<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY , 1996
File Nos. 33-11051
and 811-4951
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. 17 X
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 19 X
KEYSTONE TAX FREE INCOME FUND
(formerly known as Keystone America Tax Free Income 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)
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has elected to register an indefinite number of its securities under the
Securities Act of 1933. A Rule 24f-2 Notice for Registrant's last fiscal year
was filed on January , 1996.
<PAGE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Offering Registration
Registered Registered Per Unit* Price** Fee
- --------------------------------------------------------------------------------
Shares
without Par
Value 2,267,623 $10.21 $289,994 $100
- --------------------------------------------------------------------------------
*Computed under Rule 457(d) on the basis of the offering price per share at the
close of business on January 23, 1996.
**The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940. 3,443,078 shares of the
Fund were redeemed during its fiscal year ended November 30, 1995. Of these
shares, 2,239,220 of such shares are being used for a reduction in this
filing.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has elected to register an indefinite number of its shares under the Securities
Act of 1933. A Form 24f-2 for Registrant's most recent fiscal year ended
November 30, 1995 was filed on January 26, 1996.
<PAGE>
KEYSTONE TAX FREE INCOME FUND
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 17 to REGISTRATION STATEMENT
This Post-Effective Amendment No. 17 to Registration Statement
No. 33-11051/811-4951 consists of the following pages,
items of information, and documents.
The Facing Sheet
The Contents Page
The Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C
PART C - OTHER INFORMATION - ITEM 24(a) and (b)
Financial Statements
Independent Auditors' Report
Listing of Exhibits
PART C - OTHER INFORMATION - ITEMS 25-32-SIGNATURE PAGES
Number of Security Holders
Indemnification
Business and Other Connections
Principal Underwriters
Location of Accounts and Records
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE TAX FREE INCOME FUND
Cross-Reference Sheet pursuant to Rules 404 and 495 under the Securities Act of
1933.
Items in
Part A of
Form N-1A Prospectus Caption
1 Cover Page
2 Fee Table
3 Financial Highlights
Performance Data
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
7 Pricing Shares
How to Buy Shares
Distribution Plans
Shareholder Services
Exhibit A
8 How to Redeem Shares
9 Not applicable
<PAGE>
KEYSTONE TAX FREE INCOME FUND
Cross-Reference Sheet continued.
Items in
Part B of
Form N-1A Statement of Additional Information Caption
10 Cover Page
11 Table of Contents
12 Not applicable
13 The Fund
Investment Policies
Investment Restrictions
Appendix
14 Trustees and Officers
15 Additional Information
16 Investment Manager
Investment Adviser
Principal Underwriter
Distribution Plans
Sales Charges
Additional Information
17 Brokerage
18 The Fund
Declaration of Trust
19 Sales Charges
Valuation of Securities
Distribution Plans
Redemptions in Kind
20 Not Applicable
21 Principal Underwriter
22 Standardized Total Return and Yield Quotations
23 Financial Statements
<PAGE>
KEYSTONE TAX FREE INCOME FUND
PART A
PROSPECTUS
<PAGE>
KEYSTONE TAX FREE INCOME FUND
PROSPECTUS MARCH , 1996
Keystone Tax Free Income Fund (formerly named Keystone America Tax Free Income
Fund) (the "Fund") is a diversified, open-end management investment company
commonly known as a mutual fund.
The Fund's investment objective is to seek the highest possible current
income, exempt from federal income taxes, while preserving capital. The Fund
pursues this objective by investing primarily in municipal bonds.
The Fund offers three classes of shares. Information on share classes and
their fee and sales charge structures may be found in the Fund's fee table,
"Alternative Sales Options," "Contingent Deferred Sales Charge and Waiver of
Sales Charges," "Distribution Plans" and "Fund Shares."
This prospectus concisely states information about the Fund that you should
know before investing. Please read it and retain it for future reference.
Additional information about the Fund, including more detailed information
about securities ratings, is contained in the Fund's statement of additional
information dated March , 1996, 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.
KEYSTONE TAX FREE INCOME FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
TABLE OF CONTENTS
Page
Fee Table 2
Financial Highlights 3
The Fund 6
Investment Objective and Policies 6
Investment Restrictions 7
Risk Factors 8
Pricing Shares 9
Dividends and Taxes 10
Fund Management and Expenses 11
How to Buy Shares 14
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 25
Fund Shares 25
Additional Information 26
Additional Investment Information (i)
Exhibit A A-1
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 REPRESENTATIONS TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
FEE TABLE
KEYSTONE TAX FREE INCOME 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>
(as a percentage of average net assets)
Management Fees ................................... 0.61% 0.61% 0.61%
12b-1 Fees ........................................ 0.25% 1.00%<F7> 1.00%
Other Expenses .................................... 0.33% 0.35% 0.35%
---- ---- ----
Total Fund Operating Expenses ..................... 1.19% 1.96% 1.96%
==== ==== ====
<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 ................................................................ $59 $83 $110 $185
Class B ................................................................ $70 $92 $126 N/A
Class C ................................................................ $30 $62 $106 $229
You would pay the following expenses on a $1,000 investment, assuming no
redemption at the end of each period:
Class A ................................................................ $59 $83 $110 $185
Class B ................................................................ $20 $62 $106 N/A
Class C ................................................................ $20 $62 $106 $229
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, 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 exchange fee for exchange orders received by the Fund directly
from an individual shareholder over the Keystone Automated Response Line
("KARL"). (For a description of KARL, see "Shareholder Services.")
<F6> Expense ratios shown above are for the Fund's fiscal year ended November
30, 1995. Total Fund Operating Expenses for the fiscal year ended November
30, 1995 include indirectly paid expenses.
<F7> Long term shareholders may pay more than the economic equivalent of the
maximum front end sales charges permitted by rules adopted by the National
Association of Securities Dealers, Inc. ("NASD").
<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 TAX FREE INCOME 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
YEAR ENDED NOVEMBER 30, (COMMENCEMENT
--------------------------------------------------------------------------- OF OPERATIONS) TO
1995(d) 1994 1993 1992 1991 1990 1989 1988 NOVEMBER 30, 1987
------ ------ ------ ------ ------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 8.93 $10.25 $10.17 $10.13 $ 9.94 $10.24 $ 9.96 $ 9.64 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............. 0.51 0.51 0.57 0.63 0.61 0.59 0.62 0.63 0.33
Net realized and unrealized gain
(loss) on investments and futures
contracts......................... 1.13 (1.28) 0.36 0.30 0.31 (0.06) 0.34 0.37 (0.32)
----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment operations .. 1.64 (0.77) 0.93 0.93 0.92 0.53 0.96 1.00 0.01
----- ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS FROM:
Net investment income.............. (0.51) (0.52) (0.57) (0.62) (0.61) (0.60) (0.63) (0.68) (0.37)
In excess of net investment income. (0.01) 0.00 (0.04) 0.00 0.00 (0.03) 0.00 0.00 0.00
Net realized gain on investments... 0.00 0.00 (0.24) (0.27) (0.12) (0.20) (0.05) 0.00 0.00
Tax basis return of capital ....... 0.00 (0.03) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions................ (0.52) (0.55) (0.85) (0.89) (0.73) (0.83) (0.68) (0.68) (0.37)
----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR....... $10.05 $ 8.93 $10.25 $10.17 $10.13 $ 9.94 $10.24 $ 9.96 $ 9.64
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN(b) ................... 18.71% (7.81%) 9.37% 9.35% 9.59% 5.55% 9.97% 10.60% 0.17%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses................... 1.19%(a) 1.13% 1.21% 1.25% 1.58% 1.66% 1.62% 1.57% 1.00%(c)
Net investment income............ 5.35% 5.27% 5.40% 6.02% 5.95% 6.03% 6.15% 6.13% 6.85%(c)
Portfolio turnover rate............ 30% 98% 47% 32% 37% 42% 49% 109% 67%
NET ASSETS, END OF YEAR (THOUSANDS) $94,183 $95,691 $124,102 $120,660 $133,524 $146,335 $162,013 $179,191 $16,090
- ----------
(a) "Ratio of total expenses to average net assets" for the year ended November
30, 1995 includes indirectly paid expenses. Excluding indirectly paid
expenses for the year ended November 30, 1995, the expense ratio would have
been 1.18%.
(b) Excluding applicable sales charges.
(c) Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to November 30, 1987.
(d) Calculation based on average shares outstanding.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE TAX FREE INCOME 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 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.
FEBRUARY 1, 1993
YEAR ENDED (DATE OF INITIAL
NOVEMBER 30, PUBLIC OFFERING)
--------------------- TO
1995(d) 1994 NOVEMBER 30, 1993
-------- -------- ------------------
NET ASSET VALUE, BEGINNING
OF YEAR ................... $ 8.88 $10.25 $10.27
------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ..... 0.44 0.45 0.37
Net realized and unrealized
gain (loss) on investments
and futures contracts ... 1.11 (1.29) 0.30
------ ------ ------
Total from investment
operations .............. 1.55 (0.84) 0.67
------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ..... (0.45) (0.50) (0.37)
In excess of net investment
income .................. (0.01) 0.00 (0.08)
Net realized gain on
investments ............. 0.00 0.00 (0.24)
Tax basis return of capital 0.00 (0.03) 0.00
------ ------ ------
Total distributions........ (0.46) (0.53) (0.69)
------ ------ ------
Net asset value, end of
year .................... $ 9.97 $ 8.88 $10.25
====== ====== ======
TOTAL RETURN(b)............ 17.84% (8.43%) 6.59%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses........... 1.96%(a) 1.88% 1.96%(c)
Net investment income.... 4.59% 4.60% 4.42%(c)
Portfolio turnover rate.... 30% 98% 47%
Net assets, end of year
(thousands).............. $33,449 $28,860 $14,091
- ----------
(a) "Ratio of total expenses to average net assets" for the year ended
November 30, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses for the year ended November 30, 1995, the expense ratio
would have been 1.94%.
(b) Excluding applicable sales charges.
(c) Annualized.
(d) Calculation based on average shares outstanding.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE TAX FREE INCOME 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 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.
FEBRUARY 1, 1993
YEAR ENDED (DATE OF INITIAL
NOVEMBER 30, PUBLIC OFFERING)
--------------------- TO
1995(d) 1994 NOVEMBER 30, 1993
-------- -------- ------------------
NET ASSET VALUE, BEGINNING
OF YEAR ................. $ 8.88 $10.26 $10.27
------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ..... 0.44 0.43 0.37
Net realized and unrealized
gain (loss) on investments
and futures contracts ... 1.11 (1.27) 0.31
------ ------ ------
Total from investment
operations .............. 1.55 (0.84) 0.68
------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ..... (0.45) (0.51) (0.37)
In excess of net investment
income .................. (0.01) 0.00 (0.08)
Net realized gain on
investments ............. 0.00 0.00 (0.24)
Tax basis return of capital 0.00 (0.03) 0.00
------ ------ ------
Total distributions........ (0.46) (0.54) (0.69)
------ ------ ------
NET ASSET VALUE, END OF
YEAR .................... $ 9.97 $ 8.88 $10.26
====== ====== ======
TOTAL RETURN(b)............ 17.84% (8.52%) 6.70%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses........... 1.96%(a) 1.89% 1.94%(c)
Net investment income.... 4.59% 4.52% 4.41%(c)
Portfolio turnover rate.... 30% 98% 47%
Net assets, end of year
(thousands).............. $20,386 $23,230 $27,261
- ----------
(a) "Ratio of total expenses to average net assets" for the year ended
November 30, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses for the year ended November 30, 1995, the expense ratio
would have been 1.94%.
(b) Excluding applicable sales charge.
(c) Annualized.
(d) Calculation based on average shares outstanding.
<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 one of
more than 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,
collectively referred to as "Keystone."
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund seeks the highest possible current income exempt from federal
income taxes, while preserving capital.
The investment objective of the Fund and the requirement that the Fund
invest, under ordinary circumstances, at least 80% of its assets in federally
tax-exempt obligations are fundamental and neither may be changed without the
vote of a majority of the Fund's outstanding shares (as defined in the
Investment Company Act of 1940, as amended, ("1940 Act")).
Of course, there can be no assurance that the Fund will achieve its
investment objective since there is uncertainty in every investment.
PRINCIPAL INVESTMENTS
Under ordinary circumstances, the Fund invests substantially all and at
least 80% of its assets in federally tax-exempt obligations, including
municipal bonds and notes and tax-exempt commercial paper obligations, that
are obligations issued by or on behalf of states, territories and possessions
of the United States ("U.S."), the District of Columbia and their political
subdivisions, agencies and instrumentalities, the interest from which is
exempt from federal income taxes.
Municipal bonds include debt obligations issued by or on behalf of a
political subdivision of the U.S. or any agency or instrumentality thereof to
obtain funds for various public purposes. In addition, municipal bonds include
certain types of industrial development bonds that have been or may be issued
by or on behalf of public authorities to finance privately operated
facilities. General obligation bonds involve the credit of an issuer
possessing taxing power and are payable from the issuer's general unrestricted
revenues. Their payment may be dependent upon an appropriation by the
issuer's legislative body and may be subject to quantitative limitations on
the issuer's taxing power. Limited obligation or revenue bonds are payable
only from the revenues of a particular facility or class of facilities or, in
some cases, from the proceeds of a specific revenue source, such as the user
of the facility. Since the Fund considers preservation of capital as well as
the level of tax exempt income as its primary objective, the Fund may realize
less income than a fund willing to expose shareholders' capital to greater
risk.
The Tax Reform Act of 1986 made significant changes in the federal tax
status of certain obligations that were previously fully federally tax exempt.
As a result, three categories of such obligations issued after August 7, 1986
now exist: (1) "public purpose" bonds, the income from which remains fully
exempt from federal income tax; (2) qualified "private activity" industrial
development bonds, the income from which, while exempt from federal income tax
under Section 103 of the Internal Revenue Code of 1986, as amended (the
"Code"), is includable in the calculation of the federal alternative minimum
tax; and (3) "private activity" (private purpose) bonds, the income from which
is not exempt from federal income tax. The Fund will not invest in private
activity (private purpose) bonds and, except as described under "Other
Eligible Securities," will not invest in qualified "private activity"
industrial development bonds.
The Fund invests in municipal bonds only if, at the date of investment, they
are rated within the four highest grades by Standard & Poor's Corporation
("S&P") (AAA, AA, A and BBB), by Moody's Investors Service, Inc. ("Moody's")
(Aaa, Aa, A and Baa) and by Fitch Investor Services, Inc. -- Municipal
Division ("Fitch") (AAA, AA, A and BBB) or, if not rated or rated under a
different system, are of comparable quality to obligations so rated as
determined by Keystone. Securities that are in the lowest investment grade
(BBB or Baa) may have speculative characteristics.
While the Fund may invest in securities of any maturity, it is currently
expected that the Fund will not invest in securities with maturities of more
than 30 years or less than 5 years (other than certain money market
securities).
OTHER ELIGIBLE SECURITIES
The Fund may invest up to 20% of its assets under ordinary circumstances and
up to 100% of its assets for temporary defensive purposes in the following
types of instruments: (1) commercial paper, including master demand notes,
that at the date of investment is rated A-1, the highest grade given by S&P,
PRIME-1, the highest grade given by 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 that are members of the Federal Deposit
Insurance Corporation, including U.S. branches of foreign banks and foreign
branches of U.S. banks; (3) corporate obligations (maturing in 13 months or
less) that at the date of investment are rated A or better by S&P or Moody's;
(4) obligations issued or guaranteed by the U.S. government or by any agency
or instrumentality of the U.S.; and (5) qualified "private activity"
industrial development bonds, the income from which, while exempt from federal
income tax under Section 103 of the Code, is includable in the calculation of
the federal alternative minimum tax.
The Fund may enter into repurchase and reverse repurchase agreements,
purchase and sell securities and currencies on a when issued and delayed
delivery basis, write covered call and put options and purchase call and put
options, including purchasing call or put options to close out existing
positions, and may employ new investment techniques with respect to such
options. The Fund may also 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. In addition, the Fund may invest in
municipal obligations denominated in foreign currencies that are exempt from
federal income tax and may use subsequently developed investment techniques
that are related to any of its investment policies.
In addition to the options and futures contracts mentioned above, only if
it is consistent with its investment objective, the Fund may also invest in
certain other types of "derivative instruments," including structured
securities.
For further information about the types of investments and investment
techniques available to the Fund, including the associated risks, see
"Additional Investment Information" and the statement of additional
information.
INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental restrictions set forth below, which may
not be changed without the vote of a majority of the Fund's outstanding shares
(as defined in the 1940 Act). These restrictions and certain other fundamental
and nonfundamental restrictions are contained in the statement of additional
information. Unless otherwise stated, all references to the Fund's assets are
in terms of current market value.
The Fund may not do the following:
(1) 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) 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
from banks (not including reverse repurchase agreements) exceed 5% of the
Fund's net assets, any such borrowings will be repaid before additional
investments are made;
(3) purchase any security (other than U.S. government securities) of any
issuer if as a result more than 25% of its total assets would be invested in
a single industry including industrial development bonds from the same
facility or similar types of facilities; governmental issuers of municipal
bonds are not regarded as members of an industry, and the Fund may invest
more than 25% of its assets in industrial development bonds; and
(4) invest more than 10% of its 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.
As a matter of practice, the Fund treats reverse repurchase agreements as
borrowings for purposes of compliance with the limitations of 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 second investment
restriction above.
The foregoing is only a summary of the Fund's investment restrictions and
policies. See the statement of additional information for details and the full
text of the Fund's investment restrictions and related policies.
RISK FACTORS
GENERAL
Like any investment, your investment in the Fund involves an element of
risk. Before you invest in the Fund, you should carefully evaluate your
ability to assume the risks your investment in the Fund poses.
Certain risks related to the Fund are discussed below. To the extent not
discussed in this section, specific risks attendant to individual securities
or investment practices are discussed in "Additional Investment Information."
Should the Fund need to raise cash to meet a large number of redemptions, it
might have to sell portfolio securities at a time when it would be
disadvantageous to do so.
Investing in the Fund involves the risk common to investing in any security,
that is that the value of the securities held by the Fund will fluctuate in
response to changes in economic conditions or public expectations about those
securities. The net asset value of the Fund's shares will change accordingly.
By itself, the Fund does not constitute a balanced investment program and is
not designed for investors seeking capital appreciation or maximum tax-exempt
income irrespective of fluctuations in principal or marketability. Shares of
the Fund would not be suitable for tax-exempt institutions and may not be
suitable for certain retirement plans that are unable to benefit from the
Fund's federally tax-exempt dividends. In addition, the Fund may not be an
appropriate investment for entities that are "substantial users" of facilities
financed by industrial development bonds or related persons thereof.
The market value of fixed income securities in which the Fund may invest are
likely to vary inversely to changes in prevailing interest rates.
MUNICIPAL OBLIGATIONS
The Fund's ability to achieve its objective depends partially on the prompt
payment by issuers of the interest on and principal of the municipal bonds
held by the Fund. A moratorium, default or other nonpayment of interest or
principal when due on any municipal bond, in addition to affecting the market
value and liquidity of that particular security, could affect the market value
and liquidity of other municipal bonds held by the Fund. In addition, the
market for municipal obligations is often thin and can be temporarily affected
by large purchases and sales, including those by the Fund.
From time to time, proposals have been introduced before the U.S. Congress
for the purpose of restricting or eliminating the federal income tax exemption
for interest on municipal obligations, and similar proposals may well be
introduced in the future. If such a proposal were enacted, the availability
of municipal obligations for investment by the Fund and the value of the
Fund's portfolio could be materially affected. In such an event, the Fund
would reevaluate its investment objective and policies and consider changes in
the structure of the Fund or dissolution.
OTHER CONSIDERATIONS
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. 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.
Past performance should not be considered representative of future results.
PRICING SHARES
The net asset value of a Fund share is computed each day on which the New
York Stock Exchange (the "Exchange") is open as of the close of trading on the
Exchange (currently 4:00 p.m. eastern time for the purpose of pricing Fund
shares) except on days when changes in the value of the Fund's portfolio
securities do not affect the current net asset value of its shares. The
Exchange currently is closed on weekends, New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The net asset value per share of the Fund is arrived at by
determining the value of the Fund's assets, subtracting its liabilities and
dividing the result by the number of its shares outstanding.
The Fund values municipal obligations on the basis of valuations provided by
a pricing service, approved by the Fund's Board of Trustees, which uses
information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various
relationships between securities in determining value. The Fund values short-
term investments with maturities of sixty days or less when purchased 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 having maturities of 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, and which in any case reflects fair value as
determined by the Fund's Board of Trustees. All other investments are valued
at market value or, where market quotations are not readily available, at fair
value as determined in good faith according to procedures established by the
Board of Trustees.
DIVIDENDS AND TAXES
The Fund intends to make distributions from net investment income monthly
and net realized long-term capital gains annually. Shareholders receive Fund
distributions in the form of additional shares of that class of shares upon
which the dividend or distribution is based, or, at the shareholder's option,
in cash. Shareholders who have not opted to receive cash prior to the payable
date from net investment income or the record date for any distribution will
have the number of such shares determined on the basis of the Fund's net asset
value per share computed at the end of that day after adjustment for the
distribution. Net asset value is used in computing the number of shares in
both capital gains and income distribution reinvestments. There is a
possibility that shareholders may lose the tax-exempt status on accrued income
on municipal bonds if shares of the Fund are redeemed before a dividend has
been declared.
As of April 1, 1995, in compliance with a recent ruling issued by the
Internal Revenue Service ("IRS"), the Fund treats its 12b-1 fees for tax
purposes as operating expenses rather than as capital charges.
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Code. The Fund qualifies if, among other things,
it distributes to its shareholders at least 90% of its net investment income
for its fiscal year. The Fund also intends to make timely distributions, if
necessary, sufficient in amount to avoid the nondeductible 4% excise tax
imposed on a regulated investment company when it fails to distribute, with
respect to each calendar year, at least 98% of its ordinary income for such
calendar year and 98% of its net capital gains for the one-year period ending
on October 31 of such calendar year. Any taxable distribution that would be
declared in October, November or December to shareholders of record in such a
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 were declared. If the Fund qualifies and if it distributes
substantially all of its net investment income and net capital gains, if any,
to shareholders, it will be relieved of any federal income tax liability.
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.
The Fund expects that substantially all of its dividends will be "exempt
interest dividends," which should be treated as excludable from federal gross
income. In order to pay exempt interest dividends at least 50% of the value of
the Fund's assets must consist of federally tax-exempt obligations at the
close of each quarter. An exempt interest dividend is any dividend or part
thereof (other than a capital gain dividend) paid by the Fund with respect to
its net federally excludable municipal obligation interest and designated as
an exempt interest dividend in a written notice mailed to each shareholder not
later than 60 days after the close of its taxable year. The percentage of the
total dividends paid by the Fund with respect to any taxable year that
qualifies as exempt interest dividends will be the same for all shareholders
receiving dividends with respect to such year. If a shareholder receives an
exempt interest dividend with respect to any share and such share is held for
six months or less, any loss on the sale or exchange of such share will be
disallowed to the extent of the exempt interest dividend amount.
Any shareholder who may be a "substantial user" of a facility financed with an
issue of tax-exempt obligations or a "related person" to such a user should
consult his tax adviser concerning his qualification to receive exempt interest
dividends should the Fund hold obligations financing such facility.
Interest on certain "private activity bonds" issued after August 7, 1986,
although otherwise tax exempt, is treated as a tax preference item for
alternative minimum tax purposes. Under regulations to be promulgated, the
Fund's exempt interest dividends will be treated the same way to the extent
attributable to interest paid on such private activity bonds. Corporate
shareholders should also be aware that the receipt of exempt interest
dividends could subject them to alternative minimum tax under the provisions
of Section 56(g) of the Code (relating to "adjusted current earnings").
Since none of the Fund's income will consist of corporate dividends, no
distributions will qualify for the corporate dividends received deduction.
The Fund intends to distribute its net capital gains as capital gain
dividends; such dividends are treated by shareholders as long-term capital
gains. Such distributions will be designated as capital gain dividends by a
written notice mailed to each shareholder no later than 60 days after the
close of the Fund's taxable year. If a shareholder receives a capital gain
dividend and holds his shares for six months or less, then any allowable loss
on disposition of such shares will be treated as a long-term capital loss to
the extent of such capital gain dividend.
Interest on indebtedness incurred or continued by shareholders to purchase
or carry shares of the Fund will not be deductible for federal income tax
purposes to the extent of the portion of the interest expense relating to
exempt interest dividends; that portion is determined by multiplying the total
amount of interest paid or accrued on the indebtedness by a fraction, the
numerator of which is the exempt interest dividends received by a shareholder
in his taxable year and the denominator of which is the sum of the exempt
interest dividends and the taxable distributions out of the Fund's investment
income and long-term capital gains received by the shareholder.
The Fund may acquire an option to "put" specified securities to municipal
bond dealers or issuers from whom the securities are purchased. It is
expected that the Fund will be treated for federal income tax purposes as the
owner of the municipal bonds acquired subject to the put. The interest on the
municipal bonds will be tax exempt to the Fund, and the purchase prices must
be allocated between such securities and the put based upon their respective
fair market values. The IRS has not issued a published ruling on this matter
and could reach a different conclusion.
Some or all of the Fund's exempt interest dividends may be subject to state
income taxes. The Fund will report to shareholders on a state by state basis
the sources of its exempt interest dividends.
At least 50% of the value of the Fund's assets must be invested in municipal
bonds in order for distributions to qualify as exempt interest dividends at
the end of each quarter. Under particularly unusual circumstances, such as
when the Fund is in a prolonged defensive investment position, it is possible
that no portion of the Fund's distributions of income to its shareholders for
a fiscal year would be exempt from federal income tax; however, the Fund does
not presently anticipate that such unusual circumstances will occur.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Fund and its shareholders. No attempt is made to
present a detailed explanation of the federal income tax treatment of the Fund
or its shareholders, and this discussion is not intended as a substitute for
careful tax planning. Accordingly, potential investors in the Fund are urged
to consult their tax advisers with specific reference to their own tax
situation.
FUND MANAGEMENT AND EXPENSES
BOARD OF TRUSTEES
Under Massachusetts law, the Fund's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the
Fund. Subject to the general supervision of the Board of Trustees, Keystone
Management, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034,
serves as investment manager to the Fund and is responsible for the overall
management of the Fund's business and affairs.
INVESTMENT MANAGER
Keystone Management, the Fund's investment manager, organized in 1989, is a
wholly-owned subsidiary of Keystone. Its directors and principal executive
officers have been affiliated with Keystone, a seasoned investment adviser,
for a number of years. Keystone Management also serves as investment manager
to most of the other Keystone America Funds and to certain other funds in the
Keystone Investments 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 Code, (b) tax treatment of the Fund's portfolio
investments, (c) tax treatment of special corporate actions (such as
reorganizations), (d) state tax matters affecting the Fund, and (e) the Fund's
distributions of income and capital gains; (2) preparing the Fund's federal
and state tax returns; (3) providing services to the Fund's shareholders in
connection with federal and state taxation and distributions of income and
capital gains; and (4) storing documents relating to the Fund's activities.
The Fund pays Keystone Management a fee for its services at the annual rate
set forth below:
Aggregate Net Asset
Management Value of the Shares
Fee of the Fund
Income
- ------------------------------------------------------------------------------
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 or accrued
daily.
During the fiscal year ended November 30, 1995, the Fund paid or accrued to
Keystone Management investment management and administrative services fees of
$919,802, which represented 0.61% of the Fund's average net assets. Of such
amount paid to Keystone Management, $781,832 was paid to Keystone for its
services to the Fund.
INVESTMENT ADVISER
Keystone, the Fund's investment adviser, located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034, has provided investment advisory and
management services to investment companies and private accounts since it was
organized in 1932. Keystone is a wholly-owned subsidiary of Keystone
Investments, Inc. (formerly named 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 and certain employees of Keystone and its
affiliates. The shares of Keystone Investments common stock beneficially
owned by management are held in a number of voting trusts, the trustees of
which are George S. Bissell, Albert H. Elfner, III, Edward F. Godfrey and
Ralph J. Spuehler, Jr. Keystone Investments provides accounting, bookkeeping,
legal, personnel and general corporate services to Keystone 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 Management Agreement and the Advisory Agreement continue in effect from
year to year only so long as such continuance is specifically approved at
least annually by the 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 the Advisory Agreement and continuance thereof must be approved
by the vote of a majority of the Fund's Independent Trustees cast in person at
a meeting called for the purpose of voting on such approval. The Advisory
Agreement may be terminated, without penalty, on 60 days' written notice by
the Fund, Keystone Management or Keystone, or by a vote of the shareholders of
the Fund. The Management Agreement and the Advisory Agreement will terminate
automatically upon 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 will pay all of its expenses. In addition to the investment
advisory and management fees discussed above, the principal expenses that the
Fund is expected to pay include, but are not limited to, expenses associated
with certain Trustees, its transfer, dividend disbursing and shareholder
servicing agent, its custodian, its independent auditors and legal counsel to
its Board of Trustees; fees payable to government agencies, including
registration and qualification fees of the Fund and its shares under federal
and state securities laws; and certain extraordinary expenses. In addition,
each class will pay all of the expenses attributable to it. Such expenses are
currently limited to Distribution Plan expenses. The Fund also pays its
brokerage commissions, interest charges and taxes.
For the fiscal year ended November 30, 1995, the Fund's Class A, Class B and
Class C shares paid 1.19%, 1.96% and 1.96%, respectively, of average net
assets in expenses.
During the fiscal year ended November 30, 1995, the Fund paid or accrued to
Keystone Investor Resource Center, Inc. ("KIRC"), the Fund's transfer and
dividend disbursing agent, and Keystone Investments $19,338 as reimbursement
for certain accounting services and paid or accrued to KIRC $211,525 for
shareholder services. KIRC is a wholly-owned subsidiary of Keystone.
PORTFOLIO MANAGER
Daniel A. Rabasco, a Keystone Vice President and Portfolio Manager has been
responsible for the day-to-day management of the Fund since January, 1996. Mr.
Rabasco has more than 7 years investment experience.
SECURITIES TRANSACTIONS
Under policies established by the 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 consider as a factor the number of shares of the Fund
sold by the broker-dealer. In addition, broker-dealers executing portfolio
transactions may, from time to time, 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 Fund's portfolio turnover rates for the fiscal years ended November 30,
1995 and 1994 were 30% and 98%, respectively. High portfolio turnover may
involve correspondingly greater brokerage commissions and other transaction
costs, which would be borne directly by the Fund, as well as additional gains
and/or losses to shareholders. For additional information about brokerage and
distributions, see the statement of additional information.
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 Keystone Investor Resource Center, Inc., 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 and then send in a completed account
application. Subsequent investments in Fund shares in any amount may be made
by check, by wiring federal funds or by an electronic funds transfer ("EFT").
Orders for the purchase of Fund shares 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 the 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 the 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 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.
Orders for shares received directly by the Fund from you will receive the
offering price equal to the net asset value per share next computed after the
Fund receives the purchase order plus, in the case of Class A shares, the
front end sales charge.
The initial purchase must be at least $1,000 for Class A, Class B and Class
C shares. 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
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 contingent 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 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 respective 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.
Investors who would rather pay the entire cost of distribution at the time
of investment, rather than spread the 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:
AS A % OF CONCESSION TO
AS A % OF NET AMOUNT DEALERS AS A % OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED* OFFERING PRICE
- --------------------------------------------------------------------------------
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.
----------------------------------------------
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:
1.00% of the investment amount up to $2,999,999; plus 0.50% of the investment
amount between $3,000,000 and $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 1.00% 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 outstanding shares of Class A
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 which are included in a broker-dealer or investment adviser managed fee
based program (a wrap account) with broker dealers or investment advisers 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.
Upon prior notification to the Principal Underwriter, Class A shares may
currently 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, when 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. The foregoing special offer is subject to
change and may be modified or terminated in the future.
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, currently
limited to 0.25% annually of the average daily net asset value of Class A
shares, to pay expenses associated with the distribution of Class A shares.
Amounts paid by the Fund to the Principal Underwriter 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 daily net asset value of
Class A shares maintained by such 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.) 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.
The Class B shares so converted or exchanged will no longer be subject to
the higher distribution expenses and other expenses, if any, borne by Class B
shares. Because the net asset value per share of Class A shares may be higher
or lower than that of the Class B shares at the time of conversion or
exchange, 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 or exchanged.
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 Plans are currently made to the Principal Underwriter
(which may reallow all or part to others, such as dealers) (1) as commissions
for Class B 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 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 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 outstanding on the books of the Fund
for specified periods. See "Distribution Plans" below.
CLASS C SHARES
Class C shares are available only through dealers who have special dealer
agreements with the Principal Underwriter. Class C shares are offered at net
asset value, without an initial sales charge. With certain exceptions, the
Fund imposes 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 Charge and Waiver of Sales Charges" below.
CLASS C DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class C shares
("Class C Distribution Plan") that provides for expenditures 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 an
annual rate of 0.25%, respectively, of the average daily net asset value of
Class C shares maintained by such 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
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.
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 1.5% 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.
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; registered representatives of firms with
dealer agreements with the Principal Underwriter; and a bank or trust company
acting as a trustee for a single account.
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 that satisfy certain criteria
established from time to time by the Principal Underwriter. These conditions
relate to increasing sales of shares of the Keystone funds over specified
periods and certain other factors. Such payments may, depending on the
dealer's satisfaction of the required conditions, be periodic and may be up to
0.25% of the value of shares sold by such dealer.
The Principal Underwriter may also pay a transaction fee (up to the level of
payment allowed to 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, would be 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 sale of its shares and shareholder service fees. The NASD limits
annual expenditures to 1% of the aggregate average daily net asset value of a
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 Distribution 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)
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 Plan 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
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 the Distribution Plan. If the Distribution Plan is
terminated, the Principal Underwriter will ask the Independent Trustees to
take whatever action they deem appropriate under the circumstances with
respect to payment of such amounts.
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 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.
For Class B shares sold prior to June 1, 1995, unreimbursed distribution
expenses at November 30, 1995 were $1,945,004 (5.81% of such Class B net
assets at November 30, 1995). For Class B shares sold on or after June 1,
1995, unreimbursed distribution expenses at November 30, 1995 were $162,557
(.49% of such Class B net assets at November 30, 1995). Unreimbursed Class C
Distribution Plan expenses at November 30, 1995 were $2,197,650 (10.78% of Class
C net assets at November 30, 1995).
For the fiscal year ended November 30, 1995, the Fund paid the Principal
Underwriter $229,818, $320,355 ($310,343 with respect to Class B shares sold
prior to June 1, 1995 and $10,012 with respect to Class B shares sold on or
after June 1, 1995) and $216,296 pursuant to its Class A, Class B and Class C
Distribution Plans, respectively.
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 sent 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 you must have completed the
authorization in your account application. Proceeds for shares redeemed on
telephonic order will be deposited by wire or EFT only to the bank account
designated in your account application.
The redemption value is the net asset value per share adjusted for fractions
of a cent 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 redemption proceeds
otherwise payable to you.
REDEMPTION OF SHARES IN GENERAL
At various times, the Fund may be requested to redeem shares for which it
has not yet received good payment. In such a case, the Fund will mail the
redemption proceeds upon clearance of the purchase check, which may take up to
15 days or more. Any delay may be avoided by purchasing shares with a
certified check or by bank wire of funds or EFT. Although the mailing of a
redemption check or wiring or EFT of redemption proceeds may be delayed, the
redemption value will be determined and the redemption processed in the
ordinary course of business upon receipt of proper documentation. In such a
case, after the redemption and prior to the release of the proceeds, no
appreciation or depreciation will occur in the value of the redeemed shares,
and no interest will be paid on the redemption proceeds. If the payment of a
redemption has been delayed, the check will be mailed or the proceeds wired or
sent EFT promptly after good payment has been collected.
The Fund computes the amount due you at the close of the Exchange at the end
of the day on which it has received all proper documentation from you.
Payment of the amount due on redemption, 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. 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 PERSONS ELIGIBLE TO GUARANTEE SIGNATURES UNDER THE
SECURITIES EXCHANGE ACT OF 1934 AND KIRC'S POLICIES. The Fund and KIRC may
waive this requirement, but may also require additional documents in certain
cases. Currently, the requirement for a signature guarantee has been waived on
redemptions of $50,000 or less where the account address of record has been
the same for a minimum period of 30 days. The Fund and KIRC reserve the right
to withdraw this waiver at any time.
If the Fund receives a redemption order, but you have not clearly indicated
the amount of money or number of shares involved, the Fund cannot execute the
order. In such cases, the Fund will request the missing information from you
and process the order on the day such information is received.
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 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,
however, under the 1940 Act to redeem for cash all shares presented for
redemption by any one shareholder in any 90-day period up to the lesser of
$250,000 or 1% of the Fund's net assets. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing
the net asset value per share. Shareholders receiving such securities would
incur brokerage costs when these securities are sold.
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, total return 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
If you have obtained the appropriate prospectus, you 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 month of 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 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, including the right to change the fee for each
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 America 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 of or terminate a Keystone America Money Line service
(which could take up to 30 days), you must write to KIRC, and include your
account number.
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 Arrangements ("TSAs");
401(k) Plans; Keogh Plans; Corporate Profit- Sharing Plans, and Money Purchase
Pension 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 selected fund's net asset value is relatively
low and fewer shares being purchased when the fund's net asset value is
relatively high, which may cause a lower average cost per share than a less
systematic investment approach.
Prior to participating in dollar cost averaging, you must have established
an account in a Keystone America Fund or a money market fund managed or
advised by Keystone. You should designate on the application (1) the dollar
amount of each monthly or quarterly investment (minimum $100) you wish to make
and (2) 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. See Exhibit A -- "Reduced Sales Charges" at the back of the
prospectus.
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. See Exhibit A --
"Reduced Sales Charges" at the back of the prospectus.
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," "current yield"
and a "tax equivalent yield." ALL FIGURES ARE BASED ON HISTORICAL EARNINGS AND
ARE 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 the Fund's average annual compounded rates of return over
specified periods determined by comparing the initial amount invested to the
ending redeemable value of that amount. The resulting equation assumes
reinvestment of all dividends and distributions and deduction of the sales
charge and all recurring charges, if any, applicable to all shareholder
accounts. The deduction of the contingent deferred sales charge is reflected
in the applicable years. The exchange fee is not included in the calculation.
Current yield quotations represent the yield on an investment for a stated
30-day period computed by dividing net investment income earned per share
during the base period by the maximum offering price per share on the last day
of the base period. Such yield will include income from sources other than
municipal obligations, if any.
Tax equivalent yield is, in general, the current yield divided by a factor
equal to one minus a stated income tax rate and reflects the yield a taxable
investment would have to achieve in order to equal on an after-tax basis a tax
exempt yield.
Any given yield or total return quotation should not be considered
representative of the Fund's yield or total return for any future period.
The Fund may also include comparative performance information and general
mutual fund industry information for each class of shares when advertising or
marketing the Fund's shares, such as data from Lipper Analytical Services,
Inc., Morningstar, Inc., CDS-Weisenberger and Value Line or other financial
and industry publications.
FUND SHARES
The Fund currently issues three classes of shares, which 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 class. The Fund does not
have annual meetings. The Fund will have special meetings, from time to time,
as required under its Declaration of Trust and under the 1940 Act. As
provided in the Fund's Declaration of Trust, shareholders have the right to
remove Trustees by an affirmative vote of two-thirds of the outstanding
shares. A special meeting of the shareholders will be held when holders of 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 and serves as the Fund's transfer agent
and dividend disbursing agent.
When the Fund determines from its records that more than one account in the
Fund is registered in the name of a shareholder or shareholders having the
same address, upon notice to those shareholders, the Fund intends, when an
annual report or a semi-annual report of the Fund is required to be furnished,
to mail one copy of such report to that address.
Except as otherwise stated in this prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
CORPORATE AND MUNICIPAL BOND RATINGS
S&P CORPORATE AND MUNICIPAL BOND RATINGS
A. MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria are used in making that assessment:
1. amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note); and
2. source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note ratings are as follows:
1. SP-1 -- Strong capacity to pay principal and interest. Those issues
determined to possess a very strong capacity to pay debt service is given a
plus (+) designation.
2. SP-2 -- Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the terms of
the notes.
3. SP-3 -- Speculative capacity to pay principal and interest.
B. TAX EXEMPT DEMAND BONDS
S&P assigns "dual" ratings to all long-term debt issues that have as part of
their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/A-1+"). For the newer "demand notes," S&P note rating
symbols, combined with the commercial paper symbols, are used (for example,
"SP-1+/A-1+").
C. CORPORATE AND MUNICIPAL BOND RATINGS
An S&P corporate or municipal bond rating is a current assessment of the
creditworthiness of an obligor, including obligors outside the U.S., with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers or lessees. Ratings of foreign obligors
do not take into account currency exchange and related uncertainties. The
ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable.
The ratings are based, in varying degrees, on the following considerations:
1. 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;
2. nature of and provisions of the obligation; and
3. protection afforded by and relative position of the obligation in the
event of bankruptcy reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit quality,
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
A provisional rating is sometimes used by S&P. It assumes the successful
completion of the project being financed by the debt being rated and indicates
that payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.
D. BOND RATINGS ARE AS FOLLOWS:
1. AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
2. AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
3. A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
4. BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
MOODY'S CORPORATE AND MUNICIPAL BOND RATINGS
A. MUNICIPAL NOTES
A Moody's rating for municipal short-term obligations will be designated
Moody's Investment Grade or (MIG). These ratings recognize the difference
between short-term credit risk and long-term risk. Factors affecting the
liquidity of the borrower and the short-term cyclical elements are critical in
short-term ratings.
A short-term rating may also be assigned on issues with a demand feature --
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG. Short-term ratings on issues with demand features are differentiated by
the use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on the
external liquidity.
The note ratings are as follows:
1. MIG1/VMIG1 This designation denotes the best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing.
2. MIG2/VMIG2 This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
3. MIG3/VMIG3 This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
4. MIG4/VMIG4 This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is specific risk.
B. CORPORATE AND MUNICIPAL BOND RATINGS
1. Aaa -- Bonds 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 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 that make the long term risks appear somewhat larger than in Aaa
securities.
3. A -- Bonds 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
that suggest a susceptibility to impairment sometime in the future.
4. Baa -- Bonds rated Baa are considered to be medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
CON. (--) -- Municipal bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (1) earnings of projects under
construction, (2) earnings of projects unseasoned in operation experience, (3)
rentals that begin when facilities are completed, or (4) payments to which
some other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
Those municipal bonds in the Aa, A, and Baa groups that Moody's believes
possess the strongest investment attributes are designated by the symbols Aa
1, A 1, and Baa 1.
FITCH CORPORATE AND MUNICIPAL RATINGS
A. MUNICIPAL NOTES
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally three years or less. These
include commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes. The short-term rating places greater emphasis
on the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
The note ratings are as follows:
1. F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
2. F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
3. F-2 Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as for issues assigned the two higher ratings.
4. F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near-term adverse changes could cause these securities to
be rated below investment grade.
B. CORPORATE AND MUNICIPAL BOND RATINGS
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA -- Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA.
A -- Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
PLUS (+) OR MINUS (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA category.
A CONDITIONAL rating is premised on the successful completion of a project or
the occurrence of a specific event.
Debt rated BB, B, CCC, CC and C by S&P is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. Debt rated C1 by S&P is debt (income bonds) on which no interest
is being paid. Debt rated D by S&P is in default and payment of interest and/
or repayment of principal is in arrears. The Fund intends to invest in D-rated
debt only in cases where in Keystone's judgment there is a distinct prospect
of improvement in the issuer's financial position as a result of the
completion of reorganization or otherwise. Bonds that are rated Caa by Moody's
are of poor standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest. Bonds that are rated
Ca by Moody's represent obligations that are speculative in a high degree.
Such issues are often in default or have other market shortcomings. Bonds that
are rated C by Moody's are the lowest rated bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing. Debt rated BB, B, CCC, CC, and C by Fitch is regarded as
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 represents the highest degree of speculation. Debt rated
DDD, DD, and D are in default on interest and/or principal payments.
DESCRIPTIONS OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES
AVAILABLE TO THE FUND
The Fund may engage in the following investment practices to the extent
described in the prospectus and the statement of additional information.
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 acquired by the Fund permit the Fund
to demand payment of principal and accrued interest at any time (on not more
than seven days' notice). Notes acquired by the Fund may have maturities of
more than one year, provided that (1) the Fund is entitled to payment of
principal and accrued interest upon not more than seven days notice, and (2)
the rate of interest on such notes is adjusted automatically at periodic
intervals which normally will not exceed 31 days, but may extend up to one
year. The notes will be deemed to have a maturity equal to the longer of the
period remaining to the next interest rate adjustment or the demand notice
period. Because these types of notes are direct lending arrangements between
the lender and borrower, such instruments are not normally traded and there is
no secondary market for these notes, although they are redeemable and thus
repayable by the borrower at face value plus accrued interest at any time.
Accordingly, the Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. In connection with master
demand note arrangements, Keystone considers, under standards established by
the Board of Trustees, earning power, cash flow and other liquidity ratios of
the borrower and will monitor the ability of the borrower to pay principal and
interest on demand. These notes are not typically rated by credit rating
agencies. Unless rated, the Fund may invest in them only if at the time of an
investment the issuer meets the criteria established for commercial paper
discussed in the statement of additional information.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements 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 creditworthy. 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 that the Fund is obligated to repurchase may
decline below the repurchase price. Borrowing and reverse repurchase
agreements magnify the potential for gain or loss on the portfolio securities
of the Fund and, therefore, increase the possibility of fluctuation in the
Fund's net asset value. Such practices may constitute leveraging. In the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
determination. The staff of the Securities and Exchange Commission ("SEC") 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. However, no payment or delivery
is made by the Fund until it receives payment or delivery from the other party
to the transaction. A separate account of liquid assets equal to the value of
such purchase commitments will be maintained until payment is made. When
issued and delayed delivery agreements are subject to risks from changes in
value based upon changes in the level of interest rates, currency rates and
other market factors, both before and after delivery. The Fund does not accrue
any income on such securities or currencies prior to their delivery. To the
extent the Fund engages in when issued and delayed delivery transactions, it
will do so consistent with its investment objective and policies and not for
the purpose of investment leverage.
LOANS OF SECURITIES TO BROKER-DEALERS
The Fund may lend securities to brokers and dealers pursuant to agreements
requiring that the loans be continuously secured by cash or securities of the
U.S. government, its agencies or instrumentalities, or any combination of cash
and such securities, as collateral equal at all times in value to at least the
market value of the securities loaned. Such securities loans will not be made
with respect to the Fund if as a result the aggregate of all outstanding
securities loans exceeds 15% of the value of the Fund's total assets taken at
their current value. The Fund continues to receive interest or dividends on
the securities loaned and simultaneously earns interest on the investment of
the cash loan collateral in U.S. Treasury notes, certificates of deposit,
other high-grade, short-term obligations or interest bearing cash equivalents.
Although voting rights attendant to securities loaned pass to the borrower,
such loans may be called at any time and will be called so that the securities
may be voted by the Fund if, in the opinion of the Fund, a material event
affecting the investment is to occur. There may be risks of delay in receiving
additional collateral or in recovering the securities loaned or even loss of
rights in the collateral should the borrower of the securities fail
financially. Loans may only be made to borrowers deemed to be of good
standing, under standards approved by the Board of Trustees, when the income
to be earned from the loan justifies the attendant risks.
DERIVATIVES
The Fund may use derivatives in furtherance of its investment objective.
Derivatives are financial contracts whose value depends on, or is derived
from, the value of an underlying asset, reference rate or index. These assets,
rates, and indices may include bonds, stocks, mortgages, commodities, interest
rates, currency exchange rates, bond indices and stock indices. Derivatives
can be used to earn income or protect against risk, or both. For example, one
party with unwanted risk may agree to pass that risk to another party who is
willing to accept the risk, the second party being motivated, for example, by
the desire either to earn income in the form of a fee or premium from the
first party, or to reduce its own unwanted risk by attempting to pass all or
part of that risk to the first party.
Derivatives can be used by investors such as the Fund to earn income and
enhance returns, to hedge or adjust the risk profile of the portfolio, and
either in place of more traditional direct investments or to obtain exposure
to otherwise inaccessible markets. The Fund is permitted to use derivatives
for one or more of these purposes. Each of these uses entails greater risk
than if derivatives were used solely for hedging purposes. The Fund uses
futures contracts and related options for hedging purposes. Derivatives are a
valuable tool which, when used properly, can provide significant benefit to
Fund shareholders. Keystone is not an aggressive user of derivatives with
respect to the Fund. However, the Fund may take positions in those derivatives
that are within its investment policies if, in Keystone's judgement, this
represents an effective response to current or anticipated market conditions.
Keystone's use of derivatives is subject to continuous risk assessment and
control from the standpoint of the Fund's investment objectives and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend
to be more liquid and subject to less credit risk than those that are
privately negotiated.
There are four principal types of derivative instruments -- options,
futures, forwards and swaps -- from which virtually any type of derivative
transaction can be created. Further information regarding options and futures,
is provided later in this section and is provided in the Fund's statement of
additional information.
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
"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.
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. To the extent permitted by its investment policies
and restrictions, the Fund may write (i.e., sell) covered call and put
options. By writing a call option, the Fund becomes obligated during the term
of the option to deliver the securities underlying the option upon payment of
the exercise price. By writing a put option, the Fund becomes obligated during
the term of the option to purchase the securities underlying the option at the
exercise price if the option is exercised. The Fund also may write straddles
(combinations of covered puts and calls on the same underlying security).
The Fund may only write "covered" options. This means that so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills.
If the Fund has written options against all of its securities which are
available for writing options, the Fund may be unable to write additional
options unless it sells a portion of its portfolio holdings to obtain new
securities against which it can write options. If this were to occur, higher
portfolio turnover and correspondingly greater brokerage commissions and other
transaction costs may result. However, the Fund does not expect that this will
occur.
The Fund will be considered "covered" with respect to a put option it writes
if, so long as it is obligated as the writer of the put option, it deposits
and maintains with its custodian in a segregated account liquid assets having
a value equal to or greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain, through a
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Fund receives a premium from writing a call
or put option, which it retains whether or not the option is exercised. By
writing a call option, the Fund might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
Fund might become obligated to purchase the underlying security for more than
its current market price upon exercise.
PURCHASING OPTIONS. To the extent permitted by its investment policies and
restrictions, the Fund may purchase put or call options, including purchasing
put or call options for the purpose of offsetting previously written put or
call options of the same series.
If the Fund is unable to effect a closing purchase transaction with respect
to covered options it has written, the Fund will not be able to sell the
underlying security or dispose of assets held in a segregated account until
the options expire or are exercised.
An option position may be closed out only in a secondary market for an
option of the same series. Although the Fund generally will write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular option
at any particular time, and for some options no secondary market may exist. In
such event, it might not be possible to effect a closing transaction in a
particular option.
Options on some securities are relatively new, and it is impossible to
predict the amount of trading interest that will exist in such options. There
can be no assurance that viable markets will develop or continue. The failure
of such markets to develop or continue could significantly impair the Fund's
ability to use such options to achieve its investment objective.
OPTIONS TRADING MARKETS. Options in which the Fund will trade generally are
listed on national securities exchanges. Exchanges on which such options
currently are traded include the Chicago Board Options Exchange and the New
York, American, Pacific and Philadelphia Stock Exchanges. Options on some
securities may not be listed on any Exchange, but traded in the over-the-
counter market. Options traded in the over-the-counter market involve the
additional risk that securities dealers participating in such transactions
could fail to meet their obligations to the Fund. The use of options traded in
the over-the-counter market may be subject to limitations imposed by certain
state securities authorities. In addition to the limits on its use of options
discussed herein, the Fund is subject to the investment restrictions described
in this prospectus and in the statement of additional information.
The staff of the SEC is of the view that the premiums that the Fund pays for
the purchase of unlisted options, and the value of securities used to cover
unlisted options written by the Fund, are considered to be invested in
illiquid securities or assets for the purpose of calculating whether the Fund
is in compliance with its investment restriction relating to illiquid
investments.
FUTURES TRANSACTIONS
The Fund may enter into currency and other financial futures contracts and
write options on such contracts. The Fund intends to enter into such contracts
and related options for hedging purposes. The Fund will enter into futures on
securities or currencies or index-based futures contracts in order to hedge
against changes in interest or exchange rates or securities prices. A futures
contract on securities or currencies is an agreement to buy or sell securities
or currencies at a specified price during a designated month. A futures
contract on a securities index does not involve the actual delivery of
securities, but merely requires the payment of a cash settlement based on
changes in the securities index. The Fund does not make payment or deliver
securities upon entering into a futures contract. Instead, it puts down a
margin deposit, which is adjusted to reflect changes in the value of the
contract and which continues until the contract is terminated.
The Fund may sell or purchase futures contracts. When a futures contract is
sold by the Fund, the value of the contract will tend to rise when the value
of the underlying securities or currencies declines and to fall when the value
of such securities or currencies increases. Thus, the Fund sells futures
contracts in order to offset a possible decline in the value of its securities
or currencies. If a futures contract is purchased by the Fund, the value of
the contract will tend to rise when the value of the underlying securities or
currencies increases and to fall when the value of such securities or
currencies declines. The Fund intends to purchase futures contracts in order
to establish what is believed by Keystone to be a favorable price and rate of
return for securities or favorable exchange rate for currencies the Fund
intends to purchase.
The Fund also intends to purchase put and call options on futures contracts
for hedging purposes. A put option purchased by the Fund would give it the
right to assume a position as the seller of a futures contract. A call option
purchased by the Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures
contract requires the Fund to pay a premium. In exchange for the premium, the
Fund becomes entitled to exercise the benefits, if any, provided by the
futures contract, but is not required to take any action under the contract.
If the option cannot be exercised profitably before it expires, the Fund's
loss will be limited to the amount of the premium and any transaction costs.
The Fund may enter into closing purchase and sale transactions in order to
terminate a futures contract and may sell put and call options for the purpose
of closing out its options positions. The Fund's ability to enter into closing
transactions depends on the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for
any particular contract or at any particular time. As a result, there can be
no assurance that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will
continue to be required to maintain the margin deposits on the contract and to
complete the contract according to its terms, in which case it would continue
to bear market risk on the transaction.
Although futures and options transactions are intended to enable the Fund to
manage market, interest rate or exchange rate risk, unanticipated changes in
interest rates, exchange rates or market prices could result in poorer
performance than if it had not entered into these transactions. Even if
Keystone correctly predicts interest or exchange rate movements, a hedge could
be unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. This lack of
correlation between the Fund's futures and securities or currencies positions
may be caused by differences between the futures and securities or currencies
markets or by differences between the securities or currencies underlying the
Fund's futures position and the securities or currencies held by or to be
purchased for the Fund. Keystone will attempt to minimize these risks through
careful selection and monitoring of the Fund's futures and options positions.
The Fund does not intend to use futures transactions for speculation or
leverage. The Fund has the ability to write options on futures, but intends to
write such options only to close out options purchased by the Fund. The Fund
will not change these policies without supplementing the information in its
prospectus and statement of additional information.
FOREIGN CURRENCY TRANSACTIONS
As discussed above, the Fund may invest in securities of foreign issuers.
When the Fund invests in foreign securities they usually will be denominated
in foreign currencies, and the Fund temporarily may hold funds in foreign
currencies. Thus, the value of Fund shares will be affected by changes in
exchange rates.
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, the Fund may enter into forward currency exchange
contracts (agreements to purchase or sell currencies at a specified price and
date). The exchange rate for the transaction (the amount of currency the Fund
will deliver or receive when the contract is completed) is fixed when the Fund
enters into the contract. The Fund usually will enter into these contracts to
stabilize the U.S. dollar value of a security it has agreed to buy or sell.
The Fund intends to use these contracts to hedge the U.S. dollar value of a
security it already owns, particularly if the Fund expects a decrease in the
value of the currency in which the foreign security is denominated. Although
the Fund will attempt to benefit from using forward contracts, the success of
its hedging strategy will depend on Keystone's ability to predict accurately
the future exchange rates between foreign currencies and the U.S. dollar. The
value of the Fund's investments denominated in foreign currencies will depend
on the relative strength of those currencies and the U.S. dollar, and the Fund
may be affected favorably or unfavorably by changes in the exchange rates or
exchange control regulations between foreign currencies and the dollar.
Changes in foreign currency exchange rates also may affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Fund. The Fund may also purchase and sell options related
to foreign currencies in connection with hedging strategies.
VARIABLE AND FLOATING RATE INSTRUMENTS. Fixed-income securities may have
fixed, variable or floating rates of interest. Variable and floating rate
securities pay interest at rates that are adjusted periodically, according to
a specified formula. A "variable" interest rate adjusts at predetermined
intervals (e.g., daily, weekly or monthly), while a "floating" interest rate
adjusts whenever a specified benchmark rate (such as the bank prime lending
rate) changes.
If permitted by its investment policies, the Fund may invest in fixed-income
securities that pay interest at a coupon rate equal to a base rate, plus
additional interest for a certain period of time if short-term interest rates
rise above a predetermined level or "cap." The amount of such an additional
interest payment typically is calculated under a formula based on a short-term
interest rate index multiplied by a designated factor.
INVERSE FLOATING RATE SECURITIES. If permitted by its investment policies, the
Fund may also invest in securities with rates that move inversely to market
rates ("inverse floaters"). 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 on the inverse floater
goes down, and vice versa. Inverse floaters tend to exhibit greater price
volatility than fixed-rate bonds of similar maturity and credit quality. The
interest rates on inverse floaters may be significantly reduced, even to zero,
if interest rates rise. Moreover, the secondary market for inverse floaters
may be limited in rising interest rate environments.
An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change
in the index rate of interest. The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in market value.
STRUCTURED SECURITIES. Structured securities generally represent interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of debt obligations. 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) 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.
<PAGE>
EXHIBIT A
REDUCED SALES CHARGES
Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of either Fund alone or in combination
with Class A shares of other Keystone America Funds. Only Class A shares
subject to an initial or deferred sales charge are eligible for inclusion in
the reduced sales charge program.
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 a 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 either 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, that, 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 a 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 02116-5034
TFIF-P 3/96 [Recycle Logo]
--------------------------------------------
KEYSTONE
TAX FREE
INCOME FUND
--------------------------------------------
[Logo]
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE TAX FREE INCOME FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
KEYSTONE TAX FREE INCOME FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
KEYSTONE TAX FREE INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
March , 1996
This statement of additional information is not a prospectus, but relates to,
and should be read in conjunction with, the prospectus of Keystone Tax Free
Income Fund (formerly named Keystone America Tax Free Income Fund) (the "Fund"),
dated March , 1996. A copy of the prospectus may be obtained from Keystone
Investment Distributors Company (formerly named Keystone Distributors, Inc.)
(the "Principal Underwriter"), the Fund's principal underwriter, 200 Berkeley
Street, Boston, Massachusetts 02116-5034 or your broker-dealer.
TABLE OF CONTENTS
Page
The Fund 2
Investment Policies 2
Investment Restrictions 5
Valuation of Securities 9
Sales Charges 10
Distribution Plans 13
Redemptions in Kind 17
Investment Manager 17
Investment Adviser 20
Trustees and Officers 21
Principal Underwriter 25
Brokerage 26
Declaration of Trust 28
Standardized Total Return and Yield Quotations 30
Additional Information 31
Appendix A-1
Financial Statements F-1
Independent Auditors' Report F-18
<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 current
income, exempt from federal income taxes, while preserving capital. The Fund was
formed as a Massachusetts business trust on October 24, 1986. The Fund is
managed by Keystone Management, Inc. ("Keystone Management") and advised by
Keystone Investment Management Company (formerly named Keystone Custodian Funds,
Inc.) ("Keystone").
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
- --------------------------------------------------------------------------------
The Fund invests primarily in municipal bonds, but also may invest in
certain other securities as described below.
MUNICIPAL BONDS
Municipal bonds include debt obligations issued by or on behalf of a
state, a territory or a possession of the United States ("U.S."), the District
of Columbia or any political subdivision, agency or instrumentality thereof (for
example, counties, cities, towns, villages, districts, authorities) to obtain
funds for various public purposes, including the construction of a wide range of
public facilities, such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which municipal bonds may be issued include the refunding of
outstanding obligations, obtaining funds for general operating expenses and
obtaining funds to lend to public or private institutions for the construction
of facilities such as educational, hospital and housing facilities. In addition,
certain types of industrial development bonds have been or may be issued by or
on behalf of public authorities to finance certain privately-operated facilities
and certain local facilities for water supply, gas, electricity or sewage or
solid waste disposal. Such obligations are included within the term municipal
bonds if the interest paid thereon qualifies as fully exempt from federal income
tax. The income of certain types of industrial development bonds used to finance
certain privately-operated facilities (qualified "private activity" bonds)
issued after August 7, 1986, while exempt from federal income tax, is included
for the purposes of the calculation of the alternative minimum tax. Other types
of industrial development bonds, the proceeds of which are used for the
construction, equipment, repair or improvement of privately operated industrial
or commercial facilities, may constitute municipal bonds, although the current
federal tax laws place substantial limitations on the size of such issues.
The two principal classifications of municipal bonds are "general
obligation" and limited obligation or "revenue" bonds. General obligation bonds
are obligations involving the credit of an issuer possessing taxing power and
are payable from the issuer's general unrestricted revenues and not from any
particular fund or revenue source. Their payment may be dependent upon an
appropriation by the issuer's legislative body and may be subject to
quantitative limitations on the issuer's taxing power. The characteristics and
methods of enforcement of general obligation bonds vary according to the law
applicable to the particular issuer. Limited obligation or revenue bonds are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, such as the user of the facility. Industrial
development bonds that are municipal bonds are, in most cases, revenue bonds and
generally are not payable from the unrestricted revenues of the issuer. The
credit quality of industrial development revenue bonds is usually directly
related to the credit standing of the owner or user of the facilities. There
are, of course, variations in the security of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors.
The yields on municipal bonds are dependent on a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, size of a particular
offering, the maturity of the obligation and rating of the issue. The ratings of
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S&P") and Fitch Investor Services, Inc. - Municipal Division ("Fitch"), as
described herein and in the prospectus, represent their opinions as to the
quality of the municipal bonds that they undertake to rate. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality. Consequently, municipal bonds with the same maturity, interest rate and
rating may have different yields while municipal bonds of the same maturity and
interest rate with different ratings may have the same yield. It should also be
noted that the standards of disclosure applicable to and the amount of
information relating to the financial condition of issuers of municipal bonds
are not generally as extensive as those relating to corporations.
Subsequent to its purchase by the Fund, an issue of municipal bonds or
other investment may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Fund. Neither event requires the
elimination of such obligation from the Fund's portfolio, but Keystone will
consider such an event in its determination of whether the Fund should continue
to hold such obligation in its portfolio.
The ability of the Fund to achieve its investment objective is
dependent upon the continuing ability of issuers of municipal bonds to meet
their obligations to pay interest and principal when due. Obligations of issuers
of municipal bonds, including municipal bonds issued by them, are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Act, and laws, if any,
that may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations. There is also the possibility that as a result
of litigation or other conditions, the power or ability of any one or more
issuers to pay, when due, principal of and interest on its or their municipal
bonds may be materially affected. In addition, the market for municipal bonds is
often thin and can be temporarily affected by large purchases and sales
including those by the Fund.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on municipal bonds, and similar proposals may well be introduced in the
future. If such a proposal were enacted, the availability of municipal bonds for
investment by the Fund and the value of the Fund's portfolio could be materially
affected. In which event, the Fund would reevaluate its investment objective and
policies and consider changes in the structure of the Fund or dissolution.
The Tax Reform Act of 1986 made significant changes in the federal tax
status of certain obligations that were previously fully federally tax exempt.
As a result, three categories of such obligations issued after August 7, 1986
now exist: (1) "public purpose" bonds, the income from which remains fully
exempt from federal income tax; (2) qualified "private activity" industrial
development bonds, the income from which, while exempt from federal income tax
under Section 103 of the Internal Revenue Code, as amended (the "Code"), is
included in the calculation of the federal alternative minimum tax; and (3)
"private activity" (private purpose) bonds, the income from which is not exempt
from federal income tax. The Fund will not invest in private activity (private
purpose) bonds, and, except as described under "Other Eligible Securities," will
not invest in qualified "private activity" industrial development bonds.
OTHER ELIGIBLE SECURITIES
The Fund may invest up to 20% of its assets under ordinary
circumstances and up to 100% of its assets for temporary defensive purposes in
the following types of instruments: (1) commercial paper, including master
demand notes, that at the date of investment is rated A-1 (the highest grade
given by S&P), Prime-1 (the highest grade given by 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 that are members of the
Federal Deposit Insurance Corporation, including U.S. branches of foreign banks
and foreign branches of U.S. banks; (3) corporate obligations that at the date
of investment are rated A or better by S&P or Moody's; (4) obligations issued or
guaranteed by the U.S. government or by any agency or instrumentality of the
U.S. government; and (5) qualified "private activity" industrial development
bonds, the income from which, while exempt from federal income tax under Section
103 of the Code, is included in the calculation of the federal alternative
minimum tax.
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVE
The investment objective of the Fund is fundamental and may not be
changed without approval of the holders of a majority as defined in the
Investment Company Act of 1940 ("1940 Act") of the Fund's outstanding voting
shares (which means the lesser of (1) 67% of the shares represented at a meeting
at which more than 50% of the outstanding shares are represented or (2) more
than 50% of the outstanding shares)(a "1940 Act majority").
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INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions set forth below are fundamental and may not
be changed without the vote of a 1940 Act 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 from banks
(not including reverse repurchase agreements) 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 (other than U.S. government securities) of
any issuer if as a result more than 25% of its total assets would be invested in
a single industry, including industrial development bonds from the same facility
or similar types of facilities; governmental issuers of municipal bonds are not
regarded as members of an industry and the Fund may invest more than 25% of its
assets in industrial development bonds;
(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 as part
of a merger, consolidation, purchase of assets or similar transaction;
(12) purchase or sell commodities or commodity contracts or real
estate, except that it may purchase 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.
Additional restrictions adopted by the Fund, which may be changed by
the Board of Trustees, provide that the Fund may not purchase or retain
securities of an issuer if, to the knowledge of the Fund, officers, Trustees or
Directors of the Fund or Keystone each owning beneficially more than 1/2 of 1%
of the securities of such issuer own in the aggregate more than 5% of the
securities of such issuer, or such persons or management personnel of the Fund
or Keystone have a substantial beneficial interest in the securities of such
issuer. Portfolio securities of the Fund may not be purchased from or sold or
loaned to Keystone or any affiliate thereof or any of their Directors, officers
or employees.
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 (1) will not invest in interests
in oil, gas or other mineral exploration or development programs, except
publicly traded securities of companies engaging in such activities; (2) will
not write, purchase or sell puts, calls or combinations thereof, except that it
may purchase "stand-by commitments" and master demand notes; and (3) in
connection with the purchase of debt securities, it may acquire warrants or
other rights to subscribe for securities of issuers or securities of parents or
subsidiaries of such issuers (warrants), provided that no more than 5% of its
total assets may be invested in warrants (for the purpose of this restriction,
warrants attached to securities acquired by the Fund may be deemed to be without
value), in all cases unless authorized by a vote of a majority of the Fund's
outstanding voting shares.
In addition, 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; and (2) not invest in real estate
limited partnership interests.
Although not a fundamental restriction or policy requiring a
shareholders' vote to change, the Fund has undertaken to state securities
authorities that, so long as the state authorities require and shares of the
Fund are registered for sale in those states, the Fund will not invest in
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 a
single issuer.
The Fund does not presently intend to invest more than 25% of its total
assets in (1) municipal bonds of a single state and its subdivisions, agencies
and instrumentalities; of a single territory or possession of the U.S. and its
subdivisions, agencies or instrumentalities; or of the District of Columbia and
any subdivision, agency or instrumentality thereof; or (2) municipal bonds, the
payment of which depends on revenues derived from a single facility or similar
types of facilities. Since certain municipal bonds may be related in such a way
that an economic, business or political development or change affecting one such
security could likewise affect the other securities, a change in this policy
could result in increased investment risk, but no change is presently
contemplated. The Fund may invest more than 25% of its total assets in
industrial development bonds.
For the purpose of limitations 1, 10 and 13, the Fund will treat each
state, territory and possession of the U.S., the District of Columbia and, if
its assets and revenues are separate from those of the entity or entities
creating it, each political subdivision, agency and instrumentality of any one
(or more, as in the case of a multi-state authority or agency) of the foregoing
as an issuer of all securities that are backed primarily by its assets or
revenues; each company as an issuer of all securities that are backed primarily
by its assets or revenues; and each of the foregoing entities as an issuer of
all securities that it guarantees; provided, however, that for the purpose of
limitation 1 no entity shall be deemed to be an issuer of a security that it
guarantees so long as no more than 10% of the Fund's total assets (taken at
current value) are invested in securities guaranteed by the entity and
securities of which it is otherwise deemed to be an issuer.
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 (1) will 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; and (2) will not invest in real estate limited
partnership interests.
Although not a fundamental restriction or a policy 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 maintain 300% asset
coverage with respect to any 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.
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VALUATION OF SECURITIES
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Current values for the Fund's portfolio securities are determined in
the following manner:
(1) securities for which market quotations are readily available are
valued at the mean of the bid and asked prices at the time of valuation;
(2) short-term investments 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;
(3) short-term investments having maturities of more than sixty days,
for which market quotations are readily available, are valued at current market
value;
(4) 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
(5) the following securities are valued at prices deemed in good faith
to be fair under procedures established by the Fund's Board of Trustees: (a)
securities, including restricted securities, for which market quotations are not
readily available; and (b) other assets.
The Fund believes that reliable market quotations are generally not
readily available for purposes of valuing municipal bonds. As a result,
depending on the particular municipal bonds owned by the Fund, it is likely that
most of the valuations for such bonds will be based upon their fair value
determined under procedures approved by the Fund's Board of Trustees. The Fund's
Board of Trustees has authorized the use of a pricing service to determine the
fair value of its municipal bonds and certain other securities. Non-tax exempt
securities for which market quotations are readily available are valued on a
consistent basis at that price quoted that, in the opinion of the Board of
Trustees or the person designated by the Board of Trustees to make the
determination, most nearly represents the market value of the particular
security.
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SALES CHARGES
- --------------------------------------------------------------------------------
GENERAL
The Fund currently offers three classes of shares. Class A shares are
offered with a maximum front end 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 payable upon redemption within four calendar years after 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 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
In order to reimburse the Fund for certain expenses relating to the
sale of its shares (see "Distribution Plans"), 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 1.00% 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 following the month of purchase
as follows: 5% during the first period; 4% during the second period; 3% during
the third period; 3% during the fourth period; 2% during the fifth period; and
1% during the sixth period. 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 during 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 contingent deferred sales charge is deducted from the
redemption proceeds otherwise payable to you. The contingent 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 will impose a deferred sales charge
of 1% on Class C shares redeemed within one year after the date 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. 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 more than 72 months
after 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 imposed 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,
for purposes of any future contingent derferred sales charge, the calendar year
of the purchase of the shares of the fund exchanged into is deemed to be the
year shares tendered for exchanged were originally purchased.
WAIVER OF SALES CHARGES
Shares of the Fund also may be sold, to the extent permitted by
applicable law, regulations, interpretations or exemptions, at net asset value
without the imposition of an initial sales charge to (1) certain officers,
Directors, Trustees, full-time employees and sales representatives of the Fund,
Keystone Management, Keystone, Keystone Investments, Inc. (formerly named
Keystone Group, Inc.) ("Keystone Investments"), their subsidiaries and the
Principal Underwriter who have been such for not less than ninety days; (2) the
pension and profit-sharing plans established by such companies, their
subsidiaries and affiliates, for the benefit of their officers, Trustees,
Directors, full-time employees and sales representatives; and (3) registered
representatives of firms with 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, pursuant to this waiver is at least
$500,000 and any commission paid at the time of such purchase is not more than
1% of the amount invested.
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.
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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 the Rule. The Fund's Class A, B and C
Distribution Plans have been approved by the Fund's Board of Trustees, including
a majority of the Trustees who are not interested persons of the Fund as defined
in the 1940 Act ("Independent Trustees") and the Trustees who have no direct or
indirect financial interest in the Distribution Plan or any agreement related
thereto (the "Rule 12b-1 Trustees" who are the same as the Independent
Trustees). (The Class A, B and C Distribution Plans each a "Distribution Plan,"
and collectively "Distribution Plans.")
The National Association of Securities Dealers, Inc. ("NASD") currently
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 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, currently limited 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 a 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
outstanding on the books of the Fund for specified periods.
Amounts paid by the Fund under the Class A Distribution Plan are
currently used to pay others, such as dealers, service fees at an annual rate of
up to 0.25% of the average net asset value of Class A shares maintained by such
recipients outstanding on the books of the Fund for specified periods.
CLASS B DISTRIBUTION PLANS
The Fund has adopted Distribution Plans for its Class B shares that
provide 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 of the Fund (currently the Principal Underwriter) (1)
to enable the Principal Underwriter to pay to others (dealers) 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 any such recipients outstanding 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 outstanding 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 each Class B
Distribution Plan 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 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) (1) to enable the Principal Underwriter to
pay to others (dealers) 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
any 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 IN GENERAL
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 the Distribution Plan requires shareholder approval. Otherwise, the
Distribution Plan may be amended by the Trustees, including the Rule 12b-1
Trustees.
The total amounts paid by the Fund under the foregoing arrangements may
not exceed the maximum Distribution Plan limit specified above, and the amounts
and purposes of expenditures under a Distribution Plan must be reported to the
Rule 12b-1 Trustees quarterly. The Rule 12b-1 Trustees may require or approve
changes in the implementation or operation of a Distribution Plan, and may also
require that total expenditures by the Fund under a Distribution Plan be kept
within limits lower than the maximum amount permitted by the Distribution Plan
as stated above.
For the year ended November 30, 1995, the Fund paid the Principal
Underwriter $229,818, $320,355 ($310,343 with respect to Class B shares sold
prior to June 1, 1995 and $10,012 with respect to Class B shares sold on or
after June 1, 1995) and $ 216,296 under the Fund's class A, B and C Distribution
plans, respectively. During the year ended November 30, 1994, the Fund paid the
Principal Underwriter $269,046, $241,979 and $279,001 under the Fund's Class A,
B and C Distribution Plans, respectively.
For Class B shares sold prior to June 1, 1995, unreimbursed
distribution expenses at November 30, 1995 were $1,945,004 (6.35% of the Fund's
Class B net assets at November 30, 1995.) For Class B shares sold on or
after June 1, 1995, unreimbursed distribution expenses at November 30 ,1995 were
$162,557 (0.58% of the Fund's Class B net assets at November 30, 1995.)
Unreimbursed distribution expenses at November 30, 1995 for Class C shares were
$2,197,650 (10.78% of the Fund's Class C net assets at November 30, 1995.)
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 included in the Fund's total operating
expenses for purposes of determining compliance with state expense limits.
The Fund is currently subject to certain annual state expense
limitations, the most restrictive of which is:
2.5% of the first $30 million of Fund average net assets,
2.0% of the next $70 million of Fund average net assets, and
1.5% of Fund average net assets over $100 million.
Capital charges and certain expenses, including a portion of the Fund's
Distribution Plan fees, are currently not included in the calculation of the
state expense limitation. This limitation may be modified or eliminated in the
future.
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 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.
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REDEMPTIONS IN KIND
- --------------------------------------------------------------------------------
If conditions arise that would make it undesirable for the Fund to pay
for all redemptions in cash, the Fund's Board of Trustees may authorize payment
to be made in portfolio securities or other Fund property. The Fund has
obligated itself, however, under the 1940 Act to redeem for cash all shares
presented for redemption by any one shareholder in any 90-day period up to the
lesser of $250,000 or 1% of the Fund's net assets at the beginning of such
period. Securities delivered in payment of redemptions would be valued at the
same value assigned to them in computing the net asset value per share and would
be readily marketable. Shareholders receiving such securities would incur
brokerage costs when these securities are sold.
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INVESTMENT MANAGER
- --------------------------------------------------------------------------------
Subject to the general supervision of the Fund's Board of Trustees,
Keystone Management, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, serves as investment manager to the Fund and is responsible for the
overall management of the Fund's business and affairs. Keystone Management,
organized in 1989, is a wholly-owned subsidiary of Keystone and its directors
and principal executive officers have been affiliated with Keystone, a seasoned
investment adviser, for a number of years. Keystone Management also serves as
investment manager to each of the other funds in the Keystone Fund Family and to
certain other funds in the Keystone Investments Family of Funds.
Except as otherwise noted below, pursuant to an Investment Management
Agreement (the "Management Agreement"), and subject to the supervision of the
Fund's Board of Trustees, Keystone Management has agreed to manage and
administer the operation of the Fund and manage 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 as well as pay or reimburse the Fund for the
compensation of Fund officers and Trustees who are affiliated with the
investment manager and pay all expenses of Keystone Management incurred in
connection with its services. All charges and expenses other than those
specifically referred to as being borne by Keystone Management will be paid by
the Fund, including, but not limited to, custodian charges and expenses;
bookkeeping and auditors' charges and expenses; transfer agent charges and
expenses; fees of Independent Trustees; brokerage commissions, brokers' fees and
expenses; issue and transfer taxes; costs and expenses under the Distribution
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
another investment adviser, as investment adviser, will provide substantially
all the services to be provided by Keystone Management under the Management
Agreement, and to delegate to Keystone or another investment adviser
substantially all of the investment manager's rights, duties and obligations
under the Management Agreement.
Keystone Management currently provides the Fund with certain
administrative and management services, which services include (1) performing
research and planning with respect to (a) the Fund's qualification as a
regulated investment company under Subchapter M of the Code, (b) tax treatment
of the Fund's portfolio investments, (c) tax treatment of special corporate
actions (such as reorganizations), (d) state tax matters affecting the Fund, and
(e) the Fund's distributions of income and capital gains; (2) preparing the
Fund's federal and state tax returns; (3) providing services to the Fund's
shareholders in connection with federal and state taxation and distributions of
income and capital gains; and (4) storing documents relating to the Fund's
activities.
The Fund pays Keystone Management a fee for its services at the annual
rate set forth below:
Aggregate Net Asset
Management Value 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 on each business day and payable daily.
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 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
Code. This condition may be modified or eliminated in the future.
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 an additional discussion of fees paid to Keystone Management, see
"Investment Adviser" below.
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INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Pursuant to the Management Agreement, Keystone Management has delegated
its investment management functions, except for certain administrative and
management services, to Keystone and has entered into an Investment Advisory
Agreement (the "Advisory Agreement") with Keystone under which Keystone provides
investment advisory and management services to the Fund.
Keystone, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, has provided investment advisory and management services to
investment companies and private accounts since it was organized in 1932.
Keystone is a wholly-owned subsidiary of Keystone Investments, 200 Berkeley
Street, Boston, Massachusetts 02116-5034.
Keystone Investments is a corporation predominantly owned by former and
current 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 objective and restrictions. The Advisory
Agreement stipulates that Keystone shall provide office space, all necessary
office facilities, equipment and personnel in connection with its services as
well as pay or reimburse the Fund or Keystone Management, as the case may be,
for the compensation of Fund officers and Trustees who are affiliated with
Keystone and pay all expenses of Keystone incurred in connection with the
provision of its services. All charges and expenses other than those
specifically referred to as being borne by Keystone will be paid by the Fund,
including, but not limited to, custodian charges and expenses; bookkeeping and
auditors' charges and expenses; transfer agent charges and expenses; fees of
Independent Trustees; brokerage commissions, brokers' fees and expenses; issue
and transfer taxes; costs and expenses under the Distribution 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 shareholders' and Trustees' meetings; charges and expenses of legal
counsel for the Fund and for the Trustees of the Fund on matters relating to the
Fund; charges and expenses of filing annual and other reports with the SEC and
other authorities; and all extraordinary charges and expenses of the Fund.
During the fiscal year ended November 30, 1993, the Fund paid or
accrued to Keystone Management investment management and administrative service
fees of $876,654, which represented 0.62% of the Fund's average net assets. Of
such amount paid to Keystone Management, $745,160 was paid to Keystone for its
services to the Fund.
During the fiscal year ended November 30, 1994, the Fund paid or
accrued to Keystone Management investment management and administrative services
fees of $1,005,305, which represented 0.61% of the Fund's average net assets. Of
such amount paid to Keystone Management, $854,509 was paid to Keystone for its
services to the Fund.
During the fiscal year ended November 30, 1995, the Fund paid or
accrued to Keystone Management investment management and adminstrative service
fees of $919,802, which represented 0.61% of the Fund's average net assets. Of
such amount paid to Keystone Management, $781,832 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 and Chief Executive Officer of
Keystone Investments, Keystone, Keystone Management and Keystone Software,
Inc. ("Keystone Software"); President, Chief Executive Officer and Trustee
or Director of all other funds in the Keystone Investments Family of Funds;
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 and
President of Keystone Asset Corporation, Keystone Capital Corporation and
Keystone Trust Company; Director of the Principal Underwriter, KIRC and
Fiduciary Investment Company, Inc. ("FICO"); Director of Boston Children's
Services Association; Trustee of Anatolia College, Middlesex School, and
Middlebury College; Member, Board of Governors, New England Medical Center;
former Director and President of Hartwell Keystone Advisers, Inc. ("Hartwell
Keystone"); former Director and Vice President, Robert Van Partners, Inc.
and former Trustee of Neworld Bank.
FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other funds in
the Keystone Investments Family of 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
funds in the Keystone Investments Family of 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 funds in the Keystone Investments Family of Funds; Chairman of the
Board and Trustee of Anatolia College; Trustee of University Hospital (and
Chairman of its Investment Committee); former Director and Chairman of the
Board of Hartwell Keystone; 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 funds
in the Keystone Investments Family of 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 funds
in the Keystone Investments Family of 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 funds in
the Keystone Investments Family of 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 funds in
the Keystone Investments Family of 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 funds
in the Keystone Investments Family of 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 funds
in the Keystone Investments Family of 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 funds in
the Keystone Investments Family of 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 funds in
the Keystone Investments Family of 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 funds in the Keystone Investments Family of Funds; Director,
Senior Vice President, Chief Financial Officer and Treasurer of Keystone
Investments, the Principal Underwriter, Keystone Asset Corporation, Keystone
Capital Corporation, Keystone Trust Company; Treasurer of Keystone
Institutional and FICO; Treasurer and Director of Keystone Management,
Keystone Software; Vice President and Treasurer of KFIA; Director of KIRC;
former Treasurer and Director of Hartwell Keystone; former Treasurer of
Robert Van Partners, Inc.
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of all
other funds in the Keystone Investments Family of Funds; and President of
Keystone.
J. KEVIN KENELY: Treasurer of the Fund; Treasurer of all other funds in the
Keystone Investments Family of Funds; Vice President of Keystone
Investments, Keystone, the Principal Underwriter, FICO and Keystone
Software.
BETSY A. BLACHER: Vice President of the Fund; Vice President of certain other
Keystone Investments Funds; and Senior Vice President of Keystone.
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 funds in the Keystone Investments
Family of Funds; Senior Vice President, General Counsel and Secretary of
Keystone; Senior Vice President, General Counsel, Secretary and Director of
the Principal Underwriter, Keystone Management and Keystone Software; Senior
Vice President and General Counsel of Keystone Institutional; Senior Vice
President, General Counsel and Director of FICO and KIRC;Vice President and
Secretary of KFIA; Senior Vice President, General Counsel and Secretary of
Keystone Investments, Keystone Asset Corporation, Keystone Capital
Corporation and Keystone Trust Company; former Senior Vice President and
Secretary of Hartwell Keystone and Robert Van Partners, Inc.
* This Trustee may be considered an "interested person" within the meaning of
the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Investments and several of
its affiliates including Hartwell 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 November 30, 1995, no Trustee affiliated
with Keystone or any officer of Keystone received any direct remuneration from
the Fund. During the same period the nonaffiliated Trustees received $12,634 in
retainers and fees. For the year ended December 31, 1995, aggregate compensation
received by Independent Trustees on a fund complex wide basis was $450,716. On
December 31, 1995, the Trustees and officers of the Fund beneficially owned less
than 1% of the Fund's then outstanding shares.
The address of the Fund's Trustees and officers is 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
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PRINCIPAL UNDERWRITER
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Pursuant to a Principal Underwriting Agreement dated August 19, 1993,
between the Fund and the Principal Underwriter (the "Underwriting Agreement"),
the Principal Underwriter acts as the Fund's principal underwriter. The
Principal Underwriter, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, is a Delaware corporation wholly-owned by Keystone. The Principal
Underwriter, as agent, has agreed to use its best efforts to find purchasers for
the shares. The Principal Underwriter may retain and employ representatives to
promote distribution of the shares and may obtain orders from brokers, dealers
and others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that the Principal Underwriter will bear the expense of
preparing, printing and distributing advertising and sales literature and
prospectuses used by it. In its capacity as principal underwriter, the Principal
Underwriter may receive payments from the Fund pursuant to the Fund's
Distribution Plans.
All subscriptions and sales of shares by the Principal Underwriter are
at the offering price of the shares in accordance with the provisions of the
Declaration of Trust, By-Laws, and the Fund's current prospectus and statement
of additional information. All orders are subject to acceptance by the Fund, and
the Fund reserves the right in its sole discretion to reject any order received.
Under the Underwriting Agreement, the Fund is not liable to anyone for failure
to accept any order.
The Fund has agreed under the Underwriting Agreement to pay all
expenses in connection with 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, and the Principal Underwriter assumes the cost of
sales literature and preparation of prospectuses used by it and certain other
expenses.
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 Agreement provides that it will remain in effect as
long as its terms and continuance are approved by a majority of the Fund's
Independent Trustees at least annually at a meeting called for that purpose, and
if its continuance is approved annually by vote of a majority of Trustees, or by
vote of a majority of the outstanding shares.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares. The Underwriting Agreement will terminate automatically upon
its "assignment" as that term is defined in the 1940 Act.
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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
which is fair and equitable to the Fund.
The Fund expects that purchases and sales of municipal bonds and
temporary instruments usually will be principal transactions. Municipal bonds
and temporary instruments are normally purchased directly from the issuer or
from an underwriter or market maker for the securities. There usually will be no
brokerage commissions paid by the Fund for such purchases. Purchases from
underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark up
or reflect a dealer's mark down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
The Fund may participate, if and when practicable, in group bidding for
the purchase directly from an issuer of certain securities for the Fund's
portfolio in order to take advantage of the lower purchase price available to
members of such a group.
Neither Keystone Management, Keystone nor the Fund intend to place
securities transactions with any particular broker-dealer or group thereof.
However, the Fund's Board of Trustees 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 that is
equitable to each fund or account. It is recognized that in some cases this
system could have a detrimental effect on the price or volume of the security as
far as the Fund is concerned. In other cases, however, it is believed that the
ability of the Fund to participate in volume transactions will produce better
executions for the Fund.
In no instance are portfolio securities purchased from or sold to
Keystone Management, Keystone, the Principal Underwriter or any of their
affiliated persons, as defined in the 1940 Act and rules and regulations issued
thereunder.
During the fiscal years ended November 30, 1993, 1994 and 1995, the
Fund did not pay any brokerage commissions.
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DECLARATION OF TRUST
- --------------------------------------------------------------------------------
MASSACHUSETTS BUSINESS TRUST
The Fund is a Massachusetts business trust established under a
Declaration of Trust dated October 24, 1986, (the "Declaration of Trust"). The
Fund is similar in most respects to a business corporation. The principal
distinction between the Fund and a corporation relates to the shareholder
liability described below. A copy of the Declaration of Trust was filed as an
exhibit to the Fund's Registration Statement. 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 of which represents
an equal proportionate interest in the Fund with each other share of that class.
Shares are entitled upon liquidation of the Fund to a pro-rata share of the Fund
based on the relative net assets of each class. Shareholders have no preemptive
or conversion rights. Shares are transferable, redeemable and fully assignable
as collateral. There are no sinking fund provisions. 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. Even if, however, 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; (2) requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Fund or the Trustees; and (3) provides for
indemnification out of Fund property for any shareholder held personally liable
for the obligations of the Fund.
VOTING RIGHTS
Under the Declaration of Trust the Fund does not hold annual meetings.
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 the initial meeting to elect Trustees, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders, at which time the Trustees
then in office will call a shareholders' meeting for 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 any
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 shall be liable only
for his own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person; provided, however, that
nothing in the Declaration of Trust shall protect a Trustee against any
liability for his willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties.
The Trustees have absolute and exclusive control over the management
and disposition of all assets of the Fund and may perform such acts as in their
sole judgment and discretion are necessary and proper for conducting the
business and affairs of the Fund or promoting the interests of the Fund and the
shareholders.
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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 of Class A of the Fund for the period April
14, 1987 (commencement of investment operations) through November 30, 1995 was
75.69%. The total cumulative return of Class A of the Fund for the one and five
year periods ended November 30, 1995 were 18.71% and 36.62%, respectively. The
compounded average annual rate of return of Class A of the Fund for the period
April 14, 1987 (commencement of investment operations) to November 30, 1995 was
6.75%. The compounded average annual rate of return of Class A of the Fund for
the one and five year periods ended November 30, 1995 were 18.71% and 6.44%.
The cumulative total returns for Class B and C of the Fund for the
period from February 1, 1993 (inception of Class B and C) through November 30,
1995 were 12.11% and 15.02%, respectively. The cumulative total returns for
Class B and Class C of the Fund for the one year period ended November 30, 1995
were 17.84% and 17.84%, respectively. The compounded average annual rates of
return for Class B and Class C for the period from February 1, 1993 (inception
of Class B and C) through November 30, 1995 were 4.12% and 5.06%, respectively.
The compounded average annual rates of return for Class B and Class C for the
one year period ended November 30, 1995 were 13.84% and 17.84%, 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 standardized yield of
Class A, B and C of the Fund for the 30-day period ended November 30, 1995 were
4.76%, 4.24% and 4.25%, respectively.
Tax equivalent yield is, in general, the current yield divided by a
factor equal to one minus a stated income tax rate and reflects the yield a
taxable investment would have to achieve in order to equal on an after-tax basis
a tax-exempt yield. The federal tax equivalent yields for Class A, Class B and
Class C shares of the Fund for an investor in the 31% federal tax bracket for
the 30-day period ended November 30, 1995 were 6.90%, 6.14% and 6.16%,
respectively.
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ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
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 may hold securities of some foreign issuers
outside the U.S. The Custodian performs no investment management functions for
the Fund, but, in addition to its custodial services, is responsible for
accounting and related recordkeeping on behalf of the Fund.
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
Certified Public Accountants, are the independent auditors.
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.
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, this statement of additional information or in supplemental sales
literature issued by the Fund or the Principal Underwriter, and no person is
entitled to rely on any information or representation not contained therein.
The Fund's prospectus and this statement of additional information omit
certain information contained in the registration statement filed with the SEC,
which may be obtained from the SEC's principal office in Washington, D.C. upon
payment of the fee prescribed by the rules and regulations promulgated by the
SEC.
On December 29, 1995, Merrill Lynch Pierce Fenner & Smith, Attn: Book
Entry, 4800 Deer Lake Drive, E 3rd Fl, Jacksonville, Florida 32246-6484 owned
22.48%, 24.61% and 51.62%, respectively, of the Fund's outstanding Class A, B
and C shares. In addition, on December 29, 1995, Alletta Laird Downs TTEE, U/A
03-28-89, Alletta Laird Downs Trust, P.O. Box 3666, Wilmington, DE 19807-0666
owned 6.18% of the Fund's outstanding Class B shares. Management does not
believe that any other person beneficially owns 5% or more of the Fund's Class
A, B and C shares.
The Fund is one of 15 different investment companies in the Keystone
America Fund Family, which offers a range of choices to serve shareholder needs.
In addition to the Fund, the Keystone America Family consists 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 quality common stocks, preferred
stocks, convertible bonds, other fixed-income securities and foreign securities
(up to 25%).
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 AMERICA OMEGA FUND, INC. - 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 currently offering 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 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.
10160719
<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 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 S&P, or PRIME-1 by Moody's or F-1 by Fitch Investors Services, Inc.
(Fitch's); or, if not rated, will be issued by companies that 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.
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 U.S. banks, including their branches abroad, and of U.S.
branches of foreign banks that are members of the Federal Reserve System or the
Federal Deposit Insurance Corporation, and have at least $1 billion in deposits
as of the date of their most recently published financial statements; or of
savings and loan associations that are members of the Federal Savings and Loan
Insurance Corporation, and have at least $1 billion in deposits as of the date
of their most recent financial statements.
The Fund will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, (the "World Bank"), the
Asian Development Bank or the Inter-American Development Bank. Additionally, the
Fund does not currently intend to purchase foreign securities (except to the
extent that certificates of deposit of foreign branches of U.S. banks may be
deemed foreign securities) or purchase certificates of deposit, bankers'
acceptances or other similar obligations issued by foreign banks.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short-term credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Fund must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total deposits at the time of purchase in excess of $1 billion and must be
payable in U.S. dollars.
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 Government
National Mortgage Association ("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.
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 Inter-American Development Bank, or issues insured by the Federal Deposit
Insurance Corporation or Federal Savings and Loan Insurance Corporation.
CORPORATE AND MUNICIPAL BOND RATINGS
S&P CORPORATE AND MUNICIPAL BOND RATINGS
A. MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access
risks unique to notes. Notes due in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria are used in making that
assessment:
a. Amortization schedule (the larger the final maturity relative to
other maturities the more likely it will be treated as a note), and
b. Source of payment (the more dependent the issue is on the market
for its refinancing, the more likely it will be treated as a note).
Note ratings are as follows:
1. SP-1: Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation.
2. SP-2: Satisfactory capacity to pay principal and interest.
3. SP-3: Speculative capacity to pay principal and interest.
B. TAX EXEMPT DEMAND BONDS
S&P assigns "dual" ratings to all long-term debt issues that have as
part of their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/A-1+"). For the newer "demand notes," S&P note rating
symbols, combined with the commercial paper symbols, are used (for example,
"SP-1+/A-1+").
C. CORPORATE AND MUNICIPAL BOND RATINGS
An S&P corporate or municipal bond rating is a current assessment of
the credit worthiness of an obligor, including obligors outside the U.S., with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers or lessees. Ratings of foreign obligors do
not take into account currency exchange and related uncertainties. The ratings
are based on current information furnished by the issuer or obtained by S&P from
other sources it considers reliable.
The ratings are based, in varying degrees, on the following
considerations:
a. Likelihood of default capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in
the event of bankruptcy reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "BBB" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
A provisional rating is sometimes used by S&P. It assumes the
successful completion of the project being financed by the debt being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.
Bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in a
small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
MOODY'S CORPORATE AND MUNICIPAL BOND RATINGS
Moody's ratings are as follows:
1. Aaa - Bonds that 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 that 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 that make the long term risks
appear somewhat larger than in Aaa securities.
3. A - Bonds that 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 that suggest a susceptibility to
impairment sometime in the future.
4. Baa - Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
CON. (---) - Municipal bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Those municipal bonds in the Aa, A, and Baa groups that Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa 1, A 1, and Baa 1.
FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS
The Fund intends to enter into currency and other financial futures
contracts as a hedge against changes in prevailing levels of interest or
currency exchange rates to seek relative stability of principal and to establish
more definitely the effective return on securities held or intended to be
acquired to the Fund or as a hedge against changes in the prices of securities
or currencies held by the Fund or to be acquired by the Fund. The Fund's hedging
may include sales of futures as an offset against the effect of expected
increases in interest or currency exchange rates or securities prices and
purchases of futures as an offset against the effect of expected declines in
interest or currency exchange rates.
For example, when the Fund anticipates a significant market or market
sector advance, it will purchase a stock index futures contract as a hedge
against not participating in such advance at a time when the Fund is not fully
invested. The purchase of a futures contract serves as a temporary substitute
for the purchase of individual securities which may then be purchased in an
orderly fashion. As such purchases are made, an equivalent amount of index based
futures contracts would be terminated by offsetting sales. In contrast, the Fund
would sell stock index futures contracts in anticipation of or in a general
market or market sector decline that may adversely affect the market value of
the Fund's portfolio. To the extent that the Fund's portfolio changes in value
in correlation with a given index, the sale of futures contracts on that index
would substantially reduce the risk to the portfolio of a market decline or
change in interest rates, and, by doing so, provide an alternative to the
liquidation of the Fund's securities positions and the resulting transaction
costs.
The Fund intends to engage in options transactions that are related to
currency and other financial futures contracts for 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 that 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 in U.S. government
securities are not obligations of the U.S. Treasury.
INDEX BASED FUTURES CONTRACTS
STOCK INDEX FUTURES CONTRACTS
A stock index assigns relative values to the common stocks included in
the index. The index fluctuates with changes in the market values of the common
stocks so included. A stock index futures contract is a bilateral agreement by
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the closing value of the
stock index on the expiration date of the contract and the price at which the
futures contract is originally made. No physical delivery of the underlying
stocks in the index is made.
Currently stock index futures contracts can be purchased or sold on the
S&P Index of 500 Stocks, the S&P Index of 100 Stocks, the New York Stock
Exchange Composite Index, the Value Line Index and the Major Market Index. It is
expected that futures contracts trading in additional stock indices will be
authorized. The standard contract size is $500 times the value of the index.
The Fund does not believe that differences between existing stock
indices will create any differences in the price movements of the stock index
futures contracts in relation to the movements in such indices. However, such
differences in the indices may result in differences in correlation of the
futures with movements in the value of the securities being hedged.
OTHER INDEX BASED FUTURES CONTRACTS
It is expected that bond index and other financially based index
futures contracts will be developed in the future. It is anticipated that such
index based futures contracts will be structured in the same way as stock index
futures contracts but will be measured by changes in interest rates, related
indexes or other measures, such as the consumer price index. In the event that
such futures contracts are developed the Fund will sell interest rate index and
other index based futures contracts to hedge against changes which are expected
to affect the Fund's portfolio.
The purchase or sale of a futures contract differs from the purchase or
sale of a security, in that no price or premium is paid or received. Instead, to
initiate trading an amount of cash, cash equivalents, money market instruments,
or U.S. Treasury bills equal to approximately 1 1/2% (up to 5%) of the contract
amount must be deposited by the Fund with the Broker. This amount is known as
initial margin. The nature of initial margin in futures transactions is
different from that of margin in security transactions. Futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. The margin required for a particular futures contract is set by
the exchange on which the contract is traded and may be significantly modified
from time to time by the exchange during the term of the contract.
Subsequent payments, called variation margin, to the Broker and from
the Broker, are made on a daily basis as the value of the underlying instrument
or index fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as mark-to-market. For example, when the
Fund has purchased a futures contract and the price of the underlying financial
instrument or index has risen, that position will have increased in value, and
the Fund will receive from the Broker a variation margin payment equal to that
increase in value. Conversely, where the Fund has purchased a futures contract
and the price of the underlying financial instrument or index has declined, the
position would be less valuable and the Fund would be required to make a
variation margin payment to the Broker. At any time prior to expiration of the
futures contract, the Fund may elect to close the position. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the Broker, and the Fund realizes a loss or gain.
The Fund intends to enter into arrangements with its custodian and with
Brokers to enable its initial margin and any variation margin to be held in a
segregated account by its custodian on behalf of the Broker.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of financial instruments, and index based futures
contracts call for the delivery of cash equal to the difference between the
closing value of the index on the expiration date of the contract and the price
at which the futures contract is originally made, in most cases such futures
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out a futures contract sale is effected by an offsetting
transaction in which the Fund enters into a futures contract purchase for the
same aggregate amount of the specific type of financial instrument or index and
same delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the difference
and realizes a loss. Similarly, the closing out of a futures contract purchase
is effected by an offsetting transaction in which the Fund enters into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain. If the purchase price exceeds the offsetting sale price the
Fund realizes a loss. The amount of the Fund's gain or loss on any transaction
is reduced or increased, respectively, by the amount of any transaction costs
incurred by the Fund.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one contract of September U.S. Treasury bills on an
exchange may be fulfilled at any time before delivery of the contract is
required (i.e. on a specified date in September, the "delivery month") by the
purchase of one contract of September U.S. Treasury bills on the same exchange.
In such instance the difference between the price at which the futures contract
was sold and the price paid for the offsetting purchase after allowance for
transaction costs, represents the profit or loss to the Fund.
There can be no assurance, however, that the Fund will be able to enter
into an offsetting transaction with respect to a particular contract at a
particular time. If the Fund is not able to enter into an offsetting
transaction, the Fund will continue to be required to maintain the margin
deposits on the contract and to complete the contract according to its terms.
OPTIONS ON CURRENCY AND OTHER FINANCIAL FUTURES
The Fund intends to purchase call and put options on currency and other
financial futures contracts and sell such options to terminate an existing
position. Options on futures are similar to options on stocks except that an
option on a 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 and 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 and 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 credit worthiness 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
that will hold cash or cash equivalents equal in value to the current value of
the underlying instruments or indices less the margins on deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
RISKS OF OPTIONS ON FUTURES CONTRACTS
In addition to the risks described above for currency and other
financial futures contracts, there are several special risks relating to options
on futures contracts. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. The Fund will not purchase
options on any futures contract unless and until it believes that the market for
such options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with the futures contracts.
Compared to the use of futures contracts, the purchase of options on such
futures involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to the Fund, even though the use of a futures contract would
not, such as when there is no movement in the level of the futures contract.
FOREIGN CURRENCY TRANSACTIONS
The Fund may invest in securities of foreign issuers. When the Fund
invests in foreign securities they usually will be denominated in foreign
currencies and the Fund temporarily may hold funds in foreign currencies.
Thus, the 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 enter into
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). Under the contract, the exchange rate for the
transaction (the amount of currency the Fund will deliver or receive when the
contract is completed) is fixed when the Fund enters into the contract. The Fund
usually will enter into these contracts to stabilize the U.S. dollar value of a
security it has agreed to buy or sell. The Fund also may use these contracts to
hedge the U.S. dollar value of a security it already owns, particularly if the
Fund expects a decrease in the value of the currency in which the foreign
security is denominated. Although the Fund will attempt to benefit from using
forward contracts, the success of its hedging strategy will depend on Keystone's
ability to predict accurately the future exchange rate between foreign
currencies and the U.S. dollar. The value of the Fund's investments denominated
in foreign currencies will depend on the relative strength of those currencies
and the U.S. dollar, and the Fund may be affected favorably or unfavorably by
changes in the exchange 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 only engage in currency futures contracts for
hedging purposes, and not for speculation. The Fund may engage in currency
futures contracts for other purposes if authorized to do so by the Board. The
hedging strategies which will be used by the Fund in connection with foreign
currency futures contracts are similar to those described above for forward
foreign currency exchange contracts.
Currently, currency futures contracts for the British Pound Sterling,
Canadian Dollar, Dutch Guilder, Deutsche Mark, Japanese Yen, Mexican Peso, Swiss
Franc, and French Franc can be purchased or sold for U.S. dollars through the
International Monetary Market. It is expected that futures contracts trading in
additional currencies will be authorized. The standard contract sizes are
L125,000 for the Pound, 125,000 for the Guilder, Mark and Swiss Francs,
C$100,000 for the Canadian Dollar, Y12,500,000 for the Yen, and 1,000,000 for
the Peso. In contrast to Forward Currency Exchange Contracts which can be traded
at any time, only four value dates per year are available, the third Wednesday
of March, June, September and December.
FOREIGN CURRENCY OPTIONS TRANSACTIONS
Foreign currency options (as opposed to futures) are traded in a
variety of currencies in both the United States and Europe. On the Philadelphia
Stock Exchange, for example, contracts for half the size of the corresponding
futures contracts on the Chicago Board Options Exchange are traded with up to
nine months maturity in marks, sterling, yen, Swiss Francs, and Canadian
dollars. Options can be exercised at any time during the contract life, and
require a deposit subject to normal margin requirements. Since a futures
contract must be exercised, the Fund must continually make up the margin
balance. As a result, a wrong price move could result in the Fund losing more
than the original investment, as it cannot walk away from the futures contract
as it can an option contract.
The Fund will purchase call and put options and sell such options to
terminate an existing position. Options on foreign currency are similar to
options on stocks except that an option on an interest rate and/or index based
futures contract gives the purchaser the right, in return for the premium paid,
to purchase or sell foreign currency, rather than to purchase or sell stock, at
a specified exercise price at any time during the period of the option.
The Fund intends to use foreign currency option transactions in
connection with hedging strategies.
PURCHASE OF PUT OPTIONS ON FOREIGN CURRENCIES
The purchase of protective put options on a foreign currency is
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 counter party will not perform under the contract.
As a result there is a credit risk, although no extension of "credit" is
intended. To limit credit risk, the Fund intends to evaluate the credit
worthiness of each other party. The Fund does not intend to trade more than 5%
of its net assets under foreign exchange contracts with one party.
Credit risk exists because the Fund's counter party may be unable or
unwilling to fulfill its contractual obligations as a result of bankruptcy or
insolvency or when foreign exchange controls prohibit payment. In any foreign
exchange transaction, each party agrees to deliver a certain amount of currency
to the other on a particular date. In establishing its hedges, 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 that are advantageous to the company but disclaim those contracts that
are disadvantageous, resulting in losses to the Fund.
Another form of credit risk stems from the time zone differences
between the U.S. and foreign nations. If the Fund sells sterling it generally
must pay pounds to a counter party earlier in the day than it will be credited
with dollars in New York. In the intervening hours, the buyer can go into
bankruptcy or can be declared insolvent. Thus, the dollars may never be credited
to the Fund.
COUNTRY RISK
At one time or another, virtually every country has interfered with
international transactions in its currency. Interference has taken the form of
regulation of the local exchange market, restrictions on foreign investment by
residents, or limits on inflows of investment funds from abroad. Governments
take such measures, for example, to improve control over the domestic banking
system, or to influence the pattern of receipts and payments between residents
and foreigners. In those cases, restrictions on the exchange market or on
international transactions are intended to affect the level or movement of the
exchange rate. Occasionally a serious foreign exchange shortage may lead to
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.
10160712
<PAGE>
SCHEDULE OF INVESTMENTS--November 30, 1995
Coupon Maturity Principal Market
Rate Date Amount Value
- ------------------------- ------ --------- --------- -------------
MUNICIPAL BONDS (97.1%)
ALABAMA
Alabama Housing Finance
Agency, Single Family
Mortgage 10.750% 06/01/2013 $ 395,000 $ 424,578
ALASKA
Alaska Housing Finance
Corp., Collateralized
Home Mortgage 8.750 12/01/2016 1,105,000 1,155,311
North Slope Borough,
Alaska, General
Obligation Refunding,
Series G (ETM) 8.350 06/30/1998 450,000 492,485
CALIFORNIA
California Educational
Facilities Authority,
Stanford University
Project, Series H 5.000 01/01/2015 1,250,000 1,182,038
California Housing
Finance Agency, Home
Mortgage Revenue,
Single Family, Series B 8.600 08/01/2019 185,000 195,158
Los Angeles, California,
Public Works Finance
Authority, Multi
Capital Facilities
Project (MBIA) 5.250 12/01/2016 1,000,000 970,260
San Diego County,
California, Water
Revenue Certificates 5.681 04/23/2008 750,000 790,065
San Joaquin Hills,
California,
Transportation Corridor
Agency, Toll
Road Revenue 6.750 01/01/2032 1,000,000 1,038,680
San Joaquin Hills,
California,
Transportation Corridor
Agency, Toll
Road Revenue
(effective yield
7.750%) (a) 0.000 01/01/2020 2,000,000 431,360
Southern California
Public Power Authority,
Palo Verde Project,
Series C (AMBAC) 5.750 07/01/2017 1,000,000 1,076,280
COLORADO
City and County of
Denver, Colorado,
Airport System, Series
A 7.000 11/15/1999 1,250,000 1,335,216
City and County of
Denver, Colorado,
Airport System, Series
A 8.000 11/15/2025 1,000,000 1,116,790
City and County of
Denver, Colorado,
Airport System, Series
A 8.750 11/15/2023 750,000 878,303
City and County of
Denver, Colorado,
Airport System, Series
A 7.250 11/15/2025 1,000,000 1,085,680
City and County of
Denver, Colorado,
Airport System, Series
B 7.250 11/15/2012 750,000 812,025
City and County of
Denver, Colorado,
Airport System, Series
D 7.750 11/15/2013 1,100,000 1,337,215
Colorado Housing Finance
Authority, Single
Family Residential
Revenue, Series C 8.750 09/01/2017 545,000 569,078
Jefferson County,
Colorado, Single Family
Refunding, Series A
(MBIA) 8.875 10/01/2013 170,000 184,032
CONNECTICUT
Connecticut Special Tax
Obligation, Revenue
Transportation
Infrastructure Series
(MBIA) 5.375 09/01/2008 1,000,000 1,025,780
DELAWARE
Delaware Health
Facilities Authority,
Medical Center of
Delaware (MBIA) 6.250 10/01/2006 1,000,000 1,121,200
DISTRICT OF COLUMBIA
District of Columbia,
General Obligation
(AMBAC) 5.400 06/01/2006 1,000,000 1,020,810
FLORIDA
Dade County, Florida,
School District (MBIA) 5.000 08/01/2013 1,000,000 951,170
Florida State Turnpike
Authority, Series A
(FGIC) 5.000 07/01/2014 2,000,000 1,899,580
Jacksonville, Florida,
Electric Authority
Revenue, St. John's
River Project 5.250 10/01/2020 1,950,000 1,876,817
See Notes to Schedule of Investments. (continued on next page)
9
<PAGE>
Keystone Tax Free Income Fund
SCHEDULE OF INVESTMENTS--November 30, 1995
Coupon Maturity Principal Market
Rate Date Amount Value
- ------------------------- ------ --------- --------- -------------
FLORIDA--continued
Orange County, Florida,
Health Facilities
Authority, Adventist
Health System 5.750% 11/15/2025 $1,500,000 $1,509,090
Orange County, Florida,
Housing Finance
Authority, Florida,
GNMA Collateralized
Mortgage Revenue
Refunding 8.400 12/01/2018 300,000 315,861
Orange County, Florida,
Housing Finance
Authority, Mortgage
Revenue Refunding 8.100 11/01/2021 735,000 777,637
Orlando, Florida,
Utilities Commission,
Water and Electric
Revenue 6.000 10/01/2010 150,000 162,881
Palm Beach County,
Florida, Health
Facilities Authority,
Good Samaritan Health
Systems 6.200 10/01/2011 1,500,000 1,554,195
Palm Beach County,
Florida, Solid Waste
Authority,
Adjustable/Fixed
Rate Revenue 8.750 07/01/2010 55,000 59,930
Palm Beach County,
Florida, Solid Waste
Industrial Development,
Okeelanta Power Project 6.850 02/15/2021 2,000,000 2,043,320
Palm Beach County,
Florida, Solid Waste
Industrial Development
(Osceola Power) 6.950 01/01/2022 2,750,000 2,835,168
Sarasota County, Florida,
Utility Systems Revenue
(FGIC) 6.500 10/01/2022 1,000,000 1,107,190
Tallahassee, Florida,
Health Facilities,
Tallahassee Memorial
Regional Medical
Project (MBIA) 6.625 12/01/2013 2,640,000 2,978,923
Tampa, Florida,
Subordinated Guaranteed
Entitlement Revenue,
Series 1988B 8.400 10/01/2008 1,065,000 1,186,378
ILLINOIS
Chicago, Illinois, Gas
Supply Revenue
(People's Gas, Light
and Coke Co.), Series A 8.100 05/01/2020 910,000 1,027,581
Illinois Educational
Facilities Authority,
Wesleyan University 5.625 09/01/2018 1,500,000 1,491,330
Illinois Health
Facilities Authority,
Community Hospital,
Ottawa Project 6.850 08/15/2024 1,500,000 1,540,725
Illinois Health
Facilities Authority,
United Medical Center 8.375 07/01/2012 1,000,000 1,233,260
Quincy, Illinois,
Blessing Hospital
Revenue 6.000 11/15/2018 750,000 733,448
Robbins, Illinois,
Robbins Resources
Recovery 9.250 10/15/2014 1,000,000 1,079,590
LOUISIANA
Louisiana Public
Facilities Authority,
Prerefunded Health and
Education 7.900 12/01/2015 235,000 263,686
Louisiana Public
Facilities Authority,
West Jefferson Medical
Center (MBIA) 7.900 12/01/2015 1,455,000 1,607,877
MARYLAND
Maryland State Community
Development
Administration 8.125 04/01/2017 395,000 412,451
MASSACHUSETTS
Boston, Massachusetts,
Metropolitan District,
General Obligation 5.900 12/01/2009 1,595,000 1,701,482
Massachusetts Bay
Transportation
Authority 7.000 03/01/2021 1,750,000 2,085,090
Massachusetts Bay
Transportation
Authority, Series A 6.250 03/01/2012 2,000,000 2,190,780
Massachusetts Bay
Transportation
Authority, Series A 7.000 03/01/2011 1,000,000 1,168,990
Massachusetts General
Obligation (FGIC)
(effective yield
7.000%) (a) 0.000 06/01/2007 400,000 228,088
Massachusetts Health and
Educational Facilities
Authority, Daughters of
Charity, Series D 6.100 07/01/2014 600,000 624,594
See Notes to Schedule of Investments.
10
<PAGE>
SCHEDULE OF INVESTMENTS--November 30, 1995
Coupon Maturity Principal Market
Rate Date Amount Value
- ------------------------- ------ --------- --------- -------------
MASSACHUSETTS--continued
Massachusetts Health and
Educational Facilities
Authority, Mount Auburn
Hospital (MBIA) 6.250% 08/15/2014 $ 500,000 $ 531,630
Massachusetts Housing
Finance Agency (MBIA) 5.950 12/01/2014 850,000 860,880
Massachusetts Housing
Finance Agency, Housing
Revenue 9.000 12/01/2018 305,000 320,345
Massachusetts Housing
Finance Agency,
Multi-family
Residential Housing 8.800 08/01/2021 250,000 260,530
Massachusetts Housing
Finance Agency,
Residential Housing 8.400 08/01/2021 1,490,000 1,545,592
Massachusetts Housing
Finance Agency,
Residential Housing 8.500 08/01/2020 15,000 15,503
Massachusetts Industrial
Finance Agency, Harvard
Community Health Plan,
Inc. 8.125 10/01/2017 300,000 326,838
Massachusetts Industrial
Finance Agency, Solid
Waste Disposal 9.000 08/01/2016 1,200,000 1,205,772
Massachusetts State
Health and Educational
Facilities,
Rehabilitation
Hospital, Cape Islands,
Series A 7.875 08/15/2024 500,000 514,175
Massachusetts State Water
Pollution, Series A 6.375 02/01/2015 1,000,000 1,072,860
Massachusetts State Water
Pollution, Series C 6.000 12/01/2011 1,000,000 1,068,980
North Adams,
Massachusetts, Limited
Tax, General Obligation
(AMBAC) 5.700 03/01/2013 600,000 617,106
Quincy, Massachusetts,
Quincy Hospital (FSA) 5.250 01/15/2016 375,000 359,629
MICHIGAN
Monroe County, Michigan,
Economic Development
Corp., Detroit Edison
Co. (FGIC) 6.950 09/01/2022 500,000 607,495
MINNESOTA
Minnesota Housing Finance
Agency, Single Family
Mortgage, Series A 8.200 08/01/2019 595,000 620,972
MISSOURI
Kansas City, Missouri,
Municipal Assistance
Corp. Revenue (AMBAC) 6.000 04/15/2020 500,000 515,250
Kansas City, Missouri,
School District
Building, Capital
Improvement Project
(FGIC) 5.000 02/01/2014 1,500,000 1,427,460
Missouri Housing
Development Corp.,
Multi-family, Series A 5.400 02/01/2013 60,000 58,663
Missouri State Health and
Educational Facilities
Authority, Barnes
Jewish Inc. 5.250 05/15/2012 500,000 485,845
St. Louis County,
Missouri, Convention
Sports Project, Series
B 5.600 08/15/2008 500,000 499,445
NEW HAMPSHIRE
New Hampshire Housing
Finance Authority,
Single Family
Residential Mortgage 8.625 07/01/2013 240,000 250,980
NEW MEXICO
Albuquerque, New Mexico,
Airport Revenue, Series
B 8.750 07/01/2019 500,000 536,065
New Mexico Mortgage
Finance Authority,
Single Family Mortgage
(FGIC) 8.500 07/01/2007 380,000 397,024
New Mexico Mortgage
Finance Authority,
Single Family Mortgage
(FGIC) 8.625 07/01/2017 1,950,000 2,037,302
NEW YORK
Metropolitan
Transportation
Authority, New York,
Series K,
Transportation
Facilities Revenue
(MBIA) 6.000 07/01/2016 135,000 138,804
New York City, New York,
General Obligation,
Fiscal 1992, Series A 7.750 08/15/2015 1,500,000 1,700,400
New York City Municipal
Water Financing
Authority, Series A 6.000 06/15/2025 2,000,000 2,062,220
See Notes to Schedule of Investments. (continued on next page)
11
<PAGE>
Keystone Tax Free Income Fund
SCHEDULE OF INVESTMENTS--November 30, 1995
Coupon Maturity Principal Market
Rate Date Amount Value
- ------------------------- ------ --------- --------- -------------
NEW YORK--continued
New York State Dormitory
Authority, State
University Educational
Facilities Revenue,
Series A 6.375% 05/15/2014 $1,900,000 $1,992,074
New York State Dormitory
Authority, State
University Educational
Facilities Revenue,
Series C 7.375 05/15/2010 1,300,000 1,540,331
New York State Local
Government Assistance
Corp., Series A 5.500 04/01/2017 1,100,000 1,098,526
New York State Thruway
Authority, Service
Contract Revenue, Local
Highways and Bridges 5.875 04/01/2014 2,000,000 2,001,120
New York State Urban
Development Corp.,
Refunding Correctional
Facilities, Series A 5.250 01/01/2021 2,000,000 1,845,500
New York State Urban
Development Corp.,
Refunding Correctional
Facilities, Series A 6.500 01/01/2010 1,000,000 1,088,360
New York Urban
Development Corp.,
Correctional
Facilities, Series A 7.500 04/01/2011 1,000,000 1,161,440
Triborough Bridge and
Tunnel Authority, New
York 6.250 01/01/2012 1,690,000 1,780,567
OKLAHOMA
Tulsa, Oklahoma,
Industrial Authority
Hospital Revenue, St.
John Medical Center
Project, Series A 6.250 02/15/2014 1,250,000 1,297,388
OREGON
Western Generation
Agency, Oregon, Wauna
Cogeneration Project,
Series B (b) 7.400 01/01/2016 1,000,000 1,083,270
PENNSYLVANIA
Allentown, Pennsylvania,
Area Hospital Authority
Reveneue, Sacred Heart
Hospital of Allentown 6.750 11/15/2014 750,000 754,020
Butler County,
Pennsylvania, Hospital
Authority, Butler
Memorial Hospital 8.000 07/01/2016 935,000 971,456
Cambria County,
Pennsylvania, Hospital
Development Authority,
Conemaugh Valley
Memorial Hospital 6.625 08/15/2012 100,000 109,996
Cambria County,
Pennsylvania, Hospital
Development Authority,
Conemaugh Valley
Memorial Hospital 8.875 07/01/2018 2,400,000 2,718,288
Chester County,
Pennsylvania, Health
And Education
Facilities Authority,
Mainline Health System 5.500 05/15/2015 1,000,000 974,130
Pennsylvania Convention
Center Authority (FGIC)
(effective yield
7.000%) (a) 0.000 09/01/2008 3,500,000 1,849,785
Pennsylvania Economic
Development Financing
Authority, Resources
Recovery, Colver
Project (b) 7.125 12/01/2015 1,000,000 1,062,200
Pennsylvania Economic
Development Financing
Authority, Resources
Recovery, Northampton
Project (b) 6.500 01/01/2013 2,000,000 1,990,780
Pennsylvania Higher
Education Facilities
Authority, Temple
University (MBIA) 5.750 04/01/2031 500,000 501,140
Philadelphia,
Pennsylvania, Hospital
and Higher Education
Facilities 6.000 06/01/2014 2,000,000 1,894,440
Philadelphia,
Pennsylvania, Hospital
and Higher Education
Facilities, Albert
Einstein Medical Center
Authority 7.625 04/01/2011 250,000 270,078
See Notes to Schedule of Investments.
12
<PAGE>
SCHEDULE OF INVESTMENTS--November 30, 1995
Coupon Maturity Principal Market
Rate Date Amount Value
- ------------------------- ------ --------- --------- -------------
PENNSYLVANIA--continued
Philadelphia,
Pennsylvania, Hospital
and Higher Education
Facilities, Community
College, Series B
(MBIA) 6.500% 05/01/2007 $1,000,000 $1,117,710
Pottsville, Pennsylvania,
Hospital Authority,
Daughters of Charity
Health Systems, Inc.,
Good Samaritan Hospital 8.250 08/01/2012 285,000 309,866
Ridley Park,
Pennsylvania, Hospital
Authority 6.125 12/01/2020 500,000 457,885
Scranton-Lackawanna,
Pennsylvania, Health
and Welfare Authority
Revenue, Walters
Institute Project 8.125 07/15/2028 2,200,000 2,391,818
PUERTO RICO
Puerto Rico Commonwealth,
General Obligation 7.000 07/01/2010 1,000,000 1,178,060
Puerto Rico Commonwealth,
Telephone Authority 5.400 01/01/2008 1,400,000 1,426,348
Puerto Rico Electric
Power Authority, Series
S 7.000 07/01/2007 1,365,000 1,593,023
Puerto Rico Public
Buildings Authority,
Guaranteed Public
Education and Health
Facilities, Series M 5.700 07/01/2009 100,000 103,314
SOUTH DAKOTA
South Dakota Student Loan
Finance, Series A 6.750 08/01/2010 1,510,000 1,564,451
TENNESSEE
Bristol, Tennessee,
Health and Education
Authority, Bristol
Memorial Hospital
(FGIC) 6.750 09/01/2010 2,000,000 2,309,200
Knox County, Tennessee,
Health and Educational
Facilities, Fort
Sanders Hospital
Alliance, Series B
(MBIA) 7.250 01/01/2010 1,000,000 1,193,700
Knox County, Tennessee,
Health and Educational
Facilities, Fort
Sanders Hospital
Alliance, Series C
(MBIA) 5.250 01/01/2015 1,500,000 1,464,480
TEXAS
Austin, Texas, Utilities
System Revenue
(effective yield
6.810%) (a) 0.000 11/15/2011 2,700,000 1,131,570
Brazos River Authority,
Texas, Revenue
Refunding, Houston
Light and Power Project
(MBIA) 8.100 05/01/2019 3,000,000 3,278,580
Brazos, Texas, Higher
Education Authority
Inc., Series A 6.500 06/01/2004 475,000 506,013
Harris County, Texas,
Toll Road, Series A 7.000 08/15/2010 625,000 742,963
Harris County, Texas,
Toll Road, Sr. Lien
Revenue Toll Road 8.625 08/15/2007 1,000,000 1,103,350
Harris County, Texas,
Toll Road, Unlimited
Tax and Subordinate
Lien Refunding 8.125 08/01/2015 2,250,000 2,514,060
Midland County, Texas,
Hospital District,
Midland Memorial
Hospital 7.500 06/01/2016 400,000 421,226
Midland County, Texas,
Hospital District,
Midland Memorial
Hospital (effective
yield 7.700%) (a) 0.000 06/01/2007 90,000 44,913
Port of Corpus Christi,
Texas, Industrial
Development Corp.,
Valero Refining and
Marketing Co. Project,
Series A 10.250 06/01/2017 990,000 1,093,693
Texas Municipal Power
Agency (AMBAC)
(effective yield
7.090%) (a) 0.000 09/01/2006 2,500,000 1,466,325
Texas Municipal Power
Agency (AMBAC)
(effective yield
7.150%) (a) 0.000 09/01/2008 1,200,000 617,844
Texas State Water
Development, Unlimited
Tax, General Obligation 5.125 08/01/2015 650,000 628,368
See Notes to Schedule of Investments. (continued on next page)
13
<PAGE>
Keystone Tax Free Income Fund
SCHEDULE OF INVESTMENTS--November 30, 1995
Coupon Maturity Principal Market
Rate Date Amount Value
- ------------------------- ------ --------- --------- -------------
UTAH
Intermountain Power
Agency, Utah, Power
Supply (ETM)
(effective yield
6.800%) (a) 0.000% 07/01/2020 $ 500,000 $ 75,975
Intermountain Power
Agency, Utah, Power
Supply Refunding,
Series A (effective
yield 6.950%) (a) 0.000 07/01/2007 750,000 424,005
Utah State Housing
Finance Authority,
Single Family Mortgage 9.000 01/01/2019 35,000 36,816
VIRGINIA
Hanover County, Virginia,
Industrial Development
Authority, Bon Secours
Health System Project 5.500 08/15/2025 2,000,000 1,979,960
Pittsylvania County,
Virginia, Industrial
Development, Series A 7.300 01/01/2004 1,000,000 1,069,740
Pittsylvania County,
Virginia, Industrial
Development, Series A
(b) 7.500 01/01/2014 3,500,000 3,749,935
WASHINGTON
Port of Seattle,
Washington, General
Obligation 5.750 05/01/2014 500,000 503,000
Washington Public Power
Supply System, Nuclear
Project # 1 14.500 07/01/2002 150,000 173,781
Washington Public Power
Supply System, Nuclear
Project # 1, Series D 15.000 07/01/2017 250,000 273,110
Washington Public Power
Supply System, Nuclear
Project # 2, Series C 7.625 07/01/2010 1,000,000 1,161,170
Washington State General
Obligation, Series A 6.750 02/01/2015 1,000,000 1,156,000
WYOMING
Wyoming Community
Development Authority,
Single Family Mortgage 7.875 06/01/2018 1,405,000 1,477,034
- --------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost--$132,449,310) 143,651,396
================================================================================
TEMPORARY TAX-EXEMPT
INVESTMENTS (1.2%)
Dade County, Florida,
Water and Sewer Systems
Revenue
(Cost $1,825,000) (d) 3.700 10/05/2022 1,825,000 1,825,000
================================================================================
TOTAL INVESTMENTS
(Cost--$134,274,310) (c) 145,476,396
- --------------------------------------------------------------------------------
OTHER ASSETS AND
LIABILITIES--NET (1.7%) 2,540,652
- --------------------------------------------------------------------------------
NET ASSETS (100.0%) $148,017,048
================================================================================
See Notes to Schedule of Investments.
14
<PAGE>
Notes to Schedule of Investments:
(a) Effective yield (calculated at the date of purchase) is the yield at
which the bond accretes on an annual basis until its maturity date. All
zero coupon bonds are noncallable.
(b) Securities that may be resold to "qualified institutional buyers"
under Rule 144a or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended. These securities have been
determined to be liquid under guidelines established by the Board of
Trustees.
(c) The cost of investments for federal tax purposes amounted to
$134,271,034. Gross unrealized appreciation and depreciation of
investments, based on identified tax cost, at November 30, 1995 are as
follows:
Gross unrealized appreciation $11,310,602
Gross unrealized depreciation (105,240)
------------
Net unrealized appreciation $11,205,362
============
(d) Variable or floating rate instruments with periodic demand features.
The Fund is entitled to full payment of principle and accrued interest
upon surrendering the security to the issuing agent according to the
terms of the demand features.
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--American Municipal Bond Assurance Corp.
ETM--Escrowed To Maturity
FGIC--Federal Guaranty Insurance Co.
FSA--Financial Security Assurance
MBIA--Municipal Bond Insurance Association
See Notes to Financial Statements.
15
<PAGE>
Keystone Tax Free Income Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the year)
<TABLE>
<CAPTION>
February 13,
1987
(Commencement
of Operations)
Year Ended November 30, to
November 30,
1995(d) 1994 1993 1992 1991 1990 1989 1988 1987
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 8.93 $ 10.25 $ 10.17 $ 10.13 $ 9.94 $ 10.24 $ 9.96 $ 9.64 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.51 0.51 0.57 0.63 0.61 0.59 0.62 0.63 0.33
Net realized and
unrealized gain
(loss) on investments
and futures contracts 1.13 (1.28) 0.36 0.30 0.31 (0.06) 0.34 0.37 (0.32)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 1.64 (0.77) 0.93 0.93 0.92 0.53 0.96 1.00 0.01
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.51) (0.52) (0.57) (0.62) (0.61) (0.60) (0.63) (0.68) (0.37)
In excess of net
investment income (0.01) 0.00 (0.04) 0.00 (0.00) (0.03) 0.00 0.00 0.00
Net realized gain
on investments 0.00 0.00 (0.24) (0.27) (0.12) (0.20) (0.05) 0.00 0.00
Tax basis return of
capital 0.00 (0.03) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.52) (0.55) (0.85) (0.89) (0.73) (0.83) (0.68) (0.68) (0.37)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of year $ 10.05 $ 8.93 $ 10.25 $ 10.17 $ 10.13 $ 9.94 $ 10.24 $ 9.96 $ 9.64
================================================================================================================================
Total return (b) 18.71% (7.81%) 9.37% 9.35% 9.59% 5.55% 9.97% 10.60% 0.17%
Ratios/supplemental data
Ratios to average
net assets:
Total expenses 1.19%(a) 1.13% 1.21% 1.25% 1.58% 1.66% 1.62% 1.57% 1.00%(c)
Net investment income 5.35% 5.27% 5.40% 6.02% 5.95% 6.03% 6.15% 6.13% 6.85%(c)
Portfolio turnover rate 30% 98% 47% 32% 37% 42% 49% 109% 67%
- --------------------------------------------------------------------------------------------------------------------------------
Net assets,
end of year
(thousands) $94,183 $95,691 $124,102 $120,660 $133,524 $146,335 $162,013 $179,191 $16,090
================================================================================================================================
</TABLE>
(a) "Ratio of total expenses to average net assets" for the year ended
November 30, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses for the year ended November 30, 1995, the expense ratio
would have been 1.18%.
(b) Excluding applicable sales charges.
(c) Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to November 30, 1987.
(d) Calculation based on average shares outstanding.
See Notes to Financial Statements.
16
<PAGE>
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the year)
February 1, 1993
Year Ended (Date of Initial
November 30, Public Offering) to
1995 (d) 1994 November 30, 1993
================================================================================
Net asset value, beginning
of year $8.88 $10.25 $10.27
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.44 0.45 0.37
Net realized and unrealized
gain (loss) on
investments and futures
contracts 1.11 (1.29) 0.30
- --------------------------------------------------------------------------------
Total from investment
operations 1.55 (0.84) 0.67
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.45) (0.50) (0.37)
In excess of net investment
income (0.01) 0.00 (0.08)
Net realized gain on
investments 0.00 0.00 (0.24)
Tax basis return of capital 0.00 (0.03) 0.00
- --------------------------------------------------------------------------------
Total distributions (0.46) (0.53) (0.69)
- --------------------------------------------------------------------------------
Net asset value, end of
year $ 9.97 $ 8.88 $10.25
================================================================================
Total return (b) 17.84% (8.43%) 6.59%
Ratios/supplemental data
Ratios to average net
assets:
Total expenses 1.96%(a) 1.88% 1.96%(c)
Net investment income 4.59% 4.60% 4.42%(c)
Portfolio turnover rate 30% 98% 47%
- --------------------------------------------------------------------------------
Net assets, end of year
(thousands) $33,449 $28,860 $14,091
================================================================================
(a) "Ratio of total expenses to average net assets" for the year ended
November 30, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses for the year ended November 30, 1995, the expense ratio
would have been 1.94%.
(b) Excluding applicable sales charges.
(c) Annualized.
(d) Calculation based on average shares outstanding.
See Notes to Financial Statements.
17
<PAGE>
Keystone Tax Free Income Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the year)
February 1, 1993
Year Ended (Date of Initial
November 30, Public Offering) to
1995 (d) 1994 November 30, 1993
================================================================================
Net asset value, beginning
of year $8.88 $10.26 $10.27
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.44 0.43 0.37
Net realized and unrealized
gain (loss) on
investments and futures
contracts 1.11 (1.27) 0.31
- --------------------------------------------------------------------------------
Total from investment
operations 1.55 (0.84) 0.68
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.45) (0.51) (0.37)
In excess of net investment
income (0.01) 0.00 (0.08)
Net realized gain on
investments 0.00 0.00 (0.24)
Tax basis return of capital 0.00 (0.03) 0.00
- --------------------------------------------------------------------------------
Total distributions (0.46) (0.54) (0.69)
- --------------------------------------------------------------------------------
Net asset value, end of
year $ 9.97 $ 8.88 $10.26
================================================================================
Total return (b) 17.84% (8.52%) 6.70%
Ratios/supplemental data
Ratios to average net
assets:
Total expenses 1.96%(a) 1.89% 1.94%(c)
Net investment income 4.59% 4.52% 4.41%(c)
Portfolio turnover rate 30% 98% 47%
- --------------------------------------------------------------------------------
Net assets, end of year
(thousands) $20,386 $23,230 $27,261
================================================================================
(a) "Ratio of total expenses to average net assets" for the year ended
November 30, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses for the year ended November 30, 1995, the expense ratio
would have been 1.94%.
(b) Excluding applicable sales charges.
(c) Annualized.
(d) Calculation based on average shares oustanding.
See Notes to Financial Statements.
18
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES--
November 30, 1995
===================================================================
Assets (Note 1):
Investments at market value
(identified cost--$134,274,310) $145,476,396
Cash 4,472
Receivable for:
Fund shares sold 24,803
Interest 2,895,155
Prepaid expenses 16,572
- -------------------------------------------------------------------
Total assets 148,417,398
- -------------------------------------------------------------------
Liabilities (Notes 2 and 4):
Payable for:
Fund shares redeemed 22,764
Distributions to shareholders 288,160
Other accrued expenses 89,426
- -------------------------------------------------------------------
Total liabilities 400,350
- -------------------------------------------------------------------
Net assets $148,017,048
===================================================================
Net assets represented by (Note 1):
Paid-in capital $143,800,682
Accumulated distributions in excess of net
investment income (288,160)
Net accumulated realized gain (loss) on
investments (6,697,560)
Net unrealized appreciation (depreciation) on
investments 11,202,086
- -------------------------------------------------------------------
Total net assets $148,017,048
===================================================================
Net Asset Value per share
Class A Shares
Net asset value of $94,182,774 / 9,370,675
shares outstanding $10.05
Offering price per share ($10.05 / 0.9525)
(based on a sales charge of 4.75% of the
offering price on November 30, 1995) $10.55
Class B Shares
Net asset value of $33,448,526 / 3,356,230
shares outstanding $ 9.97
Class C Shares
Net asset value of $20,385,748 / 2,045,152
shares outstanding $ 9.97
====================================================================
See Notes to Financial Statements.
STATEMENT OF OPERATIONS--
Year Ended November 30, 1995
====================================================================
Investment income (Note 1):
Interest $ 9,776,365
Expenses (Notes 2 and 4):
Management fee $ 919,802
Transfer agent fees 211,525
Accounting, auditing and legal 64,552
Custodian fees 98,704
Printing 46,538
Trustees' fees and expenses 12,634
Distribution Plan expenses 766,469
Registration fees 60,285
Miscellaneous expenses 15,378
- --------------------------------------------------------------------
Total expenses 2,195,887
Less: Expenses paid indirectly (Note 4) (20,278)
- --------------------------------------------------------------------
Net expenses 2,175,609
- --------------------------------------------------------------------
Net investment income 7,600,756
- --------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and closed futures
contracts (Notes 1 and 3):
Net realized gain (loss) on:
Investments (110,715)
Closed futures contracts (650,028)
- --------------------------------------------------------------------
Net realized gain (loss) on investments
and closed futures contracts (760,743)
Net change in unrealized appreciation
(depreciation) on investments 18,451,939
- --------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and closed futures
contracts 17,691,196
- --------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $25,291,952
====================================================================
19
<PAGE>
Keystone Tax Free Income Fund
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS Year Ended November 30,
1995 1994
============================================================================= ==============================
<S> <C> <C>
Operations:
Net investment income $ 7,600,756 $ 8,330,638
Net realized loss on investments and closed futures contracts (760,743) (5,869,377)
Net change in unrealized appreciation (depreciation) on investments 18,451,939 (16,025,461)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 25,291,952 (13,564,200)
- ------------------------------------------------------------------------------------------------------------
Distributions to shareholders from (Note 1):
Net investment income:
Class A Shares (5,042,433) (5,980,145)
Class B Shares (1,531,824) (1,297,179)
Class C Shares (1,026,499) (1,452,252)
In excess of net investment income:
Class A Shares (70,626) 0
Class B Shares (21,455) 0
Class C Shares (14,377) 0
Tax basis return of capital:
Class A Shares 0 (338,046)
Class B Shares 0 (101,954)
Class C Shares 0 (82,063)
- ------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (7,707,214) (9,251,639)
- ------------------------------------------------------------------------------------------------------------
Capital share transactions (Note 2):
Proceeds from shares sold:
Class A Shares 2,127,732 6,833,913
Class B Shares 6,139,897 21,886,789
Class C Shares 3,205,146 9,086,896
Payment for shares redeemed:
Class A Shares (17,659,525) (23,370,474)
Class B Shares (5,968,412) (4,163,609)
Class C Shares (9,212,881) (10,093,259)
Net asset value of shares issued in reinvestment of dividends and
distributions:
Class A Shares 2,608,685 3,231,223
Class B Shares 790,394 718,132
Class C Shares 619,790 1,013,566
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital share
transactions (17,349,174) 5,143,177
- ------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 235,564 (17,672,662)
Net assets:
Beginning of year 147,781,484 165,454,146
- ------------------------------------------------------------------------------------------------------------
End of year [including accumulated distributions in excess of net investment
income as follows: November 1995--($288,160) and November 1994--($333,473)] $148,017,048 $147,781,484
============================================================================================================
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
Keystone Tax Free Income Fund
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone Tax Free Income Fund (formerly Keystone America Tax Free Income
Fund) ("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 amended (the "1940 Act"), as a diversified open-end
investment company.
The Fund currently issues 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 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 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 members of management of Keystone and its affiliates.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Tax-exempt bonds are stated on the basis of valuations provided by a
pricing service, approved by the Board of Trustees, that uses information
with respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Non-tax-exempt securities for which market
quotations are readily available are valued at the price quoted which, in the
opinion of the Board of Trustees or their representative, most nearly
represents their market value. Short-term investments which are purchased
with maturities of sixty days or less are valued at amortized cost (original
cost as adjusted for amortization of premium or accretion of discount) which,
when combined with accrued interest approximates market. Short term
investments maturing in more than sixty days for which market quotations are
readily available are valued at current market value. Short-term investments
maturing in more than sixty days when purchased which are held on the
sixtieth day prior to maturity are valued at amortized cost (market value on
the sixtieth day adjusted for amortization of premium or accretion of
discount) which, when combined with accrued interest, approximates market.
All other securities and other assets are valued at fair value as determined
in good faith using methods prescribed by the Board of Trustees.
B. 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
21
<PAGE>
Keystone Tax Free Income Fund
NOTES TO FINANCIAL STATEMENTS
101% of the repurchase price. The Fund monitors the value of the collateral
on a daily basis, and if the value of the collateral falls below required
levels, the Fund intends to seek additional collateral from the seller or
terminate the repurchase agreement. If the seller defaults, the Fund would
suffer a loss to the extent that the proceeds from the sale of the underlying
securities were less than the repurchase price. Any such loss would be
increased by any cost incurred on disposing of such securities. If bankruptcy
proceedings are commenced against the seller under the repurchase agreement,
the realization of 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.
C. The Fund may enter into currency or financial futures contracts as a hedge
against changes in interest or currency exchange rates. A futures contract is
an agreement between two parties to buy and sell a specific amount of a
commodity, security, financial instrument, or, in the case of a stock index,
cash at a set price on a future date. Upon entering into a futures contract
the Fund is required to deposit with a broker an amount ("initial margin")
equal to a certain percentage of the purchase price indicated in the futures
contract. Subsequent payments ("variation margin") are made or received by
the Fund each day, as the value of the underlying instrument or index
fluctuates, and are recorded for book purposes as unrealized gains or losses
by the Fund. For federal tax purposes, any futures contracts which remain
open at fiscal year end are marked-to-market and the resultant net gain or
loss is included in the Fund's 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.
D. When-issued or delayed delivery transactions arise when securities or
currencies are purchased or sold by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. A separate account of liquid assets equal to the value of such
purchase commitments will be maintained until payment is made. When-issued
and delayed delivery agreements are subject to risks from changes in value
based upon changes in the level of interest rates and other market factors,
both before and after delivery.
E. Securities transactions are accounted for no later than one business day
after the trade date. Realized gains and losses are recorded on the
identified cost basis. Interest income is recorded on the accrual basis. All
premiums and original issue discounts are amortized/accreted for both
financial reporting and federal income tax purposes.
F. 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 (the "Internal Revenue Code"). Thus, the Fund is relieved of any
federal income tax liability by distributing all of its net taxable
investment income and net taxable capital gains, if any, to its shareholders.
The Fund intends to avoid any excise tax liability by making the required
distributions under the Internal Revenue Code.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
G. The Fund declares dividends from net investment income monthly and
distributes to its shareholders such dividends monthly. The Fund declares and
distributes all net realized long-term capital gains, if any, at least
annually. Distributions are determined in accordance with income tax
regulations. Distributions from tax basis net investment income and net
capital gains can exceed book basis net investment income and net capital
gains. Differences between book basis investment income distributions and tax
basis investment income distributions are primarily attributable to
differences in the treatment of 12b-1 Distribution Plan charges and tax basis
returns of capital.
(2.) Capital Share Transactions
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of
the Fund were as follows:
Year Ended November 30,
1995 1994
- ------------------------------------------------------
Class A Shares
Shares sold 224,063 697,684
Shares redeemed (1,843,241) (2,421,649)
Shares issued in
reinvestment of
dividends and
distributions 270,624 333,532
- ------------------------------------------------------
Net decrease (1,348,554) (1,390,433)
======================================================
Class B Shares
Shares sold 647,077 2,235,194
Shares redeemed (625,195) (432,965)
Shares issued in
reinvestment of
dividends and
distributions 82,512 75,307
- ------------------------------------------------------
Net increase 104,394 1,877,536
======================================================
Class C Shares
Shares sold 338,010 922,206
Shares redeemed (974,642) (1,068,581)
Shares issued in
reinvestment of
dividends and
distributions 64,840 105,124
- ------------------------------------------------------
Net decrease (571,792) (41,251)
======================================================
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 1940 Act.
The Class A Distribution Plan provides for payments at an annual rate of
0.25% of the average daily net asset value of Class A shares to pay expenses
for 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 0.25% of the average net asset
value of Class A shares maintained by such others and remaining outstanding
on the books of the Fund for specified periods.
The Class B Distribution Plan provides for payments at an annual rate of
up to 1.00% of the average daily net asset value of Class B shares to pay
expenses for 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 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
dealer or other party will receive
23
<PAGE>
Keystone Tax Free Income Fund
NOTES TO FINANCIAL STATEMENTS
service fees at an annual rate of 0.25% of the average daily net asset value
of each 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 twelve 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 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 for the distribution of Class C shares. Amounts paid by each Fund
under the Class C Distribution Plan are currently used to pay others
(dealers) a commission at the time of purchase normally equal to 0.75% 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 C share. Beginning
approximately 15 months after purchase date, the dealer or other party will
receive a commission at an annual rate of 0.75% (subject to applicable
limitations imposed by a rule of the National Association of Securities
Dealers, Inc. ("NASD Rule")) plus service fees at an annual rate of 0.25%,
respectively, of the average net asset value of each Class C share sold by
such others and remaining outstanding on the books of the Fund for specified
periods.
Each of the Distribution Plans may be terminated at any time by 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 of the
Distribution Plans, 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.
For the year ended November 30, 1995, the Fund paid KIDC $229,818,
$320,355 and $216,296, pursuant to the Fund's Class A, Class B and Class C
Distribution Plans, respectively.
Under the NASD Rule, the maximum uncollected amounts for which KIDC may
seek payment from the Fund under its Class B Distribution Plans at November
30, 1995 are $1,945,004 for shares purchased prior to June 1, 1995 and
$162,557 for shares purchased on or after June 1, 1995. The maximum
uncollected amounts for which KIDC may seek payment from the Fund under its
Class C Distribution Plans is $2,197,650 as of November 30, 1995.
Presently, the Fund's class-specific expenses are limited to Distribution
Plan expenses incurred by a class of shares.
(3.) Securities Transactions
As of November 30, 1995, the Fund had capital loss carryovers for federal
income tax purposes of approximately $6,698,000 which expire as follows:
2002-$5,831,000, 2003-$867,000.
Cost of purchases and proceeds from sales of investment securities,
excluding short-term securities, during the year ended November 30, 1995 were
$44,461,072 and $63,089,275, respectively.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(4.) Investment Management Agreement and Other Transactions
Under the terms of the Investment Management Agreement between KMI and the
Fund, KMI provides investment management and administrative services to the
Fund. In return, KMI is paid a management fee computed and paid daily at a
rate of 2.0% of the Fund's gross investment income plus an amount determined
by applying annual percentage rates, which start at 0.50% and decline to
0.25% as net assets increase, to the net asset value of the Fund.
KMI has entered into an Investment Advisory Agreement with Keystone, under
which Keystone provides investment advisory and management services to the
Fund and receives for its services an annual fee representing 85% of the
management fee received by KMI. During the year ended November 30, 1995, the
Fund paid or accrued to Keystone investment management and administrative
service fees of $919,802 which represented 0.61% of the average net assets of
the Fund. Of such amount paid to KMI, $781,832 was paid to Keystone for its
services to the Fund.
Keystone Investor Resource Center, Inc. ("KIRC"), a wholly-owned
subsidiary of Keystone, serves as the Fund's transfer agent. During the year
ended November 30, 1995, the Fund paid or accrued to KIRC $211,525 for
transfer agent fees.
During the year ended November 30, 1995, the Fund paid or accrued to KII
$19,338 for certain accounting services.
The Fund is subject to certain state annual expense limits, the most
restrictive of which is as follows: 2.5% of the first $30 million of Fund
assets, 2.0% of the next $70 million of Fund assets, and 1.5% of Fund assets
over $100 million.
The Fund has entered into an expense offset arrangement with its
custodian. For the year ended November 30, 1995, the Fund paid custody fees
in the amount of $78,426 and received a credit of $20,278 pursuant to the
expense offset arrangement, resulting in a total expense of $98,704. The
assets deposited with the custodian under this expense offset arrangement
could have been invested in an income-producing asset.
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.
(5.) Distributions to Shareholders
Distributions of $0.043, $0.037 and $0.037 per share were declared payable
January 5, 1996 to shareholders of record on December 22, 1995 for Class A,
Class B and Class C shares, respectively. These distributions are not
reflected in the accompanying financial statements.
25
<PAGE>
Keystone Tax Free Income Fund
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone Tax Free Income Fund
We have audited the accompanying statement of assets and liabilities of
Keystone Tax Free Income Fund (formerly Keystone America Tax Free Income
Fund), including the schedule of investments, as of November 30, 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 then ended and for the period from February 13, 1987 (commencement of
operations) to November 30, 1987 for Class A shares and for each of the years
in the two year period ended November 30, 1995 and the period from February
1, 1993 (date of initial public offering) to November 30, 1993 for Class B
and Class C shares. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of November 30, 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 Tax Free Income Fund as of November 30, 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
January 5, 1996
26
<PAGE>
KEYSTONE TAX FREE INCOME 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 November 30, 1995
Financial Highlights
Class A Shares For period February 13, 1987 (commencement
of operations) to November 30, 1987 and
for fiscal years ended November 30, 1988
through 1995
Class B Shares For period February 1, 1993 (date of
initial public offering) to November 30,
1993 and fiscal years ended November 30,
1994 and 1995
Class C Shares For period February 1, 1993 (date of
initial public offering) to November 30,
1993 and fiscal years ended November 30,
1994 and 1995
Statement of Assets and November 30, 1995
Liabilities
Statement of Operations Year ended November 30, 1995
Statements of Changes in Two Years ended
Net Assets November 30, 1995
Notes to Financial Statements
Independent Auditors' Report
dated January 5, 1996
<PAGE>
(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 Registrant's Share Certificate was filed with
Pre-Effective Amendment No. 1 to Registration Statement No.
33-11051/811-4951 as Exhibit 24 (b)(4) and is incorporated by reference
herein.
(5)(a) A copy of the Investment Management Agreement between Registrant and
Keystone Management, Inc. dated August 19, 1993 is filed herewith.
(b) A copy of the Investment Advisory Agreement betweeen Keystone
Management, Inc. and Keystone Investment Management Company (formerly
named Keystone Custodian Funds, Inc.) dated August 19, 1993 is filed
herewith.
(6)(a) Copies of the Principal Underwriting Agreements, with schedules and
amendments, between Registrant and Keystone Investment Distributors
Company (formerly named 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 No. 10 to
Registration Statement No. 33-11051/811-4951 as part of Exhibit
24(b)(6)(b) and is incorporated by reference herein.
(7) Not applicable.
(8) A copy of the Custodian, Fund Accounting and Recordkeeping Agreements,
as amended, between Registrant and State Street Bank & Trust Company
dated February 12, 1987 is filed herewith.
(9) Not applicable.
(10) An opinion and consent of counsel as to the legality of the securities
registered by the Fund is filed herewith.
(11) Consent as to use of the opinion of Registrant's Independent Auditors
is filed herewith.
(12) Not applicable.
(13) Copies of the Subscription Agreements were filed with Registration
Statement No. 33-11051/811-4951 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. 1 to Registration Statement No.
33-11051/811-4951 as part of 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 offer 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) Copies of each of the Registrant's Class A, B and C Distribution Plans
adopted pursuant to Rule 12b-1 are filed herewith.
(16) Schedules for the computation of total return and current yield
quotations are filed herewith.
(17) Financial data schedules are filed herewith as Exhibit 24(b)(17).
(18) A copy of the Registrant's Multiple Class Plan adopted pursuant to Rule
18f-3 was filed with Post-Effective Amendment No. 16 to Registration
Statement No. 33-11051/811-4951 and is incorporated by reference
herein.
(19) Powers of Attorney are filed herewith.
Item 25. Persons Controlled by or Under Common Control With Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record
Title of Class Holders as of December 29, 1995
-------------- -------------------------------
Shares of Beneficial Class A - 2,509
Interest, without Class B - 878
par value Class C - 295
Item 27. Indemnification
Provisions for the indemnification of Registrant's Trustees and
officers are contained in Article VIII of Registrant's Declaration of
Trust, as supplemented, a copy of which is filed herewith and is
incorporated by reference herein.
Provisions for the indemnification of Keystone Investment Distributors
Company (formerly named Keystone Distributors, Inc.), Registrant's
principal underwriter, are contained in Section 9 of the Principal
Underwriting Agreements between Registrant and Keystone Investment
Distributors Company, copies of which are filed herewith and are
incorporated by reference herein.
Provisions for the indemnification of Keystone Investment Management
Company (formerly named Keystone Custodian Funds, Inc.) and Keystone
Management, Inc., Registrant's investment adviser and manager,
respectively, are contained in Section 5 of the Investment Advisory
Agreement between Keystone Management, Inc. and Keystone Investment
Management Company and Section 6 of the Investment Management Agreement
between Keystone Management and the Registrant, 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
Keystone Other
Management, Business
Name 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,
President and Inc.
Director Keystone Software, Inc.
Keystone Asset
Corporation
Keystone Capital
Corporation
Keystone Investments
Family of Funds
Chairman of the Board
and Director:
Keystone Investment
Management Company
Keystone Institutional
Company, Inc.
Keystone Fixed Income
Advisers, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Investor
Resource Center, Inc.
Boston Children's
Services Association
Middlesex School
Middlebury College
Former Trustee or
Director:
Neworld Bank
Robert Van Partners, Inc.
Edward F. Godfrey Treasurer and Senior Vice President,
Director Chief Financial Officer,
Treasurer and Director:
Keystone Investments, Inc.
Keystone Investment
Management Company
Keystone Investment
Distributors Company
Treasurer:
Keystone Institutional
Company, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Former Treasurer and
Director:
Hartwell Keystone
Advisers, Inc.
Senior Vice President:
Keystone Investments
Family of Funds
Ralph J. Director President and Director:
Spuehler, Jr. Keystone Investment
Distributors Company
Chairman and Director:
Keystone Investor
Resource Center, Inc.
Keystone Investment
Management Company
Senior Vice President and
Director:
Keystone Investments, Inc.
Treasurer:
Hartwell Emerging Growth
Fund
Hartwell Growth Fund
Former President:
Keystone Management, Inc.
Former Treasurer:
Keystone Investments, Inc.
Keystone Investment
Management Company
Rosemary D. Van Senior Vice General Counsel, Senior
Antwerp President, Vice President and
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.
John D. Rogol 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.
J. Kevin Kenely Vice President Vice President:
Keystone Investments, Inc.
Keystone Investment
Management Company
Keystone Investment
Distributors Company
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Formerly Controller:
Keystone Investments,
Inc.
Keystone Investment
Management Company
Keystone Investment
Distributors Company
Keystone Software, Inc.
Fiduciary Investment
Company, 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.
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
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
Christopher P. Senior Vice None
Conkey President
Richard Cryan Senior Vice None
President
Maureen E. Senior Vice None
Cullinane President
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Christopher R. Senior Vice None
Ely President
Robert L. Hockett Vice President None
Sami J. Karam Vice President None
Donald M. Keller Senior Vice None
President
George J. Kimball Vice President None
JoAnn L. Lyndon Vice President None
John C. Vice President None
Madden, Jr.
Stephen A. Marks Vice President None
Eleanor H. Marsh Vice President None
Walter T. Senior Vice None
McCormick President
Barbara McCue Vice President None
Stanley M. Niksa Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
William H. Vice President None
Parsons
Daniel A. Rabasco Vice President None
David L. Smith Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
J. Kevin Kenely Vice President Vice President:
Keystone Investments, Inc.
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Formerly Controller:
Keystone Investments, Inc.
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Software, Inc.
Fiduciary Investment Company,
Inc.
John D. Rogol Vice President Vice President and
and Controller Controller:
Keystone Investments, Inc.
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Management Company
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Vice President and Treasurer:
Keystone Investor Resource
Center, Inc.
Controller:
Keystone Asset Corporation
Keystone Capital Corporation
Joseph J. Asst. Vice President None
Decristofaro
9'95
<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 Government Securities 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 Tax Free Income Fund
Keystone Fund of the Americas
Keystone Strategic Development Fund
Keystone Tax Free Fund
Keystone Tax Exempt Trust
Keystone Liquid Trust
Keystone International Fund Inc.
Keystone Precious Metals Holdings, Inc.
(b) Information with respect to each officer and director of
Registrant's acting principal underwriter:
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 Treasurer
John D. Rogol 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
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
John M. McAllister* Vice President None
Gregg A. Mahalich Vice President None
14952 Richards Drive W.
Minnetonka, MN 55345
Robert J. Matson* Vice President None
Alan V. Neimi* Vice President None
Ronald L. Noble* Vice President None
Burton Robbins Vice President None
1586 Folkstone Terrace
Westlake Village, CA
91361
Thomas E. Ryan, III* Vice President None
Peter Willis* Vice President None
Raymond P. Ajemian* Vice President None
Joan M. Balchunas* Assistant Vice None
President
Jody R. Baum* Assistant Vice None
President
Thomas J. Gainey* Assistant Vice None
President
Eric S. Jeppson* Assistant Vice None
President
Julie A. Robinson* Assistant Vice None
President
Peter M. Sullivan Assistant Vice None
21445 Southeast 35th Way President
Issaquah, WA 98027
*Located at 200 Berkeley Street, Boston, Massachusetts 02116-5034
Item 29(c). - Not applicable
Item 30. Location of Accounts and Records
200 Berkeley Street
Boston, Massachusetts 02116-5034
Keystone Investor Resource Center, Inc.
101 Main Street
Cambridge, MA 02142
State Street Bank & 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
Upon request and without charge, Registrant hereby undertakes to
furnish a copy of its latest annual report to shareholders to each
person to whom a copy of Registrant's prospectus is delivered.
<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 30th day of January, 1996.
KEYSTONE TAX FREE INCOME FUND
By: /s/ Rosemary D. Van Antwerp
------------------------------
Rosemary D. Van Antwerp
Senior Vice President and
Secretary
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 30th day of January, 1996.
SIGNATURES TITLE
- ---------- -----
/s/ George S. Bissell Chairman of the Board and
- ------------------------ Trustee
George S. Bissell*
/s/ Albert H. Elfner, III Chief Executive Officer,
- ------------------------- President and Trustee
Albert H. Elfner, III*
/s/ J. Kevin Kenely Treasurer (Principal Financial
- ------------------------- and Accounting Officer)
J. Kevin Kenely
*By:/s/ James M. Wall
-----------------------------------
James M. Wall**
Attorney-in-Fact
<PAGE>
/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 Specimen Stock Certificate(1)
5 (a) Management Agreement
(b) Advisory Agreement
6 (a) Principal Underwriting Agreements
(b) Dealers Agreement(3)
8 Custodian, Fund Accounting and
Recordkeeping Agreement
Amendments to Custody Agreement
10 Opinion and Consent of Counsel
11 Independent Auditors' Consent
13 Subscription Agreements(1),(2)
14 Model Retirement Plans(4)
15 Class A, B and C Distribution Plans
16 Total Return and Current Yield Schedules
17 Financial Data Schedules (filed as Exhibit 27)
18 Multiple Class Plan(5)
19 Powers of Attorney
----------------------------------
(1)Incorporated herein by reference to Pre-Effective Amendment No. 2 to
Registration Statement No. 33-11050/811-4947.
(2)Incorporated herein by reference to Registration Statement No.
33-11050/811-4947.
(3)Incorporated herein by reference to Post-Effective Amendment No. 10 to
Registration Statement No. 33-11050/811-4947.
(4)Incorporated herein by reference to Post-Effective Amendment No. 66 to
Registration Statement No. 2-10527/811-96.
(5)Incorporated herein by reference to Post-Effective Amendment No. 16 to
Registration Statement No. 33-11051/811-4951.
<PAGE>
Exhibit 99.1
KEYSTONE AMERICA TAX FREE INCOME 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 TAX
FREE INCOME 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 Shareholers 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 authroized 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.
(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.
<PAGE>
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 envent of such Trustee's death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the duties
of the office of Trustsee. 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 securitiy 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
Trusteees 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.
/s/ George S. Bissell
---------------------------
George S. Bissell
/s/ K. Dun Gifford
---------------------------
K. Dun Gifford
/s/ John M. Haffenreffer
---------------------------
John M. Haffenreffer
/s/ F. Ray Keyser, Jr.
---------------------------
F. Ray Keyser, Jr.
/s/ James A. Reed
---------------------------
James A. Reed
/s/ John W. Sharp
---------------------------
John W. Sharp
/s/ Richard J. Shima
---------------------------
Richard J. Shima
/s/ Spencer R. Stuart
---------------------------
Spencer R. Stuart
/s/ Thomas O. Thorsen
---------------------------
Thomas O. Thorsen
/s/ Rodney M. Vining
---------------------------
Rodney M. Vining
/s/ Charles M. Williams
---------------------------
Charles M. Williams
<PAGE>
KEYSTONE AMERICA TAX FREE INCOME 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 Tax Free Income 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.
<PAGE>
IN WITNESS WHEREOF, the undersigned majority of all the Trustees of the
Trust have caused this Supplemental Declaration of Trust to be executed on the
15th day of March, 1995.
/s/ George S. Bissell
-------------------------------
George S. Bissell, Trustee
/s/ Albert H. Elfner, III
-------------------------------
Albert H. Elfner, III, Trustee
/s/ Federick Amling
-------------------------------
Frederick Amling, Trustee
/s/ Charles A. Austin, III
-------------------------------
Charles A. Austin, III, Trustee
/s/ Edwin D. Campbell
-------------------------------
Edwin D. Campbell, Trustee
/s/ Charles F. Chapin
-------------------------------
Charles F. Chapin, Trustee
/s/ Leroy Keith, Jr.
-------------------------------
Leroy Keith, Jr., Trustee
/s/ K. Dun Gifford
-------------------------------
K. Dun Gifford, Trustee
/s/ R. Ray Keyser, Jr.
-------------------------------
R. Ray Keyser, Jr., Trustee
/s/ David M. Richardson
-------------------------------
David M. Richardson, Trustee
/s/ Richard J. Shima
-------------------------------
Richard J. Shima, Trustee
/s/ Andrew J. Simons
-------------------------------
Andrew J. Simons, Trustee
<PAGE>
Exhibit 99.2
BY-LAWS
KEYSTONE TAX FREE INCOME FUND
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
Tax Free Income 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>
AMENDMENT NO. 1
to
BY-LAWS
of
KEYSTONE AMERICA TAX FREE INCOME 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 November in each
year."
<PAGE>
Exhibit 99.5(A)
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made the 19th day of August, 1993, by and between KEYSTONE
AMERICA TAX FREE INCOME 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:
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 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 TAX FREE INCOME FUND
By: /s/ Roger Wickers
------------------------------------------------------
Title: Vice President
KEYSTONE MANAGEMENT, INC.
By: /s/ E.F. Godfrey
------------------------------------------------------
Title: Treasurer
<PAGE>
Exhibit 99.5(B)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made the 19th day of August, 1993, by and between KEYSTONE
MANAGEMENT, INC., a Nevada corporation (the "Manager"), and KEYSTONE CUSTODIAN
FUNDS, INC., a Delaware corporation (the "Adviser").
WHEREAS, the Manager and the Adviser wish to enter into an Agreement setting
forth the terms on which the Adviser will perform certain services for the
Manager and KEYSTONE AMERICA TAX FREE INCOME 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: /s/ E. F. Godfrey
-----------------------------------------------------------
Title: Treasurer
KEYSTONE CUSTODIAN FUNDS, INC.
By: /s/ Roger Wickers
-----------------------------------------------------------
Title: Sr. Vice President
<PAGE>
Exhibit 99.6(A)
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE AMERICA TAX FREE INCOME FUND
AGREEMENT made this 19th day of August, 1993 by and between Keystone
America Tax Free Income 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 written above.
KEYSTONE AMERICA TAX FREE
INCOME FUND
By: /s/ Roger Wickers
------------------------------
Title: Vice President
KEYSTONE DISTRIBUTORS, INC.
By: /s/ E.F. Godfrey
------------------------------
Title: Sr. Vice President
<PAGE>
FIRST AMENDMENT
TO
PRINCIPAL UNDERWRITING AGREEMENT
OF
KEYSTONE TAX FREE INCOME 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 Tax Free Income 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 TAX FREE INCOME FUND
By: /s/ Albert H. Elfner III
---------------------------------------
Title: President
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/ Ralph J. Spuehler Jr.
---------------------------------------
Title: President
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE TAX FREE INCOME FUND
AGREEMENT made this 31st day of May 1995 by and between Keystone Tax Free
Income 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 TAX FREE INCOME FUND
By: /s/ R. D. Van Antwerp
----------------------------
Title: Senior Vice President
KEYSTONE INVESTMENT DISTRIBUTORS, INC.
By: /s/ Ralph J. Spuehler, Jr.
----------------------------
Title: President
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE TAX FREE INCOME 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 May 31, 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 Tax Free Income 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.
(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 TAX-FREE INCOME FUND
AGREEMENT made this 31st day of May 1995 by and between Keystone Tax-Free
Income 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 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-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 TAX FREE INCOME FUND
By: /s/ R.D. Van Antwerp
-------------------------------
Title: Sr. Vice President
KEYSTONE INVESTMENT DISTRIBUTORS, INC.
By: /s/ Ralph J. Spuehler, Jr.
-------------------------------
Title: President
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE TAX FREE INCOME 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 May 31, 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 Tax Free Income 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.
(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>
Exhibit 99.8
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
by and between
KEYSTONE AMERICA TAX FREE INCOME FUND
and
STATE STREET BANK AND TRUST COMPANY
Agreement made as of this 12th day of February, 1987 by and between
KEYSTONE AMERICA TAX FREE INCOME 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 reasonably required
by State Street in the performance of its duties hereunder.
II. Custodian.
1. The Fund appoints State Street as its Custodian, subject to the
provisions hereof. State Street hereby accepts such appointment as Custodian. As
such Custodian, State Street shall retain all securities, cash and other assets
now owned or hereafter acquired by the Fund, and the Fund shall deliver and pay
or cause to be delivered and paid to State Street, as Custodian, all securities,
cash and other assets now owned or hereafter acquired by the Fund during the
period of this Agreement.
2. All securities delivered to State Street (other than in bearer form)
shall be properly endorsed and in proper form for transfer into or in the name
of the Fund, of a nominee of State Street for the exclusive use of the Fund or
of such other nominee as may be mutually agreed upon by State Street and the
Fund.
3. As Custodian, State Street shall promptly:
A. Safekeeping. Keep safely in a separate account the securities of
the Fund, including without limitation all securities in bearer form, and on
behalf of the Fund, receive delivery of certificates, including without
limitation all securities in bearer form, for safekeeping and keep such
certificates physically segregated at all times from those of any other person.
State Street shall maintain records of all receipts, deliveries and locations of
such securities, together with a current inventory thereof and shall conduct
periodic physical inspections of certificates representing bonds and other
securities held by it under this Agreement at least annually in such manner as
State Street shall determine from time to time to be advisable in order to
verify the accuracy of such inventory. State Street shall provide the Fund with
copies of any reports of its internal count or other verification of the
securities of the Fund held in its custody, including reports on its own system
of internal accounting control. In addition, if and when independent certified
public accountants retained by State Street shall count or otherwise verify the
securities of the Fund held in State Street's custody, State Street shall
provide the Fund with a copy of the report of such accountants. With respect to
securities held by any agent or Subcustodian appointed pursuant to 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 Other Purposes. Upon receipt
of proper instructions, release or deliver any securities held by it for the
account of the Fund for any other purpose (in addition to those specified in
paragraphs 3-E, 3-F, 3-G, 3-H, 3-I and 3-J of Section II hereof) which the Fund
declares is a proper corporate purpose pursuant to proper instructions.
L. Proxies, Notices, Etc. State Street shall promptly forward upon
receipt to the Fund all forms of proxies and all notices of meetings and any
other notices or announcements affecting or relating to the securities,
including without limitation notices relating to class action claims and
bankruptcy claims, and upon receipt of proper instructions execute and deliver
or cause its nominee to execute and deliver such proxies or other authorizations
as may be required. State Street, its nominee or its agents 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 practicable whenever income due on securities is not
collected in due course.
C. Sale of shares of the Fund. Make such arrangements with the
Transfer Agent of the Fund as will enable State Street to make certain it
receives the cash consideration due to the Fund for shares of the Fund as may be
issued or sold from time to time by the Fund, all in accordance with the Fund's
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 Tax Free Income 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 TAX FREE INCOME FUND
/s/ R.D. Van Antwerp By: /s/ Albert H. Elfner, III
- ---------------------------------- -----------------------------------
President
ATTEST: STATE STREET BANK AND TRUST COMPANY
/s/ Eric Greene A.S. By: /s/ illegible
- ---------------------------------- -----------------------------------
Vice President
<PAGE>
Schedule A
STATE STREET BANK AND TRUST COMPANY
Custodian Fee Schedule
KEYSTONE AMERICA TAX FREE INCOME 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
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 TAX FREE INCOME FUND
AND
STATE STREET BANK AND TRUST COMPANY
This First Amendment to the Custodian, Fund Accounting and Recordkeeping
Agreement by and between KEYSTONE AMERICA HIGH YIELD BOND 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):
"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 Section II, 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 TAX FREE INCOME FUND
/s/ Rosemary D. Van Antwerp By: /s/ Albert H. Elfner, III
- ---------------------------------- -----------------------------------
President
ATTEST: STATE STREET BANK AND TRUST COMPANY
/s/ Eric Greene By: /s/ K. Donelin
- ---------------------------------- -----------------------------------
Vice President
<PAGE>
SECOND
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE AMERICA TAX FREE INCOME FUND
AND
STATE STREET BANK AND TRUST COMPANY
This Second Amendment to the Custodian, Fund Accounting and Recordkeeping
Agreement by and between KEYSTONE AMERICA HIGH YIELD BOND 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.
<PAGE>
ATTEST: KEYSTONE AMERICA TAX FREE INCOME FUND
/s/ R.D. Van Antwerp By: /s/ Albert H. Elfner, III
- ---------------------------------- -----------------------------------
President
ATTEST: STATE STREET BANK AND TRUST COMPANY
/s/ J. Medorf By: /s/ K. Donelin
- ---------------------------------- -----------------------------------
Vice President
<PAGE>
THIRD
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE AMERICA TAX FREE INCOME FUND
AND
STATE STREET BANK AND TRUST COMPANY
This Third Amendment to the Custodian, Fund Accounting and Recordkeeping
Agreement by and between KEYSTONE AMERICA HIGH YIELD BOND 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 8, 1990.
In consideration of the mutual agreements contained herein, State Street
and the Fund hereby agree to amend the Agreement as follows:
1. Section II is amended by deleting Paragraph 8 and by inserting the
following as Paragraph 7A:
" 7A. The Fund shall pay State Street for its services as Custodian such
compensation as specified in the existing Schedule A. Such compensation
shall remain fixed until March 31, 1990 unless this Agreement is terminated
as provided in Paragraph 8A."
2. In all other respects the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by a duly authorized officer as of the
day and year first above written.
ATTEST: KEYSTONE AMERICA TAX FREE INCOME FUND
/s/ Mary E. Couillard By: /s/ T. Drumm
- ---------------------------------- -----------------------------------
President
ATTEST: STATE STREET BANK AND TRUST COMPANY
/s/ J. Medorf By: /s/ K. Donelin
- ---------------------------------- -----------------------------------
Vice President
<PAGE>
FOURTH
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE AMERICA TAX FREE INCOME FUND
AND
STATE STREET BANK AND TRUST COMPANY
This Fourth Amendment to the Custodian, Fund Accounting and Recordkeeping
Agreement by and between KEYSTONE AMERICA TAX FREE INCOME 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 8th day of
February, 1990.
ATTEST: KEYSTONE AMERICA TAX FREE INCOME FUND
/s/ Mary E. Couillard By: /s/ T. Drumm
- ---------------------------------- -----------------------------------
President
ATTEST: STATE STREET BANK AND TRUST COMPANY
/s/ Louis Albright By: /s/ K. Donelin
- ---------------------------------- -----------------------------------
Vice President
<PAGE>
Exhibit 99.10
January 30, 1996
Keystone Tax Free Income Fund
200 Berkeley Street
Boston, Massachusetts 02116-5034
Gentlemen:
I am a Senior Vice President of and General Counsel to Keystone
Investment Management Company (formerly named Keystone Custodian Funds, Inc.),
the investment adviser to Keystone Tax Free Income Fund (the "Fund"). You have
asked for my opinion with respect to the proposed issuance of 2,267,623
additional shares of the Fund.
To my knowledge, a Prospectus is being filed with the Securities and
Exchange Commission (the "Commission") as part of this Post-Effective Amendment
No. 17 to the Fund's Registration Statement, which will cover the public
offering and sale of the Fund shares currently registered with the Commission.
In my opinion, such additional shares, if issued and sold in accordance
with the Fund's Declaration of Trust, as amended, and offering Prospectus, will
be legally issued, fully paid, and nonassessable by the Fund, entitling the
holders thereof to the rights set forth in the Declaration of Trust and subject
to the limitations set forth therein.
My opinion is based upon my examination of the Fund's Declaration of
Trust, as amended, and By-Laws; a review of the minutes of the Fund's Board of
Trustees authorizing the issuance of such additional shares; and the Fund's
Prospectus. In my examination of such documents, I have assumed the genuineness
of all signatures and the conformity of copies to originals.
I hereby consent to the use of this opinion in connection with
Post-Effective Amendment No. 17 to the Fund's Registration Statement, which
covers the registration of such additional shares.
Very truly yours,
/s/ Rosemary D. Van Antwerp
Rosemary D. Van Antwerp
Senior Vice President and
General Counsel
10160746
<PAGE>
Exhibit 99.11
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees and shareholders
Keystone Tax Free Income Fund
(formerly Keystone America Tax Free Income Fund)
We consent to the use of our report dated January 5, 1996, included
herein and to the references to our firm under the captions "FINANCIAL
HIGHLIGHTS" in the prospectus and "ADDITIONAL INFORMATION" in the statement of
additional information.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 30, 1996
<PAGE>
Exhibit 99.15
KEYSTONE AMERICA TAX FREE INCOME FUND
CLASS A DISTRIBUTION PLAN
SECTION 1. Keystone America Tax Free Income 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 Class A shares since inception of the Plan; (ii) to enable the
Principal Underwriter to pay or to have paid to others who sell Class A 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 Class A shares 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 any related agreement shall
provide to the Fund's Board and the Board shall review at least quarterly a
written report of the amounts so expended and the purposes for which such
expenditures were made.
SECTION 7. This Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees, or by vote of a majority of the Fund's outstanding
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 TAX FREE INCOME FUND
Section 1. Keystone Tax Free Income 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 TAX FREE INCOME FUND
Section 1. Keystone Tax Free Income 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 TAX FREE INCOME FUND
CLASS C DISTRIBUTION PLAN
SECTION 1. Keystone America Tax Free Income 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.
EXHIBIT 99.16
<TABLE>
<CAPTION>
TFF MTD YTD ONE YEAR THREE YEAR THREE YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A 12.40% 14.83% 19.14% 6.01%
W/O CDSC 1.97% 15.40% 17.83% 20.11% 6.30%
Beg dates 31-Oct-95 30-Dec-94 30-Nov-94 30-Nov-92 30-Nov-92
Beg Value (no load) 38,368 33,902 33,202 32,571 32,571
End Value (W/O CDSC) 39,122 39,122 39,122 39,122 39,122
End Value (with cdsc) 38,105 38,126 38,804 38,804
beg nav 7.69 7.10 6.99 8.00 8
end nav 7.81 7.81 7.81 7.81 7.81
shares originally purhased 4,989.31 4,774.92 4,749.98 4,071.39 4,071.39
TIME 3
<CAPTION>
TFF FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc 42.24% 7.30% 120.83% 8.24%
W/O CDSC 42.24% 7.30% 120.83% 8.24%
Beg dates 30-Nov-90 30-Nov-90 29-Nov-85 29-Nov-85
Beg Value (no load) 27,504 27,504 17,716 17,716
End Value (W/O CDSC) 39,122 39,122 39,122 39,122
End Value (with cdsc) 39,122 39121.777 39,122 39121.777
beg nav 7.91 7.91 8.19 8.19
end nav 7.81 7.81 7.81 7.81
shares originally purhased 3,477.16 3,477.16 2,163.14 2,163.14
TIME 5 10
</TABLE>
<PAGE>
A
<TABLE>
<CAPTION>
PRICING DATE 11/27/95
............
TOTAL INCOME FOR PERIOD 491,943.46
TOTAL EXPENSES FOR PERIOD 104,520.27
30 DAY YTM 4.75897% AVERAGE SHARES OUTSTANDING 9,413,640.60
............
LAST PRICE DURING PERIOD 10.48
..............................................................................................................
PRICE ST VARIABLE LONG TERM OID TOTAL DIV ADJUSTED
DATE INCOME INCOME INCOME INCOME FACTOR INCOME
......................................................................................................
<C> <C> <C> <C> <C> <C> <C>
10/29/95 190.55 24,851.17 984.91 26,026.63 63.52993570 16,534.70
10/30/95 184.67 24,907.25 985.13 26,077.05 63.53376700 16,567.73
10/31/95 160.63 24,881.17 985.14 26,026.94 63.55367650 16,541.08
11/01/95 147.54 24,809.06 985.03 25,941.63 63.50637282 16,474.59
11/02/95 157.69 24,807.41 984.99 25,950.09 63.53301523 16,486.87
11/03/95 125.76 24,816.16 985.08 25,927.00 63.53094987 16,471.67
11/04/95 125.76 24,816.16 985.08 25,927.00 63.53094987 16,471.67
11/05/95 125.76 24,816.16 985.08 25,927.00 63.53094987 16,471.67
11/06/95 91.80 24,833.81 985.37 25,910.98 63.53174113 16,461.70
11/07/95 90.28 24,848.83 985.57 25,924.68 63.52653702 16,469.05
11/08/95 88.75 24,833.11 985.67 25,907.53 63.53997080 16,461.64
11/09/95 94.09 24,849.77 985.91 25,929.77 63.52850160 16,472.79
11/10/95 83.26 24,660.25 985.79 25,729.30 63.50334890 16,338.97
11/11/95 83.26 24,660.25 985.79 25,729.30 63.50334890 16,338.97
11/12/95 83.26 24,660.25 985.79 25,729.30 63.50334890 16,338.97
11/13/95 199.73 24,652.93 985.54 25,838.20 63.58428328 16,429.03
11/14/95 174.27 24,656.13 985.62 25,816.02 63.57832055 16,413.39
11/15/95 162.99 24,584.37 985.70 25,733.06 63.54179499 16,351.25
11/16/95 322.07 24,390.17 985.87 25,698.11 63.66564079 16,360.87
11/17/95 302.05 24,392.03 986.38 25,680.46 63.64969611 16,345.53
11/18/95 302.05 24,392.03 986.38 25,680.46 63.64969611 16,345.53
11/19/95 302.05 24,392.03 986.38 25,680.46 63.64969611 16,345.53
11/20/95 254.97 24,405.39 986.62 25,646.98 63.71596893 16,341.22
11/21/95 231.70 24,417.60 986.81 25,636.11 63.68892556 16,327.36
11/22/95 201.55 24,413.18 986.72 25,601.45 63.64825492 16,294.88
11/23/95 201.55 24,413.18 986.72 25,601.45 63.64825492 16,294.88
11/24/95 197.33 24,426.20 986.95 25,610.48 63.63321683 16,296.77
11/25/95 197.33 24,426.20 986.95 25,610.48 63.63321683 16,296.77
11/26/95 197.33 24,426.20 986.95 25,610.48 63.63321683 16,296.77
11/27/95 202.68 24,428.46 987.06 25,618.20 63.63292894 16,301.61
.................................................................................................................................
<CAPTION>
PRICE ST VARIABLE DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
..................................................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
10/29/95 190.55 2,551.52 9,478,481.838 10.37 16,534.70 2,551.52 9,478,481.838
10/30/95 184.67 3,434.08 9,480,798.170 10.38 33,102.43 5,985.60 18,959,280.008
10/31/95 160.63 2,775.18 9,477,864.891 10.40 49,643.51 8,760.78 28,437,144.899
11/01/95 147.54 2,932.34 9,450,560.263 10.44 66,118.10 11,693.12 37,887,705.162
11/02/95 157.69 3,253.20 9,447,823.797 10.46 82,604.97 14,946.32 47,335,528.959
11/03/95 125.76 3,034.25 9,448,015.106 10.45 99,076.64 17,980.57 56,783,544.065
11/04/95 125.76 3,034.25 9,448,015.106 10.45 115,548.31 21,014.82 66,231,559.171
11/05/95 125.76 3,034.25 9,448,015.106 10.45 132,019.98 24,049.07 75,679,574.277
11/06/95 91.80 3,913.41 9,445,593.667 10.45 148,481.68 27,962.48 85,125,167.944
11/07/95 90.28 3,252.26 9,447,494.282 10.44 164,950.73 31,214.74 94,572,662.226
11/08/95 88.75 3,251.47 9,443,862.316 10.46 181,412.37 34,466.21 104,016,524.542
11/09/95 94.09 3,253.92 9,437,881.481 10.45 197,885.16 37,720.13 113,454,406.023
11/10/95 83.26 3,022.62 9,425,208.097 10.44 214,224.13 40,742.75 122,879,614.120
11/11/95 83.26 3,022.63 9,425,208.097 10.44 230,563.10 43,765.38 132,304,822.217
11/12/95 83.26 3,022.63 9,425,208.097 10.44 246,902.07 46,788.01 141,730,030.314
11/13/95 199.73 3,025.66 9,424,198.944 10.46 263,331.10 49,813.67 151,154,229.258
11/14/95 174.27 4,076.68 9,419,885.810 10.46 279,744.49 53,890.35 160,574,115.068
11/15/95 162.99 3,210.75 9,400,798.769 10.46 296,095.74 57,101.10 169,974,913.837
11/16/95 322.07 3,925.77 9,391,098.581 10.49 312,456.61 61,026.87 179,366,012.418
11/17/95 302.05 3,753.51 9,384,409.653 10.50 328,802.14 64,780.38 188,750,422.071
11/18/95 302.05 3,753.51 9,384,409.653 10.50 345,147.67 68,533.89 198,134,831.724
11/19/95 302.05 3,753.51 9,384,409.653 10.50 361,493.20 72,287.40 207,519,241.377
11/20/95 254.97 4,632.44 9,380,294.903 10.50 377,834.42 76,919.84 216,899,536.280
11/21/95 231.70 3,925.83 9,365,733.665 10.50 394,161.78 80,845.67 226,265,269.945
11/22/95 201.55 3,780.73 9,363,076.909 10.50 410,456.66 84,626.40 235,628,346.854
11/23/95 201.55 3,780.73 9,363,076.909 10.50 426,751.54 88,407.13 244,991,423.763
11/24/95 197.33 3,831.49 9,354,448.548 10.51 443,048.31 92,238.62 254,345,872.311
11/25/95 197.33 3,831.49 9,354,448.548 10.51 459,345.08 96,070.11 263,700,320.859
11/26/95 197.33 3,831.49 9,354,448.548 10.51 475,641.85 99,901.60 273,054,769.407
11/27/95 202.68 4,618.67 9,354,448.548 10.48 491,943.46 104,520.27 282,409,217.955
</TABLE>
<PAGE>
B
<TABLE>
<CAPTION>
PRICING DATE 11/27/95
.............
TOTAL INCOME FOR PERIOD 174,263.67
TOTAL EXPENSES FOR PERIOD 57,621.72
30 DAY YTM 4.24471% AVERAGE SHARES OUTSTANDING 3,363,564.57
.............
LAST PRICE DURING PERIOD 9.89
.................................................................................................................................
PRICE ST VARIABLE LONG TERM OID TOTAL DIV ADJUSTED
DATE INCOME INCOME INCOME INCOME FACTOR INCOME
.................................................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 10/29/95 190.55 0.00 24,851.17 984.91 26,026.63 22.44580690 5,841.89
2 10/30/95 184.67 0.00 24,907.25 985.13 26,077.05 22.42948860 5,848.95
3 10/31/95 160.63 0.00 24,881.17 985.14 26,026.94 22.40218450 5,830.60
4 11/01/95 147.54 0.00 24,809.06 985.03 25,941.63 22.44930614 5,823.72
5 11/02/95 157.69 0.00 24,807.41 984.99 25,950.09 22.46337000 5,829.26
6 11/03/95 125.76 0.00 24,816.16 985.08 25,927.00 22.46171015 5,823.65
7 11/04/95 125.76 0.00 24,816.16 985.08 25,927.00 22.46171015 5,823.65
8 11/05/95 125.76 0.00 24,816.16 985.08 25,927.00 22.46171015 5,823.65
9 11/06/95 91.80 0.00 24,833.81 985.37 25,910.98 22.46645346 5,821.28
10 11/07/95 90.28 0.00 24,848.83 985.57 25,924.68 22.46513036 5,824.01
11 11/08/95 88.75 0.00 24,833.11 985.67 25,907.53 22.47152791 5,821.82
12 11/09/95 94.09 0.00 24,849.77 985.91 25,929.77 22.55349270 5,848.07
13 11/10/95 83.26 0.00 24,660.25 985.79 25,729.30 22.57442910 5,808.24
14 11/11/95 83.26 0.00 24,660.25 985.79 25,729.30 22.57442910 5,808.24
15 11/12/95 83.26 0.00 24,660.25 985.79 25,729.30 22.57442910 5,808.24
16 11/13/95 199.73 0.00 24,652.93 985.54 25,838.20 22.47780981 5,807.86
17 11/14/95 174.27 0.00 24,656.13 985.62 25,816.02 22.50232380 5,809.20
18 11/15/95 162.99 0.00 24,584.37 985.70 25,733.06 22.53473347 5,798.88
19 11/16/95 322.07 0.00 24,390.17 985.87 25,698.11 22.58869284 5,804.87
20 11/17/95 302.05 0.00 24,392.03 986.38 25,680.46 22.59867543 5,803.44
21 11/18/95 302.05 0.00 24,392.03 986.38 25,680.46 22.59867543 5,803.44
22 11/19/95 302.05 0.00 24,392.03 986.38 25,680.46 22.59867543 5,803.44
23 11/20/95 254.97 0.00 24,405.39 986.62 25,646.98 22.53189829 5,778.75
24 11/21/95 231.70 0.00 24,417.60 986.81 25,636.11 22.53071806 5,776.00
25 11/22/95 201.55 0.00 24,413.18 986.72 25,601.45 22.57656037 5,779.93
26 11/23/95 201.55 0.00 24,413.18 986.72 25,601.45 22.57656037 5,779.93
27 11/24/95 197.33 0.00 24,426.20 986.95 25,610.48 22.57980913 5,782.80
28 11/25/95 197.33 0.00 24,426.20 986.95 25,610.48 22.57980913 5,782.80
29 11/26/95 197.33 0.00 24,426.20 986.95 25,610.48 22.57980913 5,782.80
30 11/27/95 202.68 0.00 24,428.46 987.06 25,618.20 22.57873221 5,784.26
.....................................................................................................................
<CAPTION>
PRICE DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE EXPENSES SHARES PRICE INCOME EXPENSES SHARES
.....................................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 10/29/95 1,580.23 3,376,725.250 9.80 5,841.89 1,580.23 3,376,725.250
2 10/30/95 1,892.60 3,375,096.006 9.80 11,690.84 3,472.83 6,751,821.256
3 10/31/95 1,658.48 3,368,951.090 9.83 17,521.44 5,131.31 10,120,772.346
4 11/01/95 1,716.50 3,368,950.759 9.86 23,345.16 6,847.81 13,489,723.105
5 11/02/95 1,832.80 3,368,746.947 9.87 29,174.42 8,680.61 16,858,470.052
6 11/03/95 1,756.17 3,368,746.947 9.87 34,998.07 10,436.78 20,227,216.999
7 11/04/95 1,756.17 3,368,746.947 9.87 40,821.72 12,192.95 23,595,963.946
8 11/05/95 1,756.17 3,368,746.947 9.87 46,645.37 13,949.12 26,964,710.893
9 11/06/95 2,067.04 3,368,760.245 9.87 52,466.65 16,016.16 30,333,471.138
10 11/07/95 1,833.17 3,369,582.693 9.86 58,290.66 17,849.33 33,703,053.831
11 11/08/95 1,832.43 3,368,603.693 9.88 64,112.48 19,681.76 37,071,657.524
12 11/09/95 1,838.10 3,379,430.584 9.87 69,960.55 21,519.86 40,451,088.108
13 11/10/95 1,762.18 3,379,430.584 9.85 75,768.79 23,282.04 43,830,518.692
14 11/11/95 1,762.18 3,379,430.584 9.85 81,577.03 25,044.22 47,209,949.276
15 11/12/95 1,762.18 3,379,430.584 9.85 87,385.27 26,806.40 50,589,379.860
16 11/13/95 1,757.46 3,360,535.056 9.87 93,193.13 28,563.86 53,949,914.916
17 11/14/95 2,138.09 3,363,042.133 9.87 99,002.33 30,701.95 57,312,957.049
18 11/15/95 1,833.42 3,363,060.370 9.87 104,801.21 32,535.37 60,676,017.419
19 11/16/95 2,091.30 3,361,158.514 9.91 110,606.08 34,626.67 64,037,175.933
20 11/17/95 2,016.75 3,361,158.514 9.91 116,409.52 36,643.42 67,398,334.447
21 11/18/95 2,016.75 3,361,158.514 9.91 122,212.96 38,660.17 70,759,492.961
22 11/19/95 2,016.75 3,361,158.514 9.91 128,016.40 40,676.92 74,120,651.475
23 11/20/95 2,323.79 3,346,479.932 9.91 133,795.15 43,000.71 77,467,131.407
24 11/21/95 2,086.86 3,342,593.350 9.91 139,571.15 45,087.57 80,809,724.757
25 11/22/95 2,029.38 3,350,650.344 9.91 145,351.08 47,116.95 84,160,375.101
26 11/23/95 2,029.38 3,350,650.344 9.91 151,131.01 49,146.33 87,511,025.445
27 11/24/95 1,829.48 3,348,977.902 9.92 156,913.81 50,975.81 90,860,003.347
28 11/25/95 1,829.48 3,348,977.902 9.92 162,696.61 52,805.29 94,208,981.249
29 11/26/95 1,829.48 3,348,977.902 9.92 168,479.41 54,634.77 97,557,959.151
30 11/27/95 2,986.95 3,348,977.902 9.89 174,263.67 57,621.72 100,906,937.053
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
C
PRICING DATE 11/27/95
.............
30 DAY YTM 4.24620%
.............
..................................................................................................
PRICE ST FIXED ZERO COUPON LONG TERM OID TOTAL DIV
DATE INCOME AND DIV INC INCOME INCOME INCOME FACTOR
..................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 10/29/95 190.55 0.00 24,851.17 984.91 26,026.63 14.02425740
2 10/30/95 184.67 0.00 24,907.25 985.13 26,077.05 14.03674440
3 10/31/95 160.63 0.00 24,881.17 985.14 26,026.94 14.04413900
4 11/01/95 147.54 0.00 24,809.06 985.03 25,941.63 14.04432105
5 11/02/95 157.69 0.00 24,807.41 984.99 25,950.09 14.00361478
6 11/03/95 125.76 0.00 24,816.16 985.08 25,927.00 14.00733998
7 11/04/95 125.76 0.00 24,816.16 985.08 25,927.00 14.00733998
8 11/05/95 125.76 0.00 24,816.16 985.08 25,927.00 14.00733998
9 11/06/95 91.80 0.00 24,833.81 985.37 25,910.98 14.00180542
10 11/07/95 90.28 0.00 24,848.83 985.57 25,924.68 14.00833263
11 11/08/95 88.75 0.00 24,833.11 985.67 25,907.53 13.98850128
12 11/09/95 94.09 0.00 24,849.77 985.91 25,929.77 13.91800570
13 11/10/95 83.26 0.00 24,660.25 985.79 25,729.30 13.92222200
14 11/11/95 83.26 0.00 24,660.25 985.79 25,729.30 13.92222200
15 11/12/95 83.26 0.00 24,660.25 985.79 25,729.30 13.92222200
16 11/13/95 199.73 0.00 24,652.93 985.54 25,838.20 13.93790691
17 11/14/95 174.27 0.00 24,656.13 985.62 25,816.02 13.91935565
18 11/15/95 162.99 0.00 24,584.37 985.70 25,733.06 13.92347154
19 11/16/95 322.07 0.00 24,390.17 985.87 25,698.11 13.74566637
20 11/17/95 302.05 0.00 24,392.03 986.38 25,680.46 13.75162846
21 11/18/95 302.05 0.00 24,392.03 986.38 25,680.46 13.75162846
22 11/19/95 302.05 0.00 24,392.03 986.38 25,680.46 13.75162846
23 11/20/95 254.97 0.00 24,405.39 986.62 25,646.98 13.75213279
24 11/21/95 231.70 0.00 24,417.60 986.81 25,636.11 13.78035637
25 11/22/95 201.55 0.00 24,413.18 986.72 25,601.45 13.77518471
26 11/23/95 201.55 0.00 24,413.18 986.72 25,601.45 13.77518471
27 11/24/95 197.33 0.00 24,426.20 986.95 25,610.48 13.78697404
28 11/25/95 197.33 0.00 24,426.20 986.95 25,610.48 13.78697404
29 11/26/95 197.33 0.00 24,426.20 986.95 25,610.48 13.78697404
30 11/27/95 202.68 0.00 24,428.46 987.06 25,618.20 13.78833886
<PAGE>
<CAPTION>
<S> <C>
TOTAL INCOME FOR PERIOD 107,519.47
TOTAL EXPENSES FOR PERIOD 35,541.10
AVERAGE SHARES OUTSTANDING 2,074,894.04
LAST PRICE DURING PERIOD 9.89
<CAPTION>
...........................................................................................................
PRICE ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
...........................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 10/29/95 3,650.04 988.98 2,109,390.939 9.80 3,650.04 988.98 2,109,390.939
2 10/30/95 3,660.37 1,183.51 2,111,787.939 9.81 7,310.41 2,172.49 4,221,178.878
3 10/31/95 3,655.26 1,038.72 2,111,628.486 9.83 10,965.67 3,211.21 6,332,807.364
4 11/01/95 3,643.33 1,075.02 2,107,224.346 9.86 14,609.00 4,286.23 8,440,031.710
5 11/02/95 3,633.95 1,144.57 2,099,673.288 9.87 18,242.95 5,430.80 10,539,704.998
6 11/03/95 3,631.68 1,094.98 2,100,383.256 9.87 21,874.63 6,525.78 12,640,088.254
7 11/04/95 3,631.68 1,094.98 2,100,383.256 9.87 25,506.31 7,620.76 14,740,471.510
8 11/05/95 3,631.68 1,094.98 2,100,383.256 9.87 29,137.99 8,715.74 16,840,854.766
9 11/06/95 3,628.01 1,288.58 2,099,118.256 9.87 32,766.00 10,004.32 18,939,973.022
10 11/07/95 3,631.62 1,142.79 2,100,735.277 9.86 36,397.62 11,147.11 21,040,708.299
11 11/08/95 3,624.08 1,141.66 2,096,554.368 9.88 40,021.70 12,288.77 23,137,262.667
12 11/09/95 3,608.91 1,139.23 2,085,088.680 9.87 43,630.61 13,428.00 25,222,351.347
13 11/10/95 3,582.09 1,087.13 2,083,785.514 9.85 47,212.70 14,515.13 27,306,136.861
14 11/11/95 3,582.09 1,087.13 2,083,785.514 9.85 50,794.79 15,602.26 29,389,922.375
15 11/12/95 3,582.09 1,087.14 2,083,785.514 9.85 54,376.88 16,689.40 31,473,707.889
16 11/13/95 3,601.30 1,087.72 2,083,385.184 9.87 57,978.18 17,777.12 33,557,093.073
17 11/14/95 3,593.42 1,322.91 2,079,899.019 9.88 61,571.60 19,100.03 35,636,992.092
18 11/15/95 3,582.94 1,133.46 2,077,531.087 9.88 65,154.54 20,233.49 37,714,523.179
19 11/16/95 3,532.38 1,281.09 2,044,944.161 9.91 68,686.92 21,514.58 39,759,467.340
20 11/17/95 3,531.48 1,227.22 2,044,943.161 9.92 72,218.40 22,741.80 41,804,410.501
21 11/18/95 3,531.48 1,227.22 2,044,943.161 9.92 75,749.88 23,969.02 43,849,353.662
22 11/19/95 3,531.48 1,227.22 2,044,943.161 9.92 79,281.36 25,196.24 45,894,296.823
23 11/20/95 3,527.01 1,416.63 2,042,121.874 9.92 82,808.37 26,612.87 47,936,418.697
24 11/21/95 3,532.75 1,275.22 2,044,047.576 9.91 86,341.12 27,888.09 49,980,466.273
25 11/22/95 3,526.65 1,239.57 2,044,046.576 9.92 89,867.77 29,127.66 52,024,512.849
26 11/23/95 3,526.65 1,239.57 2,044,046.576 9.92 93,394.42 30,367.23 54,068,559.425
27 11/24/95 3,530.91 1,252.13 2,044,480.673 9.92 96,925.33 31,619.36 56,113,040.098
28 11/25/95 3,530.91 1,252.13 2,044,480.673 9.92 100,456.24 32,871.49 58,157,520.771
29 11/26/95 3,530.91 1,252.13 2,044,480.673 9.92 103,987.15 34,123.62 60,202,001.444
30 11/27/95 3,532.32 1,417.48 2,044,819.871 9.89 107,519.47 35,541.10 62,246,821.315
</TABLE>
<PAGE>
Exhibit 99.19
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/ George S. Bissell
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chief Executive Officer and for
which Keystone Custodian Funds, Inc. serves as Adviser or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and in my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Director/Trustee,
President and Chief
Executive Officer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director, Trustee or officer and for which Keystone
Custodian Funds, Inc. serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and in my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ J. Kevin Kenely
J. Kevin Kenely
Treasurer
Dated: December 15, 1995
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director 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 TAX FREE INCOME FUND CLASS A
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 134,274,310
<INVESTMENTS-AT-VALUE> 145,476,396
<RECEIVABLES> 2,919,958
<ASSETS-OTHER> 21,044
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 148,417,398
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 400,350
<TOTAL-LIABILITIES> 400,350
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 87,615,881
<SHARES-COMMON-STOCK> 9,370,675
<SHARES-COMMON-PRIOR> 10,719,229
<ACCUMULATED-NII-CURRENT> 92,003
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (4,090,501)
<ACCUM-APPREC-OR-DEPREC> 10,565,391
<NET-ASSETS> 94,182,774
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,271,765
<OTHER-INCOME> 0
<EXPENSES-NET> (1,133,646)
<NET-INVESTMENT-INCOME> 5,138,119
<REALIZED-GAINS-CURRENT> (495,315)
<APPREC-INCREASE-CURRENT> 11,884,780
<NET-CHANGE-FROM-OPS> 16,527,584
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,113,059)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 224,063
<NUMBER-OF-SHARES-REDEEMED> (1,843,241)
<SHARES-REINVESTED> 270,624
<NET-CHANGE-IN-ASSETS> (1,508,583)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (29,573)
<OVERDIST-NET-GAINS-PRIOR> (3,554,619)
<GROSS-ADVISORY-FEES> (590,003)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (1,146,624)
<AVERAGE-NET-ASSETS> 96,031,701
<PER-SHARE-NAV-BEGIN> 8.93
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 1.13
<PER-SHARE-DIVIDEND> (0.52)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.05
<EXPENSE-RATIO> 1.19
<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 TAX FREE INCOME FUND CLASS B
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 134,274,310
<INVESTMENTS-AT-VALUE> 145,476,396
<RECEIVABLES> 2,919,958
<ASSETS-OTHER> 21,044
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 148,417,398
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 400,350
<TOTAL-LIABILITIES> 400,350
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,672,433
<SHARES-COMMON-STOCK> 3,356,230
<SHARES-COMMON-PRIOR> 3,251,836
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (169,764)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,276,552)
<ACCUM-APPREC-OR-DEPREC> 1,222,409
<NET-ASSETS> 33,448,526
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,091,504
<OTHER-INCOME> 0
<EXPENSES-NET> (622,239)
<NET-INVESTMENT-INCOME> 1,469,265
<REALIZED-GAINS-CURRENT> (147,809)
<APPREC-INCREASE-CURRENT> 3,858,056
<NET-CHANGE-FROM-OPS> 5,179,513
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,553,279)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 647,077
<NUMBER-OF-SHARES-REDEEMED> (625,195)
<SHARES-REINVESTED> 82,512
<NET-CHANGE-IN-ASSETS> 4,588,113
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (119,945)
<OVERDIST-NET-GAINS-PRIOR> (1,114,371)
<GROSS-ADVISORY-FEES> (196,944)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (626,903)
<AVERAGE-NET-ASSETS> 32,043,656
<PER-SHARE-NAV-BEGIN> 8.88
<PER-SHARE-NII> 0.44
<PER-SHARE-GAIN-APPREC> 1.11
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> 1.96
<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 TAX FREE INCOME FUND CLASS C
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 134,274,310
<INVESTMENTS-AT-VALUE> 145,476,396
<RECEIVABLES> 2,919,958
<ASSETS-OTHER> 21,044
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 148,417,398
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 400,350
<TOTAL-LIABILITIES> 400,350
<SENIOR-EQUITY> 0
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<NET-CHANGE-IN-ASSETS> (2,843,966)
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</TABLE>
