2) the rate of interest on
such notes is adjusted automatically at periodic intervals which normally will
not exceed 31 days, but may extend up to one year. The notes are deemed to have
a maturity equal to the longer of the period remaining to the next interest rate
adjustment or the demand notice period. Because these types of notes are direct
lending arrangements between the lender and borrower, such instruments are not
normally traded and there is no secondary market for these notes, although they
are redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. In
connection with master demand note arrangements, Keystone considers, under
standards established by the Board of Trustees, earning power, cash flow and
other liquidity ratios of the borrower and will monitor the ability of the
borrower to pay principal and interest on demand. These notes are not typically
rated by credit rating agencies. Unless rated, the Fund will invest in them only
if the issuer meets the criteria established for commercial paper.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. government securities or other financial institutions believed by Keystone
to be credit-worthy. Such persons must be registered as U.S. government
securities dealers with appropriate regulatory organizations. Under such
agreements, the bank, primary dealer or other financial institution agrees upon
entering into the contract to repurchase the security at a mutually agreed upon
date and price, thereby determining the yield during the term of the agreement.
This results in a fixed rate of return insulated from market fluctuations during
such period. Under a repurchase agreement, the seller must maintain the value of
the securities subject to the agreement at not less than the repurchase price,
such value being determined on a daily basis by marking the underlying
securities to their market value. Although the securities subject to the
repurchase agreement might bear maturities exceeding a year, the Fund only
intends to enter into repurchase agreements that provide for settlement within a
year and usually within seven days. Securities subject to repurchase agreements
will be held by the Fund's custodian or in the Federal Reserve book entry
system. The Fund does not bear the risk of a decline in the value of the
underlying security unless the seller defaults under its repurchase obligation.
In the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating the underlying
securities and losses, including (1) possible declines in the value of the
underlying securities during the period while the Fund seeks to enforce its
rights thereto; (2) possible subnormal levels of income and lack of access to
income during this period; and (3) expenses of enforcing its rights. The Board
of Trustees has established procedures to evaluate the creditworthiness of each
party with whom the Fund enters into repurchase agreements by setting guidelines
and standards of review for Keystone and monitoring Keystone's actions with
regard to repurchase agreements.
REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Fund would sell securities and
agree to repurchase them at a mutually agreed upon date and price. The Fund
intends to enter into reverse repurchase agreements to avoid otherwise having to
sell securities during unfavorable market conditions in order to meet
redemptions. At the time the Fund enters into a reverse repurchase agreement, it
will establish a segregated account with the Fund's custodian containing liquid
assets such as U.S. government securities or other high grade debt securities
having a value not less than the repurchase price (including accrued interest)
and will subsequently monitor the account to ensure such value is maintained.
Reverse repurchase agreements involve the risk that the market value of the
securities the Fund is obligated to repurchase may decline below the repurchase
price. Borrowing and reverse repurchase agreements magnify the potential for
gain or loss on the portfolio securities of the Fund and, therefore, increase
the possibility of fluctuation in the Fund's net asset value. Such practices may
constitute leveraging. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether to
enforce the Fund's obligation to repurchase the securities, and the Fund's use
of the proceeds of the reverse repurchase agreement may effectively be
restricted pending such determination. The staff of the Securities and Exchange
Commission has taken the position that the 1940 Act treats reverse repurchase
agreements as being included in the percentage limit on borrowings imposed on a
Fund.
"WHEN ISSUED" SECURITIES
The Fund may also purchase and sell securities and currencies on a when
issued and delayed delivery basis. When issued or delayed delivery transactions
arise when securities or currencies are purchased or sold by the Fund with
payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time of
entering into the transaction. When the Fund engages in when issued and delayed
delivery transactions, the Fund relies on the buyer or seller, as the case may
be, to consummate the sale. Failure to do so may result in the Fund missing the
opportunity to obtain a price or yield considered to be advantageous. When
issued and delayed delivery transactions may be expected to occur a month or
more before delivery is due. No payment or delivery is made by the Fund,
however, until it receives payment or delivery from the other party to the
transaction. The Fund will maintain a separate account of liquid assets equal to
the value of such purchase commitments until payment is made. When issued and
delayed delivery agreements are subject to risks from changes in value based
upon changes in the level of interest rates, currency rates and other market
factors, both before and after delivery. The Fund does not accrue any income on
such securities or currencies prior to their delivery. To the extent the Fund
engages in when issued and delayed delivery transactions, it will do so for the
purpose of acquiring portfolio securities or currencies consistent with its
investment objective and policies and not for the purpose of investment
leverage. The Fund currently does not intend to invest more than 5% of its
assets in when issued or delayed delivery transactions.
LOANS OF SECURITIES TO BROKER-DEALERS
The Fund may lend securities to brokers or dealers pursuant to agreements
requiring that the loans be continuously secured by cash or securities of the
U.S. government, its agencies or instrumentalities, or any combination of cash
and such securities, as collateral equal at all times in value to at least the
market value of the securities loaned. Such securities loans will not be made
with respect to the Fund if, as a result, the aggregate of all outstanding
securities loans exceeds 15% of the value of the Fund's total assets taken at
their current value. The Fund continues to receive interest or dividends on the
securities loaned and simultaneously earns interest on the investment of the
cash loan collateral in U.S. Treasury notes, certificates of deposit, other
high-grade, short-term obligations or interest bearing cash equivalents.
Although voting rights attendant to securities loaned pass to the borrower, such
loans may be called at any time and will be called so that the securities may be
voted by the Fund if, in the opinion of the Fund, a material event affecting the
investment is to occur. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral should the borrower of the securities fail financially. Loans may
only be made, however, to borrowers deemed to be of good standing, under
standards approved by the Board of Trustees, when the income to be earned from
the loan justifies the attendant risks.
DERIVATIVES
The Fund may use derivatives while seeking to achieve, its investment
objective. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors such as the Fund to earn income and
enhance returns, to hedge or adjust the risk profile of the portfolio, and
either in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. The Fund is permitted to use derivatives for one
or more of these purposes, 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.
Debt instruments that incorporate one or more of these building blocks for
the purpose of determining the principal amount of and/or rate of interest
payable on the debt instruments are often referred to as "structured
securities." An example of this type of structured security is indexed
commercial paper. The term is also used to describe certain securities issued in
connection with the restructuring of certain foreign obligations. See "Indexed
Commercial Paper" and "Structured Securities" below. The term "derivative" is
also sometimes used to describe securities involving rights to a portion of the
cash flows from an underlying pool of mortgages or other assets from which
payments are passed through to the owner of, or that collateralize, the
securities. See "Mortgage Related Securities," "Collateralized Mortgage
Obligations," "Adjustable Rate Mortgage Securities," "Stripped Mortgage
Securities," "Mortgage Securities -- Special Considerations," and "Other
Asset-Backed Securities" and the Fund's statement of additional information.
While the judicious use of derivatives by experienced investment managers
such as Keystone can be beneficial, derivatives also involve risks different
from, and, in certain cases, greater than, the risks presented by more
traditional investments. Following is a general discussion of important risk
factors and issues concerning the use of derivatives that investors should
understand before investing in the Fund.
* Market Risk -- This is the general risk attendant to all investments that the
value of a particular investment will decline or otherwise change in a way
detrimental to the Fund's interest.
* Management Risk -- Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those associated
with stocks and bonds. The use of a derivative requires an understanding not
only of the underlying instrument, but also of the derivative itself, without
the benefit of observing the performance of the derivative under all possible
market conditions. In particular, the use and complexity of derivatives require
the maintenance of adequate controls to monitor the transactions entered into,
the ability to assess the risk that a derivative adds to the Fund's portfolio
and the ability to forecast price, interest rate or currency exchange rate
movements correctly.
* Credit Risk -- This is the risk that a loss may be sustained by the Fund as a
result of the failure of another party to a derivative (usually referred to as a
"counterparty") to comply with the terms of the derivative contract. The credit
risk for exchange-traded derivatives is generally less than for privately
negotiated derivatives, since the clearing house, which is the issuer or
counterparty to each exchange-traded derivative, provides a guarantee of
performance. This guarantee is supported by a daily payment system (i.e., margin
requirements) operated by the clearing house in order to reduce overall credit
risk. For privately negotiated derivatives, there is no similar clearing agency
guarantee. Therefore, the Fund considers the creditworthiness of each
counterparty to a privately negotiated derivative in evaluating potential credit
risk.
* Liquidity Risk -- Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly large
or if the relevant market is illiquid (as is the case with many privately
negotiated derivatives), it may not be possible to initiate a transaction or
liquidate a position at an advantageous price.
* Leverage Risk -- Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can result
in a loss substantially greater than the amount invested in the derivative
itself. In the case of swaps, the risk of loss generally is related to a
notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
* Other Risks -- Other risks in using derivatives include the risk of mispricing
or improper valuation and the inability of derivatives to correlate perfectly
with underlying assets, rates and indices. Many derivatives, in particular
privately negotiated derivatives, are complex and often valued subjectively.
Improper valuations can result in increased cash payment requirements to
counterparties or a loss of value to a Fund. Derivatives do not always perfectly
or even highly correlate or track the value of the assets, rates or indices they
are designed to closely track. Consequently, the Fund's use of derivatives may
not always be an effective means of, and sometimes could be counterproductive
to, furthering the Fund's investment objective.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS. The Fund may write (i.e., sell) covered call and
put options. By writing a call option, the Fund becomes obligated during the
term of the option to deliver the securities underlying the option upon payment
of the exercise price. By writing a put option, the Fund becomes obligated
during the term of the option to purchase the securities underlying the option
at the exercise price if the option is exercised. The Fund also may write
straddles (combinations of covered puts and calls on the same underlying
security).
The Fund may only write "covered" options. This means that so long as the
Fund is obligated as the writer of a call option it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills. If
the Fund has written options against all of its securities that are available
for writing options, the Fund may be unable to write additional options unless
it sells a portion of its portfolio holdings to obtain new securities against
which it can write options. If this were to occur, higher portfolio turnover and
correspondingly greater brokerage commissions and other transaction costs may
result. The Fund does not expect, however, that this will occur.
The Fund will be considered "covered" with respect to a put option it
writes if, so long as it is obligated as the writer of the put option, it
deposits and maintains with its custodian in a segregated account liquid assets
having a value equal to or greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain, through
a receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Fund receives a premium from writing a call or
put option, which it retains whether or not the option is exercised. By writing
a call option, the Fund might lose the potential for gain on the underlying
security while the option is open, and, by writing a put option, the Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.
PURCHASING OPTIONS. The Fund may purchase put or call options, including
purchasing put or call options for the purpose of offsetting previously written
put or call options of the same series.
If the Fund is unable to effect a closing purchase transaction with respect
to covered options it has written, the Fund will not be able to sell the
underlying securities or dispose of assets held in a segregated account until
the options expire or are exercised.
An option position may be closed out only in a secondary market for an
option of the same series. Although the Fund generally will write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular option at
any particular time, and, for some options, no secondary market may exist. In
such event, it might not be possible to effect a closing transaction in a
particular option.
Options on some securities are relatively new, and it is impossible to
predict the amount of trading interest that will exist in such options. There
can be no assurance that viable markets will develop or continue. The failure of
such markets to develop or continue could significantly impair the Fund's
ability to use such options to achieve its investment objective.
OPTIONS TRADING MARKETS. Options in which the Fund will trade are generally
listed on national securities exchanges. Exchanges on which such options
currently are traded include the Chicago Board Options Exchange and the New
York, American, Pacific and Philadelphia Stock Exchanges. Options on some
securities may not be listed on any exchange, but traded in the over-the-counter
market. Options traded in the over-the-counter market involve the additional
risk that securities dealers participating in such transactions could fail to
meet their obligations to the Fund. The use of options traded in the
over-the-counter market may be subject to limitations imposed by certain state
securities authorities. In addition to the limits on its use of options
discussed herein, the Fund is subject to the investment restrictions described
in this prospectus and in the statement of additional information.
The staff of the Securities and Exchange Commission is of the view that the
premiums that the Fund pays for the purchase of unlisted options and the value
of securities used to cover unlisted options written by the Fund are considered
to be invested in illiquid securities or assets for the purpose of calculating
whether the Fund is in compliance with its policies on illiquid securities.
FUTURES TRANSACTIONS
The Fund may enter into currency and other financial futures contracts and
write options on such contracts. The Fund intends to enter into such contracts
and related options for hedging purposes. The Fund will enter into securities,
currency or index-based futures contracts in order to hedge against changes in
interest or exchange rates or securities prices. A futures contract on
securities or currencies is an agreement to buy or sell securities or currencies
at a specified price during a designated month. A futures contract on a
securities index does not involve the actual delivery of securities, but merely
requires the payment of a cash settlement based on changes in the securities
index. The Fund does not make payment or deliver securities upon entering into a
futures contract. Instead, it puts down a margin deposit, which is adjusted to
reflect changes in the value of the contract and which continues until the
contract is terminated.
The Fund may sell or purchase futures contracts. When a futures contract is
sold by the Fund, the value of the contract will tend to rise when the value of
the underlying securities or currencies declines and to fall when the value of
such securities or currencies increases. Thus, the Fund sells futures contracts
in order to offset a possible decline in the value of its securities or
currencies. If a futures contract is purchased by the Fund, the value of the
contract will tend to rise when the value of the underlying securities or
currencies increases and to fall when the value of such securities or currencies
declines. The Fund intends to purchase futures contracts in order to fix what is
believed by Keystone to be a favorable price and rate of return for securities
or favorable exchange rate for currencies the Fund intends to purchase.
The Fund also intends to purchase put and call options on futures contracts
for hedging purposes. A put option purchased by the Fund would give it the right
to assume a position as the seller of a futures contract. A call option
purchased by the Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures contract
requires the Fund to pay a premium. In exchange for the premium, the Fund
becomes entitled to exercise the benefits, if any, provided by the futures
contract, but is not required to take any action under the contract. If the
option cannot be exercised profitably before it expires, the Fund's loss will be
limited to the amount of the premium and any transaction costs.
The Fund may enter into closing purchase and sale transactions in order to
terminate a futures contract and may sell put and call options for the purpose
of closing out its options positions. The Fund's ability to enter into closing
transactions depends on the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. As a result, there can be no
assurance that the Fund will be able to enter into an offsetting transaction
with respect to a particular contract at a particular time. If the Fund is not
able to enter into an offsetting transaction, the Fund will continue to be
required to maintain the margin deposits on the contract and to complete the
contract according to its terms, in which case, it would continue to bear market
risk on the transaction.
Although futures and related options transactions are intended to enable
the Fund to manage market, interest rate or exchange rate risk, unanticipated
changes in interest rates, exchange rates or market prices could result in
poorer performance than if it had not entered into these transactions. Even if
Keystone correctly predicts interest or exchange rate movements, a hedge could
be unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between the Fund's futures and securities or currencies positions may be caused
by differences between the futures and securities or currencies markets or by
differences between the securities or currencies underlying the Fund's futures
position and the securities or currencies held by or to be purchased for the
Fund. Keystone will attempt to minimize these risks through careful selection
and monitoring of the Fund's futures and options positions.
The Fund does not intend to use futures transactions for speculation or
leverage. The Fund has the ability to write options on futures, but intends to
write such options only to close out options purchased by the Fund. The Fund
will not change these policies without supplementing the information in its
prospectus and statement of additional information.
FOREIGN CURRENCY TRANSACTIONS
As discussed above, the Fund may invest in U.S. Government Guaranteed
Securities denominated in foreign currencies. Thus, the value of Fund shares
will be affected by changes in exchange rates.
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, the Fund may enter into forward currency exchange
contracts (agreements to purchase or sell currencies at a specified price and
date). The exchange rate for the transaction (the amount of currency the Fund
will deliver or receive when the contract is completed) is fixed when the Fund
enters into the contract. The Fund usually will enter into these contracts to
stabilize the U.S. dollar value of a security it has agreed to buy or sell. The
Fund intends to use these contracts to hedge the U.S. dollar value of a security
it already owns, particularly if the Fund expects a decrease in the value of the
currency in which the foreign security is denominated. Although the Fund will
attempt to benefit from using forward contracts, the success of its hedging
strategy will depend on Keystone's ability to predict accurately the future
exchange rates between foreign currencies and the U.S. dollar. The value of the
Fund's investments denominated in foreign currencies will depend on the relative
strength of those currencies and the U.S. dollar, and the Fund may be affected
favorably or unfavorably by changes in the exchange rates or exchange control
regulations between foreign currencies and the dollar. Changes in foreign
currency exchange rates also may affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed to shareholders by the Fund.
Although the Fund does not currently intend to do so, the Fund may also purchase
and sell options related to foreign currencies. The Fund does not intend to
enter into foreign currency transactions for speculation or leverage.
INTEREST RATE TRANSACTIONS (SWAPS, CAPS AND FLOORS).
If the Fund enters into interest rate swap, cap or floor transactions, it
expects to do so primarily for hedging purposes, which may include preserving a
return or spread on a particular investment or portion of its portfolio or
protecting against an increase in the price of securities the Fund anticipates
purchasing at a later date. The Fund does not intend to use these transactions
in a speculative manner.
Interest rate swaps involve the exchange by the Fund with another party of
their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). Interest rate caps and floors
are similar to options in that the purchase of an interest rate cap or floor
entitles the purchaser, to the extent that a specified index exceeds (in the
case of a cap) or falls below (in the case of a floor) a predetermined interest
rate, to receive payments of interest on a contractually-based principal
("notional") amount from the party selling the interest rate cap or floor. The
Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities, and will usually enter into interest rate swaps on a net
basis (i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments).
The swap market has grown substantially in recent years, with a large
number of banks and investment banking firms acting as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become more established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions also involve the delivery of securities or other
underlying assets and principal. Accordingly, the risk of loss to the Fund from
interest rate transactions is limited to the net amount of interest payments
that the Fund is contractually obligated to make.
COLLATERALIZED MORTGAGE OBLIGATIONS.
The Fund may also invest in fixed rate and adjustable rate collateralized
mortgage obligations ("CMOs"), including CMOs with rates that move inversely to
market rates that are issued by and guaranteed as to principal and interest by
the U.S. government, its agencies or instrumentalities. The principal
governmental issuer of CMOs is Federal National Mortgage Association ("FNMA").
In addition, Federal Home Loan Mortgage Corporation ("FHLMC") issues a
significant number of CMOs. The Fund will not invest in CMOs that are issued by
private issuers. CMOs are debt obligations collateralized by mortgage securities
in which the payment of the principal and interest is supported by the credit,
of, or guaranteed by, the U.S. government or an agency or instrumentality of the
U.S. government. The secondary market for CMOs is actively traded.
CMOs are structured by redirecting the total payment of principal and
interest on the underlying mortgage securities used as collateral to create
classes with different interest rates, maturities and payment schedules. Instead
of interest and principal payments on the underlying mortgage securities being
passed through or paid pro rata to each holder (e.g., the Fund), each class of a
CMO is paid from and secured by a separate priority payment of the cash flow
generated by the pledged mortgage securities.
Most CMO issues have at least four classes. Classes with earlier change to
maturities receive priority on payments to assure the early maturity. After the
first class is redeemed, excess cash flow not necessary to pay interest on the
remaining classes is directed to the repayment of the next maturing class until
that class is fully redeemed. This process continues until all classes of the
CMO issue have been paid in full. Among the CMO classes available are floating
(adjustable) rate classes, which have characteristics similar to Adjustable Rate
Mortgages and inverse floating rate classes whose coupons vary inversely with
the rate of some market index. The Fund may purchase any class of CMO other than
the residual (final) class.
An inverse floating rate CMO, i.e., an "inverse floater," bears an interest
rate that resets in the opposite direction of the change in a specified interest
rate index. As market interest rates rise, the interest rate of the inverse
floater goes down, and vice versa. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. Inverse
floaters tend to exhibit greater price volatility than fixed-rate bonds of
similar maturity and credit quality. The interest rates on inverse floaters may
be significantly reduced, even to zero, if interest rates rise. Moreover, the
secondary market for inverse floaters may be limited in rising interest rate
environments.
ADJUSTABLE RATE MORTGAGE SECURITIES. Another type of mortgage-related
security, known as adjustable-rate mortgage securities ("ARMS"), bears interest
at a rate determined by reference to a predetermined interest rate or index.
There are two main categories of rates or indices: (1) rates based on the yield
on U.S. Treasury securities, and (2) indices derived from a calculated measure
such as a cost of funds index or a moving average of mortgage rates. Some rates
and indices closely mirror changes in market interest rate levels, while others
tend to lag changes in market rate levels and tend to be somewhat less volatile.
ARMS may be secured by adjustable-rate mortgages or fixed-rate mortgages.
ARMS secured by fixed-rate mortgages generally have lifetime caps on the coupon
rates of the securities. To the extent that general interest rates increase
faster than the interest rates on the ARMS, these ARMS will decline in value.
The adjustable-rate mortgages that secure ARMS will frequently have caps that
limit the maximum amount by which the interest rate or the monthly principal and
interest payments on the mortgages may increase. These payment caps can result
in negative amortization (i.e., an increase in the balance of the mortgage
loan). Furthermore, since many adjustable-rate mortgages only reset on an annual
basis, the values of ARMS tend to fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the interest rates
payable on the underlying adjustable-rate mortgages.
STRIPPED MORTGAGE SECURITIES. Stripped mortgage-related securities ("SMRS")
are mortgage-related securities that are usually structured with two classes of
securities collateralized by a pool of mortgages or a pool of mortgaged-backed
bonds or pass-through securities, with each class receiving different
proportions of the principal and interest payments from the underlying assets. A
common type of SMRS has one class of interest-only securities ("IOs") receiving
all of the interest payments from the underlying assets, while the other class
of securities, principal-only securities ("POs"), receives all of the principal
payments from the underlying assets. IOs and POs are extremely sensitive to
interest rate changes and are more volatile than mortgage-related securities
that are not stripped. IOs tend to decrease in value as interst rates decrease,
while POs generally increase in value as interest rates decrease. If prepayments
of the underlying mortgages are greater than anticipated, the amount of interest
earned on the overall pool will decrease due to the decreasing principal balance
of the assets. Changes in the values of IOs and POs can be substantial and occur
quickly, such as occurred in the first half of 1994 when the value of many POs
dropped precipitously due to increase in interest rates. For this reason the
Fund does not rely on IOs and POs as the principal means of furthering its
investment objective.
Determinations of the liquidity of SMRS issued by the U.S. government, its
agencies and instrumentalities will be made by ascertaining whether such
securities can be disposed of within seven days in the ordinary course of
business at the value used in the calculation of the Fund's net asset value per
share. In the event the Fund purchases Stripped Mortgage Securities determined
to be illiquid, such Stripped Mortgage Securities, together with investments in
other illiquid securities, will be limited to 15% of the Fund's assets. In any
event, the Fund currently intends to invest no more than 15% of its net assets
in IOs and to limit investment in POs so that its PO holdings do not exceed its
IO holdings by more than 5%.
MORTGAGE-RELATED SECURITIES -- SPECIAL CONSIDERATIONS. The value of
mortgage-related securities is affected by a number of factors. Unlike
traditional debt securities, which have fixed maturity dates, mortgage-related
securities may be paid earlier than expected as a result of prepayment of the
underlying mortgages. If property owners make unscheduled prepayments of their
mortgage loans, these prepayments will result in the early payment of the
applicable mortgage-related securities. In that event the Fund may be unable to
invest the proceeds from the early payment of the mortgage-related securities in
an investment that provides as high a yield as the mortgage-related securities.
Consequently, early payment associated with mortgage-related securities causes
these securities to experience significantly greater price and yield volatility
than experienced by traditional fixed-income securities. The occurrence of
mortgage prepayments is affected by the level of general interest rates, general
economic conditions and other social and demographic factors. During periods of
falling interest rates, the rate of mortgage prepayments tends to increase,
thereby tending to decrease the life of mortgage-related securities. During
periods of rising interest rates, the rate of mortgage prepayments usually
decreases, thereby tending to increase the life of mortgage-related securities.
If the life of a mortgage-related security is inaccurately predicted, the Fund
may not be able to realize the rate of return it expected.
As with fixed-income securities generally, the value of mortgage-related
securities can also be adversely affected by increases in general interest rates
relative to the yield provided by such securities. Such an adverse effect is
especially possible with fixed-rate mortgage securities. If the yield available
on other investments rises above the yield of the fixed-rate mortgage securities
as a result of general increases in interest rate levels, the value of the
mortgage-related securities will decline. Although the negative effect could be
lessened if the mortgage-related securities were to be paid earlier (thus
permitting the Fund to reinvest the prepayment proceeds in investments yielding
the higher current interest rate), as described above the rate of mortgage
prepayments and earlier payment of mortgage-related securities generally tends
to decline during a period of rising interest rates.
Although the value of ARMS may not be affected by rising interest rates as
much as the value of fixed-rate mortgage securities is affected by rising
interest rates, ARMS may still decline in value as a result of rising interest
rates. Although, as described above, the yield on ARMS varies with changes in
the applicable interest rate or index, there is often a lag between increases in
general interest rates and increases in the yield on ARMS as a result of
relatively infrequent interest rate reset dates. In addition, adjustable-rate
mortgages and ARMS often have interest rate or payment caps that limit the
ability of the adjustable-rate mortgages or ARMS to fully reflect increases in
the general level of interest rates.
OTHER ASSET-BACKED SECURITIES. The securitization techniques used to
develop mortgage-related securities are being applied to a broad range of
financial assets. Through the use of trusts and special purpose corporations,
various types of assets, including automobile loans and leases, credit card
receivables, home equity loans, equipment leases and trade receivables, are
being securitized in structures similar to the structures used in mortgage
securitizations. These asset-backed securities are subject to risks associated
with changes in interest rates and prepayment of underlying obligations similar
to the risks of investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks depending on
the type of assets involved and the legal structure used. For example, credit
card receivables are generally unsecured obligations of the credit card holder
and the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There have also been proposals to cap the interest rate that a credit card
issuer may charge. In some transactions, the value of the asset-backed security
is dependent on the performance of a third party acting as credit enhancer or
servicer. Furthermore, in some transactions (such as those involving the
securitization of vehicle loans or leases) it may be administratively burdensome
to perfect the interest of the security issuer in the underlying collateral and
the underlying collateral may become damaged or stolen.
STRUCTURED SECURITIES. Structured securities represent interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations or foreign government
securities. This type of restructuring involves the deposit with or purchase by
an entity, such as a corporation or trust, of specified instruments (such as
commercial bank loans or Brady Bonds) and the issuance by that entity of one or
more classes of structured securities backed by, or representing interests in,
the underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued structured securities to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to structured securities is dependent on the extent of the cash
flow on the underlying instruments. Because structured securities typically
involve no credit enhancement, their credit risk generally will be equivalent to
that of the underlying instruments. Structured securities of a given class may
be either subordinated or unsubordinated to the right of payment of another
class. Subordinated structured securities typically have higher yields and
present greater risks than unsubordinated structured securities.
BRADY BONDS. Brady Bonds are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection with
debt restructurings under a plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been issued
only recently, and, accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various currencies (although
most are U.S. dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be
fixed-rate par bonds or floating rate discount bonds, are generally
collateralized in full as to principal due at maturity by U.S. Treasury zero
coupon obligations that have the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments based on the applicable interest rate at that
time and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in effect
constitute supplemental interest payments, but generally are not collateralized.
Brady Bonds are often viewed as having up to four valuation components: (1)
collateralized repayment of principal at final maturity, (2) collateralized
interest payments, (3) uncollateralized interest payments, and (4) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
<PAGE>
EXHIBIT A
REDUCED SALES CHARGES
Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of the Fund alone or in combination with
Class A shares of other Keystone America Funds.
For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or Letters of Intent, the term "Purchaser"
includes the following persons: an individual; an individual, his or her spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account established for their benefit; an
organization exempt from federal income tax under Section 501 (c)(3) or (13) of
the Internal Revenue Code; a pension, profit-sharing or other employee benefit
plan whether or not qualified under Section 401 of the Internal Revenue Code; or
other organized groups of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some purpose
other than the purchase of redeemable securities of a registered investment
company at a discount. In order to qualify for a lower sales charge, all orders
from an organized group will have to be placed through a single investment
dealer or other firm and identified as originating from a qualifying purchaser.
CONCURRENT PURCHASES
For purposes of qualifying for a reduced sales charge, a Purchaser may
combine concurrent direct purchases of Class A shares of two or more of the
"Eligible Funds," as defined below. For example, if a Purchaser concurrently
invested $75,000 in one of the other "Eligible Funds" and $75,000 in the Fund,
the sales charge would be that applicable to a $150,000 purchase, i.e., 3.75% of
the offering price, as indicated in the Sales Charge Schedule in the prospectus.
RIGHT OF ACCUMULATION
In calculating the sales charge applicable to current purchases of the
Fund's Class A shares, a Purchaser is entitled to accumulate current purchases
with the current value of previously purchased Class A shares of the Fund and
Class A shares of certain other eligible funds that are still held in (or
exchanged for shares of and are still held in) the same or another eligible fund
("Eligible Fund(s)"). The Eligible Funds are the Keystone America Funds and
Keystone Liquid Trust.
For example, if a Purchaser held shares valued at $99,999 and purchased an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales charge of 3.75% of the offering price as indicated in the Sales
Charge schedule. KIRC must be notified at the time of purchase that the
Purchaser is entitled to a reduced sales charge, which reduction will be granted
subject to confirmation of the Purchaser's holdings. The Right of Accumulation
may be modified or discontinued at any time.
LETTER OF INTENT
A Purchaser may qualify for a reduced sales charge on a purchase of Class A
shares of the Fund alone or in combination with purchases of Class A shares of
any of the other Eligible Funds by completing the Letter of Intent section of
the application. By so doing, the Purchaser agrees to invest within a
thirteen-month period a specified amount which, if invested at one time, would
qualify for a reduced sales charge. Each purchase will be made at a public
offering price applicable to a single transaction of the dollar amount specified
on the application, as described in this prospectus. The Letter of Intent does
not obligate the Purchaser to purchase, nor the Fund to sell, the amount
indicated.
After the Letter of Intent is received by KIRC, each investment made will
be entitled to the sales charge applicable to the level of investment indicated
on the application. The Letter of Intent may be back-dated up to ninety days so
that any investments made in any of the Eligible Funds during the preceding
ninety-day period, valued at the Purchaser's cost, can be applied toward
fulfillment of the Letter of Intent. However, there will be no refund of sales
charges already paid during the ninety-day period. No retroactive adjustment
will be made if purchases exceed the amount specified in the Letter of Intent.
Income and capital gains distributions taken in additional shares will not apply
toward completion of the Letter of Intent.
If total purchases made pursuant to the Letter of Intent are less than the
amount specified, the Purchaser will be required to remit an amount equal to the
difference between the sales charge paid and the sales charge applicable to
purchases actually made. Out of the initial purchase (or subsequent purchases,
if necessary), 5% of the dollar amount specified on the application will be held
in escrow by KIRC in the form of shares registered in the Purchaser's name. The
escrowed shares will not be available for redemption, transfer or encumbrance by
the Purchaser until the Letter of Intent is completed or the higher sales charge
paid. All income and capital gains distributions on escrowed shares will be paid
to the Purchaser or his order.
When the minimum investment specified in the Letter of Intent is completed
(either prior to or by the end of the thirteen-month period), the Purchaser will
be notified and the escrowed shares will be released. If the intended investment
is not completed, the Purchaser will be asked to remit to the Principal
Underwriter any difference between the sales charge on the amount specified and
on the amount actually attained. If the Purchaser does not within 20 days after
written request by the Principal Underwriter or his dealer pay such difference
in sales charge, KIRC will redeem an appropriate number of the escrowed shares
in order to realize such difference. Shares remaining after any such redemption
will be released by KIRC. Any redemptions made by the Purchaser during the
thirteen-month period will be subtracted from the amount of the purchases for
purposes of determining whether the Letter of Intent has been completed. In the
event of a total redemption of the account prior to completion of the Letter of
Intent, the additional sales charge due will be deducted from the proceeds of
the redemption and the balance will be forwarded to the Purchaser.
By signing the application, the Purchaser irrevocably constitutes and
appoints KIRC his attorney to surrender for redemption any or all escrowed
shares with full power of substitution.
The Purchaser or his dealer must inform the Principal Underwriter or KIRC
that a Letter of Intent is in effect each time a purchase is made.
<PAGE>
KEYSTONE AMERICA
FUND FAMILY
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Insured Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Pennsylvania Tax Free Fund
Texas Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Hartwell Growth Fund
Omega Fund
Fund of the Americas
Strategic Development Fund
[logo]
KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5045
GSF-P 11/95
[SYM]
KEYSTONE
[photo stars and stripes]
GOVERNMENT
SECURITIES FUND
[LOGO]
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE GOVERNMENT SECURITIES FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
KEYSTONE GOVERNMENT SECURITIES FUND
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER ____, 1995
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
Government Securities Fund (formerly Keystone America Government Securities
Fund) (the "Fund") dated November ____, 1995. A copy of the prospectus may be
obtained from Keystone Investment Distributors Company (formerly named Keystone
Distributors, Inc.) (the "Principal Underwriter"), the Fund's principal
underwriter, 200 Berkeley Street, Boston, Massachusetts 02116-5034.
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TABLE OF CONTENTS
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Page
The Fund 2
Investment Policies 2
Investment Restrictions 6
Dividends and Taxes 9
Valuation of Securities 10
Sales Charges 11
Distribution Plans 15
Investment Manager 19
Investment Adviser 21
Trustees and Officers 23
Principal Underwriter 26
Brokerage 28
Declaration of Trust 30
Standardized Total Return
and Yield Quotations 31
Additional Information 32
Appendix A-1
Financial Statements F-1
Independent Auditors' Report F-13
<PAGE>
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THE FUND
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The Fund is an open-end, diversified management investment company
commonly known as a mutual fund. The Fund seeks the highest possible level of
current income, consistent with the safety of principal and maintenance of
liquidity, by investing primarily in securities issued by or guaranteed as to
principal and interest by the full faith and credit of the United States
("U.S.") government. The Fund was formed as a Massachusetts business trust on
October 24, 1986. The Fund changed its name from Keystone America Government
Securities Fund to its current name on May 1, 1995. The Fund is managed by
Keystone Management, Inc. ("Keystone Management"), its investment manager, and
advised by Keystone Investment Management Company (formerly named Keystone
Custodian Funds, Inc.) ("Keystone"), its investment adviser.
The essential information about the Fund is contained in its
prospectus. This statement of additional information provides additional
information about the Fund that may be of interest to some investors.
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INVESTMENT POLICIES
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Securities in which the Fund will invest include: Government National
Mortgage Association ("GNMA") certificates, U.S. Treasury securities and other
securities issued by or guaranteed as to principal and interest by the full
faith and credit of the U.S. government. (Such securities are herein
collectively referred to as "U.S. Government Guaranteed Securities.") The Fund
may invest up to 35% of its assets in securities issued by agencies or
instrumentalities of the U.S. government that are not guaranteed by the U.S.
government and in certain money market instruments; invest in foreign securities
and purchase securities denominated in foreign currencies; may enter into
repurchase and reverse repurchase agreements, purchase and sell securities and
currencies on a when issued and delayed delivery basis and write covered put and
call options (collectively, "Other Eligible Securities"). While the Fund may
purchase put options, it currently does not intend to do so. The Fund also may
engage in currency and other financial futures contracts and related options
transactions for hedging purposes and not for speculation and may employ new
investment techniques with respect to such futures contracts and related
options. It is intended that, under ordinary circumstances, at least 65% of the
Fund's investments will be in U.S. Government Securities.
U.S. GOVERNMENT GUARANTEED SECURITIES
U.S. Government Guaranteed Securities include U.S. Treasury securities
as well as other securities (including GNMA certificates) that are issued by or
guaranteed with respect to both principal and interest by the full faith and
credit of the U.S. government.
U.S. TREASURY SECURITIES
U.S. Treasury securities are debt obligations issued by the U.S.
Treasury on behalf of the U.S. government to provide some of the funds needed to
finance its activities. Treasury securities come in the form of Treasury bills,
notes and bonds. Treasury bills ("T"-bills) are issued on a discount basis and
mature within one year from the date of issue. Treasury notes and bonds are
intermediate and long term obligations, respectively, and entitle the holder to
periodic payment of interest from the U.S. Treasury. Treasury securities could
also include so-called Treasury STRIPS ("STRIPS"). STRIPS involve the separation
by the U.S. Treasury of the corpus (face amount) of the bond or note from the
coupon (interest portion). The U.S. Treasury redeems the bond or note corpus
(zero coupon bond or note) for the face value thereof at maturity and redeems
the stripped coupon (interest portion) beginning at the date specified thereon.
GNMA CERTIFICATES
GNMA certificates are mortgage-backed securities representing part
ownership of a pool of mortgage loans. These loans (issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations) are either
insured by the Federal Housing Administration ("FHA"), Farmers' Home
Administration ("FMHA") or guaranteed by the Veterans Administration ("VA"). A
"pool" or group of such mortgages is assembled and, after being approved by
GNMA, is offered to investors through securities dealers. Once approved by GNMA,
the timely payment of interest and principal on each mortgage is guaranteed by
GNMA and backed by the full faith and credit of the U.S. government. While the
timely payment of principal and interest is guaranteed, the market value of the
GNMA certificate is not. When interest rates rise, the value of a GNMA
certificate held in the Fund may decrease (as does the value of other debt
instruments). When interest rates decline, however, the value of the certificate
may not increase as much as that of other debt securities because of the
prepayment features of GNMA certificates. GNMA certificates differ from bonds in
that principal is paid back monthly by the borrower over the term of the loan
rather than returned in a lump sum at maturity. GNMA certificates are called
"pass-through" securities because both interest and principal payments,
including prepayments (net of fees paid to the issuer and GNMA), are passed
through to the holder of the certificate. If a GNMA certificate is purchased for
the Fund at a premium, the premium would be lost in the event prepayment occurs.
Upon receipt, principal payments will be used by the Fund to purchase additional
GNMA certificates, other U.S. Guaranteed Government Securities or Other Eligible
Securities at the prevailing market interest rate, which may be less than the
rate of interest on the underlying GNMA certificate.
GNMA GUARANTEE
The National Housing Act authorizes GNMA to guarantee the timely
payment of principal and interest on securities backed by a group (or pool) of
mortgages insured by the FHA or FMHA, or guaranteed by the VA. The GNMA
guarantee is backed by the full faith and credit of the U.S. government. GNMA is
also empowered to borrow without limitation from the U.S. Treasury if necessary
to make any payments required under its guarantee.
LIFE OF GNMA CERTIFICATES
The average life of GNMA certificates is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greatest part of principal invested well before the
maturity of the mortgages in the pool. Due to the GNMA guarantee, foreclosures
impose no risk to principal investment.
Because prepayment rates of individual mortgage pools will vary widely,
it is not possible to accurately predict the average life of a particular issue
of GNMA certificates. However, statistics published by the FHA are normally used
as an indicator of the expected average life of GNMA certificates. These
statistics indicate that the average life of single-family dwelling mortgages
with 25-30 years maturities, the type of mortgages backing the vast majority of
GNMA certificates, is approximately 12 years. For this reason, it is standard
practice to treat GNMA certificates as 30-year mortgage-backed securities that
prepay fully in the twelfth year.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES
The coupon rate of interest of GNMA certificates is lower than the
interest rate paid on the VA-guaranteed or FHA-insured mortgages underlying the
certificates, but only by the amount of the fee paid to GNMA and the issuer. For
the most common type of mortgage pool, containing single family dwelling
mortgages, GNMA receives an annual fee of 0.06 of 1% of the outstanding
principal for providing its guarantee, and the issuer is paid an annual fee of
0.44 of 1% for assembling the mortgage pool and for passing through monthly
payments of interest and principal to certificate holders.
For the following reasons, the coupon rate by itself is not indicative
of the yield that will be earned on the certificates:
1. certificates may be issued at a premium or discount, rather than at
par;
2. after issuance, certificates may trade in the secondary market at a
premium or discount;
<PAGE>
3. interest is earned monthly, rather than semi-annually as for
traditional bonds, and monthly compounding has the effect of raising the
effective yield earned on GNMA certificates; and
4. the actual yield of each GNMA certificate is influenced by the
prepayment experience of the mortgage pool underlying the certificate; i.e., if
mortgagors pay off their mortgages early, the principal returned to certificate
holders may be reinvested at more or less favorable rates.
In determining yields for GNMA certificates, the standard practice is
to assume that the certificates will have a 12-year life. Compared on this
basis, GNMA certificates have historically yielded roughly 0.25 of 1% more than
high grade corporate bonds and 0.50 of 1% more than U.S. government and U.S.
government agency bonds. As the life of individual pools may vary widely,
however, the actual yield earned on any issue of GNMA certificates may differ
significantly from the yield estimated on the assumption of a 12-year life.
MARKET FOR GNMA CERTIFICATES
Since the inception of the GNMA mortgage-backed securities program in
1970, the amount of GNMA certificates outstanding has grown rapidly. The size of
the market and the active participation in the secondary market by securities
dealers and many types of investors make the GNMA certificate a highly liquid
instrument. Prices of GNMA certificates are readily available from securities
dealers and depend on, among other things, the level of market rates, the
certificate's coupon rate and the prepayment experience of the pool of mortgages
backing the certificate.
OTHER ELIGIBLE SECURITIES
The Fund may also invest in securities issued or guaranteed by U.S.
government agencies or instrumentalities, including securities issued or
guaranteed by the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal
Land Banks, Maritime Administration, The Tennessee Valley Authority, District of
Columbia Armory Board and Federal National Mortgage Association.
Some obligations of U.S. government agencies and instrumentalities,
such as securities of Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the Treasury. Others, such as bonds issued by the Federal
National Mortgage Association, a private corporation, are supported only by the
credit of the instrumentality. Because the U.S. government is not obligated by
law to provide support to an instrumentality it sponsors, the Fund will invest
in the securities issued by such an instrumentality only when Keystone
determines under standards established by the Fund's Board of Trustees that the
credit risk with respect to the instrumentality does not make its securities
unsuitable investments. U.S. government securities do not include international
agencies or instrumentalities in which the U.S. government, its agencies or
instrumentalities participate, such as the World Bank, Asian Development Bank or
the Inter-American Development Bank, or issues insured by the Federal Deposit
Insurance Corporation.
In addition, the Fund may invest in the following money market
instruments: (1) commercial paper, including master demand notes, that at the
date of investment is rated A-1 the highest grade given, by Standard & Poor's
Corporation ("S&P") or P-1, the highest grade given, by Moody's Investors
Service, Inc. ("Moody's") or, if not rated by such services, is issued by a
company that at the date of investment has an outstanding issue rated A or
better by S&P or Moody's; (2) obligations, including certificates of deposit and
bankers' acceptances, of banks having at least $1 billion in deposits as of the
date of their most recently published financial statements that are members of
the Federal Deposit Insurance Corporation, including U.S. branches of foreign
banks and foreign branches of U.S. banks; and (3) corporate obligations that at
the date of investment are rated A or better by S&P or Moody's.
<PAGE>
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INVESTMENT RESTRICTIONS
- -------------------------------------------------------------------------------
The investment restrictions set forth below are fundamental and may not
be changed without the vote of a majority of the Fund's outstanding voting
shares. Unless otherwise stated, all references to the assets of the Fund are in
terms of current market value. The Fund may not do the following:
1. purchase any security (other than U.S. government securities) of any
issuer if as a result more than 5% of its total assets would be invested in
securities of the issuer, except that up to 25% of its total assets may be
invested without regard to this limit;
2. purchase securities on margin, except that it may obtain such short
term credit as may be necessary for the clearance of purchases and sales of
securities;
3. make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or of securities which, without payment of any further consideration,
are convertible into or exchangeable for securities of the same issue as, and
equal in amount to, the securities sold short;
4. borrow money or enter into reverse repurchase agreements, except
that the Fund may enter into reverse repurchase agreements or borrow money from
banks for temporary or emergency purposes in aggregate amounts up to one-third
of the value of the Fund's net assets; provided that while borrowings exceed 5%
of the Fund's net assets, any such borrowings will be repaid before additional
investments are made;
5. 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;
6. issue senior securities; 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 the issuance of a senior security;
7. make loans, except that the Fund may purchase or hold debt
securities consistent with its investment objective, lend portfolio securities
valued at not more than 15% of its total assets to broker-dealers, and enter
into repurchase agreements;
8. purchase any security if more than 25% of its total assets would be
invested in securities of issuers in a single industry except that (a) there is
no restriction with respect to obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities; (b) wholly owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; (c)
the industry classification of utilities will be determined according to their
services (for example, gas, gas transmission, electric and telephone will each
be considered a separate industry); and (d) the industry classification of
medically related industries will be determined according to their services (for
example, management, hospital supply, medical equipment and pharmaceuticals will
each be considered a separate industry);
9. invest more than 10% of its total assets in securities with legal or
contractual restrictions on resale or in securities for which market quotations
are not readily available or in repurchase agreements maturing in more than
seven days;
10. invest more than 5% of its total assets in securities of any
company having a record, together with its predecessors, of less than three
years of continuous operation;
11. purchase securities of other investment companies except in
connection with a merger, consolidation, reorganization, purchase of assets or
similar transaction;
12. purchase or sell commodities or commodity contracts or real estate,
except that the Fund may purchase securities and sell securities secured by real
estate and securities of companies which invest in real estate; and may engage
in currency or other financial futures contracts and related options
transactions; and
13. underwrite securities of other issuers, except that the Fund may
purchase securities from the issuer or others and dispose of such securities in
a manner consistent with its investment objective.
As a matter of practice the Fund treats reverse repurchase agreements
as borrowings for purposes of compliance with the limitations of the Investment
Company Act of 1940 (the "1940 Act"). Reverse repurchase agreements will be
taken into account along with borrowings from banks for purposes of the 5% limit
set forth in the fourth fundamental investment restriction above.
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 not (1) write, purchase or
sell puts, calls or combinations thereof, except that it may write covered put
and call options and purchase put and call options on U.S. Government Guaranteed
Securities or Other Eligible Securities; and (2) invest in interests in oil, gas
or other mineral exploration or development programs, except publicly traded
securities of companies engaging in such activities, unless, authorized to do so
by the holders of a majority of the Fund's outstanding voting shares.
As a continuing condition of registration of the Fund in a state, the
Fund has undertaken not to purchase any securities (other than U.S. government
securities) of any issuer if, as a result, more than 5% of its total assets
would be invested in securities of the issuer.
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 not (1) write puts and
calls on securities unless (a) the option is issued by the Options Clearing
Corporation, (b) the security underlying the put or call is within the
investment policies of the Fund, and (c) the aggregate value of the securities
underlying the calls or obligations underlying the puts determined, as of the
date of sale, does not exceed 25% of its net assets, and (2) buy and sell puts
and calls written by others unless (a) the options are listed on a national
securities or commodities exchange or offered through certain approved national
securities associations, and (b) the aggregate premiums paid on such options
held at any time do not exceed 20% of the Fund's net assets.
Although not fundamental restrictions or policies requiring a
shareholders' vote to change, the Fund has undertaken to a state securities
authority that, so long as the state authority requires and shares of the Fund
are registered for sale in that state, the Fund will (1) limit its purchase of
warrants to 5% of net assets, of which 2% may be warrants not listed on the New
York or American Stock Exchange, (2) not invest in real estate limited
partnership interests and (3) not invest in oil, gas or other mineral leases.
Although not a fundamental restriction or policy requiring a
shareholder's vote to change, the Fund has agreed that so long as the state
authority requires and shares of the Portfolio are registered for sale in that
state, the Portfolio will maintain 300% asset coverage on any leverage or bank
borrowings.
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 of the Fund, it will revoke the commitment by terminating sales
of its shares in the state involved.
If a percentage limit is satisfied at the time of investment or
borrowing, a later increase or decrease resulting from a change in asset value
is not a violation of the limit.
- -------------------------------------------------------------------------------
DIVIDENDS AND TAXES
- -------------------------------------------------------------------------------
The Fund distributes to its shareholders dividends from net investment
income monthly and net realized long-term and short-term capital gains, if any,
at least annually. Fund distributions are made in additional shares of that
class of shares upon which the distribution is based or, at the option of the
shareholder, in cash. Shareholders who have not opted, prior to the record date
for any distribution, to receive cash will have the number of distributed shares
determined on the basis of the Fund's net asset value per share computed at the
end of the day on the record date after adjustment for the distribution. Net
asset value is used in computing the number of shares in both gains and income
distribution reinvestments. Account statements and/or checks as appropriate will
be mailed to shareholders within seven days after the Fund pays the
distribution. Unless the Fund receives instructions to the contrary from a
shareholder before the record date, it will assume that the shareholder wishes
to receive that distribution and future gains and income distributions in
shares. Instructions continue in effect until changed in writing.
Distributed long-term capital gains are taxable as such to the
shareholder and regardless of the period of time Fund shares have been held by
the shareholder. However, if such shares are held less than six months and
redeemed at a loss, the shareholder will recognize a long term capital loss on
such shares to the extent of the long term capital gain distribution received in
connection with such shares. If the net asset value of the Fund's shares is
reduced below a shareholder's cost by a capital gains distribution, such
distribution, to the extent of the reduction, would be a return of investment
though taxable as stated above. Since distributions of capital gains depend upon
profits actually realized from the sale of securities by the Fund, they may or
may not occur. The foregoing comments relating to the taxation of dividends and
distributions paid on the Fund's shares relate solely to federal income
taxation. Such dividends and distributions may also be subject to state and
local taxes.
When the Fund makes a distribution, it intends to distribute only the
Fund's net capital gains and such income as has been 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.
- -------------------------------------------------------------------------------
VALUATION OF SECURITIES
- -------------------------------------------------------------------------------
Current values for the Fund's portfolio securities are determined as
follows:
1. securities traded in the over-the-counter market are valued at the
mean of the bid and asked prices at the time of valuation, provided that a sale
has occurred and that this price reflects current market value according to
standards established by the Fund's Board of Trustees;
2. short term U.S. Government Guaranteed Securities (other than GNMA
certificates) and Other Eligible Securities that are purchased with maturities
of sixty days or less, including all master demand notes, are valued at
amortized cost (original purchase cost as adjusted for amortization of premium
or accretion of discount), plus either accrued interest or amortized discount;
short-term investments maturing in more than sixty days for which market
quotations are readily available are valued at current market value and
short-term investments maturing in more than sixty days when purchased that are
held on the sixtieth day prior to maturity are valued at amortized cost (market
value on the sixtieth day adjusted for amortization of premium or accretion of
discount), which, when combined with accrued interest, approximates market; and
3. all other U.S. Government Guaranteed Securities (other than GNMA
certificates) and Other Eligible Securities for which market quotations are
readily available are valued at current market value or, where market quotations
are not readily available, at fair value as determined in good faith according
to procedures established by the Board of Trustees.
The following securities are valued at prices deemed in good faith to
be fair under procedures established by the Fund's Board of Trustees: (1)
securities, including restricted securities, for which market quotations are not
readily available; and (2) other assets.
The Fund believes that reliable market quotations are generally not
readily available for purposes of valuing U.S. Government Guaranteed Securities,
other than Treasury bills, and certain Other Eligible Securities. As a result,
depending on the particular security owned by the Fund, it is likely that most
of the valuations for such securities will be based upon their fair value
determined under procedures by the Trustees. The Fund's Board of Trustees has
authorized the use of a pricing service to determine the fair value of such
securities. Securities for which market quotations are readily available are
valued on a consistent basis at that price quoted which, in the opinion of the
Fund's Board of Trustees or the person designated by the Fund's Board of
Trustees to make the determination, most nearly represents the market value of
the particular security. Any securities for which market quotations are not
readily available or other assets are valued on a consistent basis at fair value
as determined in good faith using methods prescribed by the Fund's Board of
Trustees.
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SALES CHARGES
- -------------------------------------------------------------------------------
GENERAL
Generally, the Fund offers three classes of shares. Class A shares are
offered with a maximum sales charge of 4.75% payable at the time of purchase
("Front End Load Option"). Class B shares purchased on or after June 1, 1995 are
subject to a contingent deferred sales charge payable upon redemption during the
72 month period from and including the month of purchase. Class B shares
purchased prior to June 1, 1995 are subject to a contingent deferred sales
charge upon redemption within three calendar years following the year of
purchase ("Back End Load Option"). Class B shares purchased on or after June 1,
1995 that have been outstanding eight years from and including the month of
purchase will automatically convert to Class A shares without imposition of a
front-end sales charge or exchange fee. Class B shares purchased prior to June
1, 1995 that have been outstanding during seven calendar years will similarly
convert to Class A shares. (Conversion of Class B shares represented by stock
certificates will require the return of the stock certificates to Keystone
Investor Resource Center, Inc., the Fund's transfer and dividend disbursing
agent ("KIRC").) Class C shares are sold subject to a contingent deferred sales
charge payable upon redemption within one year after purchase ("Level Load
Option"). Class C shares are available only through dealers who have entered
into special distribution agreements with the Principal Underwriter. The
prospectus contains a general description of how investors may buy shares of the
Fund as well as a table of applicable sales charges for Class A shares; a
discussion of reduced sales charges that may apply to subsequent purchases; and
a description of applicable contingent deferred sales charges.
CONTINGENT DEFERRED SALES CHARGES
A contingent deferred sales charge is imposed at the time of redemption
of certain Fund shares as follows:
CLASS A SHARES
With certain exceptions, purchases of Class A shares made on or after
April 10, 1995 (1) in an amount equal to or exceeding $1,000,000 and/or (2) by a
corporate qualified retirement plan or a non-qualified deferred compensation
plan sponsored by a corporation having 100 or more eligible employees (a
"Qualifying Plan"), in either case without a front-end sales charge, will be
subject to a contingent deferred sales charge of 0.50% during the 24 month
period following the date of purchase. Certain Class A shares purchased without
a front-end sales charge prior to April 10, 1995 may be subject to a contingent
deferred sales charge of 0.25% upon redemption during the one-year period
commencing on the date such shares were originally purchased. The contingent
deferred sales charge will be retained by the Principal Underwriter. See
"Calculation of Contingent Deferred Sales Charge" below.
CLASS B SHARES
With respect to Class B shares purchased on or after June 1, 1995, the
Fund, with certain exceptions, will impose a deferred sales charge as a
percentage of the lesser of net asset value or net cost of such Class B shares
redeemed during succeeding twelve-month periods as follows: 5% during the first
twelve month period; 4% during the second twelve month period; 3% during the
third twelve month period; 3% during the fourth twelve month period; 2% during
the fifth twelve month period, and 1% during the sixth twelve month period. No
deferred sales charge is imposed on amounts redeemed thereafter.
With respect to Class B shares sold prior to June 1, 1995, the Fund,
with certain exceptions, may impose a deferred sales charge of 3.00% on shares
redeemed during the calendar year of purchase and the first calendar year after
the year of purchase; 2.00% on shares redeemed during the second calendar year
after the year of purchase; and 1.00% on shares redeemed during the third
calendar year after the year of purchase. No deferred sales charge is imposed on
amounts redeemed thereafter.
When imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to you. The deferred sales charge is retained by the
Principal Underwriter. Amounts received by the Principal Underwriter under the
Class B Distribution Plans are reduced by deferred sales charges retained by the
Principal Underwriter. See "Calculation of Contingent Deferred Sales Charge"
below.
CLASS C SHARES
With certain exceptions, the Fund may impose a deferred sales charge of
1% on shares redeemed within one year after the date of purchase. No deferred
sales charge is imposed on amounts redeemed thereafter. If imposed, the deferred
sales charge is deducted from the redemption proceeds otherwise payable to you.
The deferred sales charge is retained by the Principal Underwriter. See
"Calculation of Contingent Deferred Sales Charge" below.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE
Any contingent deferred sales charge imposed upon the redemption of
Class A, Class B or Class C shares is a percentage of the lesser of (1) the net
asset value of the shares redeemed or (2) the net cost of such shares.
No contingent deferred sales charge is imposed when you redeem amounts
derived from (1) increases in the value of your account above the net cost of
such shares due to increases in the net asset value per share of the Fund; (2)
certain shares with respect to which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of dividend income and
capital gains distributions; (3) certain Class A shares held for more than one
or two years, as the case may be, from the date of purchase; (4) Class B shares
held during more than four consecutive calendar years or 72 months from and
including the month of purchase, as the case may be; or (5) Class C shares held
for more than one year from the date of purchase.
Upon request for redemption, shares not subject to the contingent
deferred sales charge will be redeemed first. Thereafter, shares held the
longest will be the first to be redeemed. There is no contingent deferred sales
charge when the shares of a class are exchanged for the shares of the same class
of another Keystone America Fund. Moreover, when shares of one such class of a
fund have been exchanged for shares of another such class of a fund, the
calendar year is assumed to be the year shares tendered for exchange were
originally purchased.
WAIVER OF SALES CHARGES
Shares also may be sold, to the extent permitted by applicable law,
regulations, interpretations or exemptions, at net asset value without the
payment of commissions or the imposition of a contingent deferred sales charge
to (1) Directors, Trustees, officers, 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; (2) a pension and profit-sharing plan established by
such companies, their subsidiaries and affiliates, for the benefit of their
Directors, Trustees, officers, full-time employees and sales representatives; or
(3) to registered representatives of firms that have dealer agreements with the
Principal Underwriter, provided all such sales are made upon the written
assurance of the purchaser that the purchase is made for investment purposes and
that the securities will not be resold except through redemption by the Fund.
No initial sales charge is charged on purchases of shares of the Fund
by a bank or trust company in a single account in the name of such bank or trust
company as trustee if the initial investment in shares of the Fund or any fund
in the Keystone Investments Family of Funds is at least $500,000 and any
commission paid at the time of such purchase is not more than 1% of the amount
invested. In addition, no contingent deferred sales charge is imposed on
redemptions of such shares.
With respect to Class A shares purchased by a Qualifying Plan at net
asset value or Class C shares purchased by a Qualifying Plan, no contingent
deferred sales charge will be imposed on any redemptions made specifically by an
individual participant in the Qualifying Plan. This waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially all of its
assets.
In addition, no contingent deferred sales charge is imposed on a
redemption of shares of the Fund in the event of (1) death or disability of the
shareholder; (2) a lump-sum distribution from a benefit plan qualified under the
Employee Retirement Income Security Act of 1974 ("ERISA"); (3) automatic
withdrawals from ERISA plans if the shareholder is at least 59 1/2 years old;
(4) involuntary redemptions of an account having an aggregate net asset value of
less than $1,000; (5) automatic withdrawals under an Automatic Withdrawal Plan
of up to 1 1/2% per month of the shareholder's initial account balance; (6)
withdrawals consisting of loan proceeds to a retirement plan participant; (7)
financial hardship withdrawals made by a retirement plan participant; or (8)
withdrawals consisting of returns of excess contributions or excess deferral
amounts made to a retirement plan participant.
REDEMPTION OF SHARES
The Fund has obligated itself under the 1940 Act to redeem for cash all
shares presented for redemption in any 90 day period by any one shareholder up
to the lesser of $250,000 or 1% of the Fund's assets.
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DISTRIBUTION PLANS
- -------------------------------------------------------------------------------
Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund, to use their assets to bear expenses of distributing their shares if they
comply with various conditions, including adoption of a distribution plan
containing certain provisions set forth in Rule 12b-1.
DISTRIBUTION PLANS IN GENERAL
The NASD limits the amount that the Fund may pay annually in
distribution costs for sale of its shares and shareholder service fees. The NASD
limits annual expenditures to 1% of the aggregate average daily net asset value
of the Fund's shares, of which 0.75% may be used to pay such distribution costs
and 0.25% may be used to pay shareholder service fees. The NASD also limits the
aggregate amount that the Fund may pay for such distribution costs to 6.25% of
gross share sales since the inception of the 12b-1 Plan, plus interest at the
prime rate plus 1% on such amounts (less any contingent deferred sales charges
paid by shareholders to the Principal Underwriter).
CLASS A DISTRIBUTION PLAN
The Class A Distribution Plan provides that the Fund may expend daily
amounts at an annual rate, which is currently limited to up to 0.25% of the
Fund's average daily net asset value attributable to Class A shares, to finance
any activity that is primarily intended to result in the sale of Class A shares,
including, without limitation, expenditures consisting of payments to the
principal underwriter of the Fund (currently the Principal Underwriter) to
enable the Principal Underwriter to pay or to have paid to others who sell Class
A shares a service or other fee, at such intervals as the Principal Underwriter
may determine, in respect of Class A shares maintained by such recipients
on the books of the Fund for specified periods.
Amounts paid by the Fund under the Class A Distribution Plan are
currently used to pay others, such as dealers, service fees at an annual rate of
up to 0.25% of the average net asset value of Class A shares maintained by such
others on the books of the Fund for specified periods.
CLASS B DISTRIBUTION PLAN
The Fund has adopted Distribution Plans for its Class B shares. Each
Class B Distribution Plan provides that the Fund may expend daily amounts at an
annual rate of up to 1.00% of the Fund's average daily net asset value
attributable to Class B shares to finance any activity that is primarily
intended to result in the sale of Class B shares, including, without limitation,
expenditures consisting of payments to the Principal Underwriter to enable the
Principal Underwriter to pay to others (dealers) (1) commissions in respect of
Class B shares sold since inception of the Distribution Plan; and (2) to enable
the Principal Underwriter to pay or to have paid to others a service fee, at
such intervals as the Principal Underwriter may determine, in respect of Class B
shares maintained by such recipients on the books of the Fund for specified
periods.
The Principal Underwriter generally reallows to brokers or others a
commission equal to 4.00% of the price paid for each Class B share sold plus the
first year's service fee in advance in the amount of 0.25% of the price paid for
each Class B share sold. Beginning approximately 12 months after the purchase of
a Class B share, the broker or other party receives service fees at an annual
rate of 0.25% of the average daily net asset value of such Class B share
maintained by the recipient on the books of the Fund for specified periods.
The Principal Underwriter intends, but is not obligated, to continue to
pay or accrue distribution charges incurred in connection with a Class B
Distribution Plan that exceeds current annual payments permitted to be received
by the Principal Underwriter from the Fund. The Principal Underwriter intends to
seek full payment of such charges from the Fund (together with annual interest
thereon at the prime rate plus one percent) at such time in the future as, and
to the extent that, payment thereof by the Fund would be within the permitted
limits.
If the Fund's Independent Trustees authorize such payments, the effect
would be to extend the period of time during which the Fund incurs the maximum
amount of costs allowed by a Class B Distribution Plan. If a Class B
Distribution Plan is terminated, the Principal Underwriter will ask the
Independent Trustees to take whatever action they deem appropriate under the
circumstances with respect to payment of such amounts.
In connection with financing its distribution costs, including
commission advances to dealers and others, the Principal Underwriter has sold to
a financial institution substantially all of its 12b-1 fee collection rights and
contingent deferred sales charge collection rights in respect of Class B shares
sold during the two-year period commencing approximately June 1, 1995. The Fund
has agreed not to reduce the rate of payment of 12b-1 fees in respect of such
Class B shares unless it terminates such shares' Distribution Plan completely.
If it terminates such Distribution Plan, the Fund may be subject to possible
adverse distribution consequences.
CLASS C DISTRIBUTION PLAN
The Class C Distribution Plan provides that the Fund may expend daily
amounts at an annual rate of up to 1.00% of the Fund's average daily net asset
value attributable to Class C shares to finance any activity that is primarily
intended to result in the sale of Class C shares, including, without limitation,
expenditures consisting of payments to the principal underwriter of the Fund
(currently the Principal Underwriter) to enable the Principal Underwriter to pay
to others (dealers) (1) commissions in respect of Class C shares sold since
inception of the Distribution Plan; and (2) to enable the Principal Underwriter
to pay or to have paid to others a service fee, at such intervals as the
Principal Underwriter may determine, in respect of Class C shares maintained by
such recipients on the books of the Fund for specified periods.
The Principal Underwriter generally reallows to brokers or others a
commission in the amount of 0.75% of the price paid for each Class C share sold
plus the first year's service fee in advance in the amount of 0.25% of the price
paid for each Class C share sold. Beginning approximately fifteen months after
purchase, brokers or others receive a commission at an annual rate of 0.75%
(subject to NASD rules) plus service fees at the annual rate of 0.25% of the
average daily net asset value of each Class C share maintained by the recipients
on the books of the Fund for specified periods.
DISTRIBUTION PLANS - GENERAL
Whether any expenditure under a Distribution Plan is subject to a state
expense limit will depend upon the nature of the expenditure and the terms of
the state law, regulation or order imposing the limit. A portion of the Fund's
Distribution Plan expenses may be includable in the Fund's total operating
expenses for purposes of determining compliance with state expense limits.
Each of the Distribution Plans may be terminated at any time by vote of
the Rule 12b-1 Trustees, or by vote of a majority of the outstanding voting
shares of the respective class of the Fund.
Any change in a Distribution Plan that would materially increase the
distribution expenses of the Fund provided for in a Distribution Plan requires
shareholder approval. Otherwise, a Distribution Plan may be amended by the
Trustees, including the Rule 12b-1 Trustees. Unpaid distribution costs for Class
B and Class C shares expenses at July 31, 1995 were $1,249,882 (6.92% of Class B
net assets) and $1,399,338 (15.38% Class C of net assets), respectively.
While a Distribution Plan is in effect, the Fund will be required to
commit the selection and nomination of candidates for Independent Trustees to
the discretion of the Independent Trustees.
The total amounts paid by a Fund under the foregoing arrangements may
not exceed the maximum Distribution Plan limits specified above. The amounts and
purposes of expenditures under a Distribution Plan must be reported to the Rule
12b-1 Trustees quarterly. The Rule 12b-1 Trustees may require or approve changes
in the implementation or operation of a Distribution Plan and may also require
that total expenditures by the Fund under a Distribution Plan be kept within
limits lower than the maximum amount permitted by a Distribution Plan as stated
above.
The Independent Trustees of the Fund have determined that the sales of
the Fund's shares resulting from payments under the Distribution Plans have
benefited the Fund.
For the fiscal year ended July 31, 1995, the Fund paid the Principal
Underwriter $80,521, $142,683, and $131,466, respectively, pursuant to its Class
A, Class B and Class C Distribution Plans. These amounts were used to pay
commissions and service fees.
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INVESTMENT MANAGER
- -------------------------------------------------------------------------------
Subject to the general supervision of the Fund's Board of Trustees,
Keystone Management, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, serves as investment manager to the Fund and is responsible for the
overall management of the Fund's business and affairs. Keystone Management,
organized in 1989, is a wholly-owned subsidiary of Keystone and its directors
and principal executive officers have been affiliated with Keystone, a seasoned
investment adviser, for a number of years. Keystone Management also serves as
investment manager to each of the other Keystone Fund Family and to certain
other funds in the Keystone Investments Family of Funds.
Except as otherwise noted below, pursuant to the Investment Management
Agreement with the Fund (the "Management Agreement"), and subject to the
supervision of the Fund's Board of Trustees, Keystone Management manages and
administers the operation of the Fund and manages the investment and
reinvestment of the Fund's assets in conformity with the Fund's investment
objectives and restrictions. The Management Agreement stipulates that Keystone
Management shall provide office space, all necessary office facilities,
equipment and personnel in connection with its services under the Management
Agreement and pay or reimburse the Fund for the compensation of Fund officers
and Trustees who are affiliated with the investment manager as well as pay all
expenses of Keystone Management incurred in connection with its investment
management services. All charges and expenses other than those specifically
referred to as being borne by Keystone Management will be paid by the Fund,
including, but not limited to, custodian charges and expenses; bookkeeping and
auditors' charges and expenses; transfer agent charges and expenses; fees of
Independent Trustees; brokerage commissions, brokers' fees and expenses; issue
and transfer taxes; costs and expenses under the Distribution Plans; taxes and
trust fees payable to governmental agencies; the cost of share certificates;
fees and expenses of the registration and qualification of the Fund and its
shares with the Securities and Exchange Commission (sometimes referred to herein
as the "SEC" or the "Commission") or under state or other securities laws;
expenses of preparing, printing and mailing prospectuses, statements of
additional information, notices, reports and proxy materials to shareholders of
the Fund; expenses of shareholders' and Trustees' meetings; charges and expenses
of legal counsel for the Fund and for the Trustees of the Fund on matters
relating to the Fund; charges and expenses of filing annual and other reports
with the SEC and other authorities; and all extraordinary charges and expenses
of the Fund.
The Management Agreement permits Keystone Management to enter into an
agreement with Keystone or another investment adviser, under which Keystone or
such other investment adviser, as investment adviser, provides substantially all
the services to be provided by Keystone Management under the Management
Agreement. The Management Agreement also permits Keystone Management to delegate
to Keystone or another investment adviser substantially all of the investment
manager's rights, duties and obligations under the Management Agreement.
Services performed by Keystone Management include (1) performing
research and planning with respect to (a) the Fund's qualification as a
regulated investment company under Subchapter M of the Internal Revenue Code,
(b) tax treatment of the Fund's portfolio investments, (c) tax treatment of
special corporate actions (such as reorganizations), (d) state tax matters
affecting the Fund, and (e) the Fund's distributions of income and capital
gains; (2) preparing the Fund's federal and state tax returns; and (3) providing
services to the Fund's shareholders in connection with federal and state
taxation and distributions of income and capital gains.
The Fund pays Keystone Management a fee for its services at the annual
rate set forth below:
Net Asset Value
Management of the Shares
Fee Income of the Fund
- -------------------------------------------------------------------
2.0% of Gross Dividend
and Interest Income,
plus
0.50% of the first $ 100,000,000 , plus
0.45% of the next $ 100,000,000 , plus
0.40% of the next $ 100,000,000 , plus
0.35% of the next $ 100,000,000 , plus
0.30% of the next $ 100,000,000 , plus
0.25% of amounts over $ 500,000,000
computed as of the close of business each business day.
As a continuing condition of registration of shares in a state,
Keystone Management has agreed to reimburse the Fund annually for certain
operating expenses incurred by the Fund in excess of certain percentages of the
Fund's average daily net assets. Keystone Management is not required, however,
to make such reimbursements to the extent such reimbursement would result in the
Fund's inability to qualify as a regulated investment company under provisions
of the Internal Revenue Code. This condition may be modified or eliminated in
the future.
For the Fund's fiscal year ended July 31, 1995, Keystone agreed to
limit expenses of Class A shares to 1.00% annually and each of Class B and Class
C shares to 1.75% annually. Keystone has extended these expense limits until
________________. Thereafter, a redetermination of whether to continue these
expense limits and, if so, at what rates, will be made. Keystone would not be
required to make such reimbursement to the extent which would result in the
Fund's inability to qualify as a regulated investment company under the
provisions of the Internal Revenue Code. In accordance with voluntary expense
limitations in effect during the fiscal year ended July 31, 1995, Keystone
reimbursed the Fund $135,617, $53,116, and $54,939, respectively, for Class A
Shares, Class B Shares and Class C Shares.
The Management Agreement continues in effect from year to year only if
approved at least annually by the Fund's Board of Trustees or by a vote of a
majority of the outstanding shares, and such renewal has been approved by the
vote of a majority of the Independent Trustees cast in person at a meeting
called for the purpose of voting on such approval. The Management Agreement may
be terminated, without penalty, on 60 days' written notice by the Fund's Board
of Trustees or by a vote of a majority of outstanding shares. The Management
Agreement will terminate automatically upon its "assignment" as that term is
defined in the 1940 Act.
For additional discussion of fees paid to Keystone Management, see
"Investment Adviser" below.
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INVESTMENT ADVISER
- -------------------------------------------------------------------------------
Pursuant to its Management Agreement with the Fund, Keystone Management
has delegated its investment management functions, except for certain
administrative and management services, to Keystone and has entered into an
Investment Advisory Agreement with Keystone (the "Advisory Agreement") under
which Keystone provides investment advisory and management services to the Fund.
Keystone, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, has provided investment advisory and management services to
investment companies and private accounts since it was organized in 1932.
Keystone is a wholly-owned subsidiary of Keystone Investments, 200 Berkeley
Street, Boston, Massachusetts 02116-5034.
Keystone Investments is a corporation predominantly owned by current
and former members of management of Keystone and its affiliates. The shares of
Keystone Investments common stock beneficially owned by management are held in a
number of voting trusts, the trustees of which are George S. Bissell, Albert H.
Elfner, III, Edward F. Godfrey, and Ralph J. Spuehler, Jr. Keystone Investments
provides accounting, bookkeeping, legal, personnel and general corporate
services to Keystone Management, Keystone, their affiliates and the Keystone
Investments Family of Funds.
Pursuant to the Advisory Agreement, Keystone receives for its services
an annual fee representing 85% of the management fee received by Keystone
Management under the Management Agreement.
Pursuant to the Advisory Agreement, and subject to the supervision of
the Fund's Board of Trustees, Keystone manages and administers the operation of
the Fund, and manages the investment and reinvestment of the Fund's assets in
conformity with the Fund's investment objectives and restrictions. The Advisory
Agreement stipulates that Keystone shall provide office space, all necessary
office facilities, equipment and personnel in connection with its services under
the Advisory Agreement and will pay or reimburse the Fund for the compensation
of Fund officers and Trustees who are affiliated with the investment manager and
will pay all expenses of Keystone incurred in connection with its investment
advisory services. All charges and expenses other than those specifically
referred to as being borne by Keystone will be paid by the Fund, including, but
not limited to, custodian charges and expenses; bookkeeping and auditors'
charges and expenses; transfer agent charges and expenses; fees of Independent
Trustees; brokerage commissions, brokers' fees and expenses; issue and transfer
taxes; costs and expenses under the Distribution Plans; taxes and trust fees
payable to governmental agencies; the cost of share certificates; fees and
expenses of the registration and qualification of the Fund and its shares with
the SEC or under state or other securities laws; expenses of preparing, printing
and mailing prospectuses, statements of additional information, notices, reports
and proxy materials to shareholders of the Fund; expenses of shareholder's and
Trustees' meetings; charges and expenses of legal counsel for the Fund and for
the Trustees of the Fund on matters relating to the Fund; charges and expenses
of filing annual and other reports with the SEC and other authorities; and all
extraordinary charges and expenses of the Fund.
During the fiscal years ended July 31, 1993, the Fund paid or accrued
to Keystone Management investment management and administrative services fees of
$354,031, which represented 0.66% of the Fund's then average net assets. Of such
amount paid to Keystone Management, $300,926, was paid to Keystone for its
services to the Fund.
During the fiscal year ended July 31, 1994, the Fund paid or accrued to
Keystone Management investment management and administrative services fees of
$498,981, which represented 0.64% of the Fund's average net assets. Of such
amount paid to Keystone Management, $424,134 was paid to Keystone for its
services to the Fund.
During the fiscal year ended July 31, 1995, the Fund paid or accrued to
Keystone Management investment management and administrative services fees of
$404,773, which represented 0.66% of the Fund's average net assets. Of such
amount paid to Keystone Management, $344,057 was paid to Keystone for its
services to the Fund.
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TRUSTEES AND OFFICERS
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Trustees and officers of the Fund, their principal occupations and some
of their affiliations over the last five years are as follows:
*ALBERT H. ELFNER, III: President, Chief Executive Officer and Trustee of the
Fund; Chairman of the Board, President, Director and Chief Executive
Officer of Keystone Investments; President, Chief Executive Officer and
Trustee or Director of all 30 funds in the Keystone Investments Family of
Funds; Director and Chairman of the Board, Chief Executive Officer and Vice
Chairman of Keystone; Chairman of the Board and Director of Keystone
Institutional Company, Inc. ("Keystone Institutional") (formerly named
Keystone Investment Management Corporation), and Keystone Fixed Income
Advisors ("KFIA"); Director, Chairman of the Board, Chief Executive Officer
and President of Keystone Management and Keystone Software Inc. ("Keystone
Software"); Director and President of Hartwell Keystone Advisers, Inc.
("Hartwell Keystone"), Keystone Asset Corporation, Keystone Capital
Corporation, and Keystone Trust Company; Director of the Principal
Underwriter, KIRC, and Fiduciary Investment Company, Inc. ("FICO");
Director of Boston Children's Services Association; Trustee of Anatolia
College, Middlesex School, and Middlebury College; Member, Board of
Governors, New England Medical Center; and former Trustee of Neworld Bank;
former Director and Vice President of Robert Van Partners, Inc..
FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Professor, Finance Department, George Washington
University; President, Amling & Company (investment advice); Member, Board
of Advisers, Credito Emilano (banking); and former Economics and Financial
Consultant, Riggs National Bank.
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Investment Counselor to Appleton Partners,
Inc.; former Managing Director, Seaward Management Corporation (investment
advice) and former Director, Executive Vice President and Treasurer, State
Street Research & Management Company (investment advice).
*GEORGE S. BISSELL: Chairman of the Board and Trustee of the Fund; Director of
Keystone Investments; Chairman of the Board and Trustee or Director of all
other Keystone Investments Funds; Director and Chairman of the Board of
Hartwell Keystone; Chairman of the Board and Trustee of Anatolia College;
Trustee of University Hospital (and Chairman of its Investment Committee);
former Chairman of the Board and Chief Executive Officer of Keystone
Investments; and former Chief Executive Officer of the Fund.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Director, Coalition of Essential
Schools, Brown University; Director and former Executive Vice President,
National Alliance of Business; former Vice President, Educational Testing
Services; and former Dean, School of Business, Adelphi University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; former Group Vice President, Textron Corp.; and
former Director, Peoples Bank (Charlotte, N.C).
LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Director of Phoenix Total Return Fund and Equifax, Inc.;
Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio Fund and The
Phoenix Big Edge Series Fund; and former President, Morehouse College.
K. DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Chairman of the Board, Director and Executive Vice
President, The London Harness Company; Managing Partner, Roscommon Capital
Corp.; Trustee, Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chief Executive Officer, Gifford Gifts of Fine
Foods; Chairman, Gifford, Drescher & Associates (environmental consulting);
President, Oldways Preservation and Exchange Trust (education); and former
Director, Keystone Investments and Keystone.
F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Of Counsel, Keyser, Crowley & Meub, P.C.;
Member, Governor's (VT) Council of Economic Advisers; Chairman of the Board
and Director, Central Vermont Public Service Corporation and Hitchcock
Clinic; Director, Vermont Yankee Nuclear Power Corporation, Vermont
Electric Power Company, Inc., Grand Trunk Corporation, Central Vermont
Railway, Inc., S.K.I. Ltd., Sherburne Corporation, Union Mutual Fire
Insurance Company, New England Guaranty Insurance Company, Inc. and the
Investment Company Institute; former Governor of Vermont; former Director
and President, Associated Industries of Vermont; former Chairman and
President, Vermont Marble Company; former Director of Keystone; and former
Director and Chairman of the Board, Green Mountain Bank.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Vice President, DHR International,
Inc. (executive recruitment); former Senior Vice President, Boyden
International Inc. (executive recruitment); and Director, Commerce and
Industry Association of New Jersey, 411 International, Inc. and J & M
Cumming Paper Co.
RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Chairman, Environmental Warranty, Inc., and Consultant,
Drake Beam Morin, Inc. (executive outplacement); Director of Connecticut
Natural Gas Corporation, Trust Company of Connecticut, Hartford Hospital,
Old State House Association and Enhanced Financial Services, Inc.; Member,
Georgetown College Board of Advisors; Chairman, Board of Trustees, Hartford
Graduate Center; Trustee, Kingswood-Oxford School and Greater Hartford
YMCA; former Director, Executive Vice President and Vice Chairman of The
Travelers Corporation; and former Managing Director of Russell Miller, Inc.
ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Partner, Farrell, Fritz, Caemmerer, Cleary, Barnosky &
Armentano, P.C.; 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.
CHRISTOPHER P. CONKEY: Vice President of the Fund; Vice President of certain
other Keystone Investments Funds; and Senior Vice President of Keystone.
ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Fund; Senior
Vice President and Secretary of all other Keystone Investments Funds;
Senior Vice President, General Counsel and Secretary of Keystone; Senior
Vice President, General Counsel, Secretary and Director of the Principal
Underwriter, Keystone Management and Keystone Software; Senior Vice
President and General Counsel of Keystone Institutional; Senior Vice
President, General Counsel and Director of FICO and KIRC; Senior Vice
President and Secretary of Hartwell Keystone and Robert Van Partners, Inc.;
Vice President and Secretary of KFIA; Senior Vice President, General
Counsel and Secretary of Keystone Investments, Keystone Asset Corporation,
Keystone Capital Corporation and Keystone Trust Company.
* This Trustee may be considered an "interested person" within the meaning of
the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Investments and several of
its affiliates including Keystone, the Principal Underwriter and KIRC. Mr.
Elfner and Mr. Bissell own shares of Keystone Investments. Mr. Elfner is
Chairman of the Board, Chief Executive Officer and Director of Keystone
Investments. Mr. Bissell is a Director of Keystone Investments.
During the fiscal year ended July 31, 1995, no Trustee affiliated with
Keystone or any other officer received any direct remuneration from the Fund.
During the same period, the non-affiliated Trustees received no retainers and
fees. For the twelve month period ended July 31, 1995, fees paid to Independent
Trustees on a complex wide basis were approximately $_________. As of August 31,
1995, the Trustees and officers of the Fund beneficially owned less than 1% of
each of the Fund's Class A, B, and C shares.
The address of all the Fund's Trustees, officers and the address of the
Fund is 200 Berkeley Street, Boston, Massachusetts 02116-5034.
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PRINCIPAL UNDERWRITER
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The Fund has entered into Principal Underwriting Agreements
("Underwriting Agreements") with the Principal Underwriter, a wholly-owned
subsidiary of Keystone.
The Principal Underwriter, located at 200 Berkeley Street, Boston,
Massachusetts, 02116-5034, is a Delaware corporation. The Principal Underwriter,
as agent, currently has the right to obtain subscriptions for and to sell shares
of the Fund to the public. In so doing, the Principal Underwriter may retain and
employ representatives to promote distribution of the shares and may obtain
orders from brokers, dealers or others, acting as principals, for sales of
shares. No such representative, dealer or broker has any authority to act as
agent for the Fund. The Principal Underwriter has not undertaken to buy or to
find purchasers for any specific number of shares. The Principal Underwriter may
receive payments from the Fund pursuant to the Distribution Plans.
All subscriptions and sales of shares by the Principal Underwriter are
at the offering price of the shares, such price being in accordance with the
provisions of the Fund's Declaration of Trust, By-Laws, current prospectus, and
statement of additional information. All orders are subject to acceptance by the
Fund, and the Fund reserves the right, in its sole discretion, to reject any
order received. Under the Underwriting Agreements, the Fund is not liable to
anyone for failure to accept any order.
The Fund has agreed under the Underwriting Agreements to pay all
expenses in connection with registration of its shares with the Commission and
auditing and filing fees in connection with registration of its shares under the
various state "blue-sky" laws.
From time to time, if in the Principal Underwriter's judgment it could
benefit the sales of Fund shares, the Principal Underwriter may use its
discretion in providing to selected dealers promotional materials and selling
aids, including, but not limited to, personal computers, related software and
Fund data files.
The Principal Underwriter has agreed that it will in all respects duly
conform with all state and federal laws applicable to the sale of the shares and
will indemnify and hold harmless the Fund and each person who has been, is or
may be a Trustee or officer of the Fund against expenses reasonably incurred by
any of them in connection with any claim or in connection with any action, suit
or proceeding to which any of them may be a party, that arises out of or is
alleged to arise out of any misrepresentation or omission to state a material
fact on the part of the Principal Underwriter or any other person for whose acts
the Principal Underwriter is responsible or is alleged to be responsible, unless
such misrepresentation or omission was made in reliance upon written information
furnished by the Fund.
The Underwriting Agreements provide that they will remain in effect as
long as its terms and continuance are approved by a majority of the Trustees of
the Fund and a majority of the Fund's Rule 12b-1 Trustees at least annually in
accordance with the 1940 Act and rules and regulations thereunder.
The Underwriting Agreements may be terminated, without penalty, on 60
days' written notice by a majority of the Fund's Rule 12b-1 Trustees or by a
vote of a majority of outstanding shares. The Underwriting Agreements will
terminate automatically upon their "assignment" as that term is defined in the
1940 Act.
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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. Management
weighs such considerations 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
that is fair and equitable to the Fund.
The Fund may seek to maximize the rate of return on its portfolio by
engaging in short term trading consistent with its investment objective. Trading
will occur primarily in anticipation of or in response to market developments or
to take advantage of market decline (a rise in interest rates) or to purchase in
anticipation of a market rise (a decline in interest rates) and later sell. In
addition, a security may be sold and another purchased at approximately the same
time to take advantage of what Keystone believes to be a temporary disparity in
the normal yield relationship between the two securities. Yield disparities may
occur for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates, due to such things as changes
in the overall demand for, or supply of, various types of U.S. Government
Guaranteed Securities and Other Eligible Securities or changes in the investment
objectives of investors. This policy of short term trading may result in a
higher portfolio turnover and increased expenses.
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.
The Fund paid no brokerage commissions during the fiscal years ended
July 31, 1993, 1994 and 1995.
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.
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DECLARATION OF TRUST
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MASSACHUSETTS BUSINESS TRUST
The Fund is a Massachusetts business trust established under a
Declaration of Trust dated October 24, 1986 ("Declaration of Trust"). The Fund
is similar in most respects to a business corporation. The principal distinction
between the Fund and a corporation relates to the shareholder liability
described below. A copy of the Declaration of Trust is filed as an exhibit to
the Registration Statement of which this statement of additional information is
a part. This summary is qualified in its entirety by reference to the
Declaration of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of classes of shares. Each share of the Fund
represents an equal proportionate interest with each other share of that class.
Upon liquidation, Fund shares are entitled to a pro rata share based on the
relative net assets of each class. Shareholders have no preemptive or conversion
rights. Shares are redeemable and transferable. The Fund is authorized to issue
additional classes or series of shares. Generally, the Fund currently issues
three classes of shares, but may issue additional classes or series of shares.
SHAREHOLDER LIABILITY
Pursuant to certain decisions of the Supreme Judicial Court of
Massachusetts, shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. If the Fund were held to be a partnership, the possibility of the
shareholders incurring financial loss for that reason appears remote because the
Fund's Declaration of Trust (1) contains an express disclaimer of shareholder
liability for obligations of the Fund and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Fund or the Trustees; and (2) provides for indemnification out
of the Fund's property for any shareholder held personally liable for the
obligations of the Fund.
VOTING RIGHTS
Under the Declaration of Trust, the Fund does not hold annual meetings.
However at meetings called for the initial election of trustees or to consider
other matters, shares are entitled to one vote per share. Shares generally vote
together as one class on all matters. Classes of shares of the Fund have equal
voting rights except that each class of shares has exclusive voting rights with
respect to its respective Distribution Plan. No amendment may be made to the
Declaration of Trust that adversely affects any class of shares without the
approval of a majority of the shares of that class. Shares have non-cumulative
voting rights, which means that the holders of more than 50% of the shares
voting for the election of Trustees can elect 100% of the Trustees to be elected
at a meeting and, in such event, the holders of the remaining 50% or less of the
shares voting will not be able to elect any Trustees.
After an initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law or until such time as less than a majority of the Trustees holding office
have been elected by shareholders, at which time the Trustees then in office
will call a shareholders' meeting for election of Trustees.
Except as set forth above, the Trustees shall continue to hold office
indefinitely, unless otherwise required by law, and may appoint successor
Trustees. A Trustee may be removed from or cease to hold office (as the case may
be) (1) at any time by two thirds vote of the remaining Trustees; (2) when such
Trustee becomes mentally or physically incapacitated; or (3) at a special
meeting of shareholders by a two-thirds vote of the outstanding shares. Any
Trustee may voluntarily resign from office.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
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STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
- -------------------------------------------------------------------------------
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
The cumulative total return for Class A annualized for the period April
14, 1987 (commencement of investment operations) through July 31, 1995 was
81.11%. The cumulative total return of Class A for the one and five years ended
July 31, 1995 were 3.48% and 41.27%, respectively. The compounded average annual
rate of return for Class A for the period April 14, 1987 through July 31, 1995
was 7.42%. The compounded average annual rate of return for Class A for the five
year period ended July 31, 1995 was 7.15%. The cumulative total return for the
Fund's Class B and Class C annualized for the period from February 1, 1993
(commencement of operations) through July 31, 1995 was 8.44% and 11.34%,
respectively. The cumulative total return of Class B and Class C for the one
year period ended July 31, 1995 was 3.81% and 7.81%, respectively. The
compounded average annual rate of return for the Fund's Class B and Class C
annualized for the period from February 1, 1993 (commencement of operations)
through July 31, 1995 was 3.29% and 4.39%, respectively.
Current yield quotations as they may appear from time to time in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of the Fund computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the base period. The Fund's current yield for
each of Class A, Class B and Class C for the 30-day period ended July 31, 1995
was 5.89%, 5.55% and 5.55%, respectively.
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ADDITIONAL INFORMATION
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State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian of all securities and cash of the Fund
(the "Custodian"). The Custodian performs no investment management functions for
the Fund, but, in addition to its custodial services, is responsible for
accounting and related recordkeeping on behalf of the Fund.
KIRC, located at 101 Main Street, Cambridge, MA 02142-1519, is a
wholly-owned subsidiary of Keystone, and serves as transfer agent and dividend
disbursing agent for the Fund.
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
Certified Public Accountants, are the Fund's independent auditors.
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.
As of August 31, 1995, Merrill, Lynch, Pierce, Fenner & Smith, 4800
Deer Lake Drive, E., Jacksonville, FL 32246-6484, owned 17.221% of the
outstanding Class C shares; First Federal Savings and Loan Association, Attn:
Robert J. Scheidler, 212 N. Franklin St., Greensburg, IN 47240-1735, owned
11.483% of the outstanding Class C shares; Donald Lufkin & Jearette Securities
Corp., Inc. 4JG005510, PO Box 2052, Jersey City, NJ 07303-2052, owned 5.757% of
the outstanding Class C shares.
The Fund's prospectus and statement of additional information omit
certain information contained in the registration statement filed with the
Commission, which may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fee prescribed by the rules and regulations
promulgated by the Commission.
The Fund is one of 15 different investment companies in the family of
Keystone America Funds. The Keystone America Funds offer a range of choices to
serve shareholder needs. The Keystone America Funds consist of the following
funds having the various investment objectives described below:
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND - Seeks high current income,
consistent with low volatility of principal, by investing in adjustable rate
securities issued by the U.S. government, its agencies or instrumentalities.
KEYSTONE FUND FOR TOTAL RETURN - Seeks total return from a combination of
capital growth and income from dividend paying common stocks, preferred stocks,
convertible bonds, other fixed-income securities and foreign securities (up to
50%).
KEYSTONE GLOBAL OPPORTUNITIES FUND - Seeks long-term capital growth from foreign
and domestic securities.
KEYSTONE GOVERNMENT SECURITIES FUND - Seeks income and capital preservation from
U.S. government securities.
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC. - Seeks capital
appreciation by investment primarily in small and medium-sized companies in a
relatively early stage of development that are principally traded in the
over-the-counter market.
KEYSTONE HARTWELL GROWTH FUND - Seeks capital appreciation by investment in
securities selected for their long-term growth prospects.
KEYSTONE INTERMEDIATE TERM BOND FUND - Seeks income, capital preservation and
price appreciation potential from investment grade corporate bonds.
KEYSTONE OMEGA FUND - Seeks maximum capital growth from common stocks and
securities convertible into common stocks.
KEYSTONE STATE TAX FREE FUND - A mutual fund consisting of five separate series
of shares investing in different portfolio securities which seeks the highest
possible current income, exempt from federal income taxes and applicable state
taxes.
KEYSTONE STATE TAX FREE FUND - SERIES II - A mutual fund consisting of two
separate series of shares investing in different portfolio securities which
seeks the highest possible current income, exempt from federal income taxes and
applicable state taxes.
KEYSTONE STRATEGIC INCOME FUND - Seeks high yield and capital appreciation
potential from corporate bonds, discount bonds, convertible bonds, preferred
stock and foreign bonds (up to 25%).
KEYSTONE TAX FREE INCOME FUND - Seeks income exempt from federal income taxes
and capital preservation from the four highest grades of municipal bonds.
KEYSTONE WORLD BOND FUND - Seeks total return from interest income, capital
gains and losses and currency exchange gains and losses from investment in debt
securities denominated in U.S. and foreign currencies.
KEYSTONE FUND OF THE AMERICAS - Seeks long-term growth of capital through
investments in equity and debt securities in North America (the United States
and Canada) and Latin America (Mexico and countries in South and Central
America).
KEYSTONE STRATEGIC DEVELOPMENT FUND - Seeks long-term capital growth by
investing primarily in equity securities.
<PAGE>
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APPENDIX
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MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of
one year or less such as bank certificates of deposit, bankers' acceptances,
commercial paper (including variable rate master demand notes) and obligations
issued or guaranteed by the United States ("U.S.") government, its agencies or
instrumentalities, some of which may be subject to repurchase agreements.
COMMERCIAL PAPER
Commercial paper will consist of issues rated at the time of purchase
A-1 by Standard & Poor's Corporation ("S&P") or PRIME-1 by Moody's Investors
Service, Inc. ("Moody's") or F-1 by Fitch Investors Services, Inc. ("Fitch's");
or, if not rated, will be issued by companies which have an outstanding debt
issue rated at the time of purchase Aaa, Aa or A by Moody's, or AAA, AA or A by
S&P, or will be determined by Keystone to be of COMPARABLE QUALITY.
A. S&P RATINGS
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. The top category is as
follows:
1. A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
2. A-1: This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted with a
plus (+) sign designation.
B. MOODY'S RATINGS
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designation, judged to be investment
grade, to indicate the relative repayment capacity of rated issuers.
1. The rating PRIME-1 is the highest commercial paper rating assigned
by Moody's. Issuers rated PRIME-1 (or related supporting institutions) are
deemed to have a superior capacity for repayment of short term promissory
obligations. Repayment capacity of Prime-1 issuers is normally evidenced by the
following characteristics:
1) leading market positions in well-established industries;
2) high rates of return on funds employed;
3) conservative capitalization structures with moderate reliance on
debt and ample asset protection;
4) broad margins in earnings coverage of fixed financial charges and
high internal cash generation; and
5) well established access to a range of financial markets and assured
sources of alternate liquidity.
In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.
<PAGE>
CERTIFICATES OF DEPOSIT
Certificates of deposit are receipts issued by a bank in exchange for
the deposit of funds. The issuer agrees to pay the amount deposited plus
interest to the bearer of the receipt on the date specified on the certificate.
The certificate usually can be traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-denominated
certificates of United States banks, including their branches abroad, and of
United States 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 assets as of the date of their most recently published financial
statements.
The Fund will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank. Additionally, the Fund does not
currently intend to purchase such foreign securities (except to the extent that
certificates of deposit of foreign branches of U.S. banks may be deemed foreign
securities) or purchase certificates of deposit, bankers' acceptances or other
similar obligations issued by foreign banks.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short term credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Fund must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total assets at the time of purchase in excess of $1 billion and must be payable
in U.S. dollars.
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance and securities issued by the GNMA. Treasury
bills have maturities of one year or less. Treasury notes have maturities of one
to ten years and Treasury bonds generally have maturities of greater than ten
years at the date of issuance. GNMA securities include GNMA mortgage
pass-through certificates. Such securities are supported by the full faith and
credit of the U.S. Government.
Securities issued or guaranteed by U.S. government agencies or
instrumentalities include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the U.S.,
Small Business Administration, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Land Banks, Maritime Administration,
The Tennessee Valley Authority, District of Columbia Armory Board and Federal
National Mortgage Association.
Some obligations of U.S. government agencies and instrumentalities,
such as securities of Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the Treasury. Others, such as bonds issued by the Federal
National Mortgage Association, a private corporation, are supported only by the
credit of the instrumentality. Because the U.S. government is not obligated by
law to provide support to an instrumentality it sponsors, the Fund will invest
in the securities issued by such an instrumentality only when Keystone
determines under standards established by the Board of Trustees that the credit
risk with respect to the instrumentality does not make its securities unsuitable
investments. U.S. government securities do not include international agencies or
instrumentalities in which the U.S. government, its agencies or
instrumentalities participate, such as the World Bank, Asian Development Bank or
the Interamerican Development Bank, or issues insured by Federal Deposit
Insurance Corporation.
<PAGE>
CORPORATE BOND RATINGS
S&P CORPORATE BOND RATINGS
An S&P corporate bond rating is a current assessment of the
creditworthiness of an obligor, including obligors outside the U.S., with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers or lessees. Ratings of foreign obligors do
not take into account currency exchange and related uncertainties. The ratings
are based on current information furnished by the issuer or obtained by S&P from
other sources it considers reliable.
The ratings are based, in varying degrees, on the following
considerations:
a. Likelihood of default - capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in
the event of bankruptcy reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of
credit quality, ratings "AA and "BBB" may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
Bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
5. BB, B, CCC, CC AND C - Debt rated BB, B, CCC, CC AND C is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
6. CI - The rating CI is reserved for income bonds on which no interest
is being paid.
7. D - Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears.
MOODY'S CORPORATE BOND RATINGS
Moody's ratings are as follows:
1. Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
2. Aa - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in AAA
securities.
3. A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
4. Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
5. Ba - Bonds which are rated Ba are judged to have speculative
elements. Their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
6. B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
7. Caa - Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
8. Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
market shortcomings.
9. C - Bonds which are rated as C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 AND 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS. The Fund writes only covered options. Options
written by the Fund will normally have expiration dates of not more than nine
months from the date written. The exercise price of the options may be below,
equal to, or above the current market values of the underlying securities at the
times the options are written.
Unless the option has been exercised, the Fund may close out an option
it has written by effecting a closing purchase transaction, whereby it purchases
an option covering the same underlying security and having the same exercise
price and expiration date ("of the same series") as the one it has written. If
the Fund desires to sell a particular security on which it has written a call
option, it will effect a closing purchase transaction prior to or concurrently
with the sale of the security. If the Fund is able to enter into a closing
purchase transaction, the Fund will realize a profit (or loss) from such
transaction if the cost of such transaction is less (or more) than the premium
received from the writing of the option.
An option position may be closed out only in a secondary market for an
option of the same series. Although the Fund will generally write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular option at
any particular time, and for some options no secondary market may exist. In such
event it might not be possible to effect a closing transaction in a particular
option. If the Fund as a covered call option writer is unable to effect a
closing purchase transaction, it will not be able to sell the underlying
securities until the option expires or it delivers the underlying securities
upon exercise.
Because the Fund intends to qualify as a regulated investment company
under the Internal Revenue Code, the extent to which the Fund may write covered
call options and enter into so-called "straddle" transactions involving put and
call options may be limited.
Many options are traded on registered securities exchanges. Options
traded on such exchanges are issued by the Options Clearing Corporation ("OCC"),
a clearing corporation which assumes responsibility for the completion of
options transactions.
PURCHASING PUT AND CALL OPTIONS. The Fund can close out a put option it
has purchased by effecting a closing sale transaction; for example, the Fund may
close out a put option it has purchased by selling a put option. If, however, a
secondary market does not exist at a time the Fund wishes to effect a closing
sale transaction, the Fund will have to exercise the option to realize any
profit. In addition, in a transaction in which the Fund does not own the
security underlying a put option it has purchased, the Fund would be required,
in the absence of a secondary market, to purchase the underlying security before
it could exercise the option. In each such instance, the Fund would incur
additional transaction costs.
The Fund may also purchase call options for the purpose of offsetting
previously written call options of the same series.
The Fund will not purchase a put option if, as a result of such
purchase, more than 10% of its total assets would be invested in premiums for
such options. The Fund's ability to purchase put and call options may be limited
by the Internal Revenue Code's requirements for qualification as a regulated
investment company.
OPTION WRITING AND RELATED RISKS
The Fund may write covered call and put options. A call option gives
the purchaser of the option the right to buy, and the writer the obligation to
sell, the underlying security at the exercise price during the option period.
Conversely, a put option gives the purchaser the right to sell, and the writer
the obligation to buy, the underlying security at the exercise price during the
option period.
So long as the obligation of the writer continues, the writer may be
assigned an exercise notice by the broker-dealer through whom the option was
sold. The exercise notice would require the writer to deliver, in the case of a
call, or take delivery of, in the case of a put, the underlying security against
payment of the exercise price. This obligation terminates upon expiration of the
option, or at such earlier time as the writer effects a closing purchase
transaction by purchasing an option of the same series as the one previously
sold. Once an option has been exercised, the writer may not execute a closing
purchase transaction. For options traded on national securities exchanges
("Exchanges"), to secure the obligation to deliver the underlying security in
the case of a call option, the writer of the option is required to deposit in
escrow the underlying security or other assets in accordance with the rules of
the OCC, an institution created to interpose itself between buyers and sellers
of options. Technically, the OCC assumes the order side of every purchase and
sale transaction on an Exchange and by doing so, gives its guarantee to the
transaction.
The principal reason for writing options on a securities portfolio is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the underlying securities alone. In return for the premium,
the covered call option writer has given up the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
the option remains open, but retains the risk of loss should the price of the
security decline. Conversely, the put option writer gains a profit, in the form
of a premium, so long as the price of the underlying security remains above the
exercise price, but assumes an obligation to purchase the underlying security
from the buyer of the put option at the exercise price, even though the price of
the security may fall below the exercise price, at any time during the option
period. If an option expires, the writer realizes again in the amount of the
premium. Such a gain may, in the case of a covered call option, be offset by a
decline in the market value of the underlying security during the option period.
If a call option is exercised, the writer realizes a gain or loss from the sale
of the underlying security. If a put option is exercised, the writer must
fulfill his obligation to purchase the underlying security at the exercise
price, which will usually exceed the then market value of the underlying
security. In addition, the premium paid for the put effectively increases the
cost of the underlying security, thus reducing the yield otherwise available
from such securities.
Because the Fund can write only covered options, it may at times be
unable to write additional options unless it sells a portion of its portfolio
holdings to obtain new debt securities against which it can write options. This
may result in higher portfolio turnover and correspondingly greater brokerage
commissions and other transaction costs.
To the extent that a secondary market is available the covered option
writer may close out options it has written prior to the assignment of an
exercise notice by purchasing, in a closing purchase transaction, an option of
the same series as the option previously written. If the cost of such a closing
purchase, plus transaction costs, is greater than the premium received upon
writing the original option, the writer will incur a loss in the transaction.
OPTIONS TRADING MARKETS
Options which the Fund will trade are generally listed on Exchanges.
Exchanges on which such options currently are traded are the Chicago Board
Options Exchange and the American, New York, Pacific, and Philadelphia Stock
Exchanges. Options on some securities may not be listed on any Exchange but
traded in the over-the-counter market. Options traded in the over-the-counter
market involve the additional risk that securities dealers participating in such
transactions would fail to meet their obligations to the Fund. The use of
options traded in the over-the-counter market may be subject to limitations
imposed by certain state securities authorities. In addition to the limits on
its use of options discussed herein, the Fund is subject to the investment
restrictions described in the prospectus and the statement of additional
information.
The staff of the Commission currently is of the view that the premiums
which the Fund pays for the purchase of unlisted options and the value of
securities used to cover unlisted options written by the Fund are considered to
be invested in illiquid securities or assets for the purpose of calculating
whether the Fund is in compliance with its fundamental investment restriction
prohibiting it from investing more than 10% of its total assets (taken at
current value) in any combination of illiquid assets and securities. The Fund
intends to request that the Commission staff reconsider its current view. It is
the intention of the Fund to comply with the staff's current position and the
outcome of such reconsideration.
SPECIAL CONSIDERATIONS APPLICABLE TO OPTIONS
ON TREASURY BONDS AND NOTES. Because trading interest in U.S. Treasury
bonds and notes tends to center on the most recently auctioned issues, new
series of options with expirations to replace expiring options on particular
issues will not be introduced indefinitely. Instead, the expirations introduced
at the commencement of options trading on a particular issue will be allowed to
run their course, with the possible addition of a limited number of new
expirations as the original ones expire. Options trading on each series of bonds
or notes will thus be phased out as new options are listed on the more recent
issues, and a full range of expiration dates will not ordinarily be available
for every series on which options are traded.
ON TREASURY BILLS. Because the deliverable U.S. Treasury bill changes
from week to week, writers of U.S. Treasury bill call options cannot provide in
advance for their potential exercise settlement obligations by acquiring and
holding the underlying security. However, if the Fund holds a long position in
U.S. Treasury bills with a principal amount corresponding to the option contract
size, the Fund may be hedged from a risk standpoint. In addition, the Fund will
maintain in a segregated account with its Custodian liquid assets maturing no
later than those which would be deliverable in the event of an assignment of an
exercise notice to ensure that it can meet its open option obligations.
ON GNMA CERTIFICATES. Options on GNMA certificates are not currently
traded on any Exchange. However, the Fund may purchase and write such options in
the over-the-counter market or, should they commence trading, on any Exchange.
Since the remaining principal balance of GNMA certificates declines
each month as a result of mortgage payments, the Fund, as a writer of a covered
GNMA call holding GNMA certificates as "cover" to satisfy its delivery
obligation in the event of assignment of an exercise notice, may find that its
GNMA certificates no longer have a sufficient remaining principal balance for
this purpose. Should this occur, the Fund will enter into a closing purchase
transaction or will purchase additional GNMA certificates from the same pool (if
obtainable) or replacement GNMA certificates in the cash market in order to
remain covered.
A GNMA certificate held by the Fund to cover an option position in any
but the nearest expiration month may cease to present cover for the option in
the event of a decline in the GNMA coupon rate at which new pools are originated
under the FHA/VA loan ceiling in effect at any given time. Should this occur,
the Fund will no longer be covered, and the Fund will either enter into a
closing purchase transaction or replace the GNMA certificate with a certificate
which represents cover. When the Fund closes its position or replaces the GNMA
certificate, it may realize an unanticipated loss and incur transaction costs.
RISKS PERTAINING TO THE SECONDARY MARKET. An option position may be
closed out only in a secondary market for an option of the same series. Although
the Fund will generally purchase or write only those options for which there
appears to be an active secondary market, there is no assurance that a liquid
secondary market will exist for any particular option at any particular time,
and for some options no secondary market may exist. In such event, it might not
be possible to effect closing transactions in particular options, with the
result that the Fund would have to exercise its options in order to realize any
profit and might incur transaction costs in connection therewith. If the Fund as
a covered call option writer is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market include the
following: (i) insufficient trading interest in certain options; (ii)
restrictions imposed on transactions (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options or
underlying securities; (iv) interruption of the normal operations on an Exchange
or by a broker; (v) inadequacy of the facilities of an Exchange, the OCC or a
broker to handle current trading volume; or (vi) a decision by one or more
Exchanges or a broker to discontinue the trading of options (or a particular
class or series of options), in which event the secondary market in that class
or series of options would cease to exist, although outstanding options that had
been issued as a result of trades would generally continue to be exercisable in
accordance with their terms.
The hours of trading for options on U.S. government securities may not
conform to the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS
The Fund intends to engage in 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 which are related to
currency and other financial futures contracts for hedging purposes and in
connection with the hedging strategies described above.
Although techniques other than sales and purchases of futures contracts
and related options transactions could be used to reduce the Fund's exposure to
interest rate and/or market fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Fund does not intend to
take delivery of the instruments underlying futures contracts it holds, the Fund
does not intend to engage in such futures contracts for speculation.
FUTURES CONTRACTS
Futures contracts are transactions in the commodities markets rather
than in the securities markets. A futures contract creates an obligation by the
seller to deliver to the buyer the commodity specified in the contract at a
specified future time for a specified price. The futures contract creates an
obligation by the buyer to accept delivery from the seller of the commodity
specified at the specified future time for the specified price. In contrast, a
spot transaction creates an immediate obligation for the seller to deliver and
the buyer to accept delivery of and pay for an identified commodity. In general,
futures contracts involve transactions in fungible goods such as wheat, coffee
and soybeans. However, in the last decade an increasing number of futures
contracts have been developed which specify currencies, financial instruments or
financially based indexes as the underlying commodity.
U.S. futures contracts are traded only on national futures exchanges
and are standardized as to maturity date and underlying financial instrument.
The principal financial futures exchanges in the United States are The Board of
Trade of the City of Chicago, the Chicago Mercantile Exchange, the International
Monetary Market (a division of the Chicago Mercantile Exchange), the New York
Futures Exchange and the Kansas City Board of Trade. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant ("Broker") effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC") and National Futures Association ("NFA").
INTEREST RATE FUTURES CONTRACTS
The sale of an interest rate futures contract creates an obligation by
the Fund, as seller, to deliver the type of financial instrument specified in
the contract at a specified future time for a specified price. The purchase of
an interest rate futures contract creates an obligation by the Fund, as
purchaser, to accept delivery of the type of financial instrument specified at a
specified future time for a specified price. The specific securities delivered
or accepted, respectively, at settlement date, are not determined until at or
near that date. The determination is in accordance with the rules of the
exchange on which the futures contract sale or purchase was made.
Currently interest rate futures contracts can be purchased or sold on
90-day U.S. Treasury bills, U.S. Treasury bonds, U.S. Treasury notes with
maturities between 6 1/2 and 10 years, 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 on 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 commodity futures are similar to options on stocks except
that an option on a commodity futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
rather than to purchase or sell stock, 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 analogous to the purchase of protective puts on individual
stocks, where an absolute level of protection is sought below which no
additional economic loss would be incurred by the Fund. Put options may be
purchased to hedge a portfolio of stocks or debt instruments or a position in
the futures contract upon which the put option is based.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS
The purchase of a call option on a currency or other financial futures
contract represents a means of obtaining temporary exposure to market
appreciation at limited risk. It is analogous to the purchase of a call option
on an individual stock, which can be used as a substitute for a position in the
stock itself. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the underlying
financial instrument or index itself, 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 commodity 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 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 connection with its futures contracts
which will hold cash or cash equivalents equal in value to the current value of
the underlying instruments or indices less the margins on deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
RISKS OF OPTIONS ON FUTURES CONTRACTS
In addition to the risks described above for currency and other
financial futures contracts, there are several special risks relating to options
on futures contracts. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. The Fund will not purchase
options on any futures contract unless and until it believes that the market for
such options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with the futures contracts.
Compared to the use of futures contracts, the purchase of options on such
futures involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to the Fund, even though the use of a futures contract would
not, such as when there is no movement in the level of the futures contract.
FOREIGN SECURITIES
Investment in foreign securities may involve more risk than investment
solely 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) there may be less government regulation of stock exchanges, brokers, listed
companies and banks in foreign countries than in the U.S.; (5) the Fund may
incur fees on currency exchanges when it changes investments from one country to
another; (6) the Fund's foreign investments could be affected by expropriation,
confiscatory taxation, nationalization of bank deposits, establishment of
exchange controls, political or social instability or diplomatic developments;
and (7) fluctuations in foreign exchange rates will affect the value of the
Fund's portfolio securities, 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.
FOREIGN CURRENCY TRANSACTIONS
The Fund may invest in securities of foreign issuers. When the Fund
invests in foreign securities they usually will be denominated in foreign
currencies and the Fund temporarily may hold funds in foreign currencies.
Thus, the value of a Fund share will be affected by changes in exchange rates.
FORWARD CURRENCY CONTRACTS
As one way of managing exchange rate risk, the Fund may engage in
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). Under the contract, the exchange rate for the
transaction (the amount of currency the Fund will deliver or receive when the
contract is completed) is fixed when the Fund enters into the contract. The Fund
usually will enter into these contracts to stabilize the U.S. dollar value of a
security it has agreed to buy or sell. The Fund also may use these contracts to
hedge the U.S. dollar value of a security it already owns, particularly if the
Fund expects a decrease in the value of the currency in which the foreign
security is denominated. Although the Fund will attempt to benefit from using
forward contracts, the success of its hedging strategy will depend on Keystone's
ability to predict accurately the future exchange rates between foreign
currencies and the U.S. dollar. The value of the Fund's investments denominated
in foreign currencies will depend on the relative strength of those currencies
and the U.S. dollar, and the Fund may be affected favorably or unfavorably by
changes in the exchange rate or exchange control regulations between foreign
currencies and the dollar. Changes in foreign currency exchange rates also may
affect the value of dividends and interest earned, gains and losses realized on
the sale of securities and net investment income and gains, if any, to be
distributed to shareholders by the Fund.
CURRENCY FUTURES CONTRACTS
Currency futures contracts are bilateral agreements under which two
parties agree to take or make delivery of a specified amount of a currency at a
specified future time for a specified price. Trading of currency futures
contracts in the United States is regulated under the Commodity Exchange Act by
the CFTC and NFA. Currently the only national futures exchange on which currency
futures are traded is the International Monetary Market of the Chicago
Mercantile Exchange. Foreign currency futures trading is conducted in the same
manner and subject to the same regulations as trading in interest rate and index
based futures. The Fund intends to engage in currency futures contracts only for
hedging purposes, and not for speculation. The Fund may 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 and French
Francs, C$100,000 for the Canadian Dollar, Y12,500,000 for the Yen, and
1,000,000 for the Peso. In contrast to Forward Currency Exchange Contracts which
can be traded at any time, only four value dates per year are available, the
third Wednesday of March, June, September and December.
FOREIGN CURRENCY OPTIONS TRANSACTIONS
Foreign currency options (as opposed to futures) are traded in a
variety of currencies in both the United States and Europe. On the Philadelphia
Stock Exchange, for example, contracts for half the size of the corresponding
futures contracts on the Chicago Board Options Exchange are traded with up to
nine months maturity in Marks, Sterling, Yen, Swiss Francs and Canadian Dollars.
Options can be exercised at any time during the contract life, and require a
deposit subject to normal margin requirements. Since a futures contract must be
exercised, the Fund must continually make up the margin balance. As a result, a
wrong price move could result in the Fund losing more than the original
investment, as it cannot walk away from the futures contract as it can an option
contract.
The Fund will purchase call and put options and sell such options to
terminate an existing position. Options on foreign currency are similar to
options on stocks except that an option on an interest rate and/or index based
futures contract gives the purchaser the right, in return for the premium paid,
to purchase or sell foreign currency, rather than to purchase or sell stock, at
a specified exercise price at any time during the period of the option.
The Fund intends to use foreign currency option transactions in
connection with hedging strategies.
PURCHASE OF PUT OPTIONS ON FOREIGN CURRENCIES
The purchase of protective put options on a foreign currency is
analogous to the purchase of protective puts on individual stocks, where an
absolute level of protection is sought below which no additional economic loss
would be incurred by the Fund. Put options may be purchased to hedge a portfolio
of foreign stocks or foreign debt instruments or a position in the foreign
currency upon which the put option is based.
PURCHASE OF CALL OPTIONS ON FOREIGN CURRENCIES
The purchase of a call option on foreign currency represents a means of
obtaining temporary exposure to market appreciation at limited risk. It is
analogous to the purchase of a call option on an individual stock, which can be
used as a substitute for a position in the stock itself. Depending on the
pricing of the option compared to either the foreign currency upon which it is
based, or upon the price of the foreign stock or foreign debt instruments,
purchase of a call option may be less risky than the ownership of the foreign
currency or the foreign securities. The Fund would purchase a call option on a
foreign currency to hedge against an increase in the foreign currency or a
foreign market advance when the Fund is not fully invested.
The Fund may employ new investment techniques involving forward foreign
currency exchange contracts, foreign currency futures contracts and options on
foreign currencies in order to take advantage of new techniques in these areas
which may be developed from time to time and which are consistent with the
Fund's investment objective. The Fund believes that no additional techniques
have been identified for employment by the Fund in the foreseeable future other
than those described above.
CURRENCY TRADING RISKS
Currency exchange trading may involve significant risks. The four major
types of risk the Fund faces are exchange rate risk, interest rate risk, credit
risk and country risk.
EXCHANGE RATE RISK
Exchange rate risk results from the movement up and down of foreign
currency values in response to shifting market supply and demand. When the Fund
buys or sells a foreign currency, an exposure called an open position is
created. Until the time that position can be "covered" by selling or buying an
equivalent amount of the same currency, the Fund is exposed to the risk that the
exchange rate might move against it. Since exchange rate changes can readily
move in one direction, a position carried overnight or over a number of days
involves greater risk than one carried a few minutes or hours. Techniques such
as foreign currency forward and futures contracts and options on foreign
currency are intended to be used by the Fund to reduce exchange rate risk.
MATURITY GAPS AND INTEREST RATE RISK
Interest rate risk arises whenever there are mismatches or gaps in the
maturity structure of the Fund's foreign exchange currency holdings, which is
the total of its outstanding spot and forward or futures contracts.
Foreign currency transactions often involve borrowing short term and
lending longer term to benefit from the normal tendency of interest rates to be
higher for longer maturities. However in foreign exchange trading, while the
maturity pattern of interest rates for one currency is important, it is the
differential between interest rates for two currencies that is decisive.
CREDIT RISK
Whenever the Fund enters into a foreign exchange contract, it faces a
risk, however small, that the counterparty will not perform under the contract.
As a result there is a credit risk, although no extension of "credit" is
intended. To limit credit risk, the Fund intends to evaluate the
creditworthiness of each other party. The Fund does not intend to trade more
than 5% of its net assets under foreign exchange contracts with one party.
Credit risk exists because the Fund's counterparty may be unable or
unwilling to fulfill its contractual obligations as a result of bankruptcy or
insolvency or when foreign exchange controls prohibit payment. In any foreign
exchange transaction, each party agrees to deliver a certain amount of currency
to the other on a particular date. In establishing its hedges a Fund relies on
each contract being completed. If the contract is not performed, then the Fund's
hedge is eliminated, and the Fund is exposed to any changes in exchange rates
since the contract was originated. To put itself in the same position it would
have been in had the contract been performed, the Fund must arrange a new
transaction. However, the new transaction may have to be arranged at an adverse
exchange rate. The trustee for a bankrupt company may elect to perform those
contracts which are advantageous to the company but disclaim those contracts
which are disadvantageous, resulting in losses to the Fund.
Another form of credit risk stems from the time zone differences
between the U.S. and foreign nations. If the Fund sells sterling it generally
must pay pounds to a counterparty earlier in the day than it will be credited
with dollars in New York. In the intervening hours, the buyer can go into
bankruptcy or can be declared insolvent. Thus, the dollars may never be credited
to the Fund.
COUNTRY RISK
At one time or another, virtually every country has interfered with
international transactions in its currency. Interference has taken the form of
regulation of the local exchange market, restrictions on foreign investment by
residents, or limits on inflows of investment funds from abroad. Governments
take such measures, for example, to improve control over the domestic banking
system, or to influence the pattern of receipts and payments between residents
and foreigners. In those cases, restrictions on the exchange market or on
international transactions are intended to affect the level or movement of the
exchange rate. Occasionally a serious foreign exchange shortage may lead to
payments interruptions or debt servicing delays, as well as interference in the
exchange market. It has become increasingly difficult to distinguish foreign
exchange or credit risk from country risk.
Changes in regulations or restrictions usually do have an
important exchange market impact. Most disruptive are changes in rules which
interfere with the normal payments mechanism. If government regulations change
and a counterparty is either forbidden to perform or is required to do something
extra, then the Fund might be left with an unintended open position or an
unintended maturity mismatch. Dealing with such unintended long or short
positions could result in unanticipated costs to the Fund.
Other changes in official regulations influence international
investment transactions. If one of the factors affecting the buying or selling
of a currency changes, the exchange rate is likely to respond. Changes in such
controls often are unpredictable and can create a significant exchange rate
response.
Many major countries have moved toward liberalization of exchange and
payments restrictions in recent years or accepted the principle that
restrictions should be relaxed. A few industrial countries have moved in the
other direction. Important liberalizations were carried out by Switzerland, the
United Kingdom and Japan. They dismantled mechanisms for restricting either
foreign exchange inflows (Switzerland), outflows (Britain), or elements of both
(Japan). By contrast, France and Mexico have recently tightened foreign exchange
controls.
Overall, many exchange markets are still heavily restricted. Several
countries limit access to the forward market to companies financing documented
export or import transactions in an effort to insulate the market from purely
speculative activities. Some of these countries permit local traders to enter
into forward contracts with residents but prohibit certain forward transactions
with nonresidents. By comparison, other countries have strict controls on
exchange transactions by residents, but permit free exchange transactions
between local traders and non-residents. A few countries have established tiered
markets, funneling commercial transactions through one market and financial
transactions through another. Outside the major industrial countries, relatively
free foreign exchange markets are rare and controls on foreign currency
transactions are extensive.
Another aspect of country risk has to do with the possibility that the
Fund may be dealing with a foreign trader whose home country is facing a
payments problem. Even though the foreign trader intends to perform on its
foreign exchange contracts, the contracts are tied to other external liabilities
the country has incurred. As a result, performance may be delayed, and can
result in unanticipated cost to the Fund. This aspect of country risk is a major
element in the Fund's credit judgment as to with whom it will deal and in what
amounts.
<PAGE>
SCHEDULE OF INVESTMENTS--July 31, 1995
<TABLE>
<CAPTION>
Coupon Maturity Par Market
Rate Date Value Value
===========================================================================================================
<S> <C> <C> <C> <C>
GNMA AND FHA (36.5%)
FHA Pool #2343143 9.125% 2034 $ 3,286,957 $ 3,377,348
FHA Pool #2343143 10.250 2034 2,509,148 2,578,149
GNMA Pool #155671 9.500 2016 5,483 5,865
GNMA Pool #163934 9.000 2016 17,684 18,712
GNMA Pool #165633 9.000 2016 92,822 98,220
GNMA Pool #192803 9.500 2016 219,072 235,325
GNMA Pool #204238 9.500 2017 374,615 400,707
GNMA Pool #208850 9.500 2017 248,968 266,308
GNMA Pool #212897 9.500 2017 231,678 248,361
GNMA Pool #213635 9.500 2017 108,073 115,600
GNMA Pool #221645 9.500 2017 292,729 314,446
GNMA Pool #223682 9.500 2018 192,559 205,241
GNMA Pool #224848 9.500 2017 61,957 66,272
GNMA Pool #226032 9.500 2017 244,614 261,651
GNMA Pool #227163 10.000 2004 106,284 111,930
GNMA Pool #229824 9.500 2017 17,943 19,192
GNMA Pool #263455 10.000 2004 133,102 140,173
GNMA Pool #265090 10.000 2004 99,609 104,901
GNMA Pool #267047 10.000 2004 19,729 20,777
GNMA Pool #267545 10.000 2004 175,578 184,905
GNMA Pool #268164 10.250 2029 2,599,102 2,783,457
GNMA Pool #270183 10.000 2004 113,176 119,188
GNMA Pool #270218 10.000 2004 53,531 56,375
GNMA Pool #270281 10.000 2004 163,901 172,608
GNMA Pool #271395 10.000 2004 57,403 60,452
GNMA Pool #275214 10.000 2004 155,467 163,725
GNMA Pool #276242 10.000 2004 71,254 75,039
GNMA Pool #305224 9.500 2021 60,607 64,453
GNMA Pool #325164 8.000 2022 4,643,936 4,739,694
GNMA Pool #354696 6.500 2023 3,956,193 3,758,383
- -----------------------------------------------------------------------------------------------------------
TOTAL GNMA AND FHA (Cost--$20,526,750) 20,313,174 20,767,457
===========================================================================================================
FNMA (3.2%)
FNMA Pool #002497 (Cost--$1,782,689) 11.000 2016 1,641,141 1,822,684
- -----------------------------------------------------------------------------------------------------------
FHLMC (0.1%)
FHLMC Pool #430438 (Cost--$63,756) 10.500 2009 62,315 67,156
- -----------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (7.0%)
FHLMC Series 1615 Class 1615 SB (Est. Mat. 2005) (c) 3.214 2008 1,000,000 602,500
FHLMC Series 1684 Class 1684 JC (Est. Mat. 1998) (c) 5.507 2020 1,781,496 1,758,114
FHLMC Series 1684 Class 1684 JD (Est. Mat. 1998) (c) 3.493 2020 1,824,372 113,453
See Notes to Schedule of Investments. (continued on next page)
9
<PAGE>
<CAPTION>
Coupon Maturity Par Market
Rate Date Value Value
===========================================================================================================
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (continued)
Resolution Trust Corp. Series 1995 Class 2C (Est.
Mat. 2000) (c) 7.500% 2028 $ 1,500,000 $ 1,501,875
- -----------------------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost--$3,921,032) 6,105,868 3,975,942
===========================================================================================================
U.S. GOVERNMENT ISSUES (47.7%)
U.S. Treasury Bonds 7.875 2021 6,200,000 6,882,000
U.S. Treasury Notes 6.750 1997 8,500,000 8,624,865
U.S. Treasury Notes 8.875 1998 2,000,000 2,163,740
U.S. Treasury Notes 7.500 2002 1,000,000 1,065,160
U.S. Treasury Notes 7.875 2004 7,000,000 7,673,750
U.S. Treasury Notes 6.500 2005 750,000 753,397
- -----------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT ISSUES (Cost--$27,382,743) 25,450,000 27,162,912
===========================================================================================================
Maturity
Value
===========================================================================================================
REPURCHASE AGREEMENTS (6.6%)
Keystone Joint Repurchase Agreement (Investments in
repurchase agreements, in a joint trading account,
purchased 7/31/95) (b) (Cost--$3,748,000) 5.834 8/1/95 $ 3,748,607 3,748,000
===========================================================================================================
TOTAL INVESTMENTS (Cost--$57,424,970) (a) 57,544,151
===========================================================================================================
OTHER ASSETS AND LIABILITIES--NET (-1.1%) (603,327)
- -----------------------------------------------------------------------------------------------------------
NET ASSETS--(100.0%) $56,940,824
===========================================================================================================
</TABLE>
See Notes to Schedule of Investments.
10
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) The cost of investments for federal income tax purposes is $57,472,202.
Gross unrealized appreciation and depreciation of investments, based on
identified tax cost, at July 31, 1995, are as follows:
Gross unrealized appreciation $ 697,239
Gross unrealized depreciation (625,290)
----------
Net unrealized appreciation (depreciation) $ 71,949
==========
(b) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at July 31, 1995.
(c) The estimated maturity of a Collateralized Mortgage Obligation ("CMO") is
based on current and projected pre-payment rates. Changes in interest
rates can cause the estimated maturity to differ from the listed dates.
These estimated maturity dates are unaudited.
Legend of Portfolio Abbreviations
GNMA--Government National Mortgage Association
FHA--Federal Housing Association
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
See Notes to Financial Statements.
11
<PAGE>
Keystone Government Securities Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Year Ended July 31,
------------------------------------------------
1995 1994(c) 1993 1992 1991
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value beginning of
period $ 9.48 $ 10.45 $ 10.58 $ 10.18 $ 10.01
=====================================================================================
Income from investment operations:
Net investment income 0.67 0.57 0.68 0.68 0.76
Net gain (loss) on investments 0.11 (0.63) 0.46 0.55 0.17
- -------------------------------------------------------------------------------------
Total from investment operations 0.78 (0.06) 1.14 1.23 0.93
- -------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.65) (0.57) (0.68) (0.69) (0.76)
In excess of net investment income 0 (0.02) (0.06) (0.04) 0
Tax basis return of capital 0 (0.06) 0 0 0
Net realized gain on investments 0 0 (0.53) (0.10) 0
In excess of net realized gain on
investments 0 (0.26) 0 0 0
- -------------------------------------------------------------------------------------
Total distributions (0.65) (0.91) (1.27) (0.83) (0.76)
- -------------------------------------------------------------------------------------
Net asset value end of period $ 9.61 $ 9.48 $ 10.45 $ 10.58 $ 10.18
=====================================================================================
Total return (a) 8.64% (0.71%) 11.51% 12.45% 9.62%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (b) 1.00% 1.00% 1.41% 1.93% 1.92%
Net investment income 7.11% 5.97% 6.49% 6.44% 7.46%
Portfolio turnover rate 182% 230% 189% 93% 72%
Net assets end of period
(thousands) $29,776 $38,541 $50,594 $47,892 $55,597
=====================================================================================
<CAPTION>
February 13, 1987
(Commencement
Year Ended July 31, of Operations)
------------------- to July 31,
1990 1989 1988 1987
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value beginning of period $ 10.11 $ 9.74 $ 10.22 $ 10.00
============================================================================================
Income from investment operations:
Net investment income 0.76 0.75 0.75 0.14
Net gain (loss) on investments (0.10) 0.35 (0.40) 0.22
- --------------------------------------------------------------------------------------------
Total from investment operations 0.66 1.10 0.35 0.36
- --------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.76) (0.73) (0.83) (0.14)
In excess of net investment income 0 0 0 0
Tax basis return of capital 0 0 0 0
Net realized gain on investments 0 0 0 0
In excess of net realized gain on
investments 0 0 0 0
- --------------------------------------------------------------------------------------------
Total distributions (0.76) (0.73) (0.83) (0.14)
- --------------------------------------------------------------------------------------------
Net asset value end of period $ 10.01 $ 10.11 $ 9.74 $ 10.22
============================================================================================
Total return (a) 6.84% 11.89% 3.55% 3.60%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (b) 1.91% 1.90% 1.30% 1.00%(d)
Net investment income 7.61% 7.68% 7.29% 5.74%(d)
Portfolio turnover rate 58% 171% 206% 60%
Net assets end of period (thousands) $61,744 $68,493 $73,757 $3,479
=============================================================================================
</TABLE>
(a) Excluding applicable sales charges.
(b) Figures are net of expense reimbursement by Keystone in connection with
the voluntary expense limitation. Before the expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 1.42%,
1.35% and 1.73% for the years ended July 31, 1995, 1994 and 1993,
respectively.
(c) Calculation based on average shares outstanding.
(d) Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to July 31, 1987.
See Notes to Financial Statements.
12
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS B SHARES
-------------------------------------------
February 1, 1993
Year Ended July 31, (Date of Initial
-------------------- Public Offering) to
1995 1994(d) July 31, 1993
==================================================================================================
<S> <C> <C> <C>
Net asset value beginning of period $ 9.48 $ 10.45 $10.32
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.59 0.50 0.26
Net realized gain (loss) on investments 0.12 (0.63) 0.22
- --------------------------------------------------------------------------------------------------
Total from investment operations 0.71 (0.13) 0.48
- --------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.58) (0.49) (0.26)
In excess of net investment income 0 (0.03) (0.09)
Tax basis return of capital 0 (0.06) 0
In excess of net realized gain on investments 0 (0.26) 0
- --------------------------------------------------------------------------------------------------
Total distributions (0.58) (0.84) (0.35)
- --------------------------------------------------------------------------------------------------
Net asset value end of period $ 9.61 $ 9.48 $10.45
==================================================================================================
Total return (a) 7.81% (1.44%) 4.69%
Ratios/supplemental data
Ratio to average net assets:
Total expenses (b) 1.75% 1.75% 1.72%(c)
Net investment income 6.40% 5.32% 5.46%(c)
Portfolio turnover rate 182% 230% 189%
Net assets end of period (thousands) $18,064 $15,386 $9,223
==================================================================================================
</TABLE>
(a) Excluding applicable sales charges.
(b) Figures are net of expense reimbursement by Keystone in connection with
the voluntary expense limitation. Before the expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 2.09%,
2.12% and 2.28% for the years ended July 31, 1995, 1994, and the period
February 1, 1993 (Date of Initial Public Offering) to July 31, 1993,
respectively.
(c) Annualized.
(d) Calculation based on average shares outstanding.
See Notes to Financial Statements.
13
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS C SHARES
-------------------------------------------
February 1, 1993
Year Ended July 31, (Date of Initial
-------------------- Public Offering to
1995 1994(d) July 31, 1993
==================================================================================================
<S> <C> <C> <C>
Net asset value beginning of period $ 9.49 $ 10.46 $ 10.32
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.61 0.50 0.25
Net realized gain (loss) on investments 0.10 (0.63) 0.24
- --------------------------------------------------------------------------------------------------
Total from investment operations 0.71 (0.13) 0.49
- --------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.58) (0.50) (0.25)
In excess of net investment income 0 (0.02) (0.10)
Tax basis return of capital 0 (0.06) 0
In excess of net realized gain on
investments 0 (0.26) 0
- --------------------------------------------------------------------------------------------------
Total distributions (0.58) (0.84) (0.35)
- --------------------------------------------------------------------------------------------------
Net asset value end of period $ 9.62 $ 9.49 $ 10.46
==================================================================================================
Total return (a) 7.81% (1.44%) 4.79%
Ratios/supplemental data
Ratio to average net assets:
Total expenses (b) 1.75% 1.75% 1.71(c)
Net investment income 6.32% 5.32% 5.31(c)
Portfolio turnover rate 182% 230% 189%
Net assets end of period (thousands) $9,101 $17,505 $13,286
==================================================================================================
</TABLE>
(a) Excluding applicable sales charges.
(b) Figures are net of expense reimbursement by Keystone in connection with
the voluntary expense limitation. Before the expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 2.17%, 2.12%
and 2.17% for the years ended July 31, 1995, 1994, and for the period
February 1, 1993 (Date of Initial Public Offering) to July 31, 1993,
respectively.
(c) Annualized.
(d) Calculation based on average shares outstanding.
See Notes to Financial Statements.
14
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1995
==================================================================
Assets (Note 1):
Investments at market value
(identified cost--$57,424,970) $57,544,151
Cash 284
Receivable for:
Fund shares sold 303,047
Interest 690,219
Prepaid expenses 37,880
Other assets 7,132
------------------------------------------------------------------
Total assets 58,582,713
------------------------------------------------------------------
Liabilities (Notes 2, 4, and 5):
Payable for:
Fund shares redeemed 1,463,115
Distributions to shareholders 119,848
Due to related parties 3,625
Other accrued expenses 55,301
------------------------------------------------------------------
Total liabilities 1,641,889
------------------------------------------------------------------
Net assets $56,940,824
------------------------------------------------------------------
Net assets represented by (Note 1):
Paid-in capital $61,401,784
Accumulated distributions in excess of net
investment income (25,769)
Accumulated net realized gain (loss) on
investments (4,554,372)
Net unrealized appreciation (depreciation) on
investments 119,181
------------------------------------------------------------------
Total net assets $56,940,824
==================================================================
Net Asset Value (Notes 1 and 2):
Class A Shares
Net assets of $29,775,995 / 3,097,266 shares
outstanding $ 9.61
Offering price per share ($9.61 / 0.9525)
(based on a sales charge of 4.75% of the
offering price at July 31, 1995) $ 10.09
Class B Shares
Net assets of $18,064,313 / 1,879,324 shares
outstanding $ 9.61
Class C Shares
Net assets of $9,100,516 / 945,843 shares
outstanding $ 9.62
==================================================================
STATEMENT OF OPERATIONS
Year Ended July 31, 1995
=============================================================================
Investment income (Note 1):
Interest $4,949,025
-----------------------------------------------------------------------------
Expenses (Notes 2 and 4):
Management fees $ 404,773
Transfer agent fees 138,976
Accounting, auditing, and legal fees 52,937
Custodian fees 42,881
Printing 31,469
Distribution Plan expenses 354,670
Registration fees 36,667
Miscellaneous 6,524
-----------------------------------------------------------------------------
Total expenses 1,068,897
Less: Reimbursement from investment adviser (243,672)
-----------------------------------------------------------------------------
Net expenses 825,225
-----------------------------------------------------------------------------
Net investment income 4,123,800
-----------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and
closed futures contracts
(Notes 1 and 3):
Net realized gain (loss) on:
Investments (369,310)
Closed futures contracts (57,244)
-----------------------------------------------------------------------------
Net realized gain (loss) on
investments and closed futures
contracts (426,554)
-----------------------------------------------------------------------------
Net change in unrealized
appreciation (depreciation) on
investments 684,236
-----------------------------------------------------------------------------
Net gain (loss) on investments and
closed futures contracts 257,682
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $4,381,482
=============================================================================
See Notes to Financial Statements.
15
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------------
1995 1994
==========================================================================================================
<S> <C> <C>
Operations (Notes 1 and 3):
Net investment income $ 4,123,800 $ 4,419,838
Net realized gain (loss) on investments and closed futures contracts (426,554) (2,926,353)
Net change in unrealized appreciation (depreciation) on investments 684,236 (2,448,250)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 4,381,482 (954,765)
- ----------------------------------------------------------------------------------------------------------
Distributions to shareholders from (Notes 1 and 6):
Net investment income:
Class A Shares (2,209,540) (2,548,951)
Class B Shares (956,018) (710,096)
Class C Shares (785,806) (936,223)
In excess of net investment income:
Class A Shares (14,410) (128,556)
Class B Shares (6,235) (25,413)
Class C Shares (5,125) (46,773)
Tax basis return of capital:
Class A Shares 0 (231,563)
Class B Shares 0 (92,445)
Class C Shares 0 (105,195)
In excess of net realized gain from investments:
Class A Shares 0 (1,219,222)
Class B Shares 0 (323,905)
Class C Shares 0 (461,128)
- ----------------------------------------------------------------------------------------------------------
Total distributions to shareholders (3,977,134) (6,829,470)
- ----------------------------------------------------------------------------------------------------------
Capital share transactions (Note 2):
Proceeds from shares sold:
Class A Shares 2,769,293 3,687,992
Class B Shares 7,568,772 10,504,811
Class C Shares 2,745,502 10,026,367
Payments for shares redeemed:
Class A Shares (13,142,989) (14,118,247)
Class B Shares (5,680,735) (3,534,381)
Class C Shares (11,661,880) (5,031,672)
Net asset value of shares issued in reinvestment of dividends and
distributions:
Class A Shares 1,398,434 2,697,792
Class B Shares 567,452 681,340
Class C Shares 537,320 1,202,632
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital share
transactions (14,898,831) 6,116,634
- ----------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (14,494,483) (1,667,601)
- ----------------------------------------------------------------------------------------------------------
Net assets:
Beginning of year 71,435,307 73,102,908
- ----------------------------------------------------------------------------------------------------------
End of year
investment income as follows: July 31, 1995--($25,769) and July 31,
1994--($133,033)} (Note 1) $ 56,940,824 $ 71,435,307
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone Government Securities Fund (formerly Keystone America Government
Securities Fund) (the "Fund") is a Massachusetts business trust for which
Keystone Management, Inc. ("KMI") is the Investment Manager and Keystone
Investment Management Company (formerly Keystone Custodian Funds, Inc.)
("Keystone") is the Investment Adviser. The Fund was organized on October 24,
1986 and had no operations prior to February 13, 1987. It is registered under
the Investment Company Act of 1940 as a diversified open-end investment
company.
The Fund currently offers three classes of shares. Class A shares are sold
subject to a maximum sales charge of 4.75% payable at the time of purchase.
Class B shares are sold subject to a contingent deferred sales charge payable
upon redemption which varies depending on when shares were purchased and how
long they have been held. Class C shares are sold subject to a contingent
deferred sales charge payable upon redemption within one year of purchase,
and are available only through dealers who have entered into special
distribution agreements with Keystone Investment Distributors Company
(formerly Keystone Distributors, Inc.) ("KIDC"), the Fund's principal
underwriter.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc.
(formerly Keystone Group, Inc.) ("KII"), a Delaware corporation. KII is
privately owned by an investor group consisting of members of current and
former management of Keystone. KMI is a wholly-owned subsidiary of Keystone.
Keystone Investor Resource Center, Inc. ("KIRC"), a wholly-owned subsidiary
of Keystone, is the Fund's transfer agent.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Government National Mortgage Association ("GNMA") certificates are traded
in the over-the-counter market and are valued at the mean of bid and asked
prices at the time of valuation. Short-term investments that are purchased
with maturities of sixty days or less are valued at amortized cost (original
purchase cost as adjusted for amortization of premium or accretion of
discount), 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. All other securities for which market quotations are
readily available are valued at current market value. Management values the
following securities at prices it deems in good faith to be fair: (i)
securities (including restricted securities) for which complete quotations
are not readily available and (ii) listed securities if, in the opinion of
management, the last sales price does not reflect a current value, or if no
sale occurred.
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. The Fund enters
into currency and other financial futures contracts as a hedge against
changes in interest or currency exchange rates. Upon entering into a futures
contract, the Fund is required to deposit with a broker an amount (initial
margin) equal to a certain percent-
17
<PAGE>
age 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 that remain open at fiscal year-end are
marked-to-market and the resultant net gain or loss is included in federal
taxable income. In addition to market risk, the Fund is subject to the credit
risk that the other party will not complete the obligations of the contract.
B. Securities transactions are accounted for no later than one business day
after the trade date. Realized gains and losses are computed on the
identified cost basis. Interest income is recorded on the accrual basis. All
discounts are amortized for both financial reporting and federal income tax
purposes. Distributions to shareholders are recorded by the Fund on the close
of business on the ex-dividend date.
C. The Fund has qualified, and intends to qualify in the future, as a
regulated investment company under the Internal Revenue Code of 1986, as
amended ("Internal Revenue Code"). Thus, the Fund expects to be relieved of
any federal income or excise tax liability by distributing all of its net
taxable investment income and net taxable capital gains, if any, to its
shareholders. The Fund intends to avoid any excise tax liability by making
the required distributions under the Internal Revenue Code.
D. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed
upon date and price), the repurchase price of the securities will generally
equal the amount paid by the Fund plus a negotiated interest amount. The
seller under the repurchase agreement will be required to provide securities
(collateral) to the Fund whose value will be maintained at an amount not less
than the repurchase price, and which generally will be maintained at 101% of
the repurchase price. The Fund monitors the value of collateral on a daily
basis, and if the value of collateral falls below required levels, the Fund
intends to seek additional collateral from the seller or terminate the
repurchase agreement. If the seller defaults, the Fund would suffer a loss to
the extent that the proceeds from the sale of the underlying securities were
less than the repurchase price. Any such loss would be increased by any cost
incurred on disposing of such securities. If bankruptcy proceedings are
commenced against the seller under the repurchase agreement, the realization
on the collateral may be delayed or limited. Repurchase agreements entered
into by the Fund will be limited to transactions with dealers or domestic
banks believed to present minimal credit risks, and the Fund will take
constructive receipt of all securities underlying repurchase agreements until
such agreements expire.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other Keystone funds, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are fully collateralized
by U.S. Treasury and/or Federal Agency obligations.
E. The Fund distributes net investment income monthly and net capital gains,
if any, annually. Distributions from net investment income are based on tax
basis net income. From time to time, the Fund may distribute dividends that
exceed book basis net income.
The significant differences between financial statement amounts available
for distribution and distributions made in accordance with income tax
regulations
18
<PAGE>
are due to the deferral of losses for income tax purposes that have been
recognized for financial statement purposes and differences in the treatment
of paydown gains and losses.
(2.) Capital Share Transactions
The Trust Agreement authorizes the issuance of an unlimited number of
shares of beneficial interest, without par value. Transactions in shares of
the Fund were as follows:
<TABLE>
<CAPTION>
Class A Shares
--------------------------
Year Ended July 31,
1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
Shares sold 291,673 362,308
Shares redeemed (1,409,532) (1,402,079)
Shares issued in reinvestment of dividends
and distributions 149,602 265,813
- ------------------------------------------------------------------------
Net increase (decrease) (968,257) (773,958)
========================================================================
<CAPTION>
Class B Shares
--------------------------
Year Ended July 31,
1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
Shares sold 804,244 1,029,889
Shares redeemed (608,903) (356,875)
Shares issued in reinvestment of dividends
and distributions 60,604 68,102
- ------------------------------------------------------------------------
Net increase (decrease) 255,945 741,116
========================================================================
<CAPTION>
Class C Shares
--------------------------
Year Ended July 31,
1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
Shares sold 295,567 967,368
Shares redeemed 1,253,057) (511,906)
Shares issued in reinvestment of dividends
and distributions 57,570 120,008
- ------------------------------------------------------------------------
Net increase (decrease) (899,920) 575,470
========================================================================
</TABLE>
The Fund bears some of the costs of selling its shares under a
Distribution Plan adopted with respect to its Class A, Class B and Class C
shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The Class A Distribution Plan provides for payments which are currently
limited to 0.25% annually of the average daily net asset value of Class A
shares to pay expenses of the distribution of Class A shares. Amounts paid by
the Fund to KIDC under the Class A Distribution Plan are currently used to
pay others, such as dealers, service fees at an annual rate of up to 0.25% of
the average net asset value of Class A shares maintained by such others and
remaining outstanding on the Fund's books for specified periods.
The Class B Distribution Plan provides for payments at an annual rate of
up to 1.00% of the average daily net asset value of Class B shares to pay
expenses of the distribution of Class B shares. Amounts paid by the Fund
under the Class B Distribution Plan are currently used to pay others
(dealers) a commission at the time of purchase normally equal to 4.00% of the
price paid for each share sold plus the first year's service fee in advance
in the amount of 0.25% of the price paid for each Class B share sold.
Beginning approximately 12 months after the purchase of a Class B share, the
dealer or other party will receive service fees at an annual rate of 0.25% of
the average daily net asset value of such Class B shares maintained by such
others and remaining outstanding on the Fund's books for specified periods. A
contingent deferred sales charge will be imposed, if applicable, on Class B
shares purchased after June 1, 1995 at rates ranging from a maximum of 5% of
amounts redeemed during the first 12 months following the date of purchase to
1% of amounts redeemed during the sixth twelve month period following the
date of purchase. Class B shares
19
<PAGE>
purchased on or after June 1, 1995 that have been outstanding for eight years
following the month of purchase will automatically convert to Class A shares
without a front end sales charge or exchange fee. Class B shares purchased
prior to June 1, 1995 will retain their existing conversion rights.
The Class C Distribution Plan provides for payments at an annual rate of
up to 1.00% of the average daily net asset value of Class C shares to pay
expenses of the distribution of Class C shares. Amounts paid by the Fund
under the Class C Distribution Plan are currently used to pay others
(dealers) a commission at the time of purchase in the amount of 0.75% of the
price paid for each Class C share sold, plus the first year's service fee in
advance in the amount of 0.25% of the price paid for each Class C share.
Beginning approximately 15 months after purchase, the dealer or other party
will receive a commission at an annual rate of 0.75% (subject to applicable
limitations imposed by the rules of the National Association of Securities
Dealers, Inc.) ("NASD Rule") plus service fees at the annual rate of 0.25%,
respectively, of the average net asset value of each Class C share maintained
by such others and remaining outstanding on the Fund's books for specified
periods.
Each of the Distribution Plans may be terminated at any time by a vote of
the Independent Trustees or by a vote of a majority of the outstanding voting
shares of the respective class. However, after the termination of any
Distribution Plan, at the discretion of the Board of Trustees, payments to
KIDC may continue as compensation for its services which had been earned
while the Distribution Plan was in effect.
During the year ended July 31, 1995, the Fund paid or accrued to KIDC
$80,521, $142,683, and $131,466 under its Class A, Class B, and Class C
Distribution Plans, respectively. These amounts represent 0.25%, 0.92% and
1.00%, respectively, of the average daily net assets of Class A, B and C.
Under the NASD Rule, the maximum uncollected amounts for which KIDC may
seek payment from the Fund under its Distribution Plan are $1,249,882 and
$1,399,338 or 6.92% and 15.38% of the net assets of Classes B and C,
respectively, as of July 31, 1995.
(3.) Securities Transactions
As of July 31, 1995, the Fund had a capital loss carryover for federal income
tax purposes of approximately $4,164,000 which will expire in 2003. Purchases
and sales of investment securities (including proceeds received at maturity)
for the year ended July 31, 1995 were as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
- ---------------------------------------------------------------------------
<S> <C> <C>
Portfolio securities $105,990,871 $121,169,213
Short-term investments 705,844,913 703,476,000
- ---------------------------------------------------------------------------
$811,835,784 $824,645,213
===========================================================================
</TABLE>
(4.) Investment Management and Transactions with Affiliates
Under the terms of the Investment Management Agreement between KMI and the
Fund, KMI provides investment management and administrative services to the
Fund. In return, KMI is paid a management fee computed and payable daily at a
rate of 2.0% of the Fund's gross investment income plus an amount determined
by applying percentage rates, which start at 0.50% and decline, as net assets
increase, to 0.25% to the net asset value of the Fund. KMI has entered into
an Investment Advisory Agreement with Keystone, under which Keystone provides
investment advisory and management services to the Fund and receives for its
services an annual fee representing 85% of the management fee received by
KMI. During the year
20
<PAGE>
ended July 31, 1995, the Fund paid or accrued to KMI investment management
and administrative services fees of $404,773, which represented 0.66% of the
Fund's average net assets. Of such amount paid to KMI, $344,057 was paid to
Keystone for its services to the Fund.
During the year ended July 31, 1995, the Fund paid or accrued $18,880 to
KII as reimbursement for certain accounting and printing services and
$138,976 to KIRC for transfer agent fees.
Beginning January 1, 1993, Keystone voluntarily agreed to limit expenses
of Class A shares to 1% annually and each of Class B and Class C shares to
1.75% annually. However, Keystone would not be required to make such
reimbursement to an extent which would result in the Fund's inability to
qualify as a regulated investment company under the provisions of the
Internal Revenue Code. In accordance with this voluntary expense limitation,
Keystone reimbursed the Fund $135,617, $53,116, and $54,939 for Class A
Shares, Class B Shares and Class C Shares, respectively. Keystone does not
intend to seek repayment of these amounts.
Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the Fund. Officers of Keystone and affiliated Trustees receive no
compensation directly from the Fund. Currently, the Independent Trustees
receive no compensation for their services.
(5.) Class Level Expenses
Presently, the Fund's class-specific expenses are limited to expenses
incurred by a class of shares pursuant to its respective Distribution Plan.
For the year ended July 31, 1995, the total amount of expenses incurred by
each class' Distribution Plan is set forth in Note (2.) "Capital Share
Transactions."
(6.) Distributions to Shareholders
A distribution of $0.055 for Class A, $0.049 for Class B, and $0.049 for
Class C per share from net investment income was declared payable by
September 7, 1995 to shareholders of record August 25, 1995. This
distribution is not reflected in the accompanying financial statements.
21
<PAGE>
Keystone Government Securities Fund
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone Government Securities Fund
We have audited the accompanying statement of assets and liabilities of
Keystone Government Securities Fund (formerly Keystone America Government
Securities Fund), including the schedule of investments, as of July 31, 1995,
and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for each of the years in the
eight year period ended July 31, 1995 and the period from February 13, 1987
(Commencement of Operations) to July 31, 1987, for Class A Shares and for
each of the years in the two year period ended July 31, 1995 and the period
from February 1, 1993 (Date of Initial Public Offering) to July 31, 1993, for
Class B and Class C Shares. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 1995 by correspondence with the custodian. 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 Government Securities Fund as of July 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years or periods specified in the first paragraph above in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
September 1, 1995
22
<PAGE>
KEYSTONE GOVERNMENT SECURITIES FUND
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24(a). Financial Statements
All financial statements listed below are included in Registrant's Statement of
Additional Information.
Schedule of Investments July 31, 1995
Financial Highlights For fiscal period February 13, 1987
(commencement of operations) to July 31,
1987 and for fiscal years ended July 31,
1988 through 1995
Statement of Assets and Liabilities July 31, 1995
Statement of Operations Year ended
July 31, 1995
Statements of Changes in Net Assets Two Years ended
July 31, 1995
Notes to Financial Statements
Independent Auditors' Report
dated September 1, 1995
<PAGE>
Item (24)(b). Exhibits
(1) A copy of the Registrant's Declaration of Trust, as supplemented,
is filed herewith.
(2) A copy of the Registrant's By-Laws, as amended, is filed
herewith.
(3) Not applicable.
(4) A copy of the form of share certificate was filed with
Pre-Effective Amendment No. 2 as Exhibit 24(b)(4) to Registration
Statement No. 33-11052/811-4949 and is incorporated by reference
herein.
(5) (a) A copy of the Investment Management Agreement between Registrant
and Keystone Management, Inc. is filed herewith.
(b) A copy of the Investment Advisory Agreement between Keystone
Management, Inc. and Keystone Investment Management Company
(formerly Keystone Custodian Funds, Inc.) is filed herewith.
(6) (a) A copy of the Principal Underwriting Agreements with schedules
and amendments between Registrant and Keystone Investment
Distributors Company (formerly Keystone Distributors, Inc.) are
filed herewith.
(b) A copy of the form of Dealer Agreement used by Keystone
Investment Distributors Company was filed with Post-Effective
Amendment No. 10 to Registration Statement 33-11052/811-4949 as
Exhibit 24(b)(6) and is incorporated by reference herein.
(7) Not applicable.
(8) A copy of Registrant's Custodian, Fund Accounting and
Recordkeeping Agreements, as amended, with State Street Bank and
Trust Company is filed herewith.
(9) Not applicable.
(10) An opinion and consent of counsel as to the legality of
securities registered by the Fund were filed with Post-Effective
Amendment No. 16 to Registration Statement 33-11052/811-4949 as
Exhibit 24(b)(10) and are incorporated by reference herein.
(11) Consent as to the use of the Independent Auditors' Report is
filed herewith.
(12) Not applicable.
(13) Copies of Subscription Agreements were filed with Registration
Statement No. 33-11052/811-4949 as Exhibit 24(b)(13) and are
incorporated by reference herein. Copies of the release of one
Subscription Agreement and a new Subscription Agreement were
filed with Pre-Effective Amendment No. 2 to Registration
Statement No. 33-11052/811-4949 as Exhibit 24(b)(13)(a) and (b)
and are incorporated by reference herein.
(14) Copies of model plans used in the establishment of retirement
plans in connection with which Registrant offers its securities
were filed with Post-Effective Amendment No. 66 to Registration
Statement No. 2-10527/811-96 as Exhibit 24(b)(14) and are
incorporated by reference herein.
(15) A copy of Registrant's Class A, B, and C Distribution Plans
adopted pursuant to Rule 12b-1 are filed herewith.
(16) A schedule for computation of total return and current yield
quotations are filed herewith.
(17) Financial Data Schedules and filed herewith as Exhibit 27.
(18) A copy of the form of Registrant's Multiple Class Plan adopted
pursuant to Rule 18f-3 was filed with Post-Effective Amendment
No. 17 to Registration Statement No. 33-11052/811-4949 as Exhibit
24(b)(18) and is incorporated by reference herein.
(19) Powers of Attorney are filed herewith.
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record
Title of Class Holders as of August 31, 1995
-------------- -----------------------------
Shares of Beneficial Class A - 1,546
Interest, without par Class B - 722
value Class C - 361
Item 27. Indemnification
Provisions for the indemnification of the Registrant's Trustees and
officers are contained in Article VIII of Registrant's Declaration of Trust, as
supplemented, copies of which are filed herewith and are incorporated by
reference herein.
Provisions for the indemnification of Keystone Investment Distributors
Company, the Registrant's Principal Underwriter, are contained in Section 9 of
the Principal Underwriting Agreements by and between the Registrant and Keystone
Investment Distributors Company, copies of which are filed herewith and are
incorporated by reference herein.
Provisions for the indemnification of Keystone Management, Inc. and
Keystone Investment Management Company, Registrant's investment manager and
adviser, respectively, are contained in Section 6 of the Investment Management
Agreement between Registrant and Keystone Management, Inc. and Section 5 of the
Investment Advisory Agreement between Keystone Management, Inc. and Keystone
Investment Management Company, copies of which are filed herewith and are
incorporated by reference herein.
Item 28. Businesses and Other Connections of Investment Advisers
The following tables list the names of the various officers and
directors of Keystone Management, Inc. and Keystone Investment
Management Company, Registrant's investment manager and adviser,
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 MANAGEMENT, INC.
Position with Other
Keystone Business
Name Management, Inc. Affiliations
- ---- ---------------- ------------
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Execu- President and Director:
tive Officer, Keystone Investments, Inc.
President and Keystone Software, Inc.
Director Keystone Asset Corporation
Keystone Capital
Corporation
Keystone Investments
Family of Funds
Chairman of the Board
and Director:
Keystone Investment
Management Company
Keystone Institutional
Company, Inc.
Keystone Fixed Income
Advisers, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Investor
Resource Center, Inc.
Boston Children's
Services Association
Middlesex School
Middlebury College
Former Trustee or
Director:
Neworld Bank
Robert Van Partners, Inc.
<PAGE>
Position with Other
Keystone Business
Name Management, Inc. Affiliations
- ---- ---------------- ------------
Edward F. Godfrey Treasurer and Senior Vice President,
Director Chief Financial Officer,
Treasurer and Director:
Keystone Investments,
Inc.
Keystone Investment
Management Company
Keystone Investment
Distributors Company
Treasurer:
Keystone Institutional
Company, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Former Treasurer and
Director:
Hartwell Keystone
Advisers, Inc.
Senior Vice President:
Keystone Investments
Family of Funds
Ralph J. Director President and Director:
Spuehler, Jr. Keystone Investment
Distributors Company
Chairman and Director:
Keystone Investor
Resource Center, Inc.
Keystone Investment
Management Company
Senior Vice President and
Director:
Keystone Investments,
Inc.
Treasurer:
Hartwell Emerging Growth
Fund
Hartwell Growth Fund
Former President:
Keystone Management,
Inc.
Former Treasurer:
Keystone Investments,
Inc.
Keystone Investment
Management Company
<PAGE>
Position with Other
Keystone Business
Name Management, Inc. Affiliations
- ---- ---------------- ------------
Rosemary D. Van Senior Vice General Counsel, Senior
Antwerp President, Vice President and
General Counsel 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
Senior Vice President,
General Counsel, Director
and Secretary:
Keystone Management,
Inc.
Keystone Software, Inc.
Formerly Senior Vice
President and Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and
Secretary:
Keystone Fixed Income
Advisers, Inc.
J. Kevin Kenely Vice President Vice President and
and Controller Controller:
Keystone Investments,
Inc.
Keystone Investment
Management Company
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Fiduciary Investment
Company, Inc.
Keystone Software, Inc.
Formerly Vice President
and Controller:
Hartwell Keystone
Advisers, Inc.
Michael A. Thomas Vice President Vice President:
Keystone Investments, Inc.
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF
KEYSTONE INVESTMENT MANAGEMENT COMPANY
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer,and Keystone Investments, Inc.
Director Keystone Management, Inc.
Keystone Software, Inc.
Keystone Asset Corporation
Keystone Capital
Corporation
Chairman of the Board and
Director:
Keystone Fixed Income
Advisers, Inc.
Keystone Institutional
Company, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Keystone Investor
Resource Center, Inc.
Boston Children's
Services Associates
Middlesex School
Middlebury College
Former Trustee or Director:
Neworld Bank
Robert Van Partners, Inc.
Philip M. Byrne Director President and Director:
Keystone Institutional
Company, Inc.
Senior Vice President:
Keystone Investments, Inc.
<PAGE>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
Herbert L. Senior Vice None
Bishop, Jr. President
Donald C. Dates Senior Vice None
President
Gilman Gunn Senior Vice None
President
Edward F. Director, Director, Senior Vice
Godfrey Senior Vice President
President, Chief Financial Officer and
Treasurer and Treasurer:
Chief Financial Keystone Investments, Inc.
Officer Keystone Investment
Distributors Company
Treasurer:
Keystone Institutional
Company, Inc.
Keystone Management,
Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Former Treasurer and
Director: Hartwell
Keystone Advisers, Inc.
James R. McCall Director and None
President
Ralph J. Director President and Director:
Spuehler, Jr. Keystone Investment
Distributors Company
Senior Vice President and
Director:
Keystone Investments, Inc.
Chairman and Director:
Keystone Investor
Resource Center, Inc.
Keystone Management, Inc.
Formerly President:
Keystone Management, Inc.
Formerly Treasurer:
The Kent Funds
Keystone Investments, Inc.
Keystone Investment
Management Company
<PAGE>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
Rosemary D. Senior Vice General Counsel, Senior
Van Antwerp President, Vice President and
General Counsel 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
Senior Vice President,
General Counsel, Director
and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Former Senior Vice
President and Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and
Secretary:
Keystone Fixed Income
Advisers, Inc.
Harry Barr Vice President None
Robert K. Vice President None
Baumback
Betsy A. Blacher Senior Vice None
President
Francis X. Claro Vice President None
Kristine R. Vice President None
Cloyes
<PAGE>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
Christopher P. Senior Vice None
Conkey President
Richard Cryan Senior Vice None
President
Maureen E. Senior Vice None
Cullinane President
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Christopher R. Senior Vice None
Ely President
Robert L. Hockett Vice President None
Sami J. Karam Vice President None
Donald M. Keller Senior Vice None
President
George J. Kimball Vice President None
JoAnn L. Lyndon Vice President None
John C. Vice President None
Madden, Jr.
Stephen A. Marks Vice President None
Eleanor H. Marsh Vice President None
Walter T. Senior Vice None
McCormick President
Barbara McCue Vice President None
Stanley M. Niksa Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
<PAGE>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
William H. Vice President None
Parsons
Daniel A. Rabasco Vice President None
David L. Smith Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
J. Kevin Kenely Vice President None
and Controller
Joseph J. Asst. Vice President None
Decristofaro
<PAGE>
Item 29. Principal Underwriters
(a) Keystone Investment Distributors Company, which acts as Registrant's
principal underwriter, also acts as principal underwriter for the
following entities:
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone Hartwell Growth Fund
Keystone Quality Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone High Income Bond Fund (B-4)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Mid-Cap Growth Fund (S-3)
Keystone Small Company Growth Fund (S-4
Keystone Capital Preservation and Income Fund
Keystone Fund for Total Return
Keystone Global Opportunities Fund
Keystone Intermediate Term Bond Fund
Keystone Omega Fund
Keystone State Tax Free Fund
Keystone State Tax Free Fund-Series II
Keystone Strategic Income Fund
Keystone Strategic Development Fund
Keystone Tax Free Income Fund
Keystone World Bond Fund
Keystone Fund of the Americas
Keystone Tax Free Fund
Keystone Tax Exempt Trust
Keystone Liquid Trust
Keystone International Fund Inc.
Keystone Precious Metals Holdings, Inc.
Master Reserves Trust
(b) Information with respect to each officer and director of Registrant's
acting principal underwriter:
<PAGE>
Positions with
Keystone Investment Positions with
Name Distributors Company Registrant
- ---- -------------------- --------------
Ralph J. Spuehler* Director, President None
Edward F. Godfrey* Director, Senior Vice Senior Vice
President, Treasurer President
and Chief Financial
Officer
Rosemary D. Van Antwerp* Director, Senior Vice Senior Vice
President, General President
Counsel and Secretary and Secretary
Albert H. Elfner, III* Director President
Charles W. Carr* Senior Vice President None
Peter M. Delehanty* Senior Vice President None
J. Kevin Kenely* Vice President and None
Controller
C. Kenneth Molander Divisional Vice None
8 King Edward Drive President
Londenderry, NH 03053
David S. Ashe Regional Manager and None
32415 Beaconsfield Vice President
Birmingham, MI 48025
David E. Achzet Regional Vice None
60 Lawn Avenue President
Greenway 27
Stamford, CT 06902
William L. Carey, Jr. Regional Vice None
4 Treble Lane President
Malvern, PA 19355
John W. Crites Regional Vice None
2769 Oakland Circle W. President
Aurora, CO 80014
Michael S. Festa* Vice President None
Jeffrey M. Lundes* Vice President None
<PAGE>
Positions with
Keystone Investment Positions with
Name Distributors Company Registrant
- ---- -------------------- --------------
Richard J. Fish Regional Vice None
309 West 90th Street President
New York, NY 10024
Michael T. Flaherty* Regional Vice None
President
Michael E. Gathings Regional Vice None
245 Wicklawn Way President
Roswell, GA 30076
Robert G. Holz, Jr. Regional None
313 Meadowcrest Drive President
Richardson, Texas 75080
Todd L. Kobrin Regional Vice None
20 Iron Gate President
Metuchen, NJ 08840
Ralph H. Johnson Regional Vice None
345 Masters Court, #2 President
Walnut Creek, CA 94598
Paul J. McIntyre* Regional Vice None
President
Thomas E. Meloy* Regional Vice None
President
Juliana Perkins Regional Vice None
2348 West Adrian Street President
Newbury Park, CA 91320
Matthew D. Twomey Regional Vice None
9627 Sparrow Court President
Ellicott City, MD 21042
Mitchell I. Weiser Regional Vice None
7031 Ventura Court President
Parkland, FL 33067
Welden L. Evans Vice President None
490 Huntcliff Green
Atlanta, GA 30350
Russell A. Haskell* Vice President None
<PAGE>
Positions with
Keystone Investment Positions with
Name Distributors Company Registrant
- ---- -------------------- --------------
John M. McAllister* Vice President None
Gregg A. Mahalich Vice President None
14952 Richards Drive W.
Minnetonka, MN 55345
Robert J. Matson* Vice President None
Alan V. Neimi* Vice President None
Ronald L. Noble* Vice President None
Burton Robbins Vice President None
1586 Folkstone Terrace
Westlake Village, CA
91361
Thomas E. Ryan, III* Vice President None
Peter Willis* Vice President None
Raymond P. Ajemian* Vice President None
Joan M. Balchunas* Assistant Vice None
President
Jody R. Baum* Assistant Vice None
President
Thomas J. Gainey* Assistant Vice None
President
Eric S. Jeppson* Assistant Vice None
President
Julie A. Robinson* Assistant Vice None
President
Peter M. Sullivan Assistant Vice None
21445 Southeast 35th Way President
Issaquah, WA 98027
*Located at 200 Berkeley Street, Boston, Massachusetts 02116-5034
Item 29(c). - Not applicable
<PAGE>
Item 30. Location of Accounts and Records
200 Berkeley Street
Boston, Massachusetts 02116-5034
Keystone Investor Resource Center, Inc.
101 Main Street
Cambridge, MA 02142-1519
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, Massachusetts 02171
Data Vault Inc.
3431 Sharp Slot Road
Swansea, Massachusetts 02277
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
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 upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant 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 27th day of September, 1995.
KEYSTONE GOVERNMENT SECURITIES FUND
(Registrant)
By: /s/ George S. Bissell
--------------------------
George S. Bissell*
Chairman of the Board
*By: /s/ James M. Wall
--------------------------
James M. Wall**
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 27th day of September, 1995.
SIGNATURES TITLE
- ---------- -----
/s/ George S. Bissell Chairman of the Board and Trustee
- -----------------------
George S. Bissell*
/s/ Albert H. Elfner,III Chief Executive Officer, President
- -----------------------
Albert H. Elfner, III* and Trustee
/s/ Kevin J. Morrissey Treasurer (Principal Financial
- -----------------------
Kevin J. Morrissey* and Accounting Officer)
*By: /s/ James M. Wall
----------------------
James M. Wall**
Attorney-in-Fact
<PAGE>
SIGNATURES TITLE
- ---------- -----
/s/ Frederick Amling Trustee
- -----------------------
Frederick Amling*
/s/ Charles A. Austin, III Trustee
- --------------------------
Charles A. Austin, III*
/s/ Edwin D. Campbell Trustee
- -----------------------
Edwin D. Campbell*
/s/ Charles F. Chapin Trustee
- -----------------------
Charles F. Chapin*
/s/ K. Dun Gifford Trustee
- -----------------------
K. Dun Gifford*
/s/ Leroy Keith, Jr. Trustee
- -----------------------
Leroy Keith, Jr.*
/s/ F. Ray Keyser, Jr. Trustee
- -----------------------
F. Ray Keyser, Jr.*
/s/ David M. Richardson Trustee
- -----------------------
David M. Richardson*
/s/ Richard J. Shima Trustee
- -----------------------
Richard J. Shima*
/s/ Andrew J. Simons Trustee
- -----------------------
Andrew J. Simons*
*By: /s/ James M. Wall
---------------------
James M. Wall**
Attorney-in-Fact
**James M. Wall, by signing his name hereto, does hereby sign this document on
behalf of each of the above-named individuals pursuant to powers of attorney
duly executed by such persons and attached hereto as Exhibit 24(b)(19).
<PAGE>
INDEX TO EXHIBITS
Page Number
In Sequential
Exhibit Number Exhibit Numbering System
- -------------- ------- ----------------
1 Declaration of Trust,
as supplemented
2 By-Laws, as amended
4 Share Certificate(1)
5 (a) Management Agreement
(b) Advisory Agreement
6 (a) Principal Underwriting Agreements
(b) Dealers Agreement(2)
8 Custodian, Fund Accounting
and Recordkeeping Agreements,
Amendments to Custody Agreement
10 Opinion and Consent of Counsel(5)
11 Independent Auditors' Consent
13 Subscription Agreements(3)
14 Model Retirement Plans(4)
15 Class A, B and C Distribution Plans
16 Performance Data Schedules
17 Financial Data Schedules (Exhibit 27)
18 Multiple Class Plan(6)
19 Powers of Attorney
- --------------------------
(1) Incorporated herein by reference to Pre-Effective Amendment No. 2 to
Registration Statement No. 33-11052/811-4949.
(2) Incorporated herein by reference to Post-Effective Amendment No. 10 to
Registration Statement No. 33-11052/811-4949.
(3) Incorporated herein by reference to Pre-Effective Amendment No. 2 to
Registration Statement No. 33-11052/811-4949.
(4) Incorporated herein by reference to Post-Effective Amendment No. 66 to
Registration Statement No. 33-10527/811-96.
(5) Incorporated herein by reference to Post-Effective Amendment No. 16 to
Registration Statement No. 2-11052/811-4949.
(6) Incorporated herein by reference to Post-Effective Amendment No. 17 to
Registration Statement No. 33-11052/811-4949.
<PAGE>
EXHIBIT 99.1
KEYSTONE AMERICA GOVERNMENT SECURITIES FUND
DECLARATION OF TRUST
Dated October 24, 1986
DECLARATION OF TRUST, made at Boston, Massachusetts on October 24, 1986
by George S. Bissell, K. Dun Gifford, John M. Haffenreffer, F. Ray Keyser, Jr.,
James Reed, John W. Sharp, Richard J. Shima, Spencer R. Stuart, Thomas O.
Thorsen, Rodney M. Vining and Charles M. Williams (hereinafter with their
successors referred to as the "Trustees").
WHEREAS the Trustees have agreed to manage all property received by
them as Trustees in accordance with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets, which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon
the following terms and conditions for the pro rata benefit of the holders from
time to time of Shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as the "KEYSTONE AMERICA
GOVERNMENT SECURITIES FUND" and the Trustees shall conduct the business of this
Trust under that name or any other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided
(a) The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person" and "Principal Underwriter" shall have the meanings
given them in the 1940 Act;
(b) The "Trust" refers to the Massachusetts business trust
established by this Declaration of Trust, as amended from time to time;
(c) "Declaration of Trust" shall mean this Declaration of
Trust as amended or restated from time to time;
(d) "Majority Shareholder Vote" means the vote of at least a
majority, as defined in the 1940 Act, of Shares entitled to vote on a
matter at a meeting of Shareholders entitled to vote on such matters;
(e) "Net Asset Value Per Share" means the net asset value per
share of the Trust determined in the manner provided or authorized in
Article VI, Section 5;
(f) "Shareholder" means a record owner of Shares of the Trust;
(g) "Shares" means the equal proportionate units of interest
into which the beneficial interest in the Trust shall be divided from
time to time or, if more than one series ("Series") or more than one
class ("Class") of a Series of Shares is authorized by the Trustees,
the equal proportionate units into which each such Series or Class of
Shares shall be divided form time to time, and includes where
appropriate fractions of a Share as well as a whole Share, unless the
Trustees provide that there shall be no fractions of any particular
Shares.
<PAGE>
(h) "Trustees" refers to the Trustee or Trustees of the Trust
who become such in accordance with Article IV and where appropriate
means a majority or other portion of them acting in accordance with
this Declaration of Trust or the By-laws of the Trust; and
(i) The "1940 Act" refers to the Investment Company Act of
1940 and the Rules and Regulations thereunder, all as amended from time
to time.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a continuous source of
managed investments.
ARTICLE III
Beneficial Interest
Section 1. Shares of Beneficial Interest. The beneficial interest in
the Trust shall at all times be divided into transferrable Shares, without par
value, each of which shall represent an equal proportionate interest in the
Trust with each other Share outstanding, none having priority or preference over
another, except to the extent modified by the Trustees under the provisions of
this Section. The number of Shares which may be issued is unlimited. The
Trustees may from time to time divide or combine the outstanding Shares into a
greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or fractions.
From time to time, as they deem appropriate, the Trustees may create
additional Series and/or Classes of Series of Shares, in addition to the Shares
initially created under this instrument ("Original Series"). References in this
Declaration of Trust to Shares of the Trust shall apply, as appropriate, to each
such Series of Shares and to each such Class of Shares.
Any additional Series of Shares created hereunder shall represent the
beneficial interest in the assets (and related liabilities) allocated by the
Trustees to such Series of Shares and acquired by the Trust only after creation
of the respective Series of Shares and only on account of such Series. If the
Trustees create any additional Series of Shares hereunder, then the Original
Series shall be deemed a separate Series of Shares. Upon creation of each Series
of Shares, the Trustees may designate it appropriately and determine the
investment policies with respect to the assets allocated to such Series of
Shares, redemption rights, dividend policies, conversion rights, liquidation
rights, voting rights, and such other rights and restrictions as the Trustees
deem appropriate, to the extent not inconsistent with the provisions of this
Declaration of Trust.
The Trustees may divide any Series (including the Original Series) into
more than one Class of Shares. Upon creation of each additional Class of Shares
the Trustees may designate it appropriately and determine its rights and
restrictions (including without limitation such redemption rights, dividend
rights, conversion rights, liquidation rights, voting rights, and other rights
and restrictions as the Trustees deem appropriate).
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded in the books of the Trust or a transfer agent or a similar agent. The
Trustees may make such rules as they consider appropriate for the transfer of
Shares and similar matters. The record books of the Trust as kept by the Trust
or any transfer agent or similar agent, as the case may be, shall be conclusive
as to who are the holders of Shares of each Class or Series and as to the number
of Shares of each Class or Series held from time to time by each.
Section 3. Investments in the Trust. The Trustees shall accept
investments in the Trust from such persons and on such terms and, subject to any
requirements of law, for such consideration as the Trustees from time to time
authorize and may cease offering Shares to the public at any time. After such
acceptance, the number of Shares of the appropriate Series to represent the
contribution may in the Trustees' discretion be considered as outstanding and
the amount receivable by the Trustees on account of the contribution may be
treated as an asset of the Series.
Section 4. No Preemptive Rights. Shareholders shall have no preemptive
or other right to subscribe to any additional Shares or other securities issued
by the Trust.
Section 5. Provisions Relating to Series of Shares. Whenever no Shares
of a Series are outstanding, then the Trustees may abolish such Series (or any
Class of Shares of a Series for which there are no outstanding Shares). Whenever
more than one Series of Shares is outstanding, then the following provisions
shall apply:
(a) Assets Belonging to Each Series. All consideration
received by the Trust for the issue or sale of Shares of a particular
Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings and proceeds thereof, and
any funds derived from any reinvestment of such proceeds, shall
irrevocably belong to that Series for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of the
Trust. In the event there are assets, income, earnings, and proceeds
thereof which are not readily identifiable as belonging to a particular
Series, then the Trustees shall allocate such items to the various
Series then existing, in such manner and on such basis as they, in
their sole discretion, deem fair and equitable. The amount of each such
item allocated to a particular Series by the Trustees shall then belong
to that Series, and each such allocation shall be conclusive and
binding upon the Shareholders of all Series for all purposes.
(b) Liabilities Belonging to Each Series. The assets belonging
to each particular Series shall be charged with the liabilities,
expenses, costs and reserves of the Trust attributable to that Series;
and any general liabilities, expenses, costs and reserves of the Trust
which are not readily identifiable as attributable to a particular
Series shall be allocated by the Trustees to the various Series then
existing, in such manner and on such basis as they, in their sole
discretion, deem fair and equitable. Each such allocation shall be
conclusive and binding upon the Shareholders of all Series for all
purposes.
(c) Series Shares, Dividends and Liquidation. Each Share of
each respective Class of a Series shall have the same rights and pro
rata beneficial interest in the assets and liabilities of the Series as
any other such Share. Any dividends paid on the Shares of any Series
shall only be payable from and to the extent of the assets (net of
liabilities) belonging to that Series. In the event of liquidation of a
Series, only the assets (less provision for liabilities) of that Series
shall be distributed to the holders of the Shares of that Series.
(d) Voting by Series. Except as provided in this Section or as
limited by the rights and restrictions of any Series or Class, each
Share of the Trust may vote with and in the same manner as any other
Share on matters submitted to a vote of the Shareholders entitled to
vote thereon, without differentiation among votes from the separate
Series or Classes; provided, however, that (i) as to any matter with
respect to which a separate vote of any Series or Class is required by
the 1940 Act, or otherwise by applicable law, such requirement as to a
separate vote shall apply in lieu of the voting described above; (ii)
in the event that the separate vote requirements referred to in (i)
above apply with respect to one or more Series or Classes, then,
subject to (iii) below, the Shares of all other Series or Classes shall
vote without differentiation among their votes; and (iii) as to any
matter which does not affect the interest of a particular Series or
Classes, only the holders of Shares of the one or more affected Series
or Classes shall be entitled to vote.
Section 6. Limitation of Personal Liability. The Trustees shall have no
power to bind any Shareholder personally or to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay by way of subscription to
any Shares or otherwise. Every note, bond, contract or other undertaking issued
by or on behalf of the Trust or the Trustees relating to the Trust shall include
a recitation limiting the obligation represented thereby to the Trust and its
assets (but the omission of such a recitation shall not operate to bind any
Shareholder).
ARTICLE IV
The Trustees
Section 1. Number of Trustees. The number of Trustees shall be such
number as shall be fixed from time to time by action of a majority of the
Trustees.
Section 2. Election or Appointment and Term. The initial Trustees shall
be the individuals signing this Declaration in that capacity. Thereafter,
subject to Section 16(a) of the 1940 Act, the Trustees may elect themselves or
their successors at such regular intervals, if any, as they deem proper, and may
appoint Trustees to fill vacancies as provided in Section 4 hereof; provided,
that Trustees shall be elected by a Majority Shareholder Vote at such time or
times as the Trustees shall determine that such action is advisable. Subject to
Section 3 hereof, the Trustees shall have the power to set and alter the terms
of office of the Trustees, and they may at any time lengthen or shorten their
own terms or make their terms of unlimited duration; provided, that the term of
office of any incumbent Trustee shall continue until terminated as provided in
Section 4 hereof, or, if not so terminated until the election of such Trustee's
successor in office has become effective in accordance with this Section 2.
Section 3. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees, and such resignation shall be
effective upon such delivery or at any later date according to the terms of the
instrument. Any Trustee may be removed by the action of two-thirds of the
remaining Trustees. Upon the resignation or removal of a Trustee, or his
otherwise ceasing to be a Trustee, he shall execute and deliver such documents
as the remaining Trustees shall require for the purpose of conveying to the
Trust or the remaining Trustees any Trust property held in his name. Upon the
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require as
provided in the preceding sentence. However, the execution and delivery of such
documents by a former Trustee or his legal representative shall not be requisite
to the vesting of title to the Trust property in the remaining Trustees.
Section 4. Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of such Trustee's death, resignation,
removal, bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office of Trustee. No such vacancy shall operate to annul this
Declaration or to revoke any existing agency created pursuant to the terms of
this Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject to
applicable law, the remaining Trustees, or, if only one Trustee shall then
remain in office, the sole remaining Trustee, shall appoint such individual to
fill such vacancy as they or he, in their or his discretion, shall see fit. An
appointment of a Trustee may be made in anticipation of a vacancy to occur at a
later date by reason of retirement or resignation of a Trustee or an increase in
the number of Trustees; provided, that such appointment shall not become
effective prior to such retirement or resignation or such increase in the number
of Trustees. Whenever a vacancy in number of Trustees shall occur, until such
vacancy is filled as provided in this Section 4, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this Declaration
in the manner provided by this Declaration. A written instrument certifying the
existence of such vacancy signed by a majority of the Trustees shall be
conclusive evidence of the existence of such vacancy.
Section 5. Management of the Trust. Subject to the provisions of this
Declaration of Trust, the business and affairs of the Trust shall be managed by
the Trustees, and they shall have all powers necessary and desirable to carry
out that responsibility. Action by the Trustees may be taken by majority vote of
the Trustees at a meeting at which a quorum (which shall be a majority of the
Trustees then in office) shall be present, or by a writing signed by a majority
of the Trustees in office.
Without limiting the foregoing, the Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the conduct of the
business of the Trust and may amend and repeal them to the extent that they do
not reserve that right to any Shareholders; they may may elect and remove such
officers and appoint and terminate such agents as they consider appropriate;
they may appoint from their own number and terminate any one or more committees;
they may employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities,
retain a transfer agent or a Shareholder servicing agent, or both, provide for
the distribution of Shares by the Trust, through one or more principal
underwriters or otherwise, set, or otherwise provide for the setting of, record
dates, and in general delegate such authority to do any or all things which the
Trustees may do in the operation of the business of the Trust as they consider
desirable to any officers of the Trust and committees of the Trustees and to any
agent or employee, custodian or underwriter. Any action relating to the
operation of the Trust provided for herein to be taken by the Trustees may be
taken by any other person under authority granted by the Trustees whether or not
specifically as stated, and unless specifically so stated to the contrary. A
specific statement indicating that the Trustees may delegate any authority shall
not give rise to any contrary implication with respect to any provision of this
Declaration.
Without limiting the foregoing, the Trustees in addition to all powers
granted by law shall have power and authority:
(a) To invest and reinvest cash, and to hold cash uninvested,
without in any wise being bound or limited by any present or future law
or custom in regard to investments by trustees;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate or
lease any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property, and
to execute and deliver proxies or powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities or
property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form, or
in its own name or in the name of a custodian or subcustodian or a
nominee or nominees or otherwise;
(f) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or concern,
any security of which is held in the Trust; to consent to any contract,
lease, mortgage, purchase or sale of property by such corporation or
concern, and to pay calls or subscriptions with respect to any security
held in the Trust;
(g) To join with other security holders in acting through a
committee, depository, voting Trustee or otherwise, and in that
connection to deposit any security with, or transfer any security to,
any such committee, depository or Trustee, and to delegate to them such
power and authority with relation to any security (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses and compensation
of such committee, depository or Trustee as the Trustees shall deem
proper;
(h) To compromise, arbitrate, or otherwise adjust claims in
favor of or against the Trust for any matter in controversy, including
but not limited to claims for taxes; and
(i) To borrow funds.
The Trustees shall not be required to obtain any court order to deal
with any assets of the Trust or take any other action hereunder.
Section 7. Ownership of Assets of the Trust. The assets of the Trust
shall be held separate and apart from any assets now or hereafter held in any
capacity other than as Trustee hereunder by the Trustees or by any successor
Trustees. All of the assets of the Trust shall at all times by considered as
vested in the Trustees. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or any right of partition or
possession thereof, but each Shareholder shall have a proportionate undivided
beneficial interest in the assets of the Series of Shares of which he is a
holder, subject to any rights or restrictions applicable to any Class or any
Series of Shares of which he is a holder.
Section 8. Payment of Expenses. The Trustees shall pay or cause to be
paid out of the principal or income of the Trust, or partly out of principal and
partly out of income, as they deem fair, all expenses, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including but not limited to the Trustees'
compensation and such expenses and charges for the services of the Trust's
investment adviser or manager, administrator, auditor, counsel, custodian,
transfer agent, shareholder servicing agent, and such other agents or
independent contractors and such other expenses and charges as the Trustees may
deem necessary or proper to incur.
Section 9. Investment Management and Other Services. Without limiting
the generality of the powers of the Trustees, subject to applicable law, the
Trustees may enter into a contract with any person or persons, including any
firm, corporation, trust or association in which any Trustee, Shareholder or
officer of the Trust may be interested, to act as investment advisers and/or
managers of the Trust and to provide such investment advice and/or management as
the Trustees may from time to time consider appropriate (the "Adviser"). Any
such contract may authorize the Adviser to determine from time to time what
securities shall be acquired, held or disposed of by the Trust and what portion
of assets of the Trust shall be held uninvested and to take, on behalf of the
Trust, actions which the Adviser deems necessary to implement the investment
policies of the Trust, including the placement of all orders for the purchase,
sale or loan of portfolio securities for the Trust's account with brokers or
dealers or others selected by the Adviser and the giving of instructions to the
custodian of the Trust's assets as to deliveries of securities and payments of
cash for the account of the Trust.
Without limiting the generality of the powers of the Trustees, subject
to applicable law, the Adviser may enter into an agreement to retain at its own
expense any person or persons, including any firm, corporation, trust or
association in which any Trustee, Shareholder or officer of the Trust may be
interested, to provide the Trust investment advice and/or management and any
person or persons so retained may be granted all authority which has been
granted to the Adviser under the contract which the Adviser entered into
pursuant to the preceding paragraph.
Without limiting the generality of the powers of the Trustees, the
Trustees may enter into a contract with any person or persons, including any
firm, corporation, trust or association in which any Trustee, Shareholder or
officer of the Trust be interested, to act as principal underwriter for the
Shares.
Section 10. Affiliations of Trustees or Officers, Etc. The fact that
(i) any of the shareholders, Trustees or officers of the Trust is a shareholder,
Director, officer, partner, Trustee, employee, manager, adviser or distributor
of or for any partnership, corporation, trust, association or other organization
or for any parent or affiliate of any organization, with which any contract
including, without limitation, contracts for services as manager, investment
adviser, distributor, principal underwriter, custodian, transfer agent or
disbursing agent or for related services may have been or may hereafter be made,
or that any such organization, or any parent or affiliate thereof, is a
shareholder of or has an interest in the Trust, or that (ii) any partnership,
corporation, trust, association or other organization with which a contract
referred to in (i) above, may have been or may hereafter be made also has any
one or more of such contracts with one or more other partnerships, corporations,
trusts, associations or other organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2 of Article IV
hereof and the removal of Trustees to the extent provided in Section 16(c) of
the 1940 Act, (ii) with respect to approval or termination in accordance with
the 1940 Act of any investment advisory or management agreement described in
Article IV hereof, (iii) with respect to any amendment of this Declaration to
the extent and as provided in Section 7 of Article IX hereof, (iv) with respect
to any merger, consolidation or sale of assets as provided in Section 4 of
Article IX hereof, (v) with respect to incorporation of the Trust to the extent
and as provided in Section 4 of Article IX hereof, (vi) to the same extent as
the stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
and (vii) with respect to such additional matters relating to the Trust as may
be required by this Declaration, the By-Laws or any undertaking filed by the
Trust with the Securities and Exchange Commission (or any successor agency) or
with any state, or as to which the Trustees in their discretion shall determine
such Shareholder vote to be required by law or otherwise to be necessary,
appropriate or advisable.
Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. Until Shares are issued, the Trustees
may exercise all rights of Shareholders and may take any action required by law,
this Declaration of Trust or any By-Laws of the Trust to be taken by
Shareholders.
Section 2. Meetings. Meetings of Shareholders shall be held at such
times at the principal office of the Trust or such other place as the Trustees
may designate. Meetings of the Shareholders may be called by the Trustees or
such other person or persons as may be specified in the By-laws and shall be
called by the Trustees upon the written request of Shareholders owning at least
25% of the outstanding Shares entitled to vote. Shareholders shall be
entitled to at least seven days' notice of any meeting.
Section 3. Quorum and Required Vote. Except as otherwise provided by
law, to constitute a quorum for the transaction of business at a Shareholders'
meeting there must be present in person or by proxy, holders of a majority of
the total number of Shares of the Trust then outstanding and entitled to vote at
the meeting, but any lesser number shall be sufficient for adjournment, and any
adjourned session or sessions may be held within 90 days after the date set for
the original meeting without the necessity of further notice. Subject to any
applicable requirements of law, a majority of the Shares present and entitled to
vote on a question or election shall decide such question or election, except
when a larger vote is required by any provision of this Declaration of Trust,
the By-Laws of the Trust or any applicable provision of law.
Section 4. Action by Written Consent. Except as otherwise required by
law, any action required or permitted to be taken at any meeting may be taken
without a meeting if a consent in writing setting forth such action is signed by
the Shareholders entitled to vote on the subject matter thereof holding a
majority of the Shares entitled to vote thereon.
Section 5. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Distributions and Redemptions
Section 1. Distributions. The Trustees may, but need not, each year
distribute to the Shareholders of each Series or Class such income and gains as
the Trustees may determine, after providing for actual and accrued expenses and
liabilities (including such reserves as the Trustees may establish) determined
in accordance with generally accepted accounting practices. The Trustees shall
have full discretion to determine which items shall be treated as income and
which items as capital and their determination shall be binding upon the
Shareholders. Distributions of each year's income of each Series or Class, if
any be made, may be made in one or more payments, which shall be in Shares, in
cash or otherwise and on a date or dates and as of a record date or dates
determined by or under the authority of the Trustees. At any time and from time
to time in their discretion the Trustees may distribute to the Shareholders of
any one or more Series or Class as of a record date or dates determined by or
under the authority of the Trustees, in Shares, in cash or otherwise, all or
part of any gain realized on the sale or disposition of property of the Trust or
otherwise, or all or part of any other principal of the Trust. Each distribution
pursuant to this Section 1 shall be made ratably according to the number of
Shares of the Series or Class held by the several Shareholders on the applicable
record date thereof, provided that no distribution need be made on Shares
purchased pursuant to orders received or for which payment is made after such
time or times as may be determined by or under the authority of the Trustees.
Any such distribution paid in Shares will be paid at the net asset value thereof
as determined in accordance with Section 4 hereof.
Section 2. Redemptions. Upon offer by any Shareholder of all or part of
the Shares held by the Shareholder for redemption hereunder, in accordance with
such methods, upon such terms and subject to such conditions as from time to
time may be determined, by, or under the authority of the Trustees the Trust
shall redeem the Shares so offered by distributing to the Shareholder the Net
Asset Value per Share thereof determined as of a time fixed by or under the
authority of the Trustees. The Trust shall have the right at its option and at
any time to redeem the Shares of any Shareholder for their Net Asset Value per
Share if the Shareholder owns Shares of a Series having an aggregate net asset
value of less than such minimum amount as may from time to time be prescribed,
by, or under the authority of the Trustees or if ownership of such Shares by the
Shareholder could create adverse tax consequences for the Trust or any Series or
Class thereof. With respect to all Shares or any Series or Class of Shares, the
right to redemption or the date for payment may, however, be delayed or
suspended by the Trustees if there is an extraordinary closing or restriction of
trading on the New York Stock Exchange as determined under rules and regulations
of the Commission, or an emergency exists as a result of which it is not
reasonably practicable for the Trust to dispose of securities or fairly to
determine the value of its net assets, or as the Commission may permit. The
completion of such distribution on redemption of Shares shall constitute a full
discharge of the Trust and Trustees with respect to such Shares, and the
Trustees may require that any certificate or certificates issued by the Trust to
evidence the ownership of the Shares shall be surrendered to the Trustees for
cancellation or notation. Shares so redeemed shall be cancelled or held by the
Trust for reissue, as the Trustees may from time to time determine.
Section 3. Payment in Kind. Subject to any generally applicable
limitation imposed by the Trustees, any distribution on redemption may, if
authorized by the Trustees, be made wholly or partly in kind, instead of in
cash. Such distribution in kind shall be made by distributing investments
constituting, in the opinion of the Trustees, a fair representation of the
various types of securities then held by the Series or Class of Shares being
redeemed (but not necessarily including a portion of each particular investment)
and in each case having an aggregate value equal to the amount of cash instead
of which such distribution in kind is made.
Section 4. Determination of Net Asset Value per Share. Subject to
applicable law, the Net Asset Value per Share of each Series or Class shall be
computed as of such times as may be determined by or under authority of the
Trustees by determining the value of all the investments of such Series or Class
in such manner as may be determined by or under authority of the Trustees,
adding any other assets of such Series or Class, subtracting all liabilities of
such Series or Class and dividing the result by the number of Shares of such
Series or Class outstanding.
Determination of Net Asset Value per Share so made in good faith and
pursuant to the provisions of the 1940 Act shall be binding on all parties
concerned.
Section 5. Automatic Redemption from Small Accounts. The Trustees shall
have the power to redeem shares at a redemption price determined in accordance
with Section 5 of this Article if at any time the total investment in such
account does not have a value of at least $1,000. Before redeeming such Shares,
Shareholders will be notified that the value of each of their accounts is less
than $1,000 and be allowed 60 days to make an additional investment to bring the
total value of such account to $1,000 or more.
Section 6. Power to Modify Foregoing Procedures. Notwithstanding any of
the foregoing provisions of this Article VI, the Trustees may prescribe, in
their absolute discretion, such other bases and times for the declaration and
payment of dividends and distributions as they may deem necessary or desirable
to enable the Trust to comply with any provision of the 1940 Act, including any
rule or regulation adopted by the Commission or any securities association
registered under the Securities Exchange Act of 1934, or any order of exemption
issued by the Commission, all as in effect now or as hereafter amended or
modified.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Section 2. Limitation of Liability. Provided they have exercised
reasonable care in their selection, the Trustees shall not be responsible or
liable in any event for any neglect or wrongdoing of any officer, agent,
employee or Adviser of the Trust nor shall any Trustee be responsible for the
act or omission of any other Trustee, but nothing herein contained shall protect
any Trustee against any liability to which he would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Every note, bond, contract, instrument, certificate, share or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only in their or his
capacity as Trustees or Trustee, and such Trustees or Trustee shall not be
personally liable thereon.
The Trustees shall use their best efforts to ensure that every note,
bond, contract, instrument, certificate or undertaking made or issued by the
Trustees or by any officers shall give notice that this Declaration of Trust is
on file with the Secretary of The Commonwealth of Massachusetts and shall recite
to the effect that the same was executed or made by or on behalf of the Trust or
by them as Trustees or officers, and not individually, and are not binding upon
any of them or the Shareholders individually, but are binding only upon the
Trust property, or the assets of the particular Series or Class in question, as
the case may be, but the omission thereof shall not operate to bind any Trustee
or officer or Shareholder individually, or to subject the assets of any Series
or Class to the obligations of any other Series or Class.
ARTICLE VIII
Indemnification
Section 1. Trustees, Officers, etc. The Trust shall indemnify each of
its Trustees and officers, may indemnify any of its employees or agents, and
shall indemnify any persons who serve at the Trust's request as Directors,
officers or Trustees of another organization, and may indemnify persons who
serve at the Trust's request as employees or agents of another organization, in
which the Trust has any interest as a shareholder, creditor or otherwise
(hereinafter referred to as a "Covered Person") against all liabilities and
expenses, including but not limited to, amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and counsel fees reasonably
incurred by any such person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such person may be or may have been
involved as a party or otherwise or with which such person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Trustee or officer or Director, except with respect to any matter as
to which such Covered Person shall have been finally adjudicated in any such
action, suit or other proceeding not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best interest of
the Trust and except that no person shall be indemnified against any liability
to the Trust or its Shareholders to which such Covered Person shall otherwise be
subject to reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. Expenses,
including counsel fees so incurred by any Covered Person, may in the discretion
of the Trustees be paid from time to time by the Trust in advance of the final
disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article.
Except as otherwise provided by law, the Trust shall have power to
purchase and maintain insurance on behalf of a Covered Person against any
liability asserted against him and incurred by him in his capacity as a Covered
Person, or arising out of his status as such, whether or not the Trust would
have the power to indemnify him against the liability under the provisions of
this Section.
Section 2. Compromise Payment. As to any matter disposed of by a
compromise payment by any Covered Person referred to in Section 1 above,
pursuant to a consent decree or otherwise, no such indemnification either for
such payment or for any other expenses shall be provided unless such compromise
shall be approved as in the best interests of the Trust, after notice that it
involved such indemnification, (a) by a disinterested majority of the Trustees
then in office; or (b) by a majority of the disinterested Trustees then in
office; or (c) by any disinterested person or persons to whom the question may
be referred by the Trustees, provided that in the case of approval pursuant to
clause (b) or (c) there has been obtained an opinion in writing of independent
legal counsel to the effect that such Covered Person appears to have acted in
good faith in the reasonable belief that his action was in the best interests of
the Trust and that such indemnification would not protect such person against
any liability to the Trust to which such person would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of office; or (d) by vote of Shareholders
holding a majority of the Shares entitled to vote thereon, exclusive of any
Shares beneficially owned by any interested Covered Person. Approval by the
Trustees pursuant to clause (a) or (b) or any disinterested person or persons
pursuant to clause (c) of this Section shall not prevent the recovery from any
Covered Person of any amount paid to such person in accordance with either of
such clauses as indemnification if such person is subsequently adjudicated by a
court of competent jurisdiction not to have acted in good faith in the
reasonable belief that such person's action was in the best interests of the
Trust or to have been liable to the Trust or its Shareholders by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of office.
Section 3. Indemnification Not Exclusive. The right of indemnification
hereby provided shall not be exclusive or affect any other rights to which any
such Covered Person may be entitled. As used in this Article VIII, the term
"Covered Person" shall include such person's heirs, executors and
administrators. An "interested Covered Person" is one against whom the action,
suit or other proceeding in question or another action, suit or other proceeding
on the same or similar grounds is then or has been pending, and a "disinterested
person" is a person against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this Article shall
affect any rights to indemnification to which personnel of the Trust other than
Trustees and officers or other persons may be entitled by contract or otherwise
under law.
Section 4. Shareholders. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of his being or having
been a Shareholder and not because of his acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled out of
the assets of the Trust to be held harmless from and indemnified against all
loss and expense arising from such liability.
ARTICLE IX
Miscellaneous
Section 1. Trust Not a Partnership. It is hereby expressly declared
that a trust and not a partnership is created hereby. Neither the Trust nor the
Trustees, nor any officer, employee or agent of the Trust shall have any power
to bind personally either the Trust's Trustees or officers or any Shareholders.
All persons extending credit to, contracting with or having any claim against
the Trust shall look only to the assets of the Trust for payment under such
credit, contract or claim, and neither the Shareholders nor the Trustees, nor
any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor. Nothing in this Declaration of
Trust shall protect any Trustee against any liability to which such Trustee
would otherwise be subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee hereunder.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
in good faith and with reasonable care under the circumstances then prevailing,
shall be binding upon everyone interested. Subject to the provisions of Section
1 of this Article IX, a Trustee shall be liable for his own wilful defaults, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and subject
to the provisions of said Section 1 shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice.
The Trustees shall not be required to give any bond as such, nor any surety if a
bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees pursuant hereto
or to see to the application of any payments made or property transferred to the
Trust or upon its order.
Section 4. Duration; Termination of Trust; Amendments; Mergers, etc.
(a) This Trust shall continue without limitation of time but
subject to the provisions of this Section 4.
(b) The Trust (as used in This Section 4 the term "Trust"
specifically also means any Series or Class) may be terminated by
action of the Trustees. Upon the termination of the Trust:
(i) The Trust shall carry on no business except for
the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up
the affairs of the Trust and all of the powers of the Trustees
under this Declaration shall continue until the affairs of the
Trust shall have been wound up, including the power to fulfill
or discharge the contracts of the Trust, collect its assets,
sell, convey, assign, exchange, transfer or otherwise dispose
of all or any part of the remaining Trust property to one or
more persons at public or private sale for consideration which
may consist in whole or in part of cash, securities or other
property of any kind, discharge or pay its liabilities, and to
do all other acts appropriate to liquidate its business.
(iii) After paying or adequately providing for the
payment of all liabilities, and upon receipt of such releases,
indemnities and refunding agreements, as they deem necessary
for their protection, the Trustees may distribute the
remaining Trust property, in cash or in kind or partly each,
among the Shareholders according to their respective rights
and interests.
(c) After termination of the Trust and distribution to the
Shareholders as herein provided, a majority of the Trustees shall
execute and lodge among the records of the Trust an instrument in
writing setting forth the fact of such termination, and the Trustees
shall thereupon be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Shareholders shall
thereupon cease.
(d) Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in paragraphs (b) and (c),
the Trust shall terminate and the Trustees shall be discharged of any
and all further liabilities and duties hereunder and the right, title
and interest of all parties shall be canceled and discharged.
Section 5. Filing of Copies, References, Headings. The original or a
copy of this instrument and of each Declaration of Trust supplemental hereto or
Amendment hereof shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of each such
Supplemental Declaration of Trust or Amendment shall be filed by the Trust with
the Massachusetts Secretary of State and the Boston City Clerk, as well as any
other governmental office where such filing may from time to time be required.
Anyone dealing with the Trust may rely on a certificate by an officer of the
Trust as to whether or not any Supplemental Declarations of Trust or Amendments
have been made and as to any matters in connection with the trust hereunder;
and, with the same effect as if it were the original, may rely on a copy
certified by an officer of the Trust to be a copy of this instrument or of any
such Supplemental Declaration of Trust or Amendment. In this instrument or in
any such Amendment or Supplemental Declaration of Trust, references to this
instrument, and all expressions such as "herein," "hereof," and "hereunder,"
shall be deemed to refer to this instrument as amended or affected by any such
Supplemental Declaration of Trust or Amendment. Headings are placed herein for
convenience of reference only and in case of any conflict, the text of this
instrument, rather than the headings, shall control. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Section 6. Applicable Law. The Trust set forth in this instrument is
made in The Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of such
Commonwealth. The Trust shall be of the type commonly called a Massachusetts
business trust, and, without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a Trust.
Section 7. Amendments.
(a) This Declaration of Trust may be amended by a vote or
written consent of the Trustees, subject, however, if such amendment
adversely affects the rights of any Shares of any Series or any Class
thereof with respect to matters to which such amendment is applicable,
to approval of such amendments by holders of a majority of the shares
of such Series or Class. An amendment or other action which provides
for an additional Series of Shares (and/or Class thereof), which Series
may vote together with Shares of other Series (and/or Classes thereof)
and makes other provisions with respect to such Series (and/or Class
thereof) and its relations to existing Series (and/or Classes thereof),
shall not be deemed to adversely affect the rights of any other Series
of Shares or Class thereof. The Trustees may also amend this
Declaration without any Shareholder approval to change the name of the
Trust, to supply any omission, to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, or, if they deem
it necessary, to conform this Declaration to the requirements of
applicable federal laws or regulations or the requirements of the
Internal Revenue Code, or to eliminate or reduce any federal, state or
local taxes which are or may be payable by the Trust or the
Shareholders, but the Trustees shall not be liable for failing to do
so.
(b) Nothing contained in this Declaration shall permit the
amendment of this Declaration to impair the exemption from personal
liability of the Shareholders, Trustees, officers, employees and agents
of the Trust or to permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees or by
the Secretary or any Assistant Secretary of the Trust, setting forth an
amendment by reciting that it was duly adopted by the Shareholders or
by the Trustees as aforesaid or a copy of the Declaration, as amended,
and executed by a majority of the Trustees or certified by the
Secretary or any Assistant Secretary of the Trust, shall be conclusive
evidence of such amendment when lodged among the records of the Trust.
Section 8. Merger, Consolidation and Sale of Assets. The Trust may
merge into or consolidate with any other corporation, association, trust or
other organization or may sell, lease or exchange all or substantially all of
the Trust property, including its good will, upon such terms and conditions and
for such consideration when and as authorized by the Trustees.
Section 9. Incorporation. The Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other organization
to take over all the Trust property or to carry on any business in which the
Trust shall directly or indirectly have any interest, and to sell, convey and
transfer the Trust property to any such corporation, trust, partnership,
association or organization in exchange for the shares or securities thereof or
otherwise, and to lend money to, subscribe for the shares or securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization in which the Trust holds or is about to acquire
shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any corporation,
trust, partnership, association or other organization if and to the extent
permitted by law, as provided under the law then in effect. Nothing contained
herein shall be construed as requiring approval of Shareholders for the Trustees
to organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling, conveying or
transferring the Trust property to such organization or entities.
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals in the City of Boston, Massachusetts, for themselves and their assigns, as
of the day and year first above written.
--------------------------
George S. Bissell
--------------------------
K. Dun Gifford
--------------------------
John M. Haffenreffer
--------------------------
F. Ray Keyser, Jr.
--------------------------
James A. Reed
--------------------------
John W. Sharp
--------------------------
Richard J. Shima
--------------------------
Spencer R. Stuart
--------------------------
Thomas O. Thorsen
--------------------------
Rodney M. Vining
--------------------------
Charles M. Williams
<PAGE>
KEYSTONE AMERICA GOVERNMENT SECURITIES FUND
FIRST SUPPLEMENTAL
DECLARATION OF TRUST
EFFECTIVE MAY 1, 1995
FIRST SUPPLEMENTAL DECLARATION OF TRUST dated March 15, 1995 made by
George S. Bissell, Albert H. Elfner, III, Frederick Amling, Charles A. Austin,
III, Edwin D. Campbell, Charles F. Chapin, K. Dun Gifford, Leroy Keith, Jr., F.
Ray Keyser, Jr., David M. Richardson, Richard J. Shima and Andrew J. Simons
(hereinafter with their successors referred to as the "Trustees") to DECLARATION
OF TRUST dated October 24, 1986.
WHEREAS, the Trustees have determined to change the name of the Trust
and to change the designation of its principal office to 200 Berkeley Street,
Boston, Massachusetts 02116.
NOW, THEREFORE, the Trustees hereby declare that they will amend the
Declaration of Trust of this Trust as hereinafter set forth:
ARTICLE I, Name and Definitions, Section 1. Name., is hereby amended to
read as follows:
"This Trust shall be known as the "Keystone Government Securities Fund"
and the Trustees shall conduct the business of this Trust under that
name or any other name as they may from time to time determine."
This Amendment shall become effective as of May 1, 1995.
All other provisions of the Declaration of Trust shall continue as
originally stated.
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have caused this First Supplemental Declaration of Trust to be executed
on the 15th day of March, 1995.
- --------------------------------
George S. Bissell, Trustee
- --------------------------------
Albert H. Elfner, III, Trustee
- --------------------------------
Frederick Amling, Trustee
- --------------------------------
Charles A. Austin, III, Trustee
- --------------------------------
Edwin D. Campbell, Trustee
- --------------------------------
Charles F. Chapin, Trustee
- --------------------------------
K. Dun Gifford, Trustee
- --------------------------------
Leroy Keith, Jr., Trustee
- --------------------------------
F. Ray Keyser, Jr., Trustee
- --------------------------------
David M. Richardson, Trustee
- --------------------------------
Richard J. Shima, Trustee
- --------------------------------
Andrew J. Simons, Trustee
<PAGE>
EXHIBIT 99.2
AMENDMENT NO. 1
to
BY-LAWS
of
KEYSTONE AMERICA GOVERNMENT SECURITIES FUND
Article 7, Fiscal Year and Seal, Section 7.1, Fiscal Year, is hereby
amended to read as follows:
"The fiscal year of the Trust shall end on the last day of July in
each year."
<PAGE>
KEYSTONE AMERICA GOVERNMENT SECURITIES FUND
BY-LAWS
ARTICLE 1.
Declaration of Trust and Principal Office
1.1 Declaration of Trust. These By-laws are adopted pursuant to and are subject
to the terms of the Declaration of Trust ("Declaration of Trust") of Keystone
America Government Securities Fund ("Fund").
1.2 Principal Office of the Fund. The principal office of the Fund shall be
located in Boston, Massachusetts, or such other place as the Trustees may
designate from time to time.
ARTICLE 2.
Meetings of Shareholders
2.1 Meetings. Meetings may be called by the Trustees or by the President or by
any other officers designated for the purpose by the Trustees.
2.2 Business to be Transacted. At any meeting of shareholders, such business may
be transacted as is referred to in the notice of the meeting, and any other
business considered appropriate by or under authority of the Trustees.
2.3 Notice. A written notice of each meeting of the shareholders, specifying the
time, place and purposes thereof, shall be given as hereinafter provided by the
Secretary of the Fund or any Assistant Secretary or by a person or persons
designated by either of them, to each shareholder who is entitled to vote
thereat at least seven (7) days (including Sundays and holidays) before such
meeting. Notice of a meeting need not be given to any shareholder if a written
waiver of notice, executed by the shareholder or his attorney thereunto duly
authorized before or after the meeting, is filed with the records of the
meeting, or to any shareholder who attends the meeting either in person or by
proxy without protesting, prior thereto or at its commencement, the lack of
notice to such shareholder. Every notice to any shareholder required or provided
for herein may be given to him personally or by mailing it to him postage
prepaid, addressed to him at his address specified in the records of the Trust.
Notice shall be deemed to have been given at the time when it is so mailed. In
respect of any share held jointly by several persons notice so given to any one
of them shall be sufficient notice to all of them. Any notice so sent to the
address of any shareholder shall be deemed to have been duly sent in respect of
any such share whether held by him solely or jointly with others,
notwithstanding he be then deceased or be bankrupt or insolvent or legally
incompetent, and whether or not the Trustees or any person sending such notice
have knowledge of his death, bankruptcy or insolvency or legal incompetence,
until some other person or persons shall be registered as holders. The
certificate of the person or persons giving such notice shall be sufficient
evidence thereof, and shall protect all persons acting in good faith in reliance
on such certificate.
2.5 Voting. Shares may be voted in person by the shareholder or by proxy in form
reasonably acceptable to the Trust. If the holder of any share is a minor or a
person of unsound mind, or subject to guardianship or to the legal control of
any other person as regards the charge or management of such share, he may vote
by his guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy.
2.6 Record Dates. For the purpose of determining the shareholders who are
entitled to vote or act at any meeting or any adjournment thereof, or who are
entitled to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix or authorize the fixing by others of a time
as the record date for determining the shareholders having the right to notice
of and to vote at such meeting and any adjournment thereof or the right to
receive such dividend or distribution, and in such case only shareholders of
record on such record date shall have such right, notwithstanding any transfer
of shares on the books of the Fund after the record date; or without fixing such
record date the Trustees may for any of such purposes close the register or
transfer books for all or any part of such period.
ARTICLE 3.
Meetings of Trustees
3.1 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the Trustees may from time to time
determine.
3.2 Special Meetings. Special meetings of the Trustees may be held at any time
and at any place designated in the call of the meeting when called by the
Chairman, the President or the Treasurer, or by any other officer authorized by
the Trustees to do so, or by two or more Trustees, sufficient notice thereof
being given to each Trustee by the Secretary or an Assistant Secretary or by the
officer or one of the Trustees calling the meeting.
3.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to him at his usual or last known
business or residence address or to give notice to him in person or by telephone
at least twenty-four hours before the meeting. Notice of a meeting need not be
given to any Trustee if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any Trustee
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
3.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to time
by a majority of the votes cast upon the question, whether or not a quorum is
present and the meeting may be held as adjourned without further notice.
3.5 Action by Vote. When a quorum is present at any meeting, a majority of the
Trustees present may take any action, except when a larger vote is required by
the Declaration of Trust or any applicable law.
3.6 Participation by Conference Telephone. The Trustees may participate in a
meeting of the Trustees by means of conference telephone or similar
communications equipment. Participation by such means shall constitute presence
in person at a meeting.
3.7 Action by Writing. The Trustees may act without a meeting and the action of
a majority of the Trustees then in office evidenced by a writing signed by such
a majority shall be valid and binding as the action of the Trustees.
ARTICLE 4.
Trustees
4.1 Term. A Trustee shall serve until his death, resignation or removal from
office or until his successor is elected and qualifies. No Trustee shall stand
for reelection after he has passed his seventieth birthday.
ARTICLE 5.
Officers
5.1 Election. The President, the Treasurer and the Secretary shall be elected
annually by the Trustees and shall serve until their successors are elected and
qualified or until their earlier death, resignation or removal. Other officers,
if any, including if desired a Controller, may be elected or appointed by the
Trustees at the meeting or at any other time. A Chairman of the Board may be
elected or appointed by the Trustees at the meeting or at any other time.
Vacancies in any office may be filled at any time by the Trustees.
5.2 Tenure. Each officer and each agent shall hold office at the pleasure of the
Trustees.
5.3 Powers. Subject to law and to the other provisions of these By-laws, each
officer shall have, in addition to any duties and powers set forth herein and in
the Declaration of Trust, such duties and powers as are commonly incident to the
office occupied by him as if the Fund were organized as a Massachusetts business
corporation and such other duties and powers as the Trustees may from time to
time designate.
5.4 President. Unless the Trustees otherwise provide, the President shall
preside at all meetings of shareholders and of the Trustees and the President
shall be the chief executive officer.
5.5 Treasurer. The Treasurer shall be the chief financial officer of the Fund.
In the absence of the Treasurer, or if there is then no person serving in such
office, the Controller of the Fund shall be the chief financial officer of the
Fund. He shall, subject to the provisions of the Declaration of Trust and
subject to any arrangement made by the Trustees with a bank or other trust
company or organization as custodian, be in charge of valuable papers, books of
account and accounting records, and shall have such other duties and powers as
may be designated from time to time by the Trustees or by the President. 5.6
Secretary. The Secretary shall record all proceedings of the shareholders and
Trustees in books to be kept therefor, which books shall be kept at the
principal office of the Fund. In the absence of the Secretary, an Assistant
Secretary, or if there be none or if he is absent, a temporary Secretary chosen
by the shareholders or the Trustees, as the case may be, shall record the
proceedings in the aforesaid books.
5.7 Resignation and Removals. Any Trustee or officer may resign at any time by
written instrument signed by him and deposited with the Trustees by delivering
such resignation to the President or the Secretary or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless specified to
be effective at some other time. The Trustees may remove any officer elected by
them with or without cause by vote of a majority of the Trustees then in office.
Except to the extent expressly provided in a written agreement with the Fund, no
Trustee or officer resigning and no officer removed shall have any right to
compensation for any period following his resignation or removal, or any right
to damages on account of such removal.
ARTICLE 6.
Committees
6.1 General. The Trustees may appoint from their number an executive committee
to serve during their pleasure. The executive committee may, when the Trustees
are not in session at a meeting, exercise such of the powers and authority of
the Trustees as may be conferred from time to time by the Trustees. Rules
governing the actions of the executive committee may be adopted by the Trustees
from time to time as they deem appropriate. The Trustees may appoint from their
number such other committees from time to time as they deem appropriate. The
number composing such committees, the powers and authority conferred upon such
committees and the rules governing the actions of such committees shall be
determined by the Trustees at their discretion.
6.2 Quorum; Voting. A majority of the members of any committee of the Trustees
shall constitute a quorum for the transaction of business, and any action of
such a committee may be taken at a meeting by a vote of a majority of the
members present (a quorum being present) or evidenced by one or more writings
signed by such a majority. Members of a committee may participate in a meeting
of such committee by means of conference telephone or similar communications
equipment. Participation by such means shall constitute presence in person at a
meeting.
ARTICLE 7.
Fiscal Year and Seal
7.1 Fiscal Year. The fiscal year of the Fund shall end on the last day of
October in each year.
7.2 Seal. The seal of the Fund shall consist of a flat-faced die with the name
of the Fund and 1987 cut or engraved thereon.
ARTICLE 8.
Amendments
8.1 Amendment by Trustees. These By-laws may also be altered, amended or
repealed by the Trustees, except with respect to any provision which by law, the
Declaration of Trust or these By-laws requires action by the shareholders.
<PAGE>
EXHIBIT 99.5(a)
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made the day of August, 1993, by and between KEYSTONE AMERICA
GOVERNMENT SECURITIES FUND, a Massachusetts business trust (the "Fund"), and
KEYSTONE MANAGEMENT, INC., a Nevada corporation (the "Manager").
WHEREAS, the Fund and the Manager wish to enter into an Agreement setting
forth the terms on which the Manager will perform certain services for the Fund.
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Fund and the Manager agree as follows:
1. The Fund hereby employs the Manager to manage and administer the
operation of the Fund, to supervise the provision of services to the Fund by
others, and to manage the investment and reinvestment of the assets of the Fund
in conformity with the Fund's investment objectives and restrictions as may be
set forth from time to time in the Fund's then current prospectus and statement
of additional information, if any, and other governing documents, all subject to
the supervision of the Board of Trustees of the Fund, for the period and on the
terms set forth in this Agreement. The Manager hereby accepts such employment
and agrees during such period, at its own expense, to render the services and to
assume the obligations set forth herein, for the compensation provided herein.
The Manager shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
2. The Manager shall place all orders for the purchase and sale of portfolio
securities for the account of the Fund with broker-dealers selected by the
Manager. In executing portfolio transactions and selecting broker-dealers, the
Manager will use its best efforts to seek best execution on behalf of the Fund.
In assessing the best execution available for any transaction, the Manager shall
consider all factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker-dealer, and the reasonableness of the commission, if
any (all for the specific transaction and on a continuing basis). In evaluating
the best execution available, and in selecting the broker-dealer to execute a
particular transaction, the Manager may also consider the brokerage and research
services (as those terms are used in Section 28(e) of the Securities Exchange
Act of 1934 (the "1934 Act") provided to the Fund and/or other accounts over
which the Manager or an affiliate of the Manager exercises investment
discretion. The Manager is authorized to pay a broker-dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for the Fund which is in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction if, but only if,
the Manager determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer viewed in terms of that particular transaction or in terms of all
of the accounts over which investment discretion is so exercised.
3. The Manager, at its own expense, shall furnish to the Fund office space
in the offices of the Manager or in such other place as may be agreed upon by
the parties from time to time, all necessary office facilities, equipment and
personnel in connection with its services hereunder, and shall arrange, if
desired by the Fund, for members of the Manager's organization to serve without
salaries from the Fund as officers or, as may be agreed from time to time, as
agents of the Fund. The Manager assumes and shall pay or reimburse the Fund for:
(1) the compensation (if any) of the Trustees of the Fund who are affiliated
with the Manager or with its affiliates, or with any adviser retained by the
Manager, and of all officers of the Fund as such, and (2) all expenses of the
Manager incurred in connection with its services hereunder. The Fund assumes and
shall pay all other expenses of the Fund, including, without limitation: (1) all
charges and expenses of any custodian or depository appointed by the Fund for
the safekeeping of its cash, securities and other property; (2) all charges and
expenses for bookkeeping and auditors; (3) all charges and expenses of any
transfer agents and registrars appointed by the Fund; (4) all fees of all
Trustees of the Fund who are not affiliated with the Manager or any of its
affiliates, or with any adviser retained by the Manager; (5) all broker's fees,
expenses and commissions and issue and transfer taxes chargeable to the Fund in
connection with transactions involving securities and other property to which
the Fund is a party; (6) all costs and expenses of distribution of its shares
incurred pursuant to a Plan of Distribution adopted under Rule 12b-1 under the
Investment Company Act of 1940 ("1940 Act"); (7) all taxes and business trust
fees payable by the Fund to Federal, state or other governmental agencies; (8)
all costs of certificates representing shares of the Fund; (9) all fees and
expenses involved in registering and maintaining registrations of the Fund and
of its shares with the Securities and Exchange Commission (the "Commission") and
registering or qualifying its shares under state or other securities laws,
including, without limitation, the preparation and printing of registration
statements, prospectuses and statements of additional information for filing
with the Commission and other authorities; (10) expenses of preparing, printing
and mailing prospectuses and statements of additional information to
shareholders of the Fund; (11) all expenses of shareholders' and Trustees'
meetings and of preparing, printing and mailing notices, reports and proxy
materials to shareholders of the Fund; (12) all charges and expenses of legal
counsel for the Fund and for Trustees of the Fund in connection with legal
matters relating to the Fund, including, without limitation, legal services
rendered in connection with the Fund's existence, business trust and financial
structure and relations with its shareholders, registrations and qualifications
of securities under Federal, state and other laws, issues of securities,
expenses which the Fund has herein assumed, whether customary or not, and
extraordinary matters, including, without limitation, any litigation involving
the Fund, its Trustees, officers, employees or agents; (13) all charges and
expenses of filing annual and other reports with the Commission and other
authorities; and (14) all extraordinary expenses and charges of the Fund. In the
event that the Manager provides any of these services or pays any of these
expenses, the Fund will promptly reimburse the Manager therefor.
The services of the Manager to the Fund hereunder are not to be deemed
exclusive, and the Manager shall be free to render similar services to others.
4. As compensation for the Manager's services to the Fund during the period
of this Agreement, the Fund will pay to the Manager a fee at the annual rate of:
MANAGEMENT AGGREGATE NET ASSET VALUE
FEE INCOME OF THE SHARES OF THE FUND
- ------------------------------------------------------------------------------
2.0% of Gross Dividend
and Interest Income Plus
0.50% of the first $100,000,000, plus
0.45% of the next $100,000,000, plus
0.40% of the next $100,000,000, plus
0.35% of the next $100,000,000, plus
0.30% of the next $100,000,000, plus
0.25% of amounts over $500,000,000
computed as of the close of business on each business day.
A pro rata portion of the fee shall be payable in arrears at the end of each
day or calendar month as the Manager may from time to time specify to the Fund.
If and when this Agreement terminates, any compensation payable hereunder for
the period ending with the date of such termination shall be payable upon such
termination. Amounts payable hereunder shall be promptly paid when due.
5. The Manager may enter into an agreement to retain, at its own expense,
Keystone Custodian Funds, Inc. or any other firm or firms ("Adviser") to provide
the Fund all of the services to be provided by the Manager hereunder, if such
agreement is approved as required by law. Such agreement may delegate to such
Adviser all of Manager's rights, obligations and duties hereunder.
6. The Manager shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the performance of
this Agreement, except a loss resulting from the Manager's willful misfeasance,
bad faith, gross negligence or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also an officer,
Director, partner, employee, or agent of the Manager, who may be or become an
officer, Trustee, employee or agent of the Fund, shall be deemed, when rendering
services to the Fund or acting on any business of the Fund (other than services
or business in connection with the Manager's duties hereunder), to be rendering
such services to or acting solely for the Fund and not as an officer, Director,
partner, employee, or agent or one under the control or direction of the Manager
even though paid by it. The Fund agrees to indemnify and hold the Manager
harmless from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the Securities Act of
1933, the 1934 Act, the 1940 Act, and any state and foreign securities and blue
sky laws, as amended from time to time) and expenses, including (without
limitation) attorneys' fees and disbursements, arising directly or indirectly
from any action or thing which the Manager takes or does or omits to take or do
hereunder provided that the Manager shall not be indemnified against any
liability to the Fund or to its shareholders (or any expenses incident to such
liability) arising out of a breach of fiduciary duty with respect to the receipt
of compensation for services, willful misfeasance, bad faith, or gross
negligence on the part of the Manager in the performance of its duties, or from
reckless disregard by it of its obligations and duties under this Agreement.
7. The Fund shall cause its books and accounts to be audited at least once
each year by a reputable independent public accountant or organization of public
accountants who shall render a report to the Fund.
8. Subject to and in accordance with the Declaration of Trust of the Fund,
the Articles of Incorporation of the Manager and the governing documents of any
Adviser, it is understood that Trustees, Directors, officers, agents and
shareholders of the Fund or any Adviser are or may be interested in the Manager
(or any successor thereof) as Directors and officers of the Manager or its
affiliates, as stockholders of Keystone Group, Inc. or otherwise; that
Directors, officers and agents of the Manager and its affiliates or stockholders
of Keystone Group, Inc. are or may be interested in the Fund or any Adviser as
Trustees, Directors, officers, shareholders or otherwise; that the Manager (or
any such successor) is or may be interested in the Fund or any Adviser as
shareholder, or otherwise; and that the effect of any such adverse interests
shall be governed by said Declaration of Trust of the Fund, Articles of
Incorporation of the Manager and governing documents of any Adviser.
9. This Agreement shall continue in effect after July 1, 1994 only so long
as (1) such continuance is specifically approved at least annually by the Board
of Trustees of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund, and (2) such renewal has been approved by the vote of a
majority of Trustees of the Fund who are not interested persons, as that term is
defined in the 1940 Act, of the Manager or of the Fund, cast in person at a
meeting called for the purpose of voting on such approval.
10. On sixty days' written notice to the Manager, this Agreement may be
terminated at any time without the payment of any penalty by the Board of
Trustees of the Fund or by vote of the holders of a majority of the outstanding
voting securities of the Fund; and on sixty days' written notice to the Fund,
this Agreement may be terminated at any time without the payment of any penalty
by the Manager. This Agreement shall automatically terminate upon its assignment
(as that term is defined in the 1940 Act). Any notice under this Agreement shall
be given in writing, addressed and delivered, or mailed postage prepaid, to the
other party at the main office of such party.
11. This Agreement may be amended at any time by an instrument in writing
executed by both parties hereto or their respective successors, provided that
with regard to amendments of substance such execution by the Fund shall have
been first approved by the vote of the holders of a majority of the outstanding
voting securities of the Fund and by the vote of a majority of Trustees of the
Fund who are not interested persons (as that term is defined in the 1940 Act) of
the Manager, any predecessor of the Manager, or of the Fund, cast in person at a
meeting called for the purpose of voting on such approval. A "majority of the
outstanding voting securities of the Fund" shall have, for all purposes of this
Agreement, the meaning provided therefor in the 1940 Act.
12. Any compensation payable to the Manager hereunder for any period other
than a full year shall be proportionately adjusted.
13. The provisions of this Agreement shall be governed, construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts.
14. A copy of the Declaration of Trust of the Fund is on file with the
Secretary of The Commonwealth of Massachusetts. This instrument is executed on
behalf of the Trustees of the Fund as trustees and not individually and the
obligations of this instrument are not binding upon the Trustees or holders of
shares of the Fund individually but are binding only upon the assets and
property of the Fund.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.
KEYSTONE AMERICA
GOVERNMENT SECURITIES FUND
By: ------------------------------------------------------
Title:
KEYSTONE MANAGEMENT, INC.
By: ------------------------------------------------------
Title:
<PAGE>
EXHIBIT 99.5(b)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made the day of August, 1993, by and between KEYSTONE
MANAGEMENT, INC., a Nevada corporation (the "Manager"), and KEYSTONE CUSTODIAN
FUNDS, INC., a Delaware corporation (the "Adviser").
WHEREAS, the Manager and the Adviser wish to enter into an Agreement setting
forth the terms on which the Adviser will perform certain services for the
Manager and KEYSTONE AMERICA GOVERNMENT SECURITIES FUND (the "Fund").
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Manager and the Adviser agree as follows:
1. The Manager hereby employs the Adviser to manage and administer the
operation of the Fund (with the exception of certain managerial and
administrative services to be provided by the Manager), to supervise the
provision of services to the Fund by others, and to manage the investment and
reinvestment of the assets of the Fund in conformity with the Fund's investment
objectives and restrictions as may be set forth from time to time in the Fund's
then current prospectus and statement of additional information, if any, and
other governing documents, all subject to the supervision of the Manager and
Board of Trustees of the Fund, for the period and on the terms set forth in this
Agreement. The Adviser hereby accepts such employment and agrees during such
period, at its own expense, to render the services and to assume the obligations
set forth herein, for the compensation provided herein. The Adviser shall for
all purposes herein be deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Manager or the Fund in any way or otherwise be deemed an agent of
the Manager or the Fund.
2. The Adviser shall place all orders for the purchase and sale of portfolio
securities for the account of the Fund with broker-dealers selected by the
Adviser. In executing portfolio transactions and selecting broker-dealers, the
Adviser will use its best efforts to seek best execution on behalf of the Fund.
In assessing the best execution available for any transaction, the Adviser shall
consider all factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker-dealer, and the reasonableness of the commission, if
any (all for the specific transaction and on a continuing basis). In evaluating
the best execution available, and in selecting the broker-dealer to execute a
particular transaction, the Adviser may also consider the brokerage and research
services (as those terms are used in Section 28(e) of the Securities Exchange
Act of 1934 (the "1934 Act") provided to the Fund and/or other accounts over
which the Adviser or an affiliate of the Adviser exercises investment
discretion. The Adviser is authorized to pay a broker-dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for the Fund which is in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction if, but only if,
the Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer viewed in terms of that particular transaction or in terms of all
of the accounts over which investment discretion is so exercised.
3. The Adviser, at its own expense, shall furnish to the Fund office space
in the offices of the Adviser or in such other place as may be agreed upon by
the parties and the Fund from time to time, all necessary office facilities,
equipment and personnel in connection with its services hereunder, and shall
arrange, if desired by the Fund, for members of the Adviser's organization to
serve without salaries from the Fund as officers or, as may be agreed from time
to time, as agents of the Fund. The Adviser assumes and shall pay or reimburse
the Manager or the Fund, as the case may be, for: (1) the compensation (if any)
of the Trustees of the Fund who are affiliated with the Adviser, any of its
affiliates, or the Manager, and of all officers of the Fund as such, and (2) all
expenses of the Adviser incurred in connection with its services hereunder. The
Manager represents and warrants that the Fund has assumed and has agreed to pay
all other expenses of the Fund, including, without limitation: (1) all charges
and expenses of any custodian or depository appointed by the Fund for the
safekeeping of its cash, securities and other property; (2) all charges and
expenses for bookkeeping and auditors; (3) all charges and expenses of any
transfer agents and registrars appointed by the Fund; (4) all fees of all
Trustees of the Fund who are not affiliated with the Adviser, any of its
affiliates, or the Manager; (5) all broker's fees, expenses and commissions and
issue and transfer taxes chargeable to the Fund in connection with transactions
involving securities and other property to which the Fund is a party; (6) all
costs and expenses of distribution of its shares incurred pursuant to a Plan of
Distribution adopted under Rule 12b- 1 under the Investment Company Act of 1940
("1940 Act"); (7) all taxes and business trust fees payable by the Fund to
Federal, state or other governmental agencies; (8) all costs of certificates
representing shares of the Fund; (9) all fees and expenses involved in
registering and maintaining registrations of the Fund and of its shares with the
Securities and Exchange Commission (the "Commission") and registering or
qualifying its shares under state or other securities laws, including, without
limitation, the preparation and printing of registration statements,
prospectuses and statements of additional information for filing with the
Commission and other authorities; (10) expenses of preparing, printing and
mailing prospectuses and statements of additional information to shareholders of
the Fund; (11) all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing notices, reports and proxy materials to
shareholders of the Fund; (12) all charges and expenses of legal counsel for the
Fund and for Trustees of the Fund in connection with legal matters relating to
the Fund, including, without limitation, legal services rendered in connection
with the Fund's existence, business trust and financial structure and relations
with its shareholders, registrations and qualifications of securities under
Federal, state and other laws, issues of securities, expenses which the Fund has
herein assumed, whether customary or not, and extraordinary matters, including,
without limitation, any litigation involving the Fund, its Trustees, officers,
employees or agents; (13) all charges and expenses of filing annual and other
reports with the Commission and other authorities; (14) all charges and expenses
of any manager appointed by the Fund; and (15) all extraordinary expenses and
charges of the Fund; and that in the event that the Adviser provides any of
these services or pays any of these expenses, the Fund will promptly reimburse
the Adviser therefor.
The services of the Adviser to the Fund and the Manager hereunder are not to
be deemed exclusive, and the Adviser shall be free to render similar services to
others.
4. As compensation for the Adviser's services to the Fund during the period
of this Agreement, the Manager will pay to the Adviser a fee at the annual rate
of 85% of the management fee paid by the Fund to the Manager.
A pro rata portion of the fee shall be payable in arrears at the end of each
day or calendar month as the Adviser may from time to time specify to the
Manager. If and when this Agreement terminates, any compensation payable
hereunder for the period ending with the date of such termination shall be
payable upon such termination. Amounts payable hereunder shall be promptly paid
when due.
5. The Adviser shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund or the Manager in connection with the
performance of this Agreement, except a loss resulting from the Adviser's
willful misfeasance, bad faith, gross negligence or from reckless disregard by
it of its obligations and duties under this Agreement. Any person, even though
also an officer, Director, partner, employee, or agent of the Adviser, who may
be or become an officer, Trustee, Director, employee or agent of the Fund or the
Manager, shall be deemed, when rendering services to the Fund or the Manager or
acting on any business of the Fund or the Manager, (other than services or
business in connection with the Adviser's duties hereunder), to be rendering
such services to or acting solely for the Fund or the Manager, as the case may
be, and not as an officer, Director, partner, employee, or agent or one under
the control or direction of the Adviser even though paid by it. The Manager
agrees to indemnify and hold the Adviser harmless from all taxes, charges,
expenses, assessments, claims and liabilities (including, without limitation,
liabilities arising under the Securities Act of 1933, the 1934 Act, the 1940
Act, and any state and foreign securities and blue sky laws, as amended from
time to time) and expenses, including (without limitation) attorneys' fees and
disbursements, arising directly or indirectly from any action or thing which the
Adviser takes or does or omits to take or do hereunder; provided that the
Adviser shall not be indemnified against any liability to the Fund or to its
shareholders (or any expenses incident to such liability) arising out of a
breach of fiduciary duty with respect to the receipt of compensation for
services, willful misfeasance, bad faith, or gross negligence on the part of the
Adviser in the performance of its duties, or from reckless disregard by it of
its obligations and duties under this Agreement.
6. The Manager represents and warrants that the Fund has agreed to cause its
books and accounts to be audited at least once each year by a reputable
independent public accountant or organization of public accountants who shall
render a report to the Fund.
7. Subject to and in accordance with the Declaration of Trust of the Fund,
the Certificate of Incorporation of the Adviser and Articles of Incorporation of
the Manager, respectively, it is understood that Trustees, Directors, officers,
agents and shareholders of the Fund or the Manager are or may be interested in
the Adviser (or any successor thereof) as Directors and officers of the Adviser
or its affiliates, as stockholders of Keystone Group, Inc. or otherwise; that
Directors, officers and agents of the Adviser and its affiliates or stockholders
of Keystone Group, Inc. are or may be interested in the Fund or the Manager as
Trustees, Directors, officers, shareholders or otherwise; that the Adviser (or
any such successor) is or may be interested in the Fund or the Manager as
shareholder or otherwise; and that the effect of any such adverse interests
shall be governed by said Declaration of Trust of the Fund, Certificate of
Incorporation of the Adviser, and Articles of Incorporation of the Manager.
8. This Agreement shall continue in effect after July 1, 1994 only so long
as (1) such continuance is specifically approved at least annually by the Board
of Trustees of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund, and (2) such renewal has been approved by the vote of a
majority of Trustees of the Fund who are not interested persons, as that term is
defined in the 1940 Act, of the Adviser, the Manager or of the Fund, cast in
person at a meeting called for the purpose of voting on such approval.
9. On sixty days' written notice to the Adviser, this Agreement may be
terminated at any time without the payment of any penalty by the Manager, by the
Board of Trustees of the Fund or by vote of the holders of a majority of the
outstanding voting securities of the Fund; and on sixty days' written notice to
the Manager and the Fund, this Agreement may be terminated at any time without
the payment of any penalty by the Adviser. This Agreement shall automatically
terminate upon its assignment (as that term is defined in the 1940 Act). Any
notice under this Agreement shall be given in writing, addressed and delivered,
or mailed postage prepaid, to the other party at the main office of such party.
10. This Agreement may be amended at any time by an instrument in writing
executed by both parties hereto or their respective successors, provided that
with regard to amendments of substance such execution shall have been first
approved by the vote of the holders of a majority of the outstanding voting
securities of the Fund and by the vote of a majority of Trustees of the Fund who
are not interested persons (as that term is defined in the 1940 Act) of the
Adviser, the Manager, or of any predecessor of either, or of the Fund, cast in
person at a meeting called for the purpose of voting on such approval. A
"majority of the outstanding voting securities of the Fund" shall have, for all
purposes of this Agreement, the meaning provided therefor in the 1940 Act.
11. Any compensation payable to the Adviser hereunder for any period other
than a full year shall be proportionately adjusted.
12. The provisions of this Agreement shall be governed, construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.
KEYSTONE MANAGEMENT, INC.
By: -----------------------------------------------------------
Title:
KEYSTONE CUSTODIAN FUNDS, INC.
By: -----------------------------------------------------------
Title:
<PAGE>
Exhibit 99.6(A)
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE AMERICA GOVERNMENT SECURITIES FUND
AGREEMENT made this ____ day of _______________, 1993 by and between
Keystone America Government Securities Fund, a Massachusetts business trust,
("Fund"), and Keystone Distributors, Inc., a Delaware corporation ("Principal
Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal
underwriter of the shares of beneficial interest of the Fund ("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, to promote distribution of the Shares and may obtain orders from
brokers, dealers or other persons for sales of Shares to them. No such dealer,
broker or other person shall have any authority to act as agent for the Fund;
such dealer, broker or other person shall act only as principal in the sale of
Shares.
3. 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; provided that Principal
Underwriter also shall have the right to sell shares at net asset value, if such
sale is permissible under and consistent with applicable statutes, rules,
regulations and orders. 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 to the Fund 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 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 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 statement of
additional information. Copies of the then current prospectus and 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. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a) any untrue statement or alleged untrue statement of a
material fact contained in the Fund's registration statement,
prospectus or statement of additional information (including
amendments and supplements thereto), or
b) any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement, prospectus
or statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or
omission made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Trustees or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's registration
statement, prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by Principal
Underwriter for the purpose of qualifying the Shares for sale under the
so-called "blue sky" laws of any state or for registering Shares under the 1933
Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). Principal
Underwriter shall bear the expense of preparing, printing and distributing
advertising, sales literature, prospectuses, and statements of additional
information. The Fund shall bear the expense of registering Shares under the
1933 Act and the Fund under the 1940 Act, qualifying Shares for sale under the
so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to shareholders of the Fund, and the direct expenses of the issue of
Shares.
12. To the extent required by the 12b-1 Plan, Principal Underwriter
shall provide to the Board of Trustees of the Fund in connection with the 12b-1
Plan, not less than quarterly, a written report of the amounts expended pursuant
to such 12b-1 Plan and the purpose for which such expenditures were made.
13. The term of this agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after two
years. This agreement shall continue in effect after such term if its
continuance is specifically approved by a majority of the Trustees of the Fund
and a majority of the 12b-1 Trustees referred to in the 12b-1 Plan of the Fund
("Rule 12b-1 Trustees") at least annually in accordance with the 1940 Act and
the rules and regulations thereunder.
This agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Rule 12b-1 Trustees or by a vote of a
majority of the Fund's outstanding shares on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act).
14. This agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts. All sales hereunder are to be made, and title
to the Shares shall pass, in Boston, Massachusetts.
15. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first writen above.
KEYSTONE AMERICA GOVERNMENT SECURITIES FUND
By:
-----------------------------------
Title:
KEYSTONE DISTRIBUTORS, INC.
By:
------------------------------------
Title:
<PAGE>
FIRST AMENDMENT
TO
PRINCIPAL UNDERWRITING AGREEMENT
OF
KEYSTONE GOVERNMENT SECURITIES FUND
FIRST AMENDMENT (the "Amendment") made as of the 31st day of May 1995
to AGREEMENT (the "Agreement") made the 19th day of August 1993 by and between
Keystone Government Securities Fund, a Massachusetts business trust, ("Fund"),
and Keystone Investment Distributors Company, a Delaware corporation (the
"Principal Underwriter").
1. This Amendment is made by the Fund, individually and/or on behalf of
its series if any, referred to above in the title of this Amendment, to
which series, if any, this Amendment shall relate, as applicable (the
"Fund"). The Fund and the Principal Underwriter mutually agree that
Section 1 of the Agreement is amended as follows:
" 1. The Fund hereby appoints the Principal Underwriter a
principal underwriter of the Class A and Class C shares of
beneficial interest of the Fund ("Shares") as an independent
contractor upon the terms and conditions hereinafter set
forth. Except as the Fund may from time to time agree, the
Principal Underwriter will act as agent for the Fund and not
as principal."
2. In all other respects the Agreement is unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts on the day and year first written above.
KEYSTONE GOVERNMENT SECURITIES FUND
By:
------------------------------------
Title:
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By:
------------------------------------
Title:
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE GOVERNMENT SECURITIES FUND
AGREEMENT made this 31st day of May 1995 by and between Keystone
Government Securities Fund, a Massachusetts business trust, ("Fund"), and
Keystone Investment Distributors Company, a Delaware corporation (the "Principal
Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred
to above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the Fund ), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the 1940 Act ). Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-1 shares of beneficial interest of the Fund ("B-1
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find
purchasers for the B-1 Shares and to promote distribution of the B-1 Shares and
may obtain orders from brokers, dealers or other persons for sales of B-1 Shares
to them. No such dealer, broker or other person shall have any authority to act
as agent for the Fund; such dealer, broker or other person shall act only as
principal in the sale of B-1 Shares.
3. Sales of B-1 Shares by Principal Underwriter shall be at the 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 B-2 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 B-1 Shares the Fund shall receive the current net
asset value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-1 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
the Principal Underwriter by other classes of Shares of the Fund to the extent
required in order to comply with Section 14 hereof, and shall pay over to the
Principal Underwriter CDSCs (as defined in Section 14 hereof) as set forth in
the Fund's current prospectus and statement of additional information, and as
required by Section 14 hereof. The Principal Underwriter shall also receive
payments consisting of shareholder service fees ("Service Fees") at the rate of
.25% per annum of the average daily net asset value of the Class B-1 Shares. The
Principal Underwriter may allow all or a part of said Distribution Fees and
CDSCs received by it (not paid to others as hereinafter provided) to such
brokers, dealers or other persons as Principal Underwriter may determine.
5. Payment to the Fund for B-1 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such 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 B-1 Shares.
6. The Principal Underwriter shall not make in connection with any sale
or solicitation of a sale of the B-1 Shares any representations concerning the
B-1 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 statement of additional information. Copies of the then current prospectus
and statement of additional information and any such printed supplemental
information will be supplied by the Fund to the Principal Underwriter in
reasonable quantities upon request.
7. The Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (as defined in
the Purchase and Sale Agreement, dated as of May 31, 1995 (the Purchase
Agreement ), between the Principal Underwriter, Citibank, N.A. and Citicorp
North America, Inc., as agent (the "Rules of Fair Practice")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-1 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. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a material fact
contained in the Fund's registration statement, prospectus or
statement of additional information (including amendments and
supplements thereto) or
b. any omission or alleged omission to state a material fact required
to be stated in the Fund's registration statement, prospectus or
statement of additional information necessary to make the
statements therein not misleading, provided, however, that insofar
as losses, claims, damages, liabilities or expenses arise out of or
are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance and in conformity
with information furnished to the Fund by the Principal Underwriter
for use in the Fund's registration statement, prospectus or
statement of additional information, such indemnification is not
applicable. In no case shall the Fund indemnify the Principal
Underwriter or its controlling person as to any amounts incurred
for any liability arising out of or based upon any action for which
the Principal Underwriter, its officers and Directors or any
controlling person would otherwise be subject to liability by
reason of willful misfeasance, bad faith, or gross negligence in
the performance of its duties or by reason of the reckless
disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's
registration statement, prospectus or statement of additional
information (including amendments and supplements thereto), or
any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished or
confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by the Principal
Underwriter for the purpose of qualifying the B-1 Shares for sale under the
so-called "blue sky" laws of any state or for registering B-1 Shares under the
1933 Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). The
Principal Underwriter shall bear the expenses of preparing, printing and
distributing advertising, sales literature, prospectuses, and statements of
additional information. The Fund shall bear the expense of registering B-1
Shares under the 1933 Act and the Fund under the 1940 Act, qualifying B-1 Shares
for sale under the so-called "blue sky" laws of any state, the preparation and
printing of prospectuses, statements of additional information and reports
required to be filed with the Securities and Exchange Commission and other
authorities, the preparation, printing and mailing of prospectuses and
statements of additional information to holders of B-1 Shares, and the direct
expenses of the issue of B-1 Shares.
12. The Principal Underwriter shall, at the request of the Fund,
provide to the Board of Trustees or Directors (together herein called the
Directors ) of the Fund in connection with sales of B-1 Shares not less than
quarterly a written report of the amounts received from the Fund therefor and
the purpose for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after one
year. This Agreement shall continue in effect after such term if its continuance
is specifically approved by a majority of the outstanding voting securities of
Class B-1 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the Investment Company Act of 1940 (the 1940 Act ), of
any such party and who have no direct or indirect financial interest in the
operation of the Fund's Rule 12b-1 plan for Class B-1 Shares or in any
agreements related to the plan 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 Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-1
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-1 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), which shall not
include assignment of the Principal Underwriter's (as hereinafter defined)
provided for hereunder and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do so pursuant the Principal
Underwriting Agreement, of even date herewith, in respect of Class B-2 Shares,
and shall remain in effect so long as any payments are required to be made by
the Fund pursuant to the irrevocable payment instruction (as defined in the
Purchase Agreement (the Irrevocable Payment Instruction )).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Rules of Fair Practice as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall be equal to the portion of the Asset
Based Sales Charge allocable to Distributor Shares (as defined in Schedule I
hereto to this Agreement) in accordance with Schedule I hereto. The Fund agrees
to cause its transfer agent to maintain the records and arrange for the payments
on behalf of the Fund at the times and in the amounts and to the accounts
required by Schedule I hereto, as the same may be amended from time to time. It
is acknowledged and agreed that by virtue of the operation of Schedule I hereto
the Principal Underwriter's Allocable Portion of Distribution Fees paid by the
Fund in respect of Shares, may, to the extent provided in Schedule I hereto,
take into account Distribution Fees payable by the Fund in respect of other
existing and future classes and/or sub-classes of shares of the Fund which would
be treated as "Shares" under Schedule I hereto. The Fund will limit amounts paid
to any subsequent principal underwriters of Shares to the portion of the Asset
Based Sales Charge paid in respect of Shares which is allocable to
Post-distributor Shares (as defined in Schedule I hereto) in accordance with
Schedule I hereto. The Fund's payments to the Principal Underwriter in
consideration of its services in connection with the sale of B-1 Shares shall be
the Distribution Fees attributable to B-1 Shares which are Distributor Shares
(as defined in Schedule I hereto) and all other amounts constituting the
Principal Underwriter's Allocable Portion of Distribution Fees shall be the
Distribution Fees related to the sale of other Shares which are Distributor
Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to
withhold from redemption proceeds payable to holders of Shares on redemption
thereof the contingent deferred sales charges payable upon redemption thereof as
set forth in the then current prospectus and/or statement of additional
information of the Fund ("CDSCs") and to pay over to the Principal Underwriter
The Principal Underwriter's Allocable Portion of said CDSCs paid in respect of
Shares which shall be equal to the portion thereof allocable to Distributor
Shares (as defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its' Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of
Distribution Fees only, the Fund's obligation to pay the Principal Underwriter
the Distribution Fees and to pay over to the Principal Underwriter CDSCs
provided for hereby shall be absolute and unconditional and shall not be subject
to dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the
Fund shall pay to the Principal Underwriter its Allocable Portion of
Distribution Fees provided for hereby notwithstanding its termination as
Principal Underwriter for the Shares or any termination of this Agreement and
such payment of such Distribution Fees, and that obligation and the method of
computing such payment, shall not be changed or terminated except to the extent
required by any change in applicable law, including, without limitation, the
1940 Act, the Rules promulgated thereunder by the Securities and Exchange
Commission and the Rules of Fair Practice, in each case enacted or promulgated
after June 1, 1995, or in connection with a Complete Termination (as hereinafter
defined). For the purposes of this Section 14.5, "Complete Termination" means a
termination of the Fund's Rule 12b-1 plan for B-2 Shares involving the cessation
of payments of the Distribution Fees, and the cessation of payments of
distribution fees pursuant to every other Rule 12b-1 plan of the Fund for every
existing or future B-Class-of-Shares (as hereinafter defined) and the Fund's
discontinuance of the offering of every existing or future B-Class-of-Shares,
which conditions shall be deemed satisfied when they are first complied with
hereafter and so long thereafter as they are complied with prior to the earlier
of (i) the date upon which all of the B-2 Shares which are Distributor Shares
pursuant to Schedule I hereto shall have been redeemed or converted or (ii) June
1, 2005. For purposes of this Section 14.5, the term B-Class-of-Shares means
each of the B-1 Class of Shares of the Fund, the B-2 Class of Shares of the Fund
and each other class of shares of the Fund hereafter issued which would be
treated as Shares under Schedule I hereto or which has substantially similar
economic characteristics to the B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such class. The parties agree that the
existing C Class of Shares of the Fund does not have substantially similar
economic characteristics to the B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
this agreement hereby state that they intend that a new installment load class
of shares which may be authorized by amendments to Rule 6(c)-10 under the 1940
Act will be considered to be a B-Class-of-Shares if it has economic
characteristics substantially similar to the economic characteristics of the
existing B-1 or B-2 Classes of Shares taking into account the total sale charge,
CDSC or other similar charges borne directly or indirectly by the holder of such
shares and will not be considered to be a B-Class-of-Shares if it has economic
characteristics substantially similar to the economic characteristics of the
existing C Class of shares of the Fund taking into account the total sales
charge, CDSC or other similar charges borne directly or indirectly by the holder
of such shares.
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee") and any such assignment shall be effective as to the Fund
upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Principal Underwriter in the Irrevocable Payment Instruction, as the same may be
amended from time to time with the consent of the Fund, and the Fund shall be
without liability to any person if it pays such amounts when and as so directed,
except for underpayments of amounts actually due, without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fees and CDSCs
results in an increase in the maximum Sales Charge allowable under the Rules of
Fair Practice, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to
do so, change or waive any CDSC with respect to B-1 Shares, except as provided
in the Fund's prospectus or statement of additional information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-1 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
15. 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.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE GOVERNMENT SECURITIES FUND
By:
Title: Sr. Vice President
KEYSTONE INVESTMENT DISTRIBUTORS, INC.
By:
Title: President
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE GOVERNMENT SECURITIES FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-1
Shares of the Instant Fund dated as of June 1, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund, the
date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean [Keystone Equity Fund].
"ML Omnibus Account" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"Month of Original Purchase" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
provided, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); provided,
further, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be the Month of Original Purchase of the Share in respect of which
such dividend was paid; provided, further, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and provided,
finally, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"Omnibus Account" shall mean any Shareholder Account the record owner of
which is a registered broker-dealer which has agreed with the Transfer Agent to
provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"Omnibus Asset Based Sales Charge Settlement Date" shall mean, in respect
of each Omnibus Account, the Business Day next following the twentieth day of
each calendar month for the calendar month immediately preceding such date so
long as the record owner is able to allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund as contemplated by this Schedule I no
more frequently than monthly; provided, that at such time as the record owner of
such Omnibus Account is able to provide information sufficient to allocate the
Asset Based Sales Charge accruing in respect of such Shares of such Fund owned
of record by such Omnibus Account as contemplated by this Schedule I on a weekly
or daily basis, the Omnibus Asset Based Sales Charge Settlement Date shall be a
weekly date as in the case of the Omnibus CDSC Settlement Date or a daily date
as in the case of Asset Based Sales Charges accruing in respect of Shareholder
Accounts other than Omnibus Accounts, as the case may be.
"Omnibus CDSC Settlement Date" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
provided, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"Original Purchase Amount" shall mean, in respect of any Commission Share
of any Fund, the amount paid (i.e., the Net Asset Value thereof on such date),
on the Date of Original Purchase in respect of such Commission Share, by such
Shareholder Account or Sub-shareholder Account for such Commission Share;
provided, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"Other Dividend" shall mean in respect of any Share, any Dividend paid in
respect of such Share other than a Capital Gain Dividend.
"Post-distributor Shares" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which occurs after the Distributor
Last Sale Cut-off Date for such Fund.
"Program Agent" shall mean Citicorp North America, Inc., as Program Agent
under the Purchase Agreement, and its successors and assigns in such capacity.
"Purchase Agreement" shall mean that certain Purchase and Sale Agreement
dated as of May 31, 1995, among Keystone Investment Distributors Company, as
Seller, Citibank, N.A., as Purchaser, and Citicorp North America, Inc., as
Program Agent.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Schedule II to the Irrevocable Payment Instruction opposite
the name of such Fund, as the same may be amended from time to time by notice
from the Distributor and the Program Agent to the Fund and the Transfer Agent;
provided, that such term shall include, after the Distributor Last Sale Cut-off
Date, a share of a new class of shares of such Fund: (i) with respect to each
record owner of Shares which is not treated in the records of each Transfer
Agent and Sub-transfer Agent for such Fund as an entirely separate and distinct
class of shares from the classes of shares specified Schedule II to the
Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction of any class existing on or
prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on which can
be reinvested in shares of the classes specified on Schedule II to the
Irrevocable Payment Instruction under the automatic dividend reinvestment
options; or (iv) which is otherwise treated as though it were of the same class
as the class of shares specified on Schedule II to the Irrevocable Payment
Instruction.
"Shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Special Free Share" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"Sub-shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Sub-transfer Agent" shall mean, in respect of each Omnibus Account, the
record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND AND THE
RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) SHAREHOLDER ACCOUNTS AND SUB-SHAREHOLDER ACCOUNTS. The Transfer Agent
shall maintain a separate account (a "Shareholder Account") for each record
owner of Shares of each Fund. Each Shareholder Account (other than Omnibus
Accounts) will represent a record owner of Shares of such Fund, the records of
which will be kept in accordance with this Schedule I. In the case of an Omnibus
Account, the Transfer Agent shall require that the record owner of the Omnibus
Account maintain a separate account (a "Sub-shareholder Account") for each
record owner of Shares which are reflected in the Omnibus Account, the records
of which will be kept in accordance with this Schedule I. Each such Shareholder
Account and Sub-shareholder Account shall relate solely to Shares of such Fund
and shall not relate to any other class of shares of such Fund.
(2) COMMISSION SHARES. For each Shareholder Account (other than an Omnibus
Account), the Transfer Agent shall maintain daily records of each Commission
Share of such Fund which records shall identify each Commission Share of such
Fund reflected in such Shareholder Account by the Month of Original Purchase of
such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the
Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; provided, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) FREE SHARES. The Transfer Agent shall maintain daily records of each
Shareholder Account (other than an Omnibus Account) in respect of any Fund so as
to identify each Free Share (including each Special Free Share) reflected in
such Shareholder Account by the Month of Original Purchase of such Free Share.
In addition, the Transfer Agent shall require that each Shareholder Account
(other than an Omnibus Account) have in effect separate elections relating to
reinvestment of Capital Gain Dividends and relating to reinvestment of Other
Dividends in respect of any Fund. Either such Shareholder Account shall have
elected to reinvest all Capital Gain Dividends or such Shareholder Account shall
have elected to have all Capital Gain Dividends distributed. Similarly, either
such Shareholder Account shall have elected to reinvest all Other Dividends or
such Shareholder Account shall have elected to have all Other Dividends
distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain daily records for each Sub-shareholder Account in
the manner described in the immediately preceding paragraph for Shareholder
Accounts (other than Omnibus Accounts); provided, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; provided, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the Distributor Last
Sale Cut-off Date for such Fund shall be identified as Distributor
Shares.
(b) Free Shares of such Fund which are issued (whether or not in connection
with an exchange for a Free Share of another Fund) to the ML Omnibus
Account during any calendar month (or portion thereof) after the
Distributor Last Sale Cut-off Date for such Fund shall be identified as
Distributor Shares in a number computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account during
such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Distributor Shares and outstanding
as of the close of business in the last day of the immediately
preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund in
the ML Omnibus Account and outstanding as of the close of business
on the last day of the immediately preceding calendar month (or
portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in connection
with an exchange for a free share of another Fund) to the ML Omnibus
Account during any calendar month (or portion thereof) after the
Distributor Last Sale Cut-off Date for such Fund shall be identified as
Post-distributor Shares in a number computed as follows:
(A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account during
such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Post-distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund in
the ML Omnibus Account and outstanding as of the close of business
on the last day of the immediately preceding calendar month (or
portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a Class A Share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Distributor Shares in a number computed as
follows:
A X (B/C)
Where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share
of such Fund) from the ML Omnibus Account during such calendar
month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified as
Distributor Shares and outstanding as of the close of business on
the last day of the immediately preceding calendar month. C = Total
number of Free Shares of such Fund in the ML Omnibus Account and
outstanding as of the close of business on the last day of the
immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of the
immediately preceding calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Post-distributor Shares in a number
computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share
of such Fund) from the ML Omnibus Account during such calendar
month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified as
Post-distributor Shares and outstanding as of the close of business
on the last day of the immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last day
of the immediately preceding calendar month.
(4) APPRECIATION AMOUNT AND COST ACCUMULATION AMOUNT. The Transfer Agent
shall maintain on a daily basis in respect of each Shareholder Account (other
than Omnibus Accounts) a Cost Accumulation Amount representing the total of the
Original Purchase Amounts paid by such Shareholder Account for all Commission
Shares reflected in such Shareholder Account as of the close of business on each
day. In addition, the Transfer Agent shall maintain on a daily basis in respect
of each Shareholder Account (other than Omnibus Accounts) sufficient records to
enable it to compute, as of the date of any actual or deemed redemption or Free
Exchange of a Commission Share reflected in such Shareholder Account an amount
(such amount an "Appreciation Amount") equal to the excess, if any, of the Net
Asset Value as of the close of business on such day of the Commission Shares
reflected in such Shareholder Account minus the Cost Accumulation Amount as of
the close of business on such day. In the event that a Commission Share (or
portion thereof) reflected in a Shareholder Account is redeemed or under these
rules is deemed to have been redeemed (whether in a Free Exchange or otherwise),
the Appreciation Amount for such Shareholder Account shall be reduced, to the
extent thereof, by the Net Asset Value of the Commission Share (or portion
thereof) redeemed, and if the Net Asset Value of the Commission Share (or
portion thereof) being redeemed equals or exceeds the Appreciation Amount, the
Cost Accumulation Amount will be reduced to the extent thereof, by such excess.
If the Appreciation Amount for such Shareholder Account immediately prior to any
redemption of a Commission Share (or portion thereof) is equal to or greater
than the Net Asset Value of such Commission Share (or portion thereof) deemed to
have been tendered for redemption, no CDSCs will be payable in respect of such
Commission Share (or portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account; provided, that until the Sub-transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) NASD CAP. On the date the distribution fees paid in respect of any
class of Shares equals the maximum amount thereon under the Rules of Fair
Practice, in respect of such class, all outstanding Shares of such class of such
Fund shall be converted into Class A shares of such Fund and will be deemed to
have been redeemed for their Net Asset Value for purposes of this Schedule I.
(6) IDENTIFICATION OF REDEEMED SHARES. If a Shareholder Account (other than
an Omnibus Account) tenders a Share of a Fund for redemption (other than in
connection with an exchange of such Share for a Share of another Fund or in
connection with the conversion of such Share pursuant to a Conversion Feature),
such tendered Share will be deemed to be a Free Share if there are any Free
Shares reflected in such Shareholder Account immediately prior to such tender.
If there is more than one Free Share reflected in such Shareholder Account
immediately prior to such tender, such tendered Share will be deemed to be the
Free Share with the earliest Month of Original Purchase. If there are no Free
Shares reflected in such Shareholder Account immediately prior to such tender,
such tendered Share will be deemed to be the Commission Share with the earliest
Month of Original Purchase reflected in such Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account tenders a
Share for redemption (other than in connection with an Exchange of such Share
for a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), the Transfer Agent shall require that the
record owner of each Omnibus Account supply the Transfer Agent sufficient
records to enable the Transfer Agent to apply the rules of the preceding
paragraph to such Sub-shareholder Account (as though such Sub-shareholder
Account were a Shareholder Account other than an Omnibus Account); provided,
that until the Sub-transfer Agent in respect of the ML Omnibus Account develops
the data processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
regarding Free Shares (and the Transfer Agent shall account for such Free Shares
as provided in (3) above) but shall apply the foregoing rules to each Commission
Share with respect to the Date of Original Purchase of any Commission Share as
though each such Date were a separate Month of Original Purchase.
(7) IDENTIFICATION OF EXCHANGED SHARES. When a Shareholder Account (other
than an Omnibus Account) tenders Shares of one Fund (the "Redeeming Fund") for
redemption where the proceeds of such redemption are to be automatically
reinvested in shares of another Fund (the "Issuing Fund") to effect an exchange
(whether or not pursuant to a Free Exchange) into Shares of the Issuing Fund:
(1) such Shareholder Account will be deemed to have tendered Shares (or portions
thereof) of the Redeeming Fund with each Month of Original Purchase represented
by Shares of the Redeeming Fund reflected in such Shareholder Account
immediately prior to such tender in the same proportion that the number of
Shares of the redeeming Fund with such Month of Original Purchase reflected in
such Shareholder immediately prior to such tender bore to the total number of
Shares of the Redeeming Fund reflected in such Shareholder Account immediately
prior to such tender, and on that basis the tendered Shares of the Redeeming
Fund will be identified as Distributor Shares or Post-distributor Shares; (2)
such Shareholder Account will be deemed to have tendered Commission Shares (or
portions thereof) and Free Shares (or portions thereof) of the Redeeming Fund of
each category (i.e., Distributor Shares or Post-distributor Shares) in the same
proportion that the number of Commission Shares or Free Shares (as the case may
be) of the Redeeming Fund in such category reflected in such Shareholder Account
bore to the total number of Shares of the Redeeming Fund in such category
reflected in such Shareholder Account immediately prior to such tender, (3) the
Shares (or portions thereof) of the Issuing Fund issued in connection with such
exchange will be deemed to have the same Months of Original Purchase as the
Shares (or portions thereof) of the Redeeming Fund so tendered and will be
categorized as Distributor Shares and Post-distributor Shares accordingly, and
(4) the Shares (or portions thereof) of each Category of the Issuing Fund issued
in connection with such exchange will be deemed to be Commission Shares and Free
Shares in the same proportion that the Shares of such Category of the Redeeming
Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based upon the Date of Original Purchase) to determine which Commission Shares
(or portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(8) IDENTIFICATION OF CONVERTED SHARES. The Transfer Agent records
maintained for each Shareholder Account (other than an Omnibus Account) will
treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCS AMONG DISTRIBUTOR
SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the amounts of
Asset Based Sales Charges and CDSCs payable by each Fund in respect of Shares
between Distributor Shares and Post-distributor Shares:
(1) RECEIVABLES CONSTITUTING CDSCS: CDSCs will be treated as relating to
Distributor Shares or Post-distributor Shares depending upon the Month of
Original Purchase of the Commission Share the redemption of which gives rise to
the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply the
foregoing rule to each Sub-shareholder Account based on the records maintained
by such Sub-transfer Agent; provided, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capability to
conform to the foregoing requirements, such Sub-transfer Agent shall apply the
foregoing rules to each Sub-shareholder Account with respect to the Date of
Original Purchase of any Commission Share as though each such date were a
separate Month of Original Purchase.
(2) RECEIVABLES CONSTITUTING ASSET BASED SALES CHARGES:
The Asset Based Sales Charges accruing in respect of each Shareholder
Account (other than an Omnibus Account) shall be allocated to each Share
reflected in such Shareholder Account as of the close of business on such day on
an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A X (B/C) where:
A.= Total amount of Asset Based Sales Charge accrued in respect of
such Shareholder Account (other than an Omnibus Account) on such
day.
B.= Number of Distributor Shares reflected in such Shareholder
Account (other than an Omnibus Account) on the close of business on
such day
C.= Total number of Distributor Shares and Post-Distributor Shares
reflected in such Shareholder Account (other than an Omnibus
Account) and outstanding as of the close of business on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in respect of
such Shareholder Account for such day allocated to Post-distributor Shares will
be obtained using the same formula but substituting for "B" the number of
Post-distributor Shares, as the case may be, reflected in such Shareholder
Account and outstanding on the close of business on such day. The foregoing
allocation formula may be adjusted from time to time by notice to the Fund and
the transfer agent for the Fund from the Seller and the Program Agent pursuant
to Section 8.18 of the Purchase Agreement.
The Transfer Agent shall, based on the records maintained by the record
owner of such Omnibus Account, allocate the Asset Based Sales Charge accruing in
respect of each Omnibus Account on each day among all Sub-shareholder Accounts
reflected in such Omnibus Account on an equal per share basis based upon the
total number of Distributor Shares and Post-distributor Shares reflected in each
such Sub-shareholder Account as of the close of business on such day. In
addition, the Transfer Agent shall apply the foregoing rules to each
Sub-shareholder Account (as though it were a Shareholder Account other than an
Omnibus Account), based on the records maintained by the record owner, to
allocate the Asset Based Sales Charge so allocated to any Sub-shareholder
Account among the Distributor Shares and Post-distributor Shares reflected in
each such Sub-shareholder Account in accordance with the rules set forth in the
preceding paragraph; provided, that until the Sub-transfer Agent in respect of
the ML Omnibus Account develops the data processing capacity to apply the rules
of this Schedule I as applicable to Sub-shareholder Accounts other than ML
Omnibus Accounts, the Transfer Agent shall allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund in the ML Omnibus Account during any
calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to
Distributor Shares shall be computed as follows:
A X ((B + C)/2)
-----------
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during
such calendar month (or portion thereof) in respect of
Shares of such Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as of the
close of business on the last day of the immediately
preceding calendar month (or portion thereof), times Net
Asset Value per Share as of such time
C = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as of the
close of business on the last day of such calendar month
(or portion thereof), times Net Asset Value per Share as
of such time
D = Total number of Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the
last day of the immediately preceding calendar month (or
portion thereof), times Net Asset Value per Share as of
such time.
E = Total number of Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the
last day of such calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
(b) The portion of such Asset Based Sales Charge allocable to Post-
distributor Shares shall be computed s follows:
A X ((B + C)/2)
-----------
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of business
on the last day of the immediately preceding calendar month (or
portion thereof), times Net Asset Value per Share as of such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of business
on the last day of such calendar month (or portion thereof), times
Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account and
outstanding as of the close of business on the last day of the
immediately preceding calendar month (or portion thereof), times
Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
outstanding as of the close of business on the last day of such
calendar month, times Net Asset Value per Share as of such time.
(3) PAYMENTS ON BEHALF OF EACH FUND.
On the close of business on each day the Transfer Agent shall cause payment to
be made of the amount of the Asset Based Sales Charge and CDSCs accruing on such
day in respect of the Shares of such Fund owned of record by Shareholder
Accounts (other than Omnibus Accounts) by two separate wire transfers, directly
from accounts of such Fund as follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The Asset Based Sales Charges and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each Fund
shall cause the applicable Sub-transfer Agent to cause payment to be made of the
amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus Account and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to the
Distributor's Account, unless the Distributor otherwise instructs the Fund in
any irrevocable payment instruction; and
2. The CDSCs accruing in respect of such Omnibus Account and allocable to
Post-distributor Shares in accordance with the preceding rules shall be paid in
accordance with direction received from any future distributor of Shares of the
Instant Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the Transfer Agent
for each Fund shall cause payment to be made of the amount of the Asset Based
Sales Charge accruing for the period to which such Omnibus Asset Based Sales
Charge Settlement Date relates in respect of the Shares of such Fund owned of
record by each Omnibus Account by two separate wire transfers directly from
accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Distributor Shares shall be paid to the Distributor's
Collection Account, unless the Distributor otherwise instructs the Fund in any
irrevocable payment instruction; and
2. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Post-Distributor Shares shall be paid in accordance with
direction received from any future distributor of Shares of the Instant Fund.
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE GOVERNMENT SECURITIES FUND
AGREEMENT made this 31st day of May 1995 by and between Keystone
Government Securities Fund, a Massachusetts business trust, ("Fund"), and
Keystone Investment Distributors Company, a Delaware corporation (the "Principal
Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred
to above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the Fund ), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the 1940 Act ). Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-2 shares of beneficial interest of the Fund ("B-2
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find
purchasers for the B-2 Shares and to promote distribution of the B-2 Shares and
may obtain orders from brokers, dealers or other persons for sales of B-2 Shares
to them. No such dealer, broker or other person shall have any authority to act
as agent for the Fund; such dealer, broker or other person shall act only as
principal in the sale of B-2 Shares.
3. Sales of B-2 Shares by Principal Underwriter shall be at the 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 B-2 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 B-2 Shares the Fund shall receive the current net
asset value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-2 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
the Principal Underwriter by other classes of Shares of the Fund to the extent
required in order to comply with Section 14 hereof, and shall pay over to the
Principal Underwriter CDSCs (as defined in Section 14 hereof) as set forth in
the Fund's current prospectus and statement of additional information, and as
required by Section 14 hereof. The Principal Underwriter shall also receive
payments consisting of shareholder service fees ("Service Fees") at the rate of
.25% per annum of the average daily net asset value of the Class B-2 Shares. The
Principal Underwriter may allow all or a part of said Distribution Fees and
CDSCs received by it (not paid to others as hereinafter provided) to such
brokers, dealers or other persons as Principal Underwriter may determine.
5. Payment to the Fund for B-2 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such 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 B-2 Shares.
6. The Principal Underwriter shall not make in connection with any sale
or solicitation of a sale of the B-2 Shares any representations concerning the
B-2 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 statement of additional information. Copies of the then current prospectus
and statement of additional information and any such printed supplemental
information will be supplied by the Fund to the Principal Underwriter in
reasonable quantities upon request.
7. The Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (as defined in
the Purchase and Sale Agreement, dated as of May 31, 1995 (the Purchase
Agreement ), between the Principal Underwriter, Citibank, N.A. and Citicorp
North America, Inc., as agent (the "Rules of Fair Practice")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-2 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. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a
material fact contained in the Fund's registration
statement, prospectus or statement of additional
information (including amendments and supplements thereto)
or
b. any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement,
prospectus or statement of additional information necessary
to make the statements therein not misleading, provided,
however, that insofar as losses, claims, damages,
liabilities or expenses arise out of or are based upon any
such untrue statement or omission or alleged untrue
statement or omission made in reliance and in conformity
with information furnished to the Fund by the Principal
Underwriter for use in the Fund's registration statement,
prospectus or statement of additional information, such
indemnification is not applicable. In no case shall the
Fund indemnify the Principal Underwriter or its controlling
person as to any amounts incurred for any liability arising
out of or based upon any action for which the Principal
Underwriter, its officers and Directors or any controlling
person would otherwise be subject to liability by reason of
willful misfeasance, bad faith, or gross negligence in the
performance of its duties or by reason of the reckless
disregard of its obligations and duties under this
Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's
registration statement, prospectus or statement of
additional information (including amendments and
supplements thereto), or any omission or alleged omission
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished or confirmed in writing to the Fund
by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by the Principal
Underwriter for the purpose of qualifying the B-2 Shares for sale under the
so-called "blue sky" laws of any state or for registering B-2 Shares under the
1933 Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). The
Principal Underwriter shall bear the expenses of preparing, printing and
distributing advertising, sales literature, prospectuses, and statements of
additional information. The Fund shall bear the expense of registering B-2
Shares under the 1933 Act and the Fund under the 1940 Act, qualifying B-2 Shares
for sale under the so-called "blue sky" laws of any state, the preparation and
printing of prospectuses, statements of additional information and reports
required to be filed with the Securities and Exchange Commission and other
authorities, the preparation, printing and mailing of prospectuses and
statements of additional information to holders of B-2 Shares, and the direct
expenses of the issue of B-2 Shares.
12. The Principal Underwriter shall, at the request of the Fund,
provide to the Board of Trustees or Directors (together herein called the
Directors) of the Fund in connection with sales of B-2 Shares not less than
quarterly a written report of the amounts received from the Fund therefor and
the purpose for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after one
year. This Agreement shall continue in effect after such term if its continuance
is specifically approved by a majority of the outstanding voting securities of
Class B-2 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the Investment Company Act of 1940 (the 1940 Act ), of
any such party and who have no direct or indirect financial interest in the
operation of the Fund's Rule 12b-1 plan for Class B-2 Shares or in any
agreements related to the plan 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 Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-2
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-2 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), which shall not
include assignment of the Principal Underwriter's (as hereinafter defined)
provided for hereunder and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do so pursuant the Principal
Underwriting Agreement, of even date herewith, in respect of Class B-2 Shares,
and shall remain in effect so long as any payments are required to be made by
the Fund pursuant to the irrevocable payment instruction (as defined in the
Purchase Agreement (the Irrevocable Payment Instruction )).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Rules of Fair Practice as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall be equal to the portion of the Asset
Based Sales Charge allocable to Distributor Shares (as defined in Schedule I
hereto to this Agreement) in accordance with Schedule I hereto. The Fund agrees
to cause its transfer agent to maintain the records and arrange for the payments
on behalf of the Fund at the times and in the amounts and to the accounts
required by Schedule I hereto, as the same may be amended from time to time. It
is acknowledged and agreed that by virtue of the operation of Schedule I hereto
the Principal Underwriter's Allocable Portion of Distribution Fees paid by the
Fund in respect of Shares, may, to the extent provided in Schedule I hereto,
take into account Distribution Fees payable by the Fund in respect of other
existing and future classes and/or sub-classes of shares of the Fund which would
be treated as "Shares" under Schedule I hereto. The Fund will limit amounts paid
to any subsequent principal underwriters of Shares to the portion of the Asset
Based Sales Charge paid in respect of Shares which is allocable to
Post-distributor Shares (as defined in Schedule I hereto) in accordance with
Schedule I hereto. The Fund's payments to the Principal Underwriter in
consideration of its services in connection with the sale of B-2 Shares shall be
the Distribution Fees attributable to B-2 Shares which are Distributor Shares
(as defined in Schedule I hereto) and all other amounts constituting the
Principal Underwriter's Allocable Portion of Distribution Fees shall be the
Distribution Fees related to the sale of other Shares which are Distributor
Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to
withhold from redemption proceeds payable to holders of Shares on redemption
thereof the contingent deferred sales charges payable upon redemption thereof as
set forth in the then current prospectus and/or statement of additional
information of the Fund ("CDSCs") and to pay over to the Principal Underwriter
The Principal Underwriter's Allocable Portion of said CDSCs paid in respect of
Shares which shall be equal to the portion thereof allocable to Distributor
Shares (as defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its' Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of
Distribution Fees only, the Fund's obligation to pay the Principal Underwriter
the Distribution Fees and to pay over to the Principal Underwriter CDSCs
provided for hereby shall be absolute and unconditional and shall not be subject
to dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the
Fund shall pay to the Principal Underwriter its Allocable Portion of
Distribution Fees provided for hereby notwithstanding its termination as
Principal Underwriter for the Shares or any termination of this Agreement and
such payment of such Distribution Fees, and that obligation and the method of
computing such payment, shall not be changed or terminated except to the extent
required by any change in applicable law, including, without limitation, the
1940 Act, the Rules promulgated thereunder by the Securities and Exchange
Commission and the Rules of Fair Practice, in each case enacted or promulgated
after May 31, 1995, or in connection with a Complete Termination (as hereinafter
defined). For the purposes of this Section 14.5, "Complete Termination" means a
termination of the Fund's Rule 12b-1 plan for B-2 Shares involving the cessation
of payments of the Distribution Fees, and the cessation of payments of
distribution fees pursuant to every other Rule 12b-1 plan of the Fund for every
existing or future B-Class-of-Shares (as hereinafter defined) and the Fund's
discontinuance of the offering of every existing or future B-Class-of-Shares,
which conditions shall be deemed satisfied when they are first complied with
hereafter and so long thereafter as they are complied with prior to the earlier
of (i) the date upon which all of the B-2 Shares which are Distributor Shares
pursuant to Schedule I hereto shall have been redeemed or converted or (ii) May
31, 2005. For purposes of this Section 14.5, the term B-Class-of-Shares means
each of the B-1 Class of Shares of the Fund, the B-2 Class of Shares of the Fund
and each other class of shares of the Fund hereafter issued which would be
treated as Shares under Schedule I hereto or which has substantially similar
economic characteristics to the B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such class. The parties agree that the
existing C Class of Shares of the Fund does not have substantially similar
economic characteristics to the B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
this agreement hereby state that they intend that a new installment load class
of shares which may be authorized by amendments to Rule 6(c)-10 under the 1940
Act will be considered to be a B-Class-of-Shares if it has economic
characteristics substantially similar to the economic characteristics of the
existing B-1 or B-2 Classes of Shares taking into account the total sale charge,
CDSC or other similar charges borne directly or indirectly by the holder of such
shares and will not be considered to be a B-Class-of-Shares if it has economic
characteristics substantially similar to the economic characteristics of the
existing C Class of shares of the Fund taking into account the total sales
charge, CDSC or other similar charges borne directly or indirectly by the holder
of such shares.
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee") and any such assignment shall be effective as to the Fund
upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Principal Underwriter in the Irrevocable Payment Instruction, as the same may be
amended from time to time with the consent of the Fund, and the Fund shall be
without liability to any person if it pays such amounts when and as so directed,
except for underpayments of amounts actually due, without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fees and CDSCs
results in an increase in the maximum Sales Charge allowable under the Rules of
Fair Practice, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to
do so, change or waive any CDSC with respect to B-2 Shares, except as provided
in the Fund's prospectus or statement of additional information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-2 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
15. 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.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE GOVERNMENT SECURITIES FUND
By:
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Title: Sr. Vice President
KEYSTONE INVESTMENT DISTRIBUTORS, INC.
By:
----------------------------------
Title: President
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE GOVERNMENT SECURITIES FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-2
Shares of the Instant Fund dated as of June 1, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund, the
date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean [Keystone Equity Fund].
"ML Omnibus Account" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"Month of Original Purchase" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
provided, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); provided,
further, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be the Month of Original Purchase of the Share in respect of which
such dividend was paid; provided, further, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and provided,
finally, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"Omnibus Account" shall mean any Shareholder Account the record owner of
which is a registered broker-dealer which has agreed with the Transfer Agent to
provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"Omnibus Asset Based Sales Charge Settlement Date" shall mean, in respect
of each Omnibus Account, the Business Day next following the twentieth day of
each calendar month for the calendar month immediately preceding such date so
long as the record owner is able to allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund as contemplated by this Schedule I no
more frequently than monthly; provided, that at such time as the record owner of
such Omnibus Account is able to provide information sufficient to allocate the
Asset Based Sales Charge accruing in respect of such Shares of such Fund owned
of record by such Omnibus Account as contemplated by this Schedule I on a weekly
or daily basis, the Omnibus Asset Based Sales Charge Settlement Date shall be a
weekly date as in the case of the Omnibus CDSC Settlement Date or a daily date
as in the case of Asset Based Sales Charges accruing in respect of Shareholder
Accounts other than Omnibus Accounts, as the case may be.
"Omnibus CDSC Settlement Date" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
provided, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"Original Purchase Amount" shall mean, in respect of any Commission Share
of any Fund, the amount paid (i.e., the Net Asset Value thereof on such date),
on the Date of Original Purchase in respect of such Commission Share, by such
Shareholder Account or Sub-shareholder Account for such Commission Share;
provided, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"Other Dividend" shall mean in respect of any Share, any Dividend paid in
respect of such Share other than a Capital Gain Dividend.
"Post-distributor Shares" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which occurs after the Distributor
Last Sale Cut-off Date for such Fund.
"Program Agent" shall mean Citicorp North America, Inc., as Program Agent
under the Purchase Agreement, and its successors and assigns in such capacity.
"Purchase Agreement" shall mean that certain Purchase and Sale Agreement
dated as of May 31, 1995, among Keystone Investment Distributors Company, as
Seller, Citibank, N.A., as Purchaser, and Citicorp North America, Inc., as
Program Agent.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Schedule II to the Irrevocable Payment Instruction opposite
the name of such Fund, as the same may be amended from time to time by notice
from the Distributor and the Program Agent to the Fund and the Transfer Agent;
provided, that such term shall include, after the Distributor Last Sale Cut-off
Date, a share of a new class of shares of such Fund: (i) with respect to each
record owner of Shares which is not treated in the records of each Transfer
Agent and Sub-transfer Agent for such Fund as an entirely separate and distinct
class of shares from the classes of shares specified Schedule II to the
Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction of any class existing on or
prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on which can
be reinvested in shares of the classes specified on Schedule II to the
Irrevocable Payment Instruction under the automatic dividend reinvestment
options; or (iv) which is otherwise treated as though it were of the same class
as the class of shares specified on Schedule II to the Irrevocable Payment
Instruction.
"Shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Special Free Share" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"Sub-shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Sub-transfer Agent" shall mean, in respect of each Omnibus Account, the
record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND AND THE
RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) SHAREHOLDER ACCOUNTS AND SUB-SHAREHOLDER ACCOUNTS. The Transfer Agent
shall maintain a separate account (a "Shareholder Account") for each record
owner of Shares of each Fund. Each Shareholder Account (other than Omnibus
Accounts) will represent a record owner of Shares of such Fund, the records of
which will be kept in accordance with this Schedule I. In the case of an Omnibus
Account, the Transfer Agent shall require that the record owner of the Omnibus
Account maintain a separate account (a "Sub-shareholder Account") for each
record owner of Shares which are reflected in the Omnibus Account, the records
of which will be kept in accordance with this Schedule I. Each such Shareholder
Account and Sub-shareholder Account shall relate solely to Shares of such Fund
and shall not relate to any other class of shares of such Fund.
(2) COMMISSION SHARES. For each Shareholder Account (other than an Omnibus
Account), the Transfer Agent shall maintain daily records of each Commission
Share of such Fund which records shall identify each Commission Share of such
Fund reflected in such Shareholder Account by the Month of Original Purchase of
such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the
Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; provided, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) FREE SHARES. The Transfer Agent shall maintain daily records of each
Shareholder Account (other than an Omnibus Account) in respect of any Fund so as
to identify each Free Share (including each Special Free Share) reflected in
such Shareholder Account by the Month of Original Purchase of such Free Share.
In addition, the Transfer Agent shall require that each Shareholder Account
(other than an Omnibus Account) have in effect separate elections relating to
reinvestment of Capital Gain Dividends and relating to reinvestment of Other
Dividends in respect of any Fund. Either such Shareholder Account shall have
elected to reinvest all Capital Gain Dividends or such Shareholder Account shall
have elected to have all Capital Gain Dividends distributed. Similarly, either
such Shareholder Account shall have elected to reinvest all Other Dividends or
such Shareholder Account shall have elected to have all Other Dividends
distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain daily records for each Sub-shareholder Account in
the manner described in the immediately preceding paragraph for Shareholder
Accounts (other than Omnibus Accounts); provided, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; provided, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the Distributor Last
Sale Cut-off Date for such Fund shall be identified as Distributor
Shares.
(b) Free Shares of such Fund which are issued (whether or not in connection
with an exchange for a Free Share of another Fund) to the ML Omnibus
Account during any calendar month (or portion thereof) after the
Distributor Last Sale Cut-off Date for such Fund shall be identified as
Distributor Shares in a number computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account during
such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Distributor Shares and outstanding
as of the close of business in the last day of the immediately
preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund in
the ML Omnibus Account and outstanding as of the close of business
on the last day of the immediately preceding calendar month (or
portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in connection
with an exchange for a free share of another Fund) to the ML Omnibus
Account during any calendar month (or portion thereof) after the
Distributor Last Sale Cut-off Date for such Fund shall be identified as
Post-distributor Shares in a number computed as follows:
(A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account during
such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Post-distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund in
the ML Omnibus Account and outstanding as of the close of business
on the last day of the immediately preceding calendar month (or
portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a Class A Share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Distributor Shares in a number computed as
follows:
A X (B/C)
Where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share
of such Fund) from the ML Omnibus Account during such calendar
month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified as
Distributor Shares and outstanding as of the close of business on
the last day of the immediately preceding calendar month. C = Total
number of Free Shares of such Fund in the ML Omnibus Account and
outstanding as of the close of business on the last day of the
immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of the
immediately preceding calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Post-distributor Shares in a number
computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share
of such Fund) from the ML Omnibus Account during such calendar
month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified as
Post-distributor Shares and outstanding as of the close of business
on the last day of the immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last day
of the immediately preceding calendar month.
(4) APPRECIATION AMOUNT AND COST ACCUMULATION AMOUNT. The Transfer Agent
shall maintain on a daily basis in respect of each Shareholder Account (other
than Omnibus Accounts) a Cost Accumulation Amount representing the total of the
Original Purchase Amounts paid by such Shareholder Account for all Commission
Shares reflected in such Shareholder Account as of the close of business on each
day. In addition, the Transfer Agent shall maintain on a daily basis in respect
of each Shareholder Account (other than Omnibus Accounts) sufficient records to
enable it to compute, as of the date of any actual or deemed redemption or Free
Exchange of a Commission Share reflected in such Shareholder Account an amount
(such amount an "Appreciation Amount") equal to the excess, if any, of the Net
Asset Value as of the close of business on such day of the Commission Shares
reflected in such Shareholder Account minus the Cost Accumulation Amount as of
the close of business on such day. In the event that a Commission Share (or
portion thereof) reflected in a Shareholder Account is redeemed or under these
rules is deemed to have been redeemed (whether in a Free Exchange or otherwise),
the Appreciation Amount for such Shareholder Account shall be reduced, to the
extent thereof, by the Net Asset Value of the Commission Share (or portion
thereof) redeemed, and if the Net Asset Value of the Commission Share (or
portion thereof) being redeemed equals or exceeds the Appreciation Amount, the
Cost Accumulation Amount will be reduced to the extent thereof, by such excess.
If the Appreciation Amount for such Shareholder Account immediately prior to any
redemption of a Commission Share (or portion thereof) is equal to or greater
than the Net Asset Value of such Commission Share (or portion thereof) deemed to
have been tendered for redemption, no CDSCs will be payable in respect of such
Commission Share (or portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account; provided, that until the Sub-transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) NASD CAP. On the date the distribution fees paid in respect of any
class of Shares equals the maximum amount thereon under the Rules of Fair
Practice, in respect of such class, all outstanding Shares of such class of such
Fund shall be converted into Class A shares of such Fund and will be deemed to
have been redeemed for their Net Asset Value for purposes of this Schedule I.
(6) IDENTIFICATION OF REDEEMED SHARES. If a Shareholder Account (other than
an Omnibus Account) tenders a Share of a Fund for redemption (other than in
connection with an exchange of such Share for a Share of another Fund or in
connection with the conversion of such Share pursuant to a Conversion Feature),
such tendered Share will be deemed to be a Free Share if there are any Free
Shares reflected in such Shareholder Account immediately prior to such tender.
If there is more than one Free Share reflected in such Shareholder Account
immediately prior to such tender, such tendered Share will be deemed to be the
Free Share with the earliest Month of Original Purchase. If there are no Free
Shares reflected in such Shareholder Account immediately prior to such tender,
such tendered Share will be deemed to be the Commission Share with the earliest
Month of Original Purchase reflected in such Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account tenders a
Share for redemption (other than in connection with an Exchange of such Share
for a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), the Transfer Agent shall require that the
record owner of each Omnibus Account supply the Transfer Agent sufficient
records to enable the Transfer Agent to apply the rules of the preceding
paragraph to such Sub-shareholder Account (as though such Sub-shareholder
Account were a Shareholder Account other than an Omnibus Account); provided,
that until the Sub-transfer Agent in respect of the ML Omnibus Account develops
the data processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
regarding Free Shares (and the Transfer Agent shall account for such Free Shares
as provided in (3) above) but shall apply the foregoing rules to each Commission
Share with respect to the Date of Original Purchase of any Commission Share as
though each such Date were a separate Month of Original Purchase.
(7) IDENTIFICATION OF EXCHANGED SHARES. When a Shareholder Account (other
than an Omnibus Account) tenders Shares of one Fund (the "Redeeming Fund") for
redemption where the proceeds of such redemption are to be automatically
reinvested in shares of another Fund (the "Issuing Fund") to effect an exchange
(whether or not pursuant to a Free Exchange) into Shares of the Issuing Fund:
(1) such Shareholder Account will be deemed to have tendered Shares (or portions
thereof) of the Redeeming Fund with each Month of Original Purchase represented
by Shares of the Redeeming Fund reflected in such Shareholder Account
immediately prior to such tender in the same proportion that the number of
Shares of the redeeming Fund with such Month of Original Purchase reflected in
such Shareholder immediately prior to such tender bore to the total number of
Shares of the Redeeming Fund reflected in such Shareholder Account immediately
prior to such tender, and on that basis the tendered Shares of the Redeeming
Fund will be identified as Distributor Shares or Post-distributor Shares; (2)
such Shareholder Account will be deemed to have tendered Commission Shares (or
portions thereof) and Free Shares (or portions thereof) of the Redeeming Fund of
each category (i.e., Distributor Shares or Post-distributor Shares) in the same
proportion that the number of Commission Shares or Free Shares (as the case may
be) of the Redeeming Fund in such category reflected in such Shareholder Account
bore to the total number of Shares of the Redeeming Fund in such category
reflected in such Shareholder Account immediately prior to such tender, (3) the
Shares (or portions thereof) of the Issuing Fund issued in connection with such
exchange will be deemed to have the same Months of Original Purchase as the
Shares (or portions thereof) of the Redeeming Fund so tendered and will be
categorized as Distributor Shares and Post-distributor Shares accordingly, and
(4) the Shares (or portions thereof) of each Category of the Issuing Fund issued
in connection with such exchange will be deemed to be Commission Shares and Free
Shares in the same proportion that the Shares of such Category of the Redeeming
Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based upon the Date of Original Purchase) to determine which Commission Shares
(or portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(8) IDENTIFICATION OF CONVERTED SHARES. The Transfer Agent records
maintained for each Shareholder Account (other than an Omnibus Account) will
treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCS AMONG DISTRIBUTOR
SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the amounts of
Asset Based Sales Charges and CDSCs payable by each Fund in respect of Shares
between Distributor Shares and Post-distributor Shares:
(1) RECEIVABLES CONSTITUTING CDSCS: CDSCs will be treated as relating to
Distributor Shares or Post-distributor Shares depending upon the Month of
Original Purchase of the Commission Share the redemption of which gives rise to
the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply the
foregoing rule to each Sub-shareholder Account based on the records maintained
by such Sub-transfer Agent; provided, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capability to
conform to the foregoing requirements, such Sub-transfer Agent shall apply the
foregoing rules to each Sub-shareholder Account with respect to the Date of
Original Purchase of any Commission Share as though each such date were a
separate Month of Original Purchase.
(2) RECEIVABLES CONSTITUTING ASSET BASED SALES CHARGES:
The Asset Based Sales Charges accruing in respect of each Shareholder
Account (other than an Omnibus Account) shall be allocated to each Share
reflected in such Shareholder Account as of the close of business on such day on
an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A X (B/C) where:
A.= Total amount of Asset Based Sales Charge accrued in respect of
such Shareholder Account (other than an Omnibus Account) on such
day.
B.= Number of Distributor Shares reflected in such Shareholder
Account (other than an Omnibus Account) on the close of business on
such day
C.= Total number of Distributor Shares and Post-Distributor Shares
reflected in such Shareholder Account (other than an Omnibus
Account) and outstanding as of the close of business on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in respect of
such Shareholder Account for such day allocated to Post-distributor Shares will
be obtained using the same formula but substituting for "B" the number of
Post-distributor Shares, as the case may be, reflected in such Shareholder
Account and outstanding on the close of business on such day. The foregoing
allocation formula may be adjusted from time to time by notice to the Fund and
the transfer agent for the Fund from the Seller and the Program Agent pursuant
to Section 8.18 of the Purchase Agreement.
The Transfer Agent shall, based on the records maintained by the record
owner of such Omnibus Account, allocate the Asset Based Sales Charge accruing in
respect of each Omnibus Account on each day among all Sub-shareholder Accounts
reflected in such Omnibus Account on an equal per share basis based upon the
total number of Distributor Shares and Post-distributor Shares reflected in each
such Sub-shareholder Account as of the close of business on such day. In
addition, the Transfer Agent shall apply the foregoing rules to each
Sub-shareholder Account (as though it were a Shareholder Account other than an
Omnibus Account), based on the records maintained by the record owner, to
allocate the Asset Based Sales Charge so allocated to any Sub-shareholder
Account among the Distributor Shares and Post-distributor Shares reflected in
each such Sub-shareholder Account in accordance with the rules set forth in the
preceding paragraph; provided, that until the Sub-transfer Agent in respect of
the ML Omnibus Account develops the data processing capacity to apply the rules
of this Schedule I as applicable to Sub-shareholder Accounts other than ML
Omnibus Accounts, the Transfer Agent shall allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund in the ML Omnibus Account during any
calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to
Distributor Shares shall be computed as follows:
A X ((B + C)/2)
-----------
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during
such calendar month (or portion thereof) in respect of
Shares of such Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as of the
close of business on the last day of the immediately
preceding calendar month (or portion thereof), times Net
Asset Value per Share as of such time
C = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as of the
close of business on the last day of such calendar month
(or portion thereof), times Net Asset Value per Share as
of such time
D = Total number of Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the
last day of the immediately preceding calendar month (or
portion thereof), times Net Asset Value per Share as of
such time.
E = Total number of Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the
last day of such calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
(b) The portion of such Asset Based Sales Charge allocable to Post-
distributor Shares shall be computed s follows:
A X ((B + C)/2)
-----------
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of business
on the last day of the immediately preceding calendar month (or
portion thereof), times Net Asset Value per Share as of such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of business
on the last day of such calendar month (or portion thereof), times
Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account and
outstanding as of the close of business on the last day of the
immediately preceding calendar month (or portion thereof), times
Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
outstanding as of the close of business on the last day of such
calendar month, times Net Asset Value per Share as of such time.
(3) PAYMENTS ON BEHALF OF EACH FUND.
On the close of business on each day the Transfer Agent shall cause payment to
be made of the amount of the Asset Based Sales Charge and CDSCs accruing on such
day in respect of the Shares of such Fund owned of record by Shareholder
Accounts (other than Omnibus Accounts) by two separate wire transfers, directly
from accounts of such Fund as follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The Asset Based Sales Charges and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each Fund
shall cause the applicable Sub-transfer Agent to cause payment to be made of the
amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus Account and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to the
Distributor's Account, unless the Distributor otherwise instructs the Fund in
any irrevocable payment instruction; and
2. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Post-Distributor Shares shall be paid in accordance with
direction received from any future distributor of Shares of the Instant Fund.
<PAGE>
Exhibit 99.8
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
by and between
KEYSTONE AMERICA GOVERNMENT SECURITIES FUND
and
STATE STREET BANK AND TRUST COMPANY
Agreement made as of this 12th day of February, 1987 by and between
KEYSTONE AMERICA GOVERNMENT SECURITIES FUND, a Massachusetts business trust (the
"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 Declaration of Trust, and By-Laws, all amendments
thereto, a certified copy of the resolution of the Fund's Board of Trustees
appointing State Street to act in the capacities covered by this Agreement and
authorizing the signing of this Agreement and copies of such resolutions of its
Board of Trustees, contracts and other documents as may be resonably 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 paragraph 6-C
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.
BB. 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.
C. Registered Name, Nominee. Register securities of the Fund
held by State Street in the name of the Fund, of a nominee of State Street for
the exclusive use of the Fund, or of such other nominee as may be mutually
agreed upon, or of any mutually acceptable nominee of any agent or Subcustodian
appointed pursuant to paragraph 6-C of Section II hereof.
D. Purchases. Upon receipt of proper instructions (as defined
in paragraph 5-A of Section II hereof; hereafter "proper instructions") and
insofar as cash is available for the purpose, pay for and receive all securities
purchased for the account of the Fund, payment being made only upon receipt of
the securities by State Street (or any bank, banking firm, responsible
commercial agent or trust company doing business in the United States and
appointed pursuant to paragraph 6-C of Section II hereof as State Street's agent
or Subcustodian for this purpose) registered as provided in paragraph 3-C of
Section II hereof or in form for transfer satisfactory to State Street, or, in
the case of repurchase agreements entered into between the Fund and 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.
E. 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 paragraph 6-C of Section II hereof
for the account of the Fund for other securities alone or for other securities
and cash, and expend cash insofar as cash is available in connection with any
merger, consolidation, reorganization, recapitalization, split-up of shares,
changes of par value, conversion or in connection with the exercise of warrants,
subscription or purchase rights, or otherwise, and deliver securities to the
designated depository or other receiving agent 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 paragraph 6-C of Section II hereof, so that the Fund may
issue to State Street proper instructions for State Street to act thereon prior
to any expiration date (which shall be presumed to be two business days prior to
such date unless State Street has previously advised the Fund of a different
period). The Fund shall give to State Street full details of the time and method
of submitting securities in response to any tender or similar offer, exercising
any subscription or purchase right or making any exchange pursuant to this
paragraph. When such securities are in the possession of an agent or
Subcustodian appointed by State Street pursuant to paragraph 6-C of Section II
hereof, the proper instructions referred to in the preceding sentence must be
received by State Street in timely enough fashion (which shall be presumed to be
three business days unless State Street has advised the Fund in writing of a
different period) for State Street to notify the agent or Subcustodian in
sufficient time to permit such agent to act prior to any expiration date.
F. Sales. Upon receipt of proper instructions and upon receipt
of full payment therefor, release and deliver securities which have been sold
for the account of the Fund. At the time of delivery all such payments are to be
made in cash, by a certified check upon or a treasurer's or cashier's check of a
bank, by effective bank wire transfer through the Federal Reserve Wire System
or, if appropriate, outside of the Federal Reserve Wire System and subsequent
credit to the Fund's custodian account, or, in case of delivery through a stock
clearing company, by book-entry credit by the stock clearing company in
accordance with the then current "street" custom.
G. Purchases by Issuer. Upon receipt of proper instructions,
release and deliver securities owned by the Fund to the issuer thereof or its
agent when such securities are called, redeemed, retired or otherwise become
payable; provided that in any such case, the cash or other consideration is to
be delivered to State Street.
H. Changes of Name and Denomination. Upon receipt of proper
instructions, release and deliver securities owned by the Fund to the issuer
thereof or its agent for transfer into the name of the Fund or of a nominee of
State Street or of the Fund for the exclusive use of the Fund or for exchange
for a different number of bonds, certificates, or other evidence representing
the same aggregate face amount or number of units bearing the same interest
rate, maturity date and call provisions if any; provided that in any such case,
the new securities are to be delivered to State Street.
I. Street Delivery. In connection with delivery in New York
City and upon receipt of proper instructions, which in the case of registered
securities may be standing instructions, release securities owned by the Fund
upon receipt of a written receipt for such securities to the broker selling the
same for examination in accordance with the existing "street delivery" custom.
In every instance, either payment in full for such securities shall be made or
such securities shall be returned to State Street that same day. In the event
existing "street delivery" custom is modified, State Street shall obtain
authorization from the Board of Trustees of the Fund prior to any use of such
modified "street delivery" custom.
J. Release of Securities for Use as Collateral. Upon receipt
of proper instructions and subject to the Declaration of Trust, release
securities belonging to the Fund to any bank or trust company for the purpose of
pledge, mortgage or hypothecation to secure any loan incurred by the Fund;
provided, however, that securities shall be released only upon payment to State
Street of the monies borrowed, except that in cases where additional collateral
is required to secure a borrowing already made, subject to proper prior
authorization from the Fund, further securities may be released for that
purpose. Upon receipt of proper instructions, pay such loan upon redelivery to
it of the securities pledged or hypothecated therefore and upon surrender of the
note or notes evidencing the loan.
K. Release or Delivery of Securities for OtherPurposes. Upon
receipt of proper instructions, release or deliver any securities held by it for
the account of the Fund for any other purpose (in addition to those specified in
paragraphs 3-E, 3-F, 3-G, 3-H, 3-I and 3-J of Section II hereof) which the Fund
declares is a proper corporate purpose pursuant to proper instructions.
L. Proxies, Notices, Etc. State Street shall promptly forward
upon receipt to the Fund all forms of proxies and all notices of meetings and
any other notices or announcements affecting or relating to the securities,
including without limitation notices relating to class action claims and
bankruptcy claims, and upon receipt of proper instructions execute and deliver
or cause its nominee to execute and deliver such proxies or other authorizations
as may be required. State Street, its nominee or its agents 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 of Section II hereof to forward any such announcements and notices
to State Street upon receipt.
M. Miscellaneous. In general, attend to all nondiscretionary
details in connection with the sale, exchange, substitution, purchase, transfer
or other dealing with such securities or property of the Fund, except as
otherwise directed by the Fund pursuant to proper instructions. State Street
shall render to the Fund daily a report of all monies received or paid on behalf
of the Fund, an itemized statement of the securities and cash for which it is
accountable to the Fund under this Agreement and itemized statement of security
transactions which settled the day before and shall render to the Fund weekly an
itemized statement of security transactions which failed to settle as scheduled.
At the end of each week State Street shall provide a list of all security
transactions that remain unsettled at such time.
4. Additionally, as Custodian, State Street shall promptly:
A. Bank Account. Retain safely all cash of the Fund, other
than cash maintained by the Fund in a bank acount established and used in
accordance with Rule 17f-3 under the Investment Company Act of 1940, as amended,
in the banking department of State Street in a separate account or accounts in
the name of the Fund, subject only to draft or order by State Street acting
pursuant to the terms of this Agreement. If and when authorized by proper
instructions in accordance with a vote of the Board of Trustees of the Fund,
State Street may open and maintain an additional account or accounts in such
other bank or trust companies as may be designated by such instructions, such
account or accounts, however, to be solely in the name of State Street in its
capacity as Custodian and subject only to its draft or order in accordance with
the terms of this Agreement. State Street shall furnish the Fund, not later than
thirty (30) calendar days after the last business day of each month, a statement
reflecting the current status of its internal reconciliation of the closing
balance as of that day in all accounts described in this paragraph to the
balance shown on the daily cash report for that day rendered to the Fund.
B. Collections. Unless otherwise instructed by receipt of
proper instructions, collect, receive and deposit in the bank account or
accounts maintained pursuant to paragraph 4-A of Section II hereof all income
and other payments with respect to the securities held hereunder, execute
ownership and other certificates and affidavits for all Federal and State tax
purposes in connection with the collection of bond and note coupons, do all
other things necessary or proper in 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 practic able 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
Declaration of Trust and By-Laws, as amended.
D. Dividends and Distributions. Upon receipt of proper
instructions, release or otherwise apply cash insofar as cash is available for
the purpose 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
Declaration of Trust and By-Laws, as amended, and applicable resolutions of the
Board of Trustees of the Fund pursuant thereto, make funds available for payment
to shareholders who have delivered to the Transfer Agent a request for
redemption of their shares by the Fund pursuant to such Declaration of Trust, as
amended.
In connection with the redemption of shares of the Fund pursuant to the
Fund's Declaration of Trust and By-Laws, as amended, State Street is authorized
and directed upon receipt of proper instructions from the Transfer Agent for the
Fund to make funds available for transfer through the Federal Reserve Wire
System or by other bank wire to a commercial bank account designated by the
redeeming shareholder.
F. Stock Dividends, Rights, Etc. Receive and collect all stock
dividends, rights and other items of like nature; and deal with the same
pursuant to proper instructions relative thereto.
G. Disbursements. Upon receipt of proper instructions, make or
cause to be made, insofar as cash is available for the purpose, disbursements
for the payment on behalf of the Fund of its expenses, including without
limitation, interest, taxes and fees or reimbursement to State Street or to the
Fund's Investment 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-D, 3-E, 4-D, 4-E, and 4-G of this Agreement) which the
Fund declares is a proper corporate purpose.
I. Records. Create, maintain and retain all records a)
relating to its activities and obligations under this Agreement in such manner
as shall meet the obligations of the Fund under the Investment Company Act of
1940, as amended, particularly Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, under applicable federal and state tax laws and under any other law
or administrative rules or procedures which may be applicable to the Fund, b)
necessary to comply with the representations of Part I - Fund Custodian Services
and Part II - Portfolio Pricing and Accounting of State Street's Response, dated
May 1, 1979, as amended, to Keystone Custodian Funds, Inc.'s and the
Massachusetts 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 reasonbly 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 Trustees or by one or more person or persons as the Fund's Trustees shall
have from time to time authorized to give the particular class of instructions
for different purposes. Different persons may be authorized to give instructions
for different purposes. A copy of a resolution or action of the Trustees
certified by the secretary or an assistant secretary of the Fund may be received
and accepted by State Street as conclusive evidence of the instruction of the
Fund's Trustees and/or the authority of any person or persons to act on behalf
of the Fund and may be considered as in full force and effect until receipt of
written notice to the contrary. Such instruction may be general or specific in
terms. Oral instructions will be considered proper instructions if State Street
reasonably believes them to have been given by a person authorized by the
Trustees to give such oral instructions with respect to the class of instruction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
B. Investments, Limitations. In performing its duties
generally, and more particularly in connection with the purchase, sale and
exchange of securities made by or for the Fund, State Street may take cognizance
of the provisions of the Declaration of Trust of the Fund, as amended; provided,
however, that except as otherwise expressly provided herein, State Street may
assume unless and until notified in writing to the contrary that instructions
purporting to be proper instructions received by it are not in conflict with or
in any way contrary to any provision of the Declaration of Trust of the Fund, as
amended, or resolutions or proceedings of the Trustees of the Fund.
6. State Street and the Fund further agree as follows:
A. Indemnification. State Street, as Depository and Custodian,
shall be entitled to receive and act upon advice of counsel (who may be counsel
for the Fund) and shall be without liability for any action reasonably taken or
thing reasonably done pursuant to such advice; provided that such action is not
in violation of applicable Federal or State laws or regulations or contrary to
written instructions received from the Fund, and shall be indemnified by the
Fund and without liability for any action taken or thing done by it in carrying
out the terms and provisions of this Agreement in good faith and without
negligence, misfeasance or misconduct. In order that the indemnification
provision contained in this paragraph shall apply, however, if the Fund is asked
to indemnify or save State Street harmless, the Fund shall be fully and promptly
advised of all pertinent facts concerning the situation in question, and State
Street shall use all reasonable care to identify and notify the Fund fully and
promptly concerning any situation which presents or appears likely to present
the probability of such a claim for indemnification against the Fund. The Fund
shall have the option to defend State Street against any claim which may be the
subject of this indemnification and in the event that the Fund so elects it will
so notify State Street, and thereupon the Fund shall take over complete defense
of the claim, and State Street shall initiate no further legal or other expenses
for which it shall seek indemnification under this paragraph. State Street shall
in no case confess any claim or make any compromise in any case in which the
Fund will be asked to indemnify State Street except with the Fund's prior
written consent.
B. Expenses Reimbursement. State Street shall be entitled to
receive from the Fund on demand reimbursement for its cash 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 Declaration of Trust and By-Laws, as amended, any other
bank, trust company or responsible commercial agent as its agent or
Sub-Custodian to carry out such of the provisions of this Agreement as State
Street may from time to time direct; provided, however, that the appointment of
any such agent or Sub-Custodian shall not relieve State Street of any of its
responsibilities under this Agreement.
D. Reliance on Documents. So long as and to the extent that it
is in good faith and in the exercise of reasonable care, State Street, as
Depository and Custodian, shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement, shall be protected in acting upon
any instructions, notice, request, consent, certificate or other instrument or
paper reasonably believed by it to be genuine and to constitute proper
instructions under this Agreement and shall, except as otherwise specifically
provided in this Agreement, be entitled to receive as conclusive proof of any
fact or matter required to be ascertained by it hereunder a certificate signed
by the Fund's Trustees, the secretary or an assistant secretary of the Fund or
any other person expressly authorized by the Trustees of the Fund.
E. Access to Records. Subject to security requirements of
State Street applicable to its own employees having access to similar records
within State Street and such regulations as to the conduct of such monitors as
may be reasonably imposed by State Street after prior consultation with an
authorized officer of the Fund, books and records of State Street pertaining to
its actions under this Agreement shall be open to inspection and audit at
reasonble times by the Trustees of, attorneys for, auditors employed by the Fund
or any other person as the Fund's Trustees shall direct.
F. Record-Keeping. State Street shall maintain such records as
shall enable the Fund to comply with the requirements of all Federal and State
laws and regulations applicable to the Fund with respect to the matters covered
by this Agreement and shall comply with the representations of Parts I and II as
such representations relate to maintaining records of the Fund.
7. The Fund shall pay State Street for its services as Custodian such
compensation as shall be specified in the attached Exhibit A. Such compensation
shall remain fixed until December 31, 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 Trustees substitute
another bank or trust company for State Street by giving notice as provided
above to State Street. The Fund or State Street shall not amend or terminate
this Agreement in contravention of any applicable Federal or State laws or
regulations, or any provision of the Declaration of Trust of the Fund, as
amended; provided, however, that in the event of such termination State Street
shall remain as Custodian hereunder for a reasonable period thereafter if the
Fund after using its best efforts is unable to find a Successor Custodian.
In connection with the operation of this Agreement, State Street and
the Fund may agree from time to time on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement, any such interpretive or
additional provision to be signed by both parties and annexed hereto, provided
that no such interpretive or additional provisions shall contravene any
applicable Federal or State laws or regulations, or any provision of the Fund's
Declaration of Trust and By-Laws, as amended. No interpretive provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Agreement.
B. Successor Custodian. Upon termination hereof or the
inability of State Street to continue to serve hereunder, the Fund shall pay to
State Street such compensation as may be due for services through the date of
such termination and shall likewise reimburse State Street for its costs,
expenses and disbursements incurred prior to such termination in accordance with
paragraph 6-B of Section II hereof and such reasonable costs, expenses and
disbursements as may be incurred by State Street in connection with such
termination.
If a Successor Custodian is appointed by the Trustees of the Fund in
accordance with the Fund's Declaration of Trust, as amended, State Street shall,
upon termination, deliver to such Successor Custodian at the office of State
Street, properly endorsed and in proper form for transfer, all securities then
held hereunder, all cash and other assets of the Fund deposited with or held by
it hereunder.
If no such Successor Custodian is appointed, State Street shall, in
like manner at its office, upon receipt of a certified copy of a resolution of
the shareholders pursuant to the Fund's Declaration of Trust and By-Laws, as
amended, deliver such securities, cash and other properties in accordance with
such resolutions.
In the event that no written order designating a Successor Custodian or
certified copy of a resolution of the shareholders shall have been delivered to
State Street on or before the date when such termination shall become effective,
then State Street shall have the right to deliver to a bank or trust company
doing business in Boston, Massachusetts of its own selection, having an
aggregate capital, surplus and undivided profits, as shown by its last published
report, of not less than $5,000,000, all securities, cash and other properties
held by State Street and all instruments held by it relative thereto and all
other property held by it under this Agreement. Thereafter, such bank or trust
company shall be the Successor of State Street under this Agreement and subject
to the restrictions, limitations and other requirements of the Fund's
Declaration of Trust and By-Laws, both as amended.
In the event that securities, funds, and other properties remain in the
possession of State Street after the date of termination hereof owing to failure
of the Fund to procure the certified copy above referred to, or of the Fund's
Trustees to appoint a Successor Custodian, State Street shall be entitled to
fair compensation for its services during such period and the provisions of this
Agreement relating to the duties and obligations of State Street shall remain in
full force and effect.
C. Duplicate Records and Backup Facilities. State Street shall
not be liable for loss of data, occurring by reason of circumstances beyond its
control, including but not limited to acts of civil or military authority,
national emergencies, fire, flood or catastrophe, acts of God, insurrection,
war, riots, or failure of transportation, communication or power supply.
However, State Street shall keep in a separate and safe place additional copies
of all records required to be maintained pursuant to this Agreement or
additional tapes, disks or other sources of information necessary to reproduce
all such records. Furthermore, at all times during this Agreement, State Street
shall maintain a contractual arrangement whereby State Street will have a
back-up computer facility available for its use in providing the services
required hereunder in the event circumstances beyond State Street's control
result in State Street not being able to process the necessary work at its
principal computer facility, State Street shall, from time to time, upon request
from the Fund provide written evidence and details of its arrangement for
obtaining the use of such a back-up computer facility. State Street shall use
its best efforts to minimize the likelihood of all damage, loss of data, delays
and errors resulting from an uncontrollable event, and should such damage, loss
of data, delays or errors occur, State Street shall use its best efforts to
mitigate the effects of such occurrence. Representatives of the Fund shall be
entitled to inspect the State Street premises and operating capabilities within
reasonable business hours upon reasonable notice to State Street, and, upon
request of such representative or representatives, State Street shall from time
to time as appropriate, furnish to the Fund a letter setting forth the insurance
coverage thereon, any changes in such coverage which may occur and any claim
relating to the Fund which State Street may have made under such insurance.
D. Confidentiality. State Street agrees to treat all records
and other information relative to the Fund confidentially and State Street on
behalf of itself and its officers, employees and agents agrees to keep
confidential all such information, except after prior notification to and
approval by the Fund (which approval shall not be unreasonably withheld and may
not be withheld where State Street may be exposed to civil or criminal contempt
proceedings), when requested to divulge such information by duly constituted
authorities or when so requested by a properly authorized person.
State Steet 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 America Government Securities Fund, c/o Keystone Custodian Funds, Inc.,
99 High Street, 32nd Floor, Boston, Massachusetts 02110 or to State Street at
225 Franklin Street, Boston, Massachusetts 02110 or to such other address as the
Fund or State Street may hereafter specify, shall be deemed to have been
properly delivered or given hereunder to the respective address.
13. It is understood and is expressly stipulated that neither the
holders of shares in the Fund nor the Fund's Trustees, officers or employees
shall be personally liable hereunder, but only the assets of the Fund shall be
bound.
14. This Agreement shall be binding upon and shall inure to the benefit
of the Fund and State Street and their respective successors or assigns.
15. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
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 AMERICA GOVERNMENT
SECURITIES FUND
By:
- ------------------------------- ------------------------------
President
ATTEST: STATE STREET BANK AND TRUST
COMPANY
By:
- ------------------------------- ------------------------------
Vice President
<PAGE>
Schedule A
STATE STREET BANK AND TRUST COMPANY
Custodian Fee Schedule
KEYSTONE AMERICA GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
I. Administration
Custodian, Portfolio and Fund Accounting Service - Maintain custody of Fund
assets. Settle portfolio purchases and sales. Report buy and sell fails.
Determine and collect portfolio income. Make cash disbursements and report cash
transactions. Maintain investment ledgers, provide selected portfolio
transactions, position and income reports. Maintain general ledger and capital
stock accounts. Prepare daily trial balance. Calculate net asset value daily.
Provide from Fund approved pricing sources or vendors daily pricing for Fund
portfolio securities. Provide selected general ledger reports. Securities yield
or market value quotations for short term Fund portfolio securities will be
provided to State Street from a source designated by the Fund.
The administration fee shown below is an annual charge, billed and payable
monthly, based on average net assets and calculated in the same manner as the
Fund advisory and management fee.
ANNUAL FEES PER PORTFOLIO
Fund Net Assets Annual Fee
- ------------------ ------------
First $35 million 1/15 of 1%
Next $65 million 1/30 of 1%
Excess 1/100 of 1%
No minimum
<PAGE>
II. Portfolio Trades - For each line item processed
a) Depository Trust Company and Federal Reserve
Book-Entry System $12.25
b) New York Physical Settlements
Receive $16.00
Deliver $16.00
Transfer $ 6.00
c) Options and All Other Trades $16.00
III. Holdings & Appraisal Charge
For each issue maintained - monthly charge $ 5.00
Paydown on government securities - monthly charge $ 5.00
Dividend charges (for items held at the request
of traders over record date in street form) $50.00
IV. Out of Pocket Expense
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of- pocket expenses include, but
are not limited to the following:
Telephone
Wire charges ($4.70 per wire in and $4.55 out)
Postage and insurance
Courier service
Duplicating
Legal fees
Supplies related to Fund records
Rush transfer - $8.00 each
Transfer fees
Sub-custodian charges
Price Waterhouse audit letter
Checkwriting ($.50 per check)
Federal Reserve Fee for returned check items over
$2,500 - $4.25
GNMA transfer - $15.00 each
V. Additional Accounting and Reporting Functions
$150 per month
This fee schedule will terminate 12/31/88
<PAGE>
SCHEDULE B
I. Operating Plan - Fund Custodian Services
1. Page 1
a) Trade instructions by tape input compatible with the SPARK
system will not be given.
b) System 34 terminals will not be provided for trade input.
2. Page 2
a) Distributions will be charged against the custodian account
and credited to the disbursement account on the payable
date.
b) Reports - improved or new SPARK Reports will be made
available to the Fund at its request for no additional
cost, if made available at no additional cost to other
customers of State Street.
II. Fund Custodian Services
A. Page 1
1) The Fund will receive Custody and Full Accounting Services.
B. Page 2
1) Polaris Fund Inc. is now Keystone International Fund Inc.
III. Custodian Reports
A. Page 1
2) Analytics - SPARK information reports - the Funds will
receive none of these.
IV. KM - SSB Reports Comparison
A. Page 1 - MassCo Report
1) (9) Different form with similar content to be prepared for
Keystone Tax Free Fund (and Keystone Tax Exempt Trust)
rather than Master Reserves Trust (MRT).
2) (12) To be prepared for all Funds.
3) (13) Trade Settlement Authorizations and all other reports
as provided to the Keystone Funds will be provided MassCo
Funds.
4) (26) Initial instructions in memo from Mr. Joseph Naples.
Instructions may be changed from time to time by proper
instructions.
5) (30) Letter to be supplied by Mellon Bank, N.A.
6) (31) Report to be supplied by Mellon Bank, N.A.
B. Keystone Reports
1) (3) Information to be supplied by Open Order System.
2) (16) Will be prepared manually by State Street.
Calculations to be based on initial instructions provided
under (4) (26) memo.
3) (18) To be prepared by State Street.
4) (30) New SPARK Report to be provided the Funds.
5) (31) Pricing Quotes for foreign issues, restricted
securities and private placements not otherwise available
to State Street to be supplied by the Fund.
6) (46) KIMCO Reports unnecessary.
7) (58) State Street to prepare manually.
8) (57) Keystone to provide.
9) (70) New SPARK Report to be provided the Funds.
10) (73) SPARK Report to be provided the Funds.
11) (74) New SPARK Report and hard copy tape to be provided
the Funds.
12) (75) State Street to provide weekly report of fails for
each Fund.
13) All new SPARK reports must be reviewed and accepted by the
Funds before they will be considered to comply with State
Street's Custodian, Fund Accounting and Recordkeeping
Agreements with the Funds, such acceptance not to be
unreasonably withheld.
VI. Responses
I. Fund Custodian Services
a) Page 2
Checkwriting privilege is $.35 per check - charged only for
Keystone Liquid Trust at this time. Other Fund agreements
to be amended to include this charge if such privilege is
ever offered to shareholders of other Funds.
b) Page 3 (6) Individuals responsible for Fund services may
change as long as the quality of the personnel is
maintained.
c) Page 6 (11) State Street is liable for the acts of its
sub-custodians to the same extent that it is liable for the
acts of its agents.
II. Exhibits
1. Exhibit 1-2
a) (6) Notices of corporate actions shall include, without
limitation, notices of class actions and bankruptcy actions
in connection with issues held by the Funds.
<PAGE>
FIRST
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE AMERICA GOVERNMENT SECURITIES FUND
AND
STATE STREET BANK AND TRUST COMPANY
This First Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE AMERICA GOVERNMENT SECURITIES
FUND ("Fund") and STATE STREET BANK AND TRUST COMPANY ("State Street"), dated
February 12, 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):
<PAGE>
"K. Compliance with Applicable Rules and Regulations of The
Options Clearing Corporation and National Securities or Commodities
Exchanges or Commissions. Upon receipt of proper instructions, deliver
securities in accordance with the provisions of any agreement among the
Fund, the Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 ("Exchange Act") and a member of the National
Association of Securities Dealers, Inc.("NASD"), relating to compliance
with the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization
or organizations, regarding escrow or other arrangements in connection
with transactions by the Fund; or, upon receipt of proper instructions
deliver securities in accordance with the provisions of any agreement
among the Fund, the Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or any
Contract market, or any similar organization or organizations,
regarding account deposits in connection with transactions by the
Fund."
2. Existing Section II, Paragraph 3(L) is renumbered as
Paragraph 3(M).
3. The following language is inserted after new Paragraph 3(M) as
Paragraph 3(N) :
"N. Segregated Account. The Custodian shall upon receipt of
proper instructions, establish and maintain a segregated account or
accounts for and on behalf of the Fund, into which account or accounts
may be transferred cash and/or securities, including securities
maintained in an account by the Custodian pursuant to Paragraph 3(B)
hereof, (i) in accordance with the provisions of any agreement among
the Fund, the Custodian and a broker-dealer registered under the
Exchange Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or of any
similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund, (ii) for
purposes of segregating cash or government securities in connection
with options purchased, sold or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the Fund,
(iii) for the purposes of compliance by the Fund with the procedures
required by Investment Company Act Release No. 10666, or any subsequent
release or releases of the Securities and Exchange Commission relating
to the maintenance of segregated accounts by registered investment
companies and (iv), for other proper corporate purposes, but only, in
the case of clause (iv), upon receipt of, in addition to proper
instructions, a certified copy of a resolution of the Board of Trustees
signed by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper corporate
purposes."
4. Existing Section II, Paragraphs 3(M) and 3(N) are renumbered
as Paragraphs 3(O) and 3(P).
5. In all other respects the Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
officer as of the day and year first above written.
ATTEST: KEYSTONE AMERICA GOVERNMENT
SECURITIES FUND
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 AMERICA GOVERNMENT SECURITIES FUND
AND
STATE STREET BANK AND TRUST COMPANY
This Second Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE AMERICA GOVERNMENT SECURITIES
FUND ("Fund") and STATE STREET BANK AND TRUST COMPANY ("State Street"), dated
February 12, 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-D of Section II entitled, Purchases is amended by
concluding the first sentence of such paragraph with the following:
"or, upon receipt by State Street of a facsimile copy of a
letter of understanding with respect to a time deposit account
of the Fund signed by any bank, whether domestic or foreign,
and pursuant to Proper Instructions from the Fund as defined
in Section 5-A, for transfer to the time deposit account of
the Fund in such bank; such transfer may be effected prior to
receipt of a confirmation from a broker and/or the applicable
bank."
2. Section II is amended by deleting existing Paragraph 7
and by inserting the following as Paragraphs 7 and 8:
" 7. Lien on Assets. If the Fund requires State Street to
advance cash or securities for any purpose or in the event
that State Street or its nominee shall incur or be assessed
any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this
Agreement, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of
the Fund shall be security therefor and should the Fund fail
to repay State Street promptly, State Street shall be entitled
to utilize available cash and to dispose of the Fund assets to
the extent necessary to obtain reimbursement; provided,
however, that the total value of any property of any Portfolio
of the Fund which at any time is security for any payment by
State Street hereunder shall not exceed 15% of such
Portfolio's total net asset value.
" 8. The Fund shall pay State Street for its services as
Custodian such compensation as shall be specified in the
attached Exhibit A. Such compensation shall remain fixed until
December 31, 1989, unless this Agreement is terminated as
provided in Section 8A."
3. In all other respects the Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
officer as of the day and year first above written.
ATTEST: KEYSTONE AMERICA GOVERNMENT
SECURITIES FUND
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 AMERICA GOVERNMENT SECURITIES FUND
AND
STATE STREET BANK AND TRUST COMPANY
This Third Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE AMERICA GOVERNMENT SECURITIES
FUND ("Fund") and STATE STREET BANK AND TRUST COMPANY ("State Street"), dated
February 12, 1987 and amended through January 1, 1989 ("Agreement"), is made by
and between the Fund and State Street as of February __, 1990.
In consideration of the mutual agreements contained herein, State
Street and the Fund hereby agree to amend the Agreement as follows:
1. Section II is amended by deleting Paragraph 8 and by
inserting the following as Paragraph 7A:
" 7A. The Fund shall pay State Street for its services as
Custodian such compensation as specified in the existing Schedule A.
Such compensation shall remain fixed until March 31, 1990 unless this
Agreement is terminated as provided in Paragraph 8A."
2. In all other respects the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
officer as of the day and year first above written.
ATTEST: KEYSTONE AMERICA GOVERNMENT
SECURITIES FUND
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 AMERICA GOVERNMENT SECURITIES FUND
AND
STATE STREET BANK AND TRUST COMPANY
This Fourth Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE AMERICA GOVERNMENT SECURITIES
FUND, a Massachusetts business trust organized and existing under the laws of
the Commonwealth of Massachusetts and having a principal place of business at 99
High Street, Boston, Massachusetts 02110 (hereinafter called the "Fund"), and
State Street Bank and Trust Company, a Massachusetts trust company, having its
principal place of business at 225 Franklin Street, Boston, Massachusetts 02110
(hereinafter called the "Custodian").
WHEREAS: The Fund and the Custodian are parties to a Custodian, Fund
Accounting and Recordkeeping Agreement dated February 12, 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:
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto hereby amend the Custodian
Contract as follows:
1. Capitalized terms used herein without definition shall
have the meanings ascribed to them in the Custodian
Contract.
2. The Fund hereby instructs the Custodian to establish and
maintain a segregated account (the "Letter of Credit
Custody Account") for and on behalf of the Fund as
contemplated by Section II, Paragraph 3N (iv) of the
Custodian Contract for the purpose of collateralizing
the Fund's obligations under this Amendment to the
Custodian Contract.
3. The Fund shall deposit with the Custodian and the
Custodian shall hold in the Letter of Credit Custody
Account cash, certificates of deposit, U.S. government
securities or other high-grade debt securities owned by
the Fund acceptable to the Custodian (collectively
"Collateral Securities") equal to 100% of the Fund's
proportionate share of the face amount which the Company
may draw under the Letter of Credit. Upon receipt of
such Collateral Securities in the Letter of Credit
Custody Account, the Custodian shall issue the Letter of
Credit to the Company.
4. The Fund hereby grants to the Custodian a security
interest in the Collateral Securities from time to time
in the Letter of Credit Custody Account (the
"Collateral") to secure the performance of the Fund's
obligations to the Custodian with respect to the Letter
of Credit, including, without limitation, under Section
5-144(3) of the Uniform Commercial Code. The Fund shall
register the pledge of Collateral and execute and
deliver to the Custodian such powers and instruments of
assignment as may be requested by the Custodian to
evidence and perfect the limited interest in the
Collateral granted hereby.
5. The Collateral Securities in the Letter of Credit
Custody Account may be substituted or exchanged
(including substitutions or exchanges which increase or
decrease the aggregate value of the Collateral) only
pursuant to Proper Instructions from the Fund after the
Fund notifies the Custodian of the contemplated
substitution or exchange and the Custodian agrees that
such substitution or exchange is acceptable to the
Custodian.
6. Upon any payment made pursuant to the Letter of Credit
by the Custodian to the Company, the Custodian may
withdraw from the Letter of Credit Custody Account
Collateral Securities in an amount equal in value to the
amount actually so paid. The Custodian shall have with
respect to the Collateral so withdrawn all of the rights
of a secured creditor under the Uniform Commercial Code
as adopted in the Commonwealth of Massachusetts at the
time of such withdrawal and all other rights granted or
permitted to it under law.
7. The Custodian will transfer upon receipt all income
earned on the Collateral to the Fund custody account
unless the Custodian receives Proper Instructions from
the Fund to the contrary.
8. Upon the drawing by the Company of all amounts which may
become payable to it under the Letter of Credit and the
withdrawal of all Collateral Securities with respect
thereto by the Custodian pursuant to Section 6 hereof,
or upon the termination of the Letter of Credit by the
Fund with the written consent of the Company, the
Custodian shall transfer any Collateral Securities then
remaining in the Letter of Credit Custody Account to
another fund custody account.
9. Collateral held in the Letter of Credit Custody Account
shall be released only in accordance with the provisions
of this Amendment to Custodian Contract. The Collateral
shall at all times until withdrawn pursuant to Section 6
hereof remain the property of the Fund, subject only to
the extent of the interest granted herein to the
Custodian.
10. Notwithstanding any other termination of the Custodian
Contract, the Custodian Contract shall remain in full
force and effect with respect to the Letter of Credit
Custody Account until transfer of all Collateral
Securities pursuant to Section 8 hereof.
11. The Custodian shall be entitled to reasonable
compensation for its issuance of the Letter of Credit
and for its services in connection with the Letter of
Credit Custody Account as agreed upon from time to time
between the Fund and the Custodian.
12. The Custodian Contract as amended hereby shall be
governed by, and construed and interpreted under, the
laws of the Commonwealth of Massachusetts.
13. The parties agree to execute and deliver all such
further documents and instruments and to take such
further action as may be required to carry out the
purposes of the Custodian Contract, as amended hereby.
14. Except as provided in this Amendment, the Custodian
Contract shall remain in full force and effect, without
amendment or modification, and all applicable provisions
of the Custodian Contract, as amended hereby, shall
govern the Letter of Credit Custody Account and the
rights and obligations of the Fund and the Custodian
under this Amendment to Custodian Contract. No provision
of this Amendment to Custodian Contract shall be deemed
to constitute a waiver of any rights of the Custodian
under the Custodian Contract or under law.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to
Custodian Contract to be executed in its name and behalf by its duly authorized
representatives and its seal to be hereunder affixed as of the _____ day of
February, 1990.
ATTEST: KEYSTONE AMERICA GOVERNMENT
SECURITIES FUND
By: By:
------------------------------- ------------------------------
ATTEST: STATE STREET BANK AND TRUST
COMPANY
By: By:
------------------------------- ------------------------------
Assistant Secretary Vice President
<PAGE>
FIFTH
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE AMERICA GOVERNMENT SECURITIES FUND
AND
STATE STREET BANK AND TRUST COMPANY
This Fifth Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE AMERICA GOVERNMENT SECURITIES
FUND ("Fund") and STATE STREET BANK AND TRUST COMPANY ("State Street"), dated
February 12, 1987 and amended through February 8, 1990 ("Agreement"), is made by
and between the Fund and State Street as of April __, 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 December 31, 1990 unless
this Agreement is terminated as provided in Paragraph 8A."
2. In all other respects the Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
officer as of the day and year first above written.
ATTEST: KEYSTONE AMERICA GOVERNMENT
SECURITIES FUND
By:
- ------------------------------- ------------------------------
ATTEST: STATE STREET BANK AND TRUST
COMPANY
By:
- ------------------------------- ------------------------------
Vice President
EXHIBIT 99.11
CONSENT OF INDEPENDENT AUDITORS
The Trustees
Keystone Government Securities Fund
(Formerly Keystone America Government Securities Fund)
We consent to the use of our report dated September 1, 1995,
included herein and to the references to our firm under the captions "FINANCIAL
HIGHLIGHTS" in the prospectus and "ADDITIONAL INFORMATION" in the statement of
additional information.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
September 28, 1995
EXHIBIT 99.15
KEYSTONE AMERICA GOVERNMENT SECURITIES FUND
CLASS A DISTRIBUTION PLAN
SECTION 1. Keystone America Government Securities Fund (Fund) may act
as the distributor of securities of which it is the issuer, pursuant to Rule
12b-1 under the Investment Company Act of 1940 (1940 Act) according to the terms
of this Distribution Plan (Plan).
SECTION 2. The Fund may expend daily amounts at an annual rate of 0.75%
of the average daily net asset value of Class A shares of the Fund to finance
any activity which is principally intended to result in the sale of Class A
shares of the Fund, including, without limitation, expenditures consisting of
payments to a principal underwriter of the Fund (Principal Underwriter) in order
(i) to enable the Principal Underwriter to pay to others commissions in respect
of sales of shares of Class A shares since inception of the Plan; (ii) to enable
the Principal Underwriter to pay or to have paid to others who sell und shares a
maintenance or other fee, at such intervals as the Principal Underwriter may
determine, in respect of Class A shares previously sold by any such others and
remaining outstanding during the period in respect of which such fee is or has
been paid; and/or (iii) to compensate the Principal Underwriter for its efforts
in respect of sales of shares of Class A since inception of the Plan.
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 1940 Act) of the outstanding
Class A 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 a majority of both
(a) the Board of Trustees of the Fund and (b) those Trustees of the Fund who are
not "interested persons" of the Fund (as defined in the 1940 Act) and who have
no direct or indirect financial interest in the operation of this Plan or any
agreements of the Fund or any other person related to this Plan (Rule 12b-1
Trustees), cast in person at a meeting called for the purpose of voting on this
Plan or such agreements.
SECTION 5. Unless sooner terminated pursuant to Section 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.
SECTION 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or bny related agreement shall
provide to the Fund's Board and the Board shall review at least quarterly a
written report of the amounts so expended and the purposes for which such
expenditures were made.
SECTION 7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees, or by vote of a majority of the Fund's
outstanding Class A shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Rule 12b-1 Trustees or
by a vote of a majority of the Fund's outstanding Class A 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.
<PAGE>
DISTRIBUTION PLAN
FOR
CLASS B-1 SHARES
OF
KEYSTONE GOVERNMENT SECURITIES FUND
Section 1. Keystone Government Securities Fund, individually and/or on
behalf of its series, if any, referred to above in the title of this 12b-1 Plan
(the "Plan"), to which series this Plan shall then relate, as applicable (the
"Fund"), may act as the distributor of certain securities of which it is the
issuer pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act") according to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-1 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan is in effect, together with interest on any such amounts, at rates
approved by the Rule 12b-1 Directors (as defined below) in the manner referred
to below, all whether or not this Plan has been otherwise terminated, if such
payment of such expenditures is for services theretofore provided or for
reimbursement of expenses theretofore incurred or accrued prior to termination
of this Plan in other respects and if such payment is or has been so approved by
such Rule 12b-1 Directors, or agreed to by the Fund with such approval, all
subject to such specific implementation as such 12b-1 Directors may approve;
provided that, at the time any such payment is made, whether or not this Plan
has been otherwise terminated, the making of such payment will not cause the
limitation upon such payments set forth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-1 Shares and/or
other specified classes of shares of the Fund (together the "B-Class-of-
Shares"), a fee which may be designated a Distribution Fee and may be paid at a
rate per annum up to .75% of the average daily net asset value of such
B-Class-of-Shares of the Fund and may, but need not, also provide: (I) that a
Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (II) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below) (III)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June 1, 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (IV) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate such Principal
Underwriter's rights to its Allocable Portion of the CDSCs; and (VI) that any
Principal Underwriter may assign its rights to its Allocable Portion of the
Distribution Fees and CDSCs (but not such Principal Underwriter's obligations to
the Fund under its principal underwriting agreement) to raise funds to make
expenditures described in Section 2 above and in connection therewith, and upon
receipt of notice of such assignment, the Fund shall pay to the assignee such
portion of the Principal Underwriter's Allocable Portion of the Distribution
Fees and CDSCs so assigned. For purposes of such principal underwriting
agreement, the term Allocable Portion of Distribution Fees as applied to any
Principal Underwriter may mean the portion of the Distribution Fee allocable to
Distributor Shares in accordance with the "Allocation Schedule" attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term Allocable Portion of CDSCs as applied
to any Principal Underwriter may mean the portion of the CDSCs allocable to
Distributor Shares in accordance with the Allocation Schedule attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term "Complete Termination" may mean a
termination of this Plan involving the cessation of payments of the Distribution
Fees thereunder, the cessation of payments of distribution fees pursuant to
every other rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares and the cessation of the offering by the Fund of existing or
future B-Class-of-Shares, which conditions shall be deemed to be satisfied when
they are first complied with and so long thereafter as they are complied with
prior to the earlier of (i) the date upon which all of the B-2 Shares which are
Distributor Shares pursuant to the Allocation Schedule shall have been redeemed
or converted or (ii) a specified date, after either of which times such
conditions need no longer be complied with. For purposes of such principal
underwriting agreement, the term "B-Class-of-Shares" may mean each of the B-1
Class of Shares of the Fund, the B-2 Class of Shares of the Fund and each other
class of shares of the Fund hereafter issued which would be treated as "Shares"
under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fees
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
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 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Fund and (b) a majority of those Directors of
the Fund who are not "interested persons" of the Fund (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 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 hereof, 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 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
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 of Directors, 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, in whole or in part, at any
time by vote of a majority of the Rule 12b-1 Directors or by vote of a majority
of the outstanding Shares, with the effects provided for in Section 2, as
applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(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 a vote of a majority of the 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.
<PAGE>
DISTRIBUTION PLAN
FOR
CLASS B-2 SHARES
OF
KEYSTONE GOVERNMENT SECURITIES FUND
Section 1. Keystone Government Securities Fund, individually and/or on
behalf of its series, if any, referred to above in the title of this 12b-1 Plan
(the "Plan"), to which series this Plan shall then relate, as applicable (the
"Fund"), may act as the distributor of certain securities of which it is the
issuer pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act") according to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-2 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan is in effect, together with interest on any such amounts, at rates
approved by the Rule 12b-1 Directors (as defined below) in the manner referred
to below, all whether or not this Plan has been otherwise terminated, if such
payment of such expenditures is for services theretofore provided or for
reimbursement of expenses theretofore incurred or accrued prior to termination
of this Plan in other respects and if such payment is or has been so approved by
such Rule 12b-1 Directors, or agreed to by the Fund with such approval, all
subject to such specific implementation as such 12b-1 Directors may approve;
provided that, at the time any such payment is made, whether or not this Plan
has been otherwise terminated, the making of such payment will not cause the
limitation upon such payments set forth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-2 Shares and/or
other specified classes of shares of the Fund (together the "B-Class-
of-Shares"), a fee which may be designated a Distribution Fee and may be paid at
a rate per annum up to .75% of the average daily net asset value of such
B-Class-of-Shares of the Fund and may, but need not, also provide: (I) that a
Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (II) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below); (III)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June 1, 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (IV) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate such Principal
Underwriter's rights to its Allocable Portion of the CDSCs; and (VI) that any
Principal Underwriter may assign its rights to its Allocable Portion of the
Distribution Fees and CDSCs (but not such Principal Underwriter's obligations to
the Fund under its principal underwriting agreement) to raise funds to make
expenditures described in Section 2 above and in connection therewith, and upon
receipt of notice of such assignment, the Fund shall pay to the assignee such
portion of the Principal Underwriter's Allocable Portion of the Distribution
Fees and CDSCs so assigned. For purposes of such principal underwriting
agreement, the term Allocable Portion of Distribution Fees as applied to any
Principal Underwriter may mean the portion of the Distribution Fee allocable to
Distributor Shares in accordance with the "Allocation Schedule" attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term Allocable Portion of CDSCs as applied
to any Principal Underwriter may mean the portion of the CDSCs allocable to
Distributor Shares in accordance with the Allocation Schedule attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term "Complete Termination" may mean a
termination of this Plan involving the cessation of payments of the Distribution
Fees thereunder, the cessation of payments of distribution fees pursuant to
every other rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares and the cessation of the offering by the Fund of existing or
future B-Class-of-Shares, which conditions shall be deemed to be satisfied when
they are first complied with and so long thereafter as they are complied with
prior to the earlier of (i) the date upon which all of the B-2 Shares which are
Distributor Shares pursuant to the Allocation Schedule shall have been redeemed
or converted or (ii) a specified date, after either of which times such
conditions need no longer be complied with. For purposes of such principal
underwriting agreement, the term "B-Class-of-Shares" may mean each of the B-1
Class of Shares of the Fund, the B-2 Class of Shares of the Fund and each other
class of shares of the Fund hereafter issued which would be treated as "Shares"
under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fees
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
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 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Fund and (b) a majority of those Directors of
the Fund who are not "interested persons" of the Fund (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 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 hereof, 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 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
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 of Directors, 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, in whole or in part, at any
time by vote of a majority of the Rule 12b-1 Directors or by vote of a majority
of the outstanding Shares, with the effects provided for in Section 2, as
applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(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 a vote of a majority of the 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.
<PAGE>
KEYSTONE AMERICA GOVERNMENT SECURITIES FUND
CLASS C DISTRIBUTION PLAN
SECTION 1. Keystone America Government Securities Fund (the "Fund") may
act as the distributor of securities of which it is the issuer pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "1940 Act") according to the
terms of this Distribution Plan ("Plan").
SECTION 2. The Fund may expend daily amounts at an annual rate of 1.00%
of the average daily net asset value of the Fund attributable to the Fund's
Class C shares to finance any activity that is principally intended to result in
the sale of Class C shares, including, without limitation, expenditures
consisting of payments to a principal underwriter of the Fund ("Principal
Underwriter") or others as sales commissions or other compensation for their
services that have been earned or as reimbursement for expenses that have been
incurred or accrued at any time during which this Plan has been in effect
together with interest at a rate approved from time to time by the Rule 12b-1
Trustees/Directors (as defined below) on any such amounts.
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 1940 Act) of the outstanding
Class C shares.
SECTION 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Board of Trustees/Directors of the Fund and (b) those Trustees/Directors
of the Fund who are not "interested persons" of the Fund (as said term is
defined in the 1940 Act) and who have no direct or indirect financial interest
in the operation of this Plan or any agreements of the Fund or any other person
related to this Plan (the "Rule 12b-1 Trustees/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 hereof, 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 hereof.
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 of Trustees/Directors and the Board shall review at
least quarterly a written report of the amounts so expended and the purposes for
which such expenditures were made.
SECTION 7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees/Directors or by vote of a majority of the
outstanding Class C shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Rule 12b-1
Trustees/Directors or by a vote of a majority of the outstanding
Class C 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.
<PAGE>
Exhibit 99.16
FUND #: 4221
FUND NAME: KEYSTONE AMERICA GOVERNMENT SECURITIES FUND CLASS A
Input PRICING DATE 26-Jul-95
=============
30 DAY YTM 5.88524%
=============
<TABLE>
<CAPTION>
Fund Fund Ad Yd Rt Class
- ---------------------------------------------------------------------------------------
PRICE ST FIXED MORTGAGE AMORT. GAIN / LONG TERM TOTAL DIV
DATE INCOME INCOME INCOME LOSS ADJ INCOME INCOME FACTOR
Input Input Input Input input Input
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
27-Jun-95 417.35 6,946.01 0.30 0.00 4,267.58 11,631.24 52.3870214
28-Jun-95 388.55 6,212.66 0.31 0.00 5,101.59 11,703.11 52.3634358
29-Jun-95 389.76 6,212.86 0.30 0.00 5,190.89 11,793.81 52.3602112
30-Jun-95 400.62 6,207.12 0.30 0.00 5,160.12 11,768.16 52.2112813
01-Jul-95 400.62 6,207.12 0.30 0.00 5,160.12 11,768.16 52.2112813
02-Jul-95 400.62 6,207.12 0.31 0.00 5,160.12 11,768.17 52.2112813
03-Jul-95 417.27 6,207.70 0.30 0.00 5,157.26 11,782.53 52.2003848
04-Jul-95 417.28 6,207.70 0.30 0.00 5,157.26 11,782.54 52.2003848
05-Jul-95 415.58 6,208.10 0.30 0.00 5,149.70 11,773.68 52.2199219
06-Jul-95 406.70 6,615.00 0.30 0.00 5,059.52 12,081.52 25.2531912
07-Jul-95 416.39 6,208.50 0.31 0.00 4,980.49 11,605.69 52.1092402
08-Jul-95 416.39 6,208.50 0.30 0.00 4,980.49 11,605.68 52.1092402
09-Jul-95 416.40 6,208.50 0.30 0.00 4,980.49 11,605.69 52.1092402
10-Jul-95 405.61 6,209.05 0.30 0.00 4,981.83 11,596.79 52.0399280
11-Jul-95 390.53 6,209.24 0.30 0.00 5,014.22 11,614.29 51.9051155
12-Jul-95 345.48 6,201.70 0.30 0.00 5,006.88 11,554.36 51.7292241
13-Jul-95 597.44 6,334.71 0.30 0.00 5,010.42 11,942.87 51.7469264
14-Jul-95 213.05 6,334.71 0.30 0.00 5,048.20 11,596.26 51.6849552
15-Jul-95 213.05 6,334.71 0.30 0.00 5,048.20 11,596.26 51.6849552
16-Jul-95 213.05 6,334.71 0.30 0.00 5,048.20 11,596.26 51.6849552
17-Jul-95 298.38 6,286.98 0.30 0.00 5,080.58 11,666.24 51.5684799
18-Jul-95 290.98 6,287.18 0.30 0.00 5,103.85 11,682.31 51.4862672
19-Jul-95 306.18 6,287.38 0.30 0.00 5,161.71 11,755.57 51.5162905
20-Jul-95 295.87 6,287.58 0.31 0.00 5,172.35 11,756.11 51.4388527
21-Jul-95 546.25 6,288.17 0.31 0.00 4,946.79 11,781.52 51.3840914
22-Jul-95 546.25 6,288.17 0.30 0.00 4,946.79 11,781.51 51.3840914
23-Jul-95 546.25 6,288.17 0.30 0.00 4,946.79 11,781.51 51.3840914
24-Jul-95 569.26 6,287.82 0.30 0.00 4,917.64 11,775.02 51.3758781
25-Jul-95 594.65 6,288.01 0.29 0.00 4,913.78 11,796.73 51.3586905
26-Jul-95 596.47 6,288.21 0.31 -2995.07 4,927.26 8,817.18 51.3041156
<PAGE>
<CAPTION>
SEC STANDARDIZED ADVERTISING YIELD
PHASE II-ROLLING
TOTAL INCOME FOR PERIOD 177,601.08
TOTAL EXPENSES FOR PERIOD 24,996.67
AVERAGE SHARES OUTSTANDING 3,130,752.21
LAST PRICE DURING PERIOD 10.06
Class Class Class
- ------------------------------------------------------ || 30 DAY 30 DAY 30 DAY
ADJUSTED DAILY FD & DAILY DAILY || ACCUMULATED ACCUMULATED ACCUMULATED
INCOME CLASS EXPENSES SHARES PRICE || INCOME EXPENSES SHARES
Input Input Input
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6,093.26 841.13 3,165,887.352 10.18 || 6,093.26 841.13 3,165,887.352
6,128.15 841.09 3,167,002.654 10.20 || 12,221.41 1,682.22 6,332,890.006
6,175.26 843.26 3,168,443.256 10.14 || 18,396.67 2,525.48 9,501,333.262
6,144.31 838.23 3,161,842.753 10.16 || 24,540.98 3,363.71 12,663,176.015
6,144.31 838.24 3,161,842.753 10.16 || 30,685.29 4,201.95 15,825,018.768
6,144.31 838.24 3,161,842.753 10.16 || 36,829.60 5,040.19 18,986,861.521
6,150.53 838.65 3,161,546.237 10.16 || 42,980.13 5,878.84 22,148,407.758
6,150.53 838.65 3,161,546.237 10.16 || 49,130.66 6,717.49 25,309,953.995
6,148.21 838.85 3,161,995.287 10.17 || 55,278.87 7,556.34 28,471,949.282
3,050.97 839.69 3,161,939.883 10.25 || 58,329.84 8,396.03 31,633,889.165
6,047.64 845.35 3,149,383.147 10.25 || 64,377.48 9,241.38 34,783,272.312
6,047.63 845.35 3,149,383.147 10.25 || 70,425.11 10,086.73 37,932,655.459
6,047.64 845.34 3,149,383.147 10.25 || 76,472.75 10,932.07 41,082,038.606
6,034.96 842.27 3,146,181.750 10.26 || 82,507.71 11,774.34 44,228,220.356
6,028.41 842.20 3,146,568.866 10.23 || 88,536.12 12,616.54 47,374,789.222
5,976.98 840.03 3,120,652.978 10.24 || 94,513.10 13,456.57 50,495,442.200
6,180.07 833.87 3,119,788.612 10.24 || 100,693.17 14,290.44 53,615,230.812
5,993.52 833.71 3,110,125.006 10.22 || 106,686.69 15,124.15 56,725,355.818
5,993.52 833.71 3,110,125.006 10.22 || 112,680.21 15,957.86 59,835,480.824
5,993.52 833.71 3,110,125.006 10.22 || 118,673.73 16,791.57 62,945,605.830
6,016.10 829.37 3,109,131.504 10.19 || 124,689.83 17,620.94 66,054,737.334
6,014.79 826.87 3,108,213.449 10.17 || 130,704.62 18,447.81 69,162,950.783
6,056.03 825.07 3,105,201.167 10.12 || 136,760.65 19,272.88 72,268,151.950
6,047.21 820.08 3,097,045.789 10.12 || 142,807.86 20,092.96 75,365,197.739
6,053.83 818.16 3,093,945.915 10.09 || 148,861.69 20,911.12 78,459,143.654
6,053.82 818.16 3,093,945.915 10.09 || 154,915.51 21,729.28 81,553,089.569
6,053.82 818.17 3,093,945.915 10.09 || 160,969.33 22,547.45 84,647,035.484
6,049.52 814.88 3,093,295.706 10.12 || 167,018.85 23,362.33 87,740,331.190
6,058.65 816.70 3,092,921.877 10.13 || 173,077.50 24,179.03 90,833,253.067
4,523.58 817.64 3,089,313.179 10.06 || 177,601.08 24,996.67 93,922,566.246
</TABLE>
<PAGE>
FUND #: 42B1
FUND NAME: KEYSTONE AMERICA GOVERNMENT SECURITIES FUND CLASS B
PRICING DATE 26-Jul-95
==========
30 DAY YTM 5.55225%
==========
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
PRICE ST FIXED MORTGAGE AMORT. GAIN / LONG TERM TOTAL DIV
DATE INCOME INCOME INCOME LOSS ADJ INCOME INCOME FACTOR
INPUT
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
27-Jun-95 417.35 6,946.01 0.30 0.00 4,267.58 11,631.24 29.4369538
28-Jun-95 388.55 6,212.66 0.31 0.00 5,101.59 11,703.11 29.4693388
29-Jun-95 389.76 6,212.86 0.30 0.00 5,190.89 11,793.81 29.4743433
30-Jun-95 400.62 6,207.12 0.30 0.00 5,160.12 11,768.16 29.5982471
01-Jul-95 400.62 6,207.12 0.30 0.00 5,160.12 11,768.16 29.5982471
02-Jul-95 400.62 6,207.12 0.31 0.00 5,160.12 11,768.17 29.5982471
03-Jul-95 417.27 6,207.70 0.30 0.00 5,157.26 11,782.53 29.6548457
04-Jul-95 417.28 6,207.70 0.30 0.00 5,157.26 11,782.54 29.6548457
05-Jul-95 415.58 6,208.10 0.30 0.00 5,149.70 11,773.68 29.6318752
06-Jul-95 406.70 6,615.00 0.30 0.00 5,059.52 12,081.52 29.5870935
07-Jul-95 416.39 6,208.50 0.31 0.00 4,980.49 11,605.69 29.7089355
08-Jul-95 416.39 6,208.50 0.30 0.00 4,980.49 11,605.68 29.7089355
09-Jul-95 416.40 6,208.50 0.30 0.00 4,980.49 11,605.69 29.7089355
10-Jul-95 405.61 6,209.05 0.30 0.00 4,981.83 11,596.79 29.7850769
11-Jul-95 390.53 6,209.24 0.30 0.00 5,014.22 11,614.29 29.9726096
12-Jul-95 345.48 6,201.70 0.30 0.00 5,006.88 11,554.36 30.0438132
13-Jul-95 597.44 6,334.71 0.30 0.00 5,010.42 11,942.87 30.0525365
14-Jul-95 213.05 6,334.71 0.30 0.00 5,048.20 11,596.26 30.0870474
15-Jul-95 213.05 6,334.71 0.30 0.00 5,048.20 11,596.26 30.0870474
16-Jul-95 213.05 6,334.71 0.30 0.00 5,048.20 11,596.26 30.0870474
17-Jul-95 298.38 6,286.98 0.30 0.00 5,080.58 11,666.24 30.2393883
18-Jul-95 290.98 6,287.18 0.30 0.00 5,103.85 11,682.31 30.3464943
19-Jul-95 306.18 6,287.38 0.30 0.00 5,161.71 11,755.57 30.2972802
20-Jul-95 295.87 6,287.58 0.31 0.00 5,172.35 11,756.11 30.3713202
21-Jul-95 546.25 6,288.17 0.31 0.00 4,946.79 11,781.52 30.4329274
22-Jul-95 546.25 6,288.17 0.30 0.00 4,946.79 11,781.51 30.4329274
23-Jul-95 546.25 6,288.17 0.30 0.00 4,946.79 11,781.51 30.4329274
24-Jul-95 569.26 6,287.82 0.30 0.00 4,917.64 11,775.02 30.4361859
25-Jul-95 594.65 6,288.01 0.29 0.00 4,913.78 11,796.73 30.4576132
26-Jul-95 596.47 6,288.21 0.31 -2995.07 4,927.26 8,817.18 30.5123799
<PAGE>
SEC STANDARDIZED ADVERTISING YIELD
PHASE II-ROLLING
TOTAL INCOME FOR PERIOD 104,484.96
TOTAL EXPENSES FOR PERIOD 25,188.21
AVERAGE SHARES OUTSTANDING 1,809,548.73
LAST PRICE DURING PERIOD 9.58
<CAPTION>
Class Class Class
- -----------------------------------------------------|| 30 DAY 30 DAY 30 DAY
ADJUSTED DAILY DAILY DAILY || ACCUMULATED ACCUMULATED ACCUMULATED
INCOME EXPENSES SHARES PRICE || INCOME EXPENSES SHARES
Input Input Input ||
- ---------------------------------------------------- ||-------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3,423.88 823.76 1,779,063.317 9.70 || 3,423.88 823.76 1,779,063.317
3,448.83 827.06 1,782,505.973 9.72 || 6,872.71 1,650.82 3,561,569.290
3,476.15 830.48 1,783,763.995 9.65 || 10,348.86 2,481.30 5,345,333.285
3,483.17 825.71 1,791,584.435 9.68 || 13,832.03 3,307.01 7,136,917.720
3,483.17 825.72 1,791,584.435 9.68 || 17,315.20 4,132.73 8,928,502.155
3,483.17 825.72 1,791,584.435 9.68 || 20,798.37 4,958.45 10,720,086.590
3,494.09 831.44 1,796,413.434 9.68 || 24,292.46 5,789.89 12,516,500.024
3,494.09 831.45 1,796,413.434 9.68 || 27,786.55 6,621.34 14,312,913.458
3,488.76 833.95 1,794,634.734 9.69 || 31,275.31 7,455.29 16,107,548.192
3,574.57 833.81 1,790,827.593 9.76 || 34,849.88 8,289.10 17,898,375.785
3,447.93 837.63 1,796,046.539 9.76 || 38,297.81 9,126.73 19,694,422.324
3,447.92 837.63 1,796,046.539 9.76 || 41,745.73 9,964.36 21,490,468.863
3,447.93 837.63 1,796,046.539 9.76 || 45,193.66 10,801.99 23,286,515.402
3,454.11 840.31 1,801,323.830 9.77 || 48,647.77 11,642.30 25,087,839.232
3,481.11 843.53 1,817,631.763 9.74 || 52,128.88 12,485.83 26,905,470.995
3,471.37 848.89 1,813,119.296 9.75 || 55,600.25 13,334.72 28,718,590.291
3,589.14 847.53 1,812,565.276 9.75 || 59,189.39 14,182.25 30,531,155.567
3,488.97 847.29 1,811,233.840 9.73 || 62,678.36 15,029.54 32,342,389.407
3,488.97 847.29 1,811,233.840 9.73 || 66,167.33 15,876.83 34,153,623.247
3,488.97 847.30 1,811,233.840 9.73 || 69,656.30 16,724.13 35,964,857.087
3,527.80 844.83 1,824,049.549 9.70 || 73,184.10 17,568.96 37,788,906.636
3,545.17 848.49 1,832,926.282 9.68 || 76,729.27 18,417.45 39,621,832.918
3,561.62 851.02 1,827,139.201 9.63 || 80,290.89 19,268.47 41,448,972.119
3,570.49 844.01 1,829,589.581 9.64 || 83,861.38 20,112.48 43,278,561.700
3,585.46 845.33 1,833,454.581 9.61 || 87,446.84 20,957.81 45,112,016.281
3,585.46 845.33 1,833,454.581 9.61 || 91,032.30 21,803.14 46,945,470.862
3,585.46 845.32 1,833,454.581 9.61 || 94,617.76 22,648.46 48,778,925.443
3,583.87 844.55 1,833,609.393 9.63 || 98,201.63 23,493.01 50,612,534.836
3,593.00 846.66 1,835,390.887 9.64 || 101,794.63 24,339.67 52,447,925.723
2,690.33 848.54 1,838,536.103 9.58 || 104,484.96 25,188.21 54,286,461.826
</TABLE>
<PAGE>
FUND #: 42C1
FUND NAME: KEYSTONE AMERICA GOVERNMENT SECURITIES FUND CLASS C
PRICING DATE 26-Jul-95
=============
30 DAY YTM 5.54939%
=============
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
PRICING ST FIXED MORTGAGE AMORT. GAIN / LONG TERM TOTAL DIV
DATE INCOME INCOME INCOME LOSS ADJ. INCOME INCOME FACTOR
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
27-Jun-95 417.35 6,946.01 0.30 0.00 4,267.58 11,631.24 18.1754248
28-Jun-95 388.55 6,212.66 0.31 0.00 5,101.59 11,703.11 18.1672254
29-Jun-95 389.76 6,212.86 0.30 0.00 5,190.89 11,793.81 18.1654455
30-Jun-95 400.62 6,207.12 0.30 0.00 5,160.12 11,768.16 18.1589401
01-Jul-95 400.62 6,207.12 0.30 0.00 5,160.12 11,768.16 18.1589401
02-Jul-95 400.62 6,207.12 0.31 0.00 5,160.12 11,768.17 18.1589401
03-Jul-95 417.27 6,207.70 0.30 0.00 5,157.26 11,782.53 18.1447695
04-Jul-95 417.28 6,207.70 0.30 0.00 5,157.26 11,782.54 18.1447695
05-Jul-95 415.58 6,208.10 0.30 0.00 5,149.70 11,773.68 18.1482029
06-Jul-95 406.70 6,615.00 0.30 0.00 5,059.52 12,081.52 18.1597153
07-Jul-95 416.39 6,208.50 0.31 0.00 4,980.49 11,605.69 18.1818243
08-Jul-95 416.39 6,208.50 0.30 0.00 4,980.49 11,605.68 18.1818243
09-Jul-95 416.40 6,208.50 0.30 0.00 4,980.49 11,605.69 18.1818243
10-Jul-95 405.61 6,209.05 0.30 0.00 4,981.83 11,596.79 18.1749951
11-Jul-95 390.53 6,209.24 0.30 0.00 5,014.22 11,614.29 18.1222749
12-Jul-95 345.48 6,201.70 0.30 0.00 5,006.88 11,554.36 18.2269627
13-Jul-95 597.44 6,334.71 0.30 0.00 5,010.42 11,942.87 18.2005371
14-Jul-95 213.05 6,334.71 0.30 0.00 5,048.20 11,596.26 18.2279974
15-Jul-95 213.05 6,334.71 0.30 0.00 5,048.20 11,596.26 18.2279974
16-Jul-95 213.05 6,334.71 0.30 0.00 5,048.20 11,596.26 18.2279974
17-Jul-95 298.38 6,286.98 0.30 0.00 5,080.58 11,666.24 18.1921318
18-Jul-95 290.98 6,287.18 0.30 0.00 5,103.85 11,682.31 18.1672385
19-Jul-95 306.18 6,287.38 0.30 0.00 5,161.71 11,755.57 18.1864293
20-Jul-95 295.87 6,287.58 0.31 0.00 5,172.35 11,756.11 18.1898533
21-Jul-95 546.25 6,288.17 0.31 0.00 4,946.79 11,781.52 18.1829812
22-Jul-95 546.25 6,288.17 0.30 0.00 4,946.79 11,781.51 18.1829812
23-Jul-95 546.25 6,288.17 0.30 0.00 4,946.79 11,781.51 18.1829812
24-Jul-95 569.26 6,287.82 0.30 0.00 4,917.64 11,775.02 18.1879360
25-Jul-95 594.65 6,288.01 0.29 0.00 4,913.78 11,796.73 18.1836963
26-Jul-95 596.47 6,288.21 0.31 (2,995.07) 4,927.26 8,817.18 18.1835045
<PAGE>
<CAPTION>
SEC STANDARDIZED ADVERTISING YIELD
PHASE II-ROLLING
TOTAL INCOME FOR PERIOD 63,401.53
TOTAL EXPENSES FOR PERIOD 15,312.98
AVERAGE SHARES OUTSTANDING 1,096,794.12
LAST PRICE DURING PERIOD 9.59
Class Class Class
- -------------------------------------------|| 30 DAY 30 DAY 30 DAY
ADJUSTED DAILY DAILY DAILY || ACCUMULATED ACCUMULATED ACCUMULATED
INCOME EXPENSES SHARES PRICE || INCOME EXPENSES SHARES
Input Input Input ||
- -------------------------------------------||------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2,114.03 509.90 1,097,348.202 9.71 || 2,114.03 509.90 1,097,348.20
2,126.13 510.67 1,097,767.772 9.73 || 4,240.16 1,020.57 2,195,115.97
2,142.40 511.96 1,098,249.712 9.66 || 6,382.56 1,532.53 3,293,365.686
2,136.97 508.89 1,098,053.334 9.69 || 8,519.53 2,041.42 4,391,419.020
2,136.97 508.90 1,098,053.334 9.69 || 10,656.50 2,550.32 5,489,472.354
2,136.97 508.90 1,098,053.334 9.69 || 12,793.47 3,059.22 6,587,525.688
2,137.91 510.09 1,098,052.334 9.69 || 14,931.38 3,569.31 7,685,578.022
2,137.91 510.09 1,098,052.334 9.69 || 17,069.29 4,079.40 8,783,630.356
2,136.71 510.78 1,098,050.761 9.70 || 19,206.00 4,590.18 9,881,681.117
2,193.97 510.15 1,098,050.761 9.77 || 21,399.97 5,100.33 10,979,731.878
2,110.13 514.11 1,098,069.109 9.77 || 23,510.10 5,614.44 12,077,800.987
2,110.12 514.11 1,098,069.109 9.77 || 25,620.22 6,128.55 13,175,870.096
2,110.13 514.10 1,098,069.109 9.77 || 27,730.35 6,642.65 14,273,939.205
2,107.72 514.28 1,098,069.109 9.78 || 29,838.07 7,156.93 15,372,008.314
2,104.77 514.73 1,097,883.602 9.75 || 31,942.84 7,671.66 16,469,891.916
2,106.01 513.26 1,098,878.833 9.76 || 34,048.85 8,184.92 17,568,770.749
2,173.67 514.16 1,096,631.806 9.76 || 36,222.52 8,699.08 18,665,402.555
2,113.77 513.16 1,096,220.834 9.74 || 38,336.29 9,212.24 19,761,623.389
2,113.77 513.16 1,096,220.834 9.74 || 40,450.06 9,725.40 20,857,844.223
2,113.77 513.16 1,096,220.834 9.74 || 42,563.83 10,238.56 21,954,065.057
2,122.34 511.85 1,096,254.283 9.71 || 44,686.17 10,750.41 23,050,319.340
2,122.35 510.45 1,096,201.816 9.69 || 46,808.52 11,260.86 24,146,521.156
2,137.92 509.48 1,095,677.816 9.64 || 48,946.44 11,770.34 25,242,198.972
2,138.42 506.64 1,094,674.205 9.65 || 51,084.86 12,276.98 26,336,873.177
2,142.23 506.28 1,094,352.651 9.62 || 53,227.09 12,783.26 27,431,225.828
2,142.23 506.28 1,094,352.651 9.62 || 55,369.32 13,289.54 28,525,578.479
2,142.23 506.29 1,094,352.651 9.62 || 57,511.55 13,795.83 29,619,931.130
2,141.63 504.60 1,094,650.085 9.64 || 59,653.18 14,300.43 30,714,581.215
2,145.08 505.95 1,094,673.063 9.65 || 61,798.26 14,806.38 31,809,254.278
1,603.27 506.61 1,094,569.436 9.59 || 63,401.53 15,312.99 32,903,823.714
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KAGSF CLASS A MTD YTD ONE YEAR THREE YEAR THREE YEAR
31-Jul-95 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
4.75% LOAD 4.41% 3.48% 14.57% 4.64%
no load -0.15% 9.62% 8.64% 20.28% 6.35%
Beg dates 30-Jun-95 30-Dec-94 29-Jul-94 31-Jul-92 31-Jul-92
Beg Value (LOAD) 19,994 18,212 18,375 16,597 16,597
Beg Value (no load) 19,044 17,347 17,502 15,808 15,808
End Value 19,015 19,015 19,015 19,015 19,015
TIME 3
INCEPTION DATE 14-Apr-87
<CAPTION>
KAGSF CLASS A FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
31-Jul-95 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
4.75% LOAD 41.27% 7.15% 81.11% 7.42%
no load 48.32% 8.20% 90.15% 8.05%
Beg dates 31-Jul-90 31-Jul-90 14-Apr-87 14-Apr-87
Beg Value (LOAD) 13,460 13,460 10,499 10,499
Beg Value (no load) 12,820 12,820 10,000 10,000
End Value 19,015 19,015 19,015 19,015
TIME 5 8.2972222222
INCEPTION DATE
</TABLE>
Compound Total Return Time Period: Beginning 12/30/94
Through 07/31/95
# Months # Years
<PAGE>
<TABLE>
<CAPTION>
KAGSF-B MTD YTD ONE YEAR THREE YEAR THREE YEAR
31-Jul-95 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A 4.13% 3.81% 8.44% 3.29%
W/O CDSC -0.22% 9.13% 7.81% 11.23% 4.35%
Beg dates 30-Jun-95 30-Dec-94 29-Jul-94 01-Feb-93 01-Feb-93
Beg Value (no load) 11,147 10,192 10,317 10,000 10,000
End Value (W/O CDSC) 11,123 11,123 11,123 11,123 11,123
End Value (with cdsc) 10,614 10,711 10,844 10,844
beg nav 9.68 9.13 9.48 10.32 10.32
end nav 9.61 9.61 9.61 9.61 9.61
shares originally purhased 1,151.58 1,116.36 1,088.30 968.99 968.99
5% cdsc thru date=> 31-Jan-94
TIME 4% cdsc thru date=> 31-Jan-95 2.5
INCEPTION DATE 01-Feb-93 3% cdsc effect. date=> 31-Jan-97
2% cdsc effect. date=> 31-Jan-98
1% cdsc effect. date=> 31-Jan-99
</TABLE>
<TABLE>
<CAPTION>
FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
KAGSF-B TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
31-Jul-95
<S> <C> <C> <C> <C>
with cdsc NA NA NA NA
W/O CDSC NA NA NA NA
Beg dates 01-Feb-93 01-Feb-93 01-Feb-93 01-Feb-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 11,123 11,123 11,123 11,123
End Value (with cdsc) 11,030 11030.1687192 11,123 11123.2888742
beg nav 10.32 10.32 10.32 10.32
end nav 9.61 9.61 9.61 9.61
shares originally purhased 968.99 968.99 968.99 968.99
TIME 2.5 2.5
INCEPTION DATE 31-Dec-96
1% cdsc thru date^
Compound Return Time Period: BEGINNING Dec-94
Through Jul-95
# Months # Years
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KAGSF-C MTD YTD ONE YEAR THREE YEAR THREE YEAR
31-Jul-95 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc 8.12% 7.81% 11.34% 4.39%
W/O CDSC -0.22% 9.12% 7.81% 11.34% 4.39%
Beg dates 30-Jun-95 30-Dec-94 29-Jul-94 01-Feb-93 01-Feb-93
Beg Value (no load) 11,158 10,203 10,328 10,000 10,000
End Value (W/O CDSC) 11,134 11,134 11,134 11,134 11,134
End Value (with cdsc) 11,032 11,134 11,134 11,134
beg nav 9.69 9.14 9.49 10.32 10.32
end nav 9.62 9.62 9.62 9.62 9.62
shares originally purhased 1,151.54 1,116.35 1,088.32 968.99 968.99
TIME 2.5
INCEPTION DATE 01-Feb-93 1% cdsc effect. 01-Jan-96
<CAPTION>
FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc NA NA NA NA
W/O CDSC NA NA NA NA
Beg dates 01-Feb-93 01-Feb-93 01-Feb-93 01-Feb-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 11,134 11,134 11,134 11,134
End Value (with cdsc) 11,134 11134.432419479 11,134 11134.432419479
beg nav 10.32 10.32 10.32 10.32
end nav 9.62 9.62 9.62 9.62
shares originally purhased 968.99 968.99 968.99 968.99
TIME 2.5 2.5
INCEPTION DATE 31-Dec-96
1% cdsc thru date^
</TABLE>
Compound Return Time Period: BEGINNING Dec-94
Through Jul-95
EXHIBIT 99.19
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/George S. Bissell
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chief Executive Officer and for
which Keystone Custodian Funds, Inc. serves as Adviser or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and in my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Director/Trustee,
President and Chief
Executive Officer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director, Trustee or officer and for which Keystone
Custodian Funds, Inc. serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and in my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Kevin J. Morrissey
Kevin J. Morrissey
Treasurer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Frederick Amling
Frederick Amling
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles A. Austin III
Charles A. Austin III
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Edwin D. Campbell
Edwin D. Campbell
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles F. Chapin
Charles F. Chapin
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ K. Dun Gifford
K. Dun Gifford
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/Leroy Keith, Jr.
Leroy Keith, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ F. Ray Keyser,Jr.
F. Ray Keyser, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ David M. Richardson
David M. Richardson
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Richard J. Shima
Richard J. Shima
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/Andrew J. Simons
Andrew J. Simons
Director/Trustee
Dated: December 14, 1994
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> KEYSTONE GOVERNMENT SECURITIES FUND CLASS A
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 57,424,970
<INVESTMENTS-AT-VALUE> 57,544,151
<RECEIVABLES> 993,266
<ASSETS-OTHER> 45,296
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,582,713
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,641,889
<TOTAL-LIABILITIES> 1,641,889
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,295,121
<SHARES-COMMON-STOCK> 3,097,266
<SHARES-COMMON-PRIOR> 4,065,523
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (44,557)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2,284,586)
<ACCUM-APPREC-OR-DEPREC> 810,017
<NET-ASSETS> 29,775,995
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,623,952
<OTHER-INCOME> 0
<EXPENSES-NET> (323,723)
<NET-INVESTMENT-INCOME> 2,300,229
<REALIZED-GAINS-CURRENT> (232,521)
<APPREC-INCREASE-CURRENT> 366,815
<NET-CHANGE-FROM-OPS> 2,434,523
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,223,950)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 291,673
<NUMBER-OF-SHARES-REDEEMED> (1,409,532)
<SHARES-REINVESTED> 149,602
<NET-CHANGE-IN-ASSETS> (8,764,689)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (99,937)
<OVERDIST-NET-GAINS-PRIOR> (2,072,965)
<GROSS-ADVISORY-FEES> (214,662)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (459,340)
<AVERAGE-NET-ASSETS> 32,372,267
<PER-SHARE-NAV-BEGIN> 9.48
<PER-SHARE-NII> 0.67
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> (0.65)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.61
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> KEYSTONE GOVERNMENT SECURITIES FUND CLASS B
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 57,424,970
<INVESTMENTS-AT-VALUE> 57,544,151
<RECEIVABLES> 993,266
<ASSETS-OTHER> 45,296
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,582,713
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,641,889
<TOTAL-LIABILITIES> 1,641,889
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,183,104
<SHARES-COMMON-STOCK> 1,879,324
<SHARES-COMMON-PRIOR> 1,623,379
<ACCUMULATED-NII-CURRENT> 12,370
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (973,671)
<ACCUM-APPREC-OR-DEPREC> (157,490)
<NET-ASSETS> 18,064,313
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,263,697
<OTHER-INCOME> 0
<EXPENSES-NET> (271,436)
<NET-INVESTMENT-INCOME> 992,261
<REALIZED-GAINS-CURRENT> (51,973)
<APPREC-INCREASE-CURRENT> 244,596
<NET-CHANGE-FROM-OPS> 1,184,884
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (962,253)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 804,244
<NUMBER-OF-SHARES-REDEEMED> (608,903)
<SHARES-REINVESTED> 60,604
<NET-CHANGE-IN-ASSETS> 2,678,120
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (7,623)
<OVERDIST-NET-GAINS-PRIOR> (931,712)
<GROSS-ADVISORY-FEES> (103,145)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (324,552)
<AVERAGE-NET-ASSETS> 15,510,627
<PER-SHARE-NAV-BEGIN> 9.48
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> 0.12
<PER-SHARE-DIVIDEND> (0.58)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.61
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 103
<NAME> KEYSTONE GOVERNMENT SECURITIES FUND CLASS C
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 57,424,970
<INVESTMENTS-AT-VALUE> 57,544,151
<RECEIVABLES> 993,266
<ASSETS-OTHER> 45,296
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,582,713
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,641,889
<TOTAL-LIABILITIES> 1,641,889
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,923,559
<SHARES-COMMON-STOCK> 945,843
<SHARES-COMMON-PRIOR> 1,845,763
<ACCUMULATED-NII-CURRENT> 6,418
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,296,115)
<ACCUM-APPREC-OR-DEPREC> (533,346)
<NET-ASSETS> 9,100,516
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,061,376
<OTHER-INCOME> 0
<EXPENSES-NET> (230,066)
<NET-INVESTMENT-INCOME> 831,310
<REALIZED-GAINS-CURRENT> (142,060)
<APPREC-INCREASE-CURRENT> 72,825
<NET-CHANGE-FROM-OPS> 762,075
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (790,931)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 295,567
<NUMBER-OF-SHARES-REDEEMED> (1,253,057)
<SHARES-REINVESTED> 57,570
<NET-CHANGE-IN-ASSETS> (8,407,914)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (25,473)
<OVERDIST-NET-GAINS-PRIOR> (1,162,543)
<GROSS-ADVISORY-FEES> (86,966)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (285,005)
<AVERAGE-NET-ASSETS> 13,146,572
<PER-SHARE-NAV-BEGIN> 9.49
<PER-SHARE-NII> 0.61
<PER-SHARE-GAIN-APPREC> 0.10
<PER-SHARE-DIVIDEND> (0.58)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.62
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
